UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ________ to _________
Commission file number 001-04321
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrants’ telephone number, including area code: (877 ) 236-8632
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer.” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
☒ | Smaller reporting company | ||||||||||
Emerging growth company | |||||||||||
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 pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2022, the last business day of the Registrant’s most recently completed second quarter, the aggregate market value of the voting and non-voting common stock held by non-affiliates, computed by reference to the closing price of $1.16 reported on the New York Stock Exchange, was approximately $8.2 million. For the purposes of this calculation, shares of common stock beneficially owned by each executive officer, director, and holder of more than 10% of our common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 29, 2023, 39,957,187 shares of the registrant’s Class A Common Stock; 25,699,464 of the registrant’s Class B Common Stock; and 28,443,522 warrants to purchase shares of the registrant’s Class A Common Stock, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
| None | ||
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends and restates certain language in Items 1, 1A, 7, 8, 9B and 15 of the Annual Report on Form 10-K of Digital Media Solutions, Inc. (the “Company”) for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 31, 2023 (the “Original Filing”). The updated disclosures relate to the Company’s issuance of Series A and Series B convertible preferred stock and the consummation of the ClickDealer acquisition, each on March 30, 2023, in the Items described above. Due to a software error in connection with the Original Filing, certain portions of the final text of the Form 10-K and certain exhibits were not included in the Original Filing. This Amendment is being filed for the sole purpose of providing such final text and the exhibits that were not included due to the software error, and to uncheck the Item 404(b) box on the cover that was inadvertently checked as we are not required to include an attestation by our independent registered public accounting firm with respect to management’s assessment of internal control over financial reporting. For the convenience of the reader, this Amendment sets forth the Original Filing in its entirety, and not just those portions that have been amended pursuant to this Amendment. Except as noted above, this Amendment does not update or modify any disclosures in or reflect any events occurring after the filing of the Original Filing.
Digital Media Solutions, Inc.
Table of Contents
| Business. | ||||||||
| Risk Factors. | ||||||||
| Unresolved Staff Comments. | ||||||||
| Properties. | ||||||||
| Legal Proceedings. | ||||||||
| Mine Safety Disclosures. | ||||||||
| Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | ||||||||
| [Reserved]. | ||||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. | ||||||||
| Quantitative and Qualitative Disclosures About Market Risk. | ||||||||
| Financial Statements and Supplementary Data. | ||||||||
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. | ||||||||
| Controls and Procedures. | ||||||||
| Other Information. | ||||||||
| Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. | ||||||||
| Directors, Executive Officers and Corporate Governance. | ||||||||
| Executive Compensation. | ||||||||
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | ||||||||
| Certain Relationships and Related Transactions, and Director Independence. | ||||||||
| Principal Accounting Fees and Services. | ||||||||
| Exhibits and Financial Statement Schedules. | ||||||||
| Valuation and Qualifying Accounts and Reserves. | ||||||||
| Form 10-K Summary. | ||||||||
Cautionary Note Regarding Forward-Looking Statements
References in this document to the “Registrant,” “DMS Inc.,” “DMS,” the “Company,” “we,” “management,” “us” or “our” refers to Digital Media Solutions, Inc. and its consolidated subsidiaries, except where the context otherwise requires or indicates.
This Annual Report, particularly Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II. Item 1A. Risk Factors, and the documents we incorporate into this Annual Report contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements and the Private Securities Litigation Reform Act of 1955. These forward-looking statements are often identified by words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “assume,” “likely,” “predicts,” “potential,” “continue,” and similar expressions. These forward-looking statements include, without limitation, DMS’s expectations with respect to its and ClickDealer’s future performance and its ability to implement its strategy, and are based on the beliefs and expectations of our management team from the information available at the time such statements are made. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside DMS’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) DMS’s ability to attain the
expected financial benefits from the ClickDealer transaction; (2) any impacts to the ClickDealer business from our acquisition thereof, (3) the COVID-19 pandemic or other public health crises; (4) management of our international expansion as a result of the ClickDealer acquisition; (5) changes in client demand for our services and our ability to adapt to such changes; (6) the entry of new competitors in the market; (7) the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; (8) the ability to maintain, grow and protect the data DMS obtains from consumers and advertisers, and to ensure compliance with data privacy regulations in newly entered markets; (9) the performance of DMS’s technology infrastructure; (10) the ability to protect DMS’s intellectual property rights; (11) the ability to successfully source, complete and integrate acquisitions; (12) the ability to improve and maintain adequate internal controls over financial and management systems, and remediate material weaknesses therein, including any integration of the ClickDealer business; (13) changes in applicable laws or regulations and the ability to maintain compliance; (14) our substantial levels of indebtedness; (15) volatility in the trading price on the NYSE of our common stock and warrants; (16) fluctuations in value of our private placement warrants; and (17) other risks and uncertainties indicated from time to time in DMS’s filings with the SEC, including those under “Risk Factors” in this Annual Report and in DMS’s subsequent filings with the SEC.
There may be additional risks that we consider immaterial or which are unknown, and it is not possible to predict or identify all such risks.
DMS cautions that the foregoing list of factors is not exclusive. In addition, DMS cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. DMS does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.
PART I
Item 1. Business.
Overview
Digital Media Solutions, Inc. (“DMS Inc.” or the “Company” or “DMS” or “us”, “our” or “we”) is a leading provider of technology enabled digital performance advertising solutions connecting consumers and advertisers. Our performance-based ROI-driven business model derisks ad spend for advertisers which in turn positions DMS to grow as digital ad spend accelerates because advertisers are shifting more of their ad spend from traditional channels like TV and radio to digital channels, including social media, search, display, e-mail, push and connected TV. As used in this Annual Report, the “Company” refers to DMS Inc. and its consolidated subsidiaries, (including its wholly-owned subsidiary, CEP V DMS US Blocker Company, a Delaware corporation (“Blocker”)).
The Company is headquartered in Clearwater, Florida. The Company primarily operates and derives most of its revenues in the United States.
Refer to Note 2. Business Combination in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this Annual Report for an overview of the Company’s background.
Recent Developments
Strategic Alternatives
On August 16, 2021, we commenced a process to evaluate potential strategic alternatives to maximize shareholder value, and as part of that process, have been evaluating a full range of strategic, operational and financial alternatives. On September 8, 2022, our board of directors received an offer from Prism Data, LLC, an investment vehicle affiliated with our CEO Joseph Marinucci and our COO Fernando Borghese, to acquire all of our outstanding Class A common stock of DMS for $2.50 per share in cash. On March 6, 2023, the Company issued a press release announcing that its Board of Directors had concluded its strategic review and that the previously disclosed non-binding offer by Prism Data LLC to acquire the Company had been withdrawn. For further information, refer to the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2023.
Recent Business Acquisition
Our acquisitions in the past few years have enabled us to expand our reach into high quality proprietary targeted media solutions in a wide range of industries and include the following.
On May 10, 2022, the Company acquired Traverse Data, Inc. (“Traverse”). Traverse is a marketing and advertising technology company. The Company paid cash consideration of $2.5 million upon closing of the transaction. The transaction also includes up to $0.5 million in contingent consideration, subject to the achievement of certain milestones, which is payable in cash 15 months after the acquisition date.
On March 30, 2023, the Company acquired certain assets of G.D.M. Group Holding Limited, a company organized under the laws of Cyprus (“ClickDealer Cyprus”), ClickDealer Asia Pte., Ltd., a company organized in Singapore (“ClickDealer Singapore”), GDMgroup Asia Limited, a company organized in Hong Kong (“ClickDealer HongKong”) and ClickDealer Europe BV, a company organized in the Netherlands (“ClickDealer Netherlands”, and collectively with ClickDealer Cyprus, ClickDealer Singapore, ClickDealer Hong Kong, and any other related entity “ClickDealer”). The Company paid cash consideration of $35 million upon closing of the transaction. The transaction also includes up to $10 million in contingent consideration, subject to the achievement of certain milestones, to be paid two years after the acquisition date, subject to the operation of the acquired assets reaching certain milestone. The contingent consideration may be paid in cash or the Company’s Class A Common Stock, to be mutually agreed by DMS and the applicable recipients. For further information, refer to the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2023.
Private Placement of Convertible Preferred Stock and Warrants
On March 29, 2023, the Company entered into a securities purchase agreement (the “SPA”) with certain investors to purchase 80 thousand shares of Series A convertible redeemable Preferred stock (“Series A Preferred stock”) and 60 thousand shares of Series B convertible redeemable Preferred stock (“Series B Preferred stock”, and together with the Series A Preferred stock, the “Preferred Stock”), for an aggregate purchase price of $14.0 million (the “Preferred Offering”), including $6.2 million of related party participation. The Preferred stock was issued at a 10% Original Issue Discount (OID) to the aggregate stated value of $15.5 million. The Company also issued the purchasers in the Preferred Offering warrants to acquire 14.4 million shares of Common Stock, with a 5-year maturity and an exercise price equal to $0.6453, subject to adjustment and the beneficial ownership limitations set forth in the applicable warrant agreement. See Note 17. Subsequent Events for further details.
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Proceeds were $13.1 million, net of transaction costs, which the Company received on March 30, 2023, and used to fund its equity cure (see Note 8. Debt) and consummate the ClickDealer acquisition.
Auditor Change
On August 16, 2022, following a competitive selection process, the Company’s Audit Committee approved the engagement of Grant Thornton LLP (“GT”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. Effective on that same date, the Company dismissed Ernst & Young (“EY”) from that role. For further information, refer to the Company’s Current Report on Form 8-K filed with the SEC on August 19, 2022.
Human Capital
Our people are vital to our success in the digital marketing services industry. As a human-capital business, the long-term success of our firm depends on our people. We strive to make our employees feel as though they are a number one priority before other interests of the Company. Our goal is to ensure that we have the right talent, in the right place, at the right time. We do that through our commitment to attracting, developing and retaining our associates.
We strive to attract individuals who are people-focused and share our values. We have competitive programs dedicated to selecting new talent and enhancing the skills of our associates. In our recruiting efforts, we strive to have a diverse group of candidates to consider for our roles. To that end, we have strong relationships with a variety of industry associations that represent diverse professionals and with diversity groups on university and college campuses where we recruit.
We have designed a compensation structure, including an array of benefit plans and programs, that we believe is attractive to our current and prospective associates. We also offer our associates the opportunity to participate in a variety of professional and leadership development programs. Our program includes a variety of industry, product, technical, professional, business development, and leadership trainings.
We seek to retain our associates by using their feedback to create and continually enhance programs that support their needs. We have formal annual goal setting and performance review processes for our employees. We have a values-based culture, an important factor in retaining our associates, which is memorialized in a culture “blueprint” that is communicated to all associates. Our training to share and communicate our culture to all associates plays an important part in this process. We are committed to having a diverse workforce, and an inclusive work environment is a natural extension of our culture. We have recently renewed our commitment to ensuring that all our associates feel welcomed, valued, respected and heard so that they can fully contribute their unique talents for the benefit of clients, their careers, our firm and our communities.
We take a proactive approach to philanthropy and driving meaningful change in the world, holding ourselves accountable to leading by example. On an individual level, we provide paid time-off opportunities for volunteering or donating to a cause that matters to each person. We monitor and evaluate various turnover and attrition metrics throughout our management teams. Our annualized voluntary turnover is relatively low, as is the case for turnover of our top performers, a record which we attribute to our strong values-based culture, commitment to career development, and attractive compensation and benefit programs.
Since our technologies can be securely accessed remotely, during the ongoing COVID-19 pandemic, we transitioned to a fully remote workforce. Ongoing feedback from employee surveys indicate that our talent has embraced, and prefers to continue, working in a remote environment. We have prioritized virtual communications, wellness programs, and work-life balance adaptation that has increased engagement and supports our trust-first mentality. Recognizing safety as a priority, once safe to return, our people will have the opportunity to work at our headquarters.
The Company is headquartered in Clearwater, Florida with approximately 454 employees as of December 31, 2022.
Disaggregation of Revenue
The Company has three material revenue streams, which represents disaggregation of services for: (1) customer acquisition, (2) managed services and (3) software services (“SaaS”).
•Customer acquisition - The process of identifying and cultivating potential customers (also known as customers or near customers otherwise known as leads) for our customer’s business products or services through impressions, clicks and direct messaging (email, push and text/SMS or short message service) based on predefined qualifying characteristics specified by the customer. Revenue is earned based on the cost per action (“CPA”) defined within the executed insertion order (“IO”) and/or agreed to with the customer.
•Managed Services - The management of a customer’s marketing spend and performance, through the utilization of proprietary software delivery platform. Revenue in certain cases, is earned based on a percentage (%) of the customer’s total media spend, which is recognized as a net revenue, while other revenue is recognized on a gross basis.
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•Software Services (“SaaS”) - The application of propriety performance marketing software, which tracks lead counts, sources and channels, pricing and overall spend for each client. The software allows online real-time management of marketing activities and spend to attract potential applicants, sourced through various digital online methods. Revenue is earned by licensing the software to customers under a Software Services (“SaaS”) based contract.
Segments Revenue
We classify our operations into three reportable segments: Brand Direct, Marketplace and Technology Solutions.
Under the Brand Direct reportable segment, revenues are earned from fees we charge to our customers when we advertise directly for them under their brand name. In servicing our customers under this reportable segment, the end consumer of our customer interacts directly with our customer and does not interface with the Company’s brands at any point during the transaction process. Consumer journeys inside the Brand Direct reportable segment utilize the Company’s propriety tool set of Data, Process and Technology which operates in the background of these journeys.
Under the Marketplace reportable segment, we earn revenues from fees we charge to our customers when we advertise their business under our brand name. The end consumer interfaces directly with our brand and may be redirected to our customer based on information obtained during the transaction process. The Marketplace reportable segment utilizes the Company’s same propriety tool set of Data, Process and Technology as Brand Direct which operates in the background of these journeys.
Under the Technology Solutions reportable segment, we earn revenues from fees for other services provided to our customers such as the management of digital media services on behalf of our customers as well as our SaaS offering. Revenue in this segment is recognized when control of goods or services is transferred to customers, in amounts that reflect the consideration the Company expects to be entitled to in exchange for those goods and services. Upon satisfaction of the associated performance obligation, the Company recognizes revenue.
Industry Overview
The Company operates as a digital performance marketing engine for companies across numerous industries, including insurance, consumer finance, e-commerce, home services, brand performance, health and wellness and education & career placements. We also operate in managed services that provide better access and control over the advertising spend of our customers, including marketing automation and SaaS. The vertical agnostic brand direct solutions approach allows the number of verticals we serve to expand the Total Addressable Market (“TAM”), and the balance of business across these industries protects our revenue stream from unpredictable market shifts, which we believe, in comparison, is a significant risk faced by vertical-specific, marketplace only companies.
Business Strategies
The Company is a premier digital performance-based marketing company offering a diversified array of digital advertising solutions. We are a major contributor to the structural shift from traditional media to the online and digital arena currently ongoing in the advertising industry. Through our cutting-edge technologies and multi-faceted platforms, the Company enables advertising customers to not only acquire new customers but also to more closely track, monitor and adjust marketing campaigns based on their return on investment.
Competition
The Company is a brand-direct solutions provider that offers a diversified set of advertising and customer acquisition solutions to a wide variety of industries, most comparable to adtech firms such as The TradeDesk, Inc. (NASDAQ:TTD) and LiveRamp Holdings, Inc. (NYSE: RAMP). As a complement to our industry-agnostic offerings, the Company has also developed marketplace solutions that are more vertically oriented to key markets such as insurance, finance, education, health and wellness, which are most comparable to marketplaces offered by EverQuote, Inc. (NASDAQ: EVER), SelectQuote, Inc. (NYSE: SLQT), LendingTree, Inc. (NASDAQ: TREE), QuinStreet, Inc. (NASDAQ: QNST), CarGurus, Inc. (NASDAQ: CARG), and eHealth, Inc. (NASDAQ: EHTH) but with less risk exposure to a single industry.
Customer Concentration
For the years ended December 31, 2022 and 2021, one advertising customer accounted for approximately 23.2% and 13.5% of our total revenues, respectively. We market for advertisers on our platform primarily through utilizing impressions, ad clicks, direct messaging to consumers, leads, and email to sales conversions, directly measuring results and providing accountability. Our initial contract terms for customer acquisition are typically one to three months. Managed services are typically signed for one-month terms with auto-renewal for subsequent period and revenue by licensing the Software to customers under SaaS-based contracts, which is typically one-month with auto-renewal for subsequent months. The large majority of our customers pay on a monthly basis. Our services are billed on a monthly basis for the services provided in the previous month. Our pricing method reflects the price and quantities for the service provided, which is driven by the volume of customer acquisition, includes access to our direct service, technical support and managed services infrastructure. We generally recognize revenues from our leads, services and software platform ratably over the contractual term of the arrangement. We do not charge third-
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party suppliers who are on our platform to transact with our customers. We believe this approach helps attract more suppliers to our platform and increases the value of our platform.
Our Business
Management of high-quality targeted media sources
In the digital marketing solutions industry, it is essential that advertising service providers are able to acquire and retain high quality media sources that attract targeted users for advertiser customers on a large scale at low cost. This can be particularly challenging given the dynamic nature of the media resources available to advertising service providers. Frequent updates in search engine algorithms and consolidation of media sources result in high costs of retaining high quality media sources. This, combined with high levels of competition by a large number of service providers, drives up costs within the advertising industry.
To combat this challenge, we have built out a channel-agnostic media team that leverages our proprietary first party data asset to buy media, on both the Brand Direct and Marketplace solutions we offer, to connect ad units with consumers who have probability and intent to interact with those ad units. Additionally, we have formed strategic partnerships through acquisitions with other advertising and proprietary media marketing software providers to increase our access to high quality targeted media. Our acquisition of Traverse provide us access to proprietary software to drive meaningful engagement with advertising targets.
Regulation
Our domestic business is subject to a significant number of federal, state and local laws and regulations and our international operations are regulated by various foreign governments and international bodies. We conduct marketing activities, directly and indirectly, via telephone, email and/or through other online and offline marketing channels, which activities are governed by numerous federal and state regulations, such as the Telemarketing Sales Rule, state telemarketing laws, federal and state privacy laws, Europe’s General Data Protection Regulation, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act, the Telephone Consumer Protection Act, or TCPA, and the Federal Trade Commission Act and its accompanying regulations and guidelines, among others. We are also subject to regulation as a licensed insurance agency for Medicare insurance policies in certain states. In addition, we are subject to laws, rules and regulations regarding data collection, privacy and data security, charitable fundraising, and sweepstakes and promotions, among others. Some of our clients operate in regulated industries, such as financial services, credit repair, consumer and mortgage lending, healthcare and medical services and secondary education, and, to the extent applicable, we must comply with the laws, rules and regulations applicable to marketing activities in those industries.
Macroeconomic conditions
During 2020 and 2021, the U.S. economy increasingly suffered the adverse effects of the COVID-19 economic and health crisis. Macroeconomic factors, such as the level of interest rates, credit availability and the level of unemployment, including during economic downturns and global pandemics, all had an adverse impact on our customers’ costs of services and their demand for our services and our revenues. By late 2021, the auto insurance industry began to experience significant economic macro headwinds which resulted in 14 of the 20 largest private auto insurers experiencing double-digit declines in loss ratios.
Additionally, in 2022, persistent inflationary pressures leading to rising costs across all goods and services continued to intensify recessionary fears. Exceptional inflation and supply chain issues have continued to plague the insurance market as we experience unparalleled market volatility. Specifically, within the auto insurance industry, increased claims costs continue to suppress insurance carrier marketing spend extending the expected recovery as carriers remain cautious.
These and other difficulties faced by our customers have magnified due to hardships in the economy which could cause a reduction in their advertising budgets as they seek to manage expenses in general. Conversely, to an extent, we believe that the digital media advertising industry is also counter-cyclical to macroeconomic conditions since some customers increase their advertising and promotion efforts in times where consumers are more difficult to acquire. This enables us to ease the downward impact on our revenues during a downturn in the economy.
Role of Board of Directors in Risk Oversight Process
Our board of directors has responsibility for the oversight of our risk management and, either as a whole or through its audit committee, regularly discusses with management our risk management processes and major risk exposures, including their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from members of senior management to enable our board of directors to understand our risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, cybersecurity, strategic and reputational risk.
Available Information
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Our website is www.DigitalMediaSolutions.com. Interested readers can access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Act, through the SEC website at www.sec.gov and searching with our ticker symbol “DMS.” Such reports are generally available the day they are filed. Upon request, we will furnish interested readers a paper copy of such reports free of charge by contacting Investor Relations at investors@dmsgroup.com.
Item 1A. Risk Factors.
Summary of Risk Factors
The following summarizes the significant factors, events and uncertainties that could create risk with an investment in our securities. The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, growth, strategy, financial condition, operating results, cash flows, liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. We group these risk factors into four categories:
–Risks related to our business:
•changes in client demand for our services and our ability to adapt to such changes;
•we participate in highly competitive markets, and the entry of new competitors in these markets;
•the ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions;
•dependence on search engines, display advertising, social media, email, and content-based online advertising and other online sources to attract consumers;
•if our messages are not delivered and accepted or are routed by messaging providers less favorably than other messages, or if our sites are not accessible or are treated disadvantageously by internet service providers;
•the ability to maintain, grow and protect the data DMS obtains from consumers and advertisers;
•the performance of DMS technology infrastructure;
•operating our business outside of the U.S. makes us susceptible to the various risks of doing business internationally, such lower revenues, increase in costs, reduction in profits, disruption to business or damage to reputation;
•the ability to successfully source and complete acquisitions and to integrate the operations of companies DMS acquires;
•our substantial levels of indebtedness, and maintaining covenants under our credit facility;
•litigation could distract management, increase our expenses or subject us to material money damages and other remedies;
•the change in fair value of our private placement warrants at each reporting period and the potential that such change may adversely affect our net (loss) income in our consolidated statements of operations;
•dependence on key personnel to operate our business, and our management team has limited experience with international operations and managing a public company;
•our goodwill or intangibles assets may become impaired and the potential that such change may adversely affect our net (loss) income in our consolidated statements of operations; and
•foreign exchange rate fluctuations could result in significant foreign currency gains and losses and affect our results of operations.
–Risks related to intellectual property:
•the ability to protect DMS intellectual property rights; and
•we may face litigation and liability due to claims of infringement of third-party intellectual property rights.
–Risks related to government regulation:
•our businesses are heavily regulated, and are subject to a variety of international, federal, state, and local laws;
•federal, state and international laws regulating telephone and messaging marketing practices impose certain obligations on advertisers, which could reduce our ability to expand our business; and
•changes in applicable laws or regulations and the ability to maintain compliance.
–Risks related to our capital stock and warrants and other business risks:
•we are a holding company and our only material asset is our indirect interest in DMS, and we are accordingly dependent upon DMS distributions;
•we are required under the Tax Receivable Agreement to make payments to the Majority Shareholders (as defined below) in respect of certain tax benefits and certain refunds of pre-Closing taxes of DMS and Blocker Corp, and such payments may be substantial;
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•the ability to improve and maintain adequate internal controls over financial and management systems;
•our large shareholders have significant influence over us;
•volatility in the trading price on NYSE of our common stock and warrants; and
•fluctuations in value of our private placement warrants.
Risks Related to Our Business
Our business is dependent on our relationships with advertisers with few long-term contractual commitments. If advertisers stop purchasing consumer engagement or referrals from us, decrease the amount they are willing to spend per engagement or referral, or if we are unable to establish and maintain new relationships with advertisers, our business, results of operations and financial condition could be materially adversely affected.
A substantial majority of our revenue is derived from sales of consumer engagements in the forms of referrals to our advertisers clients. Our relationships with advertisers are dependent on our ability to deliver quality engagements and referrals in the form of clicks, leads, calls and customers at attractive volumes and prices. If advertisers are not able to acquire their preferred engagements and referrals in our marketplaces and through our brand direct solutions, they may stop buying engagements and referrals from us or may decrease the amount they are willing to spend for engagements and referrals. Our agreements with advertisers are almost entirely short-term agreements, and advertisers can stop participating in our marketplaces and through our brand direct solutions at any time with no notice. As a result, we cannot guarantee that advertisers will continue to work with us or, if they do, the number of engagements and referrals they will purchase from us, the price they will pay per engagement and referral or their total spend with us. In addition, we may not be able to attract new advertisers to our marketplaces and our brand direct solutions or increase the amount of revenue we earn from advertisers over time.
If we are unable to maintain existing relationships with advertisers in our marketplaces and through our brand direct solutions or are unable to add new advertisers, we may be unable to offer our consumers the experience they expect. This deficiency could reduce consumers’ confidence in our services, making us less popular with consumers. As a result, consumers could cease to use us or use us at a decreasing rate.
Customer Concentration Creates Risk for Our Business.
For the years ended December 31, 2022 and 2021, one advertising customer accounted for approximately 23.2% and 13.5% of our total revenues, respectively. We expect that sales to this advertising customer will continue to be a significant contributor to our Net revenue. Certain parts of our business may continue to have a high customer concentration and depend disproportionately on a few large customers. To the extent that such a large customers fail to meet their purchase commitments, change their ordering patterns or business strategies, or otherwise reduce their purchases or stop purchasing our products, or if we experience difficulty in meeting the high demand by these larger customers for our products, our revenues and results of operations could be adversely affected.
We depend on search engines, display advertising, social media, email, content-based online advertising and other online sources to attract consumers to our websites, marketplaces, or through our brand direct solutions and if we are unable to cost-effectively attract consumers and convert them into sales for our advertisers, our business and financial results may be harmed.
Our success depends on our ability to attract online consumers to our websites, marketplaces or through our brand direct solutions and convert those consumers into sales for our advertisers. We depend, in part, on search engines, display advertising, social media, email, content-based online advertising and other online sources for our website traffic. We are included in search results as a result of both paid search listings, where we purchase specific search terms that result in the inclusion of our advertisement and, separately, organic searches that depend upon the content on our sites.
Search engines, social media platforms and other online sources often revise their algorithms and introduce new advertising products. If one or more of the search engines or other online sources on which we rely for website traffic were to modify its general methodology for how it displays our advertisements, resulting in fewer consumers clicking through to our websites, our business could suffer. In addition, if our online display advertisements are no longer effective or are not able to reach certain consumers due to consumers’ use of ad-blocking software, our business could suffer.
If one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumer traffic to our websites, and a decrease in consumer traffic to our websites, for any reason, could have a material adverse effect on our business, financial condition and results of operations. Consumer traffic to our websites and the volume of sales generated by consumer traffic varies and can decline from to time. Additionally, even if we are successful in generating traffic to our websites, we may not be able to convert these visits into consumer sales.
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We currently compete with numerous other online marketing companies, and we expect that competition will intensify. Some of these existing competitors may have more capital or complementary products or services than we do, and they may leverage their greater capital or diversification in a manner that adversely affects our competitive position. In addition, other newcomers, including major search engines and content aggregators, may be able to leverage their existing products and services to our disadvantage. We may be forced to expend significant resources to remain competitive with current and potential competitors. If any of our competitors are more successful than we are at attracting and retaining consumers, or if we are unable to effectively convert visits into consumer sales, our business, financial condition and results of operations could be materially adversely affected.
We compete with other media for advertising spend from our advertisers, and if we are unable to maintain or increase our share of the advertising spend of our advertisers, our business could be harmed.
We compete for advertising spend with traditional offline media such as television, billboards, radio, magazines and newspapers, as well as online sources such as websites, social media and websites dedicated to providing information comparable to that provided in our websites, marketplaces and through our brand direct solutions. Our ability to attract and retain advertisers, and to generate advertising revenue from them, depends on a number of factors, including:
•the ability of our advertisers to earn an attractive return on investment from their spending with us;
•our ability to increase the number of consumers using our marketplaces and brand direct solutions;
•our ability to compete effectively with other media for advertising spending; and
•our ability to keep pace with changes in technology and the practices and offerings of our competitors.
We may not succeed in retaining or capturing a greater share of our advertisers’ advertising spending compared to alternative channels. If our current advertisers reduce or end their advertising spending with us and we are unable to increase the spending of our other advertisers or attract new advertisers, our revenue and business and financial results would be materially adversely affected.
In addition, advertising spend remains concentrated in traditional offline media channels. Some of our current or potential advertisers have little or no experience using the internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the internet. The adoption of online marketing may require a cultural shift among advertisers as well as their acceptance of a new way of conducting business, exchanging information and evaluating new advertising and marketing technologies and services. This shift may not happen at all or at the rate we expect, in which case our business could suffer. Furthermore, we cannot assure you that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.
If consumers do not find value in our services or do not like the consumer experience on our platform, the number of engagement or referrals in our marketplaces and through our brand direct solutions may decline, and our business, results of operations and financial condition could be materially adversely affected.
If we fail to provide a compelling experience to our consumers through our web platforms (i.e., our desktop and mobile experiences which include both tablets and phones), the number of consumer engagements or referrals purchased from us will decline, and advertisers may terminate their relationships with us or reduce their spending with us. If advertisers stop offering products in our marketplaces and through our brand direct solutions, we may not be able to maintain and grow our consumer traffic, which may cause other advertisers to stop using our marketplaces and our brand direct solutions. We believe that our ability to provide a compelling web platform experience is subject to a number of factors, including:
•our ability to maintain marketplaces and brand direct solutions for consumers and advertisers that efficiently captures user intent and effectively delivers relevant information to each individual consumer;
•our ability to continue to innovate and improve our marketplaces and our brand direct solutions;
•our ability to launch new vertical offerings that are effective and have a high degree of consumer and advertiser engagement;
•our ability to maintain the compatibility of our mobile applications with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and
•our ability to access a sufficient amount of data to enable us to provide relevant information to consumers. If the use of our marketplaces and brand direct solutions declines or does not continue to grow, our business and operating results would be harmed.
We rely on the data provided to us by consumers and advertisers to improve our product and service offerings, and if we are unable to maintain or grow such data we may be unable to provide consumers with an experience that is relevant, efficient and effective, which could adversely affect our business.
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Our business relies on the data provided to us by consumers and advertisers using our brand direct, marketplace and technology solutions. The large amount of information we use in operating our marketplaces and brand direct solutions is critical to the web platform experience we provide for consumers. If we are unable to maintain or grow the data provided to us, the value that we provide to consumers and advertisers using our marketplaces and our brand direct solutions may be limited. In addition, the quality, accuracy and timeliness of this information may suffer, which may lead to a negative experience for consumers using our marketplaces and our brand direct solutions and could materially adversely affect our business and financial results.
If our emails are not delivered and accepted or are routed by email providers less favorably than other emails, or if our sites are not accessible or treated disadvantageously by internet service providers, our business may be substantially harmed.
If email providers or internet service providers, or ISPs, implement new or more restrictive email or content delivery or accessibility policies, including with respect to net neutrality, it may become more difficult to deliver emails to consumers or for consumers to access our websites and services. For example, certain email providers, including Google, may categorize our emails as “promotional,” and these emails may be directed to an alternate, and less readily accessible, section of a consumer’s inbox. If email providers materially limit or halt the delivery of our emails, or if we fail to deliver emails to consumers in a manner compatible with email providers’ email handling or authentication technologies, our ability to contact consumers through email could be significantly restricted. In addition, if we are placed on “spam” lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our operating results and financial condition could be substantially harmed. Further, if ISPs prioritize or provide superior access to our competitors’ content, our business and results of operations may be adversely affected.
Advertisers who use our marketplaces and brand direct solutions can offer products and services outside of our marketplaces and brand direct solutions or obtain similar services from our competitors.
Because generally we do not have exclusive relationships with advertisers, consumers may purchase products from them without having to use our marketplaces and brand direct solutions. Advertisers can attract consumers directly through their own marketing campaigns or other traditional methods of distribution, such as referral arrangements, physical storefront operations or broker agreements. Advertisers also may offer information to prospective customers online directly, through one or more online competitors of our business, or both. If our advertisers determine to compete directly with us or choose to favor one or more of our competitors, they could cease providing us with information and terminate any direct interactions we have with their online workflows, customer relationship management systems and internal platforms, which would reduce the breadth of the information available to us and could put us at a competitive disadvantage against their direct marketing efforts or our competitors that retain such access. If consumers seek products directly from advertisers or through our competitors, or if advertisers cease providing us with access to their systems or information, the number of consumers searching for products on our marketplaces and through our brand direct solutions may decline, and our business, financial condition and results of operations could be materially adversely affected.
If we are unable to develop new offerings, achieve increased consumer adoption of those offerings or penetrate new vertical markets, our business and financial results could be materially adversely affected.
Our success depends on our continued innovation to provide product and service offerings that make our marketplaces, brand direct and technology solutions useful for consumers. These new offerings must be widely adopted by consumers in order for us to continue to attract advertisers to our marketplaces and brand direct solutions. Accordingly, we must continually invest resources in product, technology and development in order to improve the comprehensiveness and effectiveness of our marketplaces and brand direct solutions and their related product and service offerings and effectively incorporate new internet technologies into them. These product, technology and development expenses may include costs of hiring additional personnel and of engaging third-party service providers and other research and development costs.
Without innovative marketplaces and brand direct solutions and related product and service offerings, we may be unable to attract additional consumers or retain current consumers, which could adversely affect our ability to attract and retain advertisers who want to participate in our marketplaces and through our brand direct solutions, which could, in turn, harm our business and financial results. In addition, while we have historically concentrated our efforts on the home and auto insurance, consumer finance, education, home services and health and wellness markets, we will need to penetrate additional vertical markets, such as health insurance, life insurance and charitable giving / nonprofits, in order to achieve our long-term growth goals. Our success in the home and auto insurance, consumer finance, education, home services and health and wellness markets depends on our deep understanding of these industries. In order to penetrate new vertical markets, we will need to develop a similar understanding of those new markets and the associated business challenges faced by participants in them. Developing this level of understanding may require substantial investments of time and resources and we may not be successful. In addition, these new vertical markets may have specific risks associated with them. If we fail to penetrate new vertical markets successfully, our revenue may grow at a slower rate than we anticipate and our financial condition could suffer.
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If we fail to build and maintain our brand, our ability to expand the use of our marketplaces and brand direct solutions by consumers and advertisers may be adversely affected.
Our future success depends upon our ability to create and maintain brand recognition and a reputation for delivering easy, efficient and personal solutions. A failure by us to build our brand and deliver on these expectations could harm our reputation and damage our ability to attract and retain consumers, which could adversely affect our business. If consumers do not perceive our marketplaces and brand direct solutions as a better web platform experience, our reputation and the strength of our brand may be adversely affected.
Some of our competitors have more resources than we do and can spend more advertising their brands and services. As a result, we are required to spend considerable money and other resources to create brand awareness and build our reputation. Should the need or competition for top-of-mind awareness and brand preference increase, we may not be able to build brand awareness, and our efforts at building, maintaining and enhancing our reputation could fail. Even if we are successful in our branding efforts, such efforts may not be cost-effective. If we are unable to maintain or enhance consumer awareness of our brand cost-effectively, our business, results of operations and financial condition could be materially adversely affected.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers, data privacy and security issues, and other aspects of our business, whether valid or not, could diminish confidence and participation in our marketplaces and brand direct solutions and could adversely affect our reputation and business. There can be no assurance that we will be able to maintain or enhance our brand, and failure to do so would harm our business growth prospects and operating results.
Our marketing efforts may not be successful.
We currently rely on performance marketing channels that must deliver on metrics that are selected by our advertisers and are subject to change at any time. We are unable to control how our advertisers evaluate our performance. Certain of these metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and adversely affect our business. In addition, the metrics we provide may differ from estimates published by third parties or from similar metrics of our competitors due to differences in methodology. If our advertisers do not perceive our metrics to be accurate, or if we discover material inaccuracies in our metrics, it could adversely affect our online marketing efforts and business.
If we fail to manage future growth effectively, our business could be materially adversely affected.
We have at times experienced rapid growth and anticipate further growth. This growth has placed significant demands on management and our operational infrastructure. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture. If we do not manage the growth of our business and operations effectively, the quality of our services and efficiency of our operations could suffer and we may not be able to execute on our business plan, which could harm our brand, results of operations and overall business.
Failure to increase our revenue or reduce our sales and marketing expense as a percentage of revenue would adversely affect our financial condition and profitability.
We expect to make significant future investments to support the further development and expansion of our business, and these investments may not result in increased revenue or growth on a timely basis or at all. Furthermore, these investments may not decrease as a percentage of revenue if our business grows. There can be no assurance that these investments will increase revenue or that we will eventually be able to decrease our sales and marketing expense as a percentage of revenue, and failure to do so would adversely affect our financial condition and profitability.
We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.
We face significant competition from companies that provide information and services designed to help consumers shop for products comparable to those offered through our websites, marketplaces and through our brand direct solutions and to enable advertisers to reach these consumers. Our competitors offer various products and services that compete with us. Some of these competitors include: companies that operate, or could develop, insurance search websites, consumer finance search websites, educational / career enhancement search websites, home services search websites, and other comparison search type websites in the verticals in which we compete with marketplace and brand direct solutions; media sites, including websites dedicated to providing multiple quote insurance information and financial services information generally; internet search engines; and individual insurance providers, including through the operation of their own websites, physical storefront operations and broker arrangements. We compete with these and other companies for a share of advertisers’ overall budget for online and offline media marketing and referral spend. To the extent that advertisers view alternative marketing and media strategies to be
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superior to our marketplaces and brand direct solutions, we may not be able to maintain or grow the number of advertisers using, and advertising on, our marketplaces and through our brand direct solutions, and our business and financial results may be harmed.
We also expect that new competitors will enter the industries in which we operate with competing marketplaces and brand direct solutions, products and services, which could have an adverse effect on our business and financial results.
Our competitors could significantly impede our ability to maintain or expand the number of consumers and advertisers using our marketplaces and brand direct solutions. Our competitors also may develop and market new technologies that render our marketplaces and brand direct solutions less competitive, unmarketable or obsolete. In addition, if our competitors develop marketplaces and brand direct solutions with similar or superior functionality to ours, and our web traffic declines, we may need to decrease our consumer engagement and referral and advertising fees. If we are unable to maintain our current pricing structure due to competitive pressures, our revenue would likely be reduced and our financial results would be adversely affected.
Our existing and potential competitors may have significantly more financial, technical, marketing and other resources than we have, and the ability to devote greater resources to the development, promotion and support of their marketplaces and brand direct solutions, products and services. In addition, they may have more extensive industry relationships than we have, longer operating histories and greater name recognition. As a result, these competitors may be able to respond more quickly with new technologies and to undertake more extensive marketing or promotional campaigns than we can. In addition, to the extent that any of our competitors have existing relationships with advertisers for marketing or data analytics solutions, those advertisers may be unwilling to partner with us. If we are unable to compete with these competitors, the demand for our marketplaces and brand direct solutions and related products and services could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our business and financial results.
Advertisers on our marketplaces and through our brand direct solutions may not provide competitive levels of service to consumers, which could materially adversely affect our brand and business and our ability to attract consumers.
Our ability to provide consumers with a high quality and compelling web platform experience depends, in part, on consumers receiving competitive prices, convenience, customer service and responsiveness from advertisers with whom they are matched on our marketplaces and through our brand direct solutions. If these providers do not meet or exceed consumer expectations with competitive levels of convenience, customer service, price and responsiveness, the value of our brand may be harmed, our ability to attract consumers to our marketplaces and brand direct solutions may be limited and the number of consumers matched through our marketplaces and brand direct solutions may decline, which could have a material adverse effect on our business, financial condition and results of operations.
Our business depends on our ability to maintain and improve the technology infrastructure necessary to send marketing messages, which include emails, SMS and push notifications, and to operate our websites, and any significant disruption in service on our email network infrastructure or websites could result in a loss of consumers, which could harm our business, brand, operating results and financial condition.
Our brand, reputation and ability to attract consumers and advertisers depend on the reliable performance of our technology infrastructure and content delivery. We use messages to attract consumers to our marketplaces and brand direct solutions. Our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be prolonged and harmful to our business. If our websites are unavailable when users attempt to access them, or if they do not load as quickly as expected, users may not return as often in the future, or at all. As our user base and the amount of information shared on our websites continue to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue to spend substantial amounts on our infrastructure and services to handle the traffic on our websites and to help shorten the length of or prevent system interruptions. The operation of these systems is expensive and complex and we could experience operational failures. Interruptions, delays or failures in these systems, whether due to earthquakes, adverse weather conditions, other natural disasters, power loss, computer viruses, cybersecurity attacks, physical break-ins, terrorism, errors in our software, architecture flaws or performance defects in our proprietary technology or otherwise, could be prolonged and could affect the security or availability of our websites and applications, and prevent consumers from accessing our services. Such interruptions also could result in third-parties accessing our confidential and proprietary information, including our intellectual property or consumer information. Problems with the reliability or security of our systems could harm our reputation, our ability to protect our confidential and proprietary information, result in a loss of users of our marketplaces and brand direct solutions or result in additional costs. If we do not maintain or expand our network infrastructure successfully or if we experience operational failures or prolonged disruptions or delays in the availability of our
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systems or a significant search engine, we could lose current and potential consumers, which could harm our operating results and financial condition.
Substantially all of the communications, network and computer hardware used to operate our websites are located in the United States in Amazon Web Services data centers and other colocation hosting providers. We do not own or control the operation of these facilities. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail. In addition, we may not have sufficient protection or recovery plans in certain circumstances.
Problems faced by our third-party web hosting providers could adversely affect the experience of users of our marketplaces and through our brand direct solutions. Our third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by our third-party web hosting providers or any of the service providers with whom they contract may have adverse effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.
Any errors, defects, disruptions or other performance or reliability problems with our network operations could cause interruptions in access to our marketplaces and brand direct solutions as well as delays and additional expense in arranging new facilities and services and could harm our reputation, business, operating results and financial condition. Although we carry business interruption insurance, it may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our service as a result of system failures.
We depend on third-party website publishers for a significant portion of our visitors, and any decline in the supply of media available through these websites or increase in the price of this media could cause our revenue to decline or our cost to reach visitors to increase.
A portion of our revenue is attributable to visitors originating from advertising placements that we purchase on third-party websites. In some instances, website publishers may change the advertising inventory they make available to us at any time and, therefore, impact our revenue. In addition, website publishers may place restrictions on our offerings. These restrictions may prohibit advertisements from specific clients or specific industries, or restrict the use of certain creative content. If a website publisher decides not to make advertising inventory available to us, or decides to demand a higher revenue share or places significant restrictions on the use of such inventory, we may not be able to find advertising inventory from other websites that satisfy our requirements in a timely and cost-effective manner. In addition, the number of competing online marketing service providers and advertisers that acquire inventory from websites continues to increase. Consolidation of website publishers could eventually lead to a concentration of desirable inventory on a small number of websites or networks, which could limit the supply of inventory available to us or increase the price of inventory to us. If any of the foregoing occurs, our revenue could decline or our operating costs may increase.
If we are unable to successfully respond to changes in the market, our business could be harmed.
While our business has grown rapidly as consumers and advertisers have increasingly accessed our marketplaces and brand direct solutions, we expect that our business will evolve in ways that may be difficult to predict. For example, we anticipate that over time we may reach a point when investments in new user traffic are less productive and the continued growth of our revenue will require more focus on developing new product and service offerings for consumers and advertisers, expanding our marketplaces and brand direct solutions into new international markets and new industries to attract new advertisers, and increasing our customer engagement and referral and advertising fees. It is also possible that consumers and advertisers could broadly determine that they no longer believe in the efficiency and effectiveness of our marketplaces and brand direct solutions. Our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be harmed and our results of operations and financial condition could be materially adversely affected.
We expect our results of operations to fluctuate on a quarterly and annual basis.
Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside of our control. Our results may vary as a result of fluctuations in the number of consumers and advertisers using our marketplaces and brand direct solutions and the size and seasonal variability of the marketing budgets of our advertisers. In addition, our advertisers’ industries are each subject to their own cyclical trends and uncertainties. Fluctuations and variability across these different verticals may affect our revenue. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the results of any
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one period should not be relied on as an indication of future performance. In addition, our results of operations may not meet the expectations of investors or public market analysts who follow us, which may adversely affect our stock price.
Unfavorable global economic conditions, which can be impacted by various global events such as health crises, political instability or military conflicts, could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the COVID-19 pandemic or escalating military conflicts, which may result in various economic sanctions and regulations. The most recent global financial crisis caused by the coronavirus outbreak has resulted in extreme volatility and disruptions in the capital and credit markets. In addition, the recent conflicts between Russia and Ukraine have resulted in significant sanctions and other regulations and changes that have impacted global trade. While these events may not have direct material impacts on our business, they can result in disruptions in the capital and credit markets, changing regulation, changes in trade agreements, reduced alternatives or failures of
significant financial institutions, which can indirectly impact our results of operations and our access to liquidity or the capital markets, as well as have significant impacts on our customers and the various market participants with which we engage. A severe or prolonged economic downturn could also result in a variety of risks to our business, including weakened demand for our marketplaces and brand direct solutions and related products and services or delays in advertiser payments. A weak or declining economy could also strain our media supply channels.
Additionally, our business relies heavily on people, and adverse events such as health-related concerns about working in our call centers, the inability to travel and other matters affecting the general work environment could harm our business. While we do not anticipate any material impact to our business operations as a result of COVID-19 or the conflict in Ukraine, in the event of a major disruption caused by such global events, we may lose the services of a number of our employees or experience system interruptions, which could lead to diminishment of our regular business operations, inefficiencies and reputational harm. We are also unsure what actions our advertisers and other partners may take in response to such events. Any of the foregoing could harm our business and we cannot anticipate all the ways in which such events could adversely impact our business.
We often have long sales cycles, which can result in significant time between initial contact with a prospect and execution of an advertiser agreement, making it difficult to project when, if at all, we will obtain new advertisers and when we will generate revenue from those advertisers.
Our sales cycle, from initial contact to contract execution and implementation can take significant time. Our sales efforts involve educating our advertisers about the use, technical capabilities and benefits of our marketplaces and brand direct solutions. Some of our advertisers undertake an evaluation process that frequently involves not only our marketplaces and brand direct solutions but also the offerings of our competitors. As a result, it is difficult to predict when we will obtain new advertisers and begin generating revenue from these new advertisers. Even if our sales efforts result in obtaining a new advertiser, under our usage-based pricing model, the advertiser controls when and to what extent it uses our marketplaces and brand direct solutions. As a result, we may not be able to add advertisers, or generate revenue, as quickly as we may expect, which could harm our revenue growth rates.
Our past growth may not be indicative of our future growth, and our revenue growth rate may decline in the future.
Our Company’s operations and their related revenues and results of operations have significantly changed over the last several years. This change may not be indicative of our future growth, if any, and we will not be able to grow as expected, or at all, if we do not accomplish the following:
•increase the number of consumers using our marketplaces and brand direct solutions;
•maintain and expand the number of advertisers that use our marketplaces and brand direct solutions or our revenue per provider;
•further improve the quality of our marketplaces and brand direct solutions, and introduce high-quality new products;
•increase the number of shoppers acquired by advertisers on our marketplaces and brand direct solutions;
•timely adjust marketing expenditures in relation to changes in demand for the underlying products and services offered by our advertisers;
•maintain brand recognition and effectively leverage our brand; and
•attract and retain management and other skilled personnel for our business.
Our revenue growth rates may also be limited if we are unable to achieve high market penetration rates as we experience increased competition. If our revenue or revenue growth rates decline, investors’ perceptions of our business may be adversely affected and the market price of our common stock could decline.
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We collect, process, store, share, disclose and use consumer information and other data, and our actual or perceived failure to protect such information and data or respect users’ privacy could damage our reputation and brand and harm our business and operating results.
Use of our marketplaces and brand direct solutions involves the storage and transmission of consumers’ information, including personal information, and security breaches could expose us to a risk of loss or exposure of this information which could result in potential liability, litigation and remediation costs, as well as reputational harm, all of which could materially adversely affect our business and financial results. For example, unauthorized parties could steal our users’ names, email addresses, physical addresses, phone numbers and other information that we collect when providing consumer engagements and referrals. While we use encryption and authentication technology licensed from third parties designed to effect secure transmission of such information, we cannot guarantee the security of the transfer and storage of the personal information we collect from advertisers.
Like all information systems and technology, our websites and information systems may be subject to computer viruses, break-ins, phishing, impersonation attacks, attempts to overload our servers with denial-of-service or other attacks, ransomware and similar incidents or disruptions from unauthorized use of our computer systems, as well as unintentional incidents causing data leakage, any of which could lead to interruptions, delays or website shutdowns, or could cause loss of critical data or the unauthorized disclosure, access, acquisition, alteration or use of personal or other confidential information. Although we have a chief information officer who coordinates our cybersecurity measures, policies and procedures, and our chief information officer reports to the Board regarding these matters at least quarterly, we cannot be certain that our efforts will be able to prevent breaches of the security of our information systems and technology. In addition, although we have cybersecurity insurance, we may not be able to retain such insurance on economic terms in the future or at all, and we cannot be certain that our insurance will cover us fully for any losses that we may experience, including with respect to any potential ransomware attacks we may experience. If we experience compromises to our security that result in websites performance or availability problems, the complete shutdown of our websites or the loss or unauthorized disclosure, access, acquisition, alteration or use of confidential information, consumers and advertisers may lose trust and confidence in us, and consumers and advertisers may decrease the use of our website or stop using our website entirely. Further, outside parties may attempt to fraudulently induce employees, consumers or advertisers to disclose sensitive information in order to gain access to our information or consumers’ or advertisers’ information. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.
Any or all of the issues above could adversely affect our ability to attract new users and increase engagement by existing users, cause existing users to curtail or stop use of our marketplaces and brand direct solutions, cause existing advertisers to cancel their contracts or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, thereby harming our business, results of operations and financial condition. Although we are not aware of any material information security incidents to date, we have detected common types of attempts to attack our information systems and data using means that have included viruses and phishing.
There are numerous federal, state and local laws in the United States and around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, cross-border transfer and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with, may result in regulatory fines or penalties, and may be inconsistent between countries and jurisdictions or conflict with other rules.
We are subject to the terms of our privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us by consumer advocacy groups or others, and could cause consumers and advertisers to lose trust in us, all of which could be costly and have an adverse effect on our business. In addition, new and changed rules and regulations regarding privacy, data protection and cross-border transfers of consumer information could cause us to delay planned uses and disclosures of data to comply with applicable privacy and data protection requirements. Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put consumer or advertiser information at risk and could in turn harm our reputation, business and operating results. This risk exists both with respect to our vendors and partners (who may employ less rigorous compliance standards than our own) and our clients (who may have expectations on their legal right to freely make use of consumer data which we may provide them).
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We currently operate primarily in the United States. To the extent that we determine to expand our business internationally, we will encounter additional risks, including different, uncertain or more stringent laws relating to consumer protection and data privacy rights.
We may be unable to halt the operations of websites that aggregate or misappropriate our data.
From time to time, third parties may misappropriate our data through website scraping, robots or other means and aggregate this data on their websites with data from other companies. In addition, copycat websites may misappropriate data in our marketplaces and brand direct solutions and attempt to imitate our brand or the functionality of our website. If we become aware of such websites, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the effect of the operation of such websites. Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed.
We are subject to a number of risks related to the credit card and debit card payments we accept from advertisers.
We sometimes accept payments from advertisers through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would increase our operating expenses, either of which could harm our business, financial condition and results of operations.
We currently rely on multiple third-party vendors to provide payment processing services, including the processing of payments from credit cards and debit cards, and our business may be disrupted if these vendors become unwilling or unable to provide these services to us and we are unable to find a suitable replacement on a timely basis. If our processing vendors fail to maintain adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if these systems fail to work properly and, as a result, we do not charge our advertisers’ credit cards on a timely basis or at all, our business, revenue, results of operations and financial condition could be harmed.
The significance of our operations outside of the U.S. makes us susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits, disrupt our business, or damage our reputation.
With the acquisition of ClickDealer, we have expanded our brand direct business outside of the U.S. and its territories, which exposes us to certain challenges and risks, many of which are outside of our control, and which could materially reduce our revenues or profits, materially increase our costs, result in significant liabilities or sanctions, significantly disrupt our business, or significantly damage our reputation. These challenges and risks include: (1) compliance with complex and changing laws, regulations, and government policies, including sanctions, that could have a material negative impact on our operations or our ability to pursue development opportunities, cause reputational damage, or otherwise affect us; (2) the difficulties involved in managing an organization doing business in many different countries; (3) uncertainties regarding the interpretation of local laws and the enforceability of contract and intellectual property rights under local laws; and (4) rapid changes in government policy, political or civil unrest, acts of terrorism, war, pandemics or other health emergencies, border control measures or other travel restrictions, or the threat of international boycotts or U.S. anti-boycott legislation. Due to our lack of experience with international operations and developing and managing sales and distributions channels in international markets, our international expansion may not be successful.
We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, advertisers and other constituents within our advertisers’ industries as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:
•regulatory hurdles;
•failure of anticipated benefits to materialize;
•diversion of management time and focus from operating our business to addressing acquisition integration challenges;
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•coordination of technology, research and development, and sales and marketing functions;
•transition of the acquired company’s consumers and data to our marketplaces and brand direct solutions;
•retention of employees from the acquired company;
•cultural challenges associated with integrating employees from the acquired company into our organization;
•integration of the acquired company’s products or technology;
•integration of the acquired company’s accounting, management information, human resources and other administrative systems;
•the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;
•potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results in a given period;
•acquisition targets may participate in markets, jurisdictions and verticals where our lack of experience makes an immediate assessment of, and preparation for, possible risks difficult;
•potential liabilities for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and
•litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former stockholders or other third parties.
Our failure to address these risks or other problems encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and harm our business generally. Future acquisitions also could result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expense or impairment charges associated with acquired intangible assets or goodwill, any of which could harm our financial condition.
We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us, our business, operating results and financial condition may be harmed.
We intend to continue to make investments to support our growth and may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, including to increase our marketing expenditures to improve our brand awareness, develop new product and service offerings or further improve our marketplaces and brand direct solutions and existing product and service offerings, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Volatility in the credit markets also may have an adverse effect on our ability to obtain debt financing.
If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition and prospects could be materially adversely affected.
Litigation could distract management, increase our expenses or subject us to material money damages and other remedies.
We may be involved from time to time in various additional legal proceedings, including, but not limited to, actions relating to breach of contract, breach of federal and state privacy laws, and intellectual property infringement that might necessitate changes to our business or operations. Regardless of whether any claims against us have merit, or whether we are ultimately held liable or subject to payment of damages, claims may be expensive to defend and may divert management’s time away from our operations. If any legal proceedings were to result in an unfavorable outcome, it could have a material adverse effect on our business, financial position and results of operations. Any adverse publicity resulting from actual or potential litigation may also materially and adversely affect our reputation, which in turn could adversely affect our results.
We conduct marketing activities, directly and indirectly, via telephone, email and/or through other online and offline marketing channels, which general marketing activities are governed by numerous federal and state regulations, such as the Telemarketing Sales Rule, state telemarketing laws, federal and state privacy laws, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act, the Telephone Consumer Protection Act, or TCPA, and the Federal Trade Commission Act and its accompanying regulations and guidelines, among others. In addition to being subject to action by regulatory agencies, some of these laws, like the TCPA, allow private individuals to bring litigation against companies for breach of these laws. We are also dependent on our third-party partners to comply with applicable laws. For example, we often depend upon our third-party partners to obtain consent from consumers to receive telemarketing calls in compliance with the
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TCPA. We may be alleged to have indemnification obligations to third-party for alleged breaches of privacy laws like the TCPA, which could increase our defense costs and require that we pay damages if there were an adverse ruling in any such claims. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.
Companies in the internet, technology and media industries are frequently subject to allegations of infringement or other violations of intellectual property rights. We plan to vigorously defend our intellectual property rights and our freedom to operate our business; however, regardless of the merits of the claims, intellectual property claims are often time consuming and extremely expensive to litigate or settle and are likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in significant monetary liability or prevent us from operating our business or portions of our business. Resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third-parties altogether. Many of our contracts require us to provide indemnification against third-party intellectual property infringement claims, which would increase our defense costs and may require that we pay damages if there were an adverse ruling in any such claims. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.
With the acquisition of ClickDealer, we have expanded our business internationally and therefore may encounter additional risks, including different, uncertain or more stringent laws relating to intellectual property rights and protection.
Our existing indebtedness and any future indebtedness could adversely affect our ability to operate our business.
As of December 31, 2022 we had $221.6 million and $40.0 million outstanding under our Term Loan and our Revolving Facility, respectively, and in the future we could incur indebtedness beyond our Credit Facility.
Borrowing on our credit facility, combined with our existing and potential future financial obligations and contractual commitments, could have significant adverse consequences, including:
•requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes;
•increasing our vulnerability to adverse changes in general economic, industry and market conditions;
•subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
•placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
Any indebtedness we incur under our current credit facility will bear interest at a variable rate, which would make us vulnerable to increases in the market rate of interest. If the market rate of interest increases substantially, we would have to pay additional interest, which would reduce cash available for our other business needs. We intend to satisfy any future debt service obligations with our existing cash and cash equivalents and cash flows from operations.
We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs, which may in turn impair our growth.
We intend to continue to grow our business, which will require additional capital to develop new features or enhance our platforms, improve our operating infrastructure, finance our working capital requirements, or acquire complementary businesses and technologies. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our existing credit facility in an amount sufficient to fund our working capital needs. Accordingly, we may need to engage in additional equity or debt financings to secure additional capital. We cannot assure you that we would be able to locate additional financing on commercially reasonable terms or at all. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If our cash flows and credit facility borrowings are insufficient to fund our working capital requirements, we may not be able to grow at the rate we currently expect or at all. In addition, in the absence of sufficient cash flows from operations, we might be unable to meet our obligations under our credit facility, and we may therefore be at risk of default thereunder. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. If we are unable to secure additional funding on favorable terms, or at all, when we require it, our ability to continue to grow our business to react to market conditions could be impaired and our business may be harmed.
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We have entered into, and may in the future enter into, credit facilities which may contain operating and financial covenants that restrict our business and financing activities.
We have entered into, and may in the future enter into, credit facilities which contain restrictions that limit our flexibility in operating our business. Our credit facility contains, and any future credit facility may contain, various covenants and ratios that limit our ability to engage in specific types of transactions. For example, under our credit facility, we had a net leverage ratio covenant of 5.0:1.0 as of December 31, 2021, which declined to 4.5:1.0 as of December 31, 2022. Subject to limited exceptions, these covenants and ratios limit our ability to, among other things:
•sell assets or make changes to the nature of our business;
•engage in mergers or acquisitions;
•incur, assume or permit additional indebtedness;
•make restricted payments, including paying dividends on, repurchasing, redeeming or making distributions with respect to our capital stock;
•make specified investments;
•engage in transactions with our affiliates; and
•make payments in respect of subordinated debt.
Our obligations under our credit facility are collateralized by a pledge of substantially all of our assets, including accounts receivable, deposit accounts, intellectual property, and investment property and equipment. The covenants in our credit facility may limit our ability to obtain future financing, make needed capital expenditures, withstand a downturn in our business or economy in general or otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive covenants under the credit facility impose on us. In the event that we breach one or more covenants, our lenders may choose to declare an event of default and require that we immediately repay all amounts outstanding, terminate the commitment to extend further credit and foreclose on the collateral granted to them to collateralize such indebtedness, which includes our intellectual property. Although we are currently in compliance with these covenants, if we anticipate non-compliance with certain financial covenants and ratios, we may be forced to request waivers from or enter into amendments with our lenders to avoid default. We cannot assure you that we will be able to negotiate a change to our credit facilities to allow us to amend these covenants or that any such amendment will be available to us on favorable terms. An inability on our part to amend the financial covenants could limit our ability to take advantage of the benefits described above related to our ability to engage in specific types of transactions and could decrease our earnings, if any, which would have an adverse effect on our results of operations and the value of our shares of common stock. In addition, if we fail to meet the required covenants and ratios, we will not have access to further draw-downs under our credit facility.
As of December 31, 2022, the Company was in breach of the net leverage ratio, which it cured on March 30, 2023 through the funds received in connection with the issuance of Series A and Series B convertible Preferred stock and Warrants (see Note 17. Subsequent Events).
Risks from third-party products could adversely affect our businesses.
We offer third-party products and we provide marketing services with respect to other products. Certain of these products, by their nature, involve a transfer of risk. If risk is not transferred in the way the customer expects, our reputation may be harmed and we may become a target for litigation. In addition, if these products do not generate competitive risk-adjusted returns that satisfy clients in a variety of asset classes, we will have difficulty maintaining existing business and attracting new business. This risk may be heightened during periods when credit, equity or other financial markets are deteriorating in value or are particularly volatile, or when clients or investors are experiencing losses. Significant declines in the performance of these third-party products could subject us to reputational damage and litigation risk.
We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. Experienced information technology personnel, who are critical to the success of our business, are in particularly high demand. Since 2020, most of our employees have worked remotely. The loss of any of our executive officers or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Many of our executive officers and other employees are at-will employees, which means they may terminate their employment relationships with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior
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management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially adversely affected.
Our management team has limited experience with international operations and managing a public company.
Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. Due to our management team’s limited experience with international operations and developing and managing sales and distribution channels in international markets, our international expansion efforts may not be successful. Our management’s lack of experience and failure to successfully manage the various risks could harm our international operations and have an adverse effect on our business, financial condition, and operating results. Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that govern public companies. Following the completion of the Business Combination, we are now subject to significant obligations relating to reporting, procedures and internal controls, and our management team may not successfully or efficiently manage such obligations. These obligations and scrutiny require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations.
Our corporate culture has contributed to our success and, if we are unable to maintain it as we grow, our business, financial condition and results of operations could be harmed.
We have experienced and may continue to experience rapid expansion of our employee ranks. We believe our corporate culture has been a key element of our success. However, as our organization grows, it may be difficult to maintain our culture, which could reduce our ability to innovate and operate effectively. The failure to maintain the key aspects of our culture as our organization grows could result in decreased employee satisfaction, increased difficulty in attracting top talent, increased turnover and could compromise the quality of our client service, all of which are important to our success and to the effective execution of our business strategy. In the event we are unable to maintain our corporate culture as we grow, our business, financial condition and results of operations could be harmed.
We may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired.
We have a substantial amount of Goodwill and purchased intangible assets on our consolidated balance sheets as a result of acquisitions. The carrying value of Goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of intangible assets with identifiable useful lives are amortized based on their economic lives. Goodwill that is expected to contribute indefinitely to our cash flows is not amortized, but must be evaluated for impairment at least annually and when events or changes in circumstances indicate the carrying value may not be recoverable. If necessary, a quantitative test is performed to compare the carrying value of the asset to its estimated fair value, as determined based on a discounted cash flow approach, or when available and appropriate, to comparable market values. If the carrying value of the asset exceeds its current fair value, the asset is considered impaired and its carrying value is reduced to fair value through a non-cash charge to earnings. Events and conditions that could result in impairment of our Goodwill and intangible assets include a reduced market capitalization, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term growth or profitability.
Goodwill impairment analysis and measurement is a process that requires significant judgment. Our stock price and any estimated control premium are factors affecting the assessment of the fair value of our underlying reporting units for purposes of performing any Goodwill impairment assessment. We perform an impairment analysis of our Goodwill annually. For the year ended December 31, 2022, the result of our annual impairment test indicated that there were no Goodwill impairment indicators, as the carrying value of the reporting units exceeded their fair value. The Company determined that the recent economic downturn and inflation, along with the Company’s revenue reduction and decreased stock market price were indicators of impairment under ASC 360-10, Impairment and Disposal of Long-Lived Assets for certain asset groups during 2022. As a result, the Company recorded impairment loss of $0.9 million and $20.7 million to Intangible assets which are in asset groups included in Brand Direct and Marketplace reporting units, respectively, for the year ended December 31, 2022.
We will continue to conduct impairment analyses of our Goodwill on an annual basis, unless indicators of possible impairment arise that would cause a triggering event, and we would be required to do an interim impairment analysis and possible take additional impairment charges in the future. Further impairment charges to our Goodwill could have a material adverse effect on our financial condition and results of operations.
Fluctuations in foreign currency exchange rates could impact our financial condition and results of operations.
Since our ClickDealer acquisition, we are exposed to foreign currency exchange rate risk with respect to our sales, profits, assets and liabilities denominated in currencies other than the U.S. dollar. As a result, the fluctuation in the value of the U.S.
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dollar against other currencies could have a material adverse effect on our results of operations, financial condition and cash flows. Upon translation, operating results may differ materially from expectations. As we continue to expand our international operations, our exposure to exchange rate fluctuations will increase. International advertisers’ spending may be affected by changes in currency exchange rates, and as a result, the related revenues may be adversely impacted by fluctuations in currency exchange rates. Further, although the prices charged by vendors for the merchandise we purchase are primarily denominated in U.S. dollars, a decline in the relative value of the U.S. dollar to foreign currencies could lead to increased international operation costs, which could negatively affect our competitive position and our results of operations. Further, we have not engaged in currency hedging activities to limit risk of exchange rate fluctuations.
Risks Related to Our Intellectual Property
We may not be able to adequately protect our intellectual property rights.
Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements as we deem appropriate. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website and market features, software and functionality or obtain and use information that we consider proprietary.
We may not be able to discover or determine the extent of any unauthorized use or infringement or violation of our intellectual property or proprietary rights. Third-parties also may take actions that diminish the value of our proprietary rights or our reputation. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could be costly, time-consuming and distracting to management, result in a diversion of resources, the impairment or loss of portions of our intellectual property and could materially adversely affect our business, financial condition and operating results. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. These steps may be inadequate to protect our intellectual property. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to use information that we regard as proprietary to create product offerings that compete with ours. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights, which could materially adversely affect our business, financial condition and operating results.
Competitors and others may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term “Digital Media Solutions.” We currently hold the “digitalmediasolutions.com” internet domain name as well as various other related domain names. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. In addition, there is an active market in desirable domain names and our ability to purchase such domains would be subject to market conditions. As a result, we may not be able to acquire or maintain all domain names that use the name Digital Media Solutions.
We currently operate primarily in the United States. To the extent that we determine to expand our business internationally, we will encounter additional risks, including different, uncertain or more stringent laws relating to intellectual property rights and protection.
We may face litigation and liability due to claims of infringement of third-party intellectual property rights.
From time to time, third parties may allege that we have infringed the trademarks, copyrights, patents and other intellectual property rights, including from our competitors or non-practicing entities. Such claims, regardless of their merit, could result in litigation or other proceedings and could require us to expend significant financial resources and attention by our management and other personnel that otherwise would be focused on our business operations, result in injunctions against us that prevent us from using material intellectual property rights, or require us to pay damages to third parties. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may result in significant settlement costs or require us to stop offering some features, or purchase licenses or modify our products and features while we develop non-infringing substitutes, but such licenses may not be available on terms acceptable to us or at all, which would require us to develop alternative intellectual property. Even if these matters do not result in litigation or are resolved in our
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favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results and our reputation.
As our business expands, we may be subject to intellectual property claims against us with increasing frequency, scope and magnitude. This may include claims originating with entities who have held the name “Digital Media Solutions” for a substantial period of time. We may also be obligated to indemnify affiliates or other partners who are accused of violating third parties’ intellectual property rights by virtue of those affiliates or partners’ agreements with us, and this could increase our costs in defending such claims and our damages. For example, many of our agreements with advertisers and other partners require us to indemnify these entities against third-party intellectual property infringement claims. Furthermore, such advertisers and partners may discontinue their relationship with us either as a result of injunctions or otherwise. The occurrence of these results could harm our brand or materially adversely affect our business, financial position and operating results.
We currently operate primarily in the United States. To the extent that we determine to expand our business internationally, we will encounter additional risks, including different, uncertain or more stringent laws relating to intellectual property rights and protection.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our technologies and processes, we rely in part on confidentiality agreements with our employees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases, we may not be able to assert our trade secret rights against such parties. To the extent that our employees, contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights to related or resulting know-how and inventions. The loss of confidential information or intellectual property rights, including trade secret protection, could make it easier for third parties to compete with our products. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, reputation and competitive position.
Our use of “open source” software could adversely affect our ability to protect our proprietary software and subject us to possible litigation.
We use open source software in connection with our software development. From time to time, companies that use open source software have faced claims challenging the use of open source software and/or compliance with open source license terms. We could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming non-compliance with open source licensing terms. Some open source licenses require users who distribute software containing open source to make available all or part of such software, which in some circumstances could include valuable proprietary code of the user. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could be harmful to our business, results of operations or financial condition, and could help our competitors develop services that are similar to or better than ours.
Risks Related to Government Regulation
Our businesses are heavily regulated. We are, and may in the future become, subject to a variety of international, federal, state, and local laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.
Our activities are subject to extensive regulation under the laws of the United States and its various states and the other jurisdictions in which we operate. We are currently subject to a variety of, and may in the future become subject to additional, international, federal, state and local laws that are continuously evolving and developing, including laws regarding internet-based businesses and other businesses that rely on advertising, as well as privacy and consumer protection laws, including the TCPA, the Telemarketing Sales Rule, the CAN-SPAM Act, the Fair Credit Reporting Act, the Federal Trade Commission Act and employment laws, including those governing wage and hour requirements. In addition, there is increasing attention by state and other jurisdictions to regulation in this area. These laws are complex and can be costly to comply with, require significant management time and effort, and could subject us to claims, government enforcement actions, civil and criminal liability or other remedies, including suspension of business operations. These laws may conflict with each other, further complicating compliance efforts.
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If we are alleged not to comply with these laws or regulations, we may be required to modify affected products and services, which could require a substantial investment and loss of revenue, or cease providing the affected product or service altogether. If we are found to have violated laws or regulations, we may be subject to significant fines, penalties and other losses.
We currently operate primarily in the United States. To the extent that we determine to expand our business internationally, we will encounter additional risks, including different, uncertain or more stringent regulations and laws relating to our business operations.
We assess customer needs, collect customer contact information and provide other product offerings, which results in us receiving personally identifiable information. This information is increasingly subject to legislation and regulation in the United States.
This legislation and regulation are generally intended to protect individual privacy and the privacy and security of personal information. We could be adversely affected if government regulations require us to significantly change our business practices with respect to this type of information or if the advertisers who use our marketplaces and brand direct solutions violate applicable laws and regulations.
Changes in applicable laws and regulations may materially increase our direct and indirect compliance and other expenses of doing business, having a material adverse effect on our business, financial condition and results of operations. If there were to be changes to statutory or regulatory requirements, we may be unable to comply fully with or maintain all required licenses and approvals. Regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals. If we do not have all requisite licenses and approvals, or do not comply with applicable statutory and regulatory requirements, the regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us, which could have a material adverse effect on our business, results of operations and financial condition.
We cannot predict whether any proposed legislation or regulatory changes will be adopted, or what impact, if any, such proposals or, if enacted, such laws could have on our business, results of operations and financial condition. If we are alleged to have failed to comply with applicable laws and regulations, we may be subject to investigations, criminal penalties or civil remedies, including fines, injunctions, loss of an operating license or approval, increased scrutiny or oversight by regulatory authorities, the suspension of individual employees, limitations on engaging in a particular business or redress to customers. The cost of compliance and the consequences of non-compliance could have a material adverse effect on our business, results of operations and financial condition. In addition, a finding that we have failed to comply with applicable laws and regulations could have a material adverse effect on our business, results of operations and financial condition by exposing us to negative publicity and reputational damage or by harming our customer or employee relationships.
In most jurisdictions, regulatory authorities have the power to interpret and amend applicable laws and regulations, and have discretion to grant, renew and revoke the various licenses and approvals we need to conduct our activities. Such authorities may require us to incur substantial costs in order to comply with such laws and regulations. Regulatory statutes are broad in scope and subject to differing interpretation. In some areas of our businesses, we act on the basis of our own or the industry’s interpretations of applicable laws or regulations, which may conflict from jurisdiction to jurisdiction. In the event those interpretations eventually prove different from the interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous activities.
Federal, state and international laws regulating telephone and messaging marketing practices impose certain obligations on advertisers, which could reduce our ability to expand our business.
We, and the advertisers using our marketplaces and brand direct solutions, make telephone calls and send messages to consumers who request information through our marketplaces and through our brand direct solutions. The United States regulates marketing by telephone and messaging, including email, SMS and push messaging. The TCPA prohibits companies from making certain telemarketing calls to numbers listed in the Federal Do-Not-Call Registry and imposes other obligations and limitations on making phone calls and sending text messages to consumers. The CAN-SPAM Act regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders. We and the advertisers who use our marketplaces and brand direct solutions may need to comply with such laws and any associated rules and regulations. States and other countries have similar laws related to telemarketing and commercial emails.
Additional or modified laws and regulations, or interpretations of existing, modified or new laws, regulations and rules, could prohibit or increase the cost of engaging with consumers and impair our ability to expand the use of our products, including our demand response solution, to more users. Alleged failure to comply with obligations and restrictions related to telephone, text message and email marketing could subject us to lawsuits, fines, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm our business. Moreover, over the past several years there has been a sustained
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increase in litigation alleging violations of laws relating to telemarketing, which has increased the exposure of companies that operate telephone and text messaging campaigns to class action litigation alleging violations of the TCPA. If we or the advertisers who use our marketplaces and brand direct solutions become subject to such litigation, it could result in substantial costs to and materially adversely affect our business.
Changes in the regulation of the internet could adversely affect our business.
Laws, rules and regulations governing internet communications, advertising and e-commerce are dynamic and the extent of future government regulation is uncertain. Federal and state regulations govern various aspects of our online business, including intellectual property ownership and infringement, trade secrets, the distribution of electronic communications, marketing and advertising, user privacy and data security, search engines and internet tracking technologies. In addition, changes in laws or regulations that adversely affect the growth, popularity or use of the internet, including potentially the recent repeal in the United States of net neutrality, could decrease the demand for our offerings and increase our cost of doing business. Future taxation on the use of the internet or e-commerce transactions could also be imposed. Existing or future regulation or taxation could hinder growth in or adversely affect the use of the internet generally, including the viability of e-commerce, which could reduce our revenue, increase our operating expenses and expose us to significant liabilities.
U.S. (state and federal) and foreign governments are considering enacting additional legislation related to privacy and data protection and we expect to see an increase in, or changes to, legislation and regulation in this area. For example, in the United States, a federal privacy law is the subject of active discussion and several bills have been introduced. Additionally, industry groups in the United States and their international counterparts have self-regulatory guidelines that are subject to periodic updates. High profile incidents involving breaches of personal information or misuse of consumer information may increase the likelihood of new U.S. federal, state, or international laws or regulations in addition to those set out above, and such laws and regulations may be inconsistent across jurisdictions.
In addition to laws regulating the processing of personal information, we are also subject to regulation with respect to political advertising activities, which are governed by various federal and state laws in the United States, and national and provincial laws worldwide. Online political advertising laws are rapidly evolving, and in certain jurisdictions have varying transparency and disclosure requirements. Publishers have imposed restrictions on the types of political advertising and breadth of targeted advertising allowed on their platforms with respect to advertisements for the 2020 U.S. presidential election in response to political advertising scandals like Cambridge Analytica. The lack of uniformity and increasing requirements on transparency and disclosure could adversely impact the inventory made available for political advertising and the demand for such inventory on our platforms, and otherwise increase our operating and compliance costs.
Changes in data residency and cross-border transfer restrictions may also impact our operations. As the advertising industry evolves, and new ways of collecting, combining and using data are created, governments may enact legislation in response to technological advancements and changes that could result in our having to re-design features or functions of our platforms, therefore incurring unexpected compliance costs.
These laws and other obligations may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our platforms. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our products, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new products and features could be limited. All of this could impair our or our advertisers’ ability to collect, use, or disclose information relating to consumers, which could decrease demand for our platforms, increase our costs, and impair our ability to maintain and grow our client base and increase our revenue.
Risks Related to our Capital Stock and Warrants and Other Business Risks
We are a holding company and our only material asset is our indirect interest in DMS, and we are accordingly dependent upon distributions made by DMS and its subsidiaries to pay taxes, make payments under the Tax Receivable Agreement and pay dividends.
We are a holding company with no material assets other than our ownership of equity interests of Blocker Corp (our wholly owned subsidiary). Blocker Corp is a holding company with no material assets other than its ownership of DMS Units. As a result, we have no independent means of generating revenue or cash flow. Our ability to pay taxes, make payments under the Tax Receivable Agreement and pay dividends will depend on the financial results and cash flows of DMS and its subsidiaries and the distributions we receive (via Blocker Corp) from DMS. Deterioration in the financial condition, earnings or cash flow of DMS and its subsidiaries for any reason could limit or impair DMS’ ability to pay such distributions. Additionally, to the extent that we need funds and DMS and/or any of its subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of any financing arrangements, or DMS is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.
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DMS is treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of DMS Units (including Blocker Corp). We will include Blocker Corp as a corporate member on our consolidated corporate U.S. federal income tax returns. Accordingly, we will be required to pay income taxes on Blocker Corp’s allocable share of any net taxable income of DMS. In addition to tax expenses, we will also incur expenses related to our operations, including payment obligations under the Tax Receivable Agreement (and the cost of administering such payment obligations), which could be significant. The Amended Partnership Agreement requires, and we intend to cause, DMS to make “tax distributions” pro rata to holders of DMS Units (including Blocker Corp) in amounts sufficient for us and Blocker Corp to cover all applicable taxes (calculated at assumed tax rates), relevant operating expenses, payments under the Tax Receivable Agreement and dividends, if any, declared by us. However, as discussed below, DMS’ ability to make such distributions may be subject to various limitations and restrictions, including, but not limited to, restrictions on distributions that would either violate any contract or agreement to which DMS is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering DMS insolvent. If our cash resources are insufficient to pay taxes, meet our obligations under the Tax Receivable Agreement and to fund our other obligations, we may be required to incur additional indebtedness from lenders to provide the liquidity needed to make such payments, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments generally will be deferred and will accrue interest until paid; however, nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement.
Additionally, although DMS generally will not be subject to any entity-level U.S. federal income tax, it may be liable under U.S. federal tax law for adjustments to its tax return, absent an election to the contrary. In the event DMS’ calculations of taxable income are incorrect, its members, including Blocker Corp, may be subject in later years to material liabilities pursuant to this law and its related guidance.
We anticipate that the distributions Blocker Corp will receive from DMS may, in certain periods, exceed our and Blocker Corp’s actual tax liabilities and obligations to make payments under the Tax Receivable Agreement. The Board, in its sole discretion, will make determinations from time to time with respect to the use of any such excess cash so accumulated. We have no obligation to distribute such cash (or other available cash other than any declared dividend) to our stockholders. To the extent that we do not distribute such excess cash as dividends on DMS Class A Common Stock or otherwise undertake ameliorative actions between DMS Units and shares of DMS Class A Common Stock and instead, for example, hold such cash balances, holders of DMS Units other than Blocker Corp may benefit from any value attributable to such cash balances as a result of their ownership of shares of DMS Class A Common Stock following an exchange of their DMS Units, notwithstanding that such holders may previously have participated as holders of DMS Units in distributions by DMS that resulted in such excess cash balances. We also expect, if necessary, to undertake ameliorative actions, which may include pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding DMS Units, to maintain one-for-one parity between DMS Units and shares of DMS Class A Common Stock.
Dividends on DMS Class A Common Stock, if any, will be paid at the discretion of the Board, which will consider, among other things, our business, operating results, financial condition, current and expected cash needs, plans for expansion and any legal or contractual limitations on our ability to pay such dividends. Financing arrangements may include restrictive covenants that restrict our ability to pay dividends or make other distributions to our stockholders. In addition, DMS is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of DMS (with certain exceptions) exceed the fair value of its assets. DMS’ subsidiaries are generally subject to similar legal limitations on their ability to make distributions to DMS. If DMS does not have sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired.
Under the Tax Receivable Agreement, we are required to make payments to the Majority Shareholders in respect of certain tax benefits and certain refunds of pre-Closing taxes of DMS and Blocker Corp, and such payments may be substantial.
Pursuant to the Amended Partnership Agreement, the Majority Shareholders may redeem their DMS Units from DMS for cash, or, at our option, we may acquire such DMS Units in exchange for shares of DMS Class A Common Stock, subject to certain conditions and transfer restrictions as set forth therein and in the Investor Rights Agreement. DMS Units acquired by us are expected to be contributed to Blocker Corp. These redemptions and exchanges are expected to result in increases in Blocker Corp’s allocable share of the tax basis of the tangible and intangible assets of DMS. These increases in tax basis may increase (for income tax purposes) depreciation and amortization deductions of Blocker Corp and therefore reduce the amount of income (or, if applicable, franchise) tax that we and Blocker Corp would otherwise be required to pay in the future had such exchanges never occurred.
In connection with the Business Combination, we entered into the Tax Receivable Agreement, pursuant to which we are required to pay the Majority Shareholders (i) 85% of the amount of savings, if any, in U.S. federal, state and local income tax
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that we and Blocker Corp actually realize as a result of (A) certain existing tax attributes of Blocker Corp acquired in the Business Combination, and (B) increases in Blocker Corp’s allocable share of the tax basis of the tangible and intangible assets of DMS and certain other tax benefits related to the payment of cash consideration pursuant to the Business Combination Agreement and any redemptions of DMS Units or exchanges of DMS Units for cash or shares of DMS Class A Common Stock after the Business Combination and (ii) 100% of certain refunds of pre-Closing taxes of DMS and Blocker Corp received during a taxable year beginning within two (2) years after the Closing. All such payments to the Majority Shareholders are our obligation, and not that of DMS. The actual increase in Blocker Corp’s allocable share of DMS’ tax basis in its assets, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions and exchanges, the market price of the shares of DMS Class A Common Stock at the time of the redemption or exchange, the extent to which such redemptions or exchanges are taxable and the amount and timing of the recognition of our or Blocker Corp’s taxable income. While many of the factors that will determine the amount of payments that we will make under the Tax Receivable Agreement are outside of our control, we expect that the payments we will make under the Tax Receivable Agreement will be substantial and could have a material adverse effect on our financial condition.
Any payments made by us under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid; however, nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, as further described below. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the Tax Receivable Agreement.
In certain cases, payments under the Tax Receivable Agreement may exceed the actual tax benefits we or Blocker Corp realize or may be accelerated.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we or Blocker Corp determine, and the Internal Revenue Service (the “IRS”) or another taxing authority may challenge all or any part of the tax basis increases, as well as other tax positions that we or Blocker Corp take, and a court may sustain such a challenge. In the event that any tax benefits initially claimed by us or Blocker Corp are disallowed (for example, due to adjustments resulting from examinations by taxing authorities), the Majority Shareholders will not be required to reimburse us for any excess payments that may previously have been made under the Tax Receivable Agreement. Rather, excess payments made to such Majority Shareholders will be netted against any future cash payments otherwise required to be made by us, if any, after the determination of such excess. However, a challenge to any tax benefits initially claimed by us or Blocker Corp may not arise for a number of years following the initial time of such payment or, even if a challenge arises earlier, such excess payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement and, as a result, there might not be future cash payments against which to net. As a result, in certain circumstances we could make payments under the Tax Receivable Agreement in excess of our and Blocker Corp’s actual income (or, if applicable, franchise) tax savings, which could materially impair our financial condition.
Moreover, the Tax Receivable Agreement provides that, in the event that (i) we exercise our early termination rights under the Tax Receivable Agreement, (ii) the Tax Receivable Agreement is rejected in a bankruptcy or similar proceeding, (iii) certain changes of control of us occur (as described in the Tax Receivable Agreement) or (iv) we are more than three months late in making of a payment due under the Tax Receivable Agreement (unless we have insufficient funds to make such payment), our obligations under the Tax Receivable Agreement could accelerate and we could be required to make an immediate lump-sum cash payment to the Majority Shareholders equal to the present value of all forecasted future payments that would have otherwise been made under the Tax Receivable Agreement, which lump-sum payment would be based on certain assumptions, including those relating to our future taxable income. The lump-sum payment to the Majority Shareholders could be substantial and could exceed the actual tax benefits that we or Blocker Corp realize subsequent to such payment.
There may be a material negative effect on our liquidity if the payments under the Tax Receivable Agreement exceed the actual income (or, if applicable, franchise) tax savings that we or Blocker Corp realize. Furthermore, our obligations to make payments under the Tax Receivable Agreement could also have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. We may need to incur additional indebtedness to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise. Such indebtedness may have a material adverse effect on our financial condition.
If we fail to improve and maintain an effective system of internal control over financial reporting in the future and remediate the identified material weakness, we may not be able to accurately or timely report our financial condition or results of operations, and may adversely affect investor confidence in us and the price of our common stock and warrants.
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As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on our internal control over financial reporting.
Our platform system applications are complex, multi-faceted and include applications that are highly customized in order to serve and support our advertisers, advertising inventory and data suppliers, as well as support our financial reporting obligations. We regularly make improvements to our platforms to maintain and enhance our competitive position. In the future, we may implement new offerings and engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems. These factors will require us to develop and maintain our internal controls, processes and reporting systems, and we expect to incur ongoing costs in this effort. We may not be successful in developing and maintaining effective internal controls, and any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, we identified a material weakness in internal control over financial reporting related to revenues and accounts receivable, including the allowance for doubtful accounts. Management assessed our internal control over financial reporting as of December 31, 2022 and concluded that a material weakness continues to exist related to revenues. In response, management implemented additional procedures to ensure the accuracy and completeness of financial results impacted by control deficiencies. While we have addressed issues related to accounts receivable and the allowance for doubtful accounts, the risk remains that our ongoing control weaknesses may adversely affect the accuracy and reliability of our financial reporting.
The identified material weakness could harm our operating results or cause us to fail to meet our reporting obligations. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and any annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we may be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock and warrants. In addition, if we are unable to continue to meet these requirements, we may not be able to maintain our common stock listed on NYSE.
We have a number of large shareholders who have significant influence over us.
As of December 31, 2022, Prism Data, LLC and three Clairvest Group funds, CEP V-A DMS AIV Limited Partnership, Clairvest Equity Partners V Limited Partnership, and CEP V Co-Investment Limited Partnership, (Prism Data, LLC and the Clarirvest funds collectively, the “Majority Shareholders”) own securities representing a majority of the total outstanding voting interests in the Company’s capital stock. As long as the Majority Shareholders each own or control a significant percentage of outstanding voting power, they will have the ability to strongly influence all corporate actions requiring stockholder approval, including the election and removal of directors and the size of the Board, any amendment of our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. The Majority Shareholders have entered into a Director Nomination Agreement that formalizes their agreement to vote in favor of each other’s director candidates.
As a “controlled company” within the meaning of NYSE listing standards, we qualify for exemptions from certain corporate governance requirements. We have the opportunity to elect any of the exemptions afforded a controlled company.
We are a “controlled company” within the meaning of NYSE listing standards. Under NYSE rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with the following NYSE rules regarding corporate governance:
•the requirement that a majority of its board of directors consist of independent directors;
•the requirement that the board have a nominating and governance committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
•the requirement that the board have a compensation committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
Thus while not required, five of the Company’s seven directors are independent directors (as determined under the regulations of the NYSE), and the Board has an independent compensation committee (in addition to an independent audit committee). However, the Board does not have a nominating and governance committee. Rather, actions with respect to director nominations and corporate governance are taken by the full board.
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We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and to the extent we take advantage of certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We will be an emerging growth company until December 31, 2023. We cannot predict whether investors will find our securities less attractive because we rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
These characteristics may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company difficult or impossible because of the potential differences in accounting standards used.
The price of Our Common Stock and Warrants may be volatile, which may affect our ability to raise capital in the future and may subject the value of the investment of our stockholders to sudden decreases.
Our Class A Common Stock and Public Warrants are listed on the NYSE. The following factors could cause the price of Class A Common Stock and the Warrants in the public market to fluctuate significantly:
•changes in the industries in which the Company and its customers operate;
•variations in its operating performance and the performance of its competitors in general;
•actual or anticipated fluctuations in the Company’s quarterly or annual operating results;
•material and adverse impact of the COVID-19 pandemic, overseas military interventions and/or global economic or political changes in on the markets and the broader global economy;
•the public’s reaction to the Company’s press releases, its other public announcements and its filings with the SEC;
•additions and departures of key personnel;
•changes in laws and regulations affecting its business;
•commencement of, or involvement in, litigation involving the Company;
•changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt; and
•the volume of shares of Class A Common Stock or Public Warrants available for public sale.
We may issue additional shares of Class A common Stock in the future, whether pursuant to our Warrants or otherwise, which would increase the number of shares in the public market and result in dilution to our stockholders.
As of the date of this Annual Report, we have public and private warrants outstanding to purchase up to an aggregate of 28,443,522 shares of Class A Common Stock. We also have the ability to initially issue additional shares under our 2020 Omnibus Incentive Plan (the “2020 Plan”). We may issue additional shares of Class A Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances.
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Our issuance of additional shares of Common Stock or other equity securities of equal or senior rank would have the following effects:
•our existing stockholders’ proportionate ownership interest in us will decrease;
•the amount of cash available per share, including for payment of dividends in the future, may decrease;
•the relative voting strength of each previously outstanding share of Class A Common Stock may be diminished; and
•the market price of our shares of Class A Common Stock may decline.
Our Private Placement Warrants are accounted for as liabilities and the changes in value of our Private Placement Warrants could have a material effect on our financial results.
We account for our private placement warrants as derivative liabilities whereby we are required to remeasure the fair value of such liabilities at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement, our consolidated financial statements and results of operations may fluctuate quarterly, based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our private placement warrants each reporting period and that the amount of such gains or losses could be material.
Our inability to comply with the continued listing requirements of the NYSE could result in our common stock being delisted, which could affect its market price and liquidity and reduce our ability to raise capital.
We are required to meet certain qualitative and financial tests to maintain the listing of our common stock on the NYSE. If we do not maintain compliance with the continued listing requirements for the NYSE within specified periods and subject to permitted extensions, our common stock may be recommended for delisting (subject to any appeal we would file). No assurance can be provided that we will continue to comply with these continued listing requirements. If our common stock were delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our stock could suffer a material decline. Delisting would also impair our ability to raise capital.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate office is located in a leased premise at 4800 140th Avenue N., Suite 101, Clearwater, Florida. We lease real property where appropriate to support our business, and we believe our leased properties are not material to our business. In addition, we believe our facilities are suitable and adequate for our current and near-term needs, and that we will be able to locate additional facilities as needed.
Item 3. Legal Proceedings.
From time to time, we are involved in various disputes and litigation that arise in the ordinary course of business. However, separate from such matters, to the best of our knowledge, there are no material pending or threatened legal proceedings, either individually or in the aggregate, to which we are a party.
Item 4. Mine Safety Disclosures.
None.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Holders of Common Stock
Our Class A Common Stock trades on the New York Stock Exchange (“NYSE”) using the ticker symbol “DMS.” Our common stock began trading on April 20, 2018; no cash dividends have been declared since that time, and we do not anticipate paying cash dividends in the foreseeable future. As of March 29, 2023, there were 32 holders of record.
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained in Item 8. Financial Statements and Supplementary Data of this Annual Report, as well as Item 1. Business of this Annual Report, for an overview of our operations and business environment.
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Results of Operations
The following table presents our consolidated results of operations as a percentage of net revenue:
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Revenue by type: | ||||||||||||||
| Customer acquisition | 96.1 | % | 95.7 | % | ||||||||||
| Managed services | 2.6 | % | 3.6 | % | ||||||||||
| Software services | 1.3 | % | 0.7 | % | ||||||||||
| Total net revenue | 100.0 | % | 100.0 | % | ||||||||||
| Revenue by segment: | ||||||||||||||
| Brand Direct | 52.2 | % | 59.3 | % | ||||||||||
| Marketplace | 55.3 | % | 52.4 | % | ||||||||||
| Technology Solutions | 2.5 | % | 2.2 | % | ||||||||||
| Intercompany eliminations | (10.0) | % | (13.9) | % | ||||||||||
| Net revenue | 100.0 | % | 100.0 | % | ||||||||||
| Cost of revenue (exclusive of depreciation and amortization) | 73.6 | % | 70.8 | % | ||||||||||
| Gross profit | 26.4 | % | 29.2 | % | ||||||||||
| Salaries and related costs | 12.8 | % | 11.2 | % | ||||||||||
| General and administrative | 10.7 | % | 9.4 | % | ||||||||||
| Depreciation and amortization | 7.2 | % | 5.9 | % | ||||||||||
| Impairment of intangible assets | 5.5 | % | — | % | ||||||||||
| Acquisition costs | 0.4 | % | 0.5 | % | ||||||||||
| Change in fair value of contingent consideration | 0.7 | % | 0.3 | % | ||||||||||
| (Loss) income from operations | (10.9) | % | 1.9 | % | ||||||||||
| Interest expense | 4.4 | % | 3.3 | % | ||||||||||
| Change in fair value of warrant liabilities | (0.9) | % | (4.2) | % | ||||||||||
| Change in Tax Receivable Agreement liability | * | (3.6) | % | |||||||||||
| Loss on debt extinguishment | — | % | 0.5 | % | ||||||||||
| Loss on disposal of assets | * | * | ||||||||||||
| Net (loss) income before income taxes | (14.4) | % | 5.9 | % | ||||||||||
| Income tax (benefit) expense | (1.0) | % | 4.5 | % | ||||||||||
| Net (loss) income | (13.4) | % | 1.4 | % | ||||||||||
| Net (loss) income attributable to non-controlling interest | (5.3) | % | 0.9 | % | ||||||||||
| Net (loss) income attributable to Digital Media Solutions, Inc. | (8.1) | % | 0.5 | % | ||||||||||
____________________
* Less than one tenth of a percent.
29
Operating Results for years ended December 31, 2022 and 2021
The following table presents the consolidated results of operations for the years ended December 31, 2022 and 2021 and the changes from the prior periods (in thousands):
| Years Ended December 31, | ||||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||||
| Net revenue | $ | 391,148 | $ | 427,935 | $ | (36,787) | (9) | % | ||||||||||||||||||
| Cost of revenue (exclusive of depreciation and amortization) | 287,820 | 303,025 | (15,205) | (5) | % | |||||||||||||||||||||
| Salaries and related costs | 49,872 | 48,014 | 1,858 | 4 | % | |||||||||||||||||||||
| General and administrative | 41,878 | 40,040 | 1,838 | 5 | % | |||||||||||||||||||||
| Depreciation and amortization | 28,242 | 25,401 | 2,841 | 11 | % | |||||||||||||||||||||
| Impairment of intangible assets | 21,570 | — | 21,570 | 100.0 | % | |||||||||||||||||||||
| Acquisition costs | 1,650 | 1,967 | (317) | (16) | % | |||||||||||||||||||||
| Change in fair value of contingent consideration | 2,583 | 1,106 | 1,477 | 134 | % | |||||||||||||||||||||
| (Loss) income from operations | (42,467) | 8,382 | (50,849) | (607) | % | |||||||||||||||||||||
| Interest expense | 17,366 | 14,166 | 3,200 | 23 | % | |||||||||||||||||||||
| Change in fair value of warrant liabilities | (3,360) | (18,115) | 14,755 | (82) | % | |||||||||||||||||||||
| Change in Tax Receivable Agreement liability | 125 | (15,289) | 15,414 | (101) | % | |||||||||||||||||||||
| Loss on debt extinguishment | — | 2,108 | (2,108) | (100) | % | |||||||||||||||||||||
| Loss on disposal of assets | 7 | 8 | (1) | (13) | % | |||||||||||||||||||||
| Net (loss) income before income taxes | (56,605) | 25,504 | (82,109) | (322) | % | |||||||||||||||||||||
| Income tax (benefit) expense | (4,105) | 19,311 | (23,416) | (121) | % | |||||||||||||||||||||
| Net (loss) income | (52,500) | 6,193 | (58,693) | (948) | % | |||||||||||||||||||||
| Net (loss) income attributable to non-controlling interest | (20,548) | 3,991 | (24,539) | (615) | % | |||||||||||||||||||||
| Net (loss) income attributable to Digital Media Solutions, Inc. | $ | (31,952) | $ | 2,202 | $ | (34,154) | (1551) | % | ||||||||||||||||||
Net revenue. Our business generates revenue primarily through the delivery of a variety of performance-based marketing services, including customer acquisition, managed services and software services.
30
The following table presents revenue by type for each segment and the changes from the prior periods:
| Years Ended December 31, | ||||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||||
| Brand Direct | ||||||||||||||||||||||||||
| Customer acquisition | $ | 198,873 | $ | 244,942 | $ | (46,069) | (19) | % | ||||||||||||||||||
| Managed services | 5,367 | 8,845 | (3,478) | (39) | % | |||||||||||||||||||||
| Total Brand Direct | 204,240 | 253,787 | (49,547) | (20) | % | |||||||||||||||||||||
| Marketplace | ||||||||||||||||||||||||||
| Customer acquisition | 216,385 | 224,158 | (7,773) | (4) | % | |||||||||||||||||||||
| Total Marketplace | 216,385 | 224,158 | (7,773) | (4) | % | |||||||||||||||||||||
| Technology Solutions | ||||||||||||||||||||||||||
| Managed services | 4,814 | 6,471 | (1,657) | (26) | % | |||||||||||||||||||||
| Software services | 4,993 | 3,169 | 1,824 | 58 | % | |||||||||||||||||||||
| Total Technology Solutions | 9,807 | 9,640 | 167 | 2 | % | |||||||||||||||||||||
| Corporate and Other | ||||||||||||||||||||||||||
| Customer acquisition | (39,284) | (59,650) | 20,366 | (34) | % | |||||||||||||||||||||
| Total Corporate and Other | (39,284) | (59,650) | 20,366 | (34) | % | |||||||||||||||||||||
| Total Customer acquisition | 375,974 | 409,450 | (33,476) | (8) | % | |||||||||||||||||||||
| Total Managed services | 10,181 | 15,316 | (5,135) | (34) | % | |||||||||||||||||||||
| Total Software services | 4,993 | 3,169 | 1,824 | 58 | % | |||||||||||||||||||||
| Total Net revenue | $ | 391,148 | $ | 427,935 | $ | (36,787) | (9) | % | ||||||||||||||||||
Customer Acquisition Revenue. Customer acquisition contracts deliver potential consumers or leads (i.e. number of clicks, emails, calls and applications) to the customer in real-time based on predefined qualifying characteristics specified by our customer.
Our Brand Direct segment experienced a decrease in Customer acquisition revenue of $46.1 million or 19% during the year ended December 31, 2022. Customer acquisition revenue for Marketplace decreased by $7.8 million or 4% for the year ended December 31, 2022. The changes in both the Brand Direct and Marketplace segments were primarily due to macro challenges within the insurance industry which continue to apply downward pressure on cost per click (“CPC”) and cost per lead (“CPL”) pricing. Additionally, extraordinary inflation and supply chain challenges have contributed to the insurance market volatility as increased claims costs continue to suppress insurance carrier marketing spend further delaying the expected market recovery. We also observed aggressive competitive activities within our publisher portfolio, as well as an adjustment in the health insurance model shifting non-enrollment ad spend which impacted our performance since Q2.
Managed Services Revenue. Managed services contracts provide continuous service of managing the customer’s media spend for the purpose of generating leads through a third-party supplier of leads, as requested by our customer. Managed services revenue experienced a decrease of $5.1 million or 34% during the year ended December 31, 2022. The changes were primarily driven by decreased media activity, resulting in lower agency fees.
Software Services Revenue. Software services contracts provide the customer with continuous, daily access to the Company’s proprietary software. Software services revenue is considered insignificant during the year ended December 31, 2022.
Cost of revenue and gross profit. Cost of revenue primarily includes media and other related costs, such as the cost to acquire user traffic through the purchase of impressions, clicks or actions from publishers or third-party intermediaries, including advertising exchanges, and technology costs that enable media acquisition. These media costs are used primarily to drive user traffic to the Company’s and our customers’ media properties. Cost of revenue also includes indirect costs such as data verification, hosting and fulfillment costs. Gross profit is exclusive of depreciation and amortization.
31
The following table presents the gross profit percentage (gross profit as a percentage of total net revenue) by segment and the changes from prior period:
| Years Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | PPTS Change | ||||||||||||||||||
| Brand Direct | 21.0 | % | 23.0 | % | (2.0) | |||||||||||||||
| Marketplace | 24.1 | % | 27.0 | % | (2.9) | |||||||||||||||
| Technology Solutions | 85.4 | % | 63.2 | % | 22.2 | |||||||||||||||
| Total gross profit percentage | 26.4 | % | 29.2 | % | (2.8) | |||||||||||||||
Gross profit for Brand Direct decreased for the year ended December 31, 2022, primarily driven by inflationary uncertainty within the auto industry and aggressive competitive activities within our publisher portfolio leading to compressed pricing and decreased acquisition spending, timing of optimized media rebalancing, and monetization challenges within the DMS ecosystem.
Gross profit for Marketplace decreased for the year ended December 31, 2022, primarily driven by macro industry headwinds applying downward pricing pressure impacting revenue performance within our Insurance business as well as the shift in ad spend from non enrollment periods from some of our health insurance partners. The ad spend shift particularly affected the profitability of the Crisp business model due to the more stable nature of call center operations.
Gross profit for Technology Solutions increased for the year ended December 31, 2022, driven by the optimization of media purchasing activity which led to larger budgets and resulted in increased fees in addition to the Traverse acquisition which carries a higher margin profile.
Total gross profit decreased for the year ended December 31, 2022, primarily due to the unexpected impact of inflationary pressures within the insurance industry which led to a decline in click pricing and shifts in health insurance budgets culminating in monetization contraction within the DMS ecosystem.
Salaries and related costs. Total compensation includes salaries, commissions, bonuses, payroll taxes and retirement benefits.
Salaries and related costs increased $1.9 million or 3.9% for the year ended December 31, 2022 due to an increase in headcount from the addition of Crisp Results, DMS Voice licensing, and Traverse plus the subsequent resource expansion required of our workforce to support the Company.
General and administrative. General and administrative consist of expenses incurred in our normal course of business relating to office supplies, computer and technology, rent and utilities, insurance, legal and professional fees, state and local taxes and licenses, penalties and settlements and bad debt expense, as well as sales and marketing expenses relating to advertising and promotion. We also include other expenses such as investment banking expenses, fundraising costs and costs related to the advancement of our corporate social responsibility program.
General and administrative expenses increased $1.8 million or 4.6% for the year ended December 31, 2022 due to acquisition related expenses across multiple categories including software, technology, and professional expenses as well as an overall increase in compliance fees.
Depreciation and amortization. Property, plant and equipment consists of computers and office equipment, furniture and
fixtures, leasehold improvements and internally developed software costs. Intangible assets subject to amortization include technology, customer relationships, brand, and non-competition agreements.
Depreciation and amortization expense increased $2.8 million or 11.2%, during the year ended December 31, 2022 due to intangible assets acquired with Crisp Results and AAP, as well as continued investments in internally developed software, which were placed in service during 2021.
Impairment of intangible assets. The Company determined that the recent economic downturn and inflation, along with the Company’s revenue reduction and decreased stock market price were indicators of impairment under ASC 360-10, Impairment and Disposal of Long-Lived Assets for certain asset groups during 2022. During the year ended December 31, 2022, Impairment of intangible assets increased $21.6 million or 100.0%, due to the Intangible assets within Brand Direct and Marketplace exceeding its recoverability (see Note 6. Goodwill and Intangible Assets).
Acquisition costs. Acquisition related costs are not considered part of the consideration for acquisitions and are expensed as incurred. This includes acquisition incentive compensation and other transaction related costs.
32
Acquisition costs decreased $0.3 million or 16.1% during the year ended December 31, 2022. The changes were primarily due to prior year costs related to the AAP and Crisp acquisitions, as well as the current year’s Traverse acquisition. (see Note 7. Acquisitions).
Interest expense. Interest expense for year ended December 31, 2022 was related primarily to our debt, which carries a variable interest rate based on multiple options at either LIBOR plus 5% or an alternate base rate, plus an agreed upon margin with Truist Bank, the Company’s financial institution since May 25, 2021 (see Note 8. Debt).
Interest expense increased by $3.2 million or 22.6% during the year ended December 31, 2022, primarily due to an approximately 3.0% increase in our LIBOR rate as a result of current financial markets.
Income tax (benefit) expense. The Company recorded income tax benefit of $4.1 million for the year ended December 31, 2022. The blended effective tax rate for the year ended December 31, 2022 was 7.3%, which varies from our statutory U.S. tax rate due to taxable income or loss that is allocated to the non-controlling interest and impact of the valuation allowance on DMS, Inc.
Non-GAAP Financial Measures
In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this Annual Report includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including adjusted EBITDA, unlevered free cash flow, adjusted net income and adjusted EPS. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below.
As explained further below, we use these financial measures internally to review the performance of our business units without regard to certain accounting treatments, non-operational, extraordinary or non-recurring items. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations. Because of these limitations, management relies primarily on its GAAP results and uses non-GAAP measures only as a supplement.
Adjusted EBITDA, Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion
We use the non-GAAP measures of Adjusted EBITDA,Unlevered Free Cash Flow and Unlevered Free Cash Flow Conversion to assess operating performance. Management believes that these measures provide useful information to investors regarding DMS’s operating performance and its capacity to incur and service debt and fund capital expenditures. DMS believes that these measures are used by many investors, analysts and rating agencies as a measure of performance. By reporting these measures, DMS provides a basis for comparison of our business operations between current, past and future periods by excluding items that DMS does not believe are indicative of our core operating performance.
Financial measures that are non-GAAP should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, DMS relies primarily on its GAAP results and uses Adjusted EBITDA and Unlevered Free Cash Flow only as a supplement.
Adjusted EBITDA is defined as net (loss) income, excluding (a) interest expense, (b) income tax (benefit) expense, (c) depreciation and amortization, (d) impairment of intangible assets, (e) change in fair value of warrant liabilities, (f) debt extinguishment, (g) stock-based compensation, (h) change in Tax Receivable Agreement liability, (i) restructuring costs, (j) acquisition costs, and (k) other expense.
In addition, we adjust to take into account estimated cost synergies related to our acquisitions. These adjustments are estimated based on cost-savings that are expected to be realized within our acquisitions over time as these acquisitions are fully integrated into DMS. These cost-savings result from the removal of cost and or service redundancies that already exist within DMS, technology synergies as systems are consolidated and centralized, headcount reductions based on redundancies, right-sized cost structure of media and service costs utilizing the most beneficial contracts within DMS and the acquired companies with external media and service providers. We believe that these non-synergized costs tend to overstate our expenses during the periods in which such synergies are still being realized.
Furthermore, in order to review the performance of the combined business over periods that extend prior to our ownership of the acquired businesses, we include the pre-acquisition performance of the businesses acquired. Management believes that doing so helps to understand the combined operating performance and potential of the business as a whole and makes it easier to compare performance of the combined business over different periods.
33
Unlevered Free Cash Flow is defined as Adjusted EBITDA, less capital expenditures, and Unlevered Free Cash Flow Conversion is defined as Unlevered Free Cash Flow divided by Adjusted EBITDA.
The following table provides a reconciliation between Adjusted net income and Adjusted EBITDA, and Unlevered Free Cash Flow, from Net loss, the most directly comparable GAAP measure (in thousands):
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net (loss) income | $ | (52,500) | $ | 6,193 | ||||||||||
| Adjustments | ||||||||||||||
| Interest expense | 17,366 | 14,166 | ||||||||||||
| Income tax (benefit) expense | (4,105) | 19,311 | ||||||||||||
| Depreciation and amortization | 28,242 | 25,401 | ||||||||||||
| Impairment of intangible assets | 21,570 | — | ||||||||||||
Change in fair value of warrant liabilities (1) | (3,360) | (18,115) | ||||||||||||
| Change in Tax Receivable Agreement liability | 125 | (15,289) | ||||||||||||
| Loss on debt extinguishment | — | 2,108 | ||||||||||||
| Stock-based compensation expense | 6,656 | 6,463 | ||||||||||||
| Restructuring costs | 2,312 | 1,118 | ||||||||||||
Acquisition costs (2) | 1,650 | 1,967 | ||||||||||||
| Change in fair value of contingent consideration liabilities | 2,583 | 1,106 | ||||||||||||
Other expense (3) | 5,117 | 6,520 | ||||||||||||
| Adjusted net income | 25,656 | 50,949 | ||||||||||||
| Additional adjustments | ||||||||||||||
Pro forma cost savings - Reorganization (4) | — | 31 | ||||||||||||
Pro forma cost savings - Acquisitions (5) | — | 3,330 | ||||||||||||
Acquisitions EBITDA (6) | — | 2,711 | ||||||||||||
Accounts reserved (7) | — | 944 | ||||||||||||
| Adjusted EBITDA | 25,656 | 57,965 | ||||||||||||
| Less: Capital Expenditures | 6,744 | 9,114 | ||||||||||||
| Unlevered free cash flow | $ | 18,912 | $ | 48,851 | ||||||||||
| Unlevered free cash flow conversion | 73.7 | % | 84.3 | % | ||||||||||
______________
(1)Mark-to-market warrant liability adjustments.
(2)Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses.
(3)Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs.
(4)Costs savings as a result of the Company reorganization initiated in Q2 2020.
(5)Cost synergies expected as a result of the full integration of the acquisitions.
(6)Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021.
(7)For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer, which the Company believes will be settled over time.
A reconciliation of Unlevered Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is presented below (in thousands):
34
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Unlevered free cash flow | $ | 18,912 | $ | 48,851 | ||||||||||
| Capital expenditures | 6,744 | 9,114 | ||||||||||||
| Adjusted EBITDA | 25,656 | 57,965 | ||||||||||||
Accounts reserved (1) | — | 944 | ||||||||||||
Acquisitions EBITDA (2) | — | 2,711 | ||||||||||||
Pro forma cost savings - Reorganization (3) | — | 31 | ||||||||||||
Pro forma cost savings - Acquisitions (4) | — | 3,330 | ||||||||||||
| Adjusted net income | 25,656 | 50,949 | ||||||||||||
| Impairment of intangible assets | 21,570 | — | ||||||||||||
Acquisition costs (5) | 1,650 | 1,967 | ||||||||||||
| Change in fair value of contingent consideration liabilities | 2,583 | 1,106 | ||||||||||||
Other expenses (6) | 5,117 | 6,520 | ||||||||||||
| Stock-based compensation | 6,656 | 6,463 | ||||||||||||
| Restructuring costs | 2,312 | 1,118 | ||||||||||||
Change in fair value of warrant liabilities (7) | (3,360) | (18,115) | ||||||||||||
| Loss on debt extinguishment | — | 2,108 | ||||||||||||
| Subtotal before additional adjustments | (10,872) | 49,782 | ||||||||||||
| Less: Interest expense | 17,366 | 14,166 | ||||||||||||
| Less: Income tax (benefit) expense | (4,105) | 19,311 | ||||||||||||
| Less: Change in Tax Receivable Agreement liability - Consolidated statements of operations | 125 | (15,289) | ||||||||||||
| Provision for bad debt | 1,761 | 4,798 | ||||||||||||
| Amortization of right-of-use assets | 937 | — | ||||||||||||
| Loss on disposal of assets | 7 | 8 | ||||||||||||
| Impairment of intangible assets | 21,570 | — | ||||||||||||
| Lease restructuring charges | 438 | 542 | ||||||||||||
| Loss on debt extinguishment | — | 2,108 | ||||||||||||
| Stock-based compensation, net of amounts capitalized | 6,656 | 6,393 | ||||||||||||
| Amortization of debt issuance costs | 1,490 | 1,379 | ||||||||||||
| Deferred income tax (benefit) provision, net | (4,108) | 16,459 | ||||||||||||
| Change in fair value of contingent consideration | 2,583 | 1,106 | ||||||||||||
| Change in fair value of warrant liability | (3,360) | (18,115) | ||||||||||||
| Change in Tax Receivable Agreement liability - Consolidated statements of cash flows | (1,146) | (16,402) | ||||||||||||
| Change in income tax receivable and payable | 9 | (727) | ||||||||||||
| Change in accounts receivable | 1,984 | (8,369) | ||||||||||||
| Change in prepaid expenses and other current assets | 416 | (419) | ||||||||||||
| Change in accounts payable and accrued expenses | (3,055) | (612) | ||||||||||||
| Change in operating lease liabilities | (2,102) | — | ||||||||||||
| Change in other liabilities | (137) | (956) | ||||||||||||
| Net cash (used in) provided by operating activities | $ | (315) | $ | 18,787 | ||||||||||
______________
(1)For the year ended December 31, 2021, represents bad debt expense associated with a specific strategic customer that we believe will be settled over time.
(2)Pre-acquisition Adjusted EBITDA results from the AAP and Crisp Results acquisitions during the year ended December 31, 2021.
(3)Costs savings as a result of the Company reorganization initiated in Q2 2020.
(4)Cost synergies expected as a result of the full integration of the acquisitions.
(5)Includes business combination transaction fees, acquisition incentive payments and pre-acquisition expenses.
(6)Includes legal fees associated with acquisitions and other extraordinary matters, costs related to philanthropic initiatives, and private warrant transaction related costs.
(7)Mark-to-market warrant liability adjustments.
35
Adjusted Net Income and Adjusted EPS
We use the non-GAAP measures Adjusted Net Income and Adjusted EPS to assess operating performance. Management believes that these measures provide investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial and operating performance. Management also believes these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. We define Adjusted Net Income (Loss) as net loss attributable to Digital Media Solutions, Inc. adjusted for (x) costs associated with the change in fair value of warrant liabilities, debt extinguishment, Business Combination, acquisition-related costs, equity based compensation and lease restructuring charges and (y) the reallocation of net income (loss) attributable to non-controlling interests from the assumed acquisition by Digital Media Solutions, Inc. of all units of Digital Media Solutions Holdings, LLC (“DMSH LLC”) (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock of Digital Media Solutions, Inc. on a one-to-one basis. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A Common Stock outstanding, assuming the acquisition by Digital Media Solutions, Inc. of all outstanding DMSH LLC units (other than units held by subsidiaries of Digital Media Solutions, Inc.) for newly-issued shares of Class A Common Stock on a one-to-one-basis.
The following table presents a reconciliation between GAAP Earnings Per Share and Non-GAAP Adjusted Net Income and Adjusted EPS (In thousands, except per share data):
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||
| Net (loss) income | $ | (52,500) | $ | 6,193 | ||||||||||
| Net (loss) income attributable to non-controlling interest | (20,548) | 3,991 | ||||||||||||
| Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted | $ | (31,952) | $ | 2,202 | ||||||||||
| Denominator: | ||||||||||||||
| Weighted average shares - basic | 38,252 | 35,249 | ||||||||||||
| Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan | 27 | 389 | ||||||||||||
| Add: dilutive effects of public warrants | — | 126 | ||||||||||||
| Weighted average shares - diluted | 38,279 | 35,764 | ||||||||||||
| Net (loss) earnings per common share: | ||||||||||||||
| Basic and diluted | $ | (0.84) | $ | 0.06 | ||||||||||
36
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||
| Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted | $ | (31,952) | $ | 2,202 | ||||||||||
| Add adjustments: | ||||||||||||||
| Change in fair value of warrant liabilities | (3,360) | (18,115) | ||||||||||||
| Loss on debt extinguishment | — | 2,108 | ||||||||||||
| Acquisition costs | 1,650 | 1,967 | ||||||||||||
| Change in fair value of contingent consideration liabilities | 2,583 | 1,106 | ||||||||||||
| Restructuring costs | 2,312 | 1,118 | ||||||||||||
| Business combination expenses | — | 3,330 | ||||||||||||
| Stock-based compensation expense | 6,656 | 6,463 | ||||||||||||
| Accounts reserved | — | 944 | ||||||||||||
| 9,841 | (1,079) | |||||||||||||
| Adjusted net (loss) income attributable to Digital Media Solutions, Inc. - basic and diluted | (22,111) | 1,123 | ||||||||||||
| Denominator: | ||||||||||||||
| Weighted-average shares outstanding - basic and diluted | 38,252 | 35,249 | ||||||||||||
| Weighted-average LLC Units of DMSH, LLC that are convertible into Class A common stock | 24,510 | 25,853 | ||||||||||||
| 62,762 | 61,102 | |||||||||||||
| Adjusted EPS - basic and diluted | $ | (0.35) | $ | 0.02 | ||||||||||
Liquidity and Capital Resources
The following table summarizes certain key measures of our liquidity and capital resources (in thousands):
| December 31, 2022 | December 31, 2021 | $ Change | % Change | ||||||||||||||||||||
| Cash | $ | 48,839 | $ | 26,394 | $ | 22,445 | 85 | % | |||||||||||||||
| Availability under revolving credit facility | $ | 10,000 | $ | 50,000 | $ | (40,000) | (80) | % | |||||||||||||||
| Total Debt | $ | 261,625 | $ | 223,875 | $ | 37,750 | 17 | % | |||||||||||||||
Our capital sources are focused on investments in our technology solutions, corporate infrastructure and strategic acquisitions to further expand into new business sectors and/or expand sales in existing sectors. We generate sufficient cash flows for working capital and expect to do so for the foreseeable future.
Our principal sources of liquidity on a short-term basis are Cash and cash equivalents, and cash flows provided by operations. Our primary use of cash is compensation to our employees and payments for general operating expenses and Interest expense.
The Term Loan, which was issued at an original issue discount of 1.80% or $4.2 million, is subject to payment of 1.0% of the original aggregate principal amount per annum paid quarterly, with a bullet payment at maturity. The Term Loan will mature, and the revolving credit commitments under the Revolving Facility will terminate, on May 25, 2026, when any outstanding balances will become due. The Term Loan bears interest at our option, at either (i) adjusted LIBOR plus 5.00% or (ii) the Base Rate plus 4.00%. Since May 25, 2021 our interest rate is based on LIBOR plus 5.00%. For the year ended December 31, 2022, the effective interest rate was 9.28%.
Borrowings under the Revolving Facility bear interest, at our option, at either (i) adjusted LIBOR plus 4.25% or (ii) a base rate (which is equal to the highest of (a) the administrative agent’s prime rate, (b) the federal funds rate, as in effect from time to time, plus 0.50%, (c) one-month LIBOR plus 1.00%, and (d) 1.75% (the “Base Rate”)), plus 3.25%. Under the Revolving Facility, DMS LLC pays a 0.50% per annum commitment fee in arrears on the undrawn portion of the revolving commitments. Since May 25, 2021 our interest rate is based on LIBOR plus 5.00%. The Company drew $5.0 million and $35.0 million on October 4, 2022 and December 29, 2022, respectively. For the year ended December 31, 2022, the effective interest rate was 0.30%.
37
The Company’s ability to borrow amounts under the Credit Facility is conditioned upon its compliance with specified covenants, including certain reporting covenants and financial covenants that, in addition to other items, require the Company to maintain a maximum net leverage ratio (ratio of total debt borrowed by the Company to EBITDA for the four consecutive fiscal quarters most recently ended, subject to certain adjustments set forth in the Credit Facility) not to exceed 4.5:1.0 on the last day of the quarter ended December 31, 2022, which net leverage ratio is adjusted for subsequent quarters as set forth in the Credit Facility. In the event the Company breaches the net leverage ratio, the Company may cure such breach by raising capital through the sale of equity, which capital will be added on a dollar-for-dollar basis to the calculation of EBITDA for purposes of such test period to determine compliance with the financial covenant. There are no limitations on the use of the capital raised in connection with such equity cure. As of December 31, 2022, the Company was in breach of the net leverage ratio, which it cured on March 29, 2023 through the funds received in connection with the issuance of Series A and Series B convertible Preferred stock and Warrants (see Note 17. Subsequent Events). As of December 31, 2022, the Company was in material compliance with all financial covenants after consideration of the equity cure.
Cash flows from operating activities
Net cash (used in) provided by operating activities was $(0.3) million for the year December 31, 2022 as compared to $18.8 million provided by operating activities in the year December 31, 2021. The decrease is primarily attributable to an increase in accounts receivable collections, a decrease in accounts payable and current accrued expenses due to timing of vendor payments, and a decrease in the income tax provision.
Cash flows from investing activities
Net cash used in investing activities for the year December 31, 2022 decreased by $25.0 million or 73% to $9.2 million from $34.2 million for the year December 31, 2021, primarily due to the 2021 AAP and Crisp Results acquisitions when compared to the 2022 Traverse acquisition.
Cash flows from financing activities
Net cash provided by financing activities for the year December 31, 2022 was $32.0 million, reflecting an increase of $21.6 million or 206%, as compared to $10.5 million for the year December 31, 2021. This increase was due to higher required repayments of borrowings of long-term debt and notes payable in the prior year under the Monroe Credit Facility and Insurance Premium Financial Service arrangements. Furthermore, the Company drew down from the revolver.
For the year December 31, 2022, our Unlevered Free Cash Flow conversion rate decreased approximately 10% due to lower business performance.
Off-Balance Sheet Arrangements
We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. In addition, we do not engage in trading activities involving non-exchange traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
We have prepared our consolidated financial statements in accordance with GAAP. In doing so, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses during the reporting period. Actual results could differ significantly from these estimates. A number of the estimates and assumptions relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions.
We believe that the accounting policies listed below involve our more significant judgments, estimates and assumptions and, therefore, could have the greatest potential impact on our consolidated financial statements. In addition, we believe that a discussion of these policies is necessary to understand and evaluate the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report.
Acquisitions
Under the acquisition method of accounting, the Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities are recorded as goodwill.
38
The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. As a result, actual results may differ from these estimates. During the measurement period, the Company may record adjustments to acquired assets and assumed liabilities, with corresponding offsets to goodwill. Upon the conclusion of a measurement period, any subsequent adjustments are recorded to earnings.
At the acquisition date, the Company measures the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies. The Company also measures the fair values of all non-contractual contingencies if, as of the acquisitions date, it is more likely than not that the contingencies will give rise to assets or liabilities.
Acquisition related costs not considered part of the considerations are expensed as incurred and recorded in Acquisition costs within the consolidated statement of operations.
Contingent consideration
The Company recognizes the fair value of any contingent consideration that is transferred to the seller in a business combination on the date at which control of the acquiree is obtained. Contingent consideration is classified as a liability or as equity on the basis of the definitions of an equity instrument and a financial liability. Since the Company’s contingent consideration can be paid in cash or DMS Class A Common Stock, at the election of the Company, the Company classifies its contingent consideration as a liability. Contingent consideration payments related to acquisitions are measured at fair value at each reporting period using Level 3 unobservable inputs. The Company’s estimates of fair value are based upon projected cash flows, estimated volatility and other inputs which are uncertain and involve significant judgments by management. Any changes in the fair value of these contingent consideration payments are included in income from operations in the consolidated statements of operations.
Valuation allowance for deferred tax assets
We establish an income tax valuation allowance when available evidence indicates that it is more likely than not that all or a portion of a deferred tax asset (“DTA”) will not be realized. In assessing the need for a valuation allowance, we consider the amounts and timing of expected future deductions or carryforwards and sources of taxable income that may enable utilization. We maintain an existing valuation allowance until enough positive evidence exists to support its reversal. Changes in the amount or timing of expected future deductions or taxable income may have a material impact on the level of income tax valuation allowances. Our assessment of the realizability of the DTA requires judgment about its future results. Inherent in this estimation is the requirement for us to estimate future book and taxable income and possible tax planning strategies. These estimates require us to exercise judgment about our future results, the prudence and feasibility of possible tax planning strategies, and the economic environment in which the Company does business. It is possible that the actual results will differ from the assumptions and require adjustments to the allowance. Adjustments to the allowance would affect future net income.
Goodwill and other intangible assets
We account for our business combinations using the acquisition accounting method, which requires us to determine the fair value of net assets acquired and the related Goodwill and Intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash flows, discount rates, asset lives and market multiples.
We review Goodwill as of December 31 each year and whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable. We evaluate the recoverability of Goodwill at the reporting unit level. For the year ended December 31, 2022, the result of our annual impairment test indicated that there were no Goodwill impairment indicators, as the carrying value of the reporting units exceeded their fair value. The fair value of each reporting unit for 2022 was estimated using a combination of the income approach, which incorporates the use of the discounted cash flow method, and the market approach, which incorporates the use of earnings and revenue multiples based on market data. The Company’s estimates of fair value are based upon projected cash flows, weighted average cost of capital and other inputs which are uncertain and involve significant judgments by management.
We review Intangible assets with finite lives subject to amortization whenever events or circumstances indicate that a carrying amount of an asset may not be recoverable. We evaluate the recoverability of Intangible assets at the asset group level. Recoverability of these assets is determined by comparing the carrying value of these assets to the estimated undiscounted future cash flows expected to be generated by these asset groups. These asset groups are impaired when their carrying value exceeds their fair value. Impaired Intangible assets with finite lives subject to amortization are written down to their fair value with a charge to expense in the period the impairment is identified. Intangible assets with finite lives are amortized on a straight-line basis with estimated useful lives generally between one and nine years. Events or circumstances that might require impairment testing include the loss of a significant client, the identification of other impaired assets within a reporting unit, loss
39
of key personnel, the disposition of a significant portion of a reporting unit, significant decline in stock price or a significant adverse change in business climate or regulations. The Company determined that the recent economic downturn and inflation, along with the Company’s revenue reduction and decreased stock market price were indicators of impairment under ASC 360-10, Impairment and Disposal of Long-Lived Assets for certain asset groups during 2022.
Refer to Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this Annual Report, for information on our critical and significant accounting policies.
Recently Issued Accounting Standards
Refer to Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this Annual Report, for a more detailed discussion on recent accounting pronouncements and the related impact on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In addition to the inherent operational risks, the Company is exposed to certain market risks, primarily related to changes in interest rates.
As of December 31, 2022 we had $221.6 million and $40.0 million outstanding under our Term Loan and our Revolving Facility, respectively, which had an effective rate of 9.28% and 0.30%, respectively, for the year ended December 31, 2022.
Our credit facility references LIBOR as the benchmark interest rate for our debt and will continue to do so until LIBOR no longer supports rate information at various tenor’s used in our debt portfolio. Our credit facility provides an alternative benchmark interest rate using the Secured Overnight Financing Rate (“SOFR”) in the event LIBOR is no longer available. It is not expected that this change in rates will have a material impact on our financial position or results or operations, but we will continue to actively assess the related opportunities and risks involved in this transition.
Refer to Note 8. Debt in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this Annual Report, for further details on our debt.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 7A.
Item 8. Financial Statements and Supplementary Data.
Our financial statements for the fiscal years ended December 31, 2022 and 2021, and the reports thereon of the independent registered public accounting firms are included in this Annual Report.
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Digital Media Solutions, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Digital Media Solutions, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of operations, changes in deficit, and cash flows for the year then ended, and the related notes and financial statement schedule included under Item 15(a) (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, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Change in accounting principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in 2022 due to the adoption of Accounting Standards Codification 842, Leases.
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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since 2022.
March 31, 2023
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Digital Media Solutions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Digital Media Solutions, Inc. (the Company) as of December 31, 2021, the related consolidated statements of operations, changes in deficit and cash flows for the year ended December 31, 2021, and the related notes and consolidated financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
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.
/s/ Ernst & Young LLP
We served as the Company's auditor from 2020 to 2022.
March 16, 2022
42
DIGITAL MEDIA SOLUTIONS, INC.
Consolidated Balance Sheets
(in thousands, except per share par value)
| December 31, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ | |||||||||||
| Prepaid and other current assets | |||||||||||
| Income tax receivable | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Deficit | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
| Income taxes payable | ( | ||||||||||
| Tax Receivable Agreement liability | |||||||||||
| Operating lease liabilities - current | |||||||||||
| Contingent consideration payable - current | |||||||||||
| Deferred acquisitions consideration payable - current | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred tax liabilities | |||||||||||
Operating lease liabilities - non-current | |||||||||||
| Private Placement Warrant liabilities | |||||||||||
| Contingent consideration payable - non-current | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders' deficit: | |||||||||||
Preferred stock, $ | |||||||||||
Class A Common Stock, $ | |||||||||||
Class B convertible common stock, $ | |||||||||||
Class C convertible common stock, $ | |||||||||||
| Additional paid-in capital | ( | ( | |||||||||
Treasury stock, at cost, | ( | ||||||||||
| Cumulative deficit | ( | ( | |||||||||
| Total stockholders' deficit | ( | ( | |||||||||
| Non-controlling interest | ( | ( | |||||||||
| Total stockholders' deficit | ( | ( | |||||||||
| Total liabilities and stockholders' deficit | $ | $ | |||||||||
The accompanying notes are an integral part of the audited consolidated financial statements.
43
DIGITAL MEDIA SOLUTIONS, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net revenue | $ | $ | ||||||||||||
| Cost of revenue (exclusive of depreciation and amortization) | ||||||||||||||
| Salaries and related costs | ||||||||||||||
| General and administrative expenses | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Impairment of intangible assets | ||||||||||||||
| Acquisition costs | ||||||||||||||
| Change in fair value of contingent consideration liabilities | ||||||||||||||
| (Loss) income from operations | ( | |||||||||||||
| Interest expense | ||||||||||||||
| Change in fair value of warrant liabilities | ( | ( | ||||||||||||
| Change in Tax Receivable Agreement liability | ( | |||||||||||||
| Loss on debt extinguishment | ||||||||||||||
| Loss on disposal of assets | ||||||||||||||
| Net (loss) income before income taxes | ( | |||||||||||||
| Income tax (benefit) expense | ( | |||||||||||||
| Net (loss) income | ( | |||||||||||||
| Net (loss) income attributable to non-controlling interest | ( | |||||||||||||
| Net (loss) income attributable to Digital Media Solutions, Inc. | $ | ( | $ | |||||||||||
| Weighted-average shares outstanding - basic | ||||||||||||||
| Weighted-average shares outstanding - diluted | ||||||||||||||
| (Loss) earnings per share attributable to Digital Media Solutions, Inc.: | ||||||||||||||
| Basic and diluted - per common shares | $ | ( | $ | |||||||||||
The accompanying notes are an integral part of the audited consolidated financial statements.
44
DIGITAL MEDIA SOLUTIONS, INC.
Consolidated Statements of Changes in Deficit
(in thousands, except share data)
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Treasury Stock | Cumulative Deficit | Total Stockholders' Deficit | Non- controlling Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with the Crisp Earnout (Note 7) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under the 2020 Omnibus Incentive Plan | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interest holders (2) | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock purchased under the 2020 Omnibus Incentive Plan | ( | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Impact of transactions affecting non-controlling interest (3) | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||
____________________
(1) On January 17, 2022, the Sellers of SmarterChaos redeemed their remaining non-controlling interest held through DMSH Units in exchange for 153 thousand shares of Class A Common Stock in DMS, Inc. The non-controlling interest held by the Sellers of SmarterChaos did not include related Class B Common Stock to be retired upon redemption.
(2) Represents tax distributions to shareholders Prism, Clairvest and the Sellers of SmarterChaos. As of December 31, 2022, $10 thousand of these distributions have not been paid.
(3) The carrying amount of non-controlling interest was adjusted primarily to reflect the change in ownership interest caused by additional DMSH units redeemed and issued to Class A Common Stock by the Sellers of SmarterChaos, shares issued in connection with the Crisp Earnout and shares issued under the 2020 Omnibus Incentive Plan.
45
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Earnings | Total Stockholders' Deficit | Non- controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with acquisition of Aramis, PushPros, and Aimtell (Note 6) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with acquisition of Crisp Results (Note 6) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants to issue Class A Common Stock | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Prism shares redeemed and issued to Class A Common Stock | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
SmarterChaos DMSH units redeemed and issued to Class A Common Stock (1) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Directors and employee vested units issued | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interest holders (2) | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Correction of Business Combination Tax Receivable Agreement | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Impact of transactions affecting non-controlling interest (3) | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Other (4) | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||
____________________
(1) On June 30, 2021, the sellers of SmarterChaos redeemed approximately one-half of their non-controlling interest held through DMSH Units in exchange for Class A Common Stock in DMS Inc. The non-controlling interest held by the Sellers of SmarterChaos did not include related Class B Common Stock to be retired upon redemption.
(2) Represents tax distribution to former owners of Prism, Clairvest and the Sellers of SmarterChaos.
(3) The carrying amount of non-controlling interest was adjusted primarily to reflect the change in ownership interest caused by additional controlling shares contributed as a result of the Crisp acquisition and non-controlling redemptions by Prism and the Sellers of SmarterChaos.
(4) Includes costs associated with the issuance of equity shares, other distribution costs, and other tax adjustments associated with the Tax Receivable Agreement.
The accompanying notes are an integral part of the audited consolidated financial statements.
46
DIGITAL MEDIA SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(in thousands)
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net income to net cash from operating activities | |||||||||||
| Provision for bad debt | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of right-of-use assets | |||||||||||
| Loss on disposal of assets | |||||||||||
| Impairment of intangible assets | |||||||||||
| Lease restructuring charges | |||||||||||
| Loss on debt extinguishment | |||||||||||
| Stock-based compensation, net of amounts capitalized | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Deferred income tax (benefit) provision, net | ( | ||||||||||
| Change in fair value of contingent consideration | |||||||||||
| Change in fair value of warrant liability | ( | ( | |||||||||
| Change in Tax Receivable Agreement liability | ( | ( | |||||||||
| Change in income tax receivable and payable | ( | ||||||||||
| Change in accounts receivable | ( | ||||||||||
| Change in prepaid expenses and other current assets | ( | ||||||||||
| Change in accounts payable and accrued expenses | ( | ( | |||||||||
| Change in operating lease liabilities | ( | ||||||||||
| Change in other liabilities | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flows from investing activities | |||||||||||
| Additions to property and equipment | ( | ( | |||||||||
| Acquisition of businesses, net of cash acquired | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from borrowings on revolving credit facilities | |||||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Payments of long-term debt and notes payable | ( | ( | |||||||||
| Payments of borrowings on revolving credit facilities | ( | ||||||||||
| Payment of debt issuance costs | ( | ||||||||||
| Tax withholding on share based awards | ( | ||||||||||
| Payment of equity issuance | ( | ||||||||||
| Payment of early termination | ( | ||||||||||
| Proceeds from warrants exercised | |||||||||||
| Purchase of treasury stock related to stock-based compensation | ( | ||||||||||
| Distributions to non-controlling interest holders | ( | ( | |||||||||
| Payment of deferred consideration payable | ( | ||||||||||
| Other | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
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| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
| Cash Paid During the Period For | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | |||||||||||
| Non-Cash Transactions: | |||||||||||
| Contingent and deferred acquisition consideration | $ | $ | |||||||||
| Stock-based compensation capitalized in property and equipment | |||||||||||
| Capital expenditures included in accounts payable | |||||||||||
| Issuance of equity for AAP and Crisp Results | |||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
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DIGITAL MEDIA SOLUTIONS, INC.
Notes to Consolidated Financial Statements
Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
Digital Media Solutions, Inc. (“DMS Inc.”) is a digital performance marketing company offering a diversified lead and software delivery platform that drives high value and high intent leads to its customers. As used in this Annual Report, the “Company” refers to DMS Inc. and its consolidated subsidiaries, (including its wholly-owned subsidiary, CEP V DMS US Blocker Company, a Delaware corporation (“Blocker”)). The Company is headquartered in Clearwater, Florida. The Company primarily operates and derives most of its revenues in the United States.
Leo Holdings Corp. (“Leo”), a special purpose acquisition company, was incorporated on November 29, 2017 as a Cayman Islands exempted company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving the Company and one or more businesses. On July 15, 2020, Leo consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) and domesticated as a corporation incorporated in the state of Delaware. At the closing of the Business Combination (the “Closing”), Leo acquired the equity in Blocker and a portion of the equity of Digital Media Solutions Holding, LLC (“DMSH”), Blocker became the sole managing member of DMSH, and Leo was renamed Digital Media Solutions, Inc.
As the Business Combination was structured as a reverse recapitalization, the historical operations of DMSH are deemed to be those of the Company. Thus, the financial statements included in this Annual Report reflect (i) the historical operating results of DMSH prior to the Business Combination; (ii) the combined results of the Company following the Business Combination; (iii) the assets and liabilities of Leo at historical cost; and (iv) the Company’s equity and (loss) earnings per share for all periods presented. Refer to Note 2. Business Combination for additional discussion related to the transaction.
The Company operates as a performance marketing engine for companies across numerous industries, including consumer finance (mortgage), education (split between non-profit and for-profit), automotive (aftermarket auto warranty, auto insurance), insurance (health, homeowners), home services (home security), brand performance (consumer products), gig, health and wellness, and career (job pursuit). Through its agency business, DMS provides access and control over the advertising spend of clients, and also offers marketing automation software as a service (SaaS) to clients.
The Company has organized its operations into three reportable segments. The Brand Direct reportable segment consists of services delivered against an advertiser’s brand, while the Marketplace reportable segment is made up of services delivered directly against the DMS brand. In the Technology Solutions reportable segment, services offered by DMS include SaaS and digital media services that are managed on behalf of the customer (i.e., managed services).
Correction of Tax Receivable Agreement liability as of Business Combination date
Through the completion of the 2020 tax return during the third quarter of 2021, we identified an error recorded upon the Business Combination that resulted in a decrease in the Deferred tax assets (“DTAs”) of $2.1 million, a decrease in the Tax Receivable Agreement liability of $1.8 million and a decrease in Additional paid-in capital of $0.3 million, as compared to the amounts recorded in the consolidated balance sheets as of December 31, 2020. As the effect of the correction to these accounts was not material to the prior period financial statements, we elected to correct the balance in the 2021 year, with the offset to Additional paid-in capital, which was consistent with the method to record the DTAs and Tax Receivable Agreement liability on the date of the Business Combination. There was no impact to continuing operations, net income, or related per-share amounts for the year ended December 31, 2021. The correction had no impact to the consolidated financial statements for the year ended December 31, 2022.
Principles of consolidation
The Company consists of DMS Inc. and its wholly-owned subsidiary, Blocker. Pursuant to the Business Combination, DMS Inc. acquired, directly and through its acquisition of the equity of Blocker, approximately 60.9 % of the membership interest in DMSH, while the Sellers (as defined in Note 2. Business Combination) retained approximately 39.1 % of the membership interest in DMSH (“non-controlling interests”).
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Reclassification
Certain amounts in prior period related to the classification of telecommunication costs for our call center have been reclassified from General and administrative expenses to Cost of revenue (exclusive of depreciation and amortization) to conform to the current period presentation in the consolidated statements of operations and the respective accompanying notes. These reclassifications had no impact on Net (loss) income and on (Loss) earnings per share for the years ended December 31, 2022 and 2021, respectively. These reclassifications had no impact on the consolidated balance sheets and the consolidated statements of cash flows.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported as separate financial statement line items in the consolidated financial statements. Actual results could differ from those estimates. Management regularly makes estimates and assumptions that are inherent in the preparation of the consolidated financial statements including, but not limited to, the fair value of private placement warrants, the allowance for doubtful accounts, stock-based compensation, fair value of intangibles acquired in business combinations, loss contingencies, contingent consideration liabilities, intangible asset impairments, and deferred taxes and amounts associated with the Tax Receivable Agreement.
Revenue recognition
The Company derives revenue primarily from fees earned through the delivery of qualified clicks, leads, inquiries, calls, applications, customers and, to a lesser extent, display advertisements, or impressions. The Company recognizes revenue when the Company transfers promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company recognizes revenue pursuant to the five-step framework contained in ASC 606, Revenue from Contracts with Customers: (i) identify the contract with a client; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations.
As part of determining whether a contract exists, probability of collection is assessed on a client-by-client basis at the outset of the contract. If it is determined from the outset of an arrangement that the client does not have the ability or intention to pay, the Company will conclude that a contract does not exist and will continuously reassess its evaluation until the Company is able to conclude that a contract does exist.
Generally, the Company’s contracts specify the period of time as one month, but in some instances the term may be longer. However, for most of the Company’s contracts with clients, either party can terminate the contract at any time without penalty. Consequently, enforceable rights and obligations only exist on a day-to-day basis, resulting in individual daily contracts during the specified term of the contract or until one party terminates the contract prior to the end of the specified term.
The Company has assessed the services promised in its contracts with clients and has identified one performance obligation, which is a series of distinct services. Depending on the client’s needs, these services consist of a specified number or an unlimited number of clicks, leads, calls, applications, customers, etc. (hereafter collectively referred to as “marketing results”) to be delivered over a period of time. The Company satisfies these performance obligations over time as the services are provided. The Company does not promise to provide any other significant goods or services to its clients.
Transaction price is measured based on the consideration that the Company expects to receive from a contract with a client. The Company’s contracts with clients contain variable consideration as the price for an individual marketing result varies on a day-to-day basis depending on the market-driven amount a client has committed to pay. However, because the Company ensures the stated period of its contracts does not generally span multiple reporting periods, the contractual amount within a period is based on the number of marketing results delivered within the period. Therefore, the transaction price for any given period is fixed and no estimation of variable consideration is required.
If a marketing result delivered to a client does not meet the contractual requirements associated with that marketing result, the Company’s contracts allow for clients to return a marketing result generally within 5-10 days of having received the marketing result. Such returns are factored into the amount billed to the client on a monthly basis and consequently result in a reduction to revenue in the same month the marketing result is delivered. No warranties are offered to the Company’s clients.
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The Company does not allocate transaction price as the Company has only one performance obligation and its contracts do not generally span multiple periods. Taxes collected from clients and remitted to governmental authorities are not included in revenue. The Company elected to use the practical expedient which allows the Company to record sales commissions as expense as incurred when the amortization period would have been one year or less.
The Company bills clients monthly in arrears for the marketing results delivered during the preceding month. The Company’s standard payment terms are 30-60 days. Consequently, the Company does not have significant financing components in its arrangements.
Separately from the agreements the Company has with clients, the Company has agreements with Internet search companies, third-party publishers and strategic partners that we engage with to generate targeted marketing results for its clients. The Company receives a fee from its clients and separately pays a fee to the Internet search companies, third-party publishers and strategic partners. Other than certain of its managed services arrangements, the Company is the principal in the transaction. For the transactions where the Company is the principal, the fees paid by its clients are recognized as revenue and the fees paid to its Internet search companies, third-party publishers and strategic partners are included in cost of revenue.
Customer acquisition
The Company’s performance obligation for Customer acquisition contracts is to deliver an unspecified number of potential customers or leads (i.e., number of clicks, emails, calls and applications) to the customer in real-time, on a daily basis as the leads are generated, based on predefined qualifying characteristics specified by our customer. The contracts generally have a one-month term and the Company has an enforceable right to payment for all leads delivered to the customer. The Company’s customers simultaneously receive and consume the benefits provided, as the Company satisfies its performance obligations. The Company recognizes revenue as the performance obligations are satisfied over time.
When there is a delay between the period in which revenue is recognized and when a customer invoice is issued, revenue is recognized and the corresponding amounts are recorded as unbilled revenue (i.e., contract assets) within Accounts receivable, net on the consolidated balance sheets. In line with industry practice, the Company applies the constraint on variable consideration and records revenue based on internally tracked conversions (leads delivered), net of the amount tracked and subsequently confirmed by customers. A significant portion of the unbilled estimated revenue balance is finalized and invoiced to customers within sixty days following the period of service. Any remaining estimates are finalized and invoiced as billing totals are reconciled with the customer. Historical estimates related to unbilled revenue have not been materially different from actual revenue billed.
Managed services
The Company’s performance obligation for Managed service contracts is to provide continuous service of managing the customer’s media spend for the purpose of generating leads through a third-party supplier of leads, as requested by our customer. Each month of service is distinct, and any variable consideration is allocated to a distinct month. Therefore, revenue is recognized as the performance obligation is satisfied each month and there is no estimation of revenue required at each reporting period for managed services contracts.
The Company enters into agreements with internet search companies, third-party publishers and/or strategic partners to generate customer acquisition services for their Managed service customers. The Company receives a fee from its customers and separately pays a fee to the internet search companies, third-party publishers and/or strategic partners. The third-party supplier is primarily responsible for the performance and deliverable to the customer, and the Company solely arranges for the third-party supplier to provide services to the customer. Therefore, in certain cases, the Company acts as the agent and the net fees earned by the Company are recorded as revenue, with no associated costs of revenue attributable to the Company.
Software services
The Company’s performance obligation for Software services contracts is to provide the customer with continuous, daily access to the Company’s proprietary software. Service provided each month is distinct, and any variable consideration is allocated to a distinct month. Therefore, revenue is recognized as the performance obligations are satisfied each month and there is no estimation of revenue required at each reporting period for Software services contracts.
Cost of revenue
Cost of revenue primarily includes media and related costs, which consist of the cost to acquire traffic through the purchase of impressions, clicks or actions from publishers or third-party intermediaries, such as advertising exchanges, and technology costs that enable media acquisition. These media costs are used primarily to drive user traffic to the Company’s and its clients’ media properties. Cost of revenue additionally consists of indirect costs such as data verification, hosting and fulfillment costs. Cost of revenue is presented exclusive of Depreciation and amortization expenses, as well as Salaries and related costs.
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Cash and cash equivalents
Property and equipment, net
Property and equipment are recorded at cost, net of accumulated Depreciation and amortization. Property and equipment consist of computer and office equipment, furniture and fixtures and leasehold improvements, which are depreciated on a straight-line basis over the estimated useful lives of the assets.
Costs for websites and internal-use software are capitalized as Property and Equipment, net on the Consolidated Balance Sheets during the application stages. Any initial research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance, general and administrative or overhead costs are expensed as incurred. Qualified costs incurred during the operating stage of our websites and software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to, websites and internal‑use software are expensed as incurred.
Capitalized software development costs are amortized on a straight line basis over the estimated useful life or 3 years, whichever is shorter. Website and software development costs that do not qualify for capitalization are expensed as incurred - through salaries and related costs for employees time or through cost of goods sold for third-party maintenance efforts, which are recorded in Salaries and related costs or in General and administrative expenses, respectively, within the consolidated statements of operations. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including estimated economic life.
Management regularly assesses the carrying value of its long-lived assets to be held and used, including property and equipment and intangible assets, for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. If such events or circumstances are present, a loss is recognized to the extent the carrying value of the asset is in excess of estimated fair value.
Lease accounting
The Company classifies its lease arrangements at inception as either operating leases or finance leases. A lease is classified as a finance lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if none of the five criteria described above for finance lease classification is met.
We determine if an arrangement is a lease at inception of the contract. Our right of use assets represents our right to use the underlying assets for the lease term and our lease liabilities represent our obligation to make lease payments arising from the leases. Right of use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.
The Company's lease arrangements consist of real estate operating leases for office space which generally contain an initial term of to seven years and are renewable (and cancellable after a notice period) at the Company's option. In general, we do not consider renewal options to be reasonably likely to be exercised, therefore, renewal options are not recognized as part of our right‑of‑use assets and lease liabilities recorded on the consolidated balance sheets. All of the Company’s leases for which we are a lessee are classified as operating leases in accordance with ASC 842, Lease Accounting (“ASC 842”). Our right-of-use assets associated with operating leases are included in Operating lease right-of-use assets, net on the Company's consolidated
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balance sheets. Current and long-term portions of lease liabilities related to operating leases are included in Operating lease liabilities - current and Operating lease liabilities - non-current on the Company's consolidated balance sheets. As of December 31, 2022, the Company has six leased properties, representing 87,030 square feet of office space located in the United States.
In assessing our real estate operating leases and determining the lease liability, we were not able to readily determine the discount rate implicit in the lease arrangements, and thus used the lease commencement date and determined the incremental borrowing rate range between 3.40 % and 4.23 % for the leases on a collateralized basis to calculate the present value of the lease payments. Our operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of the remaining lease payments at the discount rate. Certain adjustments to the right-of-use asset may be required for items such as incentives received, initial direct cost, and prepaid lease payments. The Company's right-of-use assets are measured as the balance of the lease liability plus any prepaid or accrued lease payments and any unamortized initial direct costs less any lease incentives received. Additionally, certain amounts related to our lease arrangements that were previously reported as part of our lease abandonment reserve have been reflected as impairment reducing the Operating lease right-of-use assets, net on the company’s consolidated balance sheets. The Company has no finance leases.
Operating lease expenses are recognized on a ratable basis, regardless of whether the payment terms require the Company to make payments annually, quarterly, monthly, or for the entire term in advance. Certain of the Company's lease agreements contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses. If the payment terms include fixed escalator provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line expense over the contract's estimated lease term, including any renewal option periods that the Company may deem reasonably certain to be exercised.
The majority of the Company's lease agreements have certain termination rights that provide for cancellation after a notice period and multiple renewal options at the Company's option. The Company includes renewal option periods in its calculation of the estimated lease term when it determines that the options are reasonably certain to be exercised. When such renewal options are deemed to be reasonably certain, the estimated lease term determined under ASC 842 will be greater than the non-cancelable term of the contractual arrangement. Although certain renewal periods are included in the estimated lease term, the Company would have the ability to terminate or elect to not renew a particular lease if business conditions warrant such a decision.
For additional information on leases, see Note 9. Leases.
Goodwill and intangible assets
We account for our business combinations using the acquisition accounting method, which requires us to determine the fair value of net assets acquired and the related Goodwill and Intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash flows, discount rates, asset lives and market multiples.
We review Goodwill as of December 31 each year and whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable. We evaluate the recoverability of Goodwill at the reporting unit level. For the year ended December 31, 2022, the result of our annual impairment test indicated that there were no Goodwill impairment indicators, as the carrying value of the reporting units exceeded their fair value. The fair value of each reporting unit for 2022 was estimated using a combination of the income approach, which incorporates the use of the discounted cash flow method, and the market approach, which incorporates the use of earnings and revenue multiples based on market data. The Company’s estimates of fair value are based upon projected cash flows, weighted average cost of capital and other inputs which are uncertain and involve significant judgments by management.
We review Intangible assets with finite lives subject to amortization whenever events or circumstances indicate that a carrying amount of an asset may not be recoverable. We evaluate the recoverability of Intangible assets at the asset group level. Recoverability of these assets is determined by comparing the carrying value of these assets to the estimated undiscounted future cash flows expected to be generated by these asset groups. These asset groups are impaired when their carrying value exceeds their fair value. Impaired Intangible assets with finite lives subject to amortization are written down to their fair value with a charge to expense in the period the impairment is identified. Intangible assets with finite lives are amortized on a straight-line basis with estimated useful lives generally between one and nine years. Events or circumstances that might require impairment testing include the loss of a significant client, the identification of other impaired assets within a reporting unit, loss of key personnel, the disposition of a significant portion of a reporting unit, significant decline in stock price or a significant adverse change in business climate or regulations. The Company determined that the recent economic downturn and inflation, along with the Company’s revenue reduction and decreased stock market price were indicators of impairment under ASC 360-10, Impairment and Disposal of Long-Lived Assets for certain asset groups during 2022. As a result, the Company
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calculated the fair value of the finite-lived intangible assets. Intangible assets included technology, brand, and customer relationships. The fair value of technology was determined using the Multi Period Excess Earnings Approach; fair value of the customer relationships was determined using the Excess Earnings Method; and fair value of the brand was determined using the Relief from Royalty Method. As a result, of the fair value being lower than the carrying value for certain assets, the Company recorded impairment loss of $0.9 million and $20.7 million to Intangible assets which are in asset groups included in Brand Direct and Marketplace reporting units, respectively, for the year ended December 31, 2022.
Determining fair value requires the use of estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating profit margins, royalty rates, weighted average costs of capital, terminal growth rates, future market share, the impact of new product development, and future market conditions, among others. The Company recognizes a Goodwill impairment charge for the amount by which the carrying value of Goodwill exceeds the reporting unit’s fair value.
Intangible assets with finite lives are amortized based on the estimated consumption of the economic benefit over their estimated useful lives.
For additional information on Goodwill and Intangibles assets, see Note 6. Goodwill and Intangible Assets.
Contingencies
The Company is subject to legal, regulatory and other proceedings and claims that arise in the ordinary course of business. An estimated liability is recorded for those proceedings and claims when the loss from such proceedings and claims becomes probable and reasonably estimable. Outstanding claims are reviewed with internal and external counsel to assess the probability and the estimates of loss, including the possible range of an estimated loss. The risk of loss is reassessed each period and as new information becomes available, liabilities are adjusted as appropriate. The actual cost of resolving a claim may be substantially different from the amount of the liability recorded. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the consolidated financial position but could possibly be material to the consolidated results of operations or cash flows for any one period.
Acquisitions
Under the acquisition method of accounting, the Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities are recorded as goodwill.
The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. As a result, actual results may differ from these estimates. During the measurement period, the Company may record adjustments to acquired assets and assumed liabilities, with corresponding offsets to goodwill. Upon the conclusion of a measurement period, any subsequent adjustments are recorded to earnings.
At the acquisition date, the Company measures the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies. The Company also measures the fair values of all non-contractual contingencies if, as of the acquisitions date, it is more likely than not that the contingencies will give rise to assets or liabilities.
Acquisition related costs not considered part of the considerations are expensed as incurred and recorded in Acquisition costs within the consolidated statement of operations.
Contingent consideration
The Company recognizes the fair value of any contingent consideration that is transferred to the seller in a business combination on the date at which control of the acquiree is obtained. Contingent consideration is classified as a liability or as equity on the basis of the definitions of an equity instrument and a financial liability. Since the Company’s contingent consideration can be paid in cash or DMS Class A Common Stock, at the election of the Company, the Company classifies its contingent consideration as a liability. Contingent consideration payments related to acquisitions are measured at fair value at each reporting period using Level 3 unobservable inputs. The Company’s estimates of fair value are based upon projected cash flows, estimated volatility and other inputs which are uncertain and involve significant judgments by management. Any changes in the fair value of these contingent consideration payments are included in income from operations in the consolidated statements of operations.
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Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In most cases, the exit price and transaction (or entry) price will be the same at initial recognition. In the Company’s case, the fair value of financial instruments approximates fair value.
The fair value hierarchy uses a framework which requires categorizing assets and liabilities into one of three levels based on the inputs used in valuing the asset or liability.
• Level 1 inputs are unadjusted, quoted market prices in active markets for identical assets or liabilities.
• Level 2 inputs are observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
• Level 3 inputs include unobservable inputs that are supported by little, infrequent or no market activity and reflect management’s own assumptions about inputs used in pricing the asset or liability.
Private Placement Warrant liabilities
The Company Private Placement Warrants are not redeemable by the Company so long as they are held by Sponsor or its permitted transferees. Sponsor, or its permitted transferees, has the option to exercise the Company Private Placement Warrants on a cashless basis. Except for the forgoing, the Company Private Placement Warrants have terms and provisions that are identical to those of the Company Public Warrants. If the Company Private Placement Warrants are held by holders other than Sponsor or its permitted transferees, the Company Private Placement Warrants will be redeemable by Company and exercisable by the holders on the same basis as the Company Public Warrants. See Note 11. Equity for description of the Public Warrants’ terms.
Because the Company’s Private Placement Warrants contain provisions whereby the settlement amount varies depending upon the characteristics of the warrant holder, they meet the definition of a derivative under ASC 815, Derivatives and Hedging. The Private Placement Warrants are recorded as liabilities on the consolidated balance sheets at fair value, with subsequent changes in their respective fair values recognized in the consolidated statements of operations at each reporting date. The Company estimates the Private Placement Warrants fair value using a Black-Scholes-Merton option pricing model using a combination of the historical share price volatility of the Company’s and other similar companies’ share prices and the implied volatility of the public warrants, market price and exercise price and the remaining life of the Private Placement Warrants.
Stock-based compensation
Stock-based compensation is measured using the grant-date fair value of the award of equity instruments, including stock options and restricted stock units (“RSUs”). The expense is recognized over the requisite service period and forfeitures are recognized as incurred.
The fair value of options granted to employees is estimated on the grant date using the Black-Scholes-Merton option valuation model. This valuation model for Stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the expected volatility in the fair market value of the Company’s common stock, a risk-free interest rate and expected dividends. The Company uses the simplified calculation of expected life as the contractual term for options of 10 years is longer than the Company has been publicly traded. The Company does not have enough historical perspective to estimate the volatility of its publicly traded shares in regards to the valuation of its stock options awarded to employees. The Company’s common stock began trading on April 20, 2018; no cash dividends have been declared since that time, and we do not anticipate paying cash dividends in the foreseeable future. Expected volatility is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company uses the straight-line method for expense attribution.
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Income taxes
The Company accounts for income taxes using the asset and liability method. Under this method, DTAs and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of DTAs, management considers whether it is more-likely-than-not that the DTAs will be realized. A valuation allowance will be recorded to reduce DTAs to an amount that is anticipated to be realized on a more likely than not basis. DTAs and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on DTAs and liabilities is recognized in the year of the enacted rate change.
The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.
DMSH, the Company’s accounting predecessor, is a limited liability company treated as a partnership for U.S. federal income tax purposes and is not subject to entity-level U.S. federal income tax, except with respect to UE, which was acquired in November 2019. Because UE Authority, Co (“UE”) is treated as a corporation for U.S. federal income tax purposes, it is subject to entity-level U.S. federal income tax. As a result of the Business Combination, Blocker’s allocable share of earnings from DMSH is also subject to U.S. federal and state and local income taxes.
Tax Receivable Agreement
In conjunction with the Business Combination, DMS Inc. and Blocker also entered into the Tax Receivable Agreement with the Sellers. Pursuant to the Tax Receivable Agreement, DMS Inc. is required to pay the Sellers (i) 85% of the amount of savings, if any, in U.S. federal, state and local income tax that DMS Inc. and Blocker actually realize as a result of (A) certain existing tax attributes of Blocker acquired in the Business Combination, and (B) increases in Blocker’s allocable share of the tax basis of the assets of DMS and certain other tax benefits related to the payment of the cash consideration pursuant to the Business Combination Agreement and any redemptions or exchanges of DMS Units for cash or Class A Common Stock after the Business Combination and (ii) 100 % of certain refunds of pre-Closing taxes of DMSH and Blocker received during a taxable year beginning within two (2 ) years after the Closing. All such payments to the Sellers are the obligation of DMS Inc., and not that of DMSH. As a result of the Business Combination, the Company recorded DTAs and Income tax receivable of $20.1 million and $0.2 million, respectively, with the offset as a long-term Tax Receivable Agreement liability of $16.3 million and Additional paid-in capital of $4.0 million in the consolidated balance sheets. (See Note 12. Related Party Transactions and Note 14. Income Taxes).
Valuation allowances for Deferred tax assets
We establish an income tax valuation allowance when available evidence indicates that it is more likely than not that all or a portion of a deferred tax asset (“DTA”) will not be realized. In assessing the need for a valuation allowance, we consider the amounts and timing of expected future deductions or carryforwards and sources of taxable income that may enable utilization. We maintain an existing valuation allowance until enough positive evidence exists to support its reversal. Changes in the amount or timing of expected future deductions or taxable income may have a material impact on the level of income tax valuation allowances. Our assessment of the realizability of the DTA requires judgment about its future results. Inherent in this estimation is the requirement for us to estimate future book and taxable income and possible tax planning strategies. These estimates require us to exercise judgment about our future results, the prudence and feasibility of possible tax planning strategies, and the economic environment in which the Company does business. It is possible that the actual results will differ from the assumptions and require adjustments to the allowance. Adjustments to the allowance would affect future net income. (See Note 14. Income Taxes).
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New Accounting Standards
Accounting Standards Recently Adopted
In February 2016, the FASB issued authoritative guidance ASC 842, regarding the accounting for leases, and has since issued subsequent updates to the initial guidance. The amended guidance requires the recognition of assets and liabilities for operating leases. In November 2019, the FASB issued amended guidance, which defers for Emerging Growth Companies (“EGC”) the effective date for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. We adopted the standard using the optional transition method whereby we would apply the new lease requirements through a cumulative-effect adjustment on the effective date of adoption, not restate comparative period financial information for the effects of ASC 842, and not make the new required lease disclosures in comparative periods beginning before the effective date. We elected the package of practical expedients permitted under the transition guidance of the new standards, which allowed us to not reassess whether any expired or existing contracts contain leases, allowed us to carry forward the historical lease classification and permitted us to exclude from our assessment initial direct costs for any existing leases. We also made accounting policy elections to exclude leases with an initial term of twelve months or less from our transition adjustment and not to combine both the lease and non-lease components as a single component and account for it as a lease. We adopted this standard in the last fiscal quarter of 2022, with an effective date of January 1, 2022, and we recorded Operating lease liabilities of $6.3 million and Operating leases right-of-use assets of $3.6 million, which is net of lease impairments of $2.5 million. Due to the recognition of the lease liability and a corresponding ROU asset, the new lease standard had a material impact on the Company's consolidated balance sheets, though the adoption’s impact on the Company's consolidated statements of operations or consolidated statements of cash flows was not material. Additionally, the adoption had no impact on the Company's operating practices, cash flows, contractual arrangements, or debt agreements (including compliance with any applicable covenants). Additionally, certain amounts related to our lessee arrangements that were previously reported as part of our lease abandonment reserve have been reflected as impairment reducing Operating lease right-of-use assets, net on the Company's consolidated balance sheets. (See Note 9. Leases).
In September 2017, the FASB issued authoritative guidance on research and development costs in accordance with ASC 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred beginning with tax years ending after December 31, 2021. We have adopted this standard effective tax year beginning January 1, 2022. Our internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.
Accounting Standards Not Yet Adopted
The Company qualifies as an EGC and has elected to adhere to the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows the Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.
In June 2016, the FASB issued authoritative guidance on accounting for credit losses on financial instruments in accordance with ASC 326, Financial Instruments - Credit Losses, including trade receivables, and has since issued subsequent updates to the initial guidance. The amended guidance requires the application of a Current Expected Credit Loss (“CECL”) model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance requires adoption using a modified retrospective approach and is effective for EGC fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This guidance is applicable to the Company beginning with its 2023 first quarter. Management expects the adoption to have an immaterial impact on the consolidated financial statements.
Note 2. Business Combination
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In connection with the consummation of the Business Combination, the following occurred:
•Leo was domesticated and continues as a Delaware corporation, changing its name to “Digital Media Solutions, Inc.”
•The Company was organized into an umbrella partnership-C corporation (or “Up-C”) structure, in which substantially all of the assets and business of the Company are held by DMSH and continue to operate through the subsidiaries of DMSH, and the Company’s sole material assets are the equity interests of DMSH indirectly held by it.
•DMS Inc. consummated the PIPE investment with certain qualified institutional buyers and accredited investors (the “PIPE Investors”), pursuant to which the PIPE Investors collectively subscribed for 10,424,282 shares of Class A Common Stock for an aggregate purchase price of $100.0 million.
•DMS Inc. purchased all of the issued and outstanding common stock of Blocker and a portion of the units of DMSH held by Prism and Clairvest Direct Seller. Those DMSH membership interests were then immediately contributed to the capital of Blocker in exchange for aggregate consideration to the Sellers of $57.3 million in cash, 25,857,070 shares of Class B common stock, 2.0 million warrants to purchase Class A Common Stock, and 17,937,954 shares of Class C Common Stock. Refer to Note 11. Equity for a description of the Company’s Common Stock.
•The Sellers amended and restated the limited liability company agreement of DMSH (the “Amended Partnership Agreement”), to, among other things: (i) recapitalize DMSH such that, as of immediately following the consummation of the Business Combination, Prism and Clairvest Direct Seller collectively own 25,857,070 of DMSH Units and Blocker owns 32,293,793 of DMSH Units; and (ii) provide Clairvest Direct Seller and Prism the right to redeem their DMSH Units for cash or, at the Company’s option, the Company may acquire the DMSH Units in exchange for cash or shares of Class A Common Stock, subject to certain restrictions set forth therein.
•DMS Inc. issued 2.0 million Private Placement Warrants in exchange for previously held warrants in Leo, and an additional approximate 10.0 million Public Warrants were issued in exchange for the warrants offered and sold by Leo in its initial public offering. Refer to Notes 10. Fair Value Measurements and 11. Equity for a description of the Company’s Private Placement and Public Warrants, respectively.
•DMS Inc. obtained $30.0 million in cash for working capital needs and $10.0 million to pay down outstanding indebtedness under the Monroe Capital Management Advisors (as administrative agent and lender) (the “Monroe Facility”).
•The Sellers exercised their right to convert the shares of Class C Common Stock into shares of Class A Common Stock, on a one -for-one basis, in accordance with the new Certificate of Incorporation (the “Conversion”).
•Prism and Clairvest Direct Seller continue to retain a significant continuing equity interest in the Company, representing 44 % of the economic interests in DMSH and 44 % of the voting interest in DMS Inc. (“non-controlling interest”).
•On October 22, 2020, as required by the post-closing working capital adjustment provisions of the Business Combination Agreement, (i) the Company issued (a) 98,783 total additional shares of Class A Common Stock to the Blocker Sellers and (b) 142,394 total additional shares of Class B Common Stock to Prism and Clairvest Direct Seller.
•In conjunction with the Business Combination, DMS Inc. and Blocker also entered into the Tax Receivable Agreement with the Sellers. Pursuant to the Tax Receivable Agreement, DMS Inc. is required to pay the Sellers (i) 85% of the amount of savings, if any, in U.S. federal, state and local income tax that DMS Inc. and Blocker actually realize as a result of (A) certain existing tax attributes of Blocker acquired in the Business Combination, and (B) increases in Blocker’s allocable share of the tax basis of the assets of DMS and certain other tax benefits related to the payment of the cash consideration pursuant to the Business Combination Agreement and any redemptions or exchanges of DMS Units for cash or Class A Common Stock after the Business Combination and (ii) 100 % of certain refunds of pre-Closing taxes of DMSH and Blocker received during a taxable year beginning within (2) years after the Closing. All such payments to the Sellers are the obligation of DMS Inc., and not that of DMSH. Since the year ended December 31, 2021, the Company maintains a full valuation allowance on its DTA related to the Tax Receivable Agreement along with the entire DTA inventory, as these assets are not more likely than not to be realized based on the positive and negative evidence that we considered. See Note 14. Income Taxes for further details.
Note 3. Revenue
The Company derives revenue primarily through the delivery of various types of services, including: customer acquisition, managed services and software as a service (“SaaS”). The Company recognizes revenue when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services. The Company has elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized in the amount to which the Company has the right to invoice for services performed.
The Company has organized its operations into three reportable segments: Brand Direct, Marketplace and Technology Solutions. The Brand Direct reportable segment consists of services delivered against our customer’s brand, while the Marketplace reportable segment includes services delivered directly against the DMS brand. In the Technology Solutions reportable segment, services offered by the Company include software services and digital media services that are managed on
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Disaggregation of Revenue
The following tables presents the disaggregation of revenue by reportable segment and type of service (in thousands):
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||
| Brand Direct | Marketplace | Technology Solutions | Intercompany eliminations | Total | |||||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||||||||
| Customer acquisition | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Managed services | |||||||||||||||||||||||||||||
| Software services | |||||||||||||||||||||||||||||
| Total Net revenue | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||
| Brand Direct | Marketplace | Technology Solutions | Intercompany eliminations | Total | |||||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||||||||
| Customer acquisition | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Managed services | |||||||||||||||||||||||||||||
| Software services | |||||||||||||||||||||||||||||
| Total Net revenue | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
Contract balances
The Company’s contract liabilities result from payments received from clients in advance of revenue recognition as they precede the Company’s satisfaction of the associated performance obligation. If a customer pays consideration before the Company’s performance obligations are satisfied, such amounts are classified as deferred revenue on the consolidated balance sheets. As of December 31, 2022 and 2021, the balance of deferred revenue was $1.0 million and $1.8 million, respectively, and recorded as Accrued expenses and other current liabilities on the consolidated balance sheets. We expect the majority of the deferred revenue balance at December 31, 2022 to be recognized as revenue during the following quarter.
When there is a delay between the completion of our performance obligations and when a customer is invoiced, revenue is recognized and recorded as unbilled revenue (i.e. contract assets) within Accounts receivable, net on the consolidated balance sheets.
For the years ended December 31, 2022 and 2021, one advertising customer accounted for approximately 23.2 % and 13.5 % of our total revenues, respectively.
Note 4. Reportable Segments
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The following tables are a reconciliation of the operations of our segments to (loss) income from operations (in thousands):
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net revenue | $ | $ | ||||||||||||
| Brand Direct | ||||||||||||||
| Marketplace | ||||||||||||||
| Technology Solutions | ||||||||||||||
| Intercompany eliminations | ( | ( | ||||||||||||
| Cost of revenue (exclusive of depreciation and amortization) | ||||||||||||||
| Brand Direct | ||||||||||||||
| Marketplace | ||||||||||||||
| Technology Solutions | ||||||||||||||
| Intercompany eliminations | ( | ( | ||||||||||||
| Gross profit (exclusive of depreciation and amortization) | ||||||||||||||
| Brand Direct | ||||||||||||||
| Marketplace | ||||||||||||||
| Technology Solutions | ||||||||||||||
| Salaries and related costs | ||||||||||||||
| General and administrative expenses | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Impairment of intangible assets | ||||||||||||||
| Acquisition costs | ||||||||||||||
| Change in fair value of contingent consideration liabilities | ||||||||||||||
| (Loss) income from operations | $ | ( | $ | |||||||||||
Note 5. Property and Equipment
The following table presents major classifications of property and equipment and the related useful lives (in thousands, except useful lives):
| Years Ended December 31, | ||||||||||||||||||||
| Useful Lives | 2022 | 2021 | ||||||||||||||||||
| Computers and office equipment | $ | $ | ||||||||||||||||||
| Furniture and fixtures | ||||||||||||||||||||
| Leasehold improvements | ||||||||||||||||||||
| Software development costs | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | ||||||||||||||||||
| Property and equipment, net | $ | $ | ||||||||||||||||||
Depreciation and amortization expense for property and equipment for the years ended December 31, 2022 and 2021 was $8.4 million and $6.2 million, respectively, included in our consolidated statements of operations.
As of December 31, 2022 and 2021, the unamortized balance of capitalized software development costs was $16.0 million and $16.7 million, respectively. Amortization of capitalized software development costs for the years ended December 31, 2022 and 2021 was $7.4 million and $5.5 million, respectively, included in Depreciation and amortization of our consolidated statements of operations.
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Note 6. Goodwill and Intangible Assets
Goodwill
Changes in the carrying value of Goodwill, by reporting segment, were as follows (in thousands):
| Brand Direct | Marketplace | Technology Solutions | Total | |||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||
| Additions (Note 7) | ||||||||||||||||||||||||||
| Balance, December 31, 2021 | ||||||||||||||||||||||||||
| Additions (Note 7) | ||||||||||||||||||||||||||
| Miscellaneous changes | ( | ( | ||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
The carrying amount of Goodwill for all reporting units had no
Intangible assets, net
Finite-lived Intangible assets, net consisted of the following (in thousands):
| December 31, 2022 | |||||||||||||||||||||||||||||
| Amortization Period (Years) | Gross | Accumulated Amortization | Impairment | Net | |||||||||||||||||||||||||
| Technology | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||
| Brand | ( | ( | |||||||||||||||||||||||||||
| Non-competition agreements | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Amortization Period (Years) | Gross | Accumulated Amortization | Net | ||||||||||||||||||||
| Technology | $ | $ | ( | $ | |||||||||||||||||||
| Customer relationships | ( | ||||||||||||||||||||||
| Brand | ( | ||||||||||||||||||||||
| Non-competition agreements | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||||||||
Amortization expense for finite-lived intangible assets is recorded on a straight-line basis. Amortization expense related to finite-lived intangible assets was $19.7 million and $19.1 million for the years ended December 31, 2022 and 2021, respectively.
Amortization expense relating to intangible assets subject to amortization for each of the next five years and thereafter is estimated to be as follows (in thousands):
| 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Impairment analysis
As part of the Company’s annual Goodwill impairment analysis, we determined the fair value of Goodwill at the reporting unit level utilizing a combination of a discounted cash flow analysis incorporating variables such as revenue projections, projected operating cash flow margins, and discount rates, as well as a market-based approach employing comparable sales analysis. The valuation assumptions used in the discounted cash flow model reflect historical performance of the Company, the prevailing values in the Company’s industry, including the extent of the economic downturn related to the recent inflation and its economic contraction and its expected timing of recovery. For the year ended December 31, 2022, the result of our annual impairment test indicated that there were no Goodwill impairment indicators, as the carrying value of the reporting units exceeded their fair value.
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Note 7. Acquisitions
Traverse
On May 10, 2022, the Company acquired Traverse Data, Inc. (“Traverse”). Traverse is a marketing and advertising technology company. The Company paid cash consideration of $2.5 million upon closing of the transaction. The transaction also includes up to $0.5 million in contingent consideration, subject to the achievement of certain milestones, which is payable in cash 15 months after the acquisition date.
During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date.
Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition dates, the following adjustments were recorded related to further analysis of the forecast (for example, items that occurring in the pre-acquisition period that should have been factored into the forecast as of the acquisition date) and refinements to the significant assumptions in the valuation models used to value the intangibles and contingent consideration liabilities. As a result, we have made adjustment to the initial and subsequent fair value of our intangible asset, goodwill, contingent consideration and working capital. The impact of these adjustments are as follows (in thousands):
| Traverse | Acquisition Date Fair Value | Fair Value Mark-to-Market Changes | Revised Acquisition Date Fair Value | |||||||||||||||||
| Goodwill | $ | $ | $ | |||||||||||||||||
| Intangible Assets: | ||||||||||||||||||||
| Technology | $ | $ | ( | $ | ||||||||||||||||
| Customer relationships | $ | $ | $ | |||||||||||||||||
| Brand | $ | $ | $ | |||||||||||||||||
| Non-competition agreements | $ | $ | ( | $ | ||||||||||||||||
| Contingent consideration liability | $ | $ | $ | |||||||||||||||||
| Working capital accounts | $ | ( | $ | $ | ||||||||||||||||
The Company primarily used Income Approach methodologies, which represents Level 3 fair value measurements, to assess the components of its purchase price allocation. The acquisition was accounted for as a business combination, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to Goodwill. The results of operations of the acquired business have been included in the Company’s results of operations since the acquisition date of May 10, 2022. Under Accounting Standards Codification 805 (“ASC 805”), an acquirer must recognize any assets acquired and liabilities
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assumed at the acquisition date, measured at fair value as of that date. Assets meeting the identification criteria included tangible assets, such as real and personal property, and intangible assets. Identified intangible assets included technology, brand, customer relationships and non-competition agreements. Fair value of the technology was determined using the Multi Period Excess Earnings Approach; fair value of the customer relationships was determined using the Excess Earnings Method utilizing distributor inputs; fair value of the brand was determined using the Relief from Royalty Method; and fair value of the non-competition agreements was determined using the Discounted Cash Flow Approach.
The Goodwill related to this transaction reflects the synergies expected from combining the operations of Traverse and is included in the Technology Solutions reportable segment. Goodwill is expected to be deductible for tax purposes. Intangible assets primarily consist of technology, brand and customer relationships with an estimated useful life of five years for technology, three years for brand and five years for customer relationships.
Crisp Results
On April 1, 2021, the Company completed a transaction to purchase the assets of Crisp Marketing, LLC (“Crisp Results” or “Crisp”). Crisp Results is a digital performance advertising company that connects consumers with brands within the insurance sector, with primary focus on the Medicare insurance industry. Crisp Results is known for providing predictable, reliable, flexible and scalable customer acquisition solutions, supporting large brands with a process that combines data, design, technology and innovation.
The Company paid consideration of $40.0 million upon closing of the transaction, consisting of $20.0 million cash and 1.6 million Class A Common Stock valued at $20.0 million. The transaction also included up to $10.0 million in contingent consideration, subject to the achievement of certain milestones, payable in cash or in Class A Common Stock at the election of the Company, and a $5.0 million deferred payment, to be paid 18 months after the acquisition date.
Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition dates, adjustments were recorded related to further analysis of the forecast (for example, items that occurring in the pre-acquisition period that should have been factored into the forecast as of the acquisition date) and refinements to the significant assumptions in the valuation models used to value the intangibles and contingent consideration liabilities. As a result, we made adjustment to the initial and subsequent fair value of the intangible assets, Goodwill, contingent consideration and working capital. Since December 31, 2021, there were no measurement period adjustments identified and recorded. Accounting for the acquisition was completed on March 31, 2022.
As of April 1, 2021, the acquisition date, the fair value of the contingent consideration was $5.2 million. During the year December 31, 2022, the fair value of the contingent consideration increased $2.6 million due to accretion to $10.0 million from December 31, 2021. As of April 1, 2022, the contingent consideration milestones were met, and the Company paid it on July 1, 2022 in the form of 2.99 million unregistered shares of Class A Common Stock, priced at $3.3455 , the average closing price of the Class A common stock during the trading-day period ended March 31, 2022.
As of April 1, 2021, the acquisition date, the fair value of the deferred consideration was $4.6 million. During the year December 31, 2022, the present value of the deferred consideration increased $0.2 million due to accretion to $5.0 million from December 31, 2021. The $5.0 million deferred consideration became due on October 1, 2022, which the Company paid on October 4, 2022.
The Company primarily used Income Approach methodologies, which represents Level 3 fair value measurements, to assess the components of its purchase price allocation. The acquisition was accounted for as a business combination, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to Goodwill. The results of operations of the acquired business have been included in the Company’s results of operations since the acquisition date of April 1, 2021. Under ASC 805, an acquirer must recognize any assets acquired and liabilities assumed at the acquisition date, measured at fair value as of that date. Assets meeting the identification criteria included tangible assets, such as real and personal property, and intangible assets. Identified intangible assets included the brand and customer relationships of the acquired business. Fair value of the Crisp Results brand was determined using the Relief from Royalty Method, and the fair value of customer relationships was determined using the Multi Period Excess Earnings Method.
The Goodwill related to this transaction reflects the workforce and synergies expected from combining the operations of Crisp Results and is included in the Marketplace reportable segment. Goodwill is expected to be deductible for tax purposes.
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Intangible assets primarily consist of brand and customer relationships with an estimated useful life of seven years for brand and six years for customer relationships.
Aimtell, Aramis and PushPros
On February 1, 2021, the Company acquired Aimtell, Inc. (“Aimtell”), PushPros, Inc. (“PushPros”) and Aramis Interactive (“Aramis”, and together with Aimtell and PushPros, “AAP”). Aimtell and PushPros are leading providers of technology-enabled digital performance advertising solutions that connect consumers and advertisers within the home, auto, health and life insurance verticals. Aramis is a network of owned-and-operated websites that leverages the Aimtell and PushPros technologies and relationships.
The Company paid consideration of $20.0 million upon closing of the transaction, consisting of $5.0 million in cash and approximately 1.29 million shares of Class A Common Stock valued at $15.0 million. The transaction also included up to $15.0 million in contingent consideration to be earned over the three years following the acquisition, subject to the achievement of certain milestones. The contingent consideration can be paid in cash or Class A Common Stock at the election of the Company.
Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. As the result of the completed valuation of the assets acquired (including intangibles) and liabilities assumed, as well as the contingent consideration liabilities, as of the acquisition date, we recorded adjustments during the year ended December 31, 2021 related to further analysis of the forecast (for example, items that occurring in the pre-acquisition period that should have been factored into the forecast as of the acquisition date) and refinements to the significant assumptions in the valuation models used to value the intangibles and contingent consideration liabilities. As a result, we made adjustments to the initial and subsequent fair value of the intangible assets, goodwill, contingent consideration and working capital. Since December 31, 2021, there was a $0.1 million measurement period adjustment identified and recorded in Goodwill during the period ended March 31, 2022. Accounting for the acquisition was completed on March 31, 2022.
As of February 1, 2021, the acquisition date, the fair value of the contingent consideration earnout was $2.1 million. As of December 31, 2022, the contingent consideration earnout fair value total changed to $1.0 million, decreasing since December 31, 2021. The contingent consideration can be paid in cash or DMS Class A Common Stock at the election of the Company.
The Company primarily used Income Approach methodologies, which represents Level 3 fair value measurements, to assess the components of its purchase price allocation. The acquisition was accounted for as a business combination, whereby the excess of the fair value of the business over the fair value of identifiable net assets was allocated to Goodwill. The results of operations of the acquired businesses have been included in the Company’s results of operations since the acquisition date of February 1, 2021. Under ASC 805, an acquirer must recognize any assets acquired and liabilities assumed at the acquisition date, measured at fair value as of that date. Assets meeting the identification criteria included tangible assets, such as real and personal property, and intangible assets. Identified intangible assets included the brand, technology, customer relationships and non-competition agreements of the acquired business. Fair value of the Aimtell and PushPros technology was determined using the Multi Period Excess Earnings Method; fair value of the AAP non-compete agreements was determined using a Discounted Cash Flow Approach; fair value of the AAP brand was determined using a Relief from Royalty Method; fair value of the Aramis customer relationships was determined using the Multi Period Excess Earnings Method; and fair value of the Aimtell and PushPros customer relationships was determined using the excess earnings method with distributor inputs.
The Goodwill related to this transaction reflects the workforce and synergies expected from combining the operations of AAP and is included in the Brand Direct reportable segment. Goodwill is expected to be deductible for Aramis and PushPros for tax purposes. Intangible assets primarily consist of technology and customer relationships.
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The acquisition date fair value of assets acquired and liabilities assumed from the AAP, Crisp Results and Traverse acquisitions consist of the following (in thousands):
| Expected Useful Life | AAP | Crisp Results | Traverse | |||||||||||||||||||||||
| 2021 | 2021 | 2022 | ||||||||||||||||||||||||
| Cash | $ | $ | $ | |||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||||
| Technology | ||||||||||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||||||
| Accounts receivable, net | ||||||||||||||||||||||||||
| Brand | ||||||||||||||||||||||||||
| Non-competitive agreements | ||||||||||||||||||||||||||
| Property and equipment | ||||||||||||||||||||||||||
| Accounts payable | ( | ( | ( | |||||||||||||||||||||||
Other assets acquired and liabilities assumed, net (1) | ||||||||||||||||||||||||||
| Net assets and liabilities acquired | $ | $ | $ | |||||||||||||||||||||||
____________________
(1) Other assets acquired and liabilities assumed, net includes prepaids and other current assets, partially offset by other current liabilities (e.g., Travel and expense payables, payroll liabilities, tax liabilities, and transition services payable).
The weighted average amortization period for AAP acquisition technology is 4 years, customer relationships is 4.1 years, brand is 2.1 years and non-compete agreements is 3 years. The weighted average amortization period for Crisp Results acquisition customer relationships is 6 years, and brand is 7 years. The weighted average amortization period for Traverse acquisition technology is 5 years, customer relationships is 5 years, brand is 3 years and non-compete agreements is 1 year. In total, the weighted average amortization period for AAP is 4 years, Crisp Results is 5.6 years and Traverse is 5 years.
The following schedule represents the amounts of net revenue and net loss from operations related to Traverse, AAP and Crisp Results acquisitions which have been included in the consolidated statements of operations for the periods indicated subsequent to the acquisition date in the period of acquisition (in thousands):
| Year Ended December 31, 2022 | ||||||||
| Traverse | ||||||||
| Net revenue | $ | |||||||
| Net income from operations | $ | |||||||
| Year Ended December 31, 2021 | ||||||||||||||
| AAP | Crisp Results | |||||||||||||
| Net revenue | $ | $ | ||||||||||||
| Net (loss) from operations | $ | ( | $ | ( | ||||||||||
Pro Forma Information
The following pro forma financial information represents the consolidated financial information as if the acquisitions had been included in our consolidated results beginning on the first day of the fiscal year prior to their respective acquisition dates (in thousands):
| Year Ended December 31, 2022 | |||||||||||||||||
| (unaudited) | |||||||||||||||||
| DMS | Traverse | Pro Forma | |||||||||||||||
| Net revenue | $ | $ | $ | ||||||||||||||
| Net (loss) from operations | $ | ( | $ | ( | $ | ( | |||||||||||
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| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| DMS | AAP | Crisp Results | Traverse | Pro Forma | |||||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Net income from operations | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Note 8. Debt
The following table presents the components of outstanding debt (in thousands):
| December 31, 2022 | December 31, 2021 | ||||||||||
| Term loan | $ | $ | |||||||||
| Revolving credit facility | |||||||||||
| Total debt | |||||||||||
Less: Unamortized debt issuance costs (1) | ( | ( | |||||||||
| Debt, net | |||||||||||
| Less: Current portion of long-term debt | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
____________________
(1) Includes net debt issuance discount and other costs.
On May 25, 2021, Digital Media Solutions, LLC (“DMS LLC”), as borrower, and DMSH, each of which is a subsidiary of DMS, entered into a five-year $275 million senior secured credit facility (the “Credit Facility”), with a syndicate of lenders (“Lenders”), arranged by Truist Bank and Fifth Third Bank, as joint lead arrangers, and Truist Bank, as administrative agent. The Credit Facility is guaranteed by, and secured by substantially all of the assets of, DMS LLC, DMSH LLC and their material subsidiaries, subject to customary exceptions. Pursuant to the Credit Facility, the Lenders provided DMS LLC with senior secured term loans consisting of a senior secured term loan with an aggregate principal amount of $225 million (the “Term Loan”) and a $50 million senior secured revolving credit facility (the “Revolving Facility”).
The Term Loan, which was issued at an original issue discount of 1.80 % or $4.2 million, is subject to payment of 1.0 % of the original aggregate principal amount per annum paid quarterly, with a bullet payment at maturity. The Term Loan will mature, and the revolving credit commitments under the Revolving Facility will terminate, on May 25, 2026, when any outstanding balances will become due. The Term Loan bears interest at our option, at either (i) adjusted LIBOR plus 5.00 % or (ii) the Base Rate plus 4.00 %. Since May 25, 2021 our interest rate is based on LIBOR plus 5.00 %. For the year ended December 31, 2022, the effective interest rate was 9.28 %.
Borrowings under the Revolving Facility bear interest, at our option, at either (i) adjusted LIBOR plus 4.25 % or (ii) a base rate (which is equal to the highest of (a) the administrative agent’s prime rate, (b) the federal funds rate, as in effect from time to time, plus 0.50 %, (c) one-month LIBOR plus 1.00 %, and (d) 1.75 % (the “Base Rate”)), plus 3.25 %. Under the Revolving Facility, DMS LLC pays a 0.50 % per annum commitment fee in arrears on the undrawn portion of the revolving commitments. Since May 25, 2021 our interest rate is based on LIBOR plus 5.00 %. The Company drew $5.0 million and $35.0 million on October 4, 2022 and December 29, 2022, respectively. For the year ended December 31, 2022, the effective interest rate was 0.30 %.
The initial $4.2 million debt discount and $3.5 million debt issuance cost related to the Term Loan and Revolving Facility is being amortized over the term of the loan using the effective interest method. As of December 31, 2022, the Term Loan debt discount and debt issuance cost classified as debt had a remaining unamortized balance of $3.0 million and $1.8 million, respectively. As of December 31, 2021, the Term Loan debt discount and debt issuance cost included in the carrying value of the debt had a remaining unamortized balance of $3.7 million and $2.4 million, respectively. At December 31, 2022 and December 31, 2021, the unamortized debt issuance cost of $0.6 million and $0.8 million, respectively, associated with the Revolving Facility is classified and amortized as Other assets within the consolidated balance sheets.
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Upon the closing of the Credit Facility, the credit agreement dated as of July 3, 2018, by and among DMS LLC, DMSH, each of their subsidiaries party thereto, various financial institutions party thereto and Monroe Capital Management Advisors, LLC, as administrative agent and lead arranger, and all outstanding amounts thereunder that was previously outstanding with an aggregate principal amount of $210 million was extinguished, and the $15 million revolving credit facility was closed.
The Company’s ability to borrow amounts under the Credit Facility is conditioned upon its compliance with specified covenants, including certain reporting covenants and financial covenants that, in addition to other items, require the Company to maintain a maximum net leverage ratio (ratio of total debt borrowed by the Company to EBITDA for the four consecutive fiscal quarters most recently ended, subject to certain adjustments set forth in the Credit Facility) not to exceed 4.5 :1.0 on the last day of the quarter ended December 31, 2022, which net leverage ratio is adjusted for subsequent quarters as set forth in the Credit Facility. In the event the Company breaches the net leverage ratio, the Company may cure such breach by raising capital through the sale of equity, which capital will be added on a dollar-for-dollar basis to the calculation of EBITDA for purposes of such test period to determine compliance with the financial covenant. There are no limitations on the use of the capital raised in connection with such equity cure. As of December 31, 2022, the Company was in breach of the net leverage ratio, which it cured on March 30, 2023 through the funds received in connection with the issuance of Series A and Series B convertible Preferred stock and Warrants (see Note 17. Subsequent Events). As of December 31, 2022, the Company was in material compliance with all financial covenants after consideration of the equity cure.
Debt Maturity Schedule
The scheduled maturities of our total debt are estimated as follows at December 31, 2022 (in thousands):
| 2023 | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Total debt | $ | |||||||
Note 9. Leases
The following table summarizes the maturities of undiscounted cash flows of operating lease liabilities reconciled to total lease liability as of December 31, 2022 (in thousands):
| Years Ended December 31, | Lease Amounts | ||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| Total | |||||
| Less: Imputed interest | ( | ||||
| Present value of operating lease liabilities | $ | ||||
As of December 31, 2022, the operating lease weighted average remaining lease term is 1.3 years and the operating lease weighted average remaining discount rate is 3.74 %.
The discount rate for each lease represents the incremental borrowing rate that the Company would incur at commencement of the lease to borrow on a collateralized basis over a similar term and amount equal to lease payments in a similar economic environment.
The following table represents the Company’s aggregate lease costs, by lease classification (in thousands):
| Category | Statement of Operations Location | December 31, 2022 | ||||||||||||
| Operating lease costs | General and administrative expenses | $ | ||||||||||||
| Short-term lease costs | General and administrative expenses | |||||||||||||
| Sub-lease income | General and administrative expenses | ( | ||||||||||||
| Total lease costs, net | $ | |||||||||||||
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Note 10. Fair Value Measurements
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The carrying amounts of our Cash and cash equivalents, accounts receivable, Income tax receivable, Accounts payable, accrued expenses and Income taxes payable, approximate fair value because of the short-term maturity of those instruments.
Private Placement Warrants
We record the fair value of the Private Placement Warrants as a liability in our consolidated balance sheets as of December 31, 2022 and 2021, respectively. The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes-Merton valuation model. Changes in fair value of the Private Placement Warrants are presented under Change in fair value of warrant liabilities on the consolidated statements of operations. As of December 31, 2022, the Company has approximately 4.0 million Private Placement Warrants outstanding.
The significant assumptions were as follows:
| December 31, 2022 | ||||||||
| Private Placement Warrants Fair Value Per Share | $ | |||||||
| Private Placement Warrant valuation inputs: | ||||||||
| Stock price - DMS Inc. Class A Common Stock | $ | |||||||
| Strike price - DMS Inc. Class A Common Stock | $ | |||||||
| Remaining contractual term in years | ||||||||
| Estimated volatility | % | |||||||
| Dividend yield | % | |||||||
| Risk free interest rate | % | |||||||
Contingent consideration payable related to acquisitions
The fair value of the contingent considerations payable for the AAP and Traverse acquisitions (described in Note 7. Acquisitions) were determined using a Monte Carlo fair value analysis and a scenario-based methodology, respectively, based on estimated performance and the probability of achieving certain targets. As certain inputs are not observable in the market, the contingent consideration is classified as a Level 3 instrument. Changes in fair value of contingent consideration are presented under Change in fair value of contingent consideration liabilities on the consolidated statements of operations
The contingent consideration payable for the Crisp acquisition was finalized on April 1, 2022, the end of the earnout period. As the full target was met, the payment was made on July 1, 2022 in the form of Class A Common Stock. (See Note 7. Acquisitions).
The contingent consideration for the Aramis acquisition was finalized on December 31, 2022, the end of the earnout period, and will become payable on or before May 10, 2023, in the form of cash or Class A Common Stock, at the election of the Company. (See Note 7. Acquisitions).
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| Aimtell / PushPros | ||||||||
| Revenue Volatility | % | |||||||
| Iteration (actual) | ||||||||
| Risk adjustment discount rate | % | |||||||
| Risk free / Credit risk | % | |||||||
| Days gap from period end to payment | ||||||||
| Traverse | ||||||||
| CYE2023 Earnout Successful Probability | % | |||||||
| Risk free / Credit risk | % | |||||||
| Days gap from period end to payment | ||||||||
The following table presents assets and liabilities measured at fair value on a recurrent basis (in thousands):
| December 31, 2022 | ||||||||||||||||||||||||||||||||
| Category | Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Private Placement Warrant liabilities | Private Placement Warrant liabilities | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Contingent consideration - Aramis | Contingent consideration payable - current | |||||||||||||||||||||||||||||||
| Contingent consideration - Traverse | Contingent consideration payable - current | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||
| Category | Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Private Placement Warrant liabilities | Private Placement Warrant liabilities | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Contingent consideration - Crisp Results | Contingent consideration payable - current | |||||||||||||||||||||||||||||||
| Contingent consideration - Aramis | Contingent consideration payable - non-current | |||||||||||||||||||||||||||||||
| Contingent consideration - Aimtell/PushPros | Contingent consideration payable - non-current | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
The following table represents the change in the warrant liability and contingent consideration (in thousands):
| Private Placement Warrants | Contingent Consideration | |||||||||||||
| Balance, January 1, 2021 | $ | $ | ||||||||||||
| Additions | ||||||||||||||
| Changes in fair value | ( | |||||||||||||
| Settlements | ( | |||||||||||||
| Balance, December 31, 2021 | ||||||||||||||
| Additions | ||||||||||||||
| Changes in fair value | ( | |||||||||||||
| Settlements | ( | |||||||||||||
| Balance, December 31, 2022 | $ | $ | ||||||||||||
Note 11. Equity
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The total amount of the Company’s authorized capital stock consists of (a) 600,000,000 shares of common stock, par value $0.0001 per share, of the DMS Inc., consisting of (i) 500,000,000 shares of Class A Common Stock, (ii) 60,000,000 shares of Class B Common Stock, and (iii) 40,000,000 shares of Class C Common Stock, and (b) 100,000,000 shares of preferred stock, par value $0.0001 per share, of the DMS Inc. (“Company Preferred Stock”). At December 31, 2022, there were 39,956,708 shares of Class A Common Stock outstanding and 25,699,464 shares of Class B Stock outstanding.
Company Common Stock
The following table sets forth the Company’s common stock by class at December 31, 2022:
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Class | Total Shares | Ownership % | Total Shares | Ownership % | ||||||||||||||||||||||
| Class A Common Stock | ||||||||||||||||||||||||||
| Class B Common Stock | ||||||||||||||||||||||||||
| Total Common Stock | ||||||||||||||||||||||||||
Voting Rights
Each holder of Company Common Stock is entitled to one (1 ) vote for each share of Company Common Stock held of record by such holder. The holders of shares of Company Common Stock do not have cumulative voting rights. Except as otherwise required in the Company Certificate of Incorporation or by applicable law, the holders of Class A Common Stock, Class B Common Stock and Class C Common Stock will vote together as a single class on all matters on which stockholders are generally entitled to vote (or, if any holders of Company Preferred Stock are entitled to vote together with the holders of Company Common Stock, as a single class with such holders of Company Preferred Stock).
In addition to any other vote required in the Company Certificate of Incorporation or by applicable law, the holders of Class A Common Stock, Class B Common Stock and Class C Common Stock will each be entitled to vote separately as a class only with respect to amendments to the Company Certificate of Incorporation that increase or decrease the par value of the shares of such class or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. Notwithstanding the foregoing, except as otherwise required by law, holders of Company Common Stock, as such, will not be entitled to vote on any amendment to the Company Certificate of Incorporation (including any Preferred Stock Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to the Company Certificate of Incorporation (including any Preferred Stock Designation relating to any series of Preferred Stock) or pursuant to the General Corporation Law of the State of Delaware (the “DGCL”).
Dividend Rights
Subject to any other provisions of the Company Certificate of Incorporation, as it may be amended from time to time, holders of shares of Class A Common Stock are entitled to receive ratably, in proportion to the number of shares of Class A Common Stock held by them, such dividends and other distributions in cash, stock or property of the Company when, as and if declared thereon by the Company’s board of directors (the “Board”) from time to time out of assets or funds of the Company legally available therefor.
Except as provided in the Company Certificate of Incorporation, dividends and other distributions will not be declared or paid on the Class B Common Stock. Subject to any other provisions of the Company Certificate of Incorporation, as it may be amended from time to time, holders of shares of Class C Common Stock are entitled to receive ratably, in proportion to the number of shares held by them, the dividends and other distributions in cash, stock or property of the Company payable or to be made on outstanding shares of Class A Common Stock that would have been payable on the shares of Class C Common Stock if each such share of Class C Common Stock had been converted into a fraction of a share of Class A Common Stock equal to the Conversion Ratio (as defined in the Company Certificate of Incorporation) immediately prior to the record date for such dividend or distribution. The holders of shares of Class C Common Stock are entitled to receive, on a pari passu basis with the holders of the Class A Common Stock, such dividend or other distribution on the Class A Common Stock when, as and if declared by the Board from time to time out of assets or funds of the Company legally available therefor. At December 31, 2022, there were no shares of Class C Common Stock outstanding.
Redemption
Pursuant to the terms and subject to the conditions of the Amended Partnership Agreement, each holder (other than Blocker) of a DMSH Unit has the right (the “Redemption Right”) to redeem each such DMSH Unit for the applicable Cash Amount (as defined in the Amended Partnership Agreement), subject to the Company’s right, in the sole and absolute discretion of the non-interested members of the Board of Directors, to elect to acquire some or all of such DMSH Units that such holder has tendered
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for redemption for a number of shares of Class A Common Stock, an amount of cash or a combination of both (the “Exchange Option”), in the case of each of the Redemption Right and the Exchange Option, on and subject to the terms and conditions set forth in the Company Certificate of Incorporation and in the Amended Partnership Agreement.
Retirement of Class B Common Stock
In the event that (i) any DMSH Unit is consolidated or otherwise cancelled or retired or (ii) any outstanding share of Class B Common Stock held by a holder of a corresponding DMSH Unit otherwise ceases to be held by such holder, in each case, whether as a result of exchange, reclassification, redemption or otherwise (including in connection with the Redemption Right and the Exchange Option as described above), then the corresponding share(s) of Class B Common Stock, if any, or such share of Class B Common Stock (in the case of (ii)) will automatically and without further action on the part of the Company or any holder of Class B Common Stock be transferred to the Company for no consideration and thereupon will be retired and restored to the status of authorized but unissued shares of Class B Common Stock.
Rights upon Liquidation
In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Company after payments to creditors of the Company that may at the time be outstanding, and subject to the rights of any holders of Preferred Stock that may then be outstanding, holders of shares of Class A Common Stock and Company C Common Stock will be entitled to receive ratably, in proportion to the number of shares held by them, all remaining assets and funds of the Company available for distribution; provided, however, that, for purposes of any such distribution, each share of Class C Common Stock will be entitled to receive the same distribution as would have been payable if such share of Class C Common Stock had been converted into a fraction of a share of Company A Common Stock equal to the Conversion Ratio immediately prior to the record date for such distribution. The holders of shares of Class B Common Stock, as such, will not be entitled to receive any assets of the Company in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.
Conversion of Class C Common Stock
Each holder of Class C Common Stock has the right, at such holder’s option, at any time, to convert all or any portion of such holder’s shares of Class C Common Stock, and the Company has the right, at the Company’s option, to convert all or any portion of the issued and outstanding shares of Class C Common Stock, in each case into shares of fully paid and non-assessable Class A Common Stock at the ratio of one (1 ) share of Class A Common Stock for the number of shares of Class C Common Stock equal to the Issuance Multiple (as defined in the Business Combination Agreement) so converted. As of December 31, 2022, there were no Class C Common Stock issued and outstanding.
Treasury Stock
Treasury stock is reflected as a reduction of stockholders' deficit at cost. We use the weighted-average purchase cost to determine the cost of treasury stock that is reissued, if any. (See Note 13. Employee and Director Incentive Plan).
Transfers
The holders of shares of Class B Common Stock will not transfer such shares other than as part of a concurrent transfer of an equal number of DMSH Units, in each case made to the same transferee in accordance with the restrictions on transfer contained in the Amended Partnership Agreement.
Other Rights
No holder of shares of Company Common Stock are entitled to preemptive or subscription rights. There is no redemption or sinking fund provisions applicable to the Company Common Stock. The rights, preferences and privileges of holders of the Company Common Stock will be subject to those of the holders of any shares of the Preferred Stock the Company may issue in the future.
Preferred Stock
The Board has the authority to issue shares of preferred stock from time to time on terms it may determine, to divide shares of preferred stock into one or more series and to fix the designations, preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by the DGCL. The issuance of Preferred Stock of the Company could have the effect of decreasing the trading price of Company Common Stock, restricting dividends on the capital stock of the Company, diluting the voting power of the Company Common Stock, impairing the liquidation rights of the capital stock of the Company, or delaying or preventing a change in control of the Company.
The Company is authorized to issue 100,000,000 preferred shares with such designations, voting, and other rights and preferences as may be determined from time to time by the Board. As of December 31, 2022 and 2021, there were no
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Public Warrants
Each Company Public Warrant entitles the registered holder to purchase one share of Class A Common Stock at a price of $11.50 per share, subject to adjustment. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Class A Common Stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The warrants will expire five years after the Business Combination, or earlier upon redemption or liquidation.
The Company may call the Company Public Warrants for redemption as follows: (1) in whole and not in part; (2) at a price of $0.01 per warrant; (3) upon a minimum of 30 days’ prior written notice of redemption; and (4) only if the last reported closing price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
If the Company calls the Company Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Company Public Warrants to do so on a “cashless basis.”
The exercise price and number of Class A Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrant shares.
At December 31, 2022 and 2021, approximately 10.0
Non-controlling Interests
The non-controlling interests represent the membership interests in DMSH held by holders other than the Company. Changes to ownership interests in DMSH while the controlling interests in DMSH is retained will be accounted for as equity transactions. As such, future redemptions or direct exchanges of the Company’s Interests in DMSH by the other members of the Company will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital. The Company has consolidated the financial position and results of operations of DMSH and reflected the proportionate interests held by Prism, Clairvest Direct Seller and the SmarterChaos sellers as non-controlling interests.
The following table summarizes the ownership interest in DMSH as of December 31, 2022 and 2021:
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Interests | Ownership % | Interests | Ownership % | |||||||||||||||||||||||
| Number of Interests held by DMS, Inc. | ||||||||||||||||||||||||||
| Number of Interests held by non-controlling interests holders | ||||||||||||||||||||||||||
| Total Interests Outstanding | ||||||||||||||||||||||||||
The following table summarizes the effects of changes in ownership in DMS, Inc. on our equity during the years ended December 31, 2022 and 2021 (in thousands):
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net (loss) income attributable to Digital Media Solutions, Inc. | $ | ( | $ | |||||||||||
| Transfers to (from) non-controlling interests due to: | ||||||||||||||
| Shares issued in connection with the Crisp Earnout (Note 7) | ( | ( | ||||||||||||
| Shares issued in connection with acquisition of Aramis, PushPros and Aimtell (Note 7) | ( | |||||||||||||
| Exercise of warrants to issue Class A common stock | ( | |||||||||||||
| Prism shares redeemed and issued to Class A Common Stock | ( | |||||||||||||
| SmarterChaos DMSH units redeemed and issued to Class A Common Stock | ( | ( | ||||||||||||
| Stock-based compensation - Vested & Exercised | ( | ( | ||||||||||||
| Treasury stock purchased under the 2020 Omnibus Incentive Plan | ||||||||||||||
| Net transfers (from) non-controlling interests | ( | ( | ||||||||||||
| Change from net income attributable to DMS Inc. shareholders and transfers (from) non-controlling interests | $ | ( | $ | ( | ||||||||||
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Note 12. Related Party Transactions
Registration Rights
At the Closing, the Company entered into an amended and restated registration rights agreement with certain Sellers (the “Amended and Restated Registration Rights Agreement”), pursuant to which the Company registered for resale certain shares of Class A Common Stock and warrants to purchase Class A Common Stock that were held by the parties thereto. Additionally, the Sellers may request to sell all or any portion of their shares of Class A Common Stock in an underwritten offering that is registered pursuant to the shelf registration statement filed by the Company (each, an “Underwritten Shelf Takedown”); however, the Company will only be obligated to effect an Underwritten Shelf Takedown if such offering will include securities with a total offering price reasonably expected to exceed, in the aggregate, $20.0 million and will not be required to effect more than four Underwritten Shelf Takedowns in any six-month period. The Amended and Restated Registration Rights Agreement also includes customary piggy-back rights, subject to cooperation and cut-back provisions. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Amended Partnership Agreement
Pursuant to the Amended Partnership Agreement, the non-controlling interests (as defined in the Amended Partnership Agreement) have the right to redeem their DMSH Units for cash (based on the market price of the shares of Class A Common Stock) or, at the Company’s option, the Company may acquire such DMSH Units (which DMSH Units are expected to be contributed to Blocker) in exchange for cash or Class A Common Stock (a “Redemption”) on a one -for-one basis (subject to customary conversion rate adjustments, including for stock splits, stock dividends and reclassifications), in each case subject to certain restrictions and conditions set forth therein, including that any such Redemption be for an amount no less than the lesser of 10,000 DMSH Units or all of the remaining DMSH Units held by such Non-Blocker Member. In the event of a change of control transaction with respect to a Non-Blocker Member, DMSH will have the right to require such Non-Blocker Member to effect a Redemption with respect to all or any portion of the DMSH Units transferred in such change of control transaction. In connection with any Redemption a number of shares of Class B Common Stock will automatically be surrendered and cancelled in accordance with the Company Certificate of Incorporation.
Tax Receivable Agreement
Since the year ended December 31, 2021, the Company maintains a full valuation allowance on our DTA related to the Tax Receivable Agreement along with the entire DTA inventory at DMS, Inc. and Blocker, as these assets are not more likely than not to be realized based on the positive and negative evidence that we considered. The Tax Receivable Agreement liability that originated from the Business Combination is not probable under ASC 450 - Contingencies since a valuation allowance has been recorded against the related DTA. The remaining short-term Tax Receivable Agreement liability of $0.2 million is attributable to carryback claims. We will continue to evaluate the positive and negative evidence in determining the realizability of the Company’s DTAs. For further details, see Note 14. Income Taxes.
Prism Incentive Agreement
On October 1, 2017, DMS, through a subsidiary, acquired the assets of Mocade Media LLC (“Mocade”). On that date, in connection with the acquisition, DMS also entered into a consulting agreement with Singularity Consulting LLC (“Singularity”), a Texas limited liability company owned by the former management of Mocade. On August 1, 2018, in order to further incentivize Singularity’s efforts with respect to the acquired Mocade assets, DMS entered into an amendment to the Singularity consulting agreement. On that date, Prism Data, the then majority equity holder of DMS, also entered into an incentive agreement with Singularity, to which DMS was not a party, providing for certain incentive payments to be accounted for in accordance with applicable accounting standards by Prism Data to Singularity in the event of certain specified change of control sale transactions involving DMS. Following the Business Combination, in November 2020, DMS and Singularity resolved all outstanding amounts due under the Singularity consulting agreement between DMS and Singularity with a payment of $850,000 . In addition, Prism Data and Singularity agreed that Singularity would be entitled to a payment from Prism Data of $2,000,000 in the event of certain specified change of control sale transactions involving DMS.
DMSH Member Tax Distributions
For the year ended December 31, 2022, there were no tax distributions to members of DMSH. For the year ended December 31, 2021, tax distributions to members of DMSH were $0.2 million.
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Note 13. Employee and Director Incentive Plans
2020 Omnibus Incentive Plan
On July 15, 2020, Leo’s shareholders approved the 2020 Omnibus Incentive Plan (the “2020 Plan”). The 2020 Plan allows for the issuance of stock options, stock appreciation rights, stock awards (including restricted stock awards (“RSAs”) and Restricted Stock Units (“RSUs”)) and other stock-based awards. Directors, officers and employees, as well as others performing independent consulting or advisory services for the Company or its affiliates, will be eligible for grants under the 2020 Plan. The aggregate number of shares reserved under the 2020 Plan is approximately 11.6 million. The 2020 Plan terminates on June 24, 2030.
The participants have no rights of a stockholder with respect to the RSUs, including the right to vote and the right to receive distributions or dividends until the shares become vested and settled. The settlement occurs after the vesting date and shall represent the right to receive one Share of Class A of common stock. RSUs awards provide for accelerated vesting if there is a change in control.
The Company’s common stock began trading on April 20, 2018; no cash dividends have been declared since that time, and we do not anticipate paying cash dividends in the foreseeable future. The risk-free rate within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. We recognize forfeitures and/or cancellations based on an actual occurrence.
The fair value of non-vested stock is determined based on the closing trading price of the Company’s stock on the grant date and are amortized over the award’s service period. At December 31, 2022, total non-vested Stock-based compensation expense related to restricted stock and options was $8.8 million, which will be recognized over a weighted-average remaining period of 2.3 years.
Restricted Stock Units
Stock awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those stock awards vest on 3 to 4 years of continuous service, depending on when the award was granted, and have 10-year contractual terms. The 2020 Plan allows employees’ vesting rights after each year for completed service to the Company.
On October 28, 2020, the Board of Directors of DMS Inc. approved the grant of approximately 1.2 million RSUs, including 65,000 units granted for Directors under the 2020 Plan. The RSUs vest one-third each year based on three years of continuous service starting with July 16, 2021 through July 16, 2023. The related Stock-based compensation expense is recognized on a straight-line basis over the vesting period. The 2020 Plan provides Directors’ and employees’ vesting rights after each year for completed service to the Company. The related costs were approximately $6.7 million and $6.8 million for the years ended December 31, 2022 and 2021, respectively, and are included in Salaries and related costs within the consolidated statements of operations.
On April 12, 2022, the Board approved the grant of 762,000 RSUs consisting of 381,406 performance-based vesting RSUs (“PRSUs”) and 381,406 time-based vesting RSUs (“TRSUs”) to executive management and certain key employees under the 2020 Plan. On July 1, 2022, the Board voted to award 326,000 RSUs consisting of 163,000 PRSUs and 163,000 TRSUs to executive management under the 2020 Plan. The TRSUs vest one-fourth each year based on four years of continuous service starting with April 12, 2022, through April 12, 2026. The PRSUs vest one-fourth each calendar year from 2022 through 2026 based continuous service and subject to certain performance metrics of the Company during 2022, which the Company re-evaluates the probability of achievement on a quarterly basis. The TRSU’s related stock-based compensation expense is recognized on a straight-line basis over the vesting period. The PRSU awards’ expense is recognized on an accelerated basis over the vesting period.
On August 4, 2022, the Board approved the grant of an aggregate of 52,545 RSUs to the Company’s non-employee directors under the 2020 Plan. The RSUs will vest on the date of the annual shareholder’s meeting or on the anniversary of the award, whichever occurs first, and the related Stock-based compensation expense is recognized on a straight-line basis over the vesting period.
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| Number of Restricted Stock | Weighted-Average Grant Date Fair Value | |||||||||||||
| Outstanding at January 1, 2021 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ||||||||||||||
| Forfeited/Canceled | ||||||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Vested | ||||||||||||||
| Forfeited/Canceled | ||||||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||||
| Vested as of December 31, 2022 | $ | |||||||||||||
For the years ended December 31, 2022 and 2021, the fair value of vested restricted stock units was $9.3 million and $3.7 million, respectively.
As of December 31, 2022, the total number of awards issued to other nonemployee consultants for advisory and consulting services were 126 thousand restricted stock units and 118 thousand stock options that represent total Stock-based compensation fair value of $1.8 million, for which $0.2 million has been recorded for services provided to date. On October 27, 2021, the board voted to accelerate the vesting of 34 thousand restricted units and 32 thousand stock options, which resulted in recognition of approximately $0.5 million expense in Q4 2021.
Stock Options
The participants have no rights of a stockholder with respect to the stock options, including the right to vote and the right to receive distributions or dividends until the shares become vested and exercised. The exercise occurs after the vesting date and the participant may exercise the option by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by full payment of the exercise price or by means of a broker-assisted cashless exercise. Stock option awards provide for accelerated vesting if there is a change in control.
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton valuation method, which uses the assumptions noted in the following table. Because Black-Scholes-Merton option valuation models incorporate ranges of assumption for inputs, the selected inputs are disclosed below. Expected volatilities are based on implied volatilities from traded options on the Company’s peer group. The expected term is calculated using the simplified method, due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns.
The following table presents the stock option activity for the years ended December 31, 2022 and 2021 (in thousands, except price per share):
| Number of Stock Options | Weighted-Average Grant Date Fair Value | Weighted-Average Remaining Contractual Term (in Years) | Total Intrinsic Value of Restricted Stock Options Exercisable | |||||||||||||||||||||||
| Outstanding at January 1, 2021 | $ | $ | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Exercised | — | |||||||||||||||||||||||||
| Forfeited/expired | ||||||||||||||||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||||||||||||
| Granted | $ | — | $ | |||||||||||||||||||||||
| Exercised | — | |||||||||||||||||||||||||
| Forfeited/expired | — | |||||||||||||||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||||||||||||
| Exercisable at December 31, 2022 | $ | $ | ||||||||||||||||||||||||
There were no stock options granted in 2022.
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Note 14. Income Taxes
The (benefit) provision for income taxes consist of the following (in thousands):
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Current: | |||||||||||
| Federal | $ | $ | |||||||||
| State | ( | ||||||||||
| Foreign | |||||||||||
| Total Current | |||||||||||
| Deferred: | |||||||||||
| Federal | ( | ||||||||||
| State | ( | ||||||||||
| Total Deferred | ( | ||||||||||
| (Benefit) provision for income taxes | $ | ( | $ | ||||||||
The (benefit) provision for income taxes shown above varies from the statutory federal income tax rate for those periods as follows (in thousands):
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Tax (benefit) provision from federal statutory rate | $ | ( | $ | ||||||||
| Tax on income not subject to entity level federal income tax | |||||||||||
| State income taxes, net of federal tax effect | ( | ( | |||||||||
| Change in fair value of warrant liabilities | ( | ( | |||||||||
| Other permanent adjustments | ( | ( | |||||||||
| Permanent adjustments - Tax Receivable Agreement | ( | ||||||||||
| True-ups and other | ( | ( | |||||||||
| Research and development credit | ( | ||||||||||
| Foreign tax credit | |||||||||||
| Undistributed earnings | |||||||||||
| Canadian tax expense | |||||||||||
| Valuation allowance | |||||||||||
| Tax credits | ( | ( | |||||||||
| Tax (benefit) provision | $ | ( | $ | ||||||||
As a result of a Business Combination, the Company consists of DMS Inc. and its wholly-owned subsidiary, Blocker, which owns 60.9 % of equity interests in DMSH. DMSH is treated as a partnership for purposes of U.S. federal and certain state and local income tax. As a U.S. partnership, generally DMSH will not be subject to corporate income taxes (except with respect to UE and Traverse, as described below). Instead, each of the ultimate partners (including DMS Inc.) are taxed on their proportionate share of DMSH taxable income.
While the Company consolidates DMSH for financial reporting purposes, the Company will only be taxed on its allocable share of earnings. The Company’s Income tax (benefit) expense is attributable to the allocable share of earnings from DMSH, a portion of activities of DMSH that are subject to Canadian income tax, and the activities of UE and Traverse, both are wholly-owned U.S. corporate subsidiaries of DMSH, which are subject to U.S. federal and state and local income taxes. The income
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tax burden on the earnings allocated to the non-controlling interests is not reported by the Company in its consolidated financial statements under GAAP. As a result of the foregoing reasons, the Company’s effective tax rate is expected to differ materially from the statutory rate.
Any change in the fair value of the Private Placement Warrants, which are classified as a liability on the Company’s consolidated balance sheet at December 31, 2022, is recognized as a gain or loss in the Company’s consolidated statements of operations. The Private Placement Warrants are deemed equity instruments for income tax purposes, and accordingly, there is no change to Income tax (benefit) expense relating to changes in the fair value of such warrants.
Deferred tax assets and liabilities are composed of the following (in thousands):
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Deferred tax assets: | |||||||||||
| Investment in DMS Holdings LLC | $ | $ | |||||||||
| Reserve accruals | |||||||||||
| Charitable contributions | |||||||||||
| Interest carryforward | |||||||||||
| Tax credit carryforwards | |||||||||||
| Property and equipment | ( | ||||||||||
| Operating lease liabilities | |||||||||||
| Net operating loss | |||||||||||
| Total gross deferred tax assets | |||||||||||
| Less: Valuation allowance | ( | ( | |||||||||
| Total deferred tax assets, net | |||||||||||
| Deferred tax liabilities: | |||||||||||
| Intangibles | ( | ( | |||||||||
| Operating lease right-of-use assets | ( | ||||||||||
| Undistributed earnings | ( | ( | |||||||||
| Total deferred tax liabilities | ( | ( | |||||||||
| Net deferred tax liabilities | $ | ( | $ | ( | |||||||
At December 31, 2022, the Company has federal and state net operating loss carryforwards attributable to DMS, Inc. in the amount of $10 million and $13.5 million , respectively. The federal carryforwards are not subject to expiration, and the state carryforwards begin to expire in 2030, however certain state carryforwards are indefinite.
At December 31, 2022, the Company has an expected federal and state income tax credit carryforward of $1.0 million which would expire at December 31, 2039, unless utilized. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. We do not expect any annual limitation to materially impact the utilization of net operating losses and credits.
The Company records Deferred tax assets if it is more likely than not that the Company will realize a future tax benefit. Ultimate realization of any Deferred tax assets is dependent on the Company’s ability to generate sufficient future taxable income in the appropriate tax jurisdiction before the expiration of carryforward periods, if any. Our assessment of Deferred tax assets realizability considers many different factors including historical and projected operating results, the reversal of existing Deferred tax liabilities that provide a source of future taxable income, the impact of current tax planning strategies and the availability of future tax planning strategies. The Company establishes a valuation allowance against any Deferred tax assets for which we are unable to conclude that realizability is more likely than not.
We have determined the need for an additional $9 million valuation allowance for the period ending December 31, 2022. In doing so we assessed the available positive and negative evidence to estimate whether future taxable income would be generated to permit use of the existing Deferred tax assets (“DTAs”). A significant piece of objective negative evidence evaluated was the three-year cumulative loss before taxes. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. Therefore, a valuation allowance has been recorded against the DTAs at DMS,
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Inc. The amount of DTA considered realizable could be adjusted if objective negative evidence in the form of cumulative losses is no longer present.
The Company is subject to examination by the Internal Revenue Service and taxing authorities in various states. The Company’s U.S. federal income tax returns remain subject to examination by tax authorities for the years 2018 to 2021. The Company’s state income tax returns are no longer subject to income tax examination by tax authorities prior to 2018; however, our net operating loss carryforwards arising prior to that year are subject to adjustment. The Company regularly assesses the likelihood of tax deficiencies in each of the tax jurisdictions and, accordingly, makes appropriate adjustments to the tax provision as deemed necessary.
The Company records interest and penalties, if any, as a component of its Income tax (benefit) expense in the consolidated statements of operations. No interest expense or penalties were recognized during the years ended December 31, 2022 and 2021, respectively.
Tax Receivable Agreement
Note 15. Earnings Per Share
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted (loss) earnings per share of Class A common stock:
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||
| Net (loss) income attributable to non-controlling interest | ( | |||||||||||||
| Net (loss) income attributable to Digital Media Solutions, Inc.- basic and diluted | $ | ( | $ | |||||||||||
| Denominator: | ||||||||||||||
| Weighted average shares - basic | ||||||||||||||
| Add: dilutive effects of equity awards under the 2020 Omnibus Incentive Plan | ||||||||||||||
| Add: dilutive effects of public warrants | ||||||||||||||
| Weighted average shares - diluted | ||||||||||||||
| Net (loss) earnings per common share: | ||||||||||||||
| Basic and diluted | $ | ( | $ | |||||||||||
Shares of the Company’s Class B convertible common stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate basic and diluted earnings per share of Class B convertible common stock under the two-class method has not been presented.
For the year ended December 31, 2022, the Company excluded 25.7 million shares of Class B convertible common stock, 4.0 private warrants, 10.0 million public warrants, 1.6 million stock options, 1.2 million RSUs, 0.4 million PRSUs, respectively, as their effect would have been anti-dilutive.
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Note 16. Commitments and Contingencies
Legal proceedings
In the ordinary course of business, we are involved from time to time in various claims and legal actions incident to our operations, both as a plaintiff and defendant. In the opinion of management, after consulting with legal counsel, none of these other claims are currently expected to have a material adverse effect on the results of operations, financial position or cash flows. We intend to vigorously defend ourselves in these matters.
DMSH Unit Redemption Rights
The Amended and Restated Partnership Agreement includes provisions intended to ensure that the Company at all times maintains a one -to-one ratio between (i) the number of outstanding shares of Class A Common Stock (including the number of shares of Class A Common Stock into which all of the outstanding shares of Class C Common Stock are convertible in accordance with the Company Certificate of Incorporation) and (ii) the aggregate number of DMSH Units owned by DMS Inc., its subsidiaries and any consolidated, combined, unitary or similar group of entities that join in filing any tax return with DMS Inc.
Note 17. Subsequent Events
Business Acquisition
On March 30, 2023, the Company acquired certain assets of G.D.M. Group Holding Limited, a company organized under the laws of Cyprus (“ClickDealer Cyprus”), ClickDealer Asia Pte., Ltd., a company organized in Singapore (“ClickDealer Singapore”), GDMgroup Asia Limited, a company organized in Hong Kong (“ClickDealer HongKong”) and ClickDealer Europe BV, a company organized in the Netherlands (“ClickDealer Netherlands”, and collectively with ClickDealer Cyprus, ClickDealer Singapore, ClickDealer Hong Kong, and any other related entity “ClickDealer”). The Company paid cash consideration of $35 million upon closing of the transaction. The transaction also includes up to $10 million in contingent consideration, subject to the achievement of certain milestones, to be paid two years after the acquisition date, subject to the operation of the acquired assets reaching certain milestone. The contingent consideration may be paid in cash or the Company’s Class A Common Stock, to be mutually agreed by DMS and the applicable recipients.
Private Placement of Convertible Preferred Stock and Warrants
On March 29, 2023, the Company entered into a securities purchase agreement (the “SPA”) with certain investors to purchase 80 thousand shares of Series A convertible redeemable Preferred stock (“Series A Preferred stock”) and 60 thousand shares of Series B convertible redeemable Preferred stock (“Series B Preferred stock”, and together with the Series A Preferred stock, the “Preferred Stock”), for an aggregate purchase price of $14.0 million (the “Preferred Offering”), including $6.2 million of related party participation. The Preferred stock was issued at a 10 % Original Issue Discount (OID) to the aggregate stated value of $15.5 million.
The Company is required to redeem one-tenth of the number of shares of each series of Preferred Stock on a pro rata basis among all of the holders of each series commencing on the earlier of (i) the three-month anniversary of the closing of the Preferred Offering and on each successive monthly anniversary date thereafter and (ii) the date a registration statement relating to the underlying shares of Common Stock is declared effective and on each successive monthly anniversary date thereafter. The form of such redemptions is at the option of the Company and may be (i) in cash at 104% of the stated value of the Preferred Stock, plus accrued and unpaid dividends and any other amounts due (the “Mandatory Redemption Price”), (ii) in shares of Common Stock or (iii) a combination thereof.
The Preferred Stock is convertible at the option of the holder at any time into shares of common stock at a fixed conversion price of $0.56 (the “Conversion Price”), which Conversion Price is subject to adjustment but not below a price of $0.484. In addition, at any time at the option of the holder, the Preferred Stock may be converted into shares of common stock at a conversion price at the lower of (i) 90% of the arithmetic average of the three lowest volume-weight average prices (“VWAPs”) during the 20 trading days before a conversion notice is delivered and (ii) 90% of the VWAP of the trading day before a notice of conversion is delivered (the “Alternate Conversion Price”).
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Each series of Preferred Stock provides for the ability of a holder to require the Company to redeem all of the holder’s shares of Preferred Stock at any time after June 15, 2023 (the “Accelerated Redemption Date”). In addition, the Company may elect to redeem all of the shares of the Series A Preferred Stock, but not Series B Preferred Stock, after the Accelerated Redemption Date. At the option of the holder being redeemed, an accelerated redemption will be (i) in cash at the Mandatory Redemption Price, (ii) in shares of Common Stock or (iii) a combination thereof.
Following certain triggering events, a holder may choose to convert Preferred Stock into shares of common stock at the Alternate Conversion Price.
The Company and the holders of the Preferred Stock also entered into a registration rights agreement to register the resale of the shares of common stock issuable upon conversion or redemption of the Preferred Stock.
The Company also issued the purchasers in the Preferred Offering warrants to acquire 14.4 million shares of Common Stock, with a 5-year maturity and an exercise price equal to $0.6453 , subject to adjustment and the beneficial ownership limitations set forth in the applicable warrant agreement.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Evaluation of Disclosure Controls and Procedures.
We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation as of December 31, 2022, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective for the reason described below in Management’s Report on Internal Control over Financial Reporting.
Management’s Report on Internal Control Over Financial Reporting
December 31, 2022 Assessment
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).
The Company’s internal control over financial reporting includes those policies and procedures that:
i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;
ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and Board of Directors; and
iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022, as a material weakness exists. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements could occur but will not be prevented or detected on a timely basis.
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, we identified a material weakness in internal control over financial reporting related to revenues and accounts receivable, including the allowance for doubtful accounts. Management assessed our internal control over financial reporting as of December 31, 2022 and concluded that a material weakness continues to exist related to revenues. We did not design and maintain sufficient procedures and controls related to revenue recognition including those related to ensuring accuracy of revenue recognized. Also, during management’s assessment of internal control over financial reporting as of December 31, 2022, we concluded that we did not design and maintain effective information technology general controls for certain information systems that are relevant to the preparation of the financial statements. In light of the material weakness, management performed additional procedures to
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validate the accuracy and completeness of the financial results impacted by the control deficiencies. Such procedures included validation using revenue reconciliations and fluctuation analyses.
During the course of 2022, the Company took steps to remediate the 2021 material weakness specifically related to accounts receivable and the allowance for doubtful accounts by implementing additional processes and controls, including assessing the loss rates used to calculate the allowance for potential uncollectible receivables and evaluating the collectability of customer receivables on a timely basis. Based on these actions and the results of our testing performed as part of our 2022 evaluation of internal control over financial reporting, we determined that, as of December 31, 2022, the 2021 material weakness related to accounts receivable, including the allowance for doubtful accounts has been remediated.
Remediation Plans
We intend to continue to take steps to remediate the material weaknesses described above and further evolving our accounting processes, controls, and reviews. The Company plans to continue to assess its internal controls and procedures and intends to take further action as necessary or appropriate to address any other matters it identifies or are brought to its attention. We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time.
No Auditor Attestation Report Required
Because the Company is an “emerging growth company,” this Annual Report does not contain, and is not required to contain, an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Except as described above in Management’s Report on Internal Control over Financial Reporting, there have been no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
On March 29, 2023, the Company entered into a securities purchase agreement with certain investors relating to the sale of 80 thousand shares of Series A convertible redeemable preferred stock (“Series A Preferred Stock”) and 60 thousand shares of Series B convertible redeemable preferred stock (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”) for an aggregate purchase price of $14.0 million (the “Preferred Offering”). Each share of Preferred Stock has a purchase price of $100.00, representing an original issue discount of 10% of the $111 stated value of such share.
The Series B Preferred Stock issued in the Preferred Offering was purchased by Joseph Marinucci, Fernando Borghese and Matthew Goodman, founders of the Company, and entities affiliated with existing shareholders of the Company. The Class B Preferred Stock is subordinate to Series A Preferred Stock in certain payment scenarios.
The Company is required to redeem one-tenth of the number of shares of each series of Preferred Stock on a pro rata basis among all of the holders of each series commencing on the earlier of (i) the three-month anniversary of the closing of the Preferred Offering and on each successive monthly anniversary date thereafter and (ii) the date a registration statement relating to the underlying shares of Common Stock is declared effective and on each successive monthly anniversary date thereafter. The form of such redemptions is at the option of the Company and may be (i) in cash at 104% of the stated value of the Preferred Stock, plus accrued and unpaid dividends and any other amounts due (the “Mandatory Redemption Price”), (ii) in shares of Common Stock or (iii) a combination thereof.
The Preferred Stock is convertible at the option of the holder at any time into shares of common stock at a fixed conversion price of $0.56 (the “Conversion Price”), which Conversion Price is subject to adjustment but not below a price of $0.484. In addition, at any time at the option of the holder, the Preferred Stock may be converted into shares of common stock at a conversion price at the lower of (i) 90% of the arithmetic average of the three lowest volume-weight average prices (“VWAPs”) during the 20 trading days before a conversion notice is delivered and (ii) 90% of the VWAP of the trading day before a notice of conversion is delivered (the “Alternate Conversion Price”).
Each series of Preferred Stock provides for the ability of a holder to require the Company to redeem all of the holder’s shares of Preferred Stock at any time after June 15, 2023 (the “Accelerated Redemption Date”). In addition, the Company may elect to redeem all of the shares of the Series A Preferred Stock, but not Series B Preferred Stock, after the Accelerated Redemption Date. At the option of the holder being redeemed, an accelerated redemption will be (i) in cash at the Mandatory Redemption Price, (ii) in shares of Common Stock or (iii) a combination thereof.
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Upon a change of control, the holders of the Preferred Stock may require the Company to redeem any outstanding Preferred Stock in cash at 115% of the greater of (i) the redemption price or (ii) the then prevailing conversion value, plus in each case accrued but unpaid interest and any other amounts owed.
Upon the occurrence of certain events, including, but not limited to (i) the failure of the Company to maintain a minimum cash and cash equivalent balance of $10.0 million; (ii) a default under existing indebtedness of the Company or any subsidiary of at least $50.0 thousand that results in the acceleration of such indebtedness; (iii) the failure to file required reports under the Securities Exchange Act of 1934, as amended; and (iv) the failure to deliver common stock following the conversion of Preferred Stock into common stock, the holders of Preferred Stock may require the Company to redeem any outstanding Preferred Stock in cash at a price equal to 115% of the redemption price.
Under any scenario in which a holder of Preferred Stock has elected to have its Preferred Stock redeemed for cash, and such cash payment required to be made by the Company has not been made, then the Holder may provide to the Company written notice within five business days that the holder desires to retain its shares of Preferred Stock that have not been redeemed and sell the shares to a third party.
Holders of the Preferred Stock have the right to vote on a one-for-one basis with the Company's common stock, on an as converted basis.
Holders of the Preferred Stock have the right to consent to various actions by the Company, including, but not limited to entering into or incurring any liens; amending the charter documents of the Company or its subsidiaries; repurchasing or otherwise acquiring any capital stock; paying cash dividends or distributions on any equity securities, other than the payments with respect to the Preferred Stock; engaging in any materially different line of business, or modifying its corporate structure or purpose; allowing the Company or its subsidiaries to fail to maintain good standing in their relevant jurisdictions; failing to take all actions necessary to maintain all intellectual property; allowing the Company or its subsidiaries to fail to maintain insurance; entering into any transaction with any affiliate of the Corporation which would be publicly disclosed (unless made on an arm’s length basis and approved by a majority of disinterested directors of the Company); entering into a transaction to sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Company or its subsidiaries unless in the ordinary course of business; and allowing the cash balance of the Company to fall below $10 million at any time while the Series A Preferred Stock is outstanding.
Upon completion of a subsequent offering of debt or equity by the Company, the holders of Preferred Stock have the right (but not the obligation) to apply 35% of the gross proceeds of such subsequent placement to redeem the preferred stock.
Pursuant to the Securities Purchase Agreement, for 24 months following closing, the purchasers of the Preferred Stock will have a right to participate on a pro rata basis in the aggregate up to 35% of any subsequent debt or equity financing conducted by the Company. Without the prior consent of the holders of Preferred Stock, the Company is prohibited from issuing common stock until 90 days after effective date of resale registration statement, subject to customary exceptions, and the Company is prohibited from entering into certain variable rate equity transactions while the Preferred Stock remain outstanding.
The Company and the holders of the Preferred Stock also entered into a registration rights agreement to register the resale of the shares of common stock issuable upon conversion or redemption of the Preferred Stock.
The Company also issued the purchasers in the Preferred Offering warrants to acquire 14.4 million shares of Common Stock, with a 5-year maturity and an exercise price equal to $0.6453, subject to adjustment and the beneficial ownership limitations set forth in the applicable warrant agreement.
In connection with the issuance of the Preferred Stock, the Company contributed the net proceeds to Digital Media Solutions Holdings, LLC ("DMS Holdings LLC"), and the members of DMS Holdings LLC entered into an amendment of the Amended and Restated Limited Liability Company Agreement providing for the issuance to the Company of a preferred unit in DMS Holdings LLC on essentially the same terms as the preferred stock.
Item 9C. Disclosures Regarding Foreign Jurisdictions That Prevent Inspections.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item will be included in the Company’s definitive proxy statement to be filed with the SEC within 120 days after December 31, 2022, in connection with the solicitation of proxies for the Company’s 2023 annual meeting of shareholders (the “2023 Proxy Statement”), and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be included in the 2023 Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be included in the 2023 Proxy Statement, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be included in the 2023 Proxy Statement, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this Item will be included in the 2023 Proxy Statement, and is incorporated herein by reference.
PART IV
Item 15. Exhibit and Financial Statement Schedules.
a.The following documents are filed as part of this Annual Report:
1. Financial Statements. The list of consolidated financial statements, and related notes thereto, along with the independent auditors’ report are set forth in Part IV of this Annual Report in the Index to Consolidated Financial Statements and Schedule presented below.
2. Consolidated Financial Statement Schedule. The consolidated financial statement schedule is included in Part IV of this report on the page indicated by the Index to Consolidated Financial Statements and Schedule presented below. This financial statement schedule should be read in conjunction with the consolidated financial statements and related notes thereto.
Schedules not listed in the Index to Consolidated Financial Statements and Schedule have been omitted because they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
3. Exhibits. See Item 15(b) below.
b. Exhibits. The exhibits listed on the Exhibit Index are incorporated by reference into this Item 15(b) and are a part of this Annual Report.
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DIGITAL MEDIA SOLUTIONS, INC.
Index to Consolidated Financial Statements and Schedules
Report of Independent Registered Public Accounting Firm (PCAOB ID: | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID: | |||||
DIGITAL MEDIA SOLUTIONS, INC.
Schedule II
Valuation and Qualifying Accounts and Reserves
Supplemental Schedule
(in thousands)
| Description | Year Ended | Balance at Beginning of Period | Charge to Costs and Expenses | Deductions | Balance at End of Period | |||||||||||||||||||||||||||
| Accounts receivable reserves | 2022 | $ | $ | $ | $ | |||||||||||||||||||||||||||
| 2021 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Item 16. Form 10-K Summary.
Not applicable.
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Exhibit Index
| Exhibit Number | Description | |||||||
Business Combination Agreement, dated April 23, 2020, by and among Leo Holdings Corp, Digital Media Holdings, LLC and the other parties thereto (incorporated by reference to Exhibit 2.1 to Leo Holdings Corp.’s Current Report on Form 8-K/A filed with the SEC on April 24, 2020). | ||||||||
Amendment No. 1 to Business Combination Agreement, dated July 2, 2020 (incorporated by reference to Exhibit 2.1 to Leo Holdings Corp.’s Current Report on Form 8-K filed with the SEC on July 2, 2020). | ||||||||
| Asset Purchase Agreement, dated March 6, 2023 by and among Digital Media Solutions, Inc., the Sellers and the other parties thereto (incorporated by reference to Exhibit 2.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on March 10, 2023). | ||||||||
Certificate of Incorporation of Digital Media Solutions, Inc. (incorporated by reference to Exhibit 3.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 16, 2020). | ||||||||
Bylaws of Digital Media Solutions, Inc. (incorporated by reference to Exhibit 3.2 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 16, 2020). | ||||||||
| Form of Specimen Class A Common Stock Certificate of Digital Media Solutions, Inc. (incorporated by reference to Exhibit 4.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 16, 2020). | ||||||||
Form of Specimen Warrant Certificate of Digital Media Solutions, Inc. (incorporated by reference to Exhibit 4.2 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 16, 2020). | ||||||||
Amended and Restated Warrant Agreement, dated July 15, 2020, by and among Leo Holdings Corp. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.3 to Digital Media Solutions, Inc.’s Current Report on Form 8-K/A filed with the SEC on July 20, 2020). | ||||||||
| Description of Securities Registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.4 to Digital Media Solutions, Inc.’s Annual Report on Form 10-K/A for the year ended December 31, 2020). | ||||||||
| Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock, filed on March 30, 2023. | ||||||||
| Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Redeemable Preferred Stock, filed on March 30, 2023. | ||||||||
| Form of Common Stock Purchase Warrant of Digital Media Solutions, Inc. | ||||||||
Form of Subscription Agreement (incorporated by reference to Exhibit 10.2 to Leo Holdings, Corp.’s Current Report on Form 8-K/A filed with the SEC on April 24, 2020). | ||||||||
Amended and Restated Sponsor Shares and Warrant Surrender Agreement, dated as of June 22, 2020, by and among Leo Holdings Corp., Leo Investors Limited Partnership and other parties thereto (incorporated by reference to Exhibit 10.1 to Leo Holdings Corp.’s Current Report on Form 8-K filed with the SEC on June 22, 2020). | ||||||||
Amended and Restated Limited Liability Company Agreement of Digital Media Solutions Holdings, LLC, dated July 15, 2020 (incorporated by reference to Exhibit 10.3 to Digital Media Solutions, Inc.’s Current Report on Form 8-K/A filed with the SEC on July 20, 2020). | ||||||||
Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of Digital Media Solutions Holdings, LLC, dated January 19, 2021 (incorporated by reference to Exhibit 10.4 to Digital Media Solutions, Inc.’s Annual Report on Form 10-K/A for the year ended December 31, 2020). | ||||||||
| Director Nomination Agreement, dated July 15, 2020, by and among Digital Media Solutions, Inc., Leo Investors Limited Partnership, Lion Capital (Guernsey) Bridgeco Limited, Clairvest Group Inc. and Prism Data, LLC (incorporated by reference to Exhibit 10.4 to Digital Media Solutions, Inc.’s Current Report on Form 8-K/A filed with the SEC on July 20, 2020). | ||||||||
Amended and Restated Registration Rights Agreement, dated July 15, 2020, by and among Digital Media Solutions, Inc., as successor to Leo Holdings, Corp., and the other parties thereto (incorporated by reference to Exhibit 10.5 to Digital Media Solutions, Inc.’s Current Report on Form 8-K/A filed with the SEC on July 20, 2020). | ||||||||
| Tax Receivable Agreement, dated July 15, 2020, by and among Digital Media Solutions, Inc., CEP V DMS US Blocker Company, Prism Data, LLC, CEP V-A DMS AIV Limited Partnership, Clairvest Equity Partners V Limited Partnership, CEP V Co-Investment Limited Partnership and Clairvest GP Manageco Inc. (incorporated by reference to Exhibit 10.6 to Digital Media Solutions, Inc.’s Current Report on Form 8-K/A filed with the SEC on July 20, 2020). | ||||||||
| Form of Indemnification Agreement (incorporated by reference to Exhibit 10.8 to Digital Media Solutions, Inc.’s Current Report on Form 8-K/A filed with the SEC on July 17, 2020). | ||||||||
| Digital Media Solutions, Inc. 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.9 to Digital Media Solutions, Inc.’s Current Report on Form 8-K/A filed with the SEC on July 20, 2020). | ||||||||
86
Form of Restricted Share Unit Award Agreement (Employee) (incorporated by reference to Exhibit 10.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on November 3, 2020). | ||||||||
Form of Restricted Share Unit Award Agreement (Director) (incorporated by reference to Exhibit 10.2 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on November 3, 2020). | ||||||||
Form of Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on November 3, 2020). | ||||||||
Credit Agreement, dated as of May 25, 2021, by and among Digital Media Solutions, LLC, as borrower, Digital Media Solutions Holdings, LLC, the lenders and issuing banks named therein, and Truist Bank, as administrative agent and as collateral agent (incorporated by reference to Exhibit 10.1 to Digital Media Solutions, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2021). | ||||||||
| Asset Purchase Agreement, dated April 1, 2021, by and among Digital Media Solutions, Inc., Edge Marketing, LLC, and wholly owned subsidiary of Digital Media Solutions, LLC, Crisp Marketing, LLC, d/b/a Crisp Results, and Union Health, LLC, a Florida limited liability company, and Justin Ferreira, in his capacity as Sellers’ representative (incorporated by reference to Exhibit 10.1 to Digital Media Solutions, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021). | ||||||||
| Letter Agreement, by and between Digital Media Solutions, Inc. and Joseph Liner, dated as of May 26, 2022 (incorporated by reference to Exhibit 10.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on May 31, 2022). | ||||||||
| Offer Letter, by and between Digital Media Solutions, Inc. and Richard Rodick, dated as of June 28, 2022 (incorporated by reference to Exhibit 10.1 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 5, 2022). | ||||||||
| Separation Agreement, by and between Digital Media Solutions, Inc. and Vasundara Srenivas, dated as of June 28, 2022 (incorporated by reference to Exhibit 10.3 to Digital Media Solutions, Inc.’s Current Report on Form 8-K filed with the SEC on July 5, 2022). | ||||||||
| Digital Media Solutions, Inc. Executive Severance Plan, dated August 4, 2022 (incorporated by reference to Exhibit 10.4 to Digital Media Solutions, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022). | ||||||||
| Asset Purchase Agreement, dated March 6, 2023, by and between Digital Media Solutions, Inc., the ClickDealer Sellers and the other parties thereto. | ||||||||
| Securities Purchase Agreement, dated March 29, 2023, by and between Digital Media Solutions, Inc. and the purchasers named therein. | ||||||||
| Registration Rights Agreement, dated March 30, 2023, by and between Digital Media Solutions, Inc. and the other parties thereto. | ||||||||
| Amendment No. 2 to the Amended and Restated Limited Liability Company Agreement of Digital Media Solutions Holdings, LLC, dated March 30, 2023. | ||||||||
| List of Subsidiaries | ||||||||
| Consent of Grant Thornton, Independent Registered Public Accounting Firm | ||||||||
| Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm | ||||||||
| Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 | ||||||||
| Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934. | ||||||||
| Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. | ||||||||
| Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. | ||||||||
| 101 | The following financial information for the period ended December 31, 2021 formatted in Inline XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Equity (Deficit); (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* | |||||||
____________________
* Documents filed herewith.
+ Certain schedules to this Exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K.
^ Certain confidential information contained in this agreement has been omitted because it (i) is not material, and (ii) would be competitively harmful if publicly disclosed.
# Management contract and compensatory plan and arrangement.
† Previously filed with the Original Filing.
87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Digital Media Solutions, Inc. | ||||||||
Date: April 5, 2023 | /s/ Joseph Marinucci | |||||||
| Name: | Joseph Marinucci | |||||||
| Title: | President, Chief Executive Officer and Director (Principal Executive Officer) | |||||||
Date: April 5, 2023 | /s/ Richard Rodick | |||||||
| Name: | Richard Rodick | |||||||
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |||||||
88
Delaware The First State Page 1 3248507 8100 Authentication: 203044163 SR# 20231225776 Date: 03-30-23 You may verify this certificate online at corp.delaware.gov/authver.shtml I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF “DIGITAL MEDIA SOLUTIONS, INC.”, FILED IN THIS OFFICE ON THE THIRTIETH DAY OF MARCH, A.D. 2023, AT 2:07 O`CLOCK P.M.
State of Delaware Secretary of State Division of Corporations Delivered 02:07 PM 03/30/2023 FILED 02:07 PM 03/30/2023 CERTIFICATE OF DESIGNATION OF PREFERENCES, SR 20231225776 - FileNumber 3248507 RIGHTS AND LIMITATIONS OF SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK PURSUANT TO SECTION 151 OF THE DELA WARE GENERAL CORPORATION LAW The undersigned, Joseph Marinucci, does hereby certify that: 1. He is the Chief Executive Officer of Digital Media Solutions, Inc., a Delaware corporation (the "Corporation"). 2. The Corporation is authorized to issue 100,000,000 shares of preferred stock, par value $0.0001 per share, of which no shares have been previously designated. 3. The following resolutions were duly adopted by the board of directors of the Corporation (the "Board of Directors"): WHEREAS, the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), provides for a class of its authorized stock known as preferred stock, consisting of 100,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series; WHEREAS, the Board of Directors is authorized by resolution to provide for the issuance of preferred stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof; and WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as described above, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of 80,000 shares of the preferred stock which the Corporation has the authority to issue. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock to be designated "Series A Convertible Redeemable Preferred Stock" and does hereby fix and determine the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof as follows: Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings: "Accelerated Redemption" shall have the meaning set forth in Section 9(b). "Adjustment Right" means (any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale ( or deemed issuance or sale in accordance with Section 7(e)) of Common Stock that could result in a decrease in the net consideration received by the Corporation in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
"Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. "Alternate Consideration" shall have the meaning set forth in Section 7(d). "Alternate Conversion Price" shall have the meaning set forth in Section 6(b). "Applicable Price" shall have the meaning set forth in Section 7(e). "Bankruptcy Triggering Event" shall have the meaning set forth in Section 9(d). "Beneficial Ownership Limitation" shall have the meaning set forth in Section 6(d). "Black Scholes Consideration Value" means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the "OV" function on Bloomberg utilizing: (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be). "Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State ofNew York are authorized or required by law or other governmental action to close. "Buy-In" shall have the meaning set forth in Section 6(c)(iv). "Change of Control Date" shall have the meaning set forth in Section 9(g). "Change of Control Notice" shall have the meaning set forth in Section 9(g). "Change of Control Redemption Date" shall have the meaning set forth in Section 9(g). "Change of Control Redemption Price" shall have the meaning set forth in Section 9(g). "Change of Control Redemption Notice" shalt have the meaning set forth in Section 9(g). "Change of Control Transaction" means the occurrence after the date hereof of any of ( a) an acquisition by an individual or legal entity or "group" ( as described in Rule 13 d-5(b )( 1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of the issuance, sale, conversion or exercise of Series A Preferred Stock or Series B Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation 2
and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, ( c) the Corporation ( and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board ofDirectors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above. "Closing" means the closing of the purchase and sale of the Series A Preferred Stock pursuant to Section 2.1 of the Purchase Agreement. "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Trading Market, as reported by Bloomberg, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock. If the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section lO(k). All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period. "Closing Date" means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder's obligations to pay the Purchase Price and (ii) the Corporation's obligations to deliver the Series A Preferred Stock have been satisfied or waived. "Commission" means the United States Securities and Exchange Commission. "Common Stock" means the Corporation's Class A common stock, $0.0001 par value per share, and stock of any other class of securities into which such securities may hereafter be reclassified, converted or changed. 3
"Common Stock Equivalents" means any securities of the Corporation or the Subsidiaries which 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. "Conversion Amount means the sum of the Stated Value at issue and all accrued and unpaid dividends at issue. "Conversion Date" shall have the meaning set forth in Section 6(a). "Conversion Price" shall have the meaning set forth in Section 6(b). "Convertible Securities" means any stock or other security ( other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any Common Stock. "Conversion Shares" means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock in accordance with the terms hereof. 9(a). "Corporation's Mandatory Redemption Price" shall have the meaning set forth in Section "Change of Control Redemption" shall have the meaning set forth in Section 9(g). "Dilutive Issuance" shall have the meaning set forth in Section 7(e) "Dividend Date" shall have the meaning set forth in Section 3(b). "Dividend Rate" means four percent ( 4.0%) per annum. "Dividends" shall have the meaning set forth in Section 3(a). "Equity Conditions" means during the period in question: (a) the Corporation shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holders, if any, (b) there is an effective registration statement ("Registration Statement") under the Securities Act pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the Common Stock issuable pursuant to the Certificate of Designation (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Certificate of Designation may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holders, (c) the Common Stock are trading on a Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), ( d) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation, ( e) there is no existing breach of any of the representations, warranties, covenants or agreements made by the Corporation in the Transaction Documents, and no existing event which, with the passage of time or the giving of notice, would constitute such a breach, (f) there has been no public announcement of a pending or 4
proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (g) the limitations set forth under Section 6( d) will not be exceeded upon any requested conversion and (h) for each of the twenty (20) Trading Days prior to the applicable date in question, the closing price of the Common Stock on the Trading Market is at least equal to the Floor Price. "Escrow Agreement'' means the escrow agreement to be entered into in connection with the Purchase Agreement, by and among the Corporation, Continental Stock Transfer & Trust Company, and the holder representative party thereto (the "Holder Representative"). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exchange Cap" shall have the meaning given such term in Section 6(e). "Exchange Cap Allocation" shall have the meaning given such term in Section 6(e). "Exchange Cap Shares" shall have the meaning given such term in Section 6(e). "Exempt Issuance" has the meaning set forth in the Purchase Agreement. "Floor Price" means $0.484; provided that, if on any Accelerated Redemption Date, (i) any cash payment required to be made pursuant to Section 9 is not made, and (ii) the Existing Investors ( as defined in the Investor Side Letter) have defaulted under their obligations to purchase the Series A Preferred Stock pursuant to the terms of the Investor Side Letter, then the "Floor Price" shall be $0.161. "Fundamental Transaction" shall have the meaning set forth in Section 7(d). "Holder" shall have the meaning given such term in Section 2. "Holder's Optional Triggered Notice" shall have the meaning given such term in Section "Installments" shall have the meaning given such term in Section 9(a). "Intellectual Property Rights" means, with respect to the Corporation and its Subsidiaries, all of their rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor. "Investor Side Letter" has the meaning set forth in the Purchase Agreement. "Lien" means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature affecting property, real or personal, tangible or intangible, including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset, any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset, any lease in the nature thereof and any filing of or 5
agreement to give any financing statement under the Uniform Commercial Code ( or equivalent statute of any jurisdiction). 9(a). "Liquidation" shall have the meaning set forth in Section 5. "Monthly Mandatory Redemption" shall have the meaning given such term in Section 9(a). "Monthly Mandatory Redemption Date" shall have the meaning given such term in Section "Monthly Mandatory Redemption Share Amount" shall have the meaning given such term in Section 9(a). "New Issuance Price" shall have the meaning set forth in Section 7(e). "Notice of Conversion" shall have the meaning set forth in Section 6(a). "Optional Triggering Event Right Commencement Date" shall have the meaning given such term in Section 9(c). "Optional Triggering Event Notice" shall have the meaning given such term in Section 9(c). "Original Issue Date" means the date of the first issuance of any shares of the Series A Preferred Stock regardless of the number of transfers of any particular shares of Series A Preferred Stock and regardless of the number of certificates which may be issued to evidence such Series A Preferred Stock. "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government ( or an agency or subdivision thereof) or other entity of any kind. "Primary Security" shall have the meaning set forth in Section 7(e)(iv). "Purchase Agreement" means the Securities Purchase Agreement, dated as of March 29, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. "Purchase Price" means, as to each Holder, the aggregate dollar amount to be paid for the Series A Preferred Stock pursuant to the Purchase Agreement. "Redemption" means any of or collectively all of an Accelerated Redemption, Monthly Mandatory Redemption, Triggering Event Redemption, Triggered Optional Redemption, Change of Control Redemption "Redemption Price" means any of the Corporation's Mandatory Redemption Price, Triggering Event Redemption Price and the Change of Control Redemption Price, as applicable. 6
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of March 30, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. "Secondary Security" shall have the meaning set forth in Section 7(d). "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Series A Preferred Stock" shall have the meaning set forth in Section 2. "Series B Preferred Stock" shall mean the Series B Convertible Redeemable Preferred Stock of the Corporation. "Series B Preferred Stock Certificate of Designation" means the Certificate of Designation of Preferences, Rights and Limitations of the Series B Convertible Redeemable Preferred Stock of the Corporation, dated as of the date hereof. "Share Delivery Date" shall have the meaning set forth in Section 6{c). "Stated Value" shall have the meaning set forth in Section 2. "Subsidiary" means any subsidiary of the Corporation as set forth on Schedule 3. l(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement. "Successor Entity" shall have the meaning set forth in Section 7(d). "Trading Day" means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market ( or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4: 00: 00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange ( or any successor thereto) is open for trading of securities. "Trading Market" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange ( or any successors to any of the foregoing). "Transaction Documents" means this Certificate of Designation, the Series B Preferred Stock Certificate of Designation, the Purchase Agreement, the Registration Rights Agreement, the Warrants, the Escrow Agreement, the Financial Advisory Agreement, the Lock-Up Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in 7
connection with the transactions contemplated pursuant to the Purchase Agreement, in each case as amended, modified or supplemented from time to time in accordance with its terms. "Transfer Agent" means Continental Stock Transfer & Trust Company, and any successor transfer agent of the Corporation. "Triggered Optional Redemption Amount" shall have the meaning set forth in Section 9(c). "Triggering Event" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption" shall have the meaning set forth in Section 9(e). "Triggering Event Right Commencement Date" shall have the meaning set forth in Section "Triggering Event Right Period" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption Date" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption Notice" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption Price" shall have the meaning set forth in Section 9(e). "Triggered Optional Event" shall have the meaning set forth in Section 9(c). "Triggered Optional Redemption" shall have the meaning set forth in Section 9(c). "Triggered Optional Redemption Date" shall have the meaning set forth in Section 9(c). "Valuation Event" shall have the meaning set forth in Section 7(e)(iv). "VW AP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Matket, the volume weighted average price of the Common Stock for such date ( or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB orOTCQX and if prices for the Common Stock is then reported in The Pink Open Market ( or a similar organization or agency succeeding to its functions ofreporting prices), the most recent bid price per share of the Common Stock so reported, or ( d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Series A Preferred Stock then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation. "Warrants" has the meaning set forth in the Purchase Agreement. Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as "Series A Convertible Redeemable Preferred Stock" (the "Series A Preferred Stock") and the number of shares of such series shall be 80,000 (which shall not be subject to increase without the written 8
consent of the holders of a majority of the then outstanding shares of the Series A Preferred Stock (each, a "Holder" and collectively, the "Holders")). Each share of Series A Preferred Stock shall have a par value of $0.0001 per share and a stated value equal to $111.11 (as adjusted for any stock splits, stock dividends, recapitalizations, or similar transaction with respect to the Series A Preferred Stock, the "Stated Value"). Section 3. Dividends. (a) From and after the Original Issue Date, each Holder shall be entitled to receive dividends ("Dividends"), which Dividends shall be cumulative and shall continue to accrue and compound annually whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of dividends in such fiscal year. Dividends on the Series A Preferred Stock shall commence accumulating on the Original Issue Date and shall be computed on the basis of a 360-day year and twelve 30-day months. (b) Dividends shall be payable on each Conversion Date and Redemption Date (each, a "Dividend Date"), as applicable, to the record holders of the Series A Preferred Stock on the applicable Dividend Date in accordance with the terms of the applicable conversion or redemption. Section 4. Voting Rights. (a) For purposes of determining the presence of a quorum at any meeting of the stockholders of the Corporation at which the shares of Series A Preferred Stock are entitled to vote and the voting power of the shares of Series A Preferred Stock, each Holder of outstanding shares of Series A Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such shares of Series A Preferred Stock are then convertible, disregarding, for such purposes, any limitations on conversion set forth herein. (b) Except as otherwise required by the Delaware General Corporation Law or the Certificate of Incorporation (including this Certificate of Designation), each share of Series A Preferred Stock shall be entitled to vote on each matter submitted to a vote of the stockholders generally and shall vote together with the Common Stock and any other class or series of capital stock entitled to vote thereon as a single class and on an as converted to Common Stock basis. Notwithstanding the foregoing, at no time shall the voting power of a share of Series B Preferred Stock voting on an as converted basis exceed the voting power of such share on the Initial Issuance Date based upon the Conversion Price of $0.6453 per share. Notwithstanding anything to the contrary in the first sentence of this Section 4(b), in addition, as long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series A Preferred Stock, voting as a separate class, (i) alter or change the powers, preferences or rights of the Series A Preferred Stock so as to affect them adversely, (ii) amend the Certificate oflncorporation or other charter documents in a manner adverse to the Holders, (iii) increase the number of authorized shares of Series A Preferred Stock, or (iv) enter into any agreement with respect to any of the foregoing. Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a "Liquidation"), prior and in preference to the Common Stock and the Series B Preferred Stock, the Holders shall be entitled to receive out of the assets available for distribution to stockholders an amount equal in cash to 115% of the aggregate Stated Value of all shares of Series A Preferred Stock held by such Holder, plus any accrued but unpaid Dividends thereon any other fees then due and owing thereon under this Certificate of Designation, and no more, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The preference set forth 9
in this Section 5 with respect to distributions to the Series A Preferred Stock upon a Liquidation shall apply mutatis mutandis to any distributions to be made upon the consummation of a Fundamental Transaction. The Corporation shall mail written notice of any such Liquidation or Fundamental Transaction not less than 45 days prior to the payment date stated therein, to each Holder. To the extent necessary, the Corporation shall cause such actions to be taken by each of its Subsidiaries so as to enable, to the maximum extent permitted by law, the proceeds of a Liquidation to be distributed to the Holders in accordance with this Section 5. All the preferential amounts to be paid to the Holders under this Section 5 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any Liquidation funds of the Corporation to the holders of shares of the Common Stock and the Series B Preferred Stock in connection with a Liquidation as to which this Section 5 applies. Section 6. Conversion. (a) Conversions at Option of Holder. Subject to Section 6(d), each share of Series A Preferred Stock shall be convertible, at any time and from time to time only after the Original Issuance Date, at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series A Preferred Stock by the Conversion Price or the Alternate Conversion Price, as the case may be. Holders shall effect conversions by delivering to the Corporation and the Holder Representative a conversion notice in the form attached hereto as Annex A (a "Notice of Conversion"). Each Notice of Conversion shall specify the number of shares of Series A Preferred Stock to be converted, the number of shares of Series A Preferred Stock owned prior to the conversion at issue, the number of shares of Series A Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Corporation (such date, the "Conversion Date"). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be as of the close of business on the Business Day that such Notice of Conversion is delivered to the Corporation, or if such day is not a Business Day or if the Notice of Conversion is delivered after regular business hours, the next Business Day. No ink original Notice of Conversion shall be required, nor shall any medallion guarantee ( or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. From and after the Conversion Date, until presented for transfer or exchange, certificates that previously represented shares of Series A Preferred Stock shall represent, in lieu of the number of shares of Series A Preferred Stock previously represented by such certificate, the number of shares of Series A Preferred Stock, if any, previously represented by such certificate that were not converted pursuant to the Notice of Conversion, plus the number of shares of Conversion Shares into which the shares of Series A Preferred Stock previously represented by such certificate were converted. To effect conversions of shares of Series A Preferred Stock, a Holder shall not be required to surrender the certificate(s), if any, representing the shares of Series A Preferred Stock to the Corporation unless all of the shares of Series A Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series A Preferred Stock promptly following the Conversion Date at issue. Shares of Series A Preferred Stock converted into Common Stock shall be canceled and shall not be reissued. (b) Conversion Price. The conversion price for the Series A Preferred Stock shall equal $0.56 per share, subject to adjustment herein (the "Conversion Price"); provided, however, that in lieu of the applicable Conversion Price, as adjusted herein, the Holder may elect to apply an alternate Conversion Price (the "Alternate Conversion Price") equal to the lesser of (i) 90% of the arithmetic average of the three lowest daily VW APs of the 20 Trading Days prior to the applicable Conversion Date or (ii) 90% of the VW AP of the trading day prior to the applicable Conversion Date; provided that neither the Conversion Price nor the Alternate Conversion Price shall be below the Floor Price. 10
(c) Mechanics of Conversion 1. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the "Share Delivery Date"), the Corporation shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being acquired upon the conversion of the Series A Preferred Stock. If such Conversion Shares may be issued free of restrictive legends and trading restrictions, the Corporation shall cause such Conversion Shares to be issued free of such restrictive legends and trading legends. The Corporation shall use its reasonable best efforts to deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, "Standard Settlement Period" means the standard settlement period, expressed in a number of Trading Days, on the Corporation's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion. 11. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Series A Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion. 111. Obligation Absolute; Partial Liquidated Damages. Subject to Section 6(d), the Corporation's obligation to issue and deliver the Conversion Shares upon conversion of Series A Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance, which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Series A Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, other than pursuant to Section 6(d), unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series A Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of the Series A Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such 11
injunction, subject to Section 6(d), the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the Share Delivery Date applicable to such conversion, other than pursuant to Section 6(d), the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Series A Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day after the Share Delivery Date and increasing to $200 per Trading Day on the sixth Trading Day after the Share Delivery Date) for each Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder's right to pursue actual damages for the Corporation's failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6( c )(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a "Buy-In"), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder's total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series A Preferred Stock equal to the number of shares of Series A Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series A Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shalt limit a 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 Corporation's failure to timely deliver the Conversion Shares upon conversion of the shares of Series A Preferred Stock as required pursuant to the terms hereof. 12
v. Reservation of Shares Issuable Upon Conversion. From and after the Original Issue Date and until no shares of Series A Preferred Stock remain outstanding, the Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series A Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder ( and the other holders of the Series A Preferred Stock), not less than 150% of the aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account any adjustments under Section 7) upon the conversion of the then outstanding shares of Series A Preferred Stock at the Alternate Conversion Price. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable. vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series A Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding anything to the contrary contained herein, but consistent with the provisions of this subsection with respect to fractional Conversion Shares, nothing shall prevent any Holder from converting fractional shares of Series A Preferred Stock. vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of the Series A Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation 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 Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series A Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company ( or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares. (d) Beneficial Ownership Limitation. Notwithstanding anything to the contrary set forth herein, the Corporation shall not effect any conversion of the Series A Preferred Stock, and a Holder shall not have the right to convert any portion of the Series A Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder's Affiliates, and any Persons acting as a group together with such Holder or any of such Holder's Affiliates (such Persons, "Attribution Parties'')) 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 such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series A Preferred Stock beneficially owned by such Holder or any of 13
its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series A Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Series A Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series A Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder's determination of whether the shares of Series A Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Series A Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this Section 6(d) and the Corporation shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation's most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Corporation shall within one ( 1) Trading Day confirm orally and in writing to such 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 Corporation, including the Series A Preferred Stock, by such Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The "Beneficial Ownership Limitation" shall be 4.99% (or, upon election by a Holder prior to the issuance of any shares of Series A Preferred Stock, 9 .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 conversion of Series A Preferred Stock held by the applicable Holder. A Holder, upon notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Series A Preferred Stock; provided, that the Beneficial Ownership Limitation shall not in any event exceed 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 conversion of this Series A Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply. Any such increase will not be effective until the 61 st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder. The Beneficial Ownership Limitation shall not be waived by the Corporation or the Holder and upon issuance of the Series A Preferred Stock by the Corporation, and the purchase thereof by the Holder, in accordance with the Purchase Agreement, each of the Corporation and the Holder shall be deemed to acknowledge such limitation and to agree not to waive it. The provisions of this Section 6(d) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this Section (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section shall apply to a successor holder of Series A Preferred Stock. 14
( e) Principal Market Regulation. The Corporation shall not issue any shares of Common Stock upon conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations if the issuance of such shares of Common Stock (together with any shares issued upon exercise of any Warrants) would exceed the aggregate number of shares of Common Stock which the Corporation may issue upon conversion of the Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations without breaching the Corporation's obligations under the rules or regulations of the Trading Market (the number of shares which may be issued without violating such rules and regulations, the "Exchange Cap"), except that such limitation shall not apply in the event that the Corporation (A) obtains the approval of its stockholders as required by the applicable rules of the Trading Market for issuances of shares of Common Stock in excess of such amount, (B) obtains a written opinion from outside counsel to the Corporation that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the outstanding shares of Preferred Stock or (C) issues the Preferred Stock through an effective registration statement in connection with a public offering in accordance with the rules and regulations of the Trading Market. Until such approval or such written opinion is obtained, or unless such effective registration statement is available, no Holder shall be issued in the aggregate, upon conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations, shares of Common Stock (together with any shares issued upon exercise of any Warrants) in an amount greater than the product of(i) the Exchange Cap as of the Original Issuance Date multiplied by (ii) the quotient of (1) the aggregate original Stated Value of the Preferred Stock issued to such Holder divided by (2) the aggregate original Stated Value of the Preferred Stock issued to all Holders (with respect to each Holder, the "Exchange Cap Allocation"). In the event that any Holder shall sell or otherwise transfer any of such Holder's shares of Preferred Stock, the transferee shall be allocated a pro rata portion of such Holder's Exchange Cap Allocation with respect to such portion of such Preferred Stock so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation so allocated to such transferee. Upon conversion in full of a Holder's Preferred Stock, the difference (if any) between such Holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder upon such Holder's conversion in full of such Preferred Stock shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Preferred Stock on a pro rata basis in proportion to the shares of Common Stock underlying the Preferred Stock then held by each such Holder of Preferred Stock. In the event that the Corporation is prohibited from issuing any shares of Common Stock pursuant to this Section 6( e) (the "Exchange Cap Shares") to a Holder, the Corporation shall pay cash to such Holder in exchange for the redemption of such number of shares of Preferred Stock held by the Holder that are not convertible into such Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Conversion Notice with respect to such Exchange Cap Shares to the Corporation and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder ofExchange Cap Shares, brokerage commissions, if any, of such Holder incurred in connection therewith. Section 7. Certain Adjustments. (a) Stock Dividends and Stock Splits. If the Corporation, at any time while the Series A Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions that is payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, the Series A Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of 15
shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price and the Floor Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock ( excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) 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 re-classification. Notwithstanding the foregoing in no event may the Conversion Price be less than the par value per share of Series A Preferred Stock. (b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock or any class thereof (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder's Series A Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent ( or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). ( c) Distributions. During such time as the Series A Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets ( or rights to acquire its assets) to holders 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, scheme of arrangement or other similar transaction) (a "Distribution"), then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series A Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent ( or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). ( d) Fundamental Transaction. If, at any time while the Series A Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects 16
any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of at least 50% of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization 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, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "Fundamental Transaction"), then, upon any subsequent conversion of the Series A Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6( d) on the conversion of the Series A Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which the Series A Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series A Preferred Stock). For purposes of any such conversion, the determination of the Conversion 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 Corporation shall apportion the Conversion 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 conversion of the Series A Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders' right to convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(d) pursuant to written agreements in customary form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for the Series A Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Series A Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity ( or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Series A Preferred Stock (without regard to any limitations on the conversion of the Series A Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the 17
conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Series A Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the "Corporation" shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein. ( e) Adjustment of Conversion Price upon Issuance of Common Stock. Except in respect of any Exempt Issuance, if and whenever on or after the Original Issue Date the Corporation issues or sells, or in accordance with this Section 7(e) is deemed to have issued or sold, any Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Corporation for a consideration per share (the "New Issuance Price") less than a price equal to the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such Conversion Price then in effect is referred to herein as the "Applicable Price") (the foregoing a "Dilutive Issuance"), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the greater of the New Issuance Price and the Floor Price. For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and the New Issuance Price under this Section 7(e)), the following shall be applicable: (i) Issuance of Options. If the Corporation in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Option for such price per share. For purposes of this Section 1uilli)_, the "lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any convertible securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof' shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the tenns thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable ( or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof, minus (2) the sum of all amounts paid or payable to the holder of such Option ( or any other Person) with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration consisting of cash, debt 18
forgiveness, assets or any other property received or receivable by, or benefit conferred on, the holder of such Option ( or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Corporation or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms thereof or upon the actual issuance of such Corporation upon conversion, exercise or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share for which Common Stock are at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(e)(ii), the "lowest price per share for which one share of Common Stock is at any time issuable ( or may become issuable assuming all possible market conditions) upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof' shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) with respect to any one share of Common Stock upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable consisting of cash, debt forgiveness, assets or other property by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(e). except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock increases or decreases at any time ( other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 7(a) above), the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7(e)(iii). if the terms of any Option or Convertible Security that was outstanding as of the Original Issue Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or 19
Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(e) shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Corporation (as determined by the Holder, the "Primary Security," and such Option and/or Convertible Security and/or Adjustment Right, the "Secondary Securities"), together comprising one integrated transaction ( or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Corporation either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per share for which one share of Common Stock was issued ( or was deemed to be issued pursuant to Section 7(e)(i) or 7(e)(ii) above, as applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair market value ( as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security, if any, in each case, as determined on a per share basis in accordance with this Section 7(e)(iv). If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the net amount of consideration received by the Corporation therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Corporation ( for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Corporation for such securities will be the arithmetic average of the VW APs of such security for each of the five ( 5) Trading Days immediately preceding the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving entity, the amount of consideration therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Corporation and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th ) day following such Valuation Event by an independent, reputable appraiser jointly selected by the 20
Corporation and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Corporation. (v) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issuance or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase ( as the case may be). (f) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 11100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock ( excluding any treasury shares of the Corporation) issued and outstanding. (g) Notice of Holders. 1. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder by facsimile or email a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend ( or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation (and all of its Subsidiaries, taken as a whole), or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series A Preferred Stock, and shall cause to be delivered by email to each Holder at its last email address as it shall appear upon the stock books of the Corporation, at least twenty (20) 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 the 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 or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, 21
transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of the Series A Preferred Stock ( or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. Section 8. Covenants. As long as any shares of Series A Preferred Stock remain outstanding, unless the Holders of a majority of the then outstanding shares of the Series A Preferred Stock shall have otherwise given prior written consent (which consent may be withheld, delayed or conditioned in the sole discretion of such Holders): (a) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into, create, incur, assume or suffer to exist any Liens, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom other than Liens existing on the Original Issue Date; (b) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly amend its charter documents, including, without limitation, its Certificate of Incorporation and bylaws and this Certificate of Designations, in any manner that materially and adversely affects any rights of the Holders; ( c) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly redeem, repay, repurchase or offer to repay, repurchase or otherwise acquire any capital stock, except as required by the Certificate of Designation, or de minimis number of shares of its Common Stock or Common Stock Equivalents, or any indebtedness, except for principal and interest payments as such terms are in effect as of the Original Issue Date; (d) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly pay cash dividends or distributions on any equity securities, other than to make any cash payments with respect to the Series A Preferred Stock or Series B Preferred Stock; (e) the Corporation shall not issue any Series A Preferred Stock (other than as contemplated by this Certificate of Designation) or issue any other securities that would cause a breach or default under this Certificate of Designation or the Transaction Documents; (f) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly engage in any material line of business substantially different from those lines of business conducted by or publicly contemplated to be conducted by the Corporation and each of its Subsidiaries on the Original Issue Date, or modify its or their corporate structure or purpose; (g) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, fail to maintain and preserve its existence, rights and privileges, and 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; 22
(h) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to take all action necessary or advisable to maintain all of the Intellectual Property Rights that are necessary or material to the conduct of its business in full force and effect; (i) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to maintain insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated; (i) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm's-length basis and expressly approved by a majority of the disinterested directors of the Corporation ( even if less than a quorum otherwise required for board approval); (k) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly directly or indirectly, sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Corporation or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Corporation and its Subsidiaries in the ordinary course of business consistent with its past practice and (ii) sales of inventory and product in the ordinary course of business; (1) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any agreement with respect to any of the foregoing; (m) the Corporation shall retain a minimum cash balance of $10,000,000 at all times while the Series A Preferred Stock is outstanding and will provide any Holder upon its request evidence of such minimum cash balance; and (n) the Corporation shall, on the Closing Date obtain the consent of the Holders of at least 51 % of the Corporation's voting stock, and, within thirty (3 0) days of the Original Issue Date file with the Commission a Preliminary Information Statement on Schedule 14C, approving the issuance of the Series A Preferred Stock, Series B Preferred Stock and related warrants and underlying shares of Common Stock and upon the earlier of ten days after such filing with the Commission if no comments are received from the Commission or two days after the last comment is received from the Commission file with the Commission a definitive Schedule 14C with the Commission. Section 9. Redemption (a) Mandatory Redemption. The Corporation shall redeem one-tenth of the number of shares of Series A Preferred Stock issued on the Original Issue Date, on a pro rata basis among all of the Holders of Series A Preferred Stock commencing on the earlier of (a) the three-month anniversary of the Closing Date and on each successive monthly anniversary date thereafter and (b) the date the Registration Statement is declared effective and on each successive monthly anniversary date thereafter ( each, a "Monthly Mandatory Redemption Date" ) for, at the option of the Corporation, which option shall be identified by written notice to the Holders at least ten (10) 23
Trading Days prior to each Monthly Mandatory Redemption Date, either (i) an amount in cash at a price per Series A Preferred Share equal to the sum of (x) 104.0% of the Stated Value plus (y) all accrued and unpaid Dividends and (z) all other amounts due in respect of the Series A Preferred Stock (the "Corporation's Mandatory Redemption Price''); (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(a). or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock, the "Monthly Mandatory Redemption Share Amount'') (such redemption, the "Monthly Mandatory Redemption''). On the Monthly Mandatory Redemption Date, the Corporation shall pay the Corporation's Mandatory Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the Holders of Series A Preferred Stock on a pro rata basis. If a Monthly Mandatory Redemption Date is not a Business Day, then the Corporation's Mandatory Redemption Price shall be due and payable on the Business Day immediately following such Monthly Mandatory Redemption Date. The Corporation shall pay the monthly Installments of the Corporation's Mandatory Redemption Price due under this Section 9(a) (the "Installments") to the Holders in cash; provided, that on or after June 16, 2023 if the Equity Conditions are fulfilled for twenty (20) consecutive Trading Days immediately prior to applicable Mandatory Redemption Date the Corporation may choose to pay the installments in shares of Common Stock or a combination thereof. Shares of Common Stock used to pay an Installment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price, (ii) 90% of the arithmetic average of the three lowest daily VW APs of the 20 Trading Days prior to the applicable Monthly Mandatory Redemption Date or (iii) 90% of the VW AP of the trading day prior to the applicable Monthly Mandatory Redemption Date. Installments may be deferred or reallocated to other dates at the Holders' discretion. If funds are not legally available for the payment of Monthly Mandatory Redemption and the Equity Conditions have not been met or waived on or prior to the Monthly Mandatory Redemption Date, then, at the election of such Holder, such Monthly Mandatory Redemption Share Amount shall accrue to the next Monthly Mandatory Redemption Date or shall be accreted to, and increase, the outstanding Stated Value. Monthly Mandatory Redemption Share Amount is payable in full on the Monthly Mandatory Redemption Date, if in cash, and within two (2) Trading Days after the Monthly Mandatory Redemption Date, if in shares of Common Stock. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Monthly Mandatory Redemption Share Amount paid in full. (b) Accelerated Redemption. At the option of each Holder, the Holder may require the Corporation to redeem all of the shares of Series A Preferred Stock held by the Holder at any time on or after June 15, 2023 (the "Accelerated Redemption Date''). In addition, the Corporation may elect to redeem all of the shares of Series A Preferred Stock at any time on or after the Accelerated Redemption Date (any such redemption at the election of a Holder or the Corporation, an "Accelerated Redemption''). Any Accelerated Redemption shall be for, at the option of each Holder being redeemed: (i) cash at the Corporation' s Mandatory Redemption Price, (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(b ), or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock). Shares of Common Stock used to pay the Accelerated Redemption payment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price, (ii) 90% of the arithmetic average of the three lowest daily VW APs of the 20 Trading Days prior to the Accelerated Redemption Date or (iii) 90% of the VW AP of the trading day prior to the Accelerated Redemption Date. (c) Triggered Optional Redemption. If at any time after the Original Issue Date, the Corporation or any Subsidiary thereof closes any debt or equity financing (the "Triggered Optional Event"), the Corporation shall within one (1) Business Day deliver written notice thereof via 24
facsimile or electronic mail and overnight courier (with next day delivery specified) (an "Optional Triggering Event Notice") to each Holder of Series A Preferred Stock. If at any time after the earlier of a Holder's receipt of an Optional Triggering Event Notice and such Holder becoming aware of an Triggering Optional Event (such earlier date, the "Optional Triggering Event Right Commencement Date") and ending within ten (10) days after the Optional Triggering Event Right Commencement Date, the Holder shall provide notice to the Corporation (the "Holder's Optional Triggered Notice"), at its option, to have proceeds of such financing used to redeem its shares of Series A Preferred Stock then the Corporation shall within five days of receipt of a Holder's Optional Triggered Notice (such fifth day being the "Triggered Optional Redemption Date'') redeem such number of shares of Series A Preferred Stock, on a pro rata basis for each Holder requesting redemption, equal to such number of shares of Series A Preferred Stock that may be redeemable with 30% of the proceeds of the financing, for an amount per share in cash equal to the Corporation's Mandatory Redemption Price (such redemption, the "Triggered Optional Redemption" and such payment amount, the "Triggered Optional Redemption Amount"). The Triggered Optional Redemption Amount is payable in full on the Triggered Optional Redemption Date. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Triggered Optional Redemption Amount paid in full. (d) Triggering Event Redemption. Each of the following events shall constitute a "Triggering Event" and each of the event in clause (v) shall constitute a "Bankruptcy Triggering Event": (i) any failure to pay any Dividend, Buy-In or other amounts as and when the same shall become due and payable under the Certificate of Designation and/or any of the other Transaction Documents (whether on a Conversion Date, Accelerated Redemption Date, Triggered Optional Redemption Date, Monthly Mandatory Redemption Date, Triggering Event Redemption Date and/or any other date when any funds are due to be redeemed, converted and/or otherwise paid to the Holder by the Corporation and/or any Subsidiary, whether by acceleration or otherwise), including, without limitation, any failure to pay any redemption payments or amounts thereunder, or under any other Transaction Document or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby; (ii) the Corporation and/or any Subsidiary shall fail to maintain a minimum cash and cash equivalents balance of $10,000,000 at any time while the Series A Preferred Stock is outstanding or shall fail to observe, perform and/or breaches any material covenant, provision, or agreement contained in this Certificate of Designation, the Transaction Documents, a breach by the Corporation of its obligations to deliver Conversion Shares to the Holder upon conversion of the Series A Preferred Stock, which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days after notice of such failure is sent by the Holder or by any other Holder to the Corporation and (B) ten ( 10) Trading Days after the Corporation has become or should have become aware of such failure; (iii) a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which the Corporation or any Subsidiary is obligated (and not covered by clause (vi) below; (iv) any material representation or warranty made in any of the Transaction Documents, any written statement pursuant hereto or thereto, any other agreement, contract, lease, document or instrument to which the Corporation or any Subsidiary is obligated (including those covered by clause (vi) below), or any other report, financial statement or certificate made or 25
delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made; (v) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) ofRegulation S-X) shall be subject to a Bankruptcy Event; (vi) the Corporation or any Subsidiary shall default on any of its obligations under any mortgage, credit and/or loan agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $50,000 whether such Indebtedness now exists or shall hereafter be created, and (b) results in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; (vii) the suspension from trading or quotation of the Common Stock, or the failure of the Common Stock to be eligible for listing or quotation on a Trading Market for a period of five ( 5) consecutive Trading Days; (viii) the Corporation shall fail for any reason to deliver Common Stock to a Holder prior to the second (2nd) Trading Day after a Conversion Date or otherwise, or the Corporation shall provide at any time notice to the Holder, including by way of public announcement, of the Corporation's intention to not honor requests for conversions of the Series A Preferred Stock in accordance with the terms hereof; (ix) the Corporation fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act, which failure is not cured, if possible to cure, prior to the expiration of the applicable grace period permitted under Rule 12b-25 of the Exchange Act, further provided that the Corporation files a Form 12b-25 for such report; (x) the Corporation shall fai 1 to maintain a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation and such failure is not cured within five ( 5) Trading Days; (xi) any monetary judgn1ent, writ or similar final process shall be entered or filed against the Corporation, any Subsidiary or any of their respective property or other assets for more than $250,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days; (xii) the Corporation shall fail to obtain all necessary approvals of the issue and sale of all Common Stock issuable in connection with the Series A Preferred Stock and/or Transaction Documents, including, but not limited to, all Conversion Shares and Common Stock to be issued as Dividends and or otherwise, consistent with the rules and regulations of the principal Trading Market as of the Original Issue Date; (xiii) the electronic transfer by the Corporation of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a "chill"; (xiv) any Change of Control Transaction occurs; 26
(xv) the Corporation fails to (1) file a Preliminary Information Statement on Schedule 14C with the Commission within thirty (30) days of the Closing Date, (2) to file a Definitive Information Statement on Schedule 14C with the SEC on the eleventh day after the requisite ten day waiting period and immediately mail the Definitive Information Statement on Schedule 14C to the Corporation's shareholders ( assuming no comments from the Commission have been received with respect to such filing prior to such eleventh day) or within five (5) days of the receipt of any comments, fails to file a response to such comments or (3) to obtain all necessary approvals (including approval of Nasdaq Capital Market) of the issue and sale of all Conversion Shares, without any Exchange Cap limitation and or otherwise, consistent with the rules and regulations of the principal Trading Market within six months of the Closing Date; and (xvi) the registration statement registering the Series A Preferred Stock and Common Stock shall no longer be effective. (e) Notice of a Triggering Event; Redemption Right. Upon the occurrence of a Triggering Event with respect to the Series A Preferred Stock, the Corporation shall within one ( 1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (with next day delivery specified) (an "Triggering Event Notice") to each Holder. At any time after the earlier of a Holder's receipt of a Triggering Event Notice and such Holder becoming aware of a Triggering Event (such earlier date, the "Triggering Event Right Commencement Date") and ending (such ending date, the "Triggering Event Right Expiration Date", and each such period, an "Triggering Event Redemption Right Period") on the sixtieth (60th ) Trading Day after the later of (x) the date such Triggering Event is cured and (y) such Holder's receipt of a Triggering Event Notice that includes (I) a reasonable description of the applicable Triggering Event, (II) a certification as to whether, in the opinion of the Corporation, such Triggering Event is capable of being cured and, if applicable, a reasonable description of any existing plans of the Corporation to cure such Triggering Event and (III) a certification as to the date the Triggering Event occurred and, if cured on or prior to the date of such Triggering Event Notice, the applicable Triggering Event Right Expiration Date, such Holder may require the Corporation to redeem ( a "Triggering Event Redemption") for cash (regardless of whether such Triggering Event has been cured on or prior to the Triggering Event Right Expiration Date) all or any of the Series A Preferred Stock by delivering written notice thereof (the "Triggering Event Redemption Notice") to the Corporation, which Triggering Event Redemption Notice shall indicate the number of the Series A Preferred Stock such Holder is electing to redeem. Each of the shares of Series A Preferred Stock subject to redemption by the Corporation pursuant to this Section 9(e) shall be redeemed by the Corporation within five days of delivery of Triggering Event Redemption Notice (the "Triggering Event Redemption Date") at a price equal to the product of (x) 115% and (y)the Corporation's Mandatory Redemption Price (the "Triggering Event Redemption Price''). To the extent redemptions required by this Section 9(e) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series A Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(e), until the Triggering Event Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 9(e) may be converted, in whole or in part, by such Holder into Common Stock pursuant to the terms of this Certificate of Designation. In the event of the Corporation's redemption ofany of the Series A Preferred Stock under this Section 9(e), a Holder's damages would be uncertain and difficult to estimate because of the parties ' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 9(e) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder's actual loss of its investment opportunity and not as a penalty. Any redemption upon a Triggering Event 27
shall not constitute an election of remedies by the applicable Holder or any other Holder, and all other rights and remedies of each Holder shall be preserved. (f) Mandatory Redemption upon Bankruptcy Triggering Event. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Triggering Event, the Corporation shall immediately redeem, in cash, each of the shares of Series A Preferred Stock then outstanding at a redemption price equal to the applicable Triggering Event Redemption Price ( calculated as if such Holder shall have delivered the Triggering Event Redemption Notice immediately prior to the occurrence of such Bankruptcy Triggering Event), without the requirement for any notice or demand or other action by any Holder or any other person or entity, provided that a Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Triggering Event, in whole or in part, and any such waiver shall not affect any other rights of such Holder or any other Holder hereunder, including any other rights in respect of such Bankruptcy Triggering Event, any right to conversion, and any right to payment of such Triggering Event Redemption Price or any other Redemption Price, as applicable. (g) Change of Control Redemption Right. No sooner than twenty (20) Trading Days nor later than ten ( 10) Trading Days prior to the consummation ofa Change of Control (the "Change of Control Date"), but not prior to the public announcement of such Change of Control, the Corporation shall deliver written notice thereof via facsimile and overnight courier to each Holder ( a "Change of Control Notice") At any time during the period beginning after a Holder's receipt of a Change of Control Notice or such Holder becoming aware of a Change of Control if a Change of Control Notice is not delivered to such Holder in accordance with the immediately preceding sentence (as applicable) and ending on the later of twenty (20) Trading Days after (A) consummation of such Change of Control or (B) the date of receipt of such Change of Control Notice, such Holder may require the Corporation to redeem all or any portion of such Holder's Series A Pref erred Stock ("Change of Control Redemption") by delivering written notice thereof ("Change of Control Redemption Notice'') to the Corporation, which Change of Control Redemption Notice shall indicate the number of shares of Series A Preferred Stock such Holder is electing to have the Corporation redeem. Each share of Series A Preferred Stock subject to redemption pursuant to this Section 9(g) shall be redeemed by the Corporation in cash at a price equal to the greater of (i) product of 115% multiplied by the Corporation's Mandatory Redemption Price and (ii) the prevailing Conversion Price plus all accrued but unpaid Dividends (the "Change of Control Redemption Price"). Redemptions required by this Section 9(g) shall have priority to payments to all other stockholders of the Corporation in connection with such Change of Control. To the extent redemptions required by this Section 9(g) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series A Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(g). but subject to Section 6(d). until the applicable Change of Control Redemption Price (together with any late charges thereon) is paid in full to the applicable Holder, the Series A Preferred Stock submitted by such Holder for redemption under this Section 9(g) may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 6 or in the event the Conversion Date is after the consummation of such Change of Control, stock or equity interests of the Successor Entity substantially equivalent to the Corporation's shares of Common Stock pursuant to Section 7. In the event of the Corporation's redemption of any of the Series A Preferred Stock under this Section 9(g). such Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for a Holder. Accordingly, any redemption premium due under this Section 9(g) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder's actual loss of its investment opportunity and not as 28
a penalty. The Corporation shall make payment of the applicable Change of Control Redemption Price concurrently with the consummation of such Change of Control if a Change of Control Redemption Notice is received prior to the consummation of such Change of Control and within two (2) Trading Days after the Corporation's receipt of such notice otherwise (the "Change of Control Redemption Date") Redemptions required by this Section 9 shall be made in accordance with the provisions of Section 9(h). (h) If a Holder has submitted a Change of Control Redemption Notice in accordance with Section 9{g), the Corporation shall deliver the applicable Change of Control Redemption Price to such Holder in cash concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five ( 5) Business Days after the Corporation's receipt of such notice otherwise. In the event that the Corporation does not pay the applicable Triggering Event Redemption Price or Change of Control Redemption Price to a Holder within the time period required for any reason ( except if such payment is prohibited pursuant to the DGCL), at any time thereafter and until the Corporation pays such unpaid Triggering Event Redemption Price or Change of Control Redemption Price in full, such Holder shall have the option, in lieu of redemption, to require the Corporation to promptly return to such Holder all or any of the shares of Series A Preferred Stock that were submitted for redemption and for which the applicable Triggering Event Redemption Price or Change of Control Redemption Price (together with any late charges thereon) has not been paid. Upon the Corporation's receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Series A Preferred Stock, (y) the Corporation shall immediately return the applicable Series A Preferred Stock certificate, or issue a new Preferred Stock Certificate, to such Holder, and in each case the declared and unpaid dividend amount of such Preferred Stock shall be increased by an amount equal to the difference between (l) the applicable Redemption Price (as the case may be, and as adjusted pursuant to this Section 9(h), if applicable) minus (2) the Stated Value portion of the Conversion Amount submitted for redemption and (z) the Conversion Price of such Preferred Shares shall be automatically adjusted with respect to each conversion effected thereafter by such Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided, (B) the greater of (x) the Floor Price and (y) 75% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Corporation and ending on and including the date on which the applicable Redemption Notice is voided and (C) the greater of (x) the Floor Price and (y) 75% of the quotient of (I) the sum of the five (5) lowest VW APs of the Common Stock during the twenty (20) consecutive Trading Day period ending and including the Trading Day immediately preceding the applicable Conversion Date divided by (II) five (5) (it being understood and agreed that all such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period). A Holder's delivery ofa notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Corporation's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Preferred Shares subject to such notice. (i) Independent Investigation. At the request ofany Holder either (x) at any time when a Triggering Event has occurred and is continuing, (y) upon the occurrence of an event that with the passage of time or giving of notice would constitute a Triggering Event or (z) at any time such Holder reasonably believes a Triggering Event may have occurred or be continuing, the Corporation shall hire an independent, reputable investment bank selected by the Corporation and approved by such Holder to investigate as to whether any breach of the Certificate of Designation has occurred (the "Independent Investigator"). If the Independent Investigator determines that such Triggering Event has occurred, the Independent Investigator shall notify the Corporation of such Triggering 29
Event and the Corporation shall deliver written notice to each Holder of such Triggering Event. In connection with such investigation, the Independent Investigator may, during normal business hours, inspect all contracts, books, records, personnel, offices and other facilities and properties of the Corporation and its Subsidiaries and, to the extent available to the Corporation after the Corporation uses reasonable efforts to obtain them, the records ofits legal advisors and accountants (including the accountants' work papers) and any books of account, records, reports and other papers not contractually required of the Corporation to be confidential or secret, or subject to attorney client or other evidentiary privilege, and the Independent Investigator may make such copies and inspections thereof as the Independent Investigator may reasonably request. The Corporation shall furnish the Independent Investigator with such financial and operating data and other information with respect to the business and properties of the Corporation as the Independent Investigator may reasonably request. The Corporation shall permit the Independent Investigator to discuss the affairs, finances and accounts of the Corporation with, and to make proposals and furnish advice with respect thereto to, the Corporation's officers, directors, key employees and independent public accountants or any of them (and by this provision the Corporation authorizes said accountants to discuss with such Independent Investigator the finances and affairs of the Corporation and any Subsidiaries), all at such reasonable times, upon reasonable notice, and as often as may be reasonably requested. (i) General. Notwithstanding anything to the foregoing contained herein, on each Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date the Company shall (a) first redeem, on a pro rata basis in accordance with the number of shares of Series A Preferred Stock owned by each Holder, that number of outstanding shares of Series A Preferred Stock which the Corporation is obligated to redeem pursuant to this Section 9 and (b) next redeem, on a pro rata basis in accordance with the number of shares of Series B Preferred Stock owned by each holder, any shares of Series B Preferred Stock which the Corporation is obligated to redeem pursuant to Section 9 of the Series B Certificate of Designation. If on any Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date, Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Series A Preferred Stock and Series B Preferred Stock to be redeemed, the Corporation shall ( 1) first ratably redeem the maximum number of shares of Series A Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to this Section 9 are redeemed, and (2) next ratably redeem the maximum number of shares of Series B Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to Section 9 of the Series B Certificate of Designation are redeemed. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Series A Preferred Stock, if any, and Series B Preferred Stock, if any, which the Corporation is then obligated to redeem, such funds shall be used, within five (5) Business Days, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. If on any Accelerated Redemption Date, Triggered Optional Redemption Date or Triggering Event Redemption Date, any cash payment required to be made pursuant to this Section 9 is not made, then the Holder may provide to the Corporation written notice within five (5) Business Days of such date that it desires to retain its shares of Series A Preferred Stock that have not been redeemed for cash and sell the shares of Series A Preferred Stock to a third party and in the event the Corporation receives such notice from a Holder it shall honor the request or, if no such notice is sent, then the Corporation shall pay to the Holder the unpaid cash redemption payment in duly authorized, validly issued, fully paid and non assessable shares of Common Stock in accordance with this Section 9. 30
Section 10. Miscellaneous. (a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile or email attachment, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 4800 140th Avenue N., Suite 101, Clearwater, Florida Attention: Joseph Marinucci, Chief Executive Officer, email address jmarinucci@dmsgroup.com, or such other email address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of such Holder appearing on the books of the Corporation, or if no such email address or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. (b) Lost or Mutilated Preferred Stock Certificate. If a Holder's Series A Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series A Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation (which shall not include the posting of any bond). ( c) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation 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. (d) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. (e) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof. (t) Status of Converted or Redeemed Preferred Stock. Shares of Series A Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Series A Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares may not be reissued and shall automatically be retired and cancelled and shall resume the status of authorized but unissued shares of preferred stock. 31
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IN WITNESS WHEREOF, the undersigned has executed this Certificate this 30 day of March, 2023. Name: Joseph Marinucci Title: Chief Executive Officer 33
ANNEX A NOTICE OF CONVERSION (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A PREFERRED STOCK) The undersigned hereby elects to convert the number of shares of Series A Convertible Redeemable Preferred Stock indicated below into shares of common stock, par value $0.0001 per share (the "Common Stock"), of Digital Media Solutions, Inc., a Delaware corporation (the "Corporation"), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes. Conversion calculations: Date to Effect Conversion: --------------------Number of shares of Series A Preferred Stock owned prior to Conversion: ______ _ Number of shares of Series A Preferred Stock to be Converted: ----------- St ate d Value of shares of Series A Preferred Stock to be Converted: --------- Number of shares of Common Stock to be Issued: -------- ---- Applicable Conversion Price: ___________________ _ Number of shares of Series A Preferred Stock subsequent to Conversion: ______ _ Address for Delivery: _________ _ Or DW AC Instructions: Broker no: ---- Account no: ____ _ HOLDER By: --------------Name: Title: 34
Delaware The First State Page 1 3248507 8100 Authentication: 203044065 SR# 20231225727 Date: 03-30-23 You may verify this certificate online at corp.delaware.gov/authver.shtml I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF “DIGITAL MEDIA SOLUTIONS, INC.”, FILED IN THIS OFFICE ON THE THIRTIETH DAY OF MARCH, A.D. 2023, AT 2:05 O`CLOCK P.M.
State of Delaware Secretary of State Division of Corporations Delivered 02:05 PM 03/30/2023 FILED 02:05 PM 03/30/2023 SR 20231225727 - FileNumber 3248507 CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK PURSUANT TO SECTION 151 OF THE DELA WARE GENERAL CORPORATION LAW The undersigned, Joseph Marinucci, does hereby certify that: 1. He is the Chief Executive Officer of Digital Media Solutions, Inc., a Delaware corporation (the "Corporation"). 2. The Corporation is authorized to issue 100,000,000 shares of preferred stock, par value $0.0001 per share, of which no shares have been previously designated. 3. The following resolutions were duly adopted by the board of directors of the Corporation (the "Board of Directors''): WHEREAS, the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation''), provides for a class of its authorized stock known as preferred stock, consisting of 100,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series; WHEREAS, the Board of Directors is authorized by resolution to provide for the issuance of preferred stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof; and WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as described above, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of 60,000 shares of the preferred stock which the Corporation has the authority to issue. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock to be designated "Series B Convertible Redeemable Preferred Stock" and does hereby fix and determine the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof as follows: Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings: "Accelerated Redemption" shall have the meaning set forth in Section 9(b). "Adjustment Right" means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 7(e)) of Common Stock that could result in a decrease in the net consideration received by the Corporation in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
"Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. "Alternate Consideration" shall have the meaning set forth in Section 7(d). "Alternate Conversion Price" shall have the meaning set forth in Section 6(b). "Applicable Price" shall have the meaning set forth in Section 7(e). "Bankruptcy Triggering Event" shall have the meaning set forth in Section 9(d). "Beneficial Ownership Limitation" shall have the meaning set forth in Section 6(d). "Black Scholes Consideration Value" means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the "OV" function on Bloomberg utilizing: (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be). "Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State ofNew York are authorized or required by law or other governmental action to close. "Buy-In" shall have the meaning set forth in Section 6(c)(iv). "Change of Control Date" shall have the meaning set forth in Section 9(g). "Change of Control Price" shall have the meaning set forth in Section 9(g). "Change of Control Notice" shall have the meaning set forth in Section 9(g). "Change of Control Redemption" shall have the meaning set forth in Section 9(g). "Change of Control Redemption Date" shall have the meaning set forth in Section 9(g). "Change of Control Redemption Price" shall have the meaning set forth in Section 9(g). "Change of Control Redemption Notice" shall have the meaning set forth in Section 9(g). "Change of Control Transaction" means the occurrence after the date hereof of any of (a) an acquisition by an individual or legal entity or "group" ( as described in Rule 13d-5(b )(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of 2
capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of the issuance, sale, conversion or exercise of Series A Preferred Stock or Series B Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, ( c) the Corporation ( and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, ( d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date ( or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above. "Closing" means the closing of the purchase and sale of the Series B Preferred Stock pursuant to Section 2.1 of the Purchase Agreement. "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Trading Market, as reported by Bloomberg, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock. If the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section lO(k). All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period. "Closing Date" means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder's obligations to pay the Purchase Price and (ii) the Corporation's obligations to deliver the Series B Preferred Stock have been satisfied or waived. "Commission" means the United States Securities and Exchange Commission. 3
"Common Stock" means the Corporation's Class A common stock, $0.0001 par value per share, and stock of any other class of securities into which such securities may hereafter be reclassified, converted or changed. "Common Stock Equivalents" means any securities of the Corporation or the Subsidiaries which 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. "Conversion Amount" means the sum of the Stated Value at issue and all accrued and unpaid dividends at issue. "Conversion Date" shall have the meaning set forth in Section 6(a). "Conversion Price" shall have the meaning set forth in Section 6(b). "Convertible Securities" means any stock or other security ( other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any Common Stock. "Conversion Shares" means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock in accordance with the terms hereof. 9(a). "Corporation's Mandatory Redemption Price" shall have the meaning set forth in Section "Dilutive Issuance" shall have the meaning set forth in Section 7(e) "Dividend Date" shall have the meaning set forth in Section 3(b). "Dividend Rate" means four percent (4.0%) per annum. "Dividends" shall have the meaning set forth in Section 3(a). "Equity Conditions" means during the period in question: (a) the Corporation shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holders, if any, (b) there is an effective registration statement ("Registration Statement'') under the Securities Act pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the Common Stock issuable pursuant to the Certificate of Designation (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Certificate of Designation may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holders, (c) the Common Stock are trading on a Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), ( d) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation, ( e) there is no existing breach of any of the representations, warranties, covenants or agreements made by the Corporation in the 4
Transaction Documents, and no existing event which, with the passage of time or the giving of notice, would constitute such a breach, (f) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (g) the limitations set forth under Section 6(d) will not be exceeded upon any requested conversion and (h) for each of the twenty (20) Trading Days prior to the applicable date in question, the closing price of the Common Stock on the Trading Market is at least equal to the Floor Price. "Escrow Agreement" means the escrow agreement to be entered into in connection with the Purchase Agreement, by and among the Corporation, Continental Stock Transfer & Trust Company, and the holder representative party thereto (the "Holder Representative"). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exchange Cap" shall have the meaning given such term in Section 6(e). "Exchange Cap Allocation" shall have the meaning given such term in Section 6(e). "Exchange Cap Shares" shall have the meaning given such term in Section 6(e). "Exempt Issuance" has the meaning set forth in the Purchase Agreement. "Floor Price" means $0.484. "Fundamental Transaction" shall have the meaning set forth in Section 7(d). "Holder" shall have the meaning given such term in Section 2. "Holder's Optional Triggered Notice" shall have the meaning given such term in Section "Installments" shall have the meaning given such term in Section 9(a). "Intellectual Property Rights" means, with respect to the Corporation and its Subsidiaries, all of their rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor. "Lien" means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature affecting property, real or personal, tangible or intangible, including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset, any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset, any lease in the nature thereof and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute of any jurisdiction). "Liguidation" shall have the meaning set forth in Section 5. 5
9(a). "Monthly Mandatory Redemption" shall have the meaning given such term in Section 9(a). "Monthly Mandatory Redemption Date" shall have the meaning given such term in Section "Monthly Mandatory Redemption Share Amount" shall have the meaning given such term in Section 9(a). "New Issuance Price" shall have the meaning set forth in Section 7(e). "Notice of Conversion" shall have the meaning set forth in Section 6(a). "Optional Triggering Event Right Commencement Date" shall have the meaning given such term in Section 9(c). "Optional Triggering Event Notice" shall have the meaning given such term in Section 9(c). "Original Issue Date" means the date of the first issuance of any shares of the Series B Preferred Stock regardless of the number of transfers of any particular shares of Series B Preferred Stock and regardless of the number of certificates which may be issued to evidence such Series B Preferred Stock. "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government ( or an agency or subdivision thereof) or other entity of any kind. "Primary Security" shall have the meaning set forth in Section 7(e){iv). "Purchase Agreement" means the Securities Purchase Agreement, dated as of March 29, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. "Purchase Price" means, as to each Holder, the aggregate dollar amount to be paid for the Series B Preferred Stock pursuant to the Purchase Agreement. "Redemption" means any of or collectively all of an Accelerated Redemption, Monthly Mandatory Redemption, Triggering Event Redemption, Triggered Optional Redemption,_Change of Control Redemption "Redemption Price" means any of the Corporation's Mandatory Redemption Price, Triggering Event Redemption Price and the Change of Control Redemption Price, as applicable. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of March 30, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. "Secondary Security" shall have the meaning set forth in Section 7(d). 6
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Series A Preferred Stock" shall have the meaning set forth in Section 2. "Series A Preferred Stock Certificate of Designation" means the Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Redeemable Preferred Stock of the Corporation, dated as of the date hereof. "Series B Preferred Stock" shall mean the Series B Convertible Redeemable Preferred Stock of the Corporation. "Share Delivery Date" shall have the meaning set forth in Section 6(c). "Stated Value" shall have the meaning set forth in Section 2. "Subsidiary" means any subsidiary of the Corporation as set forth on Schedule 3. l(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement. "Successor Entity" shall have the meaning set forth in Section 7(d). "Trading Day" means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4: 00: 00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange ( or any successor thereto) is open for trading of securities. "Trading Market" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing). "Transaction Documents" means this Certificate of Designation, the Series A Preferred Stock Certificate of Designation, the Purchase Agreement, the Registration Rights Agreement, the Warrants, the Escrow Agreement, the Financial Advisory Agreement, the Lock-Up Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement, in each case as amended, modified or supplemented from time to time in accordance with its terms. "Transfer Agent" means Continental Stock Transfer & Trust Company, and any successor transfer agent of the Corporation. "Triggered Optional Redemption Amount" shall have the meaning set forth in Section 9(c). 7
"Triggering Event" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption" shall have the meaning set forth in Section 9(e). "Triggering Event Right Commencement Date" shall have the meaning set forth in Section "Triggering Event Right Period" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption Date" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption Notice" shall have the meaning set forth in Section 9(e). "Triggering Event Redemption Price" shall have the meaning set forth in Section 9(e). "Triggered Optional Event" shall have the meaning set forth in Section 9(c). "Triggered Optional Redemption" shall have the meaning set forth in Section 9(c). "Triggered Optional Redemption Date" shall have the meaning set forth in Section 9(c). "Valuation Event" shall have the meaning set forth in Section 7(e)(iv). "VW AP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB orOTCQX and if prices for the Common Stock is then reported in The Pink Open Market ( or a similar organization or agency succeeding to its functions ofreporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Series B Preferred Stock then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation. "Warrants" has the meaning set forth in the Purchase Agreement. Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as "Series B Convertible Redeemable Preferred Stock" (the "Series B Preferred Stock") and the number of shares of such series shall be 60,000 (which shall not be subject to increase without the written consent of the holders of a majority of the then outstanding shares of the Series B Preferred Stock ( each, a "Holder" and collectively, the "Holders")). Each share of Series B Preferred Stock shall have a par value of $0.0001 per share and a stated value equal to $111.11 ( as adjusted for any stock splits, stock dividends, recapitalizations, or similar transaction with respect to the Series B Preferred Stock, the "Stated Value"). Section 3. Dividends. 8
( a) From and after the Original Issue Date, each Holder shall be entitled to receive dividends ("Dividends"), which Dividends shall be cumulative and shall continue to accrue and compound annually whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of dividends in such fiscal year. Dividends on the Series B Preferred Stock shall commence accumulating on the Original Issue Date and shall be computed on the basis of a 360-day year and twelve 30-day months. (b) Dividends shall be payable on each Conversion Date and Redemption Date ( each, a "Dividend Date"), as applicable, to the record holders of the Series B Preferred Stock on the applicable Dividend Date in accordance with the terms of the applicable conversion or redemption. Section 4. Voting Rights. (a) For purposes of determining the presence of a quorum at any meeting of the stockholders of the Corporation at which the shares of Series B Preferred Stock are entitled to vote and the voting power of the shares of Series B Preferred Stock, each Holder of outstanding shares of Series B Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such shares of Series B Preferred Stock are then convertible, disregarding, for such purposes, any limitations on conversion set forth herein. (b) Except as otherwise required by the Delaware General Corporation Law or the Certificate of Incorporation (including this Certificate of Designation), each share of Series B Preferred Stock shall be entitled to vote on each matter submitted to a vote of the stockholders generally and shall vote together with the Common Stock and any other class or series of capital stock entitled to vote thereon as a single class and on an as converted to Common Stock basis. Notwithstanding the foregoing, at no time shall the voting power of a share of Series B Preferred Stock voting on an as converted basis exceed the voting power of such share on the Initial Issuance Date based upon the Conversion Price of $0.6453 per share. Notwithstanding anything to the contrary in the first sentence of this Section 4(b), in addition, as long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Preferred Stock, voting as a separate class, (i) alter or change the powers, preferences or rights of the Series B Preferred Stock so as to affect them adversely, (ii) amend the Certificate ofincorporation or other charter documents in a manner adverse to the Holders, (iii) increase the number of authorized shares of Series B Preferred Stock, or (iv) enter into any agreement with respect to any of the foregoing. Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a "Liquidation"), prior and in preference to the Common Stock and after the payment of all preferential amounts required to be paid to the holders of shares of Series A Preferred Stock pursuant to the Series A Preferred Stock Certificate of Designation, the Holders shall be entitled to receive out of the assets available for distribution to stockholders an amount equal in cash to 115% of the aggregate Stated Value of all shares of Series B Preferred Stock held by such Holder, plus any accrued but unpaid Dividends thereon any other fees then due and owing thereon under this Certificate of Designation, and no more, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The preference set forth in this Section 5 with respect to distributions to the Series B Preferred Stock upon a Liquidation shall apply mutatis mutandis to any distributions to be made upon the consummation of a Fundamental Transaction. The Corporation shall mail written notice of any such Liquidation or Fundamental Transaction not less than 45 days prior to the payment date stated therein, to each Holder. To the extent necessary, the Corporation shall cause such actions to be taken by each of its Subsidiaries so as to enable, to the maximum extent permitted by law, the proceeds of a Liquidation to be distributed to the 9
Holders in accordance with this Section 5. All the preferential amounts to be paid to the Holders under this Section 5 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any Liquidation funds of the Corporation to the holders of shares of the Common Stock in connection with a Liquidation as to which this Section 5 applies. Section 6. Conversion. (a) Conversions at Option of Holder. Subject to Section 6(d), each share of Series B Preferred Stock shall be convertible, at any time and from time to time only after the Original Issuance Date, at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series B Preferred Stock by the Conversion Price or the Alternate Conversion Price, as the case may be. Holders shall effect conversions by delivering to the Corporation and the Holder Representative a conversion notice in the form attached hereto as Annex A (a ''Notice of Conversion"). Each Notice of Conversion shall specify the number of shares of Series B Preferred Stock to be converted, the number of shares of Series B Preferred Stock owned prior to the conversion at issue, the number of shares of Series B Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Corporation (such date, the "Conversion Date"). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be as of the close of business on the Business Day that such Notice of Conversion is delivered to the Corporation, or if such day is not a Business Day or if the Notice of Conversion is delivered after regular business hours, the next Business Day. No ink original Notice of Conversion shall be required, nor shall any medallion guarantee ( or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. From and after the Conversion Date, until presented for transfer or exchange, certificates that previously represented shares of Series B Preferred Stock shall represent, in lieu of the number of shares of Series B Preferred Stock previously represented by such certificate, the number of shares of Series B Preferred Stock, if any, previously represented by such certificate that were not converted pursuant to the Notice of Conversion, plus the number of shares of Conversion Shares into which the shares of Series B Preferred Stock previously represented by such certificate were converted. To effect conversions of shares of Series B Preferred Stock, a Holder shall not be required to surrender the certificate(s), if any, representing the shares of Series B Preferred Stock to the Corporation unless all of the shares of Series B Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series B Preferred Stock promptly following the Conversion Date at issue. Shares of Series B Preferred Stock converted into Common Stock shall be canceled and shall not be reissued. (b) Conversion Price. The conversion price for the Series B Preferred Stock shall equal $0.56 per share, subject to adjustment herein (the "Conversion Price"); provided, however, that in lieu of the applicable Conversion Price, as adjusted herein, the Holder may elect to apply an alternate Conversion Price (the "Alternate Conversion Price") equal to the lesser of (i) 90% of the arithmetic average of the three lowest daily VW APs of the 20 Trading Days prior to the applicable Conversion Date or (ii) 90% of the VW AP of the trading day prior to the applicable Conversion Date; provided that neither the Conversion Price nor the Alternate Conversion Price shall be below the Floor Price. ( c) Mechanics of Conversion 1. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the "Share Delivery Date"), the
Corporation shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being acquired upon the conversion of the Series B Preferred Stock. If such Conversion Shares may be issued free of restrictive legends and trading restrictions, the Corporation shall cause such Conversion Shares to be issued free of such restrictive legends and trading legends. The Corporation shall use its reasonable best efforts to deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, "Standard Settlement Period" means the standard settlement period, expressed in a number of Trading Days, on the Corporation's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion. 11. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Series B Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion. 111. Obligation Absolute; Partial Liquidated Damages. Subject to Section 6(d), the Corporation's obligation to issue and deliver the Conversion Shares upon conversion of Series B Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance, which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Series B Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, other than pursuant to Section 6( d), unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series B Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of the Series B Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, subject to Section 6(d), the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the Share Delivery Date applicable to such conversion, other than pursuant to Section 6(d), the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Series B Preferred Stock being converted, 11
$50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day after the Share Delivery Date and increasing to $200 per Trading Day on the sixth Trading Day after the Share Delivery Date) for each Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder's right to pursue actual damages for the Corporation's failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a "Buy-In"), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder's total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series B Preferred Stock equal to the number of shares of Series B Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series B Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a 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 Corporation's failure to timely deliver the Conversion Shares upon conversion of the shares of Series B Preferred Stock as required pursuant to the terms hereof. v. Reservation of Shares Issuable Upon Conversion. From and after the Original Issue Date and until no shares of Series B Preferred Stock remain outstanding, the Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series B Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders 12
of the Series B Preferred Stock), not less than 150% of the aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account any adjustments under Section 7) upon the conversion of the then outstanding shares of Series B Preferred Stock at the Alternate Conversion Price. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable. vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series B Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding anything to the contrary contained herein, but consistent with the provisions of this subsection with respect to fractional Conversion Shares, nothing shall prevent any Holder from converting fractional shares of Series B Preferred Stock. vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of the Series B Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation 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 Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series B Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company ( or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares. (d) [RESERVED.] ( e) Principal Market Regulation. The Corporation shall not issue any shares of Common Stock upon conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations if the issuance of such shares of Common Stock (together with any shares issued upon exercise of any Warrants) would exceed the aggregate number of shares of Common Stock which the Corporation may issue upon conversion of the Pref erred Stock or otherwise pursuant to the terms of this Certificate of Designations without breaching the Corporation's obligations under the rules or regulations of the Trading Market (the number of shares which may be issued without violating such rules and regulations, the "Exchange Cap"), except that such limitation shall not apply in the event that the Corporation (A) obtains the approval of its stockholders as required by the applicable rules of the Trading Market for issuances of shares of Common Stock in excess of such amount, (B) obtains a written opinion from outside counsel to the Corporation that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the outstanding shares of Preferred Stock or (C) issues the Preferred Stock through an effective registration statement in connection with a public offering in accordance with the rules and regulations of the Trading Market. Until such approval or such written opinion is obtained, or unless such effective registration statement is available, no Holder shall be issued in the aggregate, upon 13
conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations, shares of Common Stock (together with any shares issued upon exercise of any Warrants) in an amount greater than the product of (i) the Exchange Cap as of the Original Issuance Date multiplied by (ii) the quotient of (1) the aggregate original Stated Value of the Preferred Stock issued to such Holder divided by (2) the aggregate original Stated Value of the Preferred Stock issued to all Holders (with respect to each Holder, the "Exchange Cap Allocation"). In the event that any Holder shall sell or otherwise transfer any of such Holder's shares of Preferred Stock, the transferee shall be allocated a pro rata portion of such Holder's Exchange Cap Allocation with respect to such portion of such Preferred Stock so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation so allocated to such transferee. Upon conversion in full of a Holder's Preferred Stock, the difference (if any) between such Holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder upon such Holder's conversion in full of such Preferred Stock shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Preferred Stock on a pro rata basis in proportion to the shares of Common Stock underlying the Preferred Stock then held by each such Holder of Preferred Stock. In the event that the Corporation is prohibited from issuing any shares of Common Stock pursuant to this Section 6( e) (the "Exchange Cap Shares") to a Holder, the Corporation shall pay cash to such Holder in exchange for the redemption of such number of shares of Preferred Stock held by the Holder that are not convertible into such Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Notice of Conversion with respect to such Exchange Cap Shares to the Corporation and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of Exchange Cap Shares, brokerage commissions, if any, of such Holder incurred in connection therewith. Section 7. Certain Adjustments. (a) Stock Dividends and Stock Splits. If the Corporation, at any time while the Series B Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions that is payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price and the Floor Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) 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 re-classification. Notwithstanding the foregoing in no event may the Conversion Price be less than the par value per share of Series B Preferred Stock. (b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock or any class thereof (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could 14
have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder's Series B Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent ( or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). (c) Distributions. During such time as the Series B Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets ( or rights to acquire its assets) to holders 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, scheme of arrangement or other similar transaction) (a "Distribution"), then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series B Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent ( or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). (d) Fundamental Transaction. If, at any time while the Series B Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation ( and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of at least 50% of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization 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, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) ( each a "Fundamental 15
Transaction"), then, upon any subsequent conversion of the Series B Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6( d) on the conversion of the Series B Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration'') receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which the Series B Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series B Preferred Stock). For purposes of any such conversion, the determination of the Conversion 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 Corporation shall apportion the Conversion 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 conversion of the Series B Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate ofDesignation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders' right to convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(d) pursuant to written agreements in customary form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for the Series B Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Series B Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Series B Preferred Stock (without regard to any limitations on the conversion of the Series B Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Series B Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the "Corporation" shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein. (e) Adjustment of Conversion Price upon Issuance of Common Stock. Except in respect of any Exempt Issuance, if and whenever on or after the Original Issue Date the Corporation issues or sells, or in accordance with this Section 7(e) is deemed to have issued or sold, any Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account 16
of the Corporation for a consideration per share (the "New Issuance Price") less than a price equal to the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such Conversion Price then in effect is referred to herein as the "Applicable Price") (the foregoing a "Dilutive Issuance''), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the greater of the New Issuance Price and the Floor Price. For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and the New Issuance Price under this Section 7(e)), the following shall be applicable: (i) Issuance of Options. If the Corporation in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Option for such price per share. For purposes of this Section ~ the "lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any convertible securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof' shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable ( or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof, minus (2) the sum of all amounts paid or payable to the holder of such Option ( or any other Person) with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration consisting of cash, debt forgiveness, assets or any other property received or receivable by, or benefit conferred on, the holder of such Option ( or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Corporation or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms thereof or upon the actual issuance of such Corporation upon conversion, exercise or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share for which Common Stock are at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(e)(ii), the "lowest price per share for which one share of Common Stock is at any time issuable ( or may become issuable assuming all possible market conditions) upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof' shall be equal to (1) the lower of 17
(x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) with respect to any one share of Common Stock upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable consisting of cash, debt forgiveness, assets or other property by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(e). except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock increases or decreases at any time ( other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 7{a) above), the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7(e)(iii). if the terms of any Option or Convertible Security that was outstanding as of the Original Issue Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(e) shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Corporation ( as determined by the Holder, the "Primary Security." and such Option and/or Convertible Security and/or Adjustment Right, the "Secondary Securities"), together comprising one integrated transaction ( or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Corporation either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per share for which one share of Common Stock was issued ( or was deemed to be issued pursuant to Section 18
7(e)(i) or 7(e)(ii) above, as applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security, if any, in each case, as determined on a per share basis in accordance with this Section 7(e)(iv). If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the net amount of consideration received by the Corporation therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Corporation ( for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Corporation for such securities will be the arithmetic average of the VWAPs of such security for each of the five ( 5) Trading Days immediately preceding the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving entity, the amount of consideration therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Corporation and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th ) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Corporation and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Corporation. (v) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issuance or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase ( as the case may be). (f) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 11100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum 19
of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding. (g) Notice of Holders. 1. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder by facsimile or email a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend ( or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation (and all of its Subsidiaries, taken as a whole), or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series B Preferred Stock, and shall cause to be delivered by email to each Holder at its last email address as it shall appear upon the stock books of the Corporation, at least twenty (20) 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 the 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 or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of the Series B Preferred Stock ( or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. Section 8. Covenants. As long as any shares of Series B Preferred Stock remain outstanding, unless the Holders of a majority of the then outstanding shares of the Series B Preferred Stock shall have otherwise given prior written consent (which consent may be withheld, delayed or conditioned in the sole discretion of such Holders): 20
(a) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into, create, incur, assume or suffer to exist any Liens, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom other than Liens existing on the Original Issue Date; (b) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly amend its charter documents, including, without limitation, its Certificate of Incorporation and bylaws and this Certificate of Designations, in any manner that materially and adversely affects any rights of the Holders; ( c) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly redeem, repay, repurchase or offer to repay, repurchase or otherwise acquire any capital stock, except as required by the Certificate of Designation, the Series A Preferred Stock Certificate of Designation or de minimis number of shares of its Common Stock or Common Stock Equivalents, or any indebtedness, except for principal and interest payments as such terms are in effect as of the Original Issue Date; (d) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly pay cash dividends or distributions on any equity securities, other than to make any cash payments with respect to the Series A Preferred Stock or Series B Preferred Stock; ( e) the Corporation shall not issue any Series B Preferred Stock ( other than as contemplated by this Certificate of Designation) or issue any other securities that would cause a breach or default under this Certificate of Designation or the Transaction Documents; (f) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly engage in any material line of business substantially different from those lines of business conducted by or publicly contemplated to be conducted by the Corporation and each of its Subsidiaries on the Original Issue Date, or modify its or their corporate structure or purpose; (g) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to maintain and preserve its existence, rights and privileges, and 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; (h) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to take all action necessary or advisable to maintain all of the Intellectual Property Rights that are necessary or material to the conduct of its business in full force and effect; (i) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to maintain insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated; (j) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made 21
on an arm's-length basis and expressly approved by a majority of the disinterested directors of the Corporation ( even if less than a quorum otherwise required for board approval); (k) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly directly or indirectly, sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Corporation or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Corporation and its Subsidiaries in the ordinary course of business consistent with its past practice and (ii) sales of inventory and product in the ordinary course of business; (1) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any agreement with respect to any of the foregoing; (m) the Corporation shall retain a minimum cash balance of $10,000,000 at all times while the Series B Preferred Stock is outstanding and will provide any Holder upon its request evidence of such minimum cash balance; and (n) the Corporation shall, on the Closing Date obtain the consent of the Holders of at least 51% of the Corporation's voting stock, and, within thirty (30) days of the Original Issue Date file with the Commission a Preliminary Information Statement on Schedule 14C approving the issuance of the Series A Preferred Stock, Series B Preferred Stock and related warrants and underlying shares of Common Stock and upon the earlier of ten days after such filing with the Commission if no comments are received from the Commission or two days after the last comment is received from the Commission file with the Commission a definitive Schedule 14C with the Commission. Section 9. Redemption (a) Mandatory Redemption. The Corporation shall redeem one-tenth of the number of shares of Series B Pref erred Stock issued on the Original Issue Date, on a pro rata basis among all of the Holders of Series B Preferred Stock commencing on the earlier of (a) the three-month anniversary of the Closing Date and on each successive monthly anniversary date thereafter and (b) the date the Registration Statement is declared effective and on each successive monthly anniversary date thereafter ( each, a "Monthly Mandatory Redemption Date") for, at the option of the Corporation, which option shall be identified by written notice to the Holders at least ten ( 10) Trading Days prior to each Monthly Mandatory Redemption Date, either (i) an amount in cash at a price per Series B Preferred Share equal to the sum of (x) 104.0% of the Stated Value plus (y) all accrued and unpaid Dividends and (z) all other amounts due in respect of the Series B Preferred Stock (the "Corporation's Mandatory Redemption Price"); (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(a). or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock, the "Monthly Mandatory Redemption Share Amount") (such redemption, the "Monthly Mandatory Redemption"). On the Monthly Mandatory Redemption Date, the Corporation shall pay the Corporation's Mandatory Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the Holders of Series B Preferred Stock on a pro rata basis. If a Monthly Mandatory Redemption Date is not a Business Day, then the Corporation's Mandatory Redemption Price shall be due and payable on the Business Day immediately following such Monthly Mandatory Redemption Date. The Corporation shall pay the monthly Installments of the Corporation's Mandatory Redemption Price due under this Section 9(a) (the "Installments") to the Holders in cash; provided, that on or after June 16, 2023 if the Equity Conditions are fulfilled for 22
twenty (20) consecutive Trading Days immediately prior to applicable Mandatory Redemption Date the Corporation may choose to pay the installments in shares of Common Stock or a combination thereof. Shares of Common Stock used to pay an Installment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price (ii) 90% of the arithmetic average of the three lowest daily VW APs of the 20 Trading Days prior to the applicable Monthly Mandatory Redemption Date or (iii) 90% of the VW AP of the trading day prior to the applicable Monthly Mandatory Redemption Date. Installments may be deferred or reallocated to other dates at the Holders' discretion. If funds are not legally available for the payment of Monthly Mandatory Redemption and the Equity Conditions have not been met or waived on or prior to the Monthly Mandatory Redemption Date, then, at the election of such Holder, such Monthly Mandatory Redemption Share Amount shall accrue to the next Monthly Mandatory Redemption Date or shall be accreted to, and increase, the outstanding Stated Value. Monthly Mandatory Redemption Share Amount is payable in full on the Monthly Mandatory Redemption Date, if in cash, and within two (2) Trading Days after the Monthly Mandatory Redemption Date, if in shares of Common Stock. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Monthly Mandatory Redemption Share Amount paid in full. (b) Accelerated Redemption. At the option of each Holder, the Holder may require the Corporation to redeem all of the shares of Series B Preferred Stock held by the Holder at any time on or after June 15, 2023 (the "Accelerated Redemption Date'') (any such redemption, an "Accelerated Redemption"). Any Accelerated Redemption shall be for, at the option of each Holder being redeemed: (i) cash at the Corporation's Mandatory Redemption Price, (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(b), or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock). Shares of Common Stock used to pay the Accelerated Redemption payment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price (ii) 90% of the arithmetic average of the three lowest daily VW APs of the 20 Trading Days prior to the Accelerated Redemption Date or (iii) 90% of the VW AP of the trading day prior to the Accelerated Redemption Date. ( c) Triggered Optional Redemption. If at any time after the Original Issue Date, the Corporation or any Subsidiary thereof closes any debt or equity financing (the "Triggered Optional Event"), the Corporation shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (with next day delivery specified) (an "Optional Triggering Event Notice'') to each Holder of Series B Preferred Stock. If at any time after the earlier of a Holder's receipt of an Optional Triggering Event Notice and such Holder becoming aware of an Triggering Optional Event (such earlier date, the "Optional Triggering Event Right Commencement Date'') and ending within ten ( l 0) days after the Optional Triggering Event Right Commencement Date, the Holder shall provide notice to the Corporation (the "Holder's Optional Triggered Notice"), at its option, to have proceeds of such financing used to redeem its shares of Series B Preferred Stock then the Corporation shall within five days of receipt of a Holder's Optional Triggered Notice (such fifth day being the "Triggered Optional Redemption Date'') redeem such number of shares of Series B Preferred Stock, on a pro rata basis for each Holder requesting redemption, equal to such number of shares of Series B Preferred Stock that may be redeemable with 30% of the proceeds of the financing, for an amount per share in cash equal to the Corporation's Mandatory Redemption Price (such redemption, the "Triggered Optional Redemption" and such payment amount, the "Triggered Optional Redemption Amount"). The Triggered Optional Redemption Amount is payable in full on the Triggered Optional Redemption Date. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Triggered Optional Redemption Amount paid in full. 23
(d) Triggering Event Redemption. Each of the following events shall constitute a "Triggering Event" and each of the event in clause (v) shall constitute a "Bankruptcy Triggering Event": (i) any failure to pay any Dividend, Buy-In or other amounts as and when the same shall become due and payable under the Certificate of Designation and/or any of the other Transaction Documents (whether on a Conversion Date, Accelerated Redemption Date, Triggered Optional Redemption Date, Monthly Mandatory Redemption Date, Triggering Event Redemption Date and/or any other date when any funds are due to be redeemed, converted and/or otherwise paid to the Holder by the Corporation and/or any Subsidiary, whether by acceleration or otherwise), including, without limitation, any failure to pay any redemption payments or amounts thereunder, or under any other Transaction Document or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby; (ii) the Corporation and/or any Subsidiary shall fail to maintain a minimum cash and cash equivalents balance of $10,000,000 at any time while the Series B Preferred Stock is outstanding or shall fail to observe, perform and/or breaches any material covenant, provision, or agreement contained in this Certificate of Designation, the Transaction Documents, a breach by the Corporation of its obligations to deliver Conversion Shares to the Holder upon conversion of the Series B Preferred Stock, which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days after notice of such failure is sent by the Holder or by any other Holder to the Corporation and (B) ten (10) Trading Days after the Corporation has become or should have become aware of such failure; (iii) a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which the Corporation or any Subsidiary is obligated (and not covered by clause (vi) below; (iv) any material representation or warranty made in any of the Transaction Documents, any written statement pursuant hereto or thereto, any other agreement, contract, lease, document or instrument to which the Corporation or any Subsidiary is obligated (including those covered by clause (vi) below), or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made; (v) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event; (vi) the Corporation or any Subsidiary shall default on any of its obligations under any mortgage, credit and/or loan agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $50,000 whether such Indebtedness now exists or shall hereafter be created, and (b) results in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; 24
(vii) the suspension from trading or quotation of the Common Stock, or the failure of the Common Stock to be eligible for listing or quotation on a Trading Market for a period of five ( 5) consecutive Trading Days; (viii) the Corporation shall fail for any reason to deliver Common Stock to a Holder prior to the second (2nd) Trading Day after a Conversion Date or otherwise, or the Corporation shall provide at any time notice to the Holder, including by way of public announcement, of the Corporation's intention to not honor requests for conversions of the Series B Preferred Stock in accordance with the terms hereof; (ix) the Corporation fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act, which failure is not cured, if possible to cure, prior to the expiration of the applicable grace period permitted under Rule 12b-25 of the Exchange Act, further provided that the Corporation files a Form 12b-25 for such report; (x) the Corporation shall fail to maintain a sufficient number ofauthorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation and such failure is not cured within five (5) Trading Days; (xi) any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any Subsidiary or any of their respective property or other assets for more than $250,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five ( 45) calendar days; (xii) the Corporation shall fail to obtain all necessary approvals of the issue and sale of all Common Stock issuable in connection with the Series B Preferred Stock and/or Transaction Documents, including, but not limited to, all Conversion Shares and Common Stock to be issued as Dividends and or otherwise, consistent with the rules and regulations of the principal Trading Market as of the Original Issue Date; (xiii) the electronic transfer by the Corporation of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a "chill"; (xiv) any Change of Control Transaction occurs; (xv) the Corporation fails to (1) file a Preliminary Information Statement on Schedule 14C with the Commission within thirty (30) days of the Closing Date, (2) to file a Definitive Information Statement on Schedule 14C with the SEC on the eleventh day after the requisite ten day waiting period and immediately mail the Definitive Information Statement on Schedule 14C to the Corporation's shareholders ( assuming no comments from the Commission have been received with respect to such filing prior to such eleventh day) or within five ( 5) days of the receipt of any comments, fails to file a response to such comments or (3) to obtain all necessary approvals (including approval of Nasdaq Capital Market) of the issue and sale of all Conversion Shares, without any Exchange Cap limitation and or otherwise, consistent with the rules and regulations of the principal Trading Market within six months of the Closing Date; and (xvi) the registration statement registering the Series B Preferred Stock and Common Stock shall no longer be effective. 25
(e) Notice of a Triggering Event; Redemption Right. Upon the occurrence of a Triggering Event with respect to the Series B Preferred Stock, the Corporation shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (with next day delivery specified) (an "Triggering Event Notice") to each Holder. At any time after the earlier of a Holder's receipt of a Triggering Event Notice and such Holder becoming aware of a Triggering Event (such earlier date, the "Triggering Event Right Commencement Date") and ending (such ending date, the "Triggering Event Right Expiration Date", and each such period, an "Triggering Event Redemption Right Period'') on the sixtieth (60th ) Trading Day after the later of (x) the date such Triggering Event is cured and (y) such Holder's receipt of a Triggering Event Notice that includes (I) a reasonable description of the applicable Triggering Event, (II) a certification as to whether, in the opinion of the Corporation, such Triggering Event is capable of being cured and, if applicable, a reasonable description of any existing plans of the Corporation to cure such Triggering Event and (III) a certification as to the date the Triggering Event occurred and, if cured on or prior to the date of such Triggering Event Notice, the applicable Triggering Event Right Expiration Date, such Holder may require the Corporation to redeem ( a "Triggering Event Redemption") for cash (regardless of whether such Triggering Event has been cured on or prior to the Triggering Event Right Expiration Date) all or any of the Series B Preferred Stock by delivering written notice thereof (the "Triggering Event Redemption Notice'') to the Corporation, which Triggering Event Redemption Notice shall indicate the number of the Series B Preferred Stock such Holder is electing to redeem. Each of the shares of Series B Preferred Stock subject to redemption by the Corporation pursuant to this Section 9(e) shall be redeemed by the Corporation within five days of delivery of Triggering Event Redemption Notice (the "Triggering Event Redemption Date") at a price equal to the product of (x) 115% and (y) the Corporation's Mandatory Redemption Price (the "Triggering Event Redemption Price"). To the extent redemptions required by this Section 9(e) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series B Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(e). until the Triggering Event Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 9(e) may be converted, in whole or in part, by such Holder into Common Stock pursuant to the terms of this Certificate of Designation. In the event of the Corporation's redemption of any of the Series B Preferred Stock under this Section 9(e). a Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 9(e) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder's actual loss of its investment opportunity and not as a penalty. Any redemption upon a Triggering Event shall not constitute an election of remedies by the applicable Holder or any other Holder, and all other rights and remedies of each Holder shall be preserved. (f) Mandatory: Redemption upon Bankruptcy Triggering Event. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Triggering Event, the Corporation shall immediately redeem, in cash, each of the shares of Series B Preferred Stock then outstanding at a redemption price equal to the applicable Triggering Event Redemption Price (calculated as if such Holder shall have delivered the Triggering Event Redemption Notice immediately prior to the occurrence of such Bankruptcy Triggering Event), without the requirement for any notice or demand or other action by any Holder or any other person or entity, provided that a Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Triggering Event, in whole or in part, and any such waiver shall not affect any other rights of such Holder or any other Holder hereunder, including any other rights in respect of such Bankruptcy Triggering Event, any right to conversion, 26
and any right to payment of such Triggering Event Redemption Price or any other Redemption Price, as applicable. (g) Change of Control Redemption Right. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation ofa Change of Control (the "Change of Control Date"), but not prior to the public announcement of such Change of Control, the Corporation shall deliver written notice thereof via facsimile and overnight courier to each Holder (a "Change of Control Notice'') At any time during the period beginning after a Holder's receipt of a Change of Control Notice or such Holder becoming aware of a Change of Control if a Change of Control Notice is not delivered to such Holder in accordance with the immediately preceding sentence (as applicable) and ending on the later of twenty (20) Trading Days after (A) consummation of such Change of Control or (B) the date of receipt of such Change of Control Notice, such Holder may require the Corporation to redeem all or any portion of such Holder's Series B Preferred Stock ("Change of Control Redemption'') by delivering written notice thereof ("Change of Control Redemption Notice'') to the Corporation, which Change of Control Redemption Notice shall indicate the number of shares of Series B Preferred Stock such Holder is electing to have the Corporation redeem. Each share of Series B Preferred Stock subject to redemption pursuant to this Section 9(g) shall be redeemed by the Corporation in cash at a price equal to the greater of (i) product of 115% multiplied by the Corporation's Mandatory Redemption Price and (ii) the prevailing Conversion Price plus all accrued but unpaid Dividends (the "Change of Control Redemption Price"). Redemptions required by this Section 9(g) shall have priority to payments to all other stockholders of the Corporation in connection with such Change of Control. To the extent redemptions required by this Section 9(g) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series B Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(g), but subject to Section 6(d). until the applicable Change of Control Redemption Price (together with any late charges thereon) is paid in full to the applicable Holder, the Series B Preferred Stock submitted by such Holder for redemption under this Section 9(g) may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 6 or in the event the Conversion Date is after the consummation of such Change of Control, stock or equity interests of the Successor Entity substantially equivalent to the Corporation's shares of Common Stock pursuant to Section 7. In the event of the Corporation's redemption of any of the Series B Preferred Stock under this Section 9(g). such Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for a Holder. Accordingly, any redemption premium due under this Section 9(g) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder's actual loss of its investment opportunity and not as a penalty. The Corporation shall make payment of the applicable Change of Control Redemption Price concurrently with the consummation of such Change of Control if a Change of Control Redemption Notice is received prior to the consummation of such Change of Control and within two (2) Trading Days after the Corporation's receipt of such notice otherwise (the "Change of Control Redemption Date'') Redemptions required by this Section 9 shall be made in accordance with the provisions of Section 9(h). (h) If a Holder has submitted a Change of Control Redemption Notice in accordance with Section 9(g), the Corporation shall deliver the applicable Change of Control Redemption Price to such Holder in cash concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Corporation's receipt of such notice otherwise. In the event that the Corporation does not pay the applicable Triggering Event Redemption Price or Change of Control Redemption Price to a Holder within the time period required for any reason (except if such payment is prohibited 27
pursuant to the DGCL ), at any time thereafter and until the Corporation pays such unpaid Triggering Event Redemption Price or Change of Control Redemption Price in full, such Holder shall have the option, in lieu of redemption, to require the Corporation to promptly return to such Holder all or any of the shares of Series B Preferred Stock that were submitted for redemption and for which the applicable Triggering Event Redemption Price or Change of Control Redemption Price (together with any late charges thereon) has not been paid. Upon the Corporation's receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Series B Preferred Stock, (y) the Corporation shall immediately return the applicable Series B Preferred Stock certificate, or issue a new Preferred Stock Certificate, to such Holder, and in each case the declared and unpaid dividend amount of such Preferred Stock shall be increased by an amount equal to the difference between (1) the applicable Redemption Price (as the case may be, and as adjusted pursuant to this Section 9(h). if applicable) minus (2) the Stated Value portion of the Conversion Amount submitted for redemption and (z) the Conversion Price of such Preferred Shares shall be automatically adjusted with respect to each conversion effected thereafter by such Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided, (B) the greater of (x) the Floor Price and (y) 75% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Corporation and ending on and including the date on which the applicable Redemption Notice is voided and (C) the greater of (x) the Floor Price and (y) 75% of the quotient of (I) the sum of the five (5) lowest VWAPs of the Common Stock during the twenty (20) consecutive Trading Day period ending and including the Trading Day immediately preceding the applicable Conversion Date divided by (II) five (5) (it being understood and agreed that all such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period). A Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Corporation's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Preferred Shares subject to such notice. (i) Independent Investigation. At the request ofany Holder either (x) at any time when a Triggering Event has occurred and is continuing, (y) upon the occurrence of an event that with the passage of time or giving of notice would constitute a Triggering Event or (z) at any time such Holder reasonably believes a Triggering Event may have occurred or be continuing, the Corporation shall hire an independent, reputable investment bank selected by the Corporation and approved by such Holder to investigate as to whether any breach of the Certificate of Designation has occurred (the "Independent Investigator"). If the Independent Investigator determines that such Triggering Event has occurred, the Independent Investigator shall notify the Corporation of such Triggering Event and the Corporation shall deliver written notice to each Holder of such Triggering Event. In connection with such investigation, the Independent Investigator may, during normal business hours, inspect all contracts, books, records, personnel, offices and other facilities and properties of the Corporation and its Subsidiaries and, to the extent available to the Corporation after the Corporation uses reasonable efforts to obtain them, the records ofits legal advisors and accountants (including the accountants' work papers) and any books of account, records, reports and other papers not contractually required of the Corporation to be confidential or secret, or subject to attorney client or other evidentiary privilege, and the Independent Investigator may make such copies and inspections thereof as the Independent Investigator may reasonably request. The Corporation shall furnish the Independent Investigator with such financial and operating data and other information with respect to the business and properties of the Corporation as the Independent Investigator may reasonably request. The Corporation shall permit the Independent Investigator to discuss the affairs, finances and accounts of the Corporation with, and to make proposals and furnish advice with respect thereto to, the Corporation's officers, directors, key employees and independent public 28
accountants or any of them (and by this provision the Corporation authorizes said accountants to discuss with such Independent Investigator the finances and affairs of the Corporation and any Subsidiaries), all at such reasonable times, upon reasonable notice, and as often as may be reasonably requested. (i) General. Notwithstanding anything to the foregoing contained herein, on each Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date shall ( a) first redeem, on a pro rata basis in accordance with the number of shares of Series A Preferred Stock owned by each Holder, that number of outstanding shares of Series A Preferred Stock which the Corporation is obligated to redeem pursuant to Section 9 of the Series A Certificate of Designation and (b) next redeem, on a pro rata basis in accordance with the number of shares of Series B Preferred Stock owned by each Holder, any shares of Series B Preferred Stock which the Corporation is obligated to redeem pursuant to this Section 9. If on any Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date, Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Series A Preferred Stock and Series B Preferred Stock to be redeemed, the Corporation shall ( 1) first ratably redeem the maximum number of shares of Series A Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to Section 9 of the Series A Certificate of Designation are redeemed, and (2) next ratably redeem the maximum number of shares of Series B Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to this Section 9 are redeemed. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Series A Preferred Stock, if any, and Series B Preferred Stock, if any, which the Corporation is then obligated to redeem, such funds shall be used, within five ( 5) Business Days, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. Section 10. Miscellaneous. (a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile or email attachment, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 4800 140th Avenue N., Suite 101, Clearwater, Florida Attention: Joseph Marinucci, Chief Executive Officer, email address jmarinucci@dmsgroup.com, or such other email address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of such Holder appearing on the books of the Corporation, or if no such email address or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. 29
(b) Lost or Mutilated Preferred Stock Certificate. If a Holder's Series B Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series B Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation (which shall not include the posting of any bond) . ( c) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation 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. (d) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. (e) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof. (f) Status of Converted or Redeemed Preferred Stock. Shares of Series B Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Series B Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares may not be reissued and shall automatically be retired and cancelled and shall resume the status of authorized but unissued shares of preferred stock. ********************* 30
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 30 day of March, 2023. Name: Joseph Marinucci Title: Chief Executive Officer 32
ANNEX A NOTICE OF CONVERSION (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES B PREFERRED STOCK) The undersigned hereby elects to convert the number of shares of Series B Convertible Redeemable Preferred Stock indicated below into shares of common stock, par value $0.0001 per share (the "Common Stock"), of Digital Media Solutions, Inc., a Delaware corporation (the "Corporation"), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes. Conversion calculations: Date to Effect Conversion: --------------------Number of shares of Series B Preferred Stock owned prior to Conversion: ______ _ Number of shares of Series B Preferred Stock to be Converted: ----------- St ate d Value of shares of Series B Preferred Stock to be Converted: --------- Number of shares of Common Stock to be Issued: ------------ Applicable Conversion Price: ___________________ _ Number of shares of Series B Preferred Stock subsequent to Conversion: ______ _ Address for Delivery: _________ _ Or DW AC Instructions: Broker no: ---- Account no: ____ _ HOLDER By: --------------Name: Title: 32
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE 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. 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 DIGITAL MEDIA SOLUTIONS, INC. Warrant Shares: [_____] Initial Exercise Date: March [__], 2023 Issue Date: March [__], 2023 THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [_________] or its 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 hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on March 29, 2028 (the “Termination Date”), but not thereafter, to subscribe for and purchase from Digital Media Solutions, Inc., a Delaware corporation (the “Company”), up to [____] shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) (as subject to adjustment hereunder, the “Warrant Shares”). This Warrant was issued pursuant to Sections 2.1 and 2.2 of that certain Securities Purchase Agreement, dated as of March 29, 2023, by and between the Company, the Holder and other purchasers signatory thereto (as may be amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms, the “Purchase Agreement”). Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. Section 2. Exercise. a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto as Exhibit A, and delivered in accordance with the notice requirements set forth in Section 5(h) (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased
2 all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. 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. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 4:00 p.m. (New York City time) on the Trading Date prior to the Initial Exercise Date, which may be delivered at any time after the time of execution of the Purchase Agreement, the Company agrees to deliver the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date and the Initial Exercise Date shall be the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by such Warrant Share Delivery Date. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof. “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non- essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day. b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $0.6453 subject to adjustment hereunder (the “Exercise Price”). c) Cashless Exercise. If after the Initial Exercise Date there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares determined according to the following formula: Net Number = (A x B) - (A x C) B For purposes of the foregoing formula: (A) = the total number of Warrant Shares with respect to which this Warrant is then being exercised if such exercise were by means of a cash exercise rather than a cashless exercise. (B) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b) of Regulation NMS
3 promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the shares of Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day; and (C) = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise. If Warrant Shares are issued in such a cashless exercise, the parties hereto acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and for purposes of Rule 144 of the Securities Act, the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c). Notwithstanding anything to the contrary, without limiting the rights of the Holder to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein and the right of the Holder to exercise this Warrant on a “cashless exercise” pursuant to this Section 2(c), in the event the Company does not have or maintain an effective registration statement, there are no circumstances that would require the Company to make any cash payments or net cash settle the purchase warrants to the holders. “Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the shares of Common Stock are then listed or quoted on a Trading Market, the bid price of the shares of Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the shares of Common Stock are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the shares of Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the shares of Common Stock are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the shares of Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock
4 is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities. “Trading Market” means any of the following markets or exchanges on which the shares of Common Stock are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing). “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the shares of Common Stock are then listed or quoted on a Trading Market, the daily volume weighted average price of the shares of Common Stock for such date (or the nearest preceding date) on the Trading Market on which the shares of Common Stock are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the shares of Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the shares of Common Stock are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the shares of Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c). d) Mechanics of Exercise. i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants and subject to receipt from the Holder by the Company and the Transfer Agent of customary representations reasonably acceptable to the Company and the Transfer Agent in connection with such request), and otherwise by physical delivery of a certificate (or an account statement reflecting unrestricted shares of Common Stock), registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest
5 of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company by such date, and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, 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 Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company on or prior to the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the shares of Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the shares of Common Stock as in effect on the date of delivery of the Notice of Exercise. ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. iii. Rescission Rights. If the Company fails to cause Continental Stock Transfer & Trust Company, or the then current transfer agent of the Company (the “Transfer Agent”) to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise. iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases,
6 shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Warrants with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a 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 shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share of Common Stock. vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto as Exhibit B duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
7 vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. e) 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, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after 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 (such Persons, “Attribution Parties”)), 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 and Attribution Parties 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, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted 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 or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, 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 Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) 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 Attribution Parties) 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. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), 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 the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing 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 or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be [4.99/9/99]% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number
8 of the shares of 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 Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. Notwithstanding anything to the contrary contained herein, the Company shall not effect any exercise of this Warrant, and the Holder shall not be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such exercise, would cause (i) the aggregate number of shares of Common Stock beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, including any “group” of which the Holder is a member, to exceed 19.99% of the total number of issued and outstanding shares of Common Stock of the Company following such exercise, or (ii) the combined voting power of the securities of the Company beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act to exceed 19.99% of the combined voting power of all of the securities of the Company then outstanding following such exercise, in each case unless Company shareholder approval is obtained to exceed more than such 19.99% of the total number of issued and outstanding shares of Common Stock of the Company following such exercise in accordance with the rules of the Trading Market. For purposes of this Section 2(e), the aggregate number of shares of Common Stock or voting securities beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act shall include the shares of Common Stock issuable upon the 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 (x) exercise of the remaining unexercised and non-cancelled portion of this Warrant by the Holder and (y) exercise or conversion of the unexercised, non-converted or non-cancelled portion of any other securities of the Company that do not have voting power (including without limitation any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, right, option, warrant 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), is subject to a limitation on conversion or exercise analogous to the limitation contained herein and is beneficially owned by the Holder or any of its Affiliates and other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act. f) Principal Market Regulation. The Company shall not issue any Warrant Shares upon exercise of any Warrant or otherwise pursuant to the terms of the Warrants if the issuance of such Warrant Shares (together with any shares of Common Stock issued upon conversion of any Preferred Stock) would exceed the aggregate number of shares of Common Stock which the Company may issue upon exercise of any Warrant or otherwise pursuant to the terms of the Warrants without breaching the Company’s obligations under the rules or regulations of the
9 Trading Market (the number of shares which may be issued without violating such rules and regulations, the “Exchange Cap”), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the principal Trading Market for issuances of shares of Common Stock in excess of such amount, (B) obtains a written opinion from outside counsel to the Company that such approval is not required or (C) issues the Warrants through an effective registration statement in connection with a public offering in accordance with the rules and regulations of the Trading Market. Until such approval or such written opinion is obtained, or unless such effective registration statement is available, no Holder shall be issued in the aggregate, upon exercise of any Warrant or otherwise pursuant to the terms the Warrants, Warrant Shares (together with any shares issued upon conversion of any Preferred Stock) in an amount greater than the product of (i) the Exchange Cap as of the Issue Date multiplied by (ii) the quotient of (1) the total number of Common Shares underlying the Warrants issued to such holder pursuant to the Securities Purchase Agreement on the Issue Date divided by (2) the aggregate number of Common Shares underlying the Warrants issued to the Purchasers pursuant to the Securities Purchase Agreement on the Issue Date (with respect to each Holder, the “Exchange Cap Allocation”). In the event that any Holder shall sell or otherwise transfer any of such Holder’s Warrants, the transferee shall be allocated a pro rata portion of such Holder's Exchange Cap Allocation with respect to such Warrants so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation so allocated to such transferee. In the event that any holder of Warrants shall exercise all of such holder’s Warrants into a number of Common Shares which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference (if any) between such Holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder upon such Holder's exercise of all such Warrants shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Warrants on a pro rata basis in proportion to the shares of Common Stock underlying the Warrants then held by each such Holder of Warrants. In the event that the Company is prohibited from issuing any Warrant Shares pursuant to this Section 2(f) (the “Exchange Cap Shares”) to a Holder, the Company shall pay cash to such Holder in exchange for cancellation of such Warrant Shares held by the Holder that are not exercisable into such Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Notice of Exercise with respect to such Exchange Cap Shares to the Company and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of Exchange Cap Shares, brokerage commissions, if any, of such Holder incurred in connection therewith. Section 3. Certain Adjustments. a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on its shares of Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issues by reclassification of shares of Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock
10 outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) 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 re-classification. b) [RESERVED.] c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend (other than cash) or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary),
11 directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of more than 50% of the outstanding shares of Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the shares of Common Stock or any compulsory share exchange pursuant to which the shares of Common Stock are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) and in connection with such transaction the Common Stock is converted into or exchanged for other securities, cash or property (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the securities, cash and other property of the successor or acquiring corporation (or ultimate parent company thereof) or of the Company, if it is the surviving corporation, as applicable (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). 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 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 shares 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. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of such Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity, the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of shares of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of shares of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of shares of Common Stock of the
12 Company are not offered or paid any consideration in such Fundamental Transaction, such holders of shares of Common Stock will be deemed to have received shares of common stock of the Successor Entity (which Successor Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable contemplated Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, (D) a remaining option time equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the Other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for the Alternate Consideration, and with an exercise price which applies the exercise price hereunder to such Alternate Consideration (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such Alternate Consideration, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding. g) Notice to Holder. i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such
13 adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment. ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the shares of Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the shares of Common Stock, (C) the Company shall authorize the granting to all holders of the shares of Common Stock rights or warrants to subscribe for or purchase any capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the 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 shares of Common Stock are 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, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least twenty (20) 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 the shares 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 or stock exchange is expected to become effective or close, and the date as of which it is expected that holders of the shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or stock exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice and provided further, that no notice shall be required if the information is disseminated in a press release or document publicly filed with the Commission. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. iii. Voluntary Adjustments by the Company. The Company may, subject to the rules and regulations of the Trading Market, at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and extend the term of this Warrant for any period of time deemed appropriate by the Board of Directors of the Company, with the prior written consent of the Holder. Section 4. Transfer of Warrant. a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Article IV of the Purchase
14 Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto. c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement. e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act. Section 5. Miscellaneous.
15 a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day. d) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued shares of Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the shares of Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, 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, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents
16 from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. e) Jurisdiction and Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with Section 5.9 of the Purchase Agreement. f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws. g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provision in Section 5.4 of the Purchase Agreement. i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate. k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares. l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder, on the other hand.
17 m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. ******************** (Signature Page Follows)
18 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated. DIGITAL MEDIA SOLUTIONS, INC. By: Name: Title:
19 Exhibit A NOTICE OF EXERCISE TO: DIGITAL MEDIA SOLUTIONS, INC. (1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Payment shall take the form of (check applicable box): ☐ in lawful money of the United States; or ☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c). (3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below: The Warrant Shares shall be delivered to the following DWAC Account Number: (4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended. _____________________ _____________________ [SIGNATURE OF HOLDER] Name of Investing Entity: ________________________________________________________________________ Signature of Authorized Signatory of Investing Entity: _________________________________________________ Name of Authorized Signatory: ___________________________________________________________________ Title of Authorized Signatory: ____________________________________________________________________ Date: _____________________________________________________________________________________
20 Exhibit B ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to Name: (Please Print) Address: (Please Print) Phone Number: Email Address: Dated: _______________ __, ______ Holder’s Signature:______________________ Holder’s Address:______________________
EXECUTION VERSION ASSET PURCHASE AGREEMENT dated March 6, 2023 by and among DIGITAL MEDIA SOLUTIONS, LLC as PURCHASER, G.D.M. GROUP HOLDING LIMITED, CLICKDEALER ASIA PTE. LTD., GDMGROUP ASIA LIMITED AND CLICKDEALER EUROPE BV as SELLERS, SOLELY WITH RESPECT TO ARTICLES 11 AND 12, DMYTRO ATAMANIUK AND TETYANA SEREDYUK AS THE ACTIVE SHAREHOLDERS OF G.D.M. GROUP HOLDING LIMITED, AND, SOLELY WITH RESPECT TO ARTICLES 10 AND 12, DIGITAL MEDIA SOLUTIONS, INC.
TABLE OF CONTENTS Page i ARTICLE 1 DEFINITIONS AND CONSTRUCTION .............................................................................. 1 1.1 Definitions ......................................................................................................................... 1 1.2 Construction .................................................................................................................... 18 ARTICLE 2 THE TRANSACTION ......................................................................................................... 19 2.1 Purchase and Sale of Purchased Assets ........................................................................... 19 2.2 Excluded Assets .............................................................................................................. 21 2.3 Assumed Liabilities ......................................................................................................... 22 2.4 Excluded Liabilities ......................................................................................................... 22 2.5 Purchase Price ................................................................................................................. 24 2.6 Estimated Closing Balance Sheet .................................................................................... 24 2.7 Closing ............................................................................................................................ 25 2.8 Closing deliveries ............................................................................................................ 25 2.9 Post-closing adjustment ................................................................................................... 27 2.10 Allocation of Purchase Price and Assumed Liabilities; Non-Essential Assets ............... 30 2.11 Consents .......................................................................................................................... 30 2.12 Earn-Out .......................................................................................................................... 32 2.13 Withholding rights ........................................................................................................... 35 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS .................................... 36 3.1 Organization and good standing ...................................................................................... 36 3.2 Authority and enforceability ........................................................................................... 36 3.3 No conflict ....................................................................................................................... 36 3.4 Financial Statements ....................................................................................................... 37 3.5 Book and Records ........................................................................................................... 38 3.6 Accounts receivable ........................................................................................................ 38 3.7 No undisclosed liabilities ................................................................................................ 38 3.8 Absence of certain changes and events ........................................................................... 38 3.9 Assets; sufficiency ........................................................................................................... 40 3.10 Real Property ................................................................................................................... 40 3.11 Intellectual Property ........................................................................................................ 41 3.12 Contracts.......................................................................................................................... 44 3.13 Tax Matters ..................................................................................................................... 47 3.14 Employee benefit matters ................................................................................................ 48 3.15 Employment and labor matters........................................................................................ 49 3.16 Environmental, health and safety matters ....................................................................... 51 3.17 Compliance with laws and governmental authorizations ................................................ 52 3.18 No government contracts or subcontracts ....................................................................... 53 3.19 Legal proceedings ........................................................................................................... 53 3.20 Customers and suppliers .................................................................................................. 53 3.21 Insurance ......................................................................................................................... 54 3.22 Related party transactions ............................................................................................... 54 3.23 Personal data; data security ............................................................................................. 54 3.24 Corruption and trade regulation ...................................................................................... 55 3.25 Brokers or finders ............................................................................................................ 57 3.26 Solvency .......................................................................................................................... 57 3.27 No other representations and warranties ......................................................................... 57
TABLE OF CONTENTS Page ii ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ............................. 58 4.1 Organization and good standing ...................................................................................... 58 4.2 Authority and enforceability ........................................................................................... 58 4.3 No conflict ....................................................................................................................... 58 4.4 Brokers or finders ............................................................................................................ 59 4.5 Sufficiency of funds; Solvency ....................................................................................... 59 ARTICLE 5 COVENANTS ...................................................................................................................... 59 5.1 Access and investigation ................................................................................................. 59 5.2 Operation of the Business ............................................................................................... 60 5.3 Consents and filings; reasonable efforts .......................................................................... 60 5.4 Notification...................................................................................................................... 60 5.5 No negotiation ................................................................................................................. 61 5.6 Satisfaction of Obligations to Creditors .......................................................................... 61 5.7 Confidentiality ................................................................................................................. 61 5.8 Public Announcements .................................................................................................... 62 5.9 Assistance in Proceedings ............................................................................................... 63 5.10 Noncompetition and nonsolicitation ............................................................................... 63 5.11 Use of Name .................................................................................................................... 63 5.12 Wrong Pockets; Receivables and other Similar Post-Closing Payments ........................ 64 5.13 Customer Inquiries .......................................................................................................... 64 5.14 Employee and Independent Contractor matters .............................................................. 64 5.15 Purchaser’s Financial Reporting Obligations; Release of Audit Holdback Amount ...... 66 5.16 Data Privacy Obligations ................................................................................................ 67 5.17 Further assurances ........................................................................................................... 67 5.18 R&W insurance ............................................................................................................... 67 ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE .......................................... 68 6.1 Conditions to the obligation of the Purchaser ................................................................. 68 6.2 Conditions to the obligation of the Sellers ...................................................................... 69 ARTICLE 7 TERMINATION ................................................................................................................... 70 7.1 Termination events .......................................................................................................... 70 7.2 Effect of termination ....................................................................................................... 71 ARTICLE 8 CERTAIN TAX MATTERS ................................................................................................ 71 8.1 Tax indemnity ................................................................................................................. 71 8.2 Tax apportionment .......................................................................................................... 71 8.3 Tax Returns ..................................................................................................................... 72 8.4 Transfer Taxes ................................................................................................................. 72 8.5 Tax cooperation ............................................................................................................... 72 8.6 Overlap ............................................................................................................................ 73 ARTICLE 9 INDEMNIFICATION .......................................................................................................... 73 9.1 Indemnification by the Sellers ......................................................................................... 73 9.2 Indemnification by the Purchaser .................................................................................... 73 9.3 Claim procedure .............................................................................................................. 74 9.4 Third Party Claims .......................................................................................................... 75 9.5 Survival of representations and warranties ..................................................................... 75 9.6 Limitations on liability; determination of losses ............................................................. 76
TABLE OF CONTENTS Page iii 9.7 Exercise of remedies by Purchaser Indemnified Parties other than the Purchaser .......... 78 9.8 Release of Holdback Amount.......................................................................................... 78 9.9 No Double Recovery ....................................................................................................... 79 9.10 Exclusive remedies .......................................................................................................... 79 9.11 Mitigation ........................................................................................................................ 79 9.12 Tax treatment of indemnification payments .................................................................... 79 ARTICLE 10 PURCHASER GUARANTEES ......................................................................................... 80 10.1 General ............................................................................................................................ 80 10.2 Guaranty of Earn-Out Payments by Parent ..................................................................... 80 10.3 Absolute Guaranty; Waivers ........................................................................................... 80 10.4 Amendments.................................................................................................................... 81 10.5 Representations and Warranties ...................................................................................... 81 ARTICLE 11 ACTIVE SHAREHOLDER GUARANTEES .................................................................... 81 11.1 General ............................................................................................................................ 81 11.2 Guaranty of Seller Indemnifications by Active Shareholders ......................................... 81 11.3 Absolute Guaranty; Waivers ........................................................................................... 81 11.4 Amendments.................................................................................................................... 82 11.5 Representations and Warranties ...................................................................................... 83 11.6 Inactive Shareholders ...................................................................................................... 83 ARTICLE 12 GENERAL PROVISIONS ................................................................................................. 83 12.1 Selling Parties Representative ......................................................................................... 83 12.2 Notices ............................................................................................................................. 84 12.3 Amendment ..................................................................................................................... 85 12.4 Conflict of interest ........................................................................................................... 86 12.5 Waiver and remedies ....................................................................................................... 86 12.6 Entire Agreement ............................................................................................................ 86 12.7 Assignment and successors and no Third Party Rights ................................................... 86 12.8 Severability...................................................................................................................... 87 12.9 Exhibits and Schedules .................................................................................................... 87 12.10 Interpretation ................................................................................................................... 87 12.11 Governing Law ................................................................................................................ 87 12.12 Specific performance ....................................................................................................... 87 12.13 Forum of Dispute Resolution .......................................................................................... 88 12.14 Waiver of jury trial .......................................................................................................... 88 12.15 Expenses .......................................................................................................................... 88 12.16 Non-Recourse .................................................................................................................. 88 12.17 No joint venture ............................................................................................................... 89 12.18 Counterparts .................................................................................................................... 89 12.19 Joint and several liability of Sellers and Active Shareholders ........................................ 89 12.20 Prevailing Documents ..................................................................................................... 89 Schedule 1: Sellers Schedule 2: Shareholders Schedule 3: Management Exhibit A-1: Form of Bill of Sale and Assignment and Assumption (Cyprus) Exhibit A-2: Form of Bill of Sale and Assignment and Assumption (Singapore)
TABLE OF CONTENTS ii Exhibit A-3: Form of Bill of Sale and Assignment and Assumption (Hong Kong) Exhibit A-4: Form of Bill of Sale and Assignment and Assumption (Netherlands) Exhibit A-5: Form of Bill of Sale and Assignment and Assumption (any Other ClickDealer Entity) Exhibit B: Form of RWI Policy Exhibit C: Form of IP Assignment Exhibit D: Form of Canada Employment Agreement Exhibit E-1: Form of Noncompetition Agreement (Maxym Polyakov) Exhibit E-2: Form of Noncompetition Agreement (Tetyana Seredyuk) Exhibit E-3: Form of Noncompetition Agreement (Dmytro Atamaniuk)) Annex 1.1: Sample Closing Net Working Capital Annex 1.2: Mainstream Dating Advertisers Annex 2.1(b): Included Contracts Annex 2.2(e): Excluded Contracts Annex 2.2(f): Other Excluded Assets Annex 2.4(w): Other Excluded Liabilities Annex 2.10: Allocation Principles Annex 2.12(b): Sample Earn-Out Calculation Annex 5.2: Operation of the Business Annex 5.15: Requested Financial Information Annex 9.1: Indemnification by the Sellers Seller Disclosure Schedule Purchaser Disclosure Schedule
1 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this “Agreement”) is made as of March 6, 2023 by and among (i) Digital Media Solutions, LLC, a Delaware limited liability company (the “Purchaser”), (ii) G.D.M. Group Holding Limited, a company organized under the laws of Cyprus (“ClickDealer Cyprus”), ClickDealer Asia Pte. Ltd., a company organized in Singapore (“ClickDealer Singapore”), GDMgroup Asia Limited, a company organized in Hong Kong (“ClickDealer Hong Kong”), and ClickDealer Europe BV, a company organized in the Netherlands (“ClickDealer Netherlands,” and each of ClickDealer Cyprus, ClickDealer Singapore, ClickDealer Hong Kong, ClickDealer Netherlands and any Other ClickDealer Entity, individually a “Seller” and collectively referred to herein as the “Sellers”), (iii) solely as parties to Article 11 and Article 12, Dmytro Atamaniuk and Tetyana Seredyuk representing the shareholders of ClickDealer Cyprus (the “Active Shareholders”) and (iv) solely as a party to Article 10 and Article 12, Digital Media Solutions, Inc., a Delaware corporation (the “Parent”). Recitals The Sellers desire to sell, assign, transfer, convey and deliver to the Purchaser, and the Purchaser desires to purchase (directly or through one or more of its Purchasing Entities) and acquire from the Sellers the Purchased Assets, and the Purchaser has agreed to assume (directly or through one or more of its Subsidiaries) the Assumed Liabilities in accordance with the provisions of this Agreement. The Persons set forth on Schedule 2, representing all of the shareholders of ClickDealer Cyprus (the “Shareholders”) own all of the issued and outstanding equity of ClickDealer Cyprus, and ClickDealer Cyprus owns, directly or indirectly, all of the issued and outstanding equity of the Sellers other than ClickDealer Cyprus. NOW, THEREFORE, intending to be legally bound and in consideration of the mutual provisions set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS AND CONSTRUCTION 1.1 Definitions For the purposes of this Agreement and the Ancillary Agreements: “2023 Earn-Out Period” means the twelve (12) month period ending February 29, 2024. “2023 Earn-Out Criteria” means, for the 2023 Earn-Out Period, (i) the 2023 Net Margin equals or exceeds the Requisite Net Margin and (ii) the 2023 Revenue equals or exceeds 105% of the 2023 Reference Revenue. “2023 Earn-Out Payment” means an amount equal to $1,250,000 plus an additional $2,500 for every 0.01% (as a percentage of the 2023 Reference Revenue) that the 2023 Revenue exceeds 105% of the 2023 Reference Revenue up to a maximum amount of $5,000,000 (as further adjusted, on a proportional basis, pursuant to Section 9.6(d)). For the avoidance of doubt, the 2023 Earn-Out Payment will equal $5,000,000 if the 2023 Revenue equals or exceeds 120% of the 2023 Reference Revenue. “2023 Net Margin” means the Net Margin for the Business for the 2023 Earn-Out Period. “2023 Reference Revenue” means the revenue of the Business for the twelve (12) month period ending February 28, 2023.
2 “2023 Revenue” means the revenue of the Business for the 2023 Earn-Out Period adjusted as follows: (x) Dating Revenue shall be reduced by 25%, (y) Gaming Revenue shall be increased by 25%, and (z) Home Services Revenue shall be increased by 25%. “2024 Earn-Out Period” means the twelve (12) month period ending February 28, 2025. “2024 Earn-Out Criteria” means, for the 2024 Earn-Out Period, (i) the 2024 Net Margin equals or exceeds the Requisite Net Margin and (ii) the 2024 Revenue equals or exceeds 105% of the greater of (A) the 2023 Revenue and (B) the 2023 Reference Revenue. “2024 Earn-Out Payment” means an amount equal to $1,250,000 plus an additional $2,500 for every 0.01% (as a percentage of the 2023 Revenue) that the 2024 Revenue exceeds 105% of the greater of (i) the 2023 Revenue and (ii) the 2023 Reference Revenue up to a maximum amount of $5,000,000 (as further adjusted, on a proportional basis, pursuant to Section 9.6(d)). For the avoidance of doubt, the 2024 Earn-Out Payment will equal $5,000,000 if the 2024 Revenue equals or exceeds 120% of the greater of (i) the 2023 Revenue and (ii) the 2023 Reference Revenue. “2024 Net Margin” means the Net Margin for the Business for the 2024 Earn-Out Period. “2024 Revenue” means the revenue of the Business for the 2024 Earn-out Period adjusted as follows: (x) Dating Revenue shall be reduced by 25%, (y) Gaming Revenue shall be increased by 25%, and (z) Home Services Revenue shall be increased by 25%. “Acceptance Notice” has the meaning set forth in Section 9.3(a). “Accounting Rules” means GAAP (as the case may be) applied on a basis consistent with the asset recognition bases, classifications and categorizations, policies, rules, methods, techniques and practices used in the preparation of the Balance Sheet. For the avoidance of doubt, in the event of a conflict between GAAP (as the case may be), on the one hand, and the asset recognition bases, classifications and categorizations, policies, rules, methods, techniques and practices used in the preparation of the Balance Sheet, on the other hand, GAAP (as the case may be) will apply. “Active Shareholder Fundamental Representations” means the representations or warranties set forth in Section 3.1 (Organization and good standing), Section 3.2 (Authority and enforceability), Section 3.3 (No conflict), Section 3.9(a) and 3.9(b) (Assets; Sufficiency) and Section 3.25 (Brokers or finders). “Active Shareholder Guaranty” has the meaning set forth in Section 11.2(b). “Adjustment Calculation” has the meaning set forth in Section 2.9(a). “Adjustment Notice” has the meaning set forth in Section 2.9(a). “Affiliate” means, with respect to a specified Person, a Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the specified Person as of the date on which, or at any time during the period for which, the determination of affiliation is being made, whether prior to or following the date of this Agreement. In addition to the foregoing, if the specified Person is an individual, the term “Affiliate” also includes (a) the individual’s spouse, (b) the members of the immediate family (including parents, siblings and children) of the individual or of the individual’s spouse and (c) any corporation, limited liability company, general or limited partnership, trust, association or other business or investment entity that directly or indirectly through one or more intermediaries is controlled by with any of the foregoing individuals. For purposes of this definition, the term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the
3 possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by Contract or otherwise. “Aggregate Purchaser Liability Cap” has the meaning set forth in Section 9.6(b)(iii). “Aggregate Seller Liability Cap” has the meaning set forth in Section 9.6(a)(iv). “Agreement” has the meaning set forth in the Preamble. “Allocation Principles” has the meaning set forth in Section 2.10. “Ancillary Agreements” means, collectively, the Bill of Sale and Assignment and Assumption Agreements, the IP Assignments, the Employment Agreements, the Noncompetition Agreements and the Transition Services Agreement. “Ancillary Customer” has the meaning set forth in Section 2.11(c). “Anti-Corruption Laws” has the meaning set forth in Section 3.24(a). “Assumed Liabilities” has the meaning set forth in Section 2.3. “Audit Breach” has the meaning set forth in Section 5.15(d). “Audit Completion” means (i) the preparation and completion of the historical audited financial statements and pro forma financial statements with respect to the Business and (ii) fulfillment of the Parent’s financial reporting obligations with respect to the Business under, and in accordance with, Regulation S-X under the Exchange Act arising from the consummation of the transactions contemplated by this Agreement, in each case, within the filing deadlines imposed by Regulation S-X under the Exchange Act. “Audit Release Amount” means one million US dollars ($1,000,000). “Balance Sheet” has the meaning set forth in Section 3.4(a)(i). “Base Purchase Price” has the meaning set forth in Section 2.5. “Big Four Accounting Firm” means Deloitte, Ernst & Young (EY), PricewaterhouseCoopers (PwC), and Klynveld Peat Marwick Goerdeler (KPMG). “Bill of Sale and Assignment and Assumption Agreements” means the bill of sale and assignment agreements to be entered into on the Closing Date by the Purchaser or a Purchasing Entity and each Seller in substantially the forms attached hereto as Exhibits A-1, A-2, A-3, A-4 and A-5. “Business” means the business to the extent relating to, arising from or conducted using the Purchased Assets and Assumed Liabilities, whether conducted by the Purchaser, the Sellers or their respective Affiliates, after the Closing (including, without limitation, for the period after the Closing, the business conducted by the Sellers on behalf of the Purchaser pursuant to Section 2.11) or, for purposes of measuring historical performance, by the Sellers or their respective Affiliates prior to the Closing. “Business Day” means any day other than Saturday, Sunday or any day on which banking institutions in New York City are closed either under applicable Law or action of any Governmental Authority. “Cash and Cash Equivalents” means cash, checks, money orders, marketable securities, short- term instruments and other cash equivalents net of outstanding checks, overdrafts and deposits in transit.
4 “Change of Control” means, with respect to any Person, any of the following: (a) the sale, lease, transfer or other disposition of all, or substantially all, of the assets of such Person and its Subsidiaries, taken as a whole, in any single transaction or series of related transactions to a third party; (b) the sale or disposition (whether by merger, consolidation or otherwise) of one (1) or more Subsidiaries of such Person if substantially all of the assets of such Person and its Subsidiaries, taken as a whole, are held by such Subsidiaries, in any single transaction or series of related transactions to a third party; or (c) any merger or consolidation of (x) such Person or (y) any Subsidiary of such Person in which such Person issues any securities pursuant to such merger or consolidation, in each case with or into a third party that is an entity if, after giving effect to such merger or consolidation, the holders of such Person’s outstanding securities immediately prior to such merger or consolidation own securities of the surviving or resulting corporation, limited liability company or other entity representing less than a majority of the equity securities or less than a majority of the voting securities entitled to elect directors, managers of or others performing similar functions with respect to the surviving or resulting corporation, limited liability company or other entity or, if the securities of a different corporation, limited liability company or other entity are issued pursuant to such merger or consolidation, the corporation, limited liability company or other entity whose securities were so issued. “Claim Notice” has the meaning set forth in Section 9.3(a). “ClickDealer Cyprus” has the meaning set forth in the Preamble. “ClickDealer Hong Kong” has the meaning set forth in the Preamble. “ClickDealer Netherlands” has the meaning set forth in the Preamble. “ClickDealer Singapore” has the meaning set forth in the Preamble. “ClickDealer Ukraine” means Foreign Company “ClickDealer Ukraine”, a company organized in Ukraine. “Closing” has the meaning set forth in Section 2.7. “Closing Balance Sheet” has the meaning set forth in Section 2.9(a). “Closing Date” has the meaning set forth in Section 2.7. “Closing Indebtedness” means the Indebtedness representing all Indebtedness payable at Closing to any Person. “Closing Net Working Capital” means, to the extent included in the Purchased Assets or Assumed Liabilities, (a) all current assets of the Sellers (including current prepaid assets and current accounts and notes receivable net of allowances for doubtful accounts arising in the ordinary course of business) minus (b) all current liabilities of the Sellers, in each of the cases of clauses (a) and (b), calculated as of 11:59 P.M. (measured, with respect to each Seller, based on the local time of such Seller) on the Business Day immediately prior to Closing Date in accordance with the Accounting Rules. A sample calculation of Closing Net Working Capital as of the Date of the Balance Sheet is set forth on Annex 1.1. “Closing Indebtedness Payoff Amount” has the meaning set forth in Section 2.8(c)(i).
5 “Closing Seller TE Payoff Amount” has the meaning set forth in Section 2.8(c)(ii). “Closing Seller Transaction Expenses” means all Seller Transaction Expenses payable at Closing to any Person. “Code” means the Internal Revenue Code of 1986, as amended. “Company Intellectual Property” means any and all Intellectual Property Rights owned or (for purposes of Article III only) purported to be owned (whether owned or (for purposes of Article III only) purported to be owned singularly or jointly with a third party or parties) by any Seller, excluding all Social Media Accounts. “Company Plan” means written or oral plan, program, policy, Contract or arrangement involving direct or indirect compensation or benefits, including employment or individual consulting agreements for Employees and Independent Contractors, insurance coverage, welfare benefits, severance or other termination pay, termination indemnity or benefits, change in control, retention, performance, holiday pay, vacation pay, jubilee, fringe benefits, disability benefits, pension, retirement plans, profit sharing, deferred compensation, bonuses, stock options, stock purchase, restricted stock or stock units, phantom stock, stock appreciation, compensatory equity or other forms of incentive compensation or post-retirement compensation, sponsored, maintained or contributed to by any Seller for the benefit of any current or former director, officer, employee or consultant of any Seller, or with respect to which any Seller has or may have any Liability regardless of whether it is mandated under local Law, voluntary, private, funded, unfunded, financed by the purchase of insurance, contributory or noncontributory; provided, that any governmental plan or program requiring the mandatory payment of social insurance Taxes or similar contributions to a governmental fund with respect to the wages of an employee, in each case, will not be considered a “Company Plan” for these purposes. “Company Products” means all products (including Software, applications, platforms and websites) and services (including Software as a service) developed (including products and services for which development is ongoing), including any components, plugins, libraries and APIs, manufactured, delivered, deployed, made publicly or commercially available, marketed, distributed, provided, serviced, hosted, supported, leased, sold, offered for lease or sale, imported or exported for resale or licensed out by or on behalf of any Seller (either solely or in collaboration with third parties). “Company Registered IP” means all Registered IP that is part of the Company Intellectual Property. “Company Technology” means all Technology with respect to which any Seller owns any Company Intellectual Property. “Confidential Information” means any information, in whatever form or medium, concerning the Current Business. “Confidentiality Agreement” has the meaning set forth in Section 5.7(a). “Consent” means any approval, consent, ratification, waiver or other authorization. “Contract” means any contract, agreement, bid, tender, lease, purchase order, license, commitment, understanding, franchise, warranty, guaranty, mortgage, note, bond, option, warrant or similar instrument, whether written or oral. “Contributor” has the meaning set forth in Section 3.11(f).
6 “Current Business” means all business activities of the Sellers to provide, market, sell or distribute digital performance marketing and online performance advertising services through an affiliate network, as conducted by the Sellers at any time prior to the Closing. “Data Protection Laws” means all applicable Laws and published privacy policies and internal privacy policies and guidelines relating to privacy, the processing of Personal Data, data protection and data security, including with respect to the collection, storage, transmission, transfer (including cross-border transfers), disclosure and use of Personal Data (including that of employees, contractors and third parties) including but not limited to Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of Personal Data and on the free movement of such data, and repealing Directive 95/46/EC (“GDPR”) and the California Consumer Privacy Act of 2018 (“CCPA”) as amended by the California Privacy Rights Act of 2020 (“CPRA”). “Date of the Balance Sheet” means December 31, 2022. “Dating Category” means the category in which the primary activity of the applicable consumer is using internet-based services or websites to find and establish romantic or sexual relationships with other individuals, including dating applications, services or websites in which consumers create a personal profile and the submission of billing information to use such applications, services or website anywhere worldwide. “Dating Revenue” means revenue earned in the Dating Category, except revenue earned from “mainstream” advertisers. For this purpose, all advertisers in the Dating Category shall be considered not to be “mainstream” advertisers, unless (x) agreed in advance in good faith between any Seller and the Purchaser or (y) set forth on Annex 1.2. For the avoidance of doubt, examples of “mainstream” advertisers in this category would be Match.com, Bumble.com or comparable non-publicly listed services. “Deductible” has the meaning set forth in Section 9.6(a)(ii). “Dispute Notice” has the meaning set forth in Section 2.9(b). “Disputed Item” has the meaning set forth in Section 2.9(b). “Domain Names” has the meaning set forth in the definition of “Intellectual Property Rights”. “Dutch Transition Costs” means all costs of the Purchaser related to transferring of NL Employees to a Purchasing Entity (including costs related to a temporary transfer to another entity or payroll company as the case may be, in anticipating of such transfer to the Purchasing Entity if such Purchasing Entity has not yet been established (or prepared to employ employees) as of the Closing Date), including without limitation (x) with respect to payroll and benefits schemes and (y) all severance and termination payments to any such NL Employee required under applicable Law. “Earn-Out Notice of Objection” has the meaning set forth in Section 2.12(e). “Earn-Out Period” means each of the 2023 Earn-Out Period and 2024 Earn-Out Period. “Earn-Out Payment” means each of the 2023 Earn-Out Payment and the 2024 Earn-Out Payment. “Earn-Out Payment Statement” has the meaning set forth in Section 2.12(e). “EBITDA” means, for any period, the sum of consolidated net income of the Business, plus the following to the extent deducted in calculating such consolidated net income: (1) all income tax expense of the Business; (2) consolidated interest expense of the Business; (3) depreciation and amortization expense of the Business; and (4) all other non-cash charges of the Business, in each case for such period determined
7 in accordance with the Accounting Rules applied consistent with Purchaser’s accounting policies and practices. “Employee” means any employee who is currently employed by a Seller. “Employment Agreements” has the meaning set forth in Section 2.8(a)(iv). “Encumbrance” means any charge, claim, mortgage, servitude, easement, right of way, community or other marital property interest, covenant, equitable interest, license, lease or other possessory interest, lien, option, pledge, hypothecation, security interest, preference, priority, right of first refusal, condition, limitation or restriction of any kind or nature whatsoever (whether absolute or contingent). “End Date” has the meaning set forth in Section 7.2. “Environmental Law” means any Law relating to the protection of the environment, natural resources, or public and worker health and safety, or any Law pertaining to the exposure to or the generation, management, manufacture, processing, use, registration, distribution, transportation, treatment, storage, recycling, reuse or disposal, and any Release of Hazardous Materials. “Epidemic” means any epidemics, pandemics, disease outbreaks, or other public health emergencies. “Epidemic Event” means (a) any Epidemic; (b) any effects directly related to any Epidemic (including COVID-19) or any directive or guideline issued by a Governmental Authority, the U.S. Centers for Disease Control and Prevention or the World Health Organization requiring business closures, “sheltering-in-place” or other restrictions that relate to or arise out of any Epidemics (including COVID- 19); or (c) any facilities closures or other operational disruptions of any Seller or any supplier, distributor or customer of any Seller that occur as a result of any Epidemics (including COVID-19). “Estimated Closing Balance Sheet” has the meaning set forth in Section 2.6. “Estimated Purchase Price” has the meaning set forth in Section 2.6. “Exchange Act” means the US Securities Exchange Act of 1934, as amended. “Exchange Rates” means the exchange rates published in the Market Data Center for the Exchange Rates: New York Closing Snapshot of the Wall Street Journal website (http://online.wsj.com/mdc/public/page/2_3021-forex.html) on the Business Day immediately prior to the date of measurement, or if not available, the successor website of the Wall Street Journal. “Excluded Assets” has the meaning set forth in Section 2.2. “Excluded Contracts” has the meaning set forth in Section 2.2(e). “Excluded Liabilities” has the meaning set forth in Section 2.4. “Excluded Taxes” means all (a) Taxes imposed on any Seller or any of its Affiliates for any taxable period; (b) Taxes relating to the Excluded Assets or Excluded Liabilities for any taxable period; (c) Transfer Taxes that are borne by the Sellers under Section 8.4; (d) Taxes arising out of or related to the transactions contemplated by this Agreement imposed on any Seller or any of its Affiliates; and (e) Taxes imposed with respect to the Purchased Assets, the Assumed Liabilities, or the Current Business that are properly allocated to any Pre-Closing Tax Period, including the portion of any Straddle Tax Period ending on the Closing Date, which shall include Taxes for which the Seller or any of its Affiliates are liable pursuant to Article 8.
8 “Exclusively Licensed Intellectual Property” has the meaning set forth in Section 3.11. “FCPA” has the meaning set forth in Section 3.24(a). “Final Purchase Price” has the meaning set forth in Section 2.9(f). “Final Earn-Out Payment Statement” has the meaning set forth in Section 2.12(e). “Financial Statements” has the meaning set forth in Section 3.4(a). “Fundamental Representations” means the representations or warranties set forth in Section 3.1 (Organization and good standing), Section 3.2 (Authority and enforceability), Section 3.3 (No conflict), Section 3.9(a) and 3.9(b) (Assets; Sufficiency), Section 3.13 (Tax matters), Section 3.22 (Related party transactions) and Section 3.25 (Brokers or finders). “GAAP” means generally accepted accounting principles for financial reporting in the United States, as in effect as of the date of this Agreement. “Gaming Category” means the vertical in which the primary activity of the applicable consumer would be playing games of chance or skill for money or other forms of rewards on the internet, including online gambling activities, sports betting, casino games, poker, bingo, lotteries but also includes e-sports, fantasy sports and other forms of online gaming anywhere worldwide. “Gaming Revenue” means revenue earned in the Gaming Category. “Government Bid” means any bid, offer, proposal or response to solicitation which, if accepted or awarded, would result in the establishment of a Government Contract. “Government Contract” means any Contract with (a) any Governmental Authority, (b) any prime contractor to any Governmental Authority, (c) any government-owned or government-controlled entities or (d) any subcontractor with respect to any Contract described in clause (a) or (b). “Governmental Authority” means any (a) nation, region, state, county, city, town, village, district or other jurisdiction, (b) federal, state, local, municipal, foreign or other government, (c) department, agency or instrumentality of a foreign or other government, including any state-owned or state controlled instrumentality of a foreign or other government, (d) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department or other entity and any court or other tribunal), (e) Public International Organization or (f) body exercising, or entitled to exercise, on behalf of any such governmental authority any administrative, executive, judicial, legislative, police, regulatory or Taxing Authority or power of any nature. “Governmental Authorization” means any Consent, license, franchise, permit, exemption, clearance or registration issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Law. “Harmful Code” means any Software, design, routine, or other mechanism of any kind (including any viruses, worms, malware, bombs, backdoors, clocks, hidden keys, timers, and traps) designed to (automatically, immediately, with passage of time, or upon command) (a) disrupt, disable, interfere with, erase, make inoperable, make inaccessible, or harm in any material manner any other Software, hardware, system, or process or its operation, except solely for any Software, design, routine, or other mechanism to the extent the Person lawfully owning or controlling such other Software, hardware, system, or process knowingly agreed to such Software, design, routine, or other mechanism and its purpose on or in such other Software, hardware, system, or process; (b) materially disrupt, disable, or interfere with any electronic
9 communication; (c) gain access to or collect any data or information, except to the extent that each Person whose data and information is accessed or collected has knowingly agreed to such access and collection by such Software, design, routine, or other mechanism, including any spyware; (d) misuse or misappropriate any business, personal, or other data or information; or (e) cause unauthorized or unlawful advertising or promotional messages, or any other messages (other than notices or information by the licensor or owner of such Software, design, routine, or other mechanism related to the use, installation, errors, updates, or similar matters for such Software, design, routine, or other mechanism or the use, access, or exit of any website, webpage, or webspace of such Software, design, routine, or other mechanism) to pop-up, appear, be downloaded, be installed, or be linked anywhere on a computer or screen (e.g., as a window, frame, balloon, tab, or other format) in connection with such Software, design, routine, or other mechanism. “Hazardous Material” means any raw material, product, waste, material, or substance that is listed, defined, designated or classified as hazardous, radioactive or toxic or a pollutant or a contaminant under any Environmental Law, including any admixture or solution thereof, and including petroleum and all derivatives thereof or synthetic substitutes therefor, asbestos or asbestos-containing materials in any form or condition, per- and polyfluoroalkyl substances, and polychlorinated biphenyls. “Hired Employee” means any Employee or Independent Contractor who becomes an employee of the Purchaser or a Purchasing Entity as of the Closing. “Hired Independent Contractor” means any Employee or Independent Contractor who becomes an independent contractor of the Purchaser or a Purchasing Entity as of the Closing. “Holdback Amount” means three million five hundred thousand US dollars ($3,500,000), which amount is to be held by the Purchaser in accordance with the terms of this Agreement and released pursuant to the terms and subject to the conditions set forth in this Agreement. “Home Services Category” means the advertising category that encompasses services related to maintaining and improving residential properties, including the following services: home repair and renovation, landscaping and yard care, cleaning and maid services, pest control, plumbing and electrical services, heating and air conditioning services and maintenance, roofing and gutters service and installation, solar, bathroom and kitchen remodeling, window installation and replacement, and other similar services that would be offered by contractors or agents specifically targeting homeowners anywhere worldwide. “Home Services Revenue” means revenue earned in the Home Services Category, including revenue from the sale of clicks, leads or calls in such category. “IFRS” means the International Financial Reporting Standards, as in effect as of the date of this Agreement. “Inactive Shareholder” has the meaning set forth in Section 11.6. “Included Books and Records” has the meaning set forth in Section 2.1(g). “Included Contracts” has the meaning set forth in Section 2.1(b). “Included Lease” has the meaning set forth in Section 2.1(d). “Included Personal Data” has the meaning set forth in Section 2.1(i). “Indemnifying Party” means the party from whom indemnification is sought pursuant to Article 9.
10 “Indebtedness” means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent or asserted, for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments or debt securities, warrants or other rights to acquire any such instruments or securities, (c) amounts owing as deferred purchase price for property or services, including all seller notes and “earn-out” payments, whether or not matured, (d) commitments or obligations by which such Person assures a creditor against loss (including contingent reimbursement obligations with respect to letters of credit), (e) indebtedness secured by an Encumbrance on assets or properties of such Person, (f) obligations or commitments to repay deposits or other amounts advanced by and owing to third parties, (g) any Liability of such Person in respect of banker’s acceptances or letters of credit, (h) obligations under any interest rate, currency or other hedging agreement, (i) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, IFRS or SFRS (as the case may be), recorded as capital leases, (j) direct or indirect guarantees or other contingent Liabilities (including so called “make-whole,” “take-or-pay” or “keep-well” agreements) with respect to any indebtedness, obligation, claim or Liability of any other Person of a type referred to in clause (a), (k) all accrued but unpaid wages, pro-rated bonuses, commissions, fees and other accrued but unpaid compensation and benefits and (l) with respect to any indebtedness, obligation, claim or Liability of a type described in clauses (a) through (i), all accrued and unpaid interest, premiums, penalties, breakage costs, unwind costs, fees, termination costs, redemption costs, expenses and other charges with respect thereto; provided that, with respect to any Seller, Indebtedness shall exclude all Seller Transaction Expenses. “Independent Accounting Firm” has the meaning set forth in Section 2.9(d)(ii). “Independent Contractor” means any natural person or sole member independent contractor or consultant currently engaged by any of the Sellers. “Infringement,” “Infringe,” or “Infringing” means that a given item or activity directly or indirectly infringes, dilutes or violates any Intellectual Property Right or misappropriates, dilutes or constitutes unauthorized use of any Technology or other subject matter covered by any Intellectual Property Right. “Insolvency and Equity Exceptions” has the meaning set forth in Section 3.2. “Insolvent” has the meaning set forth in Section 3.26. “Intellectual Property Rights” means all intellectual property, industrial property, and proprietary rights, whether registered or unregistered, anywhere in the world, including (a) patents, patent applications, design patents, and utility models (including any provisionals, divisionals, continuations, continuations-in- part, renewals, reissuances, re-examinations, extensions, and foreign and international counterparts), and related rights of priority, and inventions and invention disclosures (whether or not patentable), (b) copyrights and other rights in works of authorship, all registrations and applications for registration therefor, neighboring rights, and Moral Rights, (c) mask work rights and integrated circuit topography rights, (d) trade secrets and rights in trade secrets, know-how, proprietary information (such as processes, formulae, models and methodologies), and other non-public or confidential information (“Trade Secrets”), (e) trademarks, trade names, logos, service marks, trade dress, emblems, certification marks, collective marks, signs, insignia, slogans, corporate names, DBAs, and other similar designations of source or origin, and all registrations and applications for registration therefor (“Marks”), together with all of the goodwill symbolized by or associated with any of the foregoing, (f) internet domain names and domain name registrations, all associated web addresses, URLs, websites and web pages, sites and pages (“Domain Names”), (g) social media accounts, profiles, handles, pages, feeds, registrations, and other presences on or in connection with any social media or social networking website or online service, blog or microblog, mobile application, photo, video or other content-sharing website, virtual game world or virtual social world,
11 rating and review website, wiki or similar collaborative content website, or message board, bulletin board, or similar forum (“Social Media Accounts”) and all user names, likes, and feedback, (h) design and design rights (whether registered or unregistered), and all registrations and applications for registration therefor, (i) data, databases, and database rights, (j) rights in or to Technology, (k) rights of publicity and privacy and other rights to use the names, likeness, image, photograph, voice, identity and personal information of individuals, (l) analogous rights to any of the foregoing, and (m) rights to sue for past, present, and future Infringement of the rights of any of the foregoing. “In-bound License” has the meaning set forth in Section 3.11(c). “IP Assignments” has the meaning set forth in Section 2.8(a)(ii). “IP Grant” means any license (exclusive, non-exclusive, present, springing, or otherwise), covenant not to sue, covenant not to assert, option, other right, or claim in or to or under any Intellectual Property Rights. “IRS” means the U.S. Internal Revenue Service. “I.S.P” means I.S.P Assets FZE, a company incorporated under Umm Al Quwain Free Trade Zone (United Arab Emirates) Company Regulations. “IT System” means any electronic data processing, information, recordkeeping, communications, telecommunications, account management, inventory management and other computer or information technology systems and related Software, hardware, websites, applications, networks and servers, and all other information technology assets, including all data (including Personal Data) processed thereby. “Judgment” means any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Authority or arbitrator. “Key Executives” means (i) Dmytro Atamaniuk, (ii) Taras Kiseliuk, (iii) Yana Ejim, (iv) Alyona Tsybizova, (v) Karina Pyrogova and (vi) Vladyslav Nizov. “Knowledge” means the knowledge, after due inquiry, of any of the following individuals: (i) Dmytro Atamaniuk, (ii) Taras Kiseliuk and (iii) Vladyslav Nizov. “Law” means any federal, state, local, municipal, foreign, international, multinational, or other constitution, law, statute, treaty, rule, regulation, ordinance, code, binding case law or principle of common law. “Leased Real Property” has the meaning set forth in Section 3.10(a). “Leases” has the meaning set forth in Section 3.10(a). “Liability” includes liabilities, debts or other obligations of any nature, whether known or unknown or asserted, absolute, accrued, contingent, liquidated, unliquidated or otherwise, due or to become due or otherwise, matured or unmatured, determined or determinable, and whether or not required to be reflected on a balance sheet prepared in accordance with GAAP, IFRS or SFRS (as the case may be). “Licensed Intellectual Property” has the meaning set forth in Section 3.11(c). “Liquidated Damages” has the meaning set forth in Section 5.15(d).
12 “Local Business Day” means any day other than Saturday, Sunday or public holiday or any day on which banking institutions in the jurisdiction in which the recipient of any notice under Section 12.2 is located are closed either under applicable Law or action of any Governmental Authority. “Loss” means (a) any loss, Proceeding, Judgment, damage, fine, penalty, expense (including reasonable attorneys’ or other professional fees and expenses and court costs), injury, Liability, Tax (including interest and penalties thereon), Encumbrance or other cost or expense, whether or not involving the claim of another Person and (b) any losses or costs incurred in investigating, defending or settling any Proceeding, Judgment or other matter described in the foregoing clause (a) and pursuing fulfillment of rights under this Agreement, whether or not the underlying Proceeding, Judgment or other matter is actually asserted or is merely alleged or threatened; provided that, notwithstanding anything to the contrary contained herein, for purposes of any indemnification obligation set forth in Section 9.1(b), Section 9.1(e) and Section 9.2(b), “Loss” shall exclude any special, incidental, indirect, punitive or consequential losses, damages or Liabilities or losses, damages or Liabilities calculated based upon any multiple of lost earnings or other similar methodology (including lost profits, loss of revenue, lost sales or diminution in value) used to value the Business, the Sellers or the Purchased Assets or based on the financial performance or results of operations of the Business, the Sellers or the Purchased Assets. “Management” has the meaning set forth in Section 2.12(a)(i). “Management Allocation Percentage” means, (x) with respect to a member of Management, the allocation percentage set forth on Schedule 3 or (y) the allocation percentage set forth on Schedule 3 with respect to the Management Earn-Out Pool, as applicable; provided that, if a member of Management is no longer an employee or consultant of Purchaser or any of its Affiliates at the time that the 2023 Earn-Out Criteria, or 2024 Earn-Out Criteria are achieved, respectively, then for purposes of the 2023 Earn-Out Payment or 2024 Earn-Out Payment, respectively, the allocation percentage of such member of Management shall be reallocated to the remaining members of Management who are then employees or consultants of Purchaser or any of its Affiliates and the Management Earn-Out Pool, on a pro rata basis in proportion to such remaining members’ and Management Earn-Out Pool’s allocation percentages set forth on Schedule 3, such that the aggregate of all Management Allocation Percentages shall be 100%. “Management Earn-Out Pool” means the portion of the Earn-Out Payments to be allocated to certain individuals who are then employees or consultants of the Purchaser or any of its Affiliates at the time that the 2023 Earn-Out Criteria or 2024 Earn-Out Criteria are achieved, as applicable (such individuals, the “Management Earn-Out Pool Recipients”). “Marks” has the meaning set forth in the definition of “Intellectual Property Rights”. “Material Adverse Effect” means any event, change, circumstance, effect or other matter that has, or would reasonably be expected to have, either individually or in the aggregate with all other events, changes, circumstances, effects or other matters, with or without notice, lapse of time or both, a material adverse effect on (a) the business, assets, financial condition, operating results or operations of the Business, taken as a whole, or (b) the ability of the Sellers to perform their obligations under this Agreement or to timely consummate the transactions contemplated by this Agreement, but shall exclude (in either case) any event, change, circumstance, effect or other matter resulting or arising from or attributable to (i) any change or prospective change in any Law or accounting rules (including GAAP, IFRS and SFRS, as applicable) or the enforcement, implementation or interpretation thereof; (ii) any change in general economic conditions; (iii) any change in general political conditions; (iv) any change or condition that is generally applicable to the industries or markets in which the Business or any Seller operates; (v) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in interest rates; (vi) any natural or manmade disasters or acts of God,
13 including any Epidemic Events, earthquakes, hurricanes, tornados, floods, tsunamis or other natural disasters, or any other damage to or destruction of assets caused by casualty; (vii) acts of war or military aggression (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (viii) any action required by this Agreement; (ix) the announcement, pendency or completion of the transactions contemplated by this Agreement, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with the Seller and the Business; or (x) any failure by the Business to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded); provided, however, that in the case of each of the foregoing clauses (i), (ii), (iii), (iv), (v) and (vi), any such event, change, circumstance or occurrence shall not be excluded to the extent that it has or would reasonably be expected to have a disproportionate adverse effect on the business, assets, financial condition or operating results of the Business, taken as a whole, relative to that of other companies in the Sellers’ industry operating businesses similar to the Business. “Material Contract” has the meaning set forth in Section 3.12(a). “Material Customer” has the meaning set forth in Section 3.20(a). “Material Supplier” has the meaning set forth in Section 3.20(b). “Moral Rights” means moral or equivalent rights, including the right to the integrity of a work, the right to be associated with a work as its author by name or under a pseudonym and the right to remain anonymous, to the extent existing under applicable Law. “Negative Working Capital Adjustment” has the meaning set forth in Section 2.9(f). “Net Margin” means normalized EBITDA of the Business, including (x) any bonuses paid to employees and other service providers of the Business, other than any “integration bonus” (as contemplated by any Employment Agreement) and (y) costs under Section 2.11 (including under the Transition Services Agreement) and excluding (1) any charges, costs or expenses relating to the Purchaser’s acquisition of the Business (including without limitation, any charges, costs or expenses relating to the assignment or transition of any Contracts from the Sellers to the Purchaser or its Affiliates, and any accounting, legal or other advisor costs or fees relating to such acquisition), (2) labor costs or overhead expenses for any existing employees or service providers of the Purchaser whose duties are not primarily related to the Business and (3) any “integration bonus” (as contemplated by any Key Executive Employment Agreement). “NL Employee” has the meaning set forth in Section 5.14(b). “Noncompetition Agreements” has the meaning set forth in Section 2.8(a)(v). “Non-Recourse Party” has the meaning set forth in Section 12.16. “Objection Notice” has the meaning set forth in Section 9.3(a). “OFAC” has the meaning set forth in Section 3.24(c). “Open Source Software” means any Software that is licensed, distributed or conveyed as “open source software,” “copyleft” or under a similar licensing or distribution model, or under a Contract that requires as a condition of its use, modification or distribution that it, or other Software that is derived from or linked to such Software or into which such Software is incorporated or integrated or with which such Software is combined or distributed, be disclosed or distributed in source code form, delivered at no charge or be licensed, distributed or conveyed under the same terms as such Contract (including Software licensed under the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla
14 Public License (MPL), BSD licenses, Microsoft Shared Source License, Common Public License, Artistic License, Netscape Public License, Sun Community Source License (SCSL), Sun Industry Standards License (SISL), Apache License and any license listed at www.opensource.org) or under any other license that requires source code to be made available at no charge under such license in connection with any license, sublicense, distribution, modification, or access of such Software. “Organizational Documents” has the meaning set forth in Section 3.1. “Other ClickDealer Entity” means any Subsidiary of ClickDealer Singapore set forth on Section 1.1(a) of the Seller Disclosure Schedule. “Out-bound License” has the meaning set forth in Section 3.11(c). “Owned Software” has the meaning set forth in Section 3.11(a). “Parent” means has the meaning set forth in the Preamble. “Parent Guaranty” has the meaning set forth in Section 10.2. “Permitted Encumbrances” means (a) statutory liens of carriers, warehousemen, mechanics, materialmen, repairmen and other similar Persons incurred in the ordinary course of business, (b) liens for Taxes not yet due and payable or being contested in good faith by appropriate procedures or Proceedings, (c) easements, rights of way, zoning ordinances and other similar encumbrances affecting real property, (d) liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; and (e) other immaterial imperfections of title or Encumbrances, in each case (other than the foregoing clause (b)) that do not, in the aggregate, materially impair the Business. “Person” means an individual or an entity, including a corporation, limited liability company, partnership, trust, unincorporated organization, association or other business or investment entity, or any Governmental Authority. “Personal Data” means any information relating to an identified or identifiable natural Person. “Pre-Closing Tax Period” means (a) any taxable period ending on or before the Closing Date, and (b) with respect to a Straddle Tax Period, the portion of such taxable period ending on (and including) the Closing Date. “Proceeding” means any action, arbitration, mediation, audit, examination, investigation, hearing, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, and whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority or arbitrator. “Public International Organization” means (a) any international organization formed by states, governments or other international organizations or (b) any organization that is designated by executive order pursuant to Section 1 of the United States International Organizations Immunities Act (22 U.S.C. 288). “Purchase Price” has the meaning set forth in Section 2.5. “Purchased Assets” has the meaning set forth in Section 2.1. “Purchaser” has the meaning set forth in the Preamble.
15 “Purchaser Disclosure Schedule” has the meaning set forth in Article 4. “Purchaser Indemnified Parties” has the meaning set forth in Section 9.1. “Purchasing Entities” means the entities formed, or to be formed prior to the Closing Date, by the Purchaser. “Quarterly Statement” has the meaning set forth in Section 2.12(b). “Recovered Earn-Out Loss” has the meaning set forth in Section 9.6(d). “Registered IP” means Intellectual Property Rights that have been registered, issued, filed, certified or otherwise perfected or recorded with or by any Governmental Authority or quasi-public legal authority (including domain name registrars), or any applications for any of the foregoing, whether active or inactive. “Release” means any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, injecting, pumping, pouring, emptying, escaping, dumping, disposing or migration of Hazardous Materials in, on, at, or under any site or location or into the environment. “Representatives” means, with respect to any Person, such Person’s directors, managers, officers, employees, agents, consultants and other advisors, and other representatives. “Requisite Net Margin” means a Net Margin of at least 10% of the associated revenue for the relevant period (either 2023 Revenue or 2024 Revenue), without giving effect to the adjustments for Dating Revenue, Gaming Revenue and Home Services Revenue. “Restricted Parties” has the meaning set forth in Section 3.24(c). “Restricted Period” has the meaning set forth in Section 5.10. “Restricted Persons” means, with respect to any party, such party’s Affiliates and its and their respective Representatives. “RWI Insurer” means Indian Harbor Insurance Company. “RWI Policy” means the representation and warranty insurance policy acquired by the Purchaser, the binder and form of policy that are attached hereto as Exhibit B. “RWI Policy Premium” means $492,000. “RWI Policy Premium Overage” means $50,000. “Sanctioned Territories” has the meaning set forth in Section 3.24(c). “Sanctions” has the meaning set forth in Section 3.24(c). “Section 1060 Allocation” has the meaning set forth in Section 2.10. “Securities Act” means the US Securities Act of 1933, as amended. “Seller Disclosure Schedule” has the meaning set forth in Article 3. “Seller” or “Sellers” has the meaning set forth in the Preamble.
16 “Seller Allocation Percentage” means, with respect to a Seller, the allocation percentage set forth on Schedule 1 (which allocation percentage, for the avoidance of doubt, has been mutually agreed by the parties). “Seller Indemnified Parties” has the meaning set forth in Section 9.2. “Seller Transaction Expenses” means all expenses of any Seller incurred or to be incurred prior to and through the Closing Date in connection with the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated hereby, the Closing and any prior acquisition, divestiture, liquidation, equity subscription or similar transactions, including (a) out-of-pocket costs, fees and disbursements of financial advisors, attorneys, accountants and other advisors and service providers, (b) all fees and expenses incurred to obtain any third party Consent under any Contract or from any Governmental Authority, (c) 50% of the RWI Policy Premium, and (d) the RWI Policy Premium Overage in all cases payable by any Seller (prior to and through and including the Closing Date) and which have not been paid as of or after the Closing Date. “Selling Parties Representative” has the meaning set forth in Section 12.1(a). “SFRS” means the Singapore Financial Reporting Standards in effect from time to time. “Shareholder Allocation Percentage” means, with respect to a Shareholder, the percentage ownership set forth on Schedule 2. “Shrinkwrap Software” means Software licensed to any Seller under generally available retail shrinkwrap, clickwrap or other similar licenses and used in the Sellers’ business. “Software” means software, firmware and computer programs and applications (including source code, executable or object code, architecture, algorithms, data files, computerized databases, plugins, libraries, subroutines, tools and APIs) and all related specifications and documentation. “Source Material” means, individually and collectively, with regard to Software, the human readable source code of such Software, and all associated materials and documentation enabling a reasonably skilled programmer to understand such Software’s design, structure and implementation and to enable a professional software programmer skilled in the applicable software language to write documentation and help files for such Software, including without limitation any system documentation, written statements of program procedures (including build procedures), written statements of operation and principle, programmer notes, testing data, and custom or special compilers, in each case related to such Software’s design, structure and implementation. “Standard Service Agreement” means any employment agreement, offer letter, consulting agreement or service agreement entered into between any Seller, on one hand, and any Employee or Independent Contractor, on the other hand, based on forms that have been made available to Purchaser. “Standards Body” has the meaning set forth in Section 3.11(k). “Straddle Tax Period” means any taxable period that begins on or before the Closing Date and ends after the Closing Date. “Subsidiary” means, with respect to a specified Person, any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation’s or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the specified Person or one or more
17 of its Subsidiaries. When used in this Agreement without reference to a particular Person, “Subsidiary” means a Subsidiary of a Seller. “Suspended Party” has the meaning set forth in Section 7.1(f). “Target Working Capital” means three million US dollars ($3,000,000). “Tax” or “Taxes” means (a) any national, federal, state, local, municipal, foreign or other tax, charge, fee, duty (including customs duty), levy or assessment, including any income, gross receipts, net proceeds, alternative or add-on minimum, corporation, ad valorem, turnover, real property, personal property (tangible or intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, excess profits, profits, occupational, premium, interest equalization, windfall profits, severance, license, registration, payroll, environmental, capital stock, capital duty, disability, estimated, gains, wealth, welfare, employee’s income withholding, other withholding, unemployment or social security or any other tax of whatever kind (including any duty fee, assessment, impost or other charges in the nature of or in lieu of any tax) that is imposed by any Governmental Authority, including any interest, fines, penalties or additions resulting from, attributable to, or incurred in connection with any such items (b) any Liability for payment of amounts described in clause (a) whether as a result of successor or transferee liability, joint and several liability, or by reason of being a member of an affiliated, consolidated, combined, unitary or other group for any period, or payable by reason of Contract assumption, operation of law, or otherwise (excluding, in each case, any arrangements or agreements entered into in the ordinary course of business with a primary purpose unrelated to Tax), and (c) any Liability for the payment of amounts described in clause (a) or (b) as a result of any Tax Sharing Agreement, tax indemnity agreement or any other express or implied agreement to pay or indemnify any other Person whether by Contract or otherwise (excluding, in each case, any arrangements or agreements entered into in the ordinary course of business with a primary purpose unrelated to Tax). “Tax Return” means any report, return, form, document, declaration, designation, election or other information or filing that is supplied or required to be supplied to any Taxing Authority with respect to Taxes, including information returns and any documents with respect to or accompanying payments of estimated Taxes. “Tax Sharing Agreements” means all existing agreements or arrangements binding any Seller or any of its Subsidiaries that provide for the allocation, apportionment, sharing or assignment of any Tax Liability or benefit, or the transfer or assignment of income, revenues, receipts, or gains for the purpose of determining any Person’s Tax Liability. “Taxing Authority” means with respect to any Tax, the Governmental Authority that imposes such Tax and the agency (if any) charged with the collection of such Tax for such Governmental Authority. “Technology” means all technical, technological or scientific know-how or information, including Software, databases, data compilations and collections, and technical data, data centers, methods and processes, devices, prototypes, designs and schematics, inventions, developments, knowledge, technology, research, means, methods, processes, practices, formulas, instructions, skills, techniques, procedures, experiences, ideas, technical assistance, designs, drawings, assembly procedures, computer programs, apparatuses, specifications and data and results, whether or not confidential, proprietary, protected as a trade secret, patented or patentable, and whether in written, electronic or any other form now known or hereafter developed. “Third Party Claim” has the meaning set forth in Section 9.4(a). “Top 200 Customers” has the meaning set forth in Section 2.1(b).
18 “Trade Secrets” has the meaning set forth in the definition of “Intellectual Property Rights”. “Transfer Taxes” means sales, bulk sales, use, value added, goods and services, documentary, transfer, stamp, real property transfer, conveyances, recording, notarial, excise, registration or similar Taxes, fees or charges (together with any interest, penalties or additions in respect thereof) imposed by any Taxing Authority as a result of, or payable or collectible or incurred in connection with, this Agreement. For the avoidance of doubt, Transfer Taxes shall not include (a) any income, gains, franchise, or similar Taxes or (b) any withholding Taxes that apply to amounts payable in connection with this Agreement. “Transition Services Agreement” has the meaning set forth in Section 2.8(a)(v). “Treasury Regulations” means the regulations (including temporary regulations) promulgated under the Code by the United States Department of Treasury. “Undisputed Amounts” has the meaning set forth in Section 2.12(e). “Unresolved Items” has the meaning set forth in Section 2.9(d)(ii). “User Documentation” means explanatory and informational materials concerning the Company Products and Company Technology, in printed or electronic form, which any Seller has made available or otherwise released for distribution to customers or end-users of such Company Products and Company Technology, which may include manuals, descriptions, user or installation instructions, diagrams, printouts, listings, flow-charts and training materials, contained on visual media such as paper or photographic film, or on other physical storage media in machine readable form. “Willful Breach” means an intentional material breach of any covenant or other agreement (but excluding any representation or warranty) contained in this Agreement that is a consequence of an act undertaken by the breaching party with the actual knowledge that the taking of such act would, or would be reasonably expected to, cause a material breach of this Agreement. “Working Capital Adjustment” means any amount (which may be expressed as a negative number) equal to the amount of the Closing Net Working Capital less the Target Working Capital. “Working Capital Release Amount” means five hundred thousand US dollars ($500,000). 1.2 Construction (a) Any reference in this Agreement to an “Article,” “Section,” “Exhibit” or “Schedule” refers to the corresponding Article, Section, Exhibit or Schedule of or to this Agreement, unless the context indicates otherwise. The table of contents and the headings of Articles and Sections are provided for convenience only and are not intended to affect the construction or interpretation of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any document made or delivered pursuant hereto unless otherwise defined therein. All words used in this Agreement are to be construed to be of such gender or number as the circumstances require. The words “including,” “includes” or “include” are to be read as listing non-exclusive examples of the matters referred to, whether or not words such as “without limitation” or “but not limited to” are used in each instance. The word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase will not mean simply “if”. The term “or” will not be deemed to be exclusive. The words “made available to the Purchaser” and words of similar import refer to documents (i) posted to the “15c GDM - DMS (SHARED)” folder on Google Drive’s file sharing platform (which, for the avoidance of doubt is located at https://drive.google.com/drive/u/1/folders/1n1iHzhw9GuALARwrvo51O9_Q40Mv5Rt5) at least twenty- four (24) hours prior to the execution of this Agreement or (ii) delivered in person or electronically to the Purchaser or its Representatives at least twenty-four (24) hours prior to the execution of this Agreement.
19 Where this Agreement states that a party “shall,” “will” or “must” perform in some manner or otherwise act or omit to act, it means that the party is legally obligated to do so in accordance with this Agreement. The words such as “herein,” “hereinafter,” “hereof,” “hereunder” and “hereto” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. References to any statute shall be deemed to refer to such statute as amended through the date hereof and to any rules or regulations promulgated thereunder as amended through the date hereof. References to any Contract of any of Sellers are to that Contract of any of Sellers as amended, modified or supplemented from time to time in accordance with its terms thereof and hereof; provided that such amendment, modification or supplement will have been made available to the Purchaser. References to any Person will include such Person’s permitted successors and assigns. The words “ordinary course of business” and words of similar import will be deemed to be followed by the words “consistent with past practice.” Any reference herein to “days” shall mean calendar days unless Business Days are expressly specified and, when evaluating a period of time before which, within which or following which any act is to be done or taken pursuant to this Agreement, the reference date in calculating such period shall be excluded and, if the last day of such period is not a Business Day, the period shall end on the next succeeding Business Day. Unless otherwise provided in this Agreement, all monetary values stated herein are expressed in United States currency and all references to “dollars” or “$” will be deemed references to the United States dollar. Where a monetary threshold stated herein is expressed in United States dollars, the threshold amount will where applicable be deemed to specify an equivalent amount of non-United States currency, determined based on the applicable Exchange Rate. References to the “stock” or “capital stock” of a company shall, where applicable, mean a “share” in such company. References to dates and the time of day shall refer to those of New York City time, unless otherwise specified. This Agreement has been, and the Ancillary agreements will be, prepared in the English language. In case of any conflict or inconsistency between the English language version of such documents and any translation thereof made for any purpose, the English language version will govern the interpretation and construction of such documents, and for any and all other purposes, except as may be required by applicable Law. (b) The parties have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. ARTICLE 2 THE TRANSACTION 2.1 Purchase and Sale of Purchased Assets On the terms and subject to the conditions set forth in this Agreement, including Section 2.11 and except as set forth in Section 2.2 and Section 2.4, at the Closing, the Sellers will sell, convey, assign, transfer and deliver to the Purchaser (or any of the Purchasing Entities as the Purchaser may designate), and the Purchaser (or such Purchasing Entities) will purchase and acquire from the Sellers, free and clear of all Encumbrances other than Permitted Encumbrances, all of the Sellers’ right, title and interest in and to all of the Sellers’ properties and assets of every kind and description, whether real, personal or mixed, tangible, or intangible, and wherever located, other than Excluded Assets (collectively, the “Purchased Assets”), including the following: (a) all notes and accounts receivable related to the Current Business, including all trade accounts receivable and other rights to payment from customers, and the full benefit of all security for such accounts or rights to payment;
20 (b) all rights under all Contracts used in the Current Business, including the Contracts with the top 200 customers (by revenue in the last twelve (12)-month period prior to Closing) (the “Top 200 Customers”) of the Current Business set forth in Annex 2.1(b), but excluding all Company Plans, Contracts with Independent Contractors, and Leases that are not Included Leases (collectively, the “Included Contracts”); (c) all machinery, equipment, furniture, furnishings, computer hardware, materials, vehicles, tools, dies, molds and other items of tangible personal property of every kind used in the Current Business, and the full benefit of all express or implied warranties (to the extent assignable to the Purchaser) by the manufacturers or sellers or lessors of any item or component part thereof; (d) all rights in respect of the Leased Real Property related to the Current Business and any Leases governing such rights, in each case to the extent assigned to the Purchaser in accordance with Section 2.11(d) (such assigned Contracts, “Included Leases”); (e) all Company Intellectual Property and all rights in, to and under Licensed Intellectual Property and In-bound Licenses; provided that the Purchaser shall be provided with full access and related login credentials to all Social Media Accounts of the Sellers at Closing; (f) all Governmental Authorizations of the Sellers and all pending applications therefor or renewals thereof, in each case to the extent transferable to the Purchaser under applicable Law and related to the Current Business; (g) all books, records, files, studies, manuals, reports and other materials (in any form or medium) related to the Current Business, including all advertising materials, catalogues, price lists, mailing lists, distribution lists, client and customer lists, referral sources, supplier and vendor lists, purchase orders, sales and purchase invoices, production data, sales and promotional materials and records, purchasing materials and records, research and development files, records, data and laboratory books, Intellectual Property disclosures, manufacturing and quality control records and procedures, service and warranty records, equipment logs, operating guides and manuals, drawings, product specifications, engineering specifications, blueprints, financial and accounting records, litigation files and personnel and employee benefits records of Hired Employees and Hired Independent Contractors, in each case (x) to the extent transferable under applicable Law, (y) Seller is legally permitted to provide copies of such records to the Purchaser, and (z) excluding any immaterial correspondence (collectively, “Included Books and Records”); (h) all claims, rights, credits, causes of actions, defenses and rights of set-off against third parties relating to or arising from the Current Business or any of the Purchased Assets or Assumed Liabilities, in each case, whether accruing before or after the Closing, including with respect to past and future Infringement of the Company Intellectual Property and rights to damages and other remedies for past and future violation, misappropriation or infringement of Company Intellectual Property; (i) all rights to use Personal Data in the possession, custody or control of any Seller related to the Current Business, including all copies of all such Personal Data in Sellers’ possession, custody or control, in each case (x) to the extent transferable under applicable Law and (y) Seller is legally permitted to provide copies of such records to Purchaser, and in each case excluding any immaterial correspondence (collectively, “Included Personal Data”); (j) all of Sellers’ rights under warranties, indemnities and all similar rights against third parties to the extent related to the Purchased Assets;
21 (k) all rights relating to deposits and prepaid expenses and claims for refunds to the extent related to the Purchased Assets; and (l) other than any Excluded Assets, all other assets, properties or rights (whether accrued now or hereafter) of every kind and description, wherever located, whether real, personal or mixed, tangible or intangible, that are related to the Current Business. 2.2 Excluded Assets Notwithstanding anything to the contrary in Section 2.1 or elsewhere in this Agreement, the following assets of the Sellers (collectively, the “Excluded Assets”) are excluded from the Purchased Assets, and are to be retained by the Sellers as of the Closing: (a) all Cash and Cash Equivalents of the Sellers; (b) any bank or brokerage accounts of the Sellers; (c) original copies of all minute books, records, stock ledgers, Tax records and other materials that the Sellers are required by Law to retain; (d) the shares of the capital stock of the Sellers held in treasury; (e) all rights under all Contracts that are not Included Contracts, including all Contracts set forth on Annex 2.2(e) and all Leases that are not Included Leases (collectively, the “Excluded Contracts”); (f) the assets, properties and rights specifically set forth on Annex 2.2(f); (g) all Company Plans and all trusts or other assets attributable thereto; (h) all Contracts with Independent Contractors; (i) the corporate seals, organizational documents, minute books, stock books, Taxes, books of account or other records having to do with the corporate organization of Seller, and all books and records of the Sellers that relate to income Taxes or Excluded Assets; provided, however, each Seller will provide the Purchaser with copies of such books and records to the extent that any such books and records relate to any Purchased Assets or any Assumed Liability or are otherwise reasonably requested by the Purchaser; (j) all books, records, files, studies, manuals, reports and other materials (in any form or medium) other than the Included Books and Records; (k) all rights and interests under all certificates for insurance, binders for insurance policies and insurance; (l) all rights to use Personal Data other than Included Personal Data; (m) all Tax assets (including duty and Tax refunds and prepayments) of Sellers or any of their Affiliates; and (n) all rights (whether accrued now or hereafter) of the Sellers under this Agreement, the Ancillary Agreements and any other documents, instruments or certificates executed in connection with the transactions contemplated by this Agreement.
22 2.3 Assumed Liabilities In accordance with the provisions of this Agreement, at the Closing, the Purchaser (or any of the Purchasing Entities as the Purchaser may designate) will assume and pay, perform and discharge when due only the following Liabilities of the Sellers (collectively, the “Assumed Liabilities”) (and to the extent any of the following Liabilities is incurred directly by Sellers after Closing, the Purchaser shall reimburse the Sellers): (a) all trade accounts payable reflected in line items on the Balance Sheet or incurred by the Sellers, including Section 5.2, between the Date of the Balance Sheet and the Closing (other than trade accounts payable to any Shareholder or any Affiliate of the Sellers); (b) all Liabilities arising at or after the Closing under the Included Contracts (except, in each case, for any Liability arising out of or relating to (i) any breach of, or failure to comply with, prior to the Closing, any covenant or obligation in any such Contract or (ii) any event that occurred prior to the Closing which, with or without notice, lapse of time or both, would constitute such a breach or failure); (c) all Liabilities relating to benefits (including workers’ compensation, severance payments, bonus payments and unemployment benefits), compensation, termination or continuation of employment, misclassification or lack of delay or notice or other arrangements with respect to any Hired Employee or Hired Independent Contractors, in each case arising at or after the Closing; (d) all Liabilities for (i) Taxes relating to the Current Business, the Purchased Assets or the Assumed Liabilities for any taxable period beginning after the Closing Date and for the portion of any Straddle Tax Period beginning on the date after the Closing Date and (ii) Taxes for which the Purchaser is liable pursuant to Article 8; and (e) all other Liabilities arising out of or relating to Purchaser’s (or its Affiliates’ or successors’) ownership or operation of the Current Business and the Purchased Assets at or after the Closing; and (f) the Dutch Transition Costs. 2.4 Excluded Liabilities Notwithstanding any other provision of this Agreement or any other writing to the contrary, and regardless of any information disclosed to the Purchaser or any of its Affiliates or representatives, the Purchaser does not assume and has no responsibility for any Liabilities of the Sellers other than the Assumed Liabilities specifically listed in Section 2.3 (such unassumed Liabilities, the “Excluded Liabilities”). Without limiting the preceding sentence, the following is a non-exclusive list of Excluded Liabilities that the Purchaser does not assume and that the Sellers will remain bound by and liable for, and will pay, perform and discharge when due: (a) all Liabilities arising out of or relating to any Excluded Asset or to the extent not relating to the Current Business; (b) all Liabilities under any Contract that is not an Included Contract; (c) all Liabilities resulting under, stemming from, or relating to, any Indebtedness of Sellers (including any Closing Indebtedness) and any Encumbrances related thereto, except for Indebtedness resulting under, stemming from, or relating to any Included Contract;
23 (d) all Liabilities under any Included Contract that arise after the Closing but that arise out of or relate to (i) any breach of, or failure to comply with, prior to the Closing, any covenant or obligation in any such Included Contract or (ii) any event that occurred prior to the Closing which, with or without notice, lapse of time or both, would constitute such a breach or failure; (e) all Liabilities arising out of or relating to product liability, indemnity, warranty, misappropriation or similar claims by any Person in connection with any tangible or intangible products or services used, sold or licensed by the Sellers prior to the Closing; (f) all Liabilities of any Seller pertaining to any Infringement of any Intellectual Property Right of any third party arising prior to the Closing; (g) all Liabilities as a result of any legal or equitable action or judicial or administrative Proceeding initiated at any time caused by any action, condition or omission of Sellers (or any of their directors, officers, employees, contractors, shareholders, consultants or agents) that occurred or existed prior to the Closing; (h) all Liabilities arising out of or resulting from any Seller’s compliance or non-compliance with any Law or Judgment, including all Liabilities as a result of any legal or equitable action or judicial or administrative Proceeding, initiated at any time caused by any action, condition or omission of Sellers (or any of their directors, officers, employees, contractors, shareholders, consultants or agents) that occurred or existed prior to the Closing; (i) all Liabilities arising out of any Proceeding pending as of the Closing, whether or not set forth in the Seller Disclosure Schedule; (j) all Liabilities arising from or under any Environmental Law arising out of or relating to the operation of the Current Business prior to the Closing or any Seller’s leasing, ownership or operation of real property prior to the Closing; (k) all Liabilities relating to employment, compensation, benefits (including workers’ compensation, severance payments, bonus payments and unemployment benefits), termination or continuation of their employment or engagement, misclassification, or lack or delay of any notice relating to their employment or engagement (including in respect of Proceedings and claims) (i) in respect of any Hired Employee or Hired Independent Contractor arising before or on the Closing (other than any Dutch Transition Costs), or (ii) in respect of any employee or contractor (current or former) who is not a Hired Employee or Hired Independent Contractor; provided, however with regard to employment benefits accrued prior to or on the Closing but only payable thereafter (e.g. 13th months, bonus, holiday pay), the Purchaser undertakes to pay such amounts to the Employees that become Hired Employees at the normal pay-out date and the Seller will pay the pro-rated part of the (gross) amounts related thereto, increased with employer’s social security contributions, for the period up until the Closing to the Purchaser within thirty (30) days following the Closing; (l) all Liabilities arising under or in connection with any Company Plan, or any termination, continuation, amendment or other acts or omissions in connection with any Company Plan, other than any Dutch Transition Costs; (m) any severance or termination payments to any director, officer, employee or consultant of any Seller prior to and through and including the Closing Date, other than any Dutch Transition Costs;
24 (n) any bonuses, retention payments and any other change-of-control or similar payments payable as a result of or in connection with the transactions contemplated by this Agreement (including any payroll and similar Taxes payable thereon) payable by any Seller prior to and through and including the Closing Date, other than any Dutch Transition Costs; (o) any termination, balloon, prepayment penalties or premiums, or similar payments resulting from early termination of Contracts or outstanding Indebtedness in connection with the transactions contemplated by this Agreement payable by any Seller prior to and through and including the Closing Date; (p) all Liabilities to indemnify, reimburse or advance amounts to any directors, officers, employees, contractors, shareholders, consultants, or agents of any Seller (other than as provided herein or in any Ancillary Agreement); (q) all Liabilities relating to any negotiations, agreements or other transactions, if any, by any Seller with any third party (other than the Purchaser or its Affiliates) that relate to the acquisition of any Seller or any of the Seller’s assets or any termination of related negotiations or arrangements; (r) all other Liabilities of any Seller owed to any Affiliate, shareholder, holder of any security, creditor or investor of any Seller of any kind or nature whether or not related to this Agreement (other than as provided herein or in any Ancillary Agreement); (s) except as otherwise provided herein or in any Ancillary Agreement, all Liabilities of any Seller arising out of or incurred in connection with this Agreement or the transactions contemplated by this Agreement, or any other certificate, document or instrument executed in connection with the transactions contemplated by this Agreement, including the Sellers’ disclosures to or negotiations with shareholders, solicitations of written consents from any Persons, or other legal obligations of the Sellers; (t) all Liabilities arising out of or relating to any check or draft outstanding as of the Closing drawn on any bank or brokerage account of the Sellers; (u) all Excluded Taxes; (v) all Liabilities stemming from, or relating to, any Seller Transaction Expenses (including any Closing Seller Transaction Expenses) (other than as provided herein); and (w) the Liabilities specifically set forth on Annex 2.4(w). 2.5 Purchase Price Subject to Section 2.9, the aggregate purchase price for the Purchased Assets (the “Purchase Price”) shall be (x) at Closing, (a) an amount equal to the sum of (i) thirty-five million US dollars ($35,000,000), plus (ii) the amount of the Working Capital Adjustment, if any, whether positive or negative, and (b) the assumption of the Assumed Liabilities (the portion of the Purchase Price calculated in accordance with this clause (x), the “Base Purchase Price”), and (y) the Earn-Out Payments contemplated by Section 2.12, payable pursuant to the terms therein. 2.6 Estimated Closing Balance Sheet No later than five (5) Business Days prior to the Closing Date, the Sellers will prepare and deliver to the Purchaser an unaudited balance sheet of the Purchased Assets and Assumed Liabilities prepared in accordance with Section 2.9(h) on an estimated basis as of 11:59 P.M. (measured, with respect to each
25 Seller, based on the local time of such Seller) on the Business Day immediately prior to the Closing Date (the “Estimated Closing Balance Sheet”). The Sellers will deliver with the Estimated Closing Balance Sheet a statement setting forth the Sellers’ good faith calculations based thereon of (a) the estimated Closing Net Working Capital (reflecting the exclusion of the Excluded Assets and Excluded Liabilities) and the resulting estimated Working Capital Adjustment, (b) the Closing Indebtedness Payoff Amount, if any, (c) the Closing Seller TE Payoff Amount, if any, and (d) the estimated Purchase Price determined based on the foregoing estimated amounts derived from the Estimated Closing Balance Sheet (the “Estimated Purchase Price”). The estimated Closing Net Working Capital will be prepared in accordance with the Accounting Rules. The Estimated Closing Balance Sheet and the statement described in this Section 2.6 delivered therewith will be accompanied by reasonable supporting details and documentation for each component thereof. The Sellers will, subject to and in accordance with Section 5.1, permit the Purchaser and its Representatives reasonable access to the personnel, properties, books and records of the Sellers for the purpose of evaluating the foregoing statements and calculations. If the Purchaser raises any reasonable objections to the foregoing statements and calculations, the Purchaser and the Sellers will consider in good faith such objections prior to the Closing, and the Sellers will make such revisions to such disputed items as may be mutually agreed between the Purchaser and the Sellers. No failure by the Purchaser to raise any objection or dispute pursuant to this Section 2.6 shall in any way prejudice the Purchaser’s right to raise any matter pursuant to the provisions of Section 2.9 or otherwise. 2.7 Closing Subject to the satisfaction of all or waiver of all or part of the conditions set forth in Article 6, the closing of the transactions contemplated by this Agreement (the “Closing”) will take place remotely via the electronic exchange of documents and signatures, on the Business Day after satisfaction or waiver of the last of the conditions set forth in Article 6 (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), or at such other time and place as the Purchaser and the Selling Parties Representative may agree in writing. The date on which the Closing actually occurs is referred to in this Agreement as the “Closing Date.” Unless the Selling Parties Representative and the Purchaser agree otherwise in writing, the Closing shall be deemed effective as of 12:01 a.m., local time, in each applicable jurisdiction of each Seller on the Closing Date. 2.8 Closing deliveries (a) At the Closing, the Sellers will deliver or cause to be delivered to the Purchaser: (i) the Bill of Sale and the Assignment and Assumption Agreements executed by each Seller; (ii) assignment of all Company Intellectual Property in the forms of Exhibit C (the “IP Assignment”) executed by the applicable Seller; (iii) evidence of the Consents with respect to the assignment of the Company’s Contracts with customers pursuant to which Sellers received 75% or more of the revenue of the Current Business between November 1, 2022 and January 31, 2023; (iv) an employment agreement, in substantially the form of Exhibit D, executed by Taras Kiseliuk (the “Canada Employment Agreement”) and otherwise an employment agreement or independent contractor agreement with each other Key Executive on mutually agreeable forms to comply with applicable Law and reflect differences in economic terms (including salary, bonus, severance and other compensation and benefits) (as the parties may agree in their reasonable
26 discretion) (collectively, together with the Canada Employment Agreement, the “Employment Agreements”); (v) a noncompetition agreement in the form of Exhibit E executed by each Shareholder (except I.S.P) (collectively, the “Noncompetition Agreements”); (vi) a transition services agreement executed by the Purchaser (or its designated Affiliate) and ClickDealer Cyprus, in form to be mutually agreed by the parties in their reasonable discretion (the “Transition Services Agreement”); (vii) a properly completed and executed IRS Form W-8 or W-9 from each Seller; (viii) a certificate, dated as of the Closing Date, executed by ClickDealer Cyprus, on behalf of all Sellers, confirming the satisfaction of the conditions specified in Section 6.1(a) through Section 6.1(d); and (ix) a certificate of the secretary or assistant secretary (or other responsible officer) of each Seller dated as of the Closing Date and attaching (A) a copy of such Seller’s charter or memorandum of association (as applicable) and all amendments thereto, certified by the Secretary of State (or equivalent competent Governmental Authority) of the jurisdiction of each Seller’s incorporation not more than twenty (20) Business Days prior to the Closing Date (to the extent the Secretary of State or such other Governmental Authority certifies such documents in such jurisdiction); (B) a copy of each Seller’s bylaws or articles of association (as applicable) and all amendments thereto, if applicable; (C) a certificate of good standing of each Seller certified by the Secretary of State (or equivalent competent Governmental Authority) of the jurisdiction of any Seller’s incorporation (to the extent such concept exists in such jurisdiction and the Secretary of State or such other Governmental Authority provides such certificates in such jurisdiction); (D) all resolutions of the board of directors and the shareholders of each Seller (if required) approving this Agreement, the execution thereof and the transactions contemplated by this Agreement; and (E) incumbency and signatures of the officers of each Seller executing this Agreement or any other agreement contemplated by this Agreement. (b) At the Closing, the Purchaser will deliver or cause to be delivered: (i) to each Seller, an amount equal to its (x) Seller Allocation Percentage of (y) the Estimated Purchase Price minus the Holdback Amount, in each case as set forth in the Estimated Closing Balance Sheet as of the Closing, by wire transfer of immediately available funds to the account(s) designated by the Selling Parties Representative in the Estimated Closing Balance Sheet; (ii) to the Sellers, the Bill of Sale and Assignment and Assumption Agreements and the IP Assignments executed by the Purchaser or the applicable Purchasing Entities; (iii) to Sellers, the Transition Services Agreement executed by the Purchaser or the applicable Purchasing Entities; and (iv) to the Sellers, a certificate dated as of the Closing Date, executed by the Purchaser confirming the satisfaction of the conditions specified in Section 6.2(a) through Section 6.2(c); and (v) a certificate of the secretary or assistant secretary (or other responsible officer) of the Purchaser and each of the applicable Purchasing Entities dated as of the Closing Date and attaching (A) a certificate of good standing of Purchaser and each of the applicable Purchasing
27 Entities certified by the Secretary of State of Delaware; (B) all resolutions of the managers and the members of Purchaser and each of the applicable Purchasing Entities approving this Agreement, the execution thereof and the transactions contemplated by this Agreement; and (C) incumbency and signatures of the officers of Purchaser and each of the applicable Purchasing Entities executing this Agreement or any other agreement contemplated by this Agreement. (c) No later than five (5) Business Days prior to the Closing Date (as Sellers may update as of the Closing Date), the Sellers will provide the Purchaser with: (i) the amounts required in order to pay in full all Closing Indebtedness amounts, inclusive of any costs or fees associates with forever settling, terminating or discharging any related Encumbrances over any Purchased Assets (such total amount owed pursuant to this Section 2.8(c)(i), the “Closing Indebtedness Payoff Amount”); and (ii) the amounts required in order to pay in full the Closing Seller Transaction Expenses (the total amount of the Closing Seller Transaction Expenses owed pursuant to this Section 2.8(c)(ii), the “Closing Seller TE Payoff Amount”). (d) No later than three (3) Business Days following the Closing Date (and subject to actual receipt of the Estimated Purchase Price in sufficient amount by the Sellers to permit the applicable Seller to make the distributions noted below), the Sellers (as applicable) will: (i) distribute to each holder of the Closing Indebtedness an amount in accordance with Section 2.8(c)(i) in order to repay all such Closing Indebtedness; and (ii) distribute to each Person to whom any Seller Transaction Expenses are due, an amount in accordance with Section 2.8(c)(ii) in order to repay all such Seller Transaction Expenses. 2.9 Post-closing adjustment (a) Within ninety (90) days after the Closing Date, the Purchaser shall prepare and deliver to the Selling Parties Representative written notice (the “Adjustment Notice”) containing (i) an unaudited balance sheet of the Purchased Assets and Assumed Liabilities as of 11:59 P.M. on the Business Day immediately prior to the Closing Date (the “Closing Balance Sheet”) and (ii) the Purchaser’s calculation based thereon of (A) the Closing Net Working Capital (reflecting the exclusion of the Excluded Assets and Excluded Liabilities), (B) the resulting Working Capital Adjustment (if any), and (C) the Purchaser’s calculation of the amount of any payments required pursuant to Section 2.9(f) based on the foregoing calculations derived from the Closing Balance Sheet, in reasonable detail (the “Adjustment Calculation”). The Closing Balance Sheet will be prepared in accordance with Section 2.9(h). The Closing Balance Sheet and the statement described in this Section 2.9(a) delivered therewith will be accompanied by reasonable supporting details and documentation for each component thereof. (b) The Adjustment Notice (once prepared and delivered by the Purchaser to the Selling Parties Representative in accordance with Section 2.9(a)) will be final, conclusive and binding on the parties for purposes of Section 2.9 unless the Selling Parties Representative provides a written notice (a “Dispute Notice”) to the Purchaser no later than the ninetieth (90) day after the delivery to the Selling Parties Representative of the Adjustment Notice. Subject to the preceding sentence, the Dispute Notice shall, in reasonable detail, set forth (A) each item on the Adjustment Notice that the Selling Parties Representative dispute pursuant to this Section 2.9(b) (each, a “Disputed Item”) and (B) the Selling Parties Representative’s alternative calculation of each Disputed Item, in each case, together with a reasonable itemization of the Disputed Items (to the extent that the Purchaser has promptly provided Sellers with the
28 information and access required by the immediately following sentence). In connection therewith, the Purchaser will permit the Sellers and their Representatives reasonable access to the personnel, properties, books and records of the Sellers for the purpose of evaluating the Adjustment Notice and the calculations set forth therein. (c) Any item or amount in the Adjustment Notice to which no dispute is raised in the Dispute Notice will be final, conclusive and binding on the parties for purposes of this Section 2.9. (d) Resolution of Disputed Items and Unresolved Items (i) If the Selling Parties Representative timely delivers a Dispute Notice to the Purchaser, then the Purchaser and the Selling Parties Representative will attempt in good faith, for a period of forty-five (45) days from the delivery of the Dispute Notice, to agree on the Disputed Items and Adjustment Calculation for purposes of Section 2.9. Any resolution by the Purchaser and the Selling Parties Representative during such forty-five (45)-day period as to any Disputed Items will be final, conclusive and binding on the parties for purposes of Section 2.9. (ii) If the Purchaser and the Selling Parties Representative do not resolve all Disputed Items by the end of the forty-five (45)-day period set forth in Section 2.9(d)(i), then the Purchaser and the Selling Parties Representative will submit, or either the Purchaser or the Selling Parties Representative may submit if the other party refuses to the act in accordance with this Agreement, the remaining Disputed Items that were properly included in the Dispute Notice (all such items, the “Unresolved Items”) to a Big Four Accounting Firm mutually agreed upon by the parties for resolution, or if that firm is unwilling or unable to serve, the Purchaser and the Selling Parties Representative will engage another mutually agreeable independent accounting firm of recognized international standing that is a Big Four Accounting Firm, which firm is not the regular auditing firm of the Purchaser or the Sellers. If the Purchaser and the Selling Parties Representative are unable to jointly select such independent accounting firm within ten (10) days after the forty-five (45)-day period set forth in this Section 2.9(d)(ii), the Purchaser, on the one hand, and the Selling Parties Representative, on the other hand, will each select an independent accounting firm of recognized international standing and each such selected accounting firm will select a third independent accounting firm of recognized international standing that is a Big Four Accounting Firm, which firm is not the regular auditing firm of the Purchaser or the Sellers; provided, however, that if either the Purchaser, on the one hand, or the Selling Parties Representative, on the other hand, fails to select such independent accounting firm during this ten (10)-day period, then the parties agree that the independent accounting firm selected by the other party will be the independent accounting firm selected by the parties for purposes of this Section 2.9 without any further action of either party (the accounting firm engaged pursuant to this Section 2.9(d)(ii) to resolve the Unresolved Items, the “Independent Accounting Firm”). (iii) The Purchaser and the Selling Parties Representative will instruct the Independent Accounting Firm to render its determination with respect to the Unresolved Items in a written report that specifies and explains in reasonable detail the conclusions of the Independent Accounting Firm as to each Unresolved Item and the resulting Purchase Price and Adjustment Calculation, in each case based solely on (A) the submissions presented to the Independent Accounting Firm by the Purchaser or the Selling Parties Representative pursuant to Section 2.9(e) and not on any independent review or investigation and (B) the definitions and other terms included herein. The scope of the Independent Accounting Firm’s engagement will be limited to only resolving the Unresolved Items in accordance with the terms and conditions set forth in this Section 2.9, and all other claims and disputes related to this Agreement will be out of its scope. In resolving an Unresolved Item, the Independent Accounting Firm may not assign a value to any particular
29 Unresolved Item greater than the greatest value for such Unresolved Item claimed by either party or less than the smallest value for such Unresolved Item claimed by either party, in the written submissions presented to the Independent Accounting Firm pursuant to Section 2.9(e). The Purchaser and the Selling Parties Representative will each use their commercially reasonable efforts to cause the Independent Accounting Firm to render its determination within thirty (30) days after referral of the Unresolved Items to the Independent Accounting Firm or as soon thereafter as reasonably practicable. (iv) The Independent Accounting Firm will act as an expert, not as an arbitrator, in resolving any Unresolved Items. The proceeding before the Independent Accounting Firm will be an expert determination under applicable Laws governing expert determination and appraisal proceedings. The final determination by the Independent Accounting Firm of the Unresolved Items submitted to it for resolution, absent fraud or clerical or mathematical error, will be final, conclusive and binding upon the parties. The fees and expenses of the Independent Accounting Firm will be allocated between the parties in inverse proportion to the relative success of the parties with respect to the Unresolved Items submitted to the Independent Accounting Firm. (v) The Purchaser will revise the Closing Balance Sheet and the Adjustment Calculation as appropriate to reflect the resolution of the Disputed Items pursuant to this Section 2.9(d). The procedure set forth in this Section 2.9 will be the sole and exclusive method for resolving any disputes with respect to the Estimated Closing Balance Sheet, Closing Balance Sheet or the Adjustment Notice. (e) For purposes of complying with this Section 2.9, the Purchaser and the Selling Parties Representative will furnish to each other and to the Independent Accounting Firm such work papers and other documents and information relating to the Disputed Items as the other party or the Independent Accounting Firm may reasonably request and are available to that party (or its independent public accountants) and will be afforded the opportunity to present to the Independent Accounting Firm any material related to the Unresolved Items and to discuss such items with the Independent Accounting Firm. Either party may require that the Independent Accounting Firm enter into a customary form of confidentiality agreement with respect to the work papers and other documents and information relating to the Business provided to the Independent Accounting Firm pursuant to this Section 2.9(e). (f) If the Purchase Price as finally determined pursuant to this Section 2.9 (the “Final Purchase Price”) is less than the Estimated Purchase Price, then within five (5) Business Days after the determination of the Final Purchase Price, the Purchaser shall be entitled to retain from the Holdback Amount an amount equal to the difference between the Estimated Purchase Price and the Final Purchase Price (such amount, the “Negative Working Capital Adjustment”); provided, however, that if the Holdback Amount is less than the Negative Working Capital Adjustment, then the Sellers shall pay or cause to be paid to the Purchaser such difference; provided, further, that if the Working Capital Release Amount is greater than the Negative Working Capital Release Amount, in addition, the Purchaser shall pay to the Sellers in cash the Working Capital Release Amount less the Negative Working Capital Adjustment (which amount shall reduce the Holdback Amount). If the Final Purchase Price is greater than the Estimated Purchase Price, then within five (5) Business Days after the determination of the Final Purchase Price the Purchaser will pay to the Sellers (in accordance with their respective Seller Allocation Percentages) the amount of such difference in cash plus the Working Capital Release Amount (which shall reduce the Holdback Amount). (g) Any payment to the Purchaser pursuant to Section 2.9(f) will be effected by wire transfer of immediately available funds from the Sellers to an account designated by the Purchaser, and any payment to the Sellers pursuant to Section 2.9(f) will be effected by wire transfer of immediately available funds to
30 an account(s) designated by the Selling Parties Representative. Such payments will be made within five (5) Business Days following the final determination of the Final Purchase Price in accordance with this Section 2.9. (h) The Estimated Closing Balance Sheet, the Closing Balance Sheet and any estimates, determinations and calculations contained therein or based thereon will be prepared and calculated for the Purchased Assets and Assumed Liabilities in accordance with the Accounting Rules, except that such estimates, determinations and calculations (i) will not include any purchase accounting or other adjustment arising out of the consummation of the transactions contemplated by this Agreement, (ii) will follow the defined terms contained in this Agreement and the Accounting Rules, and (iii) will be set forth in United States dollars after any applicable portion thereof denominated in a currency other than United States dollars has been converted to United States dollars at the applicable Exchange Rate. (i) Any payment made pursuant to this Section 2.9 will be treated by the parties for all purposes as an adjustment to the Estimated Purchase Price and will not be subject to offset for any reason (other than the Working Capital Release Amount, to the extent pursuant to Article 9). 2.10 Allocation of Purchase Price and Assumed Liabilities; Non-Essential Assets (a) The Sellers and the Purchaser agree to allocate and, as applicable, to cause their relevant Affiliates to allocate, the Final Purchase Price and any other items that are treated as consideration for Tax purposes, among the Purchased Assets pursuant to the principles set forth in Annex 2.10 hereto (the “Allocation Principles”). Within one hundred and twenty (120) days after the date on which the Final Purchase Price becomes finally determined under Section 2.9, the Purchaser shall deliver to the Sellers an allocation statement (the “Section 1060 Allocation”), which sets forth the amount of Final Purchase Price (and any other items that are treated as consideration for Tax purposes) allocable among the Purchased Assets. The Section 1060 Allocation shall be prepared in a manner consistent with Section 1060 of the Code and the Allocation Principles. In the event an adjustment to the Final Purchase Price is made pursuant to this Agreement, the Section 1060 Allocation will be modified to reflect such adjustment based upon the item or items to which such adjustment is attributable. Except as required by applicable Law, each of Sellers, Purchaser, and their respective Affiliates will cooperate in the preparation of filings required with respect to the Section 1060 Allocation (including IRS Form 8594) and take no position, and cause no position to be taken, inconsistent with the Section 1060 Allocation on any Tax Return, in any Tax proceeding, or otherwise with respect to any Tax. (b) All of the Sellers’ assets that have not been transferred as Purchased Assets (which, for the avoidance of doubt, constitute the Excluded Assets) are considered by the parties to be non-essential, such that the use of such assets cannot allow the conduct of the Business, and include those assets that, due to their insignificance, remain under the control of the Sellers only for the purpose of the further disposal and release of such assets where applicable. None of the assets sold under this Agreement (which, for the avoidance of doubt, constitute the Purchased Assets) will be used by the Sellers after the Closing other than during or in connection with the performance of their obligations under this Agreement and the Transition Services Agreement. 2.11 Consents (a) Notwithstanding any other provision of this Agreement, this Agreement does not constitute an agreement to sell, convey, assign, assume, transfer or deliver any interest in any Purchased Asset, or any claim, right, benefit or obligation arising thereunder or resulting therefrom if a sale, conveyance, assignment, assumption, transfer or delivery, or an attempt to make such a sale, conveyance, assignment, assumption, transfer or delivery, without the Consent of a third party (i) would constitute a breach or other contravention
31 of the rights of such third party or (ii) would be ineffective with respect to any party to a Contract concerning such Purchased Asset. If, on the Closing Date, any such Consent is not obtained, or if an attempted sale, conveyance, assignment, transfer or delivery thereof or performance thereof by the Purchaser would be ineffective or a violation of Law or of Contract, the Sellers and the Purchaser will enter into an arrangement (including pursuant to the Transition Services Agreement) under which the Purchaser will, in compliance with Law, obtain the benefits and assume and perform the obligations and bear the economic burdens associated with such Purchased Asset, claim, right or benefit in accordance with this Agreement, including subcontracting, sublicensing or subleasing to the Purchaser, or under which the Sellers would enforce for the benefit of the Purchaser any and all of their rights against a third party (including any Governmental Authority) associated with such Purchased Asset, claim, right or benefit, and the Sellers would promptly pay to the Purchaser when received all monies received by them under any such Purchased Asset, claim, right or benefit net of (and subject to reimbursement of Sellers by Purchaser) any Liabilities, costs and expenses (in accordance with the Transition Services Agreement or such other arrangement). In accordance with this Section 2.11 and pursuant to the terms hereof, if the sale, conveyance, assignment, transfer or delivery by the Sellers to the Purchaser of any interest in, or assumption by the Purchaser of any Liability under, any Purchased Asset requires the Consent of a third party, then such sale, conveyance, assignment, transfer, delivery or assumption will be subject to such Consent being obtained. Without limiting Section 2.11(b), if any Included Contract may not be assigned to the Purchaser by reason of the absence of any such Consent, the Purchaser will not be required to assume any Assumed Liability arising under such Contract until such Consent is obtained; provided that, in any event, Purchaser shall indemnify and hold Seller harmless against any such Assumed Liabilities (without duplication for any deduction of Liabilities, costs or expenses pursuant to this Section 2.11(a)) with respect to any such Included Contract that are not then assumed to the extent that the Sellers provide Purchaser the benefits of such Included Contract pursuant to this Section 2.11(a). (b) Notwithstanding any other provision of this Agreement and subject to the provisions of this Section 2.11(b), if any Consent in respect of a Purchased Asset has not been obtained on or before the Closing Date, the Sellers will continue to use commercially reasonable efforts until the end of the 2024 Earn-out Period to obtain such Consent as promptly as practicable after the Closing. Once a Consent for the sale, conveyance, assignment, assumption, transfer and delivery of a Purchased Asset is obtained, the Sellers will promptly assign, transfer, convey and deliver such Purchased Asset to the Purchaser, and the Purchaser will assume the obligations under or related to such Purchased Asset (including any Assumed Liabilities related thereto) assigned to the Purchaser from and after the date of assignment to the Purchaser pursuant to an assignment and assumption agreement substantially similar in terms to those of the Assignment and Assumption Agreement, which assignment and assumption agreement the parties will prepare, execute and deliver in good faith at the time of such transfer, all at no additional cost to the Purchaser. The Sellers will pay and discharge any and all out-of-pocket costs of seeking to obtain or obtaining any such Consent to assign any such Purchased Asset to the Purchaser (or its designated Affiliate) whether before or after the Closing Date. If and when such Consents are obtained or such other required actions have been taken, the transfer of such Purchased Asset (together with any related obligations or Assumed Liabilities) will be effected in accordance with the terms of this Agreement. (c) Notwithstanding anything to the contrary herein, for any customer contract within the Included Contracts that is not with one of the Top 200 Customers (each, an “Ancillary Customer”), Sellers’ obligation to seek Consent shall be limited to implementing a “click-through” consent process with respect to such Contracts such that any Ancillary Customer will be requested to consent to the assignment of such Contract to the Purchaser but provided the option to refuse to consent, when (and if) such Ancillary Customer accesses the ClickDealer platform. If such Ancillary Customer consents to such assignment, the applicable Included Contract will be deemed assigned to Purchaser. If such Ancillary Customer (x) refuses to consent to such assignment or (y) otherwise fails to provide consent by the end of the 2024 Earn-out Period, the applicable Included Contract will not be assigned to the Purchaser and will instead be serviced
32 by Seller pursuant to the Transition Services Agreement, in accordance with Section 2.11(a) until the earlier of (A) the termination or expiration of such Included Contract or (B) the termination or expiration of all other services under the Transition Services Agreement). (d) Notwithstanding anything to the contrary herein, for any Leases, Sellers’ obligation to seek Consent shall be limited to using its commercially reasonable efforts to seek, within the thirty (30) day period following the Closing Date, the written consent of the applicable counterparty to such Lease to the assignment of such Lease to an applicable Purchasing Entity and without any obligation to provide any benefits or liabilities to Purchaser pursuant to Section 2.11(a) thereunder. If such counterparty does not provide Consent to the assignment of such Lease to the Purchaser within forty-five (45) days after the Closing Date, the applicable Lease will not be assigned to any Purchasing Entity, shall not be deemed an Included Lease or Included Contract hereunder, and Sellers shall have no further obligations to the Purchaser with respect thereto. (e) Prior to the Closing, the Sellers will use commercially reasonable efforts for a period of up to three (3) months following the Closing to (x) identify any vendor services reasonably necessary to conduct the Business in substantially the same manner as the Current Business is conducted by the Sellers prior to the Closing, and (y) obtain, or cause to be obtained, any approvals or Consents of any vendors required for the provision of any services pursuant to the Transition Services Agreement. (f) Nothing in this Section 2.11 will be deemed to constitute an agreement to exclude from the Purchased Assets any of the assets described under Section 2.1. 2.12 Earn-Out (a) Earn-Out Payments shall be due and payable in accordance with Section 2.12(f) upon the following events and in the following amounts (if any): (i) if the 2023 Earn-Out Criteria are achieved, the Purchaser will be obligated to pay, as applicable, an amount equal to the 2023 Earn-Out Payment in the aggregate, divided as follows: (x) to the individuals set forth on Schedule 3 (“Management”) an amount equal to their respective Management Allocation Percentage multiplied by the 2023 Earn-Out Payment and (y) to any other individuals who are then employees or consultants of Purchaser or its Affiliates at the time that the 2023 Earn-Out Criteria are achieved such amounts as designated by the members of Management up to an aggregate amount equal to the Management Allocation Percentage allocated to the Management Earn-Out Pool multiplied by the 2023 Earn-Out Payment; provided that if no members of Management are employees or consultants of Purchaser or its Affiliates at the time that the 2023 Earn-Out Criteria are achieved, the Purchaser will be obligated to pay such amount to the Shareholders or their successors or assigns (in accordance with their respective Shareholder Allocation Percentages); provided further, that if the 2023 Earn-Out Criteria are not achieved, the 2023 Earn-Out Payment shall be $0; (ii) if the 2024 Earn-Out Criteria are achieved, the Purchaser will be obligated to pay, as applicable, an amount equal to the 2024 Earn-Out Payment in the aggregate, divided as follows: (x) to the individuals set forth on Schedule 3 (“Management”) an amount equal to their respective Management Allocation Percentage multiplied by the 2024 Earn-Out Payment and (y) to any other individuals who are then employees or consultants of Purchaser or its Affiliates at the time that the 2024 Earn-Out Criteria are achieved such amounts as designated by the members of Management up to an aggregate amount equal to the Management Allocation Percentage allocated to the Management Earn-Out Pool multiplied by the 2024 Earn-Out Payment; provided that if no members of Management are employees or consultants of Purchaser or its Affiliates at the time that
33 the 2024 Earn-Out Criteria are achieved, the Purchaser will be obligated to pay such amount to the Shareholders or their successors or assigns (in accordance with their respective Shareholder Allocation Percentages); provided further, that if the 2024 Earn-Out Criteria are not achieved, the 2024 Earn-Out Payment shall be $0; provided, that (A) the aggregate amount of the Earn-Out Payments shall not in any event exceed an amount equal to ten million U.S. dollars ($10,000,000); and (B) any Earn-Out Payments shall be paid in cash; provided, however, if at the time of such payment the Parent is a publicly traded company, the applicable (x) members of Management or Management Earn-Out Pool Recipients and (y) the Purchaser may mutually agree to have the Earn-Out Payments paid in the Parent’s Class A common stock valued at the twenty (20)-day volume-weighted average price calculated on the Business Day immediately after the end of the relevant Earn-Out Period; provided further that to the extent any Earn-Out Payment is paid to any Shareholder (or their successors or assigns), such payment shall be made in cash only. (b) For purposes of determining the Earn-Out Payments, the Sellers and the Purchaser agree that (i) the revenue and revenue growth of the Business shall be calculated in accordance with GAAP as applied on a basis consistent with the financial measures of the Purchaser and its Affiliates and verified by the Purchaser’s auditors, (ii) the pre-Closing financial measures of the Business (to the extent addressed by GAAP) shall be re-adjusted to GAAP as applied consistent with the foregoing clause (i) and (iii) in all other respects, revenue, revenue growth and Net Margin shall be calculated in accordance with this Agreement and otherwise consistent with the past practice of the Business. A sample calculation is attached hereto as Annex 2.12(b). (c) Within forty-five (45) calendar days following the last day of each calendar quarter during the Earn-Out Period, Purchaser shall deliver to the Selling Parties Representative a statement (each, a “Quarterly Statement”) that sets forth and includes the Net Margin and the Dating Revenue, Gaming Revenue and Home Services Revenue for such calendar quarter, together with reasonable detail and supporting documentation regarding Purchaser’s calculation of the foregoing for such calendar quarter. The Purchaser shall reasonably cooperate with the Selling Parties’ Representative and Sellers in connection with the Selling Parties Representative’s or such Sellers’ review of each Quarterly Statement (and any calculations or information set forth therein). For the avoidance of doubt, no Quarterly Statement is an Earn- Out Payment Statement, nor will any failure to object to or correct any Quarterly Statement have any effect on the Earn-Out Payments or the dispute or resolution of any portion of any Earn-Out Payment Statements as set forth in Section 2.12(e). (d) From the Closing Date until the date that the last Quarterly Statement with respect to the 2024 Earn-out Period is determined in accordance with this Section 2.12, Purchaser shall allow Seller and its Representatives reasonable access to the books and records (including accounting or financial records), and personnel (including accounting or financial personnel) of the Business and of the Purchaser to the extent relevant to the Business) for the purpose of conducting the review by the Selling Parties Representative (or Sellers) of each Quarterly Statement (and the calculations therein), and the resolution of any disputes or objections with respect to each Quarterly Statement or the calculations therein for any period during the Earn-Out Period. (e) On or before the date that is sixty (60) days following the end of each Earn-Out Period, the Purchaser shall provide the Selling Parties Representative, by notice in writing, with its calculation of the applicable Earn-Out Payment for the applicable Earn-Out Period (each, an “Earn-Out Payment Statement”), together with applicable supporting detail and information reasonably necessary to review the Earn-Out Payment Statement and verify the calculations set forth therein, together with a statement confirming the members of Management who are employees or independent contractors of the Purchaser as of the date of such Earn-Out Payment Statement. Upon the Selling Parties Representative’s written
34 request, the Purchaser will provide the Selling Parties Representative with such additional supporting detail and information with respect to such Earn-Out Payment Statement that the Selling Parties Representative reasonably requests in connection with evaluating the Earn-Out Payment Statement or calculating the Earn- Out Payment. The Selling Parties Representative may dispute the calculation of the Earn-Out Payment in writing, setting forth in reasonable detail the particulars of such disagreement (an “Earn-Out Notice of Objection”), within sixty (60) days after the Selling Parties Representative’s receipt of the Earn-Out Payment Statement. If the Selling Parties Representative does not provide an Earn-Out Notice of Objection within such sixty (60) day period, the Sellers shall be deemed to have accepted the Earn-Out Payment Statement delivered by the Purchaser and the Purchaser’s calculation of the applicable Earn-Out Payment for the applicable Earn-Out Period set forth therein, which shall then be final, binding and conclusive for all purposes hereunder and shall be deemed the “Final Earn-Out Payment Statement”. To the extent not set forth in an Earn-Out Notice of Objection, the Sellers shall be deemed to have agreed with the Purchaser’s calculation of all other items and amounts contained in the Earn-Out Payment Statement and such other items and amounts shall be final, binding and conclusive for all purposes hereunder. If an Earn-Out Notice of Objection is timely provided, all undisputed portions of the Earn-Out Payment (the “Undisputed Amounts”) shall be made within thirty (30) days following the delivery of such Earn-Out Notice of Objection by wire transfer of immediately available funds in the manner provided in Section 2.12(f), and with respect to disputed portions, the Purchaser and the Selling Parties Representative shall use their commercially reasonable efforts for a period of thirty (30) days thereafter (or such longer period as they may agree in writing) to resolve any disagreement set forth in the Earn-Out Notice of Objection. If the Purchaser and the Selling Parties Representative are unable to do so by the end of such period, then, at any time thereafter, either the Purchaser or the Selling Parties Representative may require that the Independent Accounting Firm resolve such disagreement. For the avoidance of doubt, the Independent Accounting Firm shall only resolve the disagreements submitted to it and not any disagreements that have been resolved by the Purchaser and the Selling Parties Representative. For the avoidance of doubt, the Independent Accounting Firm shall not determine any substantive breaches of covenants hereunder. The Purchaser and the Selling Parties Representative shall instruct the Independent Accounting Firm to determine as promptly as practicable, and in any event within thirty (30) days of the date on which such disagreement is referred to the Independent Accounting Firm, based on the provisions of this Agreement and the presentations by the Selling Parties Representative and the Purchaser (including an independent review as requested by the Independent Accounting Firm), whether and to what extent (if any) the calculation of the Earn-Out Payment requires adjustment. The determination of the Independent Accounting Firm shall be set forth in a written statement delivered to the Selling Parties Representative and the Purchaser and shall be deemed the Final Earn-Out Payment Statement, which shall be final, conclusive, and binding on the Parties, absent fraud or manifest error. The fees and expenses of the Independent Accounting Firm shall be allocated between the Purchaser, on the one hand, and the Sellers, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party. (f) Except with respect to the Undisputed Amounts (which shall be paid in the manner provided in Section 2.12(e)), any Earn-Out Payment shall be paid by the Purchaser by wire transfer of immediately available funds within five (5) Business Days after the date that the Final Earn-Out Payment Statement is determined in accordance with this Section 2.12 to members of Management (in accordance with their respective Management Allocation Percentages) or Management Earn-Out Pool Recipients (in accordance with their designated share of the applicable Earn-Out Payment) to an account designated by each such member of Management or Management Earn-Out Pool Recipient (or if no members of Management are employees or consultants of Purchaser or its Affiliates at the time that the 2023 Earn-Out Criteria or 2024 Earn-Out Criteria are achieved, as applicable, then the Purchaser will be obligated to pay such amount to the Shareholders (in accordance with their respective Shareholder Allocation Percentages) to an account designated by each such Shareholder);
35 (g) The Sellers acknowledge that the Purchaser, following the Closing, owns all of the right, title and interest in and to the Purchased Assets and will enjoy any and all rights that accrue from such ownership. The Purchaser hereby disclaims any duties and obligations, whether implied or otherwise, with respect to any Earn-Out Payments, except as specifically set forth in this Agreement. (h) Notwithstanding anything to the contrary herein, from the Closing Date until all Final Earn- Out Statements have been determined in accordance with this Section 2.12, Purchaser shall (and Purchaser shall cause each of its Affiliates to): (i) not take actions with respect to the books, records (including accounting or financial records), policies or procedures of Purchaser or its Affiliates intended to obstruct or prevent the Sellers’ (x) review or evaluation of any Quarterly Statement or the calculations therein for any period during the Earn-Out Period, (y) the resolution of any disputes or objections with respect to any Quarterly Statement or (z) the calculations required for the Quarterly Statement for any period during the Earn-Out Period; and (ii) not take any action that is not in good faith for the purpose of decreasing or avoiding any Earn-Out Payment. (i) The Purchaser shall ensure that, if the Purchaser undergoes a Change in Control during the Earn-Out Period, the acquirer of the Purchaser assumes the continuing obligation with respect to the Earn- Out Payments; provided that such Change in Control shall not constitute an acceleration event for any portion of the Earn-Out Payment. If the Purchaser undergoes any internal reorganization of its lines of business or business divisions that would materially and adversely affect the tracking and calculation of the revenue of the Business or of Net Margin, the Purchaser shall discuss in good faith with the Sellers amendments to the definition of such terms so as to preserve the accurate tracking and calculation of such metrics for purposes of calculating the Earn-Out Payments. Without limitation of the foregoing, if any such internal reorganization results in the Business being combined with other lines of business or business divisions of the Purchaser, then the revenues attributable to such other lines of business or business divisions shall be excluded from any calculation of the Earn-Out Payments and the revenues attributable to the Business shall be included in the calculation of the Earn-Out Payments. (j) The Purchaser shall ensure that, if the Parent becomes a privately-held company during the Earn-Out Period pursuant to a management-led transaction (which does not constitute a Change of Control), the Earn-Out Payment obligations remain the obligation of the Purchaser; provided that such go-private event shall not constitute an acceleration event for any portion of the Earn-Out Payment. (k) Any payments made pursuant to this Section 2.12 shall be treated as an adjustment to the Purchase Price for Tax purposes to the maximum extent permitted by Law. 2.13 Withholding rights As of the date of this Agreement, none of the Purchaser, the Sellers and their respective Affiliates are aware of the need under applicable Tax Law to deduct and withhold from payments contemplated to be paid pursuant to this Agreement. Notwithstanding the foregoing, each of the Purchaser, the Sellers, and their respective Affiliates shall be entitled to deduct and withhold from amounts otherwise payable in connection with this Agreement, such amounts as it reasonably determines it is required to deduct and withhold under any provision of applicable Tax Law; provided, however, that the Purchaser shall use commercially reasonable efforts to provide the Sellers at least three (3) Business Days advance written notice of any intent to withhold on payments under this Agreement in order to permit the Sellers a reasonable opportunity to provide such forms or other information that would minimize or eliminate such
36 deduction or withholding. To the extent amounts are so withheld and paid over to the appropriate Governmental Authority, such withheld and paid amounts will be treated for all purposes as having been paid to the Person in respect of whom such deduction and withholding was made; provided, however, that the payment of the Base Purchase Price shall be made by the Purchaser in the amount provided for in this Agreement without any deduction or withholding. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS Each Seller jointly and severally represents and warrants to the Purchaser that as of the date of this Agreement and as of the Closing Date, the statements set forth in this Article 3 are true and correct, except as set forth on the disclosure schedule delivered by the Sellers to the Purchaser concurrently with the execution and delivery of this Agreement and dated as of the date of this Agreement (the “Seller Disclosure Schedule”). 3.1 Organization and good standing Each Seller is an entity duly organized, validly existing and in good standing (or local equivalent) (to the extent such concept is applicable as a legal concept in the applicable jurisdiction) under the Laws of the jurisdiction of its organization and has all requisite entity power and authority to own, lease and operate its properties and assets and to conduct its business as presently conducted and as planned to be conducted by each Seller. Each Seller is duly qualified or licensed to do business and, where applicable as a legal concept, is in good standing in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification or licensure necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect. Each Seller’s certificate of incorporation or formation, bylaws or other applicable charter, memorandum and articles of association or organizational documents (as applicable, “Organizational Documents”), as currently in effect, is in compliance in all material respects with all Laws applicable to it. 3.2 Authority and enforceability Each Seller has all requisite corporate power and authority to execute and deliver this Agreement and each Ancillary Agreement to which such Seller is a party and to perform its obligations under this Agreement and each such Ancillary Agreement. The execution, delivery and performance of this Agreement and each Ancillary Agreement to which each Seller is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of each Seller. Each Seller has duly and validly executed and delivered this Agreement and, on or prior to the Closing, each Seller will have duly and validly executed and delivered each Ancillary Agreement to which it is a party. Assuming due authorization, execution and delivery by the Purchaser and the Parent, this Agreement constitutes, and assuming due authorization, execution and delivery by the Purchaser and the Parent and their respective Affiliates that are parties thereto, upon execution and delivery of each Ancillary Agreement to which a Seller is a party each such Ancillary Agreement will constitute, the valid and binding obligation of the Seller that is a party thereto, enforceable against such Seller in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally and by general equitable principles (the “Insolvency and Equity Exceptions”). 3.3 No conflict Neither the execution, delivery and performance of this Agreement or any Ancillary Agreement by any Seller nor the consummation by any Seller of the transactions contemplated hereby or thereby, will (a)
37 directly or indirectly (with or without notice, lapse of time or both) conflict with, result in a breach or violation of, constitute a default under, give rise to any right of revocation, withdrawal, suspension, acceleration, cancellation, termination, imposition of additional obligations or loss of rights under, result in any payment becoming due under, result in the imposition of any Encumbrances on any of the properties or assets of any Seller (including the Purchased Assets) under (i) the applicable Organizational Documents of any Seller, or any resolution adopted by the board of directors (or local equivalent) or shareholders (or local equivalent) of any Seller, (ii) any Material Contract or (iii) any Law, Judgment or Governmental Authorization applicable to any Seller or any of their respective businesses, properties or assets (including the Purchased Assets); or (b) require any Seller to obtain any Consent or Governmental Authorization of, give any notice to, or make any filing or registration with, any Governmental Authority, except with respect to the foregoing Section 3.3(a)(ii), Section 3.3(a)(iii) and Section 3.3(b) in any case that would not be material in the aggregate to the Current Business taken as a whole. 3.4 Financial Statements (a) Attached as Section 3.4 of the Seller Disclosure Schedule are the following financial statements of the Current Business (collectively, the “Financial Statements”): (i) an unaudited consolidated and consolidating balance sheets of the Current Business, as of December 31, 2021 and December 31, 2022 (the most recent of which, the “Balance Sheet”) and the related unaudited consolidated and consolidating statements of income, changes in stockholders’ equity and cash flows for each of the calendar years then ended. (b) The Financial Statements (including the notes thereto) are correct and complete in all material respects, are based on the books and records of the Sellers and have been prepared in accordance with IFRS or SFRS (as applicable), consistently applied throughout the periods involved (except that the Interim Financial Statements are subject to normal recurring year-end adjustments, the effect of which will not, individually or in the aggregate, be material, and the absence of notes that, if presented, would not differ materially from the notes to the Balance Sheet). The Financial Statements are true and correct in all material respects and fairly present the financial condition, results of operations, changes in stockholders’ equity and cash flows of the Current Business as of the respective dates and for the periods indicated therein. No financial statements of any Person other than the Sellers are required by IFRS or SFRS (as applicable) to be included in the financial statements of the Sellers. (c) The Sellers maintain a system of internal accounting controls, internal controls over financial reporting and disclosure controls and procedures adequate to ensure (i) that books, records and accounts accurately and fairly reflect, in reasonable detail, the transactions and dispositions of any Seller’s assets, (ii) that the integrity of their financial statements is maintained and (iii) that access to assets is permitted only in accordance with management’s general or specific authorizations. (d) No Seller or any independent auditor of any Seller has identified or been made aware of (i) any significant deficiency or material weakness in the internal accounting controls utilized by the Sellers, (ii) any fraud, whether or not material, that involves the Sellers’ management or any other current or former employee, consultant, independent contractor or director of the Sellers who has a role in the preparation of financial statements or the internal accounting controls utilized by the Sellers, or (iii) any claim or allegation regarding any of the foregoing. (e) There are no material off-balance sheet arrangements, within the meaning of Item 303 of Regulation S-K of the United States Securities and Exchange Commission, to which any Seller is a party or bound.
38 (f) None of the Liabilities of any Seller (including the Assumed Liabilities) is guaranteed by or subject to a similar contingent obligation of any other Person. No Seller has guaranteed or become subject to a similar contingent obligation in respect of the Liabilities of any other Person. There are no outstanding letters of credit, surety bonds or similar instruments of any Seller or any of its Affiliate in connection with or relating to the Purchased Assets or the Current Business. 3.5 Book and Records To the extent relating to the Current Business, the books of account, minute books, resolutions, stock record books and other statutory books and records of each Seller, all of which have been made available to the Purchaser, are accurate and complete in all material respects and have been maintained in accordance with the applicable Law, sound business practices and an adequate system of internal controls. To the extent relating to the Current Business, the minute books of each Seller in all material respects contain accurate and complete records of all meetings held of, and corporate action taken by, the respective Seller’s shareholders (or local equivalent), directors and directors’ committees, and no such meeting has been held for which minutes have not been prepared and are not contained in such minute books. At the time of the Closing, all of such books and records will be in the possession of the respective Seller. Each Seller has delivered to the Purchaser accurate and complete copies of its applicable Organizational Documents, as currently in effect, and no Seller is in default under or in violation of any provision thereof. 3.6 Accounts receivable All notes and accounts receivable of the Current Business are reflected properly on the Balance Sheet, the Balance Sheet or the accounting records of the Sellers as of the Closing Date and represent or will represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. Such notes and accounts receivable will as of the Closing Date be current and collectible, net of the respective reserve set forth in the corresponding line items on the Balance Sheet or the Balance Sheet or on the accounting records of the Sellers as of the Closing Date, as the case may be (which reserves have been calculated consistent with the past custom and practice of the Sellers). Subject to such reserves, each such note and account receivable either has been or will be collected in full within ninety (90) days after the date on which it first becomes due and payable. There is no contest, claim, defense or right of setoff, other than returns in the ordinary course of business, relating to the amount or validity of such note or account receivable. Section 3.6 of the Seller Disclosure Schedule sets forth an accurate and complete list and the aging of all notes and accounts receivable of the Current Business as of the Date of the Balance Sheet. 3.7 No undisclosed liabilities To the extent related to the Current Business, no Seller has any Liabilities except for (a) Liabilities accrued or expressly reserved for in line items on the Balance Sheet, and (b) Liabilities incurred in the ordinary course of business after the Date of the Balance Sheet and none of which is a Liability for violations of Law or for tort, infringement or breach of Contract or warranty. 3.8 Absence of certain changes and events Since the Date of the Balance Sheet, each Seller has conducted the Current Business only in the ordinary course of business and no event, circumstance, development, state of facts, occurrence, change or effect has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Current Business. Without limiting the generality of the foregoing, since the Date of the Balance Sheet, there has not been with respect to any Seller any:
39 (a) sale, transfer, lease, exclusive license, dividend, pledge, assignment, or other disposition of, or Encumbrance on, any of the Purchased Assets, except with respect to any transactions having an aggregate value of less than $50,000; (b) acquisition (i) by merger or consolidation with, or by purchase of all or a substantial portion of the assets or any equity interests of, or by any other manner, any business, line of business, or Person, or (ii) of any properties or assets that are material to such Seller or the Current Business individually or in the aggregate; (c) abandonment or lapse of any Governmental Authorization applicable to the Current Business; (d) damage to, or destruction or loss of, any Purchased Assets having an aggregate value at least equal to $50,000, whether or not covered by insurance; (e) entry into, assumption, modification, acceleration, waiver of rights under, cancellation or termination of, or receipt of notice of cancellation or termination of, any Material Contract (other than as disclosed in Section 3.12(a) of the Seller Disclosure Schedule); (f) except as required by Law or the terms of any Company Plan as in effect as of the Date of the Balance Sheet, (i) increase in the compensation payable or to become payable or the benefits provided to any current or former director, officer, employee or consultant of any Seller; (ii) grant of any severance, retention, change in control or termination payments or benefits to any such Person unless made in the ordinary course of business not exceeding $50,000 per annum for such individual; (iii) establishment, adoption, entry into, termination or amendment of any Company Plan (or any plan, program, policy, Contract or arrangement that would be a Company Plan if in effect on the date hereof); (iv) taking of any action to accelerate the vesting, lapsing of restrictions or timing of payment, or fund or in any other way secure the payment, in respect of any award or benefit provided pursuant to any Company Plan; (v) adoption, entry into, termination or amendment of any collective bargaining agreement or works council agreement, employment agreement, severance agreement or similar Contract applicable to any employee or contractor employed or retained in the operation of the Business; (vi) voluntarily recognize or promise neutrality to any labor organization representing any director, officer, employee or consultant or other independent contractor employed or retained in the operation of the Business; (g) (i) hiring or engaging of any employee or independent contractor or (ii) termination of the employment or engagement of any of its key officers, employees or independent contractors; (h) cancellation, compromise, release or waiver of any claim or right (or series of related claims or rights) with a value to any Seller exceeding $50,000 or otherwise outside the ordinary course of business; (i) payment, settlement, discharge, satisfaction or compromise in connection with any Proceeding involving such Seller or the Current Business in an amount exceeding $50,000; (j) capital expenditure or other expenditure by any Seller with respect to the Current Business in excess of $50,000 in the aggregate; (k) (i) change in accounting principles, methods or practices, annual accounting period, or investment practices in connection with or relating to the Current Business, including any changes as were necessary to conform with IFRS, SFRS or GAAP (as applicable), or (ii) increase, reduction, draw-down or reversal of its reserves (other than in accordance with IFRS, SFRS or GAAP, as applicable) in connection with or relating to the Current Business;
40 (l) failure to pay any creditor of the Current Business any amount owed to such creditor when due, acceleration or delay in the payment of accounts payable or other Liabilities or in the collection of notes or accounts receivable, or request that any vendor or service provider of the Current Business hold or delay any invoices or billing statements, in each case in an amount exceeding $50,000; (m) revaluation of any Purchased Assets, including writing off notes or accounts receivable, in an amount exceeding $50,000; (n) commencement of any Proceeding relating to the Current Business or the Purchased Assets; or (o) agreement or commitment by any Seller, whether in writing or otherwise, to do any of the foregoing. 3.9 Assets; sufficiency (a) Each Seller has good and marketable title to, or in the case of leased properties and assets, valid leasehold interests in, all of the Purchased Assets, free and clear of any Encumbrances other than Permitted Encumbrances. (b) The Purchased Assets constitute all of the properties and assets used in or necessary to conduct the Current Business as currently conducted by the Sellers. (c) Each tangible asset included in the Purchased Assets is in all material respects in good operating condition and repair, ordinary wear and tear excepted, is suitable for the purposes for which it is being used and currently planned to be used by the Sellers and has been maintained in accordance with normal industry practice. 3.10 Real Property (a) Section 3.10(a) of the Seller Disclosure Schedule sets forth an accurate and complete description (by street address of the subject leased real property, the date and term of the lease, sublease or other occupancy right, the name of the parties thereto, each amendment thereto and the aggregate annual rent payable thereunder) of all land, buildings, structures, fixtures, improvements and other interests in real property that is leased or otherwise occupied by any Seller or its Affiliates and which is used in the operation of the Current Business (the “Leased Real Property”). The Sellers hold valid leasehold interests in the Leased Real Property, free and clear of any Encumbrances other than Permitted Encumbrances. The Sellers have delivered to the Purchaser accurate and complete copies of all leases, subleases, licenses, sublicenses and any other agreements providing rights to use or occupy, in whole or in part, the Leased Real Property and any other related documents, including guarantees and all amendments thereto (collectively, the “Leases”). With respect to each Lease, no Seller has exercised or given any notice of exercise by such party of, nor has any lessor or landlord exercised or given any notice of exercise by such party of, any option, right of first offer or right of first refusal contained in any such Lease. The rental set forth in each Lease is the actual rental being paid, and there are no separate agreements or understandings with respect to the same. Each Lease grants the Seller the exclusive right to use and occupy the demised premises thereunder. (b) Each applicable Seller is in peaceful and undisturbed possession of the Leased Real Property, and there are no contractual or legal restrictions that preclude or restrict the ability of any Seller to use such Leased Real Property for the purposes for which it is currently being used. No Seller has leased, subleased, licensed or otherwise granted to any Person the right to use or occupy any portion of the Leased Real Property, and no Seller has received notice, and the Sellers have no Knowledge, of any claim of any
41 Person to the contrary. There are no Contracts outstanding for the sale, exchange, Encumbrance, lease or transfer of the Leased Real Property, or any portion thereof. (c) Use of the Leased Real Property for the various purposes for which it is presently being used is permitted as of right under applicable urbanization, zoning and other land use Laws and is not subject to “permitted non-conforming” use or structure classifications. All buildings, structures, fixtures and other improvements included in the Leased Real Property (collectively, the “Improvements”) are in material compliance with all applicable Laws. No Seller has made any material alterations, additions or improvements to any of the Leased Real Property that may be required to be removed upon termination of the term of the applicable Lease. (d) The Improvements are structurally sound, are in all material respects in good operating condition and repair, ordinary wear and tear excepted, are free from patent defects, are suitable for the purposes for which they are being used and currently planned to be used by the Sellers and have been maintained in accordance with normal industry practice. All Leased Real Property is adequately maintained and suitable for the purpose of conducting the Current Business as currently conducted. (e) No Seller has received any notice from any Governmental Authority or other Person having jurisdiction over the Leased Real Property threatening a suspension, revocation, modification or cancellation of any Leased Real Property Permit and no event has occurred or circumstance exists that would reasonably be expected to give rise to the issuance of any such notice or the taking of any such action. 3.11 Intellectual Property (a) Section 3.11(a) of the Seller Disclosure Schedule lists: (i) all Company Registered IP (identifying the owner and registration/application details of each); (ii) all of the following included in Company Intellectual Property: (A) unregistered Marks; (B) Domain Names; (C) Social Media Accounts; and (D) Software (“Owned Software”); and (iii) all Registered IP and all Software owned or purported to be owned by a Person other than any Seller that is exclusively licensed to any Seller (“Exclusively Licensed Intellectual Property”) (identifying the licensee of each). With respect to each item of Company Registered IP: (I) all necessary application, registration, maintenance and renewal fees have been paid, and all necessary documents have been filed with the United States Patent and Trademark Office or equivalent authority or registrar anywhere in the world, as the case may be, for the purposes of the application, prosecution, issuance, or maintenance of such Company Registered IP in the jurisdictions in which it is applied for, prosecuted, issued or maintained; (II) each such item is currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of use); and (III) each such item is subsisting and, to the Sellers’ Knowledge, valid and enforceable. Except as set forth in Section 3.11(a) of the Seller Disclosure Schedule, there are no actions that must be taken by any of the Sellers within ninety (90) days of the Closing Date with respect to any item of Company Registered IP, including the payment of any registration, maintenance or renewal fees or the filing of any documents, or applications for the purposes of maintaining, perfecting, preserving or renewing any such Company Registered IP. No Seller has misrepresented, or failed to disclose, any facts or circumstances in any application for any Company Registered IP or in the prosecution of such application that would constitute fraud or a misrepresentation with respect to such application or that would otherwise negatively affect the enforceability of any Company Registered IP. (b) Any Company Intellectual Property is solely and exclusively owned by a Seller, free and clear of any Encumbrances. Sellers have all, and neither this Agreement nor any of the transactions contemplated under this Agreement shall cause the loss of any, rights to use, practice, exploit, license, assign, transfer, and enforce (including to bring any claim or suit against another Person for past, present, or future infringement and to assert, recover, and retain for itself any and all damages therefor) such
42 Company Intellectual Property, without restriction and without payment of any kind to any Person. Neither this Agreement nor any of the transactions contemplated under this Agreement shall cause (i) any Person to receive or have a claim to any ownership or any right to any ownership in or to any Company Intellectual Property or Exclusively Licensed Intellectual Property, or (ii) any Person to receive or have a claim to any IP Grant in or to or under any Company Intellectual Property or Exclusively Licensed Intellectual Property; all whether by operation of law, Contract, Judgment, or other legal act. No Seller has (i) transferred or agreed to transfer any ownership of, or granted any exclusive license with respect to, any Company Intellectual Property to any other Person. No Person has obtained or retained any ownership of any Intellectual Property Right in any modifications, improvements, or derivative works from Technology covered by any Company Intellectual Property. (c) The Sellers have valid and enforceable rights to use and hold for use all Technology used or held for use, and to practice and hold for practice all Intellectual Property Rights practiced or held for practice, by any of the Sellers or in their businesses as presently conducted that is not Company Intellectual Property (“Licensed Intellectual Property”), in each case as such Licensed Intellectual Property is used, practiced, and held for use and practice by the Sellers. Section 3.11(c) of the Seller Disclosure Schedule lists all Contracts that include any IP Grant (i) by any of the Sellers to any other Person (“Out-bound License”), with the exception of any unwritten non-exclusive license incidental to the Sellers’ supply of any product or services for the use of such product or service, and (ii) by any Person to any of the Sellers (“In-bound License”), with the exception of any license solely to Shrinkwrap Software and any unwritten non-exclusive license incidental to the supply of any product or service to the Sellers for the use of such product or service. All Licensed Intellectual Property is used, practiced, and held for use and practice in accordance with a valid and enforceable In-bound License. The Company Intellectual Property and the Licensed Intellectual Property constitute all of the Intellectual Property Rights practiced or necessary to enable the conduct of, and are sufficient for, the business of the Sellers as presently conducted by the Sellers, including the design, development, manufacture, use, marketing, import, export, distribution, sale, servicing or licensing of any and all Company Products or Company Technology. The Sellers are not obligated to pay any royalties or fees with regard to any Company Intellectual Property. (d) Subject to Section 2.11, except for the Out-bound Licenses and In-bound Licenses set forth in Section 3.11(d) of the Seller Disclosure Schedule, Sellers have the right to, and will, transfer all Out- bound Licenses and all In-bound Licenses to Purchaser at, or in accordance with Section 2.11 after, the Closing under the same terms and conditions as applicable prior to the Closing. The Sellers are not obligated to pay any royalties or fees with regard to any Company Intellectual Property or, except as set forth in an In-bound License listed in Section 3.11(d) of the Seller Disclosure Schedule, any Licensed Intellectual Property. Except for the Out-bound Licenses and In-bound Licenses set forth in Section 3.11(c) of the Seller Disclosure Schedule, neither this Agreement nor any of the transactions contemplated under this Agreement shall cause (i) Purchaser be bound by, or subject to, any non-compete, non-solicit, or other restriction on the operation or scope of their respective businesses, or (ii) cause, or give any Person the right to cause, the termination, non-renewal, or expiration of, or the modification or amendment of any terms or obligations, in each case in or under, any In-bound License or any Out-bound License or any right thereunder; all whether by operation of law, Contract, Judgment, or other legal act. (e) There are no Proceedings or Judgments, and there have not been any Proceedings or any Judgments, relating to or challenging the validity, enforceability, scope, ownership, or Infringement of, or rights to, any Company Intellectual Property or restricting the use, provision, practice, transfer, assignment, licensing, validity, enforceability, scope, or ownership of, or rights to, any Company Intellectual Property or Company Technology. The operation of the Current Business by the Sellers, and the design, development, use, import, servicing, supporting, hosting, branding, advertising, promotion, marketing, manufacture, sale, offer for sale, provision, publication, display, making available, distribution, and licensing of any Company Product or Company Technology, has not Infringed and is not Infringing any Intellectual Property Right of
43 any Person. No Seller has received notice (including any cease-and-desist letter and offer for license under express or implied threat of enforcement action) from any Person claiming that such operation or any act, any Company Product or Company Technology, or the use of any Technology or practice of any Intellectual Property Right used or practiced by any of the Sellers Infringes or has Infringed any Intellectual Property Right of any Person (nor do the Sellers have Knowledge of any basis therefor or threat thereof) or demanding from any Seller, or giving notice to any Seller of an asserted right to, any defense, indemnification, or indemnity related to any Infringement or alleged Infringement of any Intellectual Property Right or challenging the validity, enforceability, scope, or ownership of or rights to any Company Intellectual Property. To the Sellers’ Knowledge, no Person has Infringed or is Infringing any Company Intellectual Property or any Exclusively Licensed Intellectual Property. (f) Each Seller has at all times taken reasonable steps to protect the confidentiality of all Trade Secrets included in the Company Intellectual Property or any Exclusively Licensed Intellectual Property, including by requiring each Person receiving or with access to any such Trade Secrets, or any other confidential information of any of the Sellers, to execute a binding written confidentiality and non- disclosure Contract to the extent such Person is not otherwise bound by substantially similar confidentiality obligations or duties under applicable Law by virtue of their role or status. The Sellers have protected any other Person’s Trade Secrets and other confidential information in the possession or under the control of any of the Sellers pursuant to any Contract in accordance with such Contract. Each (i) current or former Employee of any of the Sellers, (ii) current or former consultant or contractor of any of the Sellers, and (iii) any other individual (to the extent such individual has been involved in the creation, invention, or development of any Technology for or on behalf of any of the Sellers) (each Person described in (i), (ii) or (iii), a “Contributor”) has executed and delivered to the applicable Seller (and to the Sellers’ Knowledge is in compliance with) a valid written agreement assigning and transferring all right, title and interest to a Seller or that such Contributor may have in any Company Intellectual Property. Without limiting the foregoing, no Contributor owns or has any right, claim, interest or option, including the right to further remuneration or consideration or to assert any moral rights (to the extent permitted by Law), with respect to any Company Intellectual Property, nor has any Contributor made any assertions with respect to any alleged ownership or any such right, claim, interest or option, nor threatened any such assertion; and neither this Agreement nor any of the transactions contemplated by this Agreement shall provide any Contributor with any such right, claim interest or option. (g) No Seller has accepted or received any grants or other funding from any Governmental Authority, and no Governmental Authority, university, college, other educational institution, multi-national, bi-national or international organization or research center has claim or right (including license rights) to, or has provided or is providing funding, facilities or resources used in the development of, the Company Products, Company Technology or Company Intellectual Property. (h) Section 3.11(h) of the Seller Disclosure Schedule lists, with regard to each Owned Software, all Open Source Software that is used in, included in or incorporated into, derived from, linked to, or integrated or combined with any Owned Software, identifying for each Open Source Software the license under which such Open Source Software was licensed to any Seller. No Seller has used, included, or incorporated in, derived from, linked to, or integrated or combined with any Software in any Company Product developed by or for the Sellers for another Person any Open Source Software except strictly in accordance with the instructions or approval of such Person. No Seller has used Open Source Software in any manner that would or could, with respect to any Software in any Company Product or any Owned Software or other Company Technology, (i) require its disclosure or distribution in source code form, (ii) require the licensing thereof for the purpose of making derivative works, (iii) impose any restriction on the consideration to be charged for the distribution thereof, (iv) create, or purport to create, obligations for any Seller or, after the Closing Date, the Purchaser or any of its Affiliates with respect to, or grant, or purport to grant, to any third party any rights or immunities under, any Company Intellectual Property, or (v) impose
44 any other material limitation, restriction, or condition on the right of any Seller with respect to its use or distribution. With respect to any Open Source Software that is or has been used by any Seller in any way, each Seller is, and has at all times been, in material compliance with all applicable licenses with respect thereto. (i) No Seller, nor any other Person acting on its behalf, has disclosed, licensed, released, or delivered to any Person, or is subject to any current or contingent obligation to disclose, license, release, or deliver to any Person (including any escrow agent), any Source Materials of any Company Intellectual Property or Company Technology except for disclosures to Representatives of Seller of any Seller under binding written confidentiality agreements. (j) All Company Products and Company Technology are free of any Harmful Code. Each Seller has at all times taken reasonable steps, using commercially available up-to-date tools, to prevent the introduction of Harmful Code into Company Products and Company Technology. (k) No Seller currently is, nor has any Seller ever been, a member or promoter of, or contributed any ownership or rights to any Intellectual Property Rights to, any industry standards body or other organization that produces or maintains standards or specifications, including the GSM Association (“Standards Body”). No Seller has made any written promises, declarations or commitments, or is otherwise bound by any obligations, to any Standards Body, including such commitments and obligations arising from any membership agreements, by-laws or policies. None of the Company Intellectual Property is subject to any written promise, declaration, commitment or obligations requiring its disclosure to any Standards Body, or is included in any patent pool or similar multilateral licensing structure, or subject to an obligation or requirement to be licensed on reasonable and non-discriminatory terms. No Seller has made or refused an offer to license in breach of any promise, declaration, commitment or obligation to a Standards Body made by or otherwise binding on such member. (l) All Company Products and Company Technology perform in all material respects in accordance with the design specifications to which such Company Products and Company Technology were developed. All installation services, programming services, integration services, repair services, maintenance services, support services, training services, upgrade services and other services that have been performed by any of the Sellers were performed properly and in conformity with all applicable Laws. The User Documentation associated with the Company Products describes the procedure for customers to use features and functionality of the Company Products in all material respects. (m) The IT Systems used or held for use in the operation of the businesses of the Sellers are (i) are owned or controlled by a Seller and are adequate in all material respects for their intended use and for the operation of the businesses of the Sellers, (ii) in good material working condition (normal wear and tear excepted), (iii) free of all Harmful Code, and (v) do not contain any bugs, errors, or problems of a nature that would materially disrupt their operation or have a material adverse impact on the operation of the such IT Systems. There has not been any incident involving Harmful Code, or any security breach, involving any IT System with a material impact on such IT System or the business of any Seller. 3.12 Contracts (a) Section 3.12(a) of the Seller Disclosure Schedule sets forth an accurate and complete list as of the date hereof of each Contract (or group of related Contracts) to which (x) any Seller is a party and (y) by which any of the Purchased Assets or the Current Business is bound or affected or that otherwise relate to the Purchased Assets or the Current Business, which: (i) is for capital expenditures in excess of $50,000;
45 (ii) is for the purchase, sale or delivery of materials, supplies, goods, services, equipment or other assets, the performance of which extends over a period of more than one year or that otherwise involves, in each case, an amount or value in excess of $50,000 (in each case excluding any Contracts with any customer of the Current Business other than the Top 200 Customers); (iii) is a mortgage, advance (other than advances for travel and other appropriate business expenses), indenture, guarantee, loan or credit agreement, security agreement or other Contract relating to Indebtedness by or to a Seller for an amount in excess of $50,000, other than accounts receivables and payables in the ordinary course of business; (iv) is a Lease or any other lease or sublease of any real or personal property, or that otherwise affects the ownership of, leasing of, title to, or use of, any real or personal property (other than personal property leases and conditional sales agreements having a value per item or aggregate payments of less than $50,000 and a term of less than one year); (v) grants a Seller non-exclusive access to any land, buildings, structures, fixtures, improvements, or any other real property, including but not limiting to any co-working spaces; (vi) is with any agent, distributor or other representative hired by any Seller that is not terminable without penalty on thirty (30) days’ or less notice involving an annual commitment or payment in excess of $50,000; (vii) is an In-bound License or an Out-bound License to be disclosed in Section 3.11(c) of the Seller Disclosure Schedule; (viii) is for the employment of, or receipt of any services from, any director, officer, Employee or Independent Contractor providing annual compensation in excess of $50,000; (ix) is a collective bargaining agreement, works council or other agreement with any labor union, works council or employee representative group; (x) provides for severance (excluding severance required by applicable Law), change in control, termination, or similar pay to any Employee or any current or former directors, officers, or employees of any Seller, in an amount in excess of $50,000; (xi) is with a Shareholder or an Affiliate, director or officer of any Seller; (xii) licenses any Person to manufacture or reproduce any Company Product or Company Technology or any Contract to sell or distribute any Company Product or Company Technology; (xiii) is a joint venture, partnership, strategic alliance, co-marketing, co-promotion, co- packaging, joint development or other similar Contract involving (A) any joint conduct or sharing of any business, venture or enterprise, (B) a sharing of profits or Losses or (C) pursuant to which any Seller has any ownership interest in any other Person or business enterprise; (xiv) is a Contract for (A) the sale of any of the businesses, properties or assets of the Sellers (excluding the Purchased Assets) other than in the ordinary course of business, (B) the grant to any Person of any preferential rights to purchase any of the Sellers’ properties or assets, or (C) the acquisition by the Sellers of any operating business, properties or assets, whether by merger,
46 purchase or sale of stock or assets or otherwise (other than Contracts for the purchase of supplies entered into in the ordinary course of business); (xv) (A) limits the ability of any Seller to engage in any line of business or to compete (geographically or otherwise) with any Person or to hire or solicit any Person, (B) grants any exclusive rights to make, sell or distribute any Company Product, (C) grants rights of first refusal, rights of first negotiation or similar rights, (D) grants any “most favored nations” or similar rights or (E) otherwise prohibits or limits the right of any Seller to (1) make, sell or distribute any products or services, including the Persons to whom any Seller may sell products or deliver services, (2) purchase or otherwise obtain any services or any Software or other Technology, or (3) grant resale or distribution rights to third parties; provided that with respect to customer contracts, disclosure shall only be made with respect to the Top 200 Customers; (xvi) involves (A) payments based, in whole or in part, on profits, revenues, fee income or other financial performance measures of any Seller or (B) minimum or guaranteed payments by any Seller to any Person (other than employment related Contracts covered by clause (viii)); (xvii) requires ongoing payment of royalties or periodic fees by any Seller in excess of $50,000 per year; (xviii) is a power of attorney granted by or on behalf of any Seller; (xix) is a Government Contract or involves a Government Bid; (xx) is a release, resolution or settlement agreement with respect to any pending or threatened Proceeding entered into within three (3) years prior to the date of this Agreement, other than any settlement agreement for cash only (which has been paid) and which does not exceed $50,000 as to such settlement; or (xxi) is a Contract or a group of related Contracts under which payment has already been received by any Seller (whether in whole or in part) as of the date hereof but which requires that such Seller perform services or deliver products after the Closing Date. Each Contract required to be listed in Section 3.12(a) of the Seller Disclosure Schedule, a “Material Contract.” (b) The Sellers have delivered to the Purchaser an accurate and complete copy of each written Material Contract and an accurate and complete written summary of each oral Material Contract, if any. With respect to each Material Contract: (i) such Material Contract is legal, valid, binding, enforceable, and in full force and effect, except to the extent it has previously expired in accordance with its terms; (ii) provided that with respect to customer contracts, disclosure shall only be made with respect to the Top 200 Customers: (A) the applicable Seller and, to the Sellers’ Knowledge, the other parties to such Material Contract have performed all of their respective material obligations required to be performed under such Material Contract; (B) neither the applicable Seller nor, to the Sellers’ Knowledge, any other party to such Material Contract has exercised any termination rights or, in
47 the case of the other party, indicated to the Seller in writing, or to the Sellers’ Knowledge orally, such party’s intent to terminate such Material Contract, in each case other than termination at the end of such Material Contract’s term in accordance with its terms; (C) neither the applicable Seller nor, to the Sellers’ Knowledge, any other party to such Material Contract is in breach or default under such Material Contract and no event has occurred or circumstance exists that (with or without notice, lapse of time or both) would constitute a breach or default by such Seller or, to the Sellers’ Knowledge, by any such other party, or give rise to any right of revocation, withdrawal, suspension, acceleration, cancellation, termination, repudiation, modification, imposition of additional obligations or loss of rights under, result in any payment becoming due under, result in the imposition of any Encumbrances on the Purchased Assets under, or otherwise give rise to any right on the part of any Person to exercise any remedy or obtain any relief under, such Material Contract, nor has any Seller given or received notice or other communication alleging the same; and (iii) (A) no party to such Material Contract has repudiated any portion of such Material Contract and (B) to the Sellers’ Knowledge, no party to such Material Contract does not intend to renew it at the end of its current term. (c) To the Sellers’ Knowledge, no director, employee or consultant or other independent contractor of any Seller is a party to, or is otherwise bound by, any Contract, including any confidentiality, noncompetition or proprietary rights agreement, with any other Person that in any way adversely affects or will affect (i) the performance of his or her duties for the Sellers, (ii) his or her ability to assign to any Seller rights to any invention, improvement, discovery or information relating to the Current Business or (iii) the ability of any Seller to conduct the Current Business as currently conducted or as currently proposed to be conducted. 3.13 Tax Matters (a) Each Seller has timely filed all Tax Returns related to the Purchased Assets and the Assumed Liabilities that it was required to file in accordance with applicable Laws (including any applicable extensions of time permitted by Law), and each such Tax Return is true, correct and complete in all respects. Each Seller has timely paid (taking into account any valid extensions) all Taxes due with respect to the taxable periods covered by such Tax Returns (whether or not shown on any Tax Return). No claim has ever been made by a Taxing Authority in a jurisdiction where a Seller does not file a Tax Return that it is or may be subject to taxation by that jurisdiction. No Seller has requested an extension of time within which to file any Tax Return which has not since been filed. (b) The amounts reflected as Liabilities in line items on the Balance Sheet for all Taxes are adequate to cover all unpaid Liabilities for all Taxes related to the Purchased Assets, whether or not disputed, that have accrued with respect to, or are applicable to, the period ended on and including the Date of the Balance Sheet. Since the Date of the Balance Sheet, no Seller has incurred any Liability for Taxes related to the Purchased Assets other than in the ordinary course of business. (c) All Taxes that each Seller is required by Law to withhold or collect, including sales and use Taxes and amounts required to be withheld or collected in connection with any amount paid or owing to any employee, independent contractor, creditor, stockholder, or other Person, have been duly withheld
48 or collected. To the extent required by applicable Law, all such amounts have been paid over to the proper Taxing Authority or, to the extent not yet due and payable, are held in bank accounts for such purpose. (d) No Governmental Authority has assessed any additional Taxes related to the Purchased Assets for any period for which Tax Returns have been filed. No federal, state, local or foreign audits or other Proceedings are pending or being conducted, nor has any Seller received any (i) notice from any Governmental Authority that any such audit or other Proceeding is pending, threatened or contemplated, (ii) request for information related to tax matters or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted or assessed by any Governmental Authority against any Seller, with respect to any Taxes or any Tax Return related to the Purchased Assets. No Seller has granted or been requested to grant any waiver of any statutes of limitations applicable to any claim for Taxes or with respect to any Tax assessment or deficiency related to the Purchased Assets. The Selling Parties Representative has delivered to the Purchaser accurate and complete copies of all examination reports and statements of deficiencies related to the Purchased Assets assessed against or agreed to by any Seller for the prior (6) six years. (e) All Tax deficiencies that have been claimed, proposed or asserted in writing against any Seller related to the Purchased Assets have been fully paid or finally settled, and no issue has been raised in writing in any examination which, by application of similar principles, could be expected to result in the proposal or assertion of a Tax deficiency for any other year not so examined. (f) None of the Purchased Assets (i) constitutes an equity interest in any person for Tax purposes or (ii) is subject to a lease or other arrangement as a result of which neither Seller nor its applicable Affiliate that transfers such Purchased Asset pursuant to this Agreement is treated as the owner of such Purchased Asset for U.S. federal income Tax purposes. (g) No position has been taken on any Tax Return related to the Purchased Assets with respect to the business or operations of any Seller for a taxable period for which the statute of limitations for the assessment of any Taxes with respect thereto has not expired that is contrary to any publicly announced position of a taxing authority or that is substantially similar to any position which a Taxing Authority has successfully challenged in the course of an examination of a Tax Return of any Seller. (h) The Sellers are in compliance in all respects with all applicable transfer pricing Laws and regulations with respect to their transfer pricing practices, including the maintenance of contemporaneous documentation substantiating their transfer pricing practices and methodology and submission of such documentation upon request from the respective regulating authorities to the extent required by applicable Law. (i) No Seller organized under the Laws of a non-US jurisdiction owns any “United States real property interest” within the meaning of Section 897 of the Code or “United States property” within the meaning of Section 956 of the Code. (j) There are no Encumbrances upon the Purchased Assets arising from any failure or alleged failure to pay any Tax (other than Permitted Encumbrances). 3.14 Employee benefit matters (a) Section 3.14(a) of the Seller Disclosure Schedule sets forth an accurate and complete list of all material Company Plans (including Standard Service Agreements) and identifies by jurisdiction each such Company Plan. With respect to each Company Plan (excluding, in each case, Standard Service Agreements), Sellers have made available to the Purchaser an accurate and complete copy of the following,
49 as applicable: (i) each writing that sets forth the terms of such Company Plan, including plan documents, plan amendments, any related trusts or other funding arrangements, and other summaries and descriptions furnished to participants, (ii) a written description of any Company Plan that is not otherwise in writing, (iii) the most recent financial statement, actuarial or valuation report, (iv) the most recent report required to be filed with any Governmental Authority; and (v) any material or non-routine correspondence to or from any Governmental Authority relating to any Company Plan within the last three (3) years. With respect to each Standard Service Agreement, the Sellers have made available to the Purchaser an accurate and complete copy of each form of employment agreement, offer letter, consulting agreement or service agreement, as applicable, and, to the extent that any individual employment agreement, offer letter, consulting agreement or service agreement contains terms that materially differ from the form upon which it is based, copies of such individual agreements. (b) In all material respects, each Company Plan (excluding Standard Service Agreements) has been maintained, funded, operated and administered, in each case, in accordance with the terms of such Company Plan and in compliance with all applicable Laws. (c) Other than routine claims for benefits submitted by participants or beneficiaries, no claim against, or Proceeding involving, any Company Plan (excluding Standard Services Agreements) is pending or, to the Sellers’ Knowledge, threatened, which would reasonably be expected to result in any material Liability, direct or indirect (by indemnification or otherwise) of any Seller to any Governmental Authority or any other Person. (d) Neither the execution and delivery or performance of this Agreement nor the consummation of the transactions contemplated by this Agreement (either alone or in conjunction with any other event) will (i) result in any payment becoming due, or increase the amount of any compensation due; (ii) result in the acceleration of the payment or vesting of any compensation or benefits; (iii) cause accelerated vesting, payment or delivery of, or increase the amount or value of any payment or benefit under or in connection with any Company Plan or otherwise; or (iv) constitute a “deemed severance” or “deemed termination” under any Company Plan, in each case with respect to any current or former director, officer, or employee of any Seller. (e) None of the Company Plans is subject to the Employee Retirement Income Security Act of 1974, as amended, or the Code. (f) Each Company Plan (excluding Standard Services Agreements) (i) that is required by applicable Law to be funded and/or book-reserved are funded and/or book-reserved, as appropriate, based on reasonable actuarial assumptions, and (ii) that is intended to qualify for special Tax treatment satisfy the requirements for such treatment in all respects. 3.15 Employment and labor matters (a) Section 3.15(a) of the Seller Disclosure Schedule sets forth an accurate and complete list of all Employees, as of the date hereof (including each Employee on leave of absence or layoff status) and sets forth for each Employee their (i) identification number, (ii) position or title, (iii) date of hire, or seniority (if different from date of hire), (iv) legal entity employer, (v) work location (including city, state and country), (vi) secondment status and location of secondment (if applicable), (vii) monthly compensation, (viii) benefits, (ix) full or part-time status, (x) scheduled increases in compensation and benefits or promotions agreed in writing with such Employee, (xi) work authorization (including visa type and status), (xii) accrued but unused sick and vacation leave or paid time off and (xiii) service credited for purposes of vesting and eligibility to participate under any Company Plan with respect to such Persons; provided that the names of such Employees may be redacted if required by applicable Law. Other than as contemplated
50 by Section 5.14, to the Sellers’ Knowledge, no director, officer, key Employee, key Independent Contractor or group of Employees or Independent Contractors of any Seller intends to terminate their employment or engagement with any Seller. (b) Section 3.15(b) of the Seller Disclosure Schedule sets forth an accurate and complete list of all Independent Contractors, as of the date hereof, stating such Independent Contractor’s (i) identification number, (ii) legal entity engaging such Independent Contractor, (iii) date of commencement of services, (iv) description of services provided, (v) if there is a written Contract for the work to be performed, (vi) location of work (including city, state and country), and (vii) rate of pay; provided that the names of such Independent Contractors may be redacted is required by applicable Law. (c) No Seller is, or has been, a party to or bound by any collective bargaining agreement, agreement with any works council, agreement with any employee representative or other Contract with any labor union, works council or representative of any employee group, nor is any such Contract being negotiated by any Seller. The Sellers have no Knowledge of any union organizing, election or other activities made or threatened at any time since December 31, 2019, by or on behalf of any union, works council, employee representative or other labor organization or group of employees with respect to any Employees or Independent Contractors. There is no union, works council, employee representative or other labor organization, which, pursuant to applicable Law, must be notified, consulted or with which negotiations need to be conducted in connection with the transactions contemplated by this Agreement. (d) Since December 31, 2019, no Seller has experienced any labor strike, picketing, slowdown, lockout, employee grievance process or other work stoppage or labor dispute, nor to the Sellers’ Knowledge is any such action threatened. (e) Since December 31, 2019, each Seller has complied in all respects with all applicable Laws and its own policies, handbooks, work rules or similar documents relating to labor and employment matters including fair employment practices, terms and conditions of employment, data privacy, contractual obligations, equal employment opportunity, nondiscrimination, disability rights, leaves of absence, immigration, wages, hours, benefits, classification of independent contractors or other contingent workers, classification of employees, work injury, workers’ compensation, unemployment insurance, the payment of social security, pension and similar Taxes, employee termination (actual or constructive), occupational safety, plant closing and changes in operations. (f) There is no Proceeding pending or, to the Sellers’ Knowledge, threatened against or affecting any Seller relating to the alleged violation by any Seller (or its directors or officers) of any Law pertaining to labor relations, employment matters or relations with independent contractors. No Seller is, and in the last three (3) years as of the date of this Agreement has been, a party to a settlement agreement with a current or former employee or independent contractor that relates primarily to allegations of sexual harassment or sexual misconduct. To the Sellers’ Knowledge, in the last three (3) years as of the date of this Agreement, no allegations of sexual harassment or sexual misconduct have been made against: (i) any director or officer of a Seller in their capacity as a director or officer of a Seller; (ii) any current or former employee or independent contractor of a Seller in their capacity as an employee or independent contractor of a Seller. (g) No Seller is a party to or bound by any Contract with any Employee providing for a fixed term exceeding one year, enhanced severance, notice of termination, or pay in lieu of notice of termination, unless required by applicable Law. (h) Since December 31, 2019, no Seller has implemented any plant closing or layoff of employees or independent contractors that could implicate the Worker Adjustment and Retraining
51 Notification Act of 1988, or any similar foreign, state or local Law, and no such action will be implemented without advance notification to the Purchaser. (i) Each Seller has collected work authorization documentation for each Employee and Independent Contractor, to the extent required by applicable Law) and complied with all legal requirements for determining each Employee’s and Independent Contractor’s eligibility to work in the relevant jurisdiction, and such documentation demonstrates that the Employees and Independent Contractors of the Sellers are authorized to work in the jurisdiction in which they are working. Every Person who requires a visa, employment pass or other required permit to work in the jurisdiction in which they are working has produced a current employment pass or such other required permit to the Sellers and possesses all necessary permission to remain in such jurisdiction and perform services in such jurisdiction. (j) To the extent required by applicable Law, each Seller has, or will have no later than the Closing Date, paid all accrued fees, wages, bonuses, commissions, severance and accrued vacation pay to the Employees and Independent Contractors due to be paid through the Closing Date. (k) All Persons who are performing, and since December 31, 2019, have performed, services for any Seller while classified as independent contractors have been properly so classified for all purposes in accordance with applicable Law. (l) Each Seller has paid, in full, all amounts due and owing under all applicable workers’ compensation, occupational health and workplace safety and other similar Laws in all jurisdictions in which they have Employees or Independent Contractors. All current employer contributions, assessments and filings including, but not limited to, experience rating surcharges, payroll premiums, non-compliance charges, contributions or any other amounts under the applicable workers’ compensation and insurance legislation and occupational health and workplace safety legislation have been paid by such Seller. No Seller has been subject to any special or penalty assessment or surcharge, including, but not limited to, experience rating surcharges under such legislation, and, to the Sellers’ Knowledge, there are no circumstances that would permit or result in a special or penalty assessment or surcharge under such legislation or the applicable experience rating plan or program. (m) No current or former director, officer, employee or independent contractor is in any respect in violation of any term of any employment agreement, nondisclosure agreement, fiduciary duty, non- competition agreements, restrictive covenant or other obligation to any Seller. (n) None of the Employees or Independent Contractors is or has been employed by or providing services to any Seller in the United States. 3.16 Environmental, health and safety matters (a) Each Seller is, and since December 31, 2019 has been, in compliance in all material respects with all, and not subject to any material Liability under any, Environmental Laws applicable to the Current Business or the Purchased Assets. Without limiting the generality of the foregoing, each Seller and its respective Affiliates have obtained and complied in all material respects with all material Governmental Authorizations that are required pursuant to Environmental Laws for the occupation of the Leased Real Property and the operation of the Current Business. (b) No Seller has received any notice, report or other written communication, and the Sellers are not subject to any pending, or to the Sellers’ Knowledge, threatened Proceedings by any Governmental Authority or other third party, regarding any actual, alleged or potential violation of or Liability under any Environmental Law relating to the Current Business, the Purchased Assets, the Sellers, any Leased Real
52 Property, or other property or facility currently or previously owned, operated or used by the Sellers in connection with or relating to the Current Business. (c) No Hazardous Material, landfill, surface impoundment, disposal area, underground storage tank, groundwater monitoring well, drinking water well or production water well is present or, to the Sellers’ Knowledge, has ever been present at the Leased Real Property in connection with the operation of the Current Business or, to the Sellers’ Knowledge, as a result of the acts or omissions of any third party. The Sellers have in connection with or relating to the Current Business not treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, generated, manufactured, distributed, exposed any Person to, or Released any Hazardous Material, and, to the Sellers’ Knowledge, there have been no Releases or disposal of Hazardous Material by any third party at, on, or under the Leased Real Property or other property owned, operated or used by the Sellers, in each case, in a manner that has given rise to or would reasonably be expected to give rise to a violation of or material Liability under Environmental Laws. 3.17 Compliance with laws and governmental authorizations (a) Each Seller is in compliance and, since December 31, 2019, has complied in all material respects with all, and no Seller has, since December 31, 2019, violated in any material respect any, Laws, Judgments or Governmental Authorizations applicable to it or to the conduct of the Current Business or the ownership or use of any of its properties or assets used or held for use in connection with, necessary for or relating to the Current Business. No Seller has received since December 31, 2019 any written notice, warning letter, or similar communications that (i) alleges a violation of, or asserts a failure to comply with, any applicable Law, Judgment or Governmental Authorization, or (ii) imposes an obligation to undertake, or to bear all or any portion of the cost of, any remedial action of any nature in connection with the conduct of the Current Business or the ownership or use of any of its properties or assets used or held for use in connection with, necessary for or relating to the Current Business. There is no pending or, to the Sellers’ Knowledge, threatened regulatory action, investigation or inquiry of any sort nor any reasonable basis therefor (other than non-material routine or periodic inspections or reviews) against the Sellers. (b) Section 3.17(b) of the Seller Disclosure Schedule sets forth an accurate and complete list of all material Governmental Authorizations held by any Seller that relate to the conduct of the Current Business or the ownership or use of any of the Purchased Assets, all of which are valid and in full force and effect, and have not lapsed, expired, or been cancelled, terminated or withdrawn. The Governmental Authorizations listed in Section 3.17(b) of the Seller Disclosure Schedule collectively constitute all of the material Governmental Authorizations necessary for the lawful operation of the Current Business as currently conducted, and necessary for the lawful ownership and use of Purchased Assets as currently held by the Sellers. No Proceeding to modify, suspend, revoke, withdraw, terminate or otherwise limit any Governmental Authorization is pending or, to the Sellers’ Knowledge, threatened, and the Sellers do not know of any valid basis for any such Proceeding, including the transactions contemplated hereby. Each Seller has obtained, and is in compliance with, all export permits, exceptions and other requirements (if any) required for (i) the export and reexport of the Company Products and Technology and (ii) releases of Software and technology to foreign nationals in the United States and abroad. No Seller is in default under or violation in any material respect of and, to the Sellers’ Knowledge, no event has occurred which, with notice or the lapse of time or both, would constitute a default under or violation in any material respect of any term, condition or provision of any material Governmental Authorization to which it is a party, to which its business is subject or by which the Purchased Assets are bound, and to the Sellers’ Knowledge there are no facts or circumstances which could form the basis for any such default or violation.
53 3.18 No government contracts or subcontracts None of the Sellers are, and none of the Sellers (or any predecessor) at any time since December 31, 2019 have been, party to any Government Contract or Government Bid. None of the Sellers are, and none of the Sellers (or any predecessors) have at any time since December 31, 2019 been, subject to or in violation of any requirement imposed by any of the Procurement Laws. 3.19 Legal proceedings Section 3.19 of the Seller Disclosure Schedule sets forth an accurate and complete list of (a) all material Judgments to which any Seller, or any of the properties or assets owned or used by any Seller in connection with the Current Business, is or has since December 31, 2019, been subject, (b) all pending Proceedings (i) by or against any Seller or that otherwise relate to or would reasonably be expected to affect the Current Business, properties or assets or (ii) to the Sellers’ Knowledge, by or against any of the directors or officers of any Seller in their capacities as such and that relate to or would reasonably be expected to affect the Current Business, the Purchased Assets or the Assumed Liabilities, or (c) that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated by this Agreement. No other such Proceeding is ongoing, pending or has been, to the Sellers’ Knowledge, threatened against any Seller, and no event has occurred or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the commencement of any such Proceeding. The Sellers have delivered to the Purchaser accurate and complete copies of all pleadings, correspondence, audit response letters and other documents relating to such Proceedings. 3.20 Customers and suppliers (a) Section 3.20(a) of the Seller Disclosure Schedule sets forth an accurate and complete list of the twenty (20) largest customers of the Current Business (each, a “Material Customer”) showing the dollar amount of net revenues from each such Material Customer during the period from January 1, 2022 to November 30, 2022. No Seller has received any written notice that any Material Customer (A) has ceased, or will cease, to use the products, goods or services of any Seller, (B) has substantially reduced, or will substantially reduce, the use of products, goods or services of any Seller, (C) has sought, or is seeking, to reduce the price it will pay for products, goods or services of any Seller, including in the case of the preceding clauses (A)-(C) after the consummation of the transactions contemplated by this Agreement, or (D) has to the Sellers’ Knowledge, otherwise threatened to take any action described in the preceding clauses (A)-(C) as a result of the consummation of the transactions contemplated by this Agreement. No customer of the Current Business has any right to any credit or refund for products or goods sold or services rendered or to be rendered by any Seller pursuant to any Contract with or practice of any Seller other than pursuant to the Sellers’ normal course return policy. (b) Section 3.20(b) of the Seller Disclosure Schedule sets forth an accurate and complete list of the 20 largest suppliers to the Current Business (each, a “Material Supplier”) showing the dollar amount of the purchases from each such Material Supplier during the period from January 1, 2022 to November 30, 2022. No Seller has received any written notice that, as a result of the consummation of the transactions contemplated by this Agreement or otherwise, (A) there has been any material adverse change in the price of such materials, supplies, merchandise or other goods or services, or (B) any such supplier will not sell materials, supplies, merchandise and other goods and services to the Purchaser or any Seller at any time after the Closing on terms and conditions similar to those used in its current sales to the Sellers, subject to general and customary price increases.
54 3.21 Insurance (a) Section 3.21(a) of the Seller Disclosure Schedule sets forth an accurate and complete list as of the date hereof of all certificates of insurance, binders for insurance policies and insurance maintained by any Seller, or under which the Current Business has been the beneficiary of coverage at any time since December 31, 2019 (the “Seller Insurance Policies”). The Seller Insurance Policies are valid, binding and enforceable, all premiums due and payable thereunder have been paid, and each Seller is otherwise in compliance in all material respects with the terms thereof. The Sellers have no Knowledge of any threatened termination of, or material premium increase with respect to, any Seller Insurance Policy. (b) Section 3.21(b) of the Seller Disclosure Schedule further sets forth an accurate and complete list of all claims asserted by any Seller pursuant to any Company Insurance Policy since December 31, 2019 (including with respect to insurance obtained but not currently maintained), and describes the nature and status of the claims. No Seller has failed to give in a timely manner any notice of any claim that may be insured under any Seller Insurance Policy and there are no outstanding claims which have been denied or disputed by the insurer. The Sellers maintain, and at all times during since December 31, 2019 years have maintained, in full force and effect, certificates of insurance, binders and policies of such types and in such amounts and for such risks, casualties and contingencies as is reasonably adequate to insure the Current Business against insurable losses, damages, claims and risks to or in connection with or relating to their respective businesses, properties, assets and operations. No Seller has ever maintained, established, sponsored, participated in or contributed to any self-insurance program, retrospective premium program or captive insurance program with respect to the Current Business. 3.22 Related party transactions Section 3.22 of the Seller Disclosure Schedule sets forth an accurate and complete list of the intercompany and Affiliate balances and Contracts between the Current Business, on the one hand, and any of their Affiliates, on the other hand (each, a “Continuing Intercompany Agreement”) that the Purchaser will assume at the Closing. Except as set forth in Section 3.22 of the Seller Disclosure Schedule, no Shareholder, director, officer, employee or contractor of any Seller, or Affiliate of any such Shareholder, director, officer, employee or contractor (i) owns, directly or indirectly, and whether on an individual, joint or other basis, any interest in (A) any property or asset, real, personal or mixed, tangible or intangible, used in or pertaining to the Current Business, (B) any entity that has had (within the two (2) years prior to Closing) business dealings or a material financial interest in any transaction with any Seller or (C) any entity that is a supplier or customer of any Seller except for securities having no more than 1% of the outstanding voting power of any such supplier or customer which are listed on any national securities exchange or (ii) serves as an officer, director, employee or contractor of any Person that is a supplier or customer of any Seller. 3.23 Personal data; data security (a) Each Seller has obtained all requisite Consents of Governmental Authorities or other Governmental Authorizations to the extent required under applicable Data Protection Laws. The execution, delivery and performance of this Agreement, including the transfer of data (including Personal Data) or databases or the change of data controller and data processor related thereto, complies with applicable Data Protection Laws and with the applicable policies of each Seller relating to data protection, data privacy and Personal Data. No Seller is subject to any contractual requirement or other legal obligations that, following the Closing, would prohibit the Purchaser from receiving or using Personal Data in manner in which Seller used such Personal Data prior to Closing. Copies of all current and prior data protection, data privacy and Personal Data policies of any Seller that apply to any Internet websites owned, maintained or operated by or on behalf of any member of any Seller or the Company Products have been made available to the Purchaser. Each such data protection, data privacy, and Personal Data policy and all materials distributed
55 or marketed by any Seller have at all times made all disclosures (including providing notice and obtaining Consents) to users or customers, as required by Data Protection Laws, and none of such disclosures has been inaccurate, misleading or deceptive or in violation of any Data Protection Laws. There have been no complaints, claims or warnings made or concerns raised by any Person in respect of such Personal Data, and no enforcement notice has been served on any Seller. Each Seller has complied with all valid and lawful requests pertaining to access, rectification, portability, deletion, restriction, automated decision making or objection of any Governmental Authority or individual made to any Seller regarding Personal Data processed by or on behalf of any Seller and with any other valid and lawful request of any Governmental Authority or individual related to data subject rights. (b) Each Seller has taken industry-standard steps, as required by Data Protection Laws (including implementing, and monitoring compliance with, adequate measures with respect to technical, administrative, and physical security) to maintain and protect the integrity, security, redundancy, and continuous operation of all IT Systems used by or on behalf of any of the Sellers, and to ensure that all Technology and Personal Data is protected against loss and against unauthorized access, use, modification, disclosure or other misuse, as set forth in Data Protection Laws (and where Data Protection Laws do not determine such measures, pursuant to industry standard), including implementing reasonable disaster recovery and security plans and procedures. There have been no unauthorized attempted or successful breaches, violations, failures, malfunctions, outages, or interruptions of or unauthorized access, use, modification, disclosure, destructions, or other misuse of the IT systems used by or on behalf of any of the Sellers, nor has there been any loss, theft, or unauthorized access to or misuse of Personal Data. (c) The business of each Seller, as conducted, does not involve the use or development of, or engagement in, encryption technology, or other technology whose development, commercialization or export is restricted, or requires a Consent from any Governmental Authority, under applicable Law. (d) Except for disclosures of information required or authorized by Data Protection Laws, each Seller has not sold, rented or otherwise made available, and does not sell, rent or otherwise make available, to third parties any Personal Data. 3.24 Corruption and trade regulation (a) Neither any Seller, nor, to the Sellers’ Knowledge, any of its respective Affiliates or Representatives (nor any Person acting on behalf of any of the foregoing) has at any time since December 31, 2019 directly, or indirectly through a third-party intermediary, corruptly paid, offered, given, promised to pay, or authorized the payment of any money or anything of value (including any gift, sample, travel, meal and lodging expense, entertainment, service, equipment, debt forgiveness, employment, donation, grant or other thing of value, however characterized) to (i) any officer, agent or employee of a Governmental Authority, (ii) any Person acting for or on behalf of any Governmental Authority, (iii) a director, officer, employee or agent of a wholly or partially government-owned or government-controlled company or business, (iv) any political party or official thereof, (v) any candidate for political office, (vi) any relative of the above-described Persons or (vii) any other Person at the suggestion, request, direction or for the benefit of any of the above-described Persons, in each case intending to improperly obtain or retain business, or an advantage in the conduct of business, for the Sellers. (b) Since December 31, 2019, neither any Seller, nor, to the Sellers’ Knowledge, any of its respective Affiliates or Representatives has violated or is in violation of the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act, the Prevention of Corruption Act 1960, the Corruption, Drug Trafficking and other Serious Crimes (Confiscation of Benefits) Act 1992, the Penal Code 1871 or any other applicable anti-bribery or Anti-Corruption Law of similar effect, including Laws
56 implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (together, the “Anti-Corruption Laws”). (c) Each transaction of the Current Business has been properly and accurately recorded on the books and records of the Current Business and each document on which entries in the Current Business books and records are based (including purchase orders, customer or company invoices and service agreements and related financial records) is accurate and complete in all respects. No Seller or its Affiliates, nor to the Sellers’ Knowledge any of their respective Representatives, has, since December 31, 2019, conducted an internal review or investigation related to potential or alleged violations of Anti-Corruption Laws or made any voluntary disclosure to any Governmental Authority or other Person with respect to a possible violation of Anti-Corruption Laws. (d) Except as disclosed in Section 3.24(d) of the Seller Disclosure Schedule, neither any Seller or its Affiliates, nor to the Sellers’ Knowledge, any of their respective Representatives, have, since December 31, 2019: (i) conducted an internal review or investigation related to potential or alleged violations of Anti-Corruption Laws, (ii) made any voluntary disclosure to any Governmental Authority or other Person with respect to a possible violation of the Anti-Corruption Laws, or (iii) been subject to any government prosecution, enforcement, investigation, subpoena or other inquiry related to potential non- compliance with the Anti-Corruption Laws. (e) At all times since December 31, 2019, the Sellers have maintained a compliance program and system of internal controls designed to reasonably ensure compliance with the Anti-Corruption Laws. (f) Any and all assets, Contracts, licenses, permits or authorizations held by the Sellers have not been procured in violation of the Anti-Corruption Laws. (g) Any and all licenses, approvals, authorizations or permissions sought or obtained by the Sellers or the Sellers in anticipation of or in connection with this Agreement or its subject matter have not been procured in violation of the Anti-Corruption Laws. (h) Neither any Seller, nor any Person acting on behalf of any Seller, has, directly, or indirectly through a third-party intermediary, entered into any Contract that remains in effect and that contains provisions reflecting participation in or cooperation with the Arab League boycott of Israel. (i) No Seller has at any time since December 31, 2019, engaged in the sale, purchase, import, export, re-export or transfer of products or services, either directly or indirectly, to or from any country or territory subject to any sanctions administered by the U.S. government, including those of the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of State, the European Union and its member states, the United Nations Security Council or any other relevant sanctions authority (“Sanctions”), including (i) Cuba, Iran, North Korea, Syria, Crimea, or since February 21, 2022, the Donetsk People’s Republic or Luhansk People’s Republic (collectively, the “Sanctioned Territories”) or (ii) any Person targeted by the United States or United Nations, or any other applicable economic sanctions or export controls, including Persons who are owned or controlled by the government of a Sanctioned Territory or the government of Venezuela, Persons designated on the List of Specially Designated Nationals and Blocked Persons maintained by OFAC or who are 50% or more owned by such Persons, Persons identified on any other sanctions-related list maintained by OFAC or any sanctions-related list maintained by the United States or other relevant sanctions authority, including Persons identified on the US Commerce Department’s Entity List, Denied Persons List, or Unverified List (collectively, “Restricted Parties”). Since such time, no Seller has been a party to or beneficiary of, or had any interest in, any franchise, license, management or other Contract with any Person, either public or private, in the Sanctioned Territories or with any Restricted Parties, or been a party to any investment, deposit, loan,
57 borrowing or credit arrangement or involved in any other financial dealings, directly or indirectly, with any Person, either public or private, in the Sanctioned Territories or who is a Restricted Party. No Seller or any present directors, officers, or employees, nor Shareholders are Restricted Parties. (j) Since December 31, 2019, all exports, re-exports, imports, sales or transfers of products or services of the Current Business have been effected in accordance with all applicable Laws, including anti- corruption, customs, export control, trade sanctions, anti-terrorism and anti-boycott Laws of the United States and any other relevant jurisdiction, including (i) the United States Export Administration Act, Export Administration Regulations, and International Traffic in Arms Regulations to the extent applicable and (ii) sanctions regulations administered by OFAC. All products shipped by the Current Business have been accurately marked, labeled and transported in all material respects in accordance with applicable Laws. (k) Since December 31, 2019, (i) no Seller has conducted or initiated any internal investigation or made a voluntary disclosure to any Governmental Authority with respect to any alleged act or omission arising under any applicable Laws and (ii) no Governmental Authority has initiated, or to the Sellers’ Knowledge threatened to initiate, a Proceeding against any Seller or any of their respective Affiliates or Representatives asserting that any Seller or any Affiliate of any Seller is not in compliance with any trade sanctions, export or import Laws or the FCPA or any other applicable Law of similar effect. 3.25 Brokers or finders Neither any Seller or any Shareholder, nor any Person acting on behalf of any Seller or any Shareholder, has incurred any Liability to pay any fees or commissions to any broker, finder or agent or any other similar payment in connection with this Agreement or any of the transactions contemplated hereby, except to i5invest corporate development GmbH. 3.26 Solvency (a) None of the Sellers are insolvent and will not be rendered insolvent by any of the transactions contemplated by this Agreement. As used in this Agreement, “insolvent” means that the sum of the debts and other probable Liabilities of each Seller exceeds the present fair saleable value of such Seller’s assets. Immediately after giving effect to the consummation of the transactions contemplated by this Agreement, (a) each Seller will be able to pay its Liabilities as they become due in the usual course of its business, (b) each Seller will not have unreasonably small capital with which to conduct its then- proposed business (if any) and (c) each Seller will have assets (calculated at fair market value) that exceed its Liabilities. The cash available to any Seller, after taking into account all other anticipated uses of the cash, will be sufficient to pay all such Liabilities promptly in accordance with their terms. (b) The Sellers are not entering into this Agreement or any of the other Ancillary Agreements with the intent to defraud, delay or hinder creditors, and the consummation of this Agreement and the Ancillary Agreements will not have any such effect. The transactions contemplated by this Agreement will not constitute a fraudulent conveyance. 3.27 No other representations and warranties Except for the representations and warranties contained in this Article 3 (as modified by the Seller Disclosure Schedule), none of the Sellers nor any other Person has made or makes on behalf of any Seller, and the Sellers on behalf of themselves and their Affiliates hereby disclaim, any express or implied representation or warranty, either written or oral, including any representation or warranty as to the accuracy or completeness of any information regarding the Current Business, the Business and the Purchased Assets furnished or made available to Purchaser and its Representatives (including any information, documents or
58 material made available to Purchaser (including in any electronic data room provided to Purchaser or its Representatives), management presentations or in any other form in expectation of the transactions contemplated hereby) or as to the future revenue, projections, budgets, profitability or success of the Current Business, the Business, or any representation or warranty arising from statute or otherwise in law. The Purchaser, on its own behalf and on behalf of its Affiliates and its and their respective Representatives, acknowledges that it is not relying on, nor has it relied on any express or implied representations or warranties except for those expressly made by the Sellers in Article 3 (as modified by the Seller Disclosure Schedule) and that only those representations and warranties in Article 3 shall have any legal effect. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Sellers that as of the date of this Agreement and as of the Closing Date the statements set forth in this Article 4 are true and correct, except as set forth on the disclosure schedule delivered by the Purchaser to the Sellers concurrently with the execution and delivery of this Agreement and dated as of the date of this Agreement (the “Purchaser Disclosure Schedule”): 4.1 Organization and good standing The Purchaser is a limited liability company duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has all requisite entity power and authority to own, lease and operate its properties and assets and to conduct its business as presently conducted and as planned to be conducted by the Purchaser. The Purchaser is duly qualified or licensed to do business in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification or licensure necessary, except where the failure to be so qualified or licensed would not reasonably be expected to have a material adverse effect, either individually or in the aggregate, on the ability of the Purchaser to perform its obligations under this Agreement or on the ability of the Purchaser to consummate the transactions contemplated by this Agreement. 4.2 Authority and enforceability The Purchaser has all requisite limited liability company power and authority to execute and deliver this Agreement and each Ancillary Agreement to which it is a party and to perform its obligations under this Agreement and each such Ancillary Agreement. The execution, delivery and performance of this Agreement and each Ancillary Agreement to which the Purchaser is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Purchaser. The Purchaser has duly and validly executed and delivered this Agreement and, on or prior to the Closing, the Purchaser will have duly and validly executed and delivered each Ancillary Agreement to which it is a party. Assuming due authorization, execution and delivery by the Sellers, this Agreement constitutes, and assuming the due authorization, execution and delivery by the Sellers and other parties that are parties thereto, upon execution and delivery each Ancillary Agreement to which the Purchaser is a party each such Ancillary Agreement will constitute, the valid and binding obligation of the Purchaser, as applicable, enforceable against the Purchaser in accordance with its terms, except as such enforcement may be limited by the Insolvency and Equity Exceptions. 4.3 No conflict Neither the execution, delivery and performance by the Purchaser of this Agreement and each Ancillary Agreement to which the Purchaser is a party, nor the consummation by the Purchaser of the transactions contemplated hereby or thereby, will: (a) directly or indirectly (with or without notice, lapse of time or both), conflict with, result in a breach or violation of, constitute a default under, give rise to any
59 right of revocation, withdrawal, suspension, acceleration, cancellation, termination, imposition of additional obligations or loss of rights under, result in any payment becoming due under, or result in the imposition of any Encumbrance on any of the properties or assets of the Purchaser under (i) the Organizational Documents of the Purchaser or any resolution adopted by the members or board of managers (or equivalent) of the Purchaser, (ii) any Contract to which the Purchaser is a party or by which the Purchaser is bound or to which any of its properties or assets is subject or (iii) any Law, Judgment or Governmental Authorization applicable to the Purchaser or any of its businesses, properties or assets; or (b) require the Purchaser to obtain any Consent or Governmental Authorization of, give any notice to, or make any filing or registration with, any Governmental Authority, except with respect to clauses (a) and (b) in any case that would not in the aggregate taken as a whole be material to the ability of the Purchaser to perform its obligations under this Agreement or to the ability of the Purchaser to consummate the transactions contemplated by this Agreement. 4.4 Brokers or finders Neither the Purchaser nor any Person acting on its behalf has incurred any Liability to pay any fees or commissions to any broker, finder or agent or any other similar payment in connection with any of the transactions contemplated by this Agreement. 4.5 Sufficiency of funds The Purchaser has sufficient cash on hand or other sources of immediately available funds to enable it to make payment of the Base Purchase Price and consummate the transactions contemplated by this Agreement. ARTICLE 5 COVENANTS 5.1 Access and investigation Until the Closing, consistent with all applicable Laws, and upon reasonable advance notice from the Purchaser, the Sellers will allow the Purchaser and its Representatives reasonable access during normal business hours to the properties of the Business for investigations as the Purchaser deems appropriate in its reasonable discretion (provided that Purchaser shall not in any material respect interfere with or disrupt operations of the Sellers, and a designee of the Sellers may be present at all times during any such access), and furnish the Purchaser and its Representatives with reasonable documents, records, work papers and information with respect to the properties, assets, personnel, books, Contracts, Governmental Authorizations, reports and records relating to the Business as the Purchaser may reasonably request. In addition, until the Closing, the Sellers will cause the Sellers’ accountants to cooperate with the Purchaser and its Representatives in making available the financial information of the Business as reasonably requested. In addition, from the date of this Agreement until the Closing, the Sellers may (in their reasonable discretion) provide the Purchaser’s Representatives reasonable access to the Businesses’ customers, suppliers and licensors for the purpose of communicating with such customers, suppliers and licensors concerning the transactions contemplated by this Agreement, including the Purchaser’s intentions concerning the operation of the Business following the Closing; provided, however, that such access will be granted only with the prior written consent of the applicable Seller, which consent will not be unreasonably withheld or delayed; provided, further, that a designee of the applicable Seller may be present at any meeting or conference. For the avoidance of doubt, nothing in this Section 5.1 will prohibit the Purchaser from contacting any Seller’s customers, suppliers and licensors who are also the Purchaser’s customers, suppliers and licensors as of the date of this Agreement in the ordinary course of the Purchaser’s
60 businesses for the purpose of selling products of the Purchaser’s businesses, provided, however, that such contacting should not breach any of Purchaser’s obligations under the Confidentiality Agreement. 5.2 Operation of the Business (a) Affirmative Covenants. Until the Closing, in respect of the Current Business and the Purchased Assets, except as provided in this Agreement or as expressly consented to by the Purchaser in writing and consistent with all Laws, the Sellers will: (iv) conduct the Business only in the ordinary course and use its commercially reasonable efforts to preserve the relationships of the Current Business with customers, strategic partners, suppliers, distributors, landlords and creditors having dealings with the Current Business; (v) pay accounts payable of the Current Business when they become due and payable in the ordinary course of business; (vi) continue in full force and effect the certificates of insurance, binders and policies set forth in Section 3.21 of the Seller Disclosure Schedule; (vii) maintain the books and records related to the Business consistent with the past custom and practice; (viii) reasonably cooperate and confer with the Purchaser in good faith and use its commercially reasonable efforts to assist the Purchaser in effecting the transition and migration of the Business. (b) Negative Covenants. Until the Closing, in respect to the Current Business and the Purchased Assets, except as disclosed on Annex 5.2(b) of this Agreement or as otherwise expressly consented to by the Purchaser in writing (such consent not to be unreasonably withheld, delayed or conditioned), the Sellers will not take any action or omit to take any action, which action or omission would result in any of the events, changes or effects set forth in Section 3.8; provided that with respect to the monetary thresholds set forth in each of Section 3.8(a), (h), (i), (l) and (m), an aggregate cap of $250,000 shall apply for purposes of this Section 5.2(b) (it being understood that there shall be a separate aggregate cap for each such subsection). 5.3 Consents and filings; reasonable efforts The parties will use their respective commercially reasonable efforts to take promptly, or cause to be taken, all actions (including actions after the Closing), and to do promptly, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. The parties will use their respective commercially reasonable efforts as promptly as practicable after the date of this Agreement, to give all notices to, and make all filings with, all Governmental Authorities, and to obtain all other Consents from, and give all other notices to, all Governmental Authorities, that are necessary in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement. 5.4 Notification Until the Closing, each party will give prompt notice to the other party of (a) the occurrence, or non-occurrence, of any event, the occurrence or non-occurrence of which causes any representation or warranty of such party contained in this Agreement to be untrue or inaccurate, (b) any failure to comply
61 with or satisfy any covenant or agreement to be complied with or satisfied by such party under this Agreement, (c) the failure of any condition precedent to each party’s obligations under this Agreement, (d) any written notice or other written communication from any Governmental Authority alleging that the Consent of such Governmental Authority is or may be required in connection with the consummation of the transactions contemplated by this Agreement or (e) the occurrence, or non-occurrence, of any event that, individually or in the aggregate, would have a Material Adverse Effect. No notification pursuant to this Section 5.4 will be deemed to (x) modify, amend or supplement the Seller Disclosure Schedule, (y) modify, prevent or cure any misrepresentation, breach of warranty or breach of covenant, or (z) limit or otherwise affect any rights or remedies available to such party, including pursuant to Article 7 or Article 9. 5.5 No negotiation Until the Closing (or the earlier termination of this Agreement), the Sellers will not, and will cause their respective Affiliates, stockholders and Representatives not to, directly or indirectly: (a) solicit or initiate any inquiry or the making of any proposal or offer; (b) enter into, continue or otherwise participate in any discussions or negotiations; (c) furnish to any Person any non-public information or grant any Person access to its properties, assets, books, Contracts, personnel or records; (d) approve or recommend, or propose to approve or recommend, or execute or enter into, any letter of intent, agreement in principle, merger agreement, acquisition agreement, option agreement or other Contract; or (e) agree to do any of the foregoing, in each case for the purpose of encouraging or facilitating any proposal, offer, discussions or negotiations, in each case relating to any business combination transaction involving any Seller or any other transaction to acquire all or any part of the Business or the Purchased Assets, whether by merger, purchase of assets, purchase of stock, tender offer, lease, exclusive license or otherwise, other than with the Purchaser and its Affiliates. The Sellers will immediately cease and cause to be terminated any such negotiations, discussion or other communication, or Contracts (other than with the Purchaser and its Affiliates) with respect to the foregoing and will immediately cease providing any non-public information. If any Seller or any of its respective Affiliates, stockholders or Representatives receives, prior to the Closing, any offer, proposal, request, inquiry or other contact, directly or indirectly, of the type referenced in this Section 5.5, the Sellers will immediately suspend or cause to be suspended any discussions with such offeror or Person with regard to such offers, proposals or requests and notify the Purchaser thereof, including information as to the identity of the offeror or Person making any such offer or proposal. For the avoidance of doubt, the taking of any action prohibited by this Section 5.5 by any Affiliate or Representative of the Sellers shall be deemed to be a breach of this Section 5.5 by the Sellers. 5.6 Satisfaction of Obligations to Creditors At or prior to the Closing Date, the Sellers will satisfy or cause to be satisfied all obligations of the Sellers owed and due to its creditors as of the Closing Date or take other action or obtain other Consents necessary to permit the Purchaser to obtain clear title to the Purchased Assets free of all Encumbrances other than Permitted Encumbrances, and the Sellers will deliver or cause to be delivered to the Purchaser termination statements and releases (if applicable) and other appropriate evidence reasonably requested by the Purchaser to the effect that no Encumbrances against the Purchased Assets other than Permitted Encumbrances exist as of the completion of the Closing. 5.7 Confidentiality (a) The parties agree to continue to abide by that certain Confidentiality Agreement between ClickDealer Cyprus and the Purchaser dated October 20, 2022 (the “Confidentiality Agreement”). Beginning on the date of this Agreement, neither any Seller nor any of their respective Affiliates will waive any right under any other nondisclosure agreement previously entered into by any Seller and any other
62 Person with respect to the evaluation of the sale of the Business or any of the material properties or assets without the prior written consent of the Purchaser. (b) From and after the Closing, the confidentiality obligations of the Purchaser under the Confidentiality Agreement will terminate with respect to all Confidential Information. From and after the Closing, each Seller will, and will cause each of its Restricted Persons to, maintain the confidentiality of, and not use for their own benefit or the benefit of any other Person, the Confidential Information. (c) Except as contemplated by Section 5.8, neither Purchaser nor Sellers will, and the Purchaser and the Sellers will cause each of their respective Restricted Persons not to, disclose to any Person any information with respect to the legal, financial or other terms or conditions of this Agreement, any of the Ancillary Agreements or any of the transactions contemplated hereby or thereby. The foregoing does not restrict the right of any party to disclose such information (i) to its respective Restricted Persons to the extent reasonably required to facilitate the negotiation, execution, delivery or performance of this Agreement and the Ancillary Agreements, (ii) to any Governmental Authority or arbitrator to the extent reasonably required in connection with any Proceeding relating to the enforcement of this Agreement or any Ancillary Agreement, (iii) as permitted in accordance with Section 5.7(d) and (iv) in the case of the Purchaser, any disclosure it believes in good faith is required by applicable securities Laws or securities listing standards. Each party will advise its respective Restricted Persons with respect to the confidentiality obligations under this Section 5.7(c) and will be responsible for any breach or violation of such obligations by its Restricted Persons. (d) If a party or any of its respective Restricted Persons become legally compelled to make any disclosure that is prohibited or otherwise restricted by this Agreement, then such party will (i) give the other party immediate written notice of such requirement, (ii) consult with and assist the other party in obtaining an injunction or other appropriate remedy to prevent such disclosure and (iii) use its commercially reasonable efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded to any information so disclosed. Subject to the previous sentence, the disclosing party or such Restricted Persons may make only such disclosure pursuant to Section 5.7(d) that, in the written opinion of its counsel, it is legally compelled or otherwise required to make to avoid standing liable for contempt or suffering other material penalty. (e) Effective upon the Closing, the Sellers and their Affiliates hereby assign to the Purchaser all of their rights under each confidentiality agreement (other than the Confidentiality Agreement) to which any Seller or its Affiliates is a party and which pertain to the Business. The Sellers, upon the request of the Purchaser from time to time, will use their commercially reasonable efforts to assist the Purchaser in enforcing the provisions of any such confidentiality agreement. (f) Notwithstanding anything to the contrary herein or in the Confidentiality Agreement, the Confidentiality Agreement and the confidentiality provisions in this Section 5.7 shall terminate on the date that is two (2) years after the Closing. 5.8 Public Announcements Each party agrees not to issue any press release or make any other public announcement relating to this Agreement without the prior written approval of the other party, except that the Purchaser reserves the right, without the Sellers’ prior consent, to make any public disclosure it believes in good faith is required by applicable securities Laws or securities listing standards (in which case the Purchaser agrees to use reasonable efforts to advise the Sellers prior to making such disclosure, provide Sellers an opportunity to comment on such disclosure and consider any comments of Sellers in good faith).
63 5.9 Assistance in Proceedings From and after the Closing, at the reasonable request of the Purchaser and at Purchaser’s sole cost and expense, each Seller will cooperate with the Purchaser and its counsel in the contest or defense of, and make available its executive management and provide testimony and reasonable access to its books and records solely to the extent necessary in connection with, any Proceeding involving or relating to (i) any of the transactions contemplated by this Agreement or (ii) any action, activity, circumstance, condition, conduct, event, fact, failure to act, incident, occurrence, plan, practice, situation, status or transaction on or before the Closing Date involving the Business, in each case subject to customary confidentiality restrictions and solely to the extent permitted by applicable Law. 5.10 Noncompetition and nonsolicitation (a) Except as contemplated or required by this Agreement or the Transition Services Agreement, to perform under any Included Contract in accordance with Section 2.11, or as otherwise requested by or agreed with the Purchaser, during the period commencing on the Closing Date and ending on the third (3rd) anniversary of the Closing Date (the “Restricted Period”), each Seller will not directly or indirectly, engage in any business anywhere in the world that develops, manufactures, produces, markets, sells or distributes any products or provides any services of the kind developed, under development, manufactured, produced, marketed, sold, distributed or provided by the Current Business as of the Closing, or own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in, as a partner, stockholder, consultant or otherwise, any Person that is engaged in the business of developing, manufacturing, producing, marketing, selling or distributing any products or providing any services of the kind developed, under development, manufactured, produced, marketed, sold, distributed or provided by the Current Business as of the Closing; provided, however, that, for the purposes of this Section 5.10, ownership of securities having no more than one percent (1%) of the outstanding voting power of any Person will not be deemed to be in violation of this Section 5.10. The Restricted Period will be extended by the length of any period during which any Seller is in breach of the terms of this Section 5.10. (b) During the Restricted Period, no Seller will, directly or indirectly, for itself or on behalf of or in conjunction with any other Person, directly or indirectly, for itself or on behalf of or in conjunction with any other Person, (i) call upon any Hired Employee, Hired Independent Contractor or any individual who is, at the time the individual is called upon, an employee of the Purchaser or its Affiliates for the purpose or with the intent of soliciting such employee away from or out of the employ of the Purchaser or its Affiliates, or employ or offer employment to any individual who was or is employed by the Purchaser or its Affiliates unless such individual will have ceased to be an employee of Purchaser or its Affiliates at least six (6) months prior thereto or (ii) cause, induce or attempt to cause or induce any customer, strategic partner, supplier or distributor with the Purchaser or its Affiliates or the business acquired from the Sellers pursuant to this Agreement to cease or reduce the extent of its business relationship with the Purchaser or its Affiliates or the business acquired from the Sellers pursuant to this Agreement or to deal with any competitor of the Purchaser or the business acquired from the Sellers pursuant to this Agreement. This Section 5.10 will not be deemed to prohibit the Sellers from engaging in general media advertising or solicitation that may be targeted to a particular geographic or technical area but that is not targeted towards employees of the Purchaser. 5.11 Use of Name From and after the Closing, except as contemplated or required by this Agreement or the Transition Services Agreement, to perform under or service any Included Contract in accordance with Section 2.11, or as otherwise requested by or agreed with Purchaser, each Seller will not, and will cause its Affiliates not
64 to, directly or indirectly, use or do business, or assist any third party in using or doing business, under the names and marks “ClickDealer,” “HomeQuote,” or by another name similar to such names and marks, except as necessary to effect the change of the applicable Seller’s name or to evidence that such change has occurred, or in connection with the filing of Tax Returns or for such other non-commercial uses as may be required by Law. Within twelve (12) months after the Closing, each Seller will file all applicable documents with the appropriate Governmental Authorities in its jurisdiction of formation and any other jurisdictions in which it is qualified or licensed to do business, to change the name of such Seller to a name that it not the same or similar to its name used prior to the Closing (unless such Seller has then filed applicable documents to liquidate, dissolve or wind up such Seller in its jurisdiction of formation, provided that such liquidation, dissolution or winding up may be completed after such twelve (12) month period). 5.12 Wrong Pockets; Receivables and other Similar Post-Closing Payments (a) Subject to Section 2.11, following the Closing, if (i) the Purchaser or any of its Affiliates receives any payments in respect of any Excluded Assets, the Purchaser shall, and will procure that its Affiliates shall, within thirty (30) calendar days of receipt of such payment, remit the full amount of such payment to the relevant Seller, and (ii) either any Seller or any of its Affiliates receives any payments in respect of any Purchased Assets, the relevant Seller shall, and will procure that its Affiliates shall, within thirty (30) calendar days of receipt of such payment, remit the full amount of such payment to the Purchaser. (b) To the extent that the Purchaser or any of its Affiliates holds, owns or possesses any Excluded Asset or Excluded Liability following the Closing, the Purchaser shall, and shall cause its Affiliates to, transfer to the relevant Seller, or, as the relevant Seller directs, such Seller’s applicable Affiliates, or confirm the relevant Seller or its applicable Affiliates’ right, title to or interest in, all of such Excluded Assets or Excluded Liability, to put the relevant Seller or its applicable Affiliates in actual possession and operating control thereof and to permit the relevant Seller to exercise all rights with respect thereto. (c) Subject to Section 2.11, to the extent that any Seller or any of its Affiliates holds, owns or possesses any Purchased Asset or Assumed Liability following the Closing, the relevant Seller shall, and shall cause its Affiliates to, in accordance with Section 2.11 as if its Affiliates were a party to such provision, and otherwise in accordance with this Agreement, transfer to the Purchaser, or, as the Purchaser directs, Purchaser’s applicable Affiliates, or confirm the Purchaser’s or its applicable Affiliates’ right, title to or interest in, all of such Purchased Assets or Assumed Liabilities, to put the Purchaser or its applicable Affiliates in actual possession and operating control thereof and to permit the Purchaser or its applicable Affiliates to exercise all rights with respect thereto (including, to the extent the Consent of such third party is obtained, rights under Contracts and other arrangements as to which the Consent of any third party to the transfer thereof will not have previously been obtained). 5.13 Customer Inquiries For a period of one (1) year after the Closing, the Sellers will use commercially reasonable efforts to promptly notify the Purchaser of each material inquiry that it or any of its Affiliates receives relating to the Business from a customer of the Current Business as of the Closing Date that expressly states a desire by such customer to explore a commercial relationship with the Business. 5.14 Employee and Independent Contractor matters (a) Census. No later than two (2) Business Days prior to the Closing Date, the Sellers shall provide the Purchaser with an update to the list of Employees and Independent Contractors, along with all related information set forth in Sections 3.15(a) and 3.15(b) of the Sellers Disclosure Schedule, to reflect
65 personnel changes occurring between the date hereof and such date, which shall be updated as of the Closing Date for any further personnel changes that occur. (b) Employees Employed by ClickDealer Netherlands. It is intended, in accordance with applicable Law, that the employment and contracts of employment of the employees who are currently employed by ClickDealer Netherlands (the “NL Employees”) will (other than in respect of any such NL Employee who objects to a transfer or resigns and leaves prior to the Closing Date) transfer automatically to a Purchasing Entity (or another entity or payroll company, to be designated by Purchaser) as a result of the Closing of the transactions contemplated in this Agreement, and accordingly each such contract of employment shall have effect from the Closing as if originally made between the Purchasing Entity (or another entity or payroll company, to be designated by Purchaser), and such applicable NL Employee, and all rights, powers, duties, liabilities and obligations of the Sellers in respect of, or in relation to, such NL Employees and their contracts of employment in force immediately before the Closing (with the exception of accrued pension scheme rights) shall transfer to the Purchasing Entity (or another entity or payroll company, to be designated by Purchaser) in accordance with applicable Law. The Purchaser and its Affiliates shall use reasonable best efforts to provide such information as the Sellers may reasonably require from Purchaser and its Affiliates promptly (and in any event in sufficient time) to enable the Sellers to meet any information and consultation requirements they may have pursuant to applicable Law with or in relation to their employees or any employee representative in connection with the transactions contemplated by this Agreement. If the contract of employment of any NL Employee does not transfer to a Purchasing Entity or its Affiliate in accordance with applicable Law as intended (other than in respect of any NL Employee who objects to a transfer or resigns and leaves prior to the Closing Date), such NL Employee may be offered employment by a Purchasing Entity. (c) Independent Contractors. The Sellers will use all commercially reasonable efforts to cause its Independent Contractors to make available their services to the Purchaser as permitted by applicable Law. The Purchaser is not obligated to hire or engage any Independent Contractor but may interview and make offers of employment or engagement to any or all of the Independent Contractors. To the extent permitted by applicable Law, the Purchaser will have reasonable access to the facilities and personnel records of the Sellers for the purpose of preparing for and conducting interviews with any or all of the Independent Contractors. Access will be provided by the Sellers upon reasonable prior notice during normal business hours. The Purchaser will promptly provide the Sellers with a list of the Independent Contractors to whom the Purchaser, or its Affiliates, have made an offer of employment or engagement, and that has been accepted, to be effective on the Closing Date. As of no later than the Closing, the Sellers shall ensure each Independent Contractor who enters into a new agreement with the Purchaser, or its Affiliate (or payroll company), is released from any engagement with the Sellers, including any post- termination restrictions that would prohibit or restrict such Person from performing such Persons’ work for the Purchaser or its Affiliates. (d) Notwithstanding the foregoing, if as of the Closing, the Purchaser or the Purchasing Entities are not yet capable of offering employment to the Employees or retaining the Independent Contractors for logistical or operational reasons, the Sellers and Purchaser shall cooperate in good faith to defer the transfers contemplated in subsections (b) and (c) until such date as the Purchaser may determine, and the Sellers shall provide the Purchaser with, and Purchaser shall assume, the benefit and burdens of such individuals pursuant to and in accordance with the Transition Services Agreement. (e) Notwithstanding anything to the contrary, all provisions contained in this Section 5.14 are for the sole benefit of the parties to this Agreement and nothing in this Agreement, whether express or implied, (i) shall be treated as an amendment or other modification of any employee benefit plan, agreement or other arrangement, (ii) shall limit the right of the Purchaser or any Seller or their respective Affiliate to amend, terminate or otherwise modify any employee benefit plan, agreement or other arrangement
66 following the Closing Date, or (iii) shall confer upon any other Person who is not a party to this Agreement any right to continued or resumed employment or engagement, any right to specific compensation or benefits, or any third-party beneficiary or other right of any kind or nature whatsoever. 5.15 Purchaser’s Financial Reporting Obligations; Release of Audit Holdback Amount (a) From the date hereof until the Audit Completion, the Sellers shall, and shall cause their Representatives to use commercially reasonable efforts (and for avoidance of doubt, this covenant does not obligate Sellers to take actions beyond commercially reasonable efforts, including in particular, but not limited to, incurring expenses that would not be commercially reasonable in the context of the transactions contemplated by this Agreement (unless the Purchaser reimburses such expenses incurred or to be incurred by the Sellers)) to provide such cooperation in connection with the Parent’s financial reporting obligations under Regulation S-X in connection with the Audit Completion as may be reasonably requested (in reasonable detail and with reasonable advance notice) by the Purchaser to comply with the Purchaser’s obligations under GAAP and Regulation S-X of the Exchange Act, including fulfilling the informational requests of the Purchaser set forth on Annex 5.15 of this Agreement and any supplemental requests thereof that are reasonably required for the Purchaser to comply with its obligations under GAAP and Regulation S-X of the Exchange Act. (b) The Purchaser shall provide an update regarding the progress and status of the Audit Completion as of the Closing, including the items requested by the Purchaser pursuant to Section 5.15(a) that then remain outstanding. The Purchaser shall provide additional updates regarding the progress and status of the Audit Completion, including the items requested of Seller that then remain outstanding, within three (3) Business Days of any written request by any Seller prior to the Audit Completion. (c) Upon the earlier of (i) the Audit Completion or (ii) the date that is twelve (12) months after the Closing Date (unless an Audit Breach has occurred)), the Purchaser shall pay the Audit Release Amount to the Sellers in accordance with Section 9.8(a) of this Agreement. (d) If the Sellers’s failure to comply with Section 5.15(a) of this Agreement is the proximate cause of the Parent’s failure to satisfy its reporting obligations under the Exchange Act that cause Purchaser to fail to meet the eligibility requirements for the use of Form S-3 under the Securities Act (the “Audit Breach”), the Sellers shall be entitled to retain from the Holdback Amount an amount equal to two million US dollars ($2,000,000) (the “Liquidated Damages”); provided, however, that if the Holdback Amount is less than two million US dollars ($2,000,000), then the Sellers shall pay or cause to be paid to the Purchaser such difference. Notwithstanding anything to the contrary herein, (i) an Audit Breach shall not be deemed to occur if the Purchaser or Parent has separately failed to satisfy its reporting obligations under the Exchange Act with respect to any business other than the Business and such other failure would have independently caused the Purchaser to fail to meet the eligibility requirements for the use of Form S-3 under the Securities Act; and (ii) an Audit Breach shall not be deemed to occur if the Sellers’ failure to comply with Section 5.15(a) is caused by any mistake or error (including requests of financial information that does not satisfy the requirements of GAAP and Regulation S-X) of the Purchaser or its auditors that is not corrected by Purchaser or its auditors with reasonable advance notice to Sellers. The parties acknowledge and agree that the Purchaser’s harm caused by the Audit Breach would be impossible or very difficult to accurately estimate on the date of this Agreement, and that the Liquidated Damages are a reasonable estimate of the anticipated or actual harm that might arise from the Audit Breach. The parties intend that the Liquidated Damages constitute compensation, and not penalty.
67 5.16 Data Privacy Obligations (a) The Purchaser understands that after the Closing all data breaches (as defined by applicable Data Protection Laws) and all violations of applicable Data Protection Laws are the sole responsibility of the Purchaser. (b) The Purchaser agrees that Personal Data can be used only in accordance with applicable Data Protection Laws. The Purchaser undertakes not to use Personal Data for any purposes other than the original purposes of collection. In the case of using Personal Data for purposes that have not been communicated to the data subject, the Purchaser undertakes to comply with all legal requirements for the protection of Personal Data, as required by Data Protection Laws. (c) The Purchaser is aware that after the Closing, the Purchaser becomes the owner (the controller or similar term, as defined by Data Protection Laws) of the Personal Data and the Purchaser guarantees that the Purchaser is familiar with the requirement of all relevant Data Protection Laws. 5.17 Further assurances (a) Subject to the other express provisions of this Agreement, the (as soon as reasonably practicable and insofar as they are reasonably able) the parties at their own reasonable cost will cooperate with each other and with their respective Representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and the parties agree (a) to furnish, or cause to be furnished, upon request to each other such further information, (b) to execute and deliver, or cause to be executed and delivered, to each other such other documents and (c) to do, or cause to be done, such other acts and things, all as the requesting party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions contemplated by this Agreement. (b) The Purchaser shall use its best efforts to ensure that, as of the Closing Date but, in any event, no later than March 31, 2023, neither the Purchaser nor any of its Affiliates will be in breach or default under any Indebtedness for borrowed money and no event has occurred (or will occur) as of such time or circumstance exists (or will exist) as of such time that (with or without notice, lapse of time or both) would constitute a breach or default by the Purchaser or any of its Affiliates, or give rise to any right of revocation, withdrawal, suspension, acceleration, cancellation, termination, repudiation, result in any payment becoming due under, result in the imposition of any Encumbrances under, or otherwise give rise to any right on the part of any Person to exercise any remedy or obtain any relief under, such Indebtedness for borrowed money, except as would not be material to the ability of the Purchaser to perform its obligations under this Agreement or to the ability of the Purchaser to consummate the transactions contemplated by this Agreement. The Purchaser shall notify the Selling Parties Representative at least two (2) Business Days prior to the Closing Date if any such breach, default, event or circumstance exists or would exist as of the Closing Date. To the extent the Purchaser does not provide such notice at least two (2) Business Days prior to the Closing Date, the conditions set forth in Sections 6.1(g) and 6.2(f) shall be deemed satisfied as of the Closing Date. 5.18 R&W insurance (a) The Purchaser and the Sellers acknowledge that, as an essential inducement to the Sellers to enter into this Agreement, prior to the execution of this Agreement, the Purchaser has obtained the RWI Policy, which RWI Policy has a liability limit of ten million US dollars ($10,000,000) for purposes of all representations and warranties contained in Article 3 and an additional liability of twenty-five million US dollars ($25,000,000) (thirty-five million US dollars ($35,000,000) in the aggregate) for purposes of the Fundamental Representations, subject to any exclusions contained therein and a waiver of subrogation
68 against the Sellers, the Shareholders, the Seller Indemnified Parties and their respective Affiliates and on other customary terms and conditions as reflected in Exhibit B. The Sellers, the Shareholders, the Seller Indemnified Parties and their respective Affiliates shall have no liability to the RWI Insurer under the RWI Policy and shall be express third party beneficiaries of the RWI Policy. The Purchaser and its Affiliates shall not amend, waive, modify or otherwise revise the RWI Policy in any manner that could reasonably be expected to adversely affect the Sellers, the Shareholders, any Seller Indemnified Party or any of their respective Affiliates without the prior written consent of Seller. (b) The RWI Policy Premium shall be borne fifty percent (50%) by the Purchaser and fifty percent (50%) by the Sellers as a Seller Transaction Expense; provided that the RWI Policy Premium Overage shall be borne hundred percent (100%) by the Sellers as a Seller Transaction Expense. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE 6.1 Conditions to the obligation of the Purchaser The obligation of the Purchaser to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Purchaser in writing, in whole or in part): (a) Accuracy of Representations and Warranties. The representations and warranties of the Sellers contained in this Agreement shall be true and correct in all material respects at the date of this Agreement and as of the Closing as if made at and as of such time (or, in the case of those representations and warranties that are made as of a particular date or period, as of such date or period); provided that the Fundamental Representations and any representation or warranty of the Sellers contained in this Agreement that is qualified as to materiality, “Material Adverse Effect” or similar qualification shall be true and correct in all respects at the date of this Agreement (or, in the case of those representations and warranties that are made as of a particular date or period, as of such date or period) and as of the Closing as if made at and as of such time (or, in the case of those representations and warranties that are made as of a particular date or period, as of such date or period); (b) Performance of Covenants. All of the covenants and obligations that the Sellers are required to perform or comply with under this Agreement on or before the Closing Date (for the avoidance of doubt, including Section 5.15; provided, however, that the parties agree that the Audit Completion is not a condition precedent hereunder) will have been duly performed and complied with in all material respects; (c) No Action. There will not be in effect any Law or Judgment, and there must not have been commenced or threatened any Proceeding by any Governmental Authority, that in any case would (i) prevent, make illegal or restrain the consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; (d) No Material Adverse Effect. Since the date of this Agreement, there will not have occurred any event, circumstance, development, state of facts, occurrence, change or effect that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; (e) Transaction Documents. The Sellers must have delivered or caused to be delivered to the Purchaser each document that Section 2.8(a) requires them to deliver;
69 (f) RWI Insurance. The RWI Policy shall remain in full force and effect as of the Closing Date; and (g) No Defaults. As of immediately prior to the Closing, and as of immediately after the Closing after giving effect to the transactions contemplated by this Agreement, neither the Purchaser nor any of its Affiliates is (or will be) in breach or default under any Indebtedness for borrowed money and no event has occurred (or will occur) as of such time or circumstance exists (or will exist) as of such time that (with or without notice, lapse of time or both) would constitute a breach or default by the Purchaser or any of its Affiliates, or give rise to any right of revocation, withdrawal, suspension, acceleration, cancellation, termination, repudiation, result in any payment becoming due under, result in the imposition of any Encumbrances under, or otherwise give rise to any right on the part of any Person to exercise any remedy or obtain any relief under, such Indebtedness for borrowed money, except as would not be material to the ability of the Purchaser to perform its obligations under this Agreement or to the ability of the Purchaser to consummate the transactions contemplated by this Agreement. 6.2 Conditions to the obligation of the Sellers The obligation of the Sellers to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Sellers, in whole or in part): (a) Accuracy of Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all respects (disregarding all qualifications as to materiality, “material adverse effect” or similar qualification) at the date of this Agreement and as of the Closing as if made at and as of such time (or, in the case of those representations and warranties that are made as of a particular date or period, as of such date or period), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected, individually or in the aggregate, to (i) materially delay or prevent the ability of the Purchaser to consummate the transactions contemplated hereby in accordance with the terms hereof or (ii) have a material adverse effect on the Purchaser or the ability of the Purchaser to perform its obligations under this Agreement; (b) Performance of Covenants. All of the covenants and obligations that the Purchaser is required to perform or comply with under this Agreement on or before the Closing Date will have been duly performed and complied with in all material respects; (c) No Action. There will not be in effect any Law or Judgment, and there must not have been commenced or threatened any Proceeding by any Governmental Authority, that in any case would (i) prevent, make illegal or restrain the consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; (d) Transaction Documents. The Purchaser will have delivered or caused to be delivered to the Sellers each document that Section 2.8(b) requires it to deliver; (e) RWI Insurance. The RWI Policy shall remain in full force and effect as of the Closing; and (f) No Defaults. As of immediately prior to the Closing, and as of immediately after the Closing after giving effect to the transactions contemplated by this Agreement, neither the Purchaser nor any of its Affiliates is (or will be) in breach or default under any Indebtedness for borrowed money and no event has occurred (or will occur) as of such time or circumstance exists (or will exist) as of such time that
70 (with or without notice, lapse of time or both) would constitute a breach or default by the Purchaser or any of its Affiliates, or give rise to any right of revocation, withdrawal, suspension, acceleration, cancellation, termination, repudiation, result in any payment becoming due under, result in the imposition of any Encumbrances under, or otherwise give rise to any right on the part of any Person to exercise any remedy or obtain any relief under, such Indebtedness for borrowed money, except as would not be material to the ability of the Purchaser to perform its obligations under this Agreement or to the ability of the Purchaser to consummate the transactions contemplated by this Agreement. ARTICLE 7 TERMINATION 7.1 Termination eventsThis Agreement may, by written notice given at any time prior to the Closing, be terminated: (a) by mutual consent of the Purchaser and the Selling Parties Representative; (b) by the Purchaser (so long as the Purchaser is not then in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement) if there has been a breach of any of the Sellers’ representations, warranties, covenants or agreements contained in this Agreement which would result in the failure of a condition set forth in Section 6.1(a) or Section 6.1(b), and which breach has not been cured or cannot be cured by the earlier of (i) the date that is forty-five (45) days after the notice of the breach from the Purchaser and (ii) the End Date; (c) by the Selling Parties Representative (so long as none of the Sellers is then in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement) if there has been a breach of any of the Purchaser’s representations, warranties, covenants or agreements contained in this Agreement which would result in the failure of a condition set forth in Section 6.2(a) or Section 6.2(b) and which breach has not been cured or cannot be cured by the earlier of (i) the date that is forty-five (45) days after the notice of breach from the Selling Parties Representative and (ii) the End Date; (d) by the Purchaser if there has been a Material Adverse Effect; (e) by either the Purchaser or the Selling Parties Representative if (i) any Governmental Authority has issued a nonappealable final Judgment or taken any other nonappealable final action, in each case having the effect of restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement or (ii) there is a Law that makes the transactions contemplated by this Agreement illegal or otherwise prohibited; or (f) by either the Purchaser or the Selling Parties Representative if the Closing has not occurred on or before March 31, 2023 (the “End Date”) unless otherwise agreed to in writing by the Purchaser and the Selling Parties Representative; provided that the right to terminate this Agreement pursuant to this Section 7.1(f) will not be available to any party whose failure to perform in any material respect any of its covenants or agreements contained in this Agreement (other than Section 2.11) will have been the primary cause of the failure of the Closing to occur on or before the End Date (any such party, a “Suspended Party”); provided further that to the extent any such Suspended Party remedies or performs such covenant or agreement following the date thereof (to the extent such covenant or agreement is capable or remedy or performance at such date), such Suspended Party shall thereafter again have the right to terminate this Agreement pursuant to this Section 7.1(f); provided further, that in any event, if the Closing has not occurred by April 31, 2023 (or such other date as Parties may mutually agree in writing), this Agreement shall terminate automatically upon such date.
71 7.2 Effect of terminationEach party’s rights of termination under Section 7.1 are in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such rights of termination is not an election of remedies. If this Agreement is terminated pursuant to Section 7.1, this Agreement and all rights and obligations of the parties under this Agreement automatically end without Liability and without compensation of any direct and indirect Losses, expenses, fees against or to any party or its Affiliates, except that (a) the Confidentiality Agreement and Sections 5.7(c) through 5.7(f) (Confidentiality) shall survive in accordance with its original terms (as not amended by Section 5.7 (Confidentiality)) and (b) Section 5.8 (Public announcements), Article 12 (General provisions) (except for Section 12.12 (Specific performance)) and this Section 7.2 will remain in full force and survive for a period of two (2) years after any termination of this Agreement and (c) termination of this Agreement shall not relieve any party from Liability for intentional fraud or willful and material breach of this Agreement or willful and material failure to perform its obligations under this Agreement. ARTICLE 8 CERTAIN TAX MATTERS 8.1 Tax indemnity The Sellers, jointly and severally, will indemnify and hold harmless the Purchaser Indemnified Parties from and against, and will pay to the Purchaser Indemnified Parties the monetary value of, any and all Losses incurred or suffered by the Purchaser Indemnified Parties arising out of or resulting from any of the following (a) any and all Taxes arising in connection with or relating to the Purchased Assets, the Assumed Liabilities, or the Current Business imposed on the Sellers with respect to any Pre-Closing Tax Period, including the portion of any Straddle Tax Period ending on the Closing Date (to the extent not taken into account in calculating the Final Purchase Price); (b) any and all Transfer Taxes borne by the Sellers under Section 8.4; (c) any breach of any representation or warranty of the Sellers contained in Section 3.13; and (d) any Excluded Taxes. For the avoidance of doubt, and notwithstanding any other provision of this Agreement, none of the limitations set forth in Section 9.6 will apply to any claim pursuant to this Section 8.1. 8.2 Tax apportionment If any Seller is permitted but not required under applicable Law to treat the Closing Date as the last day of a taxable period, the Sellers and the Purchaser shall so treat the Closing Date. Where such treatment is not permitted, in the case of Taxes that are payable with respect to a Straddle Tax Period, the portion of any such Tax that will be treated for purposes of this Agreement (including Section 8.1) as imposed with respect to a Pre-Closing Tax Period: (a) in the case of Taxes that are either (i) based upon or related to income or receipts, capital or net worth, or employment or (ii) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible) (other than any Transfer Taxes), be deemed equal to the amount which would be payable if the taxable period ended as of the close of business in the applicable jurisdiction on the Closing Date (except that (A) solely for purposes of determining the marginal Tax rate applicable to income or receipts during such period in a jurisdiction in which such Tax rate depends upon the amount or level of income or receipts, annualized income or receipts may be taken into account if appropriate for an equitable sharing of such Taxes and (B) exemptions, allowances, and deductions that are otherwise calculated on an annual basis shall be apportioned on a daily basis); and (b) in the case of Taxes not described in Section 8.2(a) be deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period), multiplied by a fraction the numerator of which is the number
72 of calendar days in the period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period. 8.3 Tax Returns (a) The Sellers will prepare and timely file or will cause to be prepared and timely filed all Tax Returns with respect to the Purchased Assets, the Assumed Liabilities, or the Current Business for any Pre- Closing Tax Period that are required to be filed (taking into account extensions) on or before the Closing Date. With respect to any Tax Return required to be filed under this Section 8.3(a), the Sellers (i) will prepare such Tax Returns in a manner that is consistent with past practices and that complies with applicable Law, and (ii) will deliver to the Purchaser, at least five (5) Business Days (or such other period as is reasonably practicable when considering the anticipated Closing Date) prior to the due date for the filing of such Tax Return (taking into account extensions), a draft copy of such Tax Return, provided, however, that this Section 8.3(a) shall not require the Sellers to provide any of their income Tax Returns to the Purchaser. The Sellers shall consider in good faith any reasonable comments submitted by the Purchaser to such draft Tax Return. The Sellers shall timely remit to the appropriate Taxing Authority any Tax due with respect to any Tax Return described in this Section 8.3(a). (b) The Purchaser will prepare or cause to be prepared and will file or cause to be filed all Tax Returns with respect to the Purchased Assets, the Assumed Liabilities, or the Current Business for any Pre- Closing Tax Period not described in Section 8.3(a). With respect to any Tax Return required to be filed under this Section 8.3(b) that relates to a Pre-Closing Tax Period or to a Straddle Tax Period, the Purchaser will deliver to the Sellers, at least five (5) Business Days prior to the due date for the filing of such Tax Return (taking into account extensions), a draft copy of such Tax Return, provided, however, that this Section 8.3(b) shall not require the Purchaser to provide any of its income Tax Returns to the Seller. The Purchaser shall consider in good faith any reasonable comments submitted by the Sellers to such draft Tax Return. Subject to the Sellers’ liability for Taxes pursuant to Section 8.1, the Purchaser shall timely remit to the appropriate Taxing Authority any Tax due with respect to any Tax Return described in this Section 8.3(b). 8.4 Transfer Taxes All Transfer Taxes will be borne and paid fifty percent (50%) by the Sellers and fifty percent (50%) by the Purchaser. The Purchaser and the Sellers agree to cooperate in the execution and delivery of all instruments and certificates reasonably necessary to minimize the amount of any Transfer Taxes and to enable the Purchaser and the Sellers to comply with any filing requirements related to Transfer Taxes. Notwithstanding anything herein to the contrary, the party responsible under applicable Law for filing any Tax Returns with respect to Transfer Taxes shall prepare and timely file such Tax Returns and provide a copy of such Tax Return to the other party no later than ten (10) days before filing, together with reasonable evidence that all Transfer Taxes have been timely paid. To the extent that any portion of any Transfer Tax is paid, or required by applicable Law to be paid, by one party, but required by the foregoing to be borne by another party, such other party shall pay or reimburse the Transfer Tax-paying party for the proper portion of the Transfer Tax required to be so borne, within five (5) Business Days of receipt of reasonable evidence from the Transfer Tax-paying party of the amount of such Transfer Tax paid. 8.5 Tax cooperation The Purchaser and the Sellers agree to furnish or cause to be furnished to each other, upon request, as promptly as practicable, such information and assistance relating to the Purchased Assets, the Assumed Liabilities, or the Current Business (including access to books and records) as is within such party’s possession or control and is reasonably necessary for the filing of all Tax Returns, the making of any
73 election relating to Taxes, the preparation for any audit by any Taxing Authority, and the prosecution or defense of any Proceeding relating to any Tax arising in connection with or relating to the Purchased Assets, the Assumed Liabilities, or the Current Business. The Purchaser and the Sellers shall retain all books and records with respect to Taxes pertaining to the Sellers that are within such party’s possession or control until the expiration of any applicable statute of limitations and abide by all record retention agreements entered into with any Taxing Authority for all periods required by such Taxing Authority. The Purchaser and the Sellers shall cooperate with each other, as and to the extent reasonably requested by the other party, in the conduct of any audit or other Proceeding relating to Taxes arising in connection with or relating to the Purchased Assets, the Assumed Liabilities, or the Current Business. 8.6 Overlap To the extent of any conflict between this Article 8 and Article 9, the provisions of this Article 8 shall control. ARTICLE 9 INDEMNIFICATION 9.1 Indemnification by the Sellers Subject to the limitations expressly set forth in Section 9.6, each Seller, jointly and severally, will indemnify and hold harmless the Purchaser and its Affiliates and its and their respective Representatives (collectively, the “Purchaser Indemnified Parties”) from and against, and will pay to the Purchaser Indemnified Parties the monetary value of, any and all Losses incurred or suffered by the Purchaser Indemnified Parties arising out of or resulting from: (a) any inaccuracy in or breach of any representation or warranty or other statement of any Seller contained in this Agreement; provided that, with respect to any recovery under the RWI Policy from the RWI insurer, this clause (a) shall be deemed to include any allegations that, if true, would constitute an inaccuracy in or breach of any representation or warranty or other statement of any Seller contained in this Agreement; (b) any nonfulfillment, nonperformance or other breach of any covenant or agreement of any Seller contained in this Agreement; (c) any Excluded Liabilities or Excluded Assets; (d) any intentional fraud, intentional misrepresentation or Willful Breach with respect to any representation, warranty, covenant or agreement of any Seller contained in this Agreement; or (e) any matter disclosed on Annex 9.1(e) of this Agreement. 9.2 Indemnification by the Purchaser Subject to the limitations expressly set forth in Section 9.6 the Purchaser will indemnify and hold harmless the Seller and its Affiliates and its and their respective Representatives (collectively, the “Seller Indemnified Parties”; the Seller Indemnified Parties and the Purchaser Indemnified Parties, as applicable, the “Indemnified Parties”) from and against, and will pay to the Seller Indemnified Parties the monetary
74 value of, any and all Losses incurred or suffered by the Seller Indemnified Parties arising out of or resulting from: (a) any inaccuracy in or breach of any representation or warranty of the Purchaser contained in this Agreement; (b) any nonfulfillment, nonperformance or other breach of any covenant or agreement of the Purchaser contained in this Agreement; (c) any Assumed Liability (including, without limitation, any Dutch Transition Costs); or (d) any intentional fraud, intentional misrepresentation or Willful Breach with respect to any representation, warranty, covenant or agreement of the Purchaser contained in this Agreement. 9.3 Claim procedure (a) With respect to any claim for indemnification hereunder, (x) Purchaser, on behalf of the Purchaser Indemnified Parties, will give written notice to the Selling Parties Representative, acting on behalf of the Sellers or (y) the Selling Parties Representative, on behalf of the Seller Indemnified Parties, will give written notice to the Purchaser (in either case, such written notice, a “Claim Notice”), which notice in either case shall contain (i) a description and, if known, the estimated amount (estimated in good faith), of any Losses incurred or reasonably expected to be incurred by the Indemnified Parties, (ii) a reasonably detailed explanation of the basis for the Claim Notice to the extent of the facts then known by the Indemnified Parties and (iii) a demand for payment of those Losses in accordance with the terms hereof. Within thirty (30) days after delivery of a Claim Notice, the Selling Parties Representative (in the case of a Claim Notice by the Purchaser) will deliver to the Purchaser, or the Purchaser (in the case of a Claim Notice by the Selling Parties Representative) will deliver to the Selling Parties Representative, a written response in which the Selling Parties Representative or the Purchaser, as applicable, will either: (A) agree that the Indemnified Parties are entitled to receive all of the Losses at issue in the Claim Notice by delivering the Purchaser or the Selling Parties Representative, as applicable, written notice confirming such agreement (an “Acceptance Notice”); or (B) dispute the Indemnified Parties’ entitlement to indemnification by delivering to the Purchaser or the Selling Parties Representative, as applicable, a written notice (an “Objection Notice”) setting forth in reasonable detail: (x) each disputed item and (y) the basis for each such disputed item. If the Selling Parties Representative or the Purchaser, as applicable, does not validly deliver an Acceptance Notice or Objection Notice within the applicable thirty (30)-day period, the Selling Parties Representative or the Purchaser, as applicable, will be deemed to have delivered an Acceptance Notice to the applicable Indemnified Party in accordance with the terms hereof. (b) Subject to Section 9.6, any indemnification of the Purchaser Indemnified Parties pursuant to this Article 9 will first be satisfied by payment from the Holdback Amount until the Holdback Amount is exhausted or released, and then (i) to the extent any additional amount is not recoverable pursuant to Section 9.6, all additional amounts will be deemed satisfied and discharged in full without any additional payment therefor and (ii) to the extent any additional amount is recoverable pursuant to Section 9.6, such amount shall be paid directly by each Seller, jointly and severally, by wire transfer of immediately available funds from the Sellers to an account designated by the Purchaser. (c) Subject to Sections 9.3(b) and 9.6, any indemnification payments pursuant to this Article 9 will be made within five (5) Business Days after the earliest of (i) the date on which the amount of such payments are determined by mutual agreement of the parties, (ii) if an Objection Notice has not been timely delivered, the thirtieth (30th) day after the delivery of a Claim Notice and (iii) if an Objection Notice has been timely delivered, five (5) Business Days after the date on which both such amount and the
75 Indemnifying Party’s obligation to pay such amount have been finally determined in accordance with this Article 9 and Section 12.13. 9.4 Third Party Claims (a) If the Indemnified Parties seek indemnity under this Article 9 in respect of, arising out of or involving a claim or demand, whether or not involving a Proceeding, by another Person not a party to this Agreement (a “Third Party Claim”), then the Purchaser or Selling Parties Representative, as applicable, will include in the Claim Notice (i) notice of the commencement or threat of any Proceeding relating to such Third Party Claim and (ii) the facts constituting the basis for such Third Party Claim and the amount of the damages claimed by the other Person, in each case to the extent known to the Indemnified Parties. Notwithstanding the foregoing, no delay or deficiency on the part of the Indemnified Parties in so notifying the Selling Parties Representative or the Purchaser (as applicable) will relieve the Selling Parties Representative (if Sellers are the Indemnifying Party) or the Purchaser (if the Purchaser is the Indemnifying Party) of any Liability or obligation under this Agreement, except to the extent (x) the Sellers or the Selling Parties Representative or (y) the Purchaser, as applicable, is materially prejudiced by the delay or other deficiency. (b) To the extent permitted by applicable Law, the Indemnified Parties will have the right to control the defense of such Third Party Claim, and the Selling Parties Representative (if Sellers are the Indemnifying Party) or the Purchaser (if the Purchaser is the Indemnifying Party) may participate therein at its own expense (with counsel of its choice if it desires). The Selling Parties Representative or the Purchaser (as applicable) will (i) furnish the Indemnified Parties with such information as the Selling Parties Representative or the Purchaser (as applicable) may have with respect to such Third Party Claim and related Proceedings (including copies of any summons, complaint or other pleading which may have been served on the Sellers or the Purchaser, as applicable, and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and (ii) otherwise cooperate with and assist in the defense of the Third Party Claim. (c) The Indemnified Parties may agree to any compromise or settlement of, or the entry of any Judgment arising from, such Third Party Claim only with the written consent of the Selling Parties Representative (if Sellers are the Indemnifying Party) or the Purchaser (if the Purchaser is the Indemnifying Party), in each case not to be unreasonably withheld, conditioned or delayed (it being understood that a reasonable belief that a lower amount of Losses may be attainable, after accounting for risk of higher Losses or other impacts to the Business, and costs of defense, shall be a basis for withholding consent), except to the extent any such compromise or settlement would not result in any Liability on the Indemnifying Party. 9.5 Survival of representations and warranties (a) (i) All representations and warranties contained in this Agreement, or in any certificate, instrument or other document delivered by or on behalf of any Seller pursuant to this Agreement, will survive the Closing for a period of twelve (12) months from the Closing Date and (ii) the Fundamental Representations will survive for a period of four (4) years from the Closing Date; provided, however, that in any event of any intentional fraud in respect of any such representation or warranty, any claim relating to such fraud will survive until the expiration of the applicable statute of limitations. Notwithstanding anything to the contrary in this Agreement, all of the covenants, agreements and obligations of the parties contained in this Agreement will survive the Closing for the period explicitly specified therein, if applicable, and otherwise (x) with respect to pre-Closing covenants, agreements and obligations of the parties contained in this Agreement, until the earlier of (A) the date that is twelve (12) months from the Closing Date or (B) the date that the applicable covenant, agreement or obligation is fully performed, fulfilled or otherwise waived in writing and (y) with respect to post-Closing covenants, agreements and obligations of the parties
76 contained in this Agreement, until the earlier of (A) the fourth (4th) anniversary of the Closing Date or (B) the date that the applicable covenant, agreement or obligation is fully performed, fulfilled or otherwise waived in writing; provided that Section 2.12 shall survive until the payment (or final determination pursuant to Section 2.12 that no such payment is due) of all Earn-Out Payments in accordance with Section 2.12. (b) All claims for indemnification under Section 9.1 must be asserted prior to the expiration of the applicable survival period set forth in Section 9.5(a); provided, however, that if an Indemnified Party delivers to an Indemnifying Party, before expiration of the applicable survival period of a representation or warranty as set forth in Section 9.5(a), either a Claim Notice based upon a breach of any such representation or warranty or Third Party Claim, the Indemnified Party reasonably expects to incur Losses, then such representation or warranty will survive until, but only for purposes of, the resolution of the matter covered by such Claim Notice. 9.6 Limitations on liability; determination of losses (a) Subject to Section 9.6(j), none of the Sellers shall be liable under Section 9.1(a): (i) for any individual or series of related Losses that does not exceed ten thousand US dollars ($10,000); (ii) unless and until the aggregate Losses for which they would otherwise be liable under this Agreement (and excluding all Losses under the foregoing clause (i)) exceed $175,000 (the “Deductible”) (at which point the Sellers are liable for solely the amounts in excess of the Deductible); (iii) for Losses in excess of the Holdback Amount (which Holdback Amount shall be decreased by an equivalent amount to the extent any portion of the Holdback Amount is required to be released or distributed in accordance with Section 9.8); provided that the foregoing shall not apply to claims under Section 9.1(a) relating to a breach of the Fundamental Representations; or (iv) for Losses relating to the Fundamental Representations (and subject to Section 9.6(e)), for an amount in excess of (v) the Base Purchase Price less (w) fifty percent (50%) of the RWI Policy Premium less (x) the RWI Policy Premium Overage less (y) all Insurance Proceeds less (z) all Recovered Earn-Out Losses (such total amount calculated in accordance with this clause (iv), the “Aggregate Seller Liability Cap”). (b) Subject to Section 9.6(j), the Purchaser shall not be liable under Section 9.2(a): (i) for any individual or series of related Losses that does not exceed ten thousand US dollars ($10,000); (ii) unless and until the aggregate Losses for which the Purchaser would otherwise be liable under this Agreement (and excluding all Losses under the foregoing clause (i)) exceed the Deductible (at which point the Purchaser is liable for solely the amounts in excess of the Deductible); or (iii) for an amount in excess of the Base Purchase Price less (y) fifty percent (50%) of the RWI Policy Premium less (z) the RWI Policy Premium Overage (such amount, the “Aggregate Purchaser Liability Cap”).
77 (c) The parties acknowledge and agree that the Purchaser Indemnified Parties’ indemnifiable Losses pursuant to Section 9.1(a) of this Agreement (subject to the limitations in Section 9.6(a)) shall be satisfied in the following order and priority: (i) first, from the Sellers up to a maximum aggregate amount equal to $175,000, which amount shall be recovered solely from the Holdback Amount; (ii) second, from the RWI Policy (including, without limitation, any general policy or excess policy for Fundamental Representations); (iii) third, from the Sellers solely from and up to the then-remaining Holdback Amount; and (iv) fourth, solely for any Losses relating to any Fundamental Representations, from the Sellers solely up to the Aggregate Seller Liability Cap. (d) To the extent the Holdback Amount has been exhausted and the Purchaser has additional indemnifiable Losses under Section 9.1(b) or Section 9.1(e), then any Earn-Out Payments due and payable pursuant to Section 2.12 shall be reduced on a dollar-for-dollar basis by the amount of such Losses (the absolute value of any such amount that is reduced from any Earn-Out Payment, a “Recovered Earn-Out Loss”); provided further that, in all events, (x) such reduction of the Earn-Out Payments shall not exceed the total amount of the Earn-Out Payments and (y) no Seller, member of Management or Management Earn-Out Pool Recipient shall have any Liability or indemnification obligation with respect to such Losses. (e) Notwithstanding anything to the contrary herein, the Sellers shall not be liable under Section 9.1 (other than Section 9.1(c), Section 9.1(d) or other obligation pursuant to Section 2.12) for an amount in the aggregate in excess of the Aggregate Seller Liability Cap. Notwithstanding anything to the contrary herein, the Purchaser shall not be liable under Section 9.2 (other than Section 9.2(c), Section 9.2(d) or in connection with any Earn-Out Payment or other obligation pursuant to Section 2.12) for an amount in the aggregate in excess of the Aggregate Purchaser Liability Cap. (f) The Purchaser Indemnified Parties shall have an obligation to promptly seek to recover or make a claim for insurance proceeds (including under the RWI Policy), and shall use commercially reasonable efforts to recover insurance proceeds, as a result of any matter giving rise to an indemnification claim of the Purchaser Indemnified Parties against the Indemnifying Party, to the extent coverage may be available therefor. Notwithstanding anything to the contrary herein, the Purchaser shall not cancel, revoke, waive, amend or otherwise revise the RWI Policy to reduce the total liability limit with respect to Fundamental Representations below $35,000,000 or other representations below $10,000,000, at any time prior to the termination or expiration of Sellers’ indemnification obligations pursuant to Section 9.1(a) without the Selling Parties Representative’s prior written consent. (g) The Sellers acknowledge and agree that the denial of any claim to recover specific Losses by any Purchaser Indemnified Party under the RWI Policy shall not be construed as, or used as evidence that such Purchaser Indemnified Party is not entitled to indemnification under this Article 9, subject to the limitations set forth in this Article 9. The Purchaser may simultaneously bring a claim to recover the specific Losses subject to such claim against the Sellers under this Article 9 (subject to the limitations and procedures under this Article 9) subject to the priority of recovery contained in Section 9.6(c). (h) The amount of any Losses for which indemnification is provided pursuant to this Article 9 will be reduced by any amounts of any insurance proceeds actually received by the Purchaser Indemnified Party with respect to such Losses or any of the circumstances giving rise thereto (net of out-of-pocket
78 expenses reasonably incurred in obtaining such recovery under any insurance policies), including any amounts received under the RWI Policy (such insurance proceeds, including any amounts received under the RWI Policy, the “Insurance Proceeds”). (i) Notwithstanding anything in this Agreement to the contrary, for purposes of determining whether any representation or warranty has been breached and the amount of Losses arising therefrom, each representation and warranty in this Agreement (and Schedules and Exhibits hereto) (except the first sentence of Section 3.8) will be read without regard and without giving effect to the terms or phrases “material,” “in all material respects,” “in any material respect,” “material adverse change,” “material adverse effect,” “Material Adverse Effect,” “which would not reasonably be expected to be material to the Sellers,” “except where the failure to so qualify has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect” or similar words or phrases contained in such representation or warranty (as if such words or phrases were deleted from such representation and warranty) (and, for the avoidance of doubt, the foregoing limitation shall not apply to the terms “Material Contract”, “Material Customer”, or “Material Supplier”). (j) Nothing in this Agreement will limit the Liability of a party to another party for any intentional fraud, intentional misrepresentation or Willful Breach under this Agreement. (k) For avoidance of doubt, neither Sellers nor the Active Shareholders shall be liable in respect of any Claim Notice delivered for a claim pursuant to Section 9.1(a) of this Agreement if the matter or thing giving rise to the Claim Notice has been disclosed in the Seller Disclosure Schedule. 9.7 Exercise of remedies by Purchaser Indemnified Parties other than the Purchaser No Purchaser Indemnified Party (other than the Purchaser or any successor or assignee of the Purchaser) is entitled to assert any indemnification claim or exercise any other remedy under this Agreement unless the Purchaser (or any successor or assignee of the Purchaser) consents to the assertion of the indemnification claim or the exercise of such other remedy. No Seller Indemnified Party (other than the Sellers or any successor or assignee of the Sellers) is entitled to assert any indemnification claim or exercise any other remedy under this Agreement unless the Selling Parties Representative (or any successor or assignee of the Selling Parties Representative) consents to the assertion of the indemnification claim or the exercise of such other remedy. 9.8 Release of Holdback Amount Notwithstanding anything to the contrary herein, the Holdback Amount shall be released as follows: (a) upon the Audit Completion (but in any case not later than twelve (12) months after the Closing Date) without the occurrence of an Audit Breach, the Purchaser shall pay by wire transfer of immediately available funds to the Sellers (in accordance with their respective Seller Allocation Percentages) the Audit Release Amount (provided that if any Seller has then liquidated, dissolved or wound up, then the amount that would be paid to such Seller shall be paid to the Shareholders (or their successors or assigns) in accordance with their respective Shareholder Allocation Percentages) within five (5) Business Days after the date of such Audit Completion; (b) an amount up to the Working Capital Release Amount shall be paid to the Sellers in accordance with Sections 2.9(f); (c) to the extent that the Holdback Amount has not been exhausted (pursuant to Sections 2.9(f), 5.15 or 9.3(b)) as of the date that the Parent timely completes its financial audit for the twelve (12) month
79 period ending December 31, 2023 (but, in no event, later than March 31, 2024), then the Purchaser shall pay by wire transfer of immediately available funds to the Sellers (in accordance with their respective Seller Allocation Percentages) fifty percent (50%) of the remaining amount of the Holdback Amount less the amount of any pending and unresolved indemnification claims pursuant to Article 9 of this Agreement (provided that if any Seller has then liquidated, dissolved or wound up, then the amount that would be paid to such Seller shall be paid to the Shareholders (or their successors or assigns) in accordance with their respective Shareholder Allocation Percentages) within five (5) Business Days after such date; and (d) to the extent that the Holdback Amount has not been exhausted (pursuant to Sections 2.9(f), 5.15 or 9.3(b)) as of the date that is twenty-four (24) months after the Closing Date, then the Purchaser shall pay by wire transfer of immediately available funds to the Sellers (in accordance with their respective Seller Allocation Percentages) the remaining amount of the Holdback Amount less the amount of any pending and unresolved indemnification claims pursuant to Article 9 of this Agreement (provided that if any Seller has then liquidated, dissolved or wound up, then the amount that would be paid to such Seller shall be paid to the Shareholders (or their successors or assigns) in accordance with their respective Shareholder Allocation Percentages) within five (5) Business Days after such date. 9.9 No Double Recovery No Losses may be claimed under Section 9.1 by any Indemnifying Party to the extent such Losses are included in the calculation of any component of the Purchase Price or any adjustment to the Purchase Price pursuant to Sections 2.6 or 2.9, or excluded (without double-counting) pursuant to Section 9.6(h). 9.10 Exclusive remedies From and after the Closing, subject to any rights of the Purchaser under the RWI Policy and except with respect to (a) any claims involving, arising out of or resulting from intentional fraud or intentional misrepresentation with respect to any representation, warranty, covenant or agreement contained in this Agreement or (b) claims for specific performance, injunctive or other equitable relief, the sole and exclusive remedy of the parties to this Agreement for any matter arising out of the transactions contemplated by this Agreement (except for disputes under Section 2.9 or Section 2.12, which disputes will be resolved in accordance with the dispute resolution mechanism set forth in Section 2.9 or Section 2.12, as applicable) will be pursuant to the indemnification provisions set forth in this Article 9. 9.11 Mitigation Each of the parties acknowledges their respective duty under applicable Law to mitigate their respective Losses. 9.12 Tax treatment of indemnification payments To the extent permitted by applicable Law, the parties agree that any indemnification payments (or payments or adjustments) made with respect to this Agreement shall be treated for all Tax purposes as an adjustment to the Purchase Price.
80 ARTICLE 10 PURCHASER GUARANTEES 10.1 General As an inducement to the parties to enter into this Agreement, the Parent agrees to be a party to this Agreement solely for purposes of this Article 10 and Article 12. The Parent shall not have any obligations or Liability of any kind hereunder other than with respect to this Article 10 and Article 12. 10.2 Guaranty of Earn-Out Payments by Parent The Parent irrevocably and unconditionally guarantees to the Sellers the full and punctual payment of all Earn-Out Payments in accordance with Section 2.12 to the extent required to be paid at any time under Section 2.12 (including the payment of any indemnifiable Losses of the Seller Indemnified Parties subject to indemnification under (and subject to the limitations of) Article 9 with respect to breaches by the Purchaser of Section 2.12), from the date hereof through the latest of the following with respect to each Earn-Out Payment: (x) the payment of such Earn-Out Payment by the Purchaser or the Parent or (y) a final determination pursuant to Section 2.12 that such Earn-Out Payment is not required to be paid or (z) the termination, satisfaction or expiration of such indemnification obligations, or any combination of the foregoing as applicable. The guaranty by the Parent in this Article 10 (the “Parent Guaranty”) is an absolute and continuing guarantee of payment and not merely of collection. The Parent Guaranty shall terminate, be null and void, and be of no further force and effect with respect to any Earn-Out Payment, and the Sellers shall have no further rights to bring claims or assert other rights under the Parent Guaranty with respect to such Earn-Out Payment, upon and following the latest of the following with respect to each Earn-Out Payment: (x) the payment of such Earn-Out Payment by the Purchaser or the Parent or (y) a final determination pursuant to Section 2.12 that such Earn-Out Payment is not required to be paid. 10.3 Absolute Guaranty; Waivers (a) The obligations of the Parent under the Parent Guaranty shall not be diminished or affected, in any way, by any bankruptcy, reorganization, arrangement, liquidation or similar proceeding with respect to the Purchaser, respectively, or by the dissolution of the Purchaser. The Parent Guaranty shall continue in full force and effect, notwithstanding any merger, consolidation, sale of assets or any other similar transaction of the Purchaser or the Parent. (b) Notwithstanding anything to the contrary herein, prior to enforcing the rights and remedies under this Article 10 against the Parent, the Selling Parties Representative must first make a written demand to the Purchaser for payment of any Earn-Out Payments in accordance with Article 9 (if the Purchaser has not been liquidated, dissolved or wound up at such time). To the extent that the Purchaser does not pay any such Earn-Out Payments within thirty (30) calendar days when due or thirty (30) calendar days after the Selling Parties Representative makes such written demand (whichever is later), the Selling Parties Representative may then make a written demand to the Parent for payment of any Earn-Out Payments in accordance with this Article 10. (c) Subject to Section 10.3(b), the Liability of the Parent under the Parent Guaranty shall be direct and immediate, and not conditional or contingent upon pursuit by the Sellers of any remedies they may have against the Purchaser. Any one or more successive or concurrent actions may be brought hereon against the Parent, either in the same action or proceeding, if any, brought against the Purchaser. (d) The Parent hereby expressly waives: (i) presentment and (subject to Section 10.3(b)) demand for payment and protest of nonpayment; (ii) notices of acceptance of the Parent Guaranty and of
81 presentment, demand and protest; (iii) notice of any default; (iv) demand for observance, performance or enforcement of any terms and provisions of the Parent Guaranty; and (v) all other notices and demands otherwise required by Law which the Parent may lawfully waive. 10.4 Amendments Notwithstanding Section 12.3, the Parent may not amend, modify, supplement, waive or assign its rights or obligations under Article 10 and Article 12 without the prior written consent of the Selling Parties Representative. 10.5 Representations and Warranties The Parent represents and warrants to the Sellers that (i) the execution and delivery of this Agreement (solely to the extent of this Article 10 and Article 12) and performance of the Parent Guaranty by the Parent has been duly and validly authorized and approved by all necessary corporate action, and no other proceedings or actions on the part of the Parent are necessary therefor, and (ii) this Agreement (solely to the extent of this Article 10 and Article 12) has been duly and validly executed and delivered by the Parent and constitutes a valid and legally binding obligation of the Parent, enforceable against the Parent in accordance with its terms, subject to the Insolvency and Equity Exceptions. ARTICLE 11 ACTIVE SHAREHOLDER GUARANTEES 11.1 General As an inducement to the parties to enter into this Agreement, the Active Shareholders agree to be parties to this Agreement solely for purposes of this Article 11 and Article 12. The Active Shareholders shall not have any obligations or Liability of any kind hereunder other than with respect to this Article 11 and Article 12. 11.2 Guaranty of Seller Indemnifications by Active Shareholders (a) Each Active Shareholder, severally and not jointly, and solely in proportion to its Shareholder Allocation Percentage, irrevocably and unconditionally guarantees to the Purchaser the full and punctual payment and performance by the Sellers of such Active Shareholder’s Shareholder Allocation Percentage of the indemnification obligations of the Sellers under Section 9.1(a) with respect solely to any inaccuracy in or breach of any Active Shareholder Fundamental Representation (a “Fundamental Representation Breach”) contained in this Agreement, subject to the terms, conditions, limitations and restrictions set forth in Article 9 of this Agreement. (b) The guaranty by the Active Shareholders in this Article 11 (the “Active Shareholder Guaranty”) is an absolute and continuing guarantee of payment and not merely of collection. (c) The Active Shareholder Guaranty shall terminate, be null and void, and be of no further force and effect, and the Purchaser shall have no further rights to bring claims or assert other rights under the Active Shareholder Guaranty, upon and following the termination, satisfaction or expiration of such indemnification obligations with respect to Fundamental Representation Breaches under Article 9. 11.3 Absolute Guaranty; Waivers (a) The obligations of the Active Shareholders under the Active Shareholder Guaranty shall not be diminished or affected, in any way, by any bankruptcy, reorganization, arrangement, liquidation or
82 similar proceeding with respect to the Sellers, respectively, or by the dissolution of the Sellers. The Active Shareholder Guaranty shall continue in full force and effect, notwithstanding any merger, consolidation, sale of assets or any other similar transaction of the Sellers or the Active Shareholders, to the extent applicable. (b) Notwithstanding anything to the contrary herein, prior to enforcing the rights and remedies under this Article 11 against the Active Shareholders, the Purchaser must first make a written demand to the Sellers for payment or performance of the indemnification obligations of Sellers in accordance with Article 9 (if the Sellers have not been liquidated, dissolved or wound up at such time). To the extent that the Sellers do not pay or perform the indemnification obligations of the Sellers under Article 9 within thirty (30) calendar days when due or thirty (30) calendar days after the Purchaser makes such written demand (whichever is later), the Purchaser may then make a written demand to the Active Shareholders for payment of any indemnification obligations in accordance with this Article 11 within thirty (30) calendar days when due or thirty (30) calendar days after the Purchaser makes such demand (whichever is later). (c) Except with respect to the intentional fraud of such Active Shareholder, notwithstanding anything to the contrary herein, in no event shall any Active Shareholder have any Liability hereunder at any time greater than the lesser of (i) such Active Shareholder’s Shareholder Allocation Percentage of the Aggregate Seller Liability Cap at such time less any amounts paid by the Sellers pursuant to the indemnification obligations under this Agreement (whether with respect to the Fundamental Representations or any other indemnification obligation hereunder, and whether paid directly or retained from the Holdback Amount) or (ii) the portion of the Final Purchase Price actually distributed or dividended by any Seller to such Active Shareholder after the Closing. Notwithstanding anything to the contrary herein, in no event shall any Active Shareholder have any Liability with respect to any special, incidental, indirect, punitive or consequential losses, damages or Liabilities or losses, damages or Liabilities calculated based upon any multiple of lost earnings or other similar methodology (including lost profits, loss of revenue, lost sales or diminution in value, loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement or any damages based on any type of multiple) used to value the Business, the Sellers or the Purchased Assets or based on the financial performance or results of operations of the Business, the Sellers or the Purchased Assets (regardless of any such Liability with respect to which the Sellers may have any indemnification obligation or whether any Purchaser Indemnified Party has incurred any such losses, damages or Liabilities). (d) Subject to Section 11.3(b), the Liability of the Active Shareholders under the Active Shareholder Guaranty shall be direct and immediate, and not conditional or contingent upon pursuit by the Purchaser of any remedies they may have against the Sellers. Any one or more successive or concurrent actions may be brought hereon against the Active Shareholders, either in the same action or proceeding, if any, brought against the Sellers. (e) Each Active Shareholder hereby expressly waives: (i) presentment and (subject to Section 11.3(b)) demand for payment and protest of nonpayment; (ii) notices of acceptance of the Active Shareholder Guaranty and of presentment, demand and protest; (iii) notice of any default; (iv) demand for observance, performance or enforcement of any terms and provisions of the Active Shareholder Guaranty; and (v) all other notices and demands otherwise required by Law which the Active Shareholders may lawfully waive. 11.4 Amendments Notwithstanding Section 12.3, the Active Shareholders may not amend, modify, supplement, waive or assign their rights or obligations under Article 11 and Article 12 without the prior written consent of the Purchaser.
83 11.5 Representations and Warranties Each Active Shareholder represents and warrants to the Purchaser that (i) the execution and delivery of this Agreement (solely to the extent of this Article 11 and Article 12) and performance of the Active Shareholder Guaranty by each Active Shareholder has been duly and validly authorized and approved by all necessary corporate action, if applicable, and no other proceedings or actions on the part of the Active Shareholders are necessary therefor, and (ii) this Agreement (solely to the extent of this Article 11 and Article 12) has been duly and validly executed and delivered by each Active Shareholder and constitutes a valid and legally binding obligation of each Active Shareholder, enforceable against each Shareholder in accordance with its terms, subject to the Insolvency and Equity Exceptions. 11.6 Inactive Shareholders For the avoidance of doubt, the provisions of this Article 11 and all other provisions of this Agreement do not, and shall not, apply to Maxym Polyakov or I.S.P (each, an “Inactive Shareholder”). The Inactive Shareholders will not have any Liability under this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby, whether directly or for any obligations of the Active Shareholders, the Sellers, the Selling Parties Representative or any other party to this Agreement or any Ancillary Agreement, except with respect to any intentional fraud by such Inactive Shareholder or (in the case of Maxym Polyakov) in accordance with the Noncompetition Agreement signed by him. ARTICLE 12 GENERAL PROVISIONS 12.1 Selling Parties Representative (a) By virtue of their execution of this Agreement, each Seller designates and appoints ClickDealer Cyprus (the “Selling Parties Representative”) as their agent and attorney-in-fact with full power and authority to (i) act for and on behalf of them to give and receive notices and communications, (ii) accept service of process on behalf of each of them, (iii) authorize and agree to adjustments to the Estimated Purchase Price under Section 2.9 and other applicable provisions of this Agreement, (iv) agree to, negotiate, enter into settlements and compromises of, and comply with Judgments of courts or other Governmental Authorities and awards of arbitrators with respect to any claims by any Purchaser Indemnified Party against any Seller or by any Seller against any Purchaser Indemnified Party or any other dispute between any Purchaser Indemnified Party and any Seller, in each case relating to this Agreement or the transactions contemplated by this Agreement and (v) take all actions that are either (A) necessary or appropriate in the judgment of the Selling Parties Representative for the accomplishment of the foregoing or (B) specifically mandated by the terms of this Agreement. Notices or communications to or from the Selling Parties Representative constitute notice to or from each Seller for all purposes under this Agreement. (b) The Selling Parties Representative may delegate or assign its authority as Selling Parties Representative to any one of the Shareholders for a fixed or indeterminate period of time upon not less than ten (10) Business Days’ prior written notice to the Purchaser. In the event of the death or incapacity of any individual serving as Selling Parties Representative or the dissolution or liquidation of any entity serving as the Selling Parties Representative, a successor Selling Parties Representative will be elected promptly by the Shareholders who as of the Closing Date hold of record a majority of the shares of ClickDealer Cyprus’s common stock held by the Shareholders, and the Shareholders will so notify the Purchaser. Each successor Selling Parties Representative will have all of the power, authority, rights and privileges conferred by this Agreement upon the original Selling Parties Representative, and the term “Selling Parties Representative” as used in this Agreement includes any successor Selling Parties Representative.
84 (c) A decision, act, instruction or Consent of the Selling Parties Representative constitutes a decision, act, instruction or Consent of all of the Sellers and is final, binding and conclusive upon the Sellers, and the Purchaser and any Purchaser Indemnified Party may rely upon any such decision, act, instruction or Consent of the Selling Parties Representative as being the decision, act, instruction or Consent of the Sellers. The Purchaser is hereby relieved from any Liability to any Person for any acts done or omissions by the Purchaser in accordance with such decision, act, instruction or Consent of the Selling Parties Representative. Without limiting the generality of the foregoing, the Purchaser is entitled to rely, without inquiry, upon any document delivered by the Selling Parties Representative as being genuine and correct and having been duly signed or sent by the Selling Parties Representative. (d) The Selling Parties Representative will have no Liability to any Person for any act done or omitted under this Agreement as the Selling Parties Representative while acting in good faith and not in a manner constituting willful misconduct, and any act done or omitted pursuant to the advice of counsel will be conclusive evidence of such good faith. (e) The Selling Parties Representative will receive no compensation for services as the Selling Parties Representative. (f) This appointment and grant of power and authority by the Sellers to the Selling Parties Representative pursuant to this Section 12.1 is coupled with an interest, is in consideration of the mutual covenants made in this Agreement, is irrevocable and may not be terminated by the act of any Seller or by operation of Law or the occurrence of any other event. (g) Notwithstanding anything to the contrary herein, (i) the Selling Parties Representative shall only act as the agent, attorney-in-fact and representative of the Sellers and (ii) the Shareholders do not appoint any agent, attorney-in-fact or other representative hereunder. 12.2 Notices All notices and other communications under this Agreement must be in writing and are deemed duly delivered when (a) delivered, if delivered personally or by internationally recognized overnight courier service (costs prepaid and signed for in each case), (b) sent by electronic mail (or, the first Local Business Day following such transmission if the date of transmission is not a Local Business Day or is delivered after 5:30 pm local time in the place of receipt on a Local Business Day), provided that receipt of such electronic mail is acknowledged by electronic mail or a physical copy of such electronic mail transmission is promptly delivered pursuant to one of the other subsections of this Section 12.2 or (c) received or rejected by the addressee, if sent by international certified or registered mail, return receipt requested; in each case to the following addresses or email addresses (as applicable) and marked to the attention of the individual (by name or title) designated below (or to such other address, email address or individual as a party may designate by notice to the other parties): If to the Sellers: G.D.M. Group Holding Limited Ioanni Stylianou 6 2nd Floor, Flat/Office 202 2003 Nicosia, Cyprus Attention: Yuriy Marusenko; Sergey Sadchykov Email: y@m.ht; sadchikov@clickdealer.com
85 with a copy (which will not constitute notice) to: DLA Piper LLP (US) 2000 University Avenue East Palo Alto, CA 94303 Attention: Craig Tighe; Edmund Mokhtarian Email: craig.tighe@us.dlapiper.com; edmund.mokhtarian@us.dlapiper.com If to the Selling Parties Representatives: G.D.M. Group Holding Limited Ioanni Stylianou 6 2nd Floor, Flat/Office 202 2003 Nicosia, Cyprus Attention: Yuriy Marusenko; Sergey Sadchykov Email: y@m.ht; sadchikov@clickdealer.com with a copy (which will not constitute notice) to: DLA Piper LLP (US) 2000 University Avenue East Palo Alto, CA 94303 Attention: Craig Tighe; Edmund Mokhtarian Email: craig.tighe@us.dlapiper.com; edmund.mokhtarian@us.dlapiper.com If to the Purchaser: Digital Media Solutions, LLC 4800 140th Avenue North, Suite 101 Clearwater, FL 33762 Attention: Anthony Saldana, General Counsel Email: legal@dmsgroup.com with a copy (which will not constitute notice) to: Baker & McKenzie LLP 600 Hansen Way Palo Alto, CA 94304 Attention: Leif B. King Derek Liu Email: leif.king@bakermckenzie.com derek.liu@bakermckenzie.com 12.3 Amendment This Agreement may not be amended, supplemented or otherwise modified except in a written document signed by each party to be bound by the amendment and that identifies itself as an amendment to this Agreement. Any amendment of this Agreement signed by the Selling Parties Representative is binding upon and effective against each Seller regardless of whether or not such Seller has in fact signed such amendment.
86 12.4 Conflict of interest If the applicable Seller, the Selling Parties Representative or the applicable Shareholder so desires, and without the need for any consent or waiver by the Purchaser or its Affiliates, DLA Piper LLP (US) is permitted to represent any applicable Seller, the Selling Parties Representative or any applicable Shareholder after the Closing in connection with any matter related to the transactions contemplated by this Agreement or any disagreement or dispute relating thereto. 12.5 Waiver and remedies Neither any failure nor any delay by any party in exercising any right, power or privilege under this Agreement or any of the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable Law, (a) no claim or right arising out of this Agreement or any of the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in a written document signed by the other parties (or in the case of the Sellers, the Selling Parties Representative), (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given, and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of that party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. Any enumeration of a party’s rights and remedies in this Agreement is not intended to be exclusive, and a party’s rights and remedies are intended to be cumulative to the extent permitted by law and include any rights and remedies authorized in law or in equity. 12.6 Entire Agreement This Agreement (including the Schedules and Exhibits hereto and the Ancillary Agreements) constitutes the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties, or any of them, written or oral, with respect to the subject matter of this Agreement, including that certain Letter of Intent dated September 23, 2022 by and between the Parent and the Company. Notwithstanding the foregoing, the Confidentiality Agreement will remain in effect in accordance with its terms as modified pursuant to Section 5.7. 12.7 Assignment and successors and no Third Party Rights (a) This Agreement binds and benefits the parties and their respective heirs, executors, administrators, successors and assigns, except that no Seller may assign any rights under this Agreement, whether by operation of Law or otherwise, without the prior written consent of the Purchaser. No party may delegate any performance of its obligations under this Agreement, except that the Purchaser may at any time delegate the performance of its obligations to any Affiliate of the Purchaser so long as the Purchaser remains fully responsible for the performance of the delegated obligation. Except for the rights of any Indemnified Parties under the provisions of Article 9 and the rights of the Non-Recourse Parties pursuant to Section 12.16, no provision of this Agreement is intended or will be construed to confer upon any Person other than the parties to this Agreement and their respective heirs, successors and permitted assigns any right, remedy or claim under or by reason of this Agreement. (b) Notwithstanding anything to the contrary herein (including Section 12.7(a)), nothing in this Agreement shall prevent any Seller from liquidating, dissolving or winding-down any Seller after the Closing; provided that upon such liquidation, dissolution or winding down any such Seller may assign its
87 rights hereunder to any other Seller or (in accordance with their respective Shareholder Allocation Percentages) the Shareholders without the consent of any other party hereto. 12.8 Severability If any provision of this Agreement is held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement are not affected or impaired in any way and the parties agree to negotiate in good faith to replace such invalid, illegal and unenforceable provision with a valid, legal and enforceable provision that achieves, to the greatest lawful extent, the economic, business and other purposes of such invalid, illegal or unenforceable provision. 12.9 Exhibits and Schedules The Exhibits and Schedules to this Agreement are incorporated herein by reference and made a part of this Agreement. The Seller Disclosure Schedule and the Purchaser Disclosure Schedule are arranged in sections and paragraphs corresponding to the numbered and lettered sections and paragraphs of Article 3 and Article 4, as applicable. The disclosure in any section or paragraph of the Seller Disclosure Schedule or the Purchaser Disclosure Schedule shall be deemed to be disclosed against and qualify all other sections and paragraphs in this Agreement only to the extent it is reasonably apparent upon a reading of such disclosure without any independent knowledge on the part of the reader regarding the matter disclosed that such disclosure would or should be disclosed against and qualify such other sections and paragraphs. Nothing in the Seller Disclosure Schedule or the Purchaser Disclosure Schedule shall be deemed to broaden the scope of any representation or warranty contained in the Agreement or to create any covenant. Inclusion of any item in this Seller Disclosure Schedule or the Purchaser Disclosure Schedule: (1) does not represent a determination that such item is material or establish a standard of materiality; (2) does not represent a determination that such item did not arise in the ordinary course of business; (3) does not represent a determination that the transactions contemplated by this Agreement require the consent of any third parties; and (4) shall not constitute, or be deemed to be, an admission to any third party concerning such item. The Seller Disclosure Schedule or the Purchaser Disclosure Schedule may include brief descriptions or summaries of certain agreements and instruments, copies of which have been provided and made available to the Purchaser. Such descriptions do not purport to be comprehensive and shall be qualified in their entirety by reference to the text of the documents described. 12.10 Interpretation In the negotiation of this Agreement, each party has received advice from its own attorney. The language used in this Agreement is the language chosen by the parties to express their mutual intent, and no provision of this Agreement will be interpreted for or against any party because that party or its attorney drafted the provision. 12.11 Governing Law This Agreement will be deemed to be made in and in all respects will be interpreted, construed and governed by and in accordance with the Law of the state of Delaware without regard to the conflicts of Law principles thereof. 12.12 Specific performance The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. The parties accordingly agree that, in addition to any other remedy to which they are entitled at law or in
88 equity, the parties are entitled to injunctive relief to prevent breaches of this Agreement and otherwise to enforce specifically the provisions of this Agreement. Each party expressly waives (a) any defenses in any action for specific performance, including the defense that a remedy at law would be adequate, and (b) any requirement that any other party obtain any bond or provide any security or indemnity in connection with any action seeking injunctive relief or specific enforcement of the provisions of this Agreement. 12.13 AAA Arbitration Any Proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement shall be finally settled in accordance with the Arbitration Rules of the American Arbitration Association in force when the notice of arbitration is submitted. The venue of the arbitration shall be New York, New York and the language of the arbitration shall be English. The number of arbitrators in connection with any such Proceeding shall be three (3), one (1) of whom shall be selected by the Selling Parties Representative, one (1) of whom shall be selected by the Purchaser and one (1) of whom shall be selected by mutual agreement of the other two (2) arbitrators. 12.14 Waiver of jury trial EACH OF THE PARTIES KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE ACTIONS OF ANY PARTY TO THIS AGREEMENT IN NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT. 12.15 Expenses Except as otherwise provided in this Agreement, each party will pay its respective direct and indirect expenses and costs incurred by it in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated by this Agreement, including all fees and expenses of its advisors and representatives. All amounts relating to any financial, legal, accounting or other advisor, and all other transaction fees and expenses incurred by the Sellers in connection with this Agreement and the transactions contemplated by this Agreement, will be paid by the Sellers in full (whether before or after the Closing Date) or will be included within the definition of the Seller Transaction Expenses. For the avoidance of doubt, Liabilities (including fees and expenses) stemming from, or relating to, Purchaser’s obligations under this Section 12.15 shall not be Seller Transaction Expenses and shall be obligations of, and shall be paid by, the Purchaser. If this Agreement is terminated, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from any breach of this Agreement by another party. 12.16 Non-Recourse Subject to the following sentence, this Agreement may only be enforced by the Sellers, the Shareholders, the Selling Parties Representative or any other Person against, and any Proceeding by any of them based upon, arising out of or related to this Agreement or the negotiation, execution or performance of this Agreement may only be brought against, the Purchaser or (in accordance with Article 10) Parent and only with respect to the specific obligations set forth herein with respect to the Purchaser or Parent, as applicable. No past, present or future director, officer, employee, incorporator, manager, member, partner, shareholder, Affiliate, agent, attorney or other Representative of the Purchaser (other than Parent or any Purchasing Entities party to any Ancillary Agreement), or any of their successors or permitted assigns (each,
89 a “Non-Recourse Party”), will have any Liability for any obligations of the Purchaser, Parent or any Purchasing Entities party to any Ancillary Agreement under this Agreement or any Ancillary Agreement for any claim based on, in respect of or by reason of the transactions contemplated hereby, except with respect to any intentional fraud or intentional misrepresentation in any certificate delivered in connection herewith. This Section 12.16 is intended to benefit and may be enforced by the Purchaser and each Non- Recourse Party (and each such Person will be a third party beneficiary of this Section 12.16) and will be binding on all the respective successors and permitted assigns of the Sellers and the Selling Parties Representative. 12.17 No joint venture Nothing in this Agreement creates a joint venture or partnership between the parties. This Agreement does not authorize any party (a) to bind or commit, or to act as an agent, employee or legal representative of, the other parties, except as may be specifically set forth in other provisions of this Agreement or (b) to have the power to control the activities and operations of the other parties. The parties are independent contractors with respect to each other under this Agreement. Each party agrees not to hold itself out as having any authority or relationship contrary to this Section 12.17. 12.18 Counterparts The parties may execute this Agreement in multiple counterparts, each of which constitutes an original as against the party that signed it, and all of which together constitute one agreement. This Agreement is effective upon delivery of one executed counterpart from each party to the other parties. The signatures of all parties need not appear on the same counterpart. The delivery of signed counterparts by email transmission that includes a copy of the sending party’s signature(s) is as effective as signing and delivering the counterpart in person. 12.19 Joint and several liability of Sellers and Active Shareholders The Liability of the Sellers under this Agreement shall be joint and several. The Liability of each Active Shareholder under Article 11 of this Agreement shall be several and not joint. 12.20 Prevailing Documents In the event that any of the terms of this Agreement conflict with any of the terms of any Ancillary Agreements, the terms of this Agreement will prevail. All matters relating to the transfer of the Purchased Assets and Assumed Liabilities from the relevant Seller, on the one hand, to the Purchaser or the relevant Purchasing Entity, on the other hand, which are not expressly regulated under the relevant Ancillary Agreements, are deemed to be regulated by this Agreement. [Signature page follows.]
[Signature Page to Asset Purchase Agreement] EXECUTION The parties have executed and delivered this Agreement as of the date indicated in the first sentence of this Agreement. DIGITAL MEDIA SOLUTIONS, LLC By: Name: Joseph Marinucci Title: Chief Executive Officer and President
[Signature Page to Asset Purchase Agreement] SOLELY AS A PARTY TO ARTICLES 10 AND 12 OF THIS AGREEMENT: DIGITAL MEDIA SOLUTIONS, INC. By: Name: Joseph Marinucci Title: Chief Executive Officer and President
[Signature Page to Asset Purchase Agreement] G.D.M. GROUP HOLDING LIMITED By: Name: Title: CLICKDEALER ASIA PTE. LTD. By: Name: Title: GDMGROUP ASIA LIMITED By: Name: Title: Katerina Iosif Director Maria Koutsou Director Maria Koutsou Director . ~ · ~ , ~
CLICKDEALER EUROPE BV By: Name: Volodymyr Levkivskyi Title: Director ISigna111re Page lo Asset P11rchase Agreement]
[Signature Page to Asset Purchase Agreement] SOLELY AS PARTIES TO ARTICLES 11 AND 12 OF THIS AGREEMENT: Dmytro Atamaniuk, in his individual capacity Tetyana Seredyuk, in her individual capacity
SOLELY AS PARTIES TO ARTICLES 11 AND 12 OF TffiS AGREEMENT: Dmytro Atamaniuk, in his individual capacity Tetyana Seredyuk, in her individual capacity [Signature Page lo Asset Purchase Agreement]
[Signature Page to Asset Purchase Agreement] ACCEPTANCE AND AGREEMENT OF SELLING PARTIES REPRESENTATIVE The undersigned, being the Selling Parties Representative appointed in Section 12.1 of the foregoing Agreement, agrees to serve as the Selling Parties Representative and to be bound by the terms of the Agreement pertaining to that role. Date: G.D.M. GROUP HOLDING LIMITED By: Name: Title: Katerina Iosif Director March 6, 2023
SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this “Agreement”) is dated as of March 29, 2023, between Digital Media Solutions, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature page hereto (including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”). WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to an exemption from the registration requirements of Section 5 of the Securities Act contained in Section 4(a)(2) thereof and/or Regulation D thereunder as to the shares of Preferred Stock and Warrants, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows: ARTICLE I. DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1: “Acquiring Person” shall have the meaning ascribed to such term in Section 4.5. “Action” shall have the meaning ascribed to such term in Section 3.1(j). “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act. “Blank Rome” means Blank Rome LLP, with offices located at 1271 Avenue of the Americas, New York, New York 10020. “Board of Directors” means the board of directors of the Company. “Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in the City of New York generally are open for use by customers on such day. “Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1. “Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i)
2 the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived. “Commission” means the United States Securities and Exchange Commission. “Common Stock” means the Class A common stock of the Company, par value $0.0001 per share. “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred shares, right, option, warrant 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. “Company Counsel” means Baker & McKenzie LLP, with offices located at 700 Louisiana Street, Suite 700, Houston, Texas 77002. “Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof. “Disclosure Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith. “Disclosure Time” means, (i) if this Agreement is signed on a day that is not a Trading Day or after 9:00 a.m. (New York City time) and before midnight (New York City time) on any Trading Day, 9:01 a.m. (New York City time) on the Trading Day immediately following the date hereof, and (ii) if this Agreement is signed between midnight (New York City time) and 9:00 a.m. (New York City time) on any Trading Day, no later than 9:01 a.m. (New York City time) on the date hereof. “Escrow Agreement” means the escrow agreement to be entered into on the Closing Date by and among the Company, Continental Stock Transfer & Trust Company, and the Purchaser Representative party thereto, in the form of Exhibit E attached hereto. “Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(s). “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, consultants, officers or directors of the Company pursuant to any share or option plan or arrangement duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company (including any shares of Common Stock issued to or sold by a plan administrator for purposes of satisfying tax payment obligations upon vesting), (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with share splits or combinations) or to extend the term of such
3 securities, (c) securities issued pursuant to acquisitions or strategic transactions and the payment of contractor invoices in the ordinary course of business approved by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period in Section 4.12(a) herein, and provided that any such issuance shall only be to a Person (or to the equityholders 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 and (d) as set forth on Schedule 1.1. “FCPA” means the Foreign Corrupt Practices Act of 1977, as amended. “Financial Advisor” means A.G.P./Alliance Global Partners. “Financial Advisory Agreement” means that certain financial advisory agreement dated as of the date hereof between the Company and the Financial Advisor. “Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa). “Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(p). “Irrevocable Transfer Agent Instruction Letter” shall mean the Irrevocable Transfer Agent Instruction Letter, dated on or about the date hereof, from the Company to the Transfer Agent, in form and substance reasonably satisfactory to the Purchasers. “Issuer Covered Person” means the Company, any of its predecessors, any affiliated issuer, or, to its knowledge, 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 Securities Act) connected with the Company in any capacity at the time of sale. “Investor Side Letter” means the Investor Side Letter, dated on or about the date hereof, among certain existing investors in the Company and certain of the Purchasers, in the form of Exhibit F attached hereto. “Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(d). “Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction. “Lock-Up Agreements” means the lock-up agreements that are delivered on the date hereof by and between the Purchasers who are not also officers and directors of the Company, and each of the Company’s officers and directors, in form and substance reasonably satisfactory to the Purchasers. “Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
4 “Material Permits” shall have the meaning ascribed to such term in Section 3.1(n). “Outside Date” shall have the meaning ascribed to such term in Section 2.1. “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. “Per Share of Series A Convertible Preferred Stock Purchase Price” equals $100, which reflects an original issue discount of 10%, and is subject to adjustment for reverse and forward share splits, share dividends, share combinations and other similar transactions of the shares of Common Stock that occur after the date of this Agreement. “Per Share of Series B Convertible Preferred Stock Purchase Price” equals $100, which reflects an original issue discount of 10%, and is subject to adjustment for reverse and forward share splits, share dividends, share combinations and other similar transactions of the shares of Common Stock that occur after the date of this Agreement. “Preferred Stock” means, collectively, the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock. “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition) pending or, to the Company’s knowledge, threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign). “Purchaser Party” shall have the meaning ascribed to such term in Section 4.8. “Purchaser Representative” shall have the meaning ascribed to such term in Section 5.22. “Registration Rights Agreement” means the Registration Rights Agreement, date on or about the date hereof, among the Company and the Purchasers, in the form of Exhibit A attached hereto. “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Preferred Stock, the Conversion Shares and the Warrant Shares. “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e). “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. “SEC” means the Securities and Exchange Commission.
5 “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h). “Securities” means, collectively the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares. “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Series A Certificate of Designation” means the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock, filed by the Company with the Secretary of State of Delaware prior to the Closing, in the form of Exhibit B attached hereto. “Series A Convertible Preferred Stock” means shares of the Company’s Series A Convertible Redeemable Preferred Stock having the rights, preferences and privileges set forth in the Series A Certificate of Designation. “Series B Certificate of Designation” means the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Redeemable Preferred Stock, filed by the Company with the Secretary of State of Delaware prior to the Closing, in the form of Exhibit C attached hereto. “Series B Convertible Preferred Stock” means shares of the Company’s Series B Convertible Redeemable Preferred Stock having the rights, preferences and privileges set forth in the Series B Certificate of Designation. “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock). “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for shares of Preferred Stock and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds. “Subsequent Financing” shall have the meaning ascribed to such term in Section 4.19(a). “Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.19(b). “Subsidiary” means any subsidiary of the Company as set forth within the Company’s SEC Reports, and shall, where applicable, also include any “significant subsidiary” (as defined in Rule 1-02(w) of SEC Regulation S-X) of the Company formed or acquired after the date hereof. “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such
6 exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities. “Trading Market” means any of the following markets or exchanges on which the Common Stock are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing). “Transaction Documents” means this Agreement, the Series A Certificate of Designation, the Series B Certificate of Designation, the Escrow Agreement, the Warrants, the Registration Rights Agreement, the Financial Advisor Agreement, the Lock-Up Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder. “Transfer Agent” means Continental Stock Transfer & Trust Company, and any successor transfer agent of the Company. “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock is then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock Share as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Series A Preferred Stock then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. “Warrants” means the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, Warrants shall be immediately exercisable and shall have a term of exercise equal to five (5) years from the date of initial exercisability, in the form of Exhibit D attached hereto. “Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II. PURCHASE AND SALE 2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of 140,000 shares of Preferred Stock, including 80,000 shares of Series A Convertible Preferred Stock and 60,000 shares of Series B Convertible Preferred Stock (at the Per Share of Series A Convertible Preferred Stock Purchase Price or the Per Share of Series B Convertible Preferred Stock Purchase Price, as applicable) and the corresponding number of Warrants as determined pursuant to Section 2.3(a)(iii). Each Purchaser
7 shall deliver to the Escrow Agent on the date of this Agreement, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and on the Closing Date, the Company shall deliver to each Purchaser its shares of Preferred Stock and Warrants as determined pursuant to Section 2.2, and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of Blank Rome or such other location as the parties hereto shall mutually agree, no later than April 4, 2023 (the “Outside Date”). The Company covenants that, if a Purchaser delivers a Notice of Conversion (as defined in the Series A or Series B Preferred Stock Certificate of Designation) no later than 12:00 p.m. (New York City time) on the Closing Date to convert any shares of Preferred Stock between the date hereof and the Closing Date, the Company shall deliver Conversion Shares to such Purchaser on the Closing Date in connection with such Notice of Conversion. 2.2 Deliveries. (a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following: (i) this Agreement duly executed by the Company; (ii) a legal opinion of Company Counsel in a form reasonably acceptable to each Purchaser; (iii) evidence from the Transfer Agent of the issuance of the book entry of the number of shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock, as applicable, contemplated to be issued pursuant to the signature page to each purchaser attached hereto; (iv) the Company shall have provided each Purchaser and the Financial Advisor with a certificate executed by the Chief Financial Officer of the Company, dated as of such date, in form and substance satisfactory to each Purchaser and the Financial Advisor; (v) the Company shall have provided the Escrow Agent with the Company’s wire instructions, on Company letterhead and executed by the Company’s Chief Executive Officer or Chief Financial Officer; (vi) the Registration Rights Agreement duly executed by the Company; (vii) the Escrow Agreement duly executed by the Company; (viii) the duly executed and delivered Lock-Up Agreements; (ix) the duly submitted New York Stock Exchange Supplemental Listing Application covering at least the maximum number of Conversion Shares and Warrants Shares shall have been approved by the New York Stock Exchange; (x) the duly executed Irrevocable Transfer Agent Instruction Letter in a form reasonably acceptable to each Purchaser delivered by the Transfer Agent; and
8 (xi) the duly executed consent of the holders of at least 51% of the Company’s voting stock approving the issuance of the Series A Preferred Stock, Series B Preferred Stock, Conversion Shares, Warrants and Warrant Shares. (b) On or prior to the Closing Date (unless otherwise set forth below), each Purchaser shall deliver or cause to be delivered to the Company the following: (i) this Agreement duly executed by such Purchaser; (ii) the Registration Rights Agreement duly executed by such Purchaser; (iii) the Investor Side Letter; and (iii) such Purchaser’s Subscription Amount by wire transfer or certified check to the Escrow Account specified in the Escrow Agreement. 2.3 Closing Conditions. (a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met: (i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) as of such date); (ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and (iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement and the Warrants set forth in Section 2.4 of this Agreement. (b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met: (i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) as of such date); (ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; (iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
9 (iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; (v) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity (excluding the COVID-19 pandemic) of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing; (vi) the Company shall have closed the transactions contemplated by that certain Asset Purchase Agreement, dated March 6, 2023, by and among the Company, the Sellers and the other parties thereto (the “ClickDealer Acquisition”); and (vii) the Company shall have submitted an application with the New York Stock Exchange for approval of the listing of the shares of Common Stock issuable upon conversion, redemption or exercise of the Securities and such application shall have been approved by the New York Stock Exchange. 2.4 Issuance of Warrants. On the date hereof, the Company shall promptly deliver to each Purchaser a Warrant registered in the name of such Purchaser to purchase up to the number of shares of Common Stock set forth opposite such Purchaser's name on Schedule 2.4 (90 shares of Common Stock per share of Series A Convertible Preferred Stock and per share of Series B Convertible Preferred Stock), with a five year maturity and an exercise price equal to $0.6453, subject to adjustment therein. ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. Except as set forth in the SEC Reports or Disclosure Schedules, which SEC Reports and Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or warranty otherwise made herein to the extent of the disclosure contained in the SEC Reports or corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser: (a) Subsidiaries. All of the “significant subsidiaries” (as defined in Rule 1-02(w) of SEC Regulation S-X) of the Company are set forth in the SEC Reports. The Company owns, directly or indirectly, all of the capital share or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded. (b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the
10 Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”); provided that a change in the market price or trading volume of the Common Stock alone shall not be deemed, in and of itself, to constitute a Material Adverse Effect. No Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
11 (e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Registration Statement pursuant to the terms of the Registration Rights Agreement, (iii) application(s) to each applicable Trading Market for the listing of the Conversion Shares and Warrant Shares for trading thereon in the time and manner required thereby, and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”). (f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Warrant Shares, when issued in accordance with the terms of the applicable Warrants, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital shares the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants. (g) Capitalization. As of the date hereof, 39,956,863 shares of the registrant’s Class A common stock; 25,699,464 of the registrant’s Class B common stock, par value $0.0001 per share; and 13,999,078 warrants to purchase shares of the registrant’s Class A common stock, par value $0.0001 per share, were issued and outstanding. The Company has not issued any capital shares since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee share options under the Company’s share option plans, the issuance of shares of Common Stock to employees, consultants and directors pursuant to the Company’s equity incentive plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. There are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock or the capital share of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital shares of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers and the Financial Advisor) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no outstanding securities or instruments of the Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company or any Subsidiary. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any share appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding capital shares of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all applicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except for the Required Approvals, no further approval or authorization of any shareholder, the Board of
12 Directors or others is required for the issuance and sale of the Securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Company’s capital shares to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders. (h) SEC Reports; Financial Statements. Except as disclosed in the SEC Reports, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, as amended and supplemented as of the date hereof, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, 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 the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports complied in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, except as set forth in the SEC Reports or on Schedule 3.1(i), (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital shares and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to a Company equity compensation or shares option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made.
13 (j) Litigation. Except as reported in the SEC Reports, there is no material action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”). None of the Actions set forth in the SEC Reports (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor, to the Company’s knowledge, any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, which could result in a Material Adverse Effect. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. (k) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer 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 applicable U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (l) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all applicable federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including 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 (“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. (m) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time
14 or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect. (n) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. (o) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries, and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance, except where the failure to be in compliance would not reasonably be expected to have a Material Adverse Effect. (p) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Except as set forth in the SEC Reports, none of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has no knowledge of any facts that would preclude it from having valid license rights or clear title to the Intellectual Property Rights. The Company has no knowledge that it lacks or will be unable to
15 obtain any rights or licenses to use all Intellectual Property Rights that are necessary to conduct its business. (q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary for companies of the Company’s size and in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage. Neither the Company nor any 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 without a significant increase in cost. (r) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (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, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, shareholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including share option agreements under any share option plan of the Company. (s) Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient 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 GAAP 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. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
16 (t) Certain Fees. Except for fees payable by the Company to the Financial Advisor, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents. (u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended. (v) Registration Rights. No Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary. (w) Listing and Maintenance Requirements. The shares of Common Stock are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the shares of Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as set forth in the SEC Reports, the Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock are or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock are currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer. (x) Application of Takeover Protections. Except as provided in the SEC Reports, the Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s articles of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their respective obligations or exercising their respective rights under the Transaction Documents, including without limitation, as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. (y) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the SEC Reports. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers
17 regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. (z) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, 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 of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of the Preferred Stock, Conversion Shares, Warrants or Warrant Shares under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated, which, if integrated, will not be obtained. (aa) Solvency. The SEC Reports set forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary (excluding any unpaid interest thereon accrued since the Evaluation Date), or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. (bb) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) 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 and (iii) has set aside on its books provision reasonably adequate for the payment of all material 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 or of any Subsidiary know of no basis for any such claim. (cc) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii)
18 failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of FCPA. (dd) Accountants. The Company’s independent registered public accounting firm is set forth in the SEC Reports. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Reports on Form 10-K for the fiscal year ending December 31, 2022. (ee) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that each Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. (ff) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.14 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the shares of Common Stock, and (iv) each Purchaser 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 (y) one or more Purchasers may engage in hedging activities (in material compliance with applicable laws) at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing shareholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents. (gg) Regulation M Compliance. 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 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, other than, in the case of clauses (ii) and (iii), compensation paid to the Financial Advisor in connection with the placement of the Securities.
19 (hh) Cybersecurity. (i)(x) There has been no security breach or other compromise of or relating to any of the Company’s or any Subsidiary’s information technology and computer systems, networks, hardware, software, data (including the data of its respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of it), equipment or technology (collectively, “IT Systems and Data”) and (y) the Company and the Subsidiaries have not been notified of, and has no knowledge of any event or condition that would reasonably be expected to result in, any security breach or other compromise to its IT Systems and Data; (ii) the Company and the Subsidiaries are presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except as would not, individually or in the aggregate, have a Material Adverse Effect; (iii) the Company and the Subsidiaries have implemented and maintained commercially reasonable safeguards to maintain and protect its material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and Data; and (iv) the Company and the Subsidiaries have implemented backup and disaster recovery technology consistent with industry standards and practices. (ii) Share Option Plans. Each share option granted by the Company under the Company’s share option plans was granted (i) in accordance with the terms of the Company’s share option plans and (ii) with an exercise price at least equal to the fair market value of the shares of Common Stock on the date such share option would be considered granted under GAAP and applicable law. No share option granted under the Company’s share option plans has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, share options prior to, or otherwise knowingly coordinate the grant of share options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects. (jj) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”). (kk) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request. (ll) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. (mm) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended,
20 applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened. (nn) Other Covered Persons. Other than the Financial Advisor, the Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of the Purchasers in connection with the sale of any Securities. (oo) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. (pp) No General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to each Purchaser as an “accredited investor” within the meaning of Rule 501 under the Securities Act. (qq) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, 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 Securities 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 Securities 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. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to each Purchaser a copy of any disclosures provided thereunder. (rr) Notice of Disqualification Events. The Company will notify the Purchasers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, reasonably be expected to become a Disqualification Event relating to any Issuer Covered Person, in each case of which it is aware. 3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case such representation or warranty shall be accurate as of such date): (a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate,
21 partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (b) Understandings or Arrangements. Such Purchaser is acquiring the Securities as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser understands that the Preferred Stock, Conversion Shares, Warrants and the Warrant Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser is acquiring such Securities as principal for his, her or its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell such Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). (c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3) or (a)(7), under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. (d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. (e) Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Such Purchaser acknowledges and agrees that neither the Financial Advisor nor any Affiliate of the Financial Advisor has provided such Purchaser with any information or advice with respect to the Securities nor is such information or advice necessary or desired. Neither the Financial
22 Advisor nor any Affiliate has made or makes any representation as to the Company or the quality of the Securities and the Financial Advisor and any Affiliate may have acquired non-public information with respect to the Company which such Purchaser agrees need not be provided to it. In connection with the issuance of the Securities to such Purchaser, neither the Financial Advisor nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser. (f) Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty against, or a prohibition of, any actions with respect to the borrowing of, arrangement to borrow, identification of the availability of, and/or securing of, securities of the Company in order for such Purchaser (or its broker or other financial representative) to effect Short Sales or similar transactions in the future. (g) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement. (h) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, such Purchaser at the time of sale is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act, except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future. ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES 4.1 Removal of Legends.
23 (a) The Preferred Stock, Conversion Shares, Warrants and Warrant Shares may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of any such Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(c), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement. (b) The Purchasers agrees to the imprinting, so long as is required by this Section 4.1, of a legend on each of the shares of Preferred Stock, Conversion Shares, Warrants and Warrant Shares and in substantially the following form: [NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE] [HAS NOT] [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. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES. (c) The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured any of the Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of any of the Securities may reasonably request in connection with a pledge or transfer of such Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Shareholders (as defined in the Registration Rights Agreement) thereunder. (d) Certificates evidencing the Securities shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of such security
24 is effective under the Securities Act, or (ii) following any sale of such Securities pursuant to Rule 144 (assuming cashless exercise of the Warrants), or (iii) if such Securities are eligible for sale under Rule 144 (assuming cashless exercise of the Warrants), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission), subject in the case of clauses (ii), (iii) and (iv) to receipt from the Purchaser by the Company and the Transfer Agent of customary representations reasonably acceptable to the Company and the Transfer Agent in connection with such request. Upon request, the Company shall cause its counsel to issue a legal opinion to the Transfer Agent or a Purchaser promptly if required by the Transfer Agent to effect the removal of the legend hereunder, or if requested by such Purchaser, respectively. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, if the Securities may be sold under Rule 144 (assuming cashless exercise of the Warrants) or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Securities shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(d), upon request, the Company will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Conversion Shares and/or Warrant Shares, as applicable, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate (or account statement from the Transfer Agent) representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to each applicable Purchaser by crediting the account of such Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the shares Common Stock as in effect on the date of delivery of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend. 4.2 Furnishing of Information. (a) Until the earlier of the time that (i) the Purchasers no longer own any of the Securities or (ii) the Warrants have expired, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act. (b) At any time during the period commencing from the date hereof and ending at such time that all of the Conversion Shares or the Warrant Shares (assuming cashless exercise) may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount with respect to the Securities or the exercise price of such Purchaser’s Warrants on the day of a Public Information Failure and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b)
25 such time that such public information is no longer required for the Purchasers to transfer the Conversion Shares or Warrant Shares pursuant to Rule 144. The payments to which the Purchasers shall be entitled pursuant to this Section 4.2(b) 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 (ii) the third (3rd) 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 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. 4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 4.4 Securities Laws Disclosure; Publicity. The Company shall (a) by the Disclosure Time issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From and after the issuance of such press release, the Company represents to the Purchasers, as of the Closing, that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the issuance of such press release, 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, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except that if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with (i) any registration statement contemplated by the Registration Rights Agreement and (ii) the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b). 4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any
26 Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers. 4.6 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.4, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that such Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such material non-public information with the Commission pursuant to a Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. 4.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for general corporate purposes and for working capital purposes, and shall not use such proceeds in violation of FCPA or OFAC regulations. 4.8 Indemnification of Purchaser. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any shareholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is solely based upon a material breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such shareholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct), or (c) in connection with any Registration Statement of the Company providing for the resale by any Purchaser Party of the Securities issued and the shares of Common Stock issuable upon exercise of the Preferred Stock and Warrants, the Company will indemnify each Purchaser Party, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs
27 (including, without limitation, reasonable attorneys’ fees) and expenses, as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in such registration statement, any 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 prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Purchaser Party furnished in writing to the Company by such Purchaser Party expressly for use therein, or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder in connection therewith. If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to such Purchaser Party. Any Purchaser Party shall have the right to engage separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (x) the engagement thereof has been specifically authorized by the Company in writing, (y) the Company has failed after a reasonable period of time to assume such defense and to engage counsel or (z) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (1) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (2) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.8 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 are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law. 4.9 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue shares of Preferred Stock pursuant to this Agreement and to issue the Conversion Shares pursuant to any conversion of the Preferred Stock and the Warrant Shares pursuant to any exercise of the Warrants. 4.10 Listing of Common Stock. The Company shall (i) in the time and manner required by the New York Stock Exchange, prepare and file with the New York Stock Exchange a Supplemental Listing Application covering at least the maximum number of Conversion Shares and Warrants Shares, (ii) take all steps necessary to cause such Conversion Shares and Warrant Shares to be approved for listing or quotation on the New York Stock Exchange as soon as possible thereafter. In addition, for as long as any shares of Preferred Stock and Warrants are outstanding and convertible or exercisable, as the case may be, the Company hereby agrees to use commercially reasonable efforts to maintain the listing or quotation of the shares of Common Stock on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list or quote all of the Conversion Shares and the Warrant Shares on such Trading Market and promptly secure the listing of all of the Conversion Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the shares of Common Stock traded on any other Trading Market, it will then include in such application all of the Conversion Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Conversion Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly as
28 possible. The Company will then take all action reasonably necessary to continue the listing and trading of its shares of Common Stock on a Trading Market and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. For so long as the Company maintains a listing or quotation of the shares of Common Stock on a Trading Market, the Company agrees to maintain the eligibility of the shares of Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer. 4.11 Reservation of Shares. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of Conversion Shares and Warrant Shares for the purpose of enabling the Company to issue Conversion Shares and Warrant Shares pursuant to this Agreement. 4.12 Subsequent Equity Sales. (a) From the date hereof until 90 days after the date on which a Registration Statement registering for resale all of the Securities is declared effective by the Commission (such applicable period, the “Restricted Period”), neither the Company nor any Subsidiary shall (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents or (ii) file any registration statement or any amendment or supplement thereto, other than a Registration Statement registering for resale all of the Securities and in each case other than as contemplated pursuant to the Registration Rights Agreement. The restrictions under this Section 4.12(a) shall also apply to all Company Affiliates, including, without limitation, the Company’s Board of Directors and Named Executive Officers, as that term is defined in Section 402(a)(3) of Regulation S-K (17 CFR § 402(a)(3)), who, for the avoidance of doubt, may not sell any shares of Common Stock owned by them during the Restricted Period. (b) From the date hereof until no shares of Preferred Stock remain outstanding, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of shares of Common Stock or Common Stock Equivalents (or a combination of units thereof) 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 shares of Common Stock or (ii) enters into, or effects a transaction under, 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. (c) Notwithstanding the foregoing, this Section 4.12 shall not apply (i) to any Variable Rate Transaction by and between the Company and the Purchasers and (ii) in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance (other than those Exempt Issuances set forth on Schedule 4.12(c)).
29 4.13 Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. 4.14 Certain Transactions and Confidentiality. Each Purchaser covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in this Agreement. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited by this Agreement from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. 4.15 Capital Changes. From the date hereof until no shares of Preferred Stock remain outstanding, the Company shall not undertake a reverse or forward share split or reclassification of the Common Stock without the prior written consent of the Purchasers, provided that no consent shall be required in the event that the Company undertakes a reverse share split for purposes of maintaining the listing of the shares of Common Stock on the Trading Market. 4.16 Conversion Procedures. The form of Notice of Conversion attached to the Series A Certificate of Designation and the Series B Certificate of Designation sets forth the totality of the procedures required of the Purchaser in order to convert the Preferred Stock. Without limiting the preceding sentences, no ink- original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required in order to convert the Preferred Stock. No additional legal opinion, other information or instructions shall be required of the Purchaser to convert their Conversion Shares. The Company shall honor conversions of the Preferred Stock and shall deliver Conversion Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
30 4.17 Exercise Procedures. The form of Notice of Exercise included in the Warrants set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants. Without limiting the preceding sentences, no ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required in order to exercise the Warrants. The Company shall honor exercises of the Warrants and shall deliver Warrant Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents. 4.18 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the offering of the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser. 4.19 Participation in Future Financing. (a) For twenty-four (24) months after the date hereof , upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents or preferred stock for cash consideration, Indebtedness or a combination of securities hereof (a “Subsequent Financing”), the Purchasers shall have the right to participate on a pro rata basis in the aggregate up to an amount of the Subsequent Financing equal to 35% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing. (b) At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment. (c) Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice that such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from a Purchaser as of such fifth (5th) Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate. (d) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the
31 aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice. (e) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum. “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.19 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.19. (f) The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.19, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice. (g) The Company and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of such Purchaser. (h) Notwithstanding anything to the contrary in this Section 4.19 and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the Subsequent Financing Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries. (i) Notwithstanding the foregoing, this Section 4.19 shall not apply in respect of an Exempt Issuance. Section 4.20 Information Statement. The Company agrees to obtain written consent from its stockholders representing at least 51% of all outstanding shares of Common Stock prior to the Closing for approval of the transactions contemplated by this Agreement and shall provide the stockholders with notice thereof by filing a definitive information statement on Form 14C no later than 30 days after the Closing Date.
32 ARTICLE V. MISCELLANEOUS 5.1 Termination. This Agreement may be terminated by the Company or by any Purchaser, as to such Purchaser’s obligations hereunder only, and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before the Outside Date; provided, however, that no such termination will affect the right of any party hereto to sue for any breach by any other party (or parties) hereto. 5.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party hereto shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement; provided, however, that the Company agrees to pay at the Closing the reasonable fees and expenses of the Purchasers’ due diligence and legal fees in connection with the transactions described in this Agreement and the other Transaction Documents, with an initial deposit of $75,000. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. 5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which such parties acknowledge have been merged into such documents, exhibits and schedules. 5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd)Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. 5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers which purchased at least 50.1% in interest of the Securities based on the initial Subscription Amounts hereunder (or, prior to the Closing, the Company and each Purchaser) or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser. Any amendment effected in accordance with
33 this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Report on Form 8-K. 5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.” 5.8 No Third-Party Beneficiaries. The Financial Advisor shall be the third-party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. 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, except as otherwise set forth in Section 4.8 and this Section 5.8. 5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereto agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding 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. If any party hereto shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.8, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding. 5.10 Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities for a period of one (1) year from the Closing. 5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when
34 counterparts have been signed by each party hereto and delivered to the other party hereto, it being understood that the parties hereto need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. 5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Warrant (including, issuance of a replacement warrant certificate evidencing such restored right). 5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities. 5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties hereto agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. Each party hereto agrees that it shall not have a remedy of punitive or consequential damages against the other and hereby waives any right or claim to punitive or consequential damages it may now have or may arise in the future. 5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights 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 under any law (including, without limitation, any bankruptcy law, state or federal law, common law
35 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. 5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through Blank Rome. Blank Rome does not represent any of the Purchasers and only represents the Financial Advisor. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers. 5.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled. 5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day. 5.20 Construction. The parties hereto agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward share splits, share dividends, share combinations and other similar transactions of the shares of Common Stock that occur after the date of this Agreement. 5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO, THE PARTIES HERETO EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 5.22 Purchaser Representative.
36 (a) Appointment. Each Purchaser shall, without any further action on the part of any such Purchaser or the Company, be deemed (by virtue of the adoption and approval of this Agreement) to have consented to the irrevocable nomination, constitution and appointment of 3i, LP, a Delaware limited partnership, as the exclusive agent and true lawful attorney in fact of such Purchaser (the “Purchaser Representative”), with full power of substitution, to act in the name, place and stead of each such Purchaser for purposes of executing the Escrow Agreement and taking any actions that the Purchaser Representative may, in its sole discretion, determine to be necessary, desirable or appropriate in connection with the distribution of any amounts deposited with the Escrow Agent for the benefit of and for distribution to the Purchasers pursuant to the Escrow Agreement. (b) Authority. Each Purchaser shall, without any further action on the part of any such Purchaser, be deemed (by virtue of the adoption and approval of this Agreement) to have granted to the Purchasers Representative full authority to do all things and perform all acts as contemplated by or deemed advisable by the Purchaser Representative in its sole discretion in connection with the Escrow Agreement, including, without limitation, to execute, deliver, acknowledge, certify and file on behalf of the Purchasers (in the name of any or all of the Purchasers or otherwise) any and all documents that the Purchaser Representative may, in its sole discretion, determine to be necessary, desirable or appropriate, in such forms and containing such provisions as the Purchaser Representative may, in its sole discretion, determine to be appropriate, in performing its duties as contemplated by this Agreement, including in connection with the distribution of any amounts deposited with the Escrow Agent for the benefit of and for distribution to the Purchasers pursuant to the Escrow Agreement. Notwithstanding the foregoing, the Purchaser Representative shall have no obligation to act on behalf of the Purchasers, except as expressly provided herein, and for purposes of clarity, there are no obligations of the Purchaser Representative in any other ancillary agreement, schedule or exhibit. [Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. DIGITAL MEDIA SOLUTIONS, INC. Address for Notice: 4800 140th Avenue N., Suite 101 Clearwater, Florida 33762 By: Fax: Name: Joseph Marinucci Title: President and Chief Executive Officer E-mail: jmarinucci@dmsgroup.com [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGE TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date first indicated above. Name of Purchaser: _______________________________________ Signature of Purchaser: _________________________________ Email Address of Purchaser:_________________________________________ Facsimile Number of Purchaser: __________________________________________ Address for Notice to Purchaser: __________________________________________ Address for Delivery of Warrants to Purchaser (if not same as address for notice): __________________________________________ __________________________________________ __________________________________________ Subscription Amount: $____________________ Series A Convertible Preferred Stock: ____________________ Series B Convertible Preferred Stock: ____________________ Warrant Shares: ____________________
[PURCHASER SIGNATURE PAGE TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date first indicated above. Name of Purchaser: _______________________________________ Signature of Purchaser: _________________________________ Email Address of Purchaser:_________________________________________ Facsimile Number of Purchaser: __________________________________________ Address for Notice to Purchaser: __________________________________________ Address for Delivery of Warrants to Purchaser (if not same as address for notice): __________________________________________ __________________________________________ __________________________________________ Subscription Amount: $____________________ Series A Convertible Preferred Stock: ____________________ Series B Convertible Preferred Stock: ____________________ Warrant Shares: ____________________
38 [PURCHASER SIGNATURE PAGE TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date first indicated above. Name of Purchaser: BPY Limited Signature of Authorized Signatory of Purchaser: Name of Authorized Signatory: James Keyes Title of Authorized Signatory: Director Email Address of Authorized Signatory: Operations@murchinsonltd.com Facsimile Number of Authorized Signatory: Address for Notice to Purchaser: #400-145 Adelaide St. West, Toronto, Ontario, M5H 4E5. Address for Delivery of Warrants to Purchaser (if not same as address for notice): __________________________________________ __________________________________________ __________________________________________ Subscription Amount: $800,000.00 Series A Convertible Preferred Stock: ____________________ Series B Convertible Preferred Stock: ____________________ Warrant Shares: 50% Coverage EIN Number: ____________________ James Keyes (Mar 28, 2023 19:59 GMT+2)
38 [PURCHASER SIGNATURE PAGE TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date first indicated above. Name of Purchaser: Nomis Bay Ltd Signature of Authorized Signatory of Purchaser: Name of Authorized Signatory: James Keyes Title of Authorized Signatory: Director Email Address of Authorized Signatory: Operations@murchinsonltd.com Facsimile Number of Authorized Signatory: Address for Notice to Purchaser: #400-145 Adelaide St. West, Toronto, Ontario, M5H 4E5. Address for Delivery of Warrants to Purchaser (if not same as address for notice): __________________________________________ __________________________________________ __________________________________________ Subscription Amount: $1,200,000.00 Series A Convertible Preferred Stock: ____________________ Series B Convertible Preferred Stock: ____________________ Warrant Shares: 50% Coverage EIN Number: ____________________ James Keyes (Mar 28, 2023 19:58 GMT+2)
38 [PURCHASER SIGNATURE PAGE TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date first indicated above. Name of Purchaser: _______________________________________ Signature of Authorized Signatory of Purchaser: _________________________________ Name of Authorized Signatory: _______________________________________________ Title of Authorized Signatory: ________________________________________________ Email Address of Authorized Signatory:_________________________________________ Facsimile Number of Authorized Signatory: __________________________________________ Address for Notice to Purchaser: __________________________________________ Address for Delivery of Warrants to Purchaser (if not same as address for notice): __________________________________________ __________________________________________ __________________________________________ Subscription Amount: $____________________ Series A Convertible Preferred Stock: ____________________ Series B Convertible Preferred Stock: ____________________ Warrant Shares: ____________________ EIN Number: ____________________ 3i, LP Maier J. Tarlow Manager On Behalf Of The GP mjtarlow@3ifund.com 2 Wooster St. New York, NY 10013 140 Broadway FL 38, New York, NY 10005 2,000,000 20,000 0 84-3800874 2,063,492
[PURCHASER SIGNATURE PAGES TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. Name of Purchaser: ANSON INVESTMENTS MASTER FUND LP Signature of Authorized Signatory of Purchaser: Name of Authorized Signatory: AMIN NATHOO Title of Authorized Signatory: Director, Anson Advisors Inc. Email Address of Authorized Signatory: notices@ansonfunds.com Facsimile Number of Authorized Signatory: 416.352.1880 Address for Notice to Purchaser: 155 UNIVERSITY AVENUE, SUITE 207 TORONTO, ONTARIO, CANADA M5H 3B7 ATTN: AMIN NATHOO Address for Delivery of Securities to Purchaser (if not same as address for notice): SAME AS ABOVE Subscription Amount: $1,600,000.00 Series A Convertible Preferred Stock: 16,000 shares or $1,777,760.00 stated value Warrant Shares: 1,377,468 Beneficial Ownership Blocker ! 4.99% or " 9.99% EIN Number: 98-0538788 1,650,794
[PURCHASER SIGNATURE PAGES TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. Name of Purchaser: ANSON EAST MASTER FUND LP Signature of Authorized Signatory of Purchaser: Name of Authorized Signatory: AMIN NATHOO Title of Authorized Signatory: Director, Anson Advisors Inc. Email Address of Authorized Signatory: notices@ansonfunds.com Facsimile Number of Authorized Signatory: 416.352.1880 Address for Notice to Purchaser: 155 UNIVERSITY AVENUE, SUITE 207 TORONTO, ONTARIO, CANADA M5H 3B7 ATTN: AMIN NATHOO Address for Delivery of Securities to Purchaser (if not same as address for notice): SAME AS ABOVE Subscription Amount: $400,000.00 Series A Convertible Preferred Stock: 4,000 shares or $444,440.00 stated value Warrant Shares: 344,367 Beneficial Ownership Blocker ! 4.99% or " 9.99% EIN Number: 84-2019759 412,698
38 [PURCHASER SIGNATURE PAGE TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date first indicated above. Name of Purchaser: _______________________________________ Signature of Authorized Signatory of Purchaser: _________________________________ Name of Authorized Signatory: _______________________________________________ Title of Authorized Signatory: ________________________________________________ Email Address of Authorized Signatory:_________________________________________ Facsimile Number of Authorized Signatory: __________________________________________ Address for Notice to Purchaser: __________________________________________ Address for Delivery of Warrants to Purchaser (if not same as address for notice): __________________________________________ __________________________________________ __________________________________________ Subscription Amount: $____________________ Series A Convertible Preferred Stock: ____________________ Series B Convertible Preferred Stock: ____________________ Warrant Shares: ____________________ EIN Number: ____________________ Mark Gottlieb COO Operations@altiumcap.com 2,000,000 152 W 57th Street, Floor 20, New York, NY 10019 Altium Growth Fund, LP 82-2105101 Mark Gottlieb (Mar 28, 2023 14:58 EDT)
[PURCHASER SIGNATURE PAGE TO DMS SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement to be duly executed by its authorized signatory as of the date first indicated above. Name of Purchaser: Lion Capital (Guernsey) Bridgeco Limited Signature of Authorized Signatory of Purchaser: _________________________________ Name of Authorized Signatory: _______________________________________________ Title of Authorized Signatory: ________________________________________________ Email Address of Authorized Signatory:_________________________________________ Facsimile Number of Authorized Signatory: __________________________________________ Address for Notice to Purchaser: __________________________________________ Address for Delivery of Warrants to Purchaser (if not same as address for notice): __________________________________________ __________________________________________ __________________________________________ Subscription Amount:$2,867,080 Series A Convertible Preferred Stock: 0 Series B Convertible Preferred Stock: 28,671 Warrant Shares: ____________________ EIN Number: ____________________ Nick Barton Director nick.barton@aztecgroup.co.uk +44 (0) 1481 749749 East Wing, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3PP
39 Exhibit A Form of Registration Rights Agreement (attached)
1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this “Agreement”) is made and entered into as of March [__], 2023, between Digital Media Solutions, Inc., a Delaware corporation (the “Company”), and each of the several purchasers signatory hereto (each such purchaser, a “Purchaser” and, collectively, the “Purchasers”). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “Purchase Agreement”). The Company and each Purchaser hereby agrees as follows: 1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: “Advice” shall have the meaning set forth in Section 6(c). “Effectiveness Date” means, with respect to the Initial Registration Statement required to be filed hereunder, June 15, 2023, if and only to the extent the Company has previously issued, or is then obligated to issue, Registrable Securities to the Purchasers pursuant to the Class A Certificate of Designation or Class B Certificate of Designation, as applicable. “Effectiveness Period” shall have the meaning set forth in Section 2(a). “Event” shall have the meaning set forth in Section 2(d). “Event Date” shall have the meaning set forth in Section 2(d). “Filing Date” means, with respect to the Initial Registration Statement required hereunder, the Company shall use its best efforts to file the Initial Registration Statement by: the 30th calendar day following the Closing Date and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities. “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities. “Indemnified Party” shall have the meaning set forth in Section 5(c). “Indemnifying Party” shall have the meaning set forth in Section 5(c). “Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement. “Losses” shall have the meaning set forth in Section 5(a). “Plan of Distribution” shall have the meaning set forth in Section 2(a).
2 “Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. “Registrable Securities” means, as of any date of determination, (a) all Conversion Shares then issued and issuable upon conversion of the Preferred Stock (assuming on such date the shares of Preferred Stock are converted in full at the Floor Price without regard to any exercise limitations therein), (b) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein) and (c) any securities issued or then issuable upon any share split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, as reasonably determined by the Company, upon the advice of counsel to the Company. “Registration Statement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement. “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. “Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a).
3 “SEC Guidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act. 2. Shelf Registration. (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “Plan of Distribution” attached hereto as Annex A and substantially the “Selling Shareholder” section attached hereto as Annex B; provided, however, that no Holder shall be required to be named as an “underwriter” without such Holder’s express prior written consent. Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “Effectiveness Period”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. (New York City time) on a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. (New York City time) on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d). (b) Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); provided, however, that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.
4 (c) Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows: a. First, the Company shall reduce or eliminate any securities to be included other than Registrable Securities; b. Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders); and c. Third, the Company shall reduce Registrable Securities represented by Shares (applied, in the case that some Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Shares held by such Holders). In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its commercially reasonable efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended. (d) If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five (5) Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within ten (10) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective; provided, however, that to the extent that the filing of an amendment to the Registration Statement under paragraph (iii) would require updated audited financial statements to be filed by amendment to the Registration Statement pursuant to the Securities Act in advance of the applicable filing deadline for such audited financial statements under the Exchange Act, the applicable Event Date with respect thereto shall be five (5) Trading Days after the applicable Exchange Act deadline; or (iv) a Registration Statement registering for resale all of the Registrable Securities, subject to the cutback limitations set forth in Section 2(c) of this Agreement, is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement but prior to the end of the Effectiveness Period, such Registration Statement ceases for any reason to remain continuously
5 effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “Event”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such ten (10) calendar day period is exceeded, and for purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, in newly issued shares of Common Stock, rounded down to the nearest whole share, (at the Per Share Purchase Price), or in Common Warrants to purchase the shares of Common Stock (based on the Exercise Price), at the sole option of the respective Purchaser, as partial liquidated damages and not as a penalty, equal to 2.0% of the Redemption Price; provided, that, in no case shall the Company be required to issue any shares of Common Stock or Common Warrants in violation of the listing rules of the New York Stock Exchange; and provided, further, that the Company shall not be required to make any payments pursuant to this Section 2(d) with respect to any Registrable Securities the Company is unable to register due to limits imposed by the Commission’s interpretation of Rule 415 under the Securities Act as contemplated by Section 2(b). If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. (e) If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission. (f) Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as any Underwriter without the prior written consent of such Holder. 3. Registration Procedures. In connection with the Company’s registration obligations hereunder, the Company shall: (a) Not less than one (1) Trading Day prior to the filing of the Initial Registration Statement and not less than three (3) Trading Days prior to the filing of each additional Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a
6 reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than three (3) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex C (a “Selling Shareholder Questionnaire”) on a date that is not less than three (3) Trading Days prior to the Filing Date or by the end of the fourth (4th) Trading Day following the date on which such Holder receives draft materials in accordance with this Section. In addition to the Selling Shareholder Questionnaire, each Holder shall furnish such other information 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) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. (c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities. (d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or
7 supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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 (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided, however, that in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries. (e) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission, provided that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form. (g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d). (h) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.
8 (i) If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request. (j) Upon the occurrence of any event contemplated by Section 3(d), if required to do so, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its shareholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will 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, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall so suspend use of such Prospectus. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period. (k) Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder. (l) The Company shall use its commercially reasonable efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of the Registrable Securities. (m) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company. 4. Registration Expenses. All fees and expenses incident to the performance of or compliance with, this Agreement 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
9 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 Commission, (B) with respect to filings required to be made with any Trading Market on which the shares of Common Stock are then listed for trading, and (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), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. 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 or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders. 5. Indemnification. (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of shares of Common Stock), investment advisors and employees (and any other Persons 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 Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, shareholders, partners, agents and employees (and any other Persons 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 Person, 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 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 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 Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the
10 receipt by such Holder of the Advice contemplated in Section 6(c). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(f). (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title), to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any 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 Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s information provided in the Selling Shareholder Questionnaire or the proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto. In no event shall the liability of a selling Holder be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof, provided that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding
11 (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party, provided that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder. (d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party 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 Indemnifying Party 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 such Indemnifying Party 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, such Indemnifying Party or 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, subject to the limitations set forth in this Agreement, 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 this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) 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 paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.
12 The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 6. Miscellaneous. (a) Remedies. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate. (b) No Piggyback on Registrations; Prohibition on Filing Other Registration Statements. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any other registration statements, other than with respect to an Exempt Issuance (as defined in the Purchase Agreement), until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement so long as no new securities are registered on any such existing registration statements. (c) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d). (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 50.1% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security), provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(d). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
13 (e) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement. (g) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(g), neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full. (h) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. (i) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement. (j) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law. (k) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (l) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof. (m) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by
14 any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders. (n) Termination. This Agreement shall be effective as of the Closing, and if the Closing has not occurred on or prior to fifth (5th) Trading Day following the date of the Purchase Agreement, unless otherwise mutually agreed, then this Agreement shall be null and void. ******************** (Signature Pages Follow)
15 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. DIGITAL MEDIA SOLUTIONS, INC. By: Name: Joseph Marinucci Title: President and Chief Executive Officer [SIGNATURE PAGE OF HOLDERS FOLLOWS]
16 [SIGNATURE PAGE OF HOLDERS TO DMS RRA] Name of Holder: __________________________ Signature of Authorized Signatory of Holder: __________________________ Name of Authorized Signatory: _________________________ Title of Authorized Signatory: __________________________ [SIGNATURE PAGES CONTINUE]
17 Schedule 6.1(g) Annex A Plan of Distribution Each Selling Shareholder (the “Selling Shareholder”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Shareholder may use any one or more of the following methods when selling securities: ● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; ● 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 in accordance with the rules of the applicable exchange; ● privately negotiated transactions; ● settlement of short sales; ● in transactions through broker-dealers that agree with the Selling Shareholders to sell a specified number of such securities at a stipulated price per security; ● through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; ● a combination of any such methods of sale; or ● any other method permitted pursuant to applicable law. The Selling Shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus. Broker-dealers engaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121. In connection with the sale of the securities or interests therein, the Selling Shareholders 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 Shareholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or
18 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 Selling Shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Shareholders has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Shareholders without registration and without regard to any volume or manner- of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the shares of Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the shares of common stock by the Selling Shareholders or any other person. We will make copies of this prospectus available to the Selling Shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
19 Annex B SELLING SHAREHOLDERS The shares of common stock being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those shares of common stock and warrants, see “Private Placement of Shares of Common Stock and Warrants” above. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling shareholders have not had any material relationship with us within the past three years. The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and warrants, as of ________, 2023, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises. The third column lists the shares of common stock being offered by this prospectus by the selling shareholders. In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of shares of common stock issued to the selling shareholders in the “Private Placement of Shares of Common Stock and Warrants” described above and (ii) the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus. Under the terms of the warrants [and other warrants held by the selling shareholders], a selling shareholder may not exercise [any such] warrants to the extent such exercise would cause such selling shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% or 9.99%, as applicable, of our then outstanding shares of common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of such warrants which have not been exercised. The number of shares in the second and fourth columns do not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.” Name of Selling Shareholder Number of Shares of Common Stock Owned Prior to Offering Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus Number of Shares of Common Stock Owned After Offering
20 Annex C DIGITAL MEDIA SOLUTIONS, INC. Selling Shareholder Notice and Questionnaire The undersigned beneficial owner of shares of common stock (the “Registrable Securities”) of Digital Media Solutions, Inc., a Delaware corporation (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. Certain legal consequences arise from being named as a selling shareholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling shareholder in the Registration Statement and the related prospectus. NOTICE The undersigned beneficial owner (the “Selling Shareholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate: QUESTIONNAIRE 1. Name. (a) Full Legal Name of Selling Shareholder (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held: (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire): 2. Address for Notices to Selling Shareholder:
21 Telephone: Fax: Contact Person: 3. Broker-Dealer Status: (a) Are you a broker-dealer? Yes ☐ No ☐ (b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company? Yes ☐ No ☐ Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement. (c) Are you an affiliate of a broker-dealer? Yes ☐ No ☐ (d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities? Yes ☐ No ☐ Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement. 4. Beneficial Ownership of Securities of the Company Owned by the Selling Shareholder. Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement. (a) Type and Amount of other securities beneficially owned by the Selling Shareholder: 5. Relationships with the Company:
22 Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: The undersigned agrees to promptly notify the Company of any material inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective; provided, that the undersigned shall not be required to notify the Company of any changes to the number of securities held or owned by the undersigned or its affiliates. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto. IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Date: Beneficial Owner: By: Name: Title: PLEASE EMAIL A .PDF COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO: mailto:[ ]
40 Exhibit B Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock (attached)
CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK PURSUANT TO SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW The undersigned, Joseph Marinucci, does hereby certify that: 1. He is the Chief Executive Officer of Digital Media Solutions, Inc., a Delaware corporation (the “Corporation”). 2. The Corporation is authorized to issue 100,000,000 shares of preferred stock, par value $0.0001 per share, of which no shares have been previously designated. 3. The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”): WHEREAS, the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), provides for a class of its authorized stock known as preferred stock, consisting of 100,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series; WHEREAS, the Board of Directors is authorized by resolution to provide for the issuance of preferred stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof; and WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as described above, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of 80,000 shares of the preferred stock which the Corporation has the authority to issue. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock to be designated “Series A Convertible Redeemable Preferred Stock” and does hereby fix and determine the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof as follows: Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings: “Accelerated Redemption” shall have the meaning set forth in Section 9(b). “Adjustment Right” means (any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 7(e)) of Common Stock that could result in a decrease in the net consideration received by the Corporation in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
2 “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. “Alternate Consideration” shall have the meaning set forth in Section 7(d). “Alternate Conversion Price” shall have the meaning set forth in Section 6(b). “Applicable Price” shall have the meaning set forth in Section 7(e). “Bankruptcy Triggering Event” shall have the meaning set forth in Section 9(d). “Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d). “Black Scholes Consideration Value” means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing: (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be). “Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. “Buy-In” shall have the meaning set forth in Section 6(c)(iv). “Change of Control Date” shall have the meaning set forth in Section 9(g). “Change of Control Notice” shall have the meaning set forth in Section 9(g). “Change of Control Redemption Date” shall have the meaning set forth in Section 9(g). “Change of Control Redemption Price” shall have the meaning set forth in Section 9(g). “Change of Control Redemption Notice” shall have the meaning set forth in Section 9(g). “Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of the issuance, sale, conversion or exercise of Series A Preferred Stock or Series B Preferred Stock), (b) the Corporation merges into or
3 consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above. “Closing” means the closing of the purchase and sale of the Series A Preferred Stock pursuant to Section 2.1 of the Purchase Agreement. “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Trading Market, as reported by Bloomberg, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock. If the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 10(k). All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period. “Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder’s obligations to pay the Purchase Price and (ii) the Corporation’s obligations to deliver the Series A Preferred Stock have been satisfied or waived. “Commission” means the United States Securities and Exchange Commission. “Common Stock” means the Corporation’s Class A common stock, $0.0001 par value per share, and stock of any other class of securities into which such securities may hereafter be reclassified, converted or changed.
4 “Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which 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. “Conversion Amount means the sum of the Stated Value at issue and all accrued and unpaid dividends at issue. “Conversion Date” shall have the meaning set forth in Section 6(a). “Conversion Price” shall have the meaning set forth in Section 6(b). “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any Common Stock. “Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock in accordance with the terms hereof. “Corporation’s Mandatory Redemption Price” shall have the meaning set forth in Section 9(a). “Change of Control Redemption” shall have the meaning set forth in Section 9(g). “Dilutive Issuance” shall have the meaning set forth in Section 7(e) “Dividend Date” shall have the meaning set forth in Section 3(b). “Dividend Rate” means four percent (4.0%) per annum. “Dividends” shall have the meaning set forth in Section 3(a). “Equity Conditions” means during the period in question: (a) the Corporation shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holders, if any, (b) there is an effective registration statement (“Registration Statement”) under the Securities Act pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the Common Stock issuable pursuant to the Certificate of Designation (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Certificate of Designation may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holders, (c) the Common Stock are trading on a Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (d) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation, (e) there is no existing breach of any of the representations, warranties, covenants or agreements made by the Corporation in the Transaction Documents, and no existing event which, with the passage of time or the giving of
5 notice, would constitute such a breach, (f) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (g) the limitations set forth under Section 6(d) will not be exceeded upon any requested conversion and (h) for each of the twenty (20) Trading Days prior to the applicable date in question, the closing price of the Common Stock on the Trading Market is at least equal to the Floor Price. “Escrow Agreement” means the escrow agreement to be entered into in connection with the Purchase Agreement, by and among the Corporation, Continental Stock Transfer & Trust Company, and the holder representative party thereto (the “Holder Representative”). “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Exchange Cap” shall have the meaning given such term in Section 6(e). “Exchange Cap Allocation” shall have the meaning given such term in Section 6(e). “Exchange Cap Shares” shall have the meaning given such term in Section 6(e). "Exempt Issuance" has the meaning set forth in the Purchase Agreement. “Floor Price” means $0.484; provided that, if on any Accelerated Redemption Date, (i) any cash payment required to be made pursuant to Section 9 is not made, and (ii) the Existing Investors (as defined in the Investor Side Letter) have defaulted under their obligations to purchase the Series A Preferred Stock pursuant to the terms of the Investor Side Letter, then the "Floor Price" shall be $0.161. “Fundamental Transaction” shall have the meaning set forth in Section 7(d). “Holder” shall have the meaning given such term in Section 2. “Holder’s Optional Triggered Notice” shall have the meaning given such term in Section 9(c). “Installments” shall have the meaning given such term in Section 9(a). “Intellectual Property Rights” means, with respect to the Corporation and its Subsidiaries, all of their rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor. “Investor Side Letter” has the meaning set forth in the Purchase Agreement. “Lien” means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature affecting property, real or personal, tangible or intangible, including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset, any restriction on the possession, exercise or transfer of any
6 other attribute of ownership of any asset, any lease in the nature thereof and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute of any jurisdiction). “Liquidation” shall have the meaning set forth in Section 5. “Monthly Mandatory Redemption” shall have the meaning given such term in Section 9(a). “Monthly Mandatory Redemption Date” shall have the meaning given such term in Section 9(a). “Monthly Mandatory Redemption Share Amount” shall have the meaning given such term in Section 9(a). “New Issuance Price” shall have the meaning set forth in Section 7(e). “Notice of Conversion” shall have the meaning set forth in Section 6(a). “Optional Triggering Event Right Commencement Date” shall have the meaning given such term in Section 9(c). “Optional Triggering Event Notice” shall have the meaning given such term in Section 9(c). “Original Issue Date” means the date of the first issuance of any shares of the Series A Preferred Stock regardless of the number of transfers of any particular shares of Series A Preferred Stock and regardless of the number of certificates which may be issued to evidence such Series A Preferred Stock. “Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. “Primary Security” shall have the meaning set forth in Section 7(e)(iv). “Purchase Agreement” means the Securities Purchase Agreement, dated as of March 29, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. “Purchase Price” means, as to each Holder, the aggregate dollar amount to be paid for the Series A Preferred Stock pursuant to the Purchase Agreement. “Redemption” means any of or collectively all of an Accelerated Redemption, Monthly Mandatory Redemption, Triggering Event Redemption, Triggered Optional Redemption, Change of Control Redemption “Redemption Price” means any of the Corporation’s Mandatory Redemption Price, Triggering Event Redemption Price and the Change of Control Redemption Price, as applicable.
7 “Registration Rights Agreement” means the Registration Rights Agreement, dated as of March 30, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. “Secondary Security” shall have the meaning set forth in Section 7(d). “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Series A Preferred Stock” shall have the meaning set forth in Section 2. “Series B Preferred Stock” shall mean the Series B Convertible Redeemable Preferred Stock of the Corporation. “Series B Preferred Stock Certificate of Designation” means the Certificate of Designation of Preferences, Rights and Limitations of the Series B Convertible Redeemable Preferred Stock of the Corporation, dated as of the date hereof. “Share Delivery Date” shall have the meaning set forth in Section 6(c). “Stated Value” shall have the meaning set forth in Section 2. “Subsidiary” means any subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement. “Successor Entity” shall have the meaning set forth in Section 7(d). “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities. “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing). “Transaction Documents” means this Certificate of Designation, the Series B Preferred Stock Certificate of Designation, the Purchase Agreement, the Registration Rights Agreement, the Warrants, the Escrow Agreement, the Financial Advisory Agreement, the Lock-Up Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in
8 connection with the transactions contemplated pursuant to the Purchase Agreement, in each case as amended, modified or supplemented from time to time in accordance with its terms. “Transfer Agent” means Continental Stock Transfer & Trust Company, and any successor transfer agent of the Corporation. “Triggered Optional Redemption Amount” shall have the meaning set forth in Section 9(c). “Triggering Event” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption” shall have the meaning set forth in Section 9(e). “Triggering Event Right Commencement Date” shall have the meaning set forth in Section 9(e). “Triggering Event Right Period” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption Date” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption Notice” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption Price” shall have the meaning set forth in Section 9(e). “Triggered Optional Event” shall have the meaning set forth in Section 9(c). “Triggered Optional Redemption” shall have the meaning set forth in Section 9(c). “Triggered Optional Redemption Date” shall have the meaning set forth in Section 9(c). “Valuation Event” shall have the meaning set forth in Section 7(e)(iv). “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock is then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Series A Preferred Stock then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation. "Warrants" has the meaning set forth in the Purchase Agreement. Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as “Series A Convertible Redeemable Preferred Stock” (the “Series A Preferred Stock”) and the number of shares of such series shall be 80,000 (which shall not be subject to increase without the written
9 consent of the holders of a majority of the then outstanding shares of the Series A Preferred Stock (each, a “Holder” and collectively, the “Holders”)). Each share of Series A Preferred Stock shall have a par value of $0.0001 per share and a stated value equal to $111.11 (as adjusted for any stock splits, stock dividends, recapitalizations, or similar transaction with respect to the Series A Preferred Stock, the “Stated Value”). Section 3. Dividends. (a) From and after the Original Issue Date, each Holder shall be entitled to receive dividends (“Dividends”), which Dividends shall be cumulative and shall continue to accrue and compound annually whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of dividends in such fiscal year. Dividends on the Series A Preferred Stock shall commence accumulating on the Original Issue Date and shall be computed on the basis of a 360-day year and twelve 30-day months. (b) Dividends shall be payable on each Conversion Date and Redemption Date (each, a “Dividend Date”), as applicable, to the record holders of the Series A Preferred Stock on the applicable Dividend Date in accordance with the terms of the applicable conversion or redemption. Section 4. Voting Rights. (a) For purposes of determining the presence of a quorum at any meeting of the stockholders of the Corporation at which the shares of Series A Preferred Stock are entitled to vote and the voting power of the shares of Series A Preferred Stock, each Holder of outstanding shares of Series A Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such shares of Series A Preferred Stock are then convertible, disregarding, for such purposes, any limitations on conversion set forth herein. (b) Except as otherwise required by the Delaware General Corporation Law or the Certificate of Incorporation (including this Certificate of Designation), each share of Series A Preferred Stock shall be entitled to vote on each matter submitted to a vote of the stockholders generally and shall vote together with the Common Stock and any other class or series of capital stock entitled to vote thereon as a single class and on an as converted to Common Stock basis. Notwithstanding the foregoing, at no time shall the voting power of a share of Series B Preferred Stock voting on an as converted basis exceed the voting power of such share on the Initial Issuance Date based upon the Conversion Price of $0.6453 per share. Notwithstanding anything to the contrary in the first sentence of this Section 4(b), in addition, as long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series A Preferred Stock, voting as a separate class, (i) alter or change the powers, preferences or rights of the Series A Preferred Stock so as to affect them adversely, (ii) amend the Certificate of Incorporation or other charter documents in a manner adverse to the Holders, (iii) increase the number of authorized shares of Series A Preferred Stock, or (iv) enter into any agreement with respect to any of the foregoing. Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), prior and in preference to the Common Stock and the Series B Preferred Stock, the Holders shall be entitled to receive out of the assets available for distribution to stockholders an amount equal in cash to 115% of the aggregate Stated Value of all shares of Series A Preferred Stock held by such Holder, plus any accrued but unpaid Dividends thereon any other fees then due and owing thereon under this Certificate of Designation, and no more, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The preference set forth
10 in this Section 5 with respect to distributions to the Series A Preferred Stock upon a Liquidation shall apply mutatis mutandis to any distributions to be made upon the consummation of a Fundamental Transaction. The Corporation shall mail written notice of any such Liquidation or Fundamental Transaction not less than 45 days prior to the payment date stated therein, to each Holder. To the extent necessary, the Corporation shall cause such actions to be taken by each of its Subsidiaries so as to enable, to the maximum extent permitted by law, the proceeds of a Liquidation to be distributed to the Holders in accordance with this Section 5. All the preferential amounts to be paid to the Holders under this Section 5 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any Liquidation funds of the Corporation to the holders of shares of the Common Stock and the Series B Preferred Stock in connection with a Liquidation as to which this Section 5 applies. Section 6. Conversion. (a) Conversions at Option of Holder. Subject to Section 6(d), each share of Series A Preferred Stock shall be convertible, at any time and from time to time only after the Original Issuance Date, at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series A Preferred Stock by the Conversion Price or the Alternate Conversion Price, as the case may be. Holders shall effect conversions by delivering to the Corporation and the Holder Representative a conversion notice in the form attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series A Preferred Stock to be converted, the number of shares of Series A Preferred Stock owned prior to the conversion at issue, the number of shares of Series A Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be as of the close of business on the Business Day that such Notice of Conversion is delivered to the Corporation, or if such day is not a Business Day or if the Notice of Conversion is delivered after regular business hours, the next Business Day. No ink- original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. From and after the Conversion Date, until presented for transfer or exchange, certificates that previously represented shares of Series A Preferred Stock shall represent, in lieu of the number of shares of Series A Preferred Stock previously represented by such certificate, the number of shares of Series A Preferred Stock, if any, previously represented by such certificate that were not converted pursuant to the Notice of Conversion, plus the number of shares of Conversion Shares into which the shares of Series A Preferred Stock previously represented by such certificate were converted. To effect conversions of shares of Series A Preferred Stock, a Holder shall not be required to surrender the certificate(s), if any, representing the shares of Series A Preferred Stock to the Corporation unless all of the shares of Series A Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series A Preferred Stock promptly following the Conversion Date at issue. Shares of Series A Preferred Stock converted into Common Stock shall be canceled and shall not be reissued. (b) Conversion Price. The conversion price for the Series A Preferred Stock shall equal $0.56 per share, subject to adjustment herein (the “Conversion Price”); provided, however, that in lieu of the applicable Conversion Price, as adjusted herein, the Holder may elect to apply an alternate Conversion Price (the “Alternate Conversion Price”) equal to the lesser of (i) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the applicable Conversion Date or (ii) 90% of the VWAP of the trading day prior to the applicable Conversion Date; provided that neither the Conversion Price nor the Alternate Conversion Price shall be below the Floor Price.
11 (c) Mechanics of Conversion i. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being acquired upon the conversion of the Series A Preferred Stock. If such Conversion Shares may be issued free of restrictive legends and trading restrictions, the Corporation shall cause such Conversion Shares to be issued free of such restrictive legends and trading legends. The Corporation shall use its reasonable best efforts to deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Corporation’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion. ii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Series A Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion. iii. Obligation Absolute; Partial Liquidated Damages. Subject to Section 6(d), the Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Series A Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance, which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Series A Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, other than pursuant to Section 6(d), unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series A Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of the Series A Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such
12 injunction, subject to Section 6(d), the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the Share Delivery Date applicable to such conversion, other than pursuant to Section 6(d), the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Series A Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day after the Share Delivery Date and increasing to $200 per Trading Day on the sixth Trading Day after the Share Delivery Date) for each Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series A Preferred Stock equal to the number of shares of Series A Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series A Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a 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 Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Series A Preferred Stock as required pursuant to the terms hereof.
13 v. Reservation of Shares Issuable Upon Conversion. From and after the Original Issue Date and until no shares of Series A Preferred Stock remain outstanding, the Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series A Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Series A Preferred Stock), not less than 150% of the aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account any adjustments under Section 7) upon the conversion of the then outstanding shares of Series A Preferred Stock at the Alternate Conversion Price. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable. vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series A Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding anything to the contrary contained herein, but consistent with the provisions of this subsection with respect to fractional Conversion Shares, nothing shall prevent any Holder from converting fractional shares of Series A Preferred Stock. vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of the Series A Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation 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 Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series A Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares. (d) Beneficial Ownership Limitation. Notwithstanding anything to the contrary set forth herein, the Corporation shall not effect any conversion of the Series A Preferred Stock, and a Holder shall not have the right to convert any portion of the Series A Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) 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 such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series A Preferred Stock beneficially owned by such Holder or any of
14 its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Series A Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Series A Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Series A Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Series A Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Series A Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this Section 6(d) and the Corporation shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Corporation shall within one (1) Trading Day confirm orally and in writing to such 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 Corporation, including the Series A Preferred Stock, by such Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% (or, upon election by a Holder prior to the issuance of any shares of Series A Preferred Stock, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series A Preferred Stock held by the applicable Holder. A Holder, upon notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Series A Preferred Stock; provided, that the Beneficial Ownership Limitation shall not in any event exceed 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 conversion of this Series A Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply. Any such increase will not be effective until the 61st day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder. The Beneficial Ownership Limitation shall not be waived by the Corporation or the Holder and upon issuance of the Series A Preferred Stock by the Corporation, and the purchase thereof by the Holder, in accordance with the Purchase Agreement, each of the Corporation and the Holder shall be deemed to acknowledge such limitation and to agree not to waive it. The provisions of this Section 6(d) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this Section (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section shall apply to a successor holder of Series A Preferred Stock.
15 (e) Principal Market Regulation. The Corporation shall not issue any shares of Common Stock upon conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations if the issuance of such shares of Common Stock (together with any shares issued upon exercise of any Warrants) would exceed the aggregate number of shares of Common Stock which the Corporation may issue upon conversion of the Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations without breaching the Corporation’s obligations under the rules or regulations of the Trading Market (the number of shares which may be issued without violating such rules and regulations, the “Exchange Cap”), except that such limitation shall not apply in the event that the Corporation (A) obtains the approval of its stockholders as required by the applicable rules of the Trading Market for issuances of shares of Common Stock in excess of such amount, (B) obtains a written opinion from outside counsel to the Corporation that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the outstanding shares of Preferred Stock or (C) issues the Preferred Stock through an effective registration statement in connection with a public offering in accordance with the rules and regulations of the Trading Market. Until such approval or such written opinion is obtained, or unless such effective registration statement is available, no Holder shall be issued in the aggregate, upon conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations, shares of Common Stock (together with any shares issued upon exercise of any Warrants) in an amount greater than the product of (i) the Exchange Cap as of the Original Issuance Date multiplied by (ii) the quotient of (1) the aggregate original Stated Value of the Preferred Stock issued to such Holder divided by (2) the aggregate original Stated Value of the Preferred Stock issued to all Holders (with respect to each Holder, the “Exchange Cap Allocation”). In the event that any Holder shall sell or otherwise transfer any of such Holder's shares of Preferred Stock, the transferee shall be allocated a pro rata portion of such Holder's Exchange Cap Allocation with respect to such portion of such Preferred Stock so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation so allocated to such transferee. Upon conversion in full of a Holder’s Preferred Stock, the difference (if any) between such Holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder upon such Holder's conversion in full of such Preferred Stock shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Preferred Stock on a pro rata basis in proportion to the shares of Common Stock underlying the Preferred Stock then held by each such Holder of Preferred Stock. In the event that the Corporation is prohibited from issuing any shares of Common Stock pursuant to this Section 6(e) (the “Exchange Cap Shares”) to a Holder, the Corporation shall pay cash to such Holder in exchange for the redemption of such number of shares of Preferred Stock held by the Holder that are not convertible into such Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Conversion Notice with respect to such Exchange Cap Shares to the Corporation and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of Exchange Cap Shares, brokerage commissions, if any, of such Holder incurred in connection therewith. Section 7. Certain Adjustments. (a) Stock Dividends and Stock Splits. If the Corporation, at any time while the Series A Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions that is payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, the Series A Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of
16 shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price and the Floor Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) 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 re-classification. Notwithstanding the foregoing in no event may the Conversion Price be less than the par value per share of Series A Preferred Stock. (b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock or any class thereof (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Series A Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). (c) Distributions. During such time as the Series A Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders 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, scheme of arrangement or other similar transaction) (a “Distribution”), then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series A Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). (d) Fundamental Transaction. If, at any time while the Series A Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects
17 any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of at least 50% of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization 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, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of the Series A Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series A Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which the Series A Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series A Preferred Stock). For purposes of any such conversion, the determination of the Conversion 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 Corporation shall apportion the Conversion 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 conversion of the Series A Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(d) pursuant to written agreements in customary form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for the Series A Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Series A Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Series A Preferred Stock (without regard to any limitations on the conversion of the Series A Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the
18 conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Series A Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein. (e) Adjustment of Conversion Price upon Issuance of Common Stock. Except in respect of any Exempt Issuance, if and whenever on or after the Original Issue Date the Corporation issues or sells, or in accordance with this Section 7(e) is deemed to have issued or sold, any Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Corporation for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such Conversion Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the greater of the New Issuance Price and the Floor Price. For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and the New Issuance Price under this Section 7(e)), the following shall be applicable: (i) Issuance of Options. If the Corporation in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(e)(i), the “lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any convertible securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof, minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration consisting of cash, debt
19 forgiveness, assets or any other property received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Corporation or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms thereof or upon the actual issuance of such Corporation upon conversion, exercise or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share for which Common Stock are at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(e)(ii), the “lowest price per share for which one share of Common Stock is at any time issuable (or may become issuable assuming all possible market conditions) upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) with respect to any one share of Common Stock upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable consisting of cash, debt forgiveness, assets or other property by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(e), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 7(a) above), the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7(e)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Original Issue Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or
20 Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(e) shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Corporation (as determined by the Holder, the “Primary Security,” and such Option and/or Convertible Security and/or Adjustment Right, the “Secondary Securities”), together comprising one integrated transaction (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Corporation either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per share for which one share of Common Stock was issued (or was deemed to be issued pursuant to Section 7(e)(i) or 7(e)(ii) above, as applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security, if any, in each case, as determined on a per share basis in accordance with this Section 7(e)(iv). If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the net amount of consideration received by the Corporation therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Corporation (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Corporation for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving entity, the amount of consideration therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Corporation and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the
21 Corporation and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Corporation. (v) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issuance or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be). (f) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding. (g) Notice of Holders. i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder by facsimile or email a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation (and all of its Subsidiaries, taken as a whole), or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series A Preferred Stock, and shall cause to be delivered by email to each Holder at its last email address as it shall appear upon the stock books of the Corporation, at least twenty (20) 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 the 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 or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale,
22 transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of the Series A Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. Section 8. Covenants. As long as any shares of Series A Preferred Stock remain outstanding, unless the Holders of a majority of the then outstanding shares of the Series A Preferred Stock shall have otherwise given prior written consent (which consent may be withheld, delayed or conditioned in the sole discretion of such Holders): (a) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into, create, incur, assume or suffer to exist any Liens, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom other than Liens existing on the Original Issue Date; (b) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly amend its charter documents, including, without limitation, its Certificate of Incorporation and bylaws and this Certificate of Designations, in any manner that materially and adversely affects any rights of the Holders; (c) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly redeem, repay, repurchase or offer to repay, repurchase or otherwise acquire any capital stock, except as required by the Certificate of Designation, or de minimis number of shares of its Common Stock or Common Stock Equivalents, or any indebtedness, except for principal and interest payments as such terms are in effect as of the Original Issue Date; (d) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly pay cash dividends or distributions on any equity securities, other than to make any cash payments with respect to the Series A Preferred Stock or Series B Preferred Stock; (e) the Corporation shall not issue any Series A Preferred Stock (other than as contemplated by this Certificate of Designation) or issue any other securities that would cause a breach or default under this Certificate of Designation or the Transaction Documents; (f) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly engage in any material line of business substantially different from those lines of business conducted by or publicly contemplated to be conducted by the Corporation and each of its Subsidiaries on the Original Issue Date, or modify its or their corporate structure or purpose; (g) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, fail to maintain and preserve its existence, rights and privileges, and 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;
23 (h) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to take all action necessary or advisable to maintain all of the Intellectual Property Rights that are necessary or material to the conduct of its business in full force and effect; (i) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to maintain insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated; (j) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum otherwise required for board approval); (k) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly directly or indirectly, sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Corporation or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Corporation and its Subsidiaries in the ordinary course of business consistent with its past practice and (ii) sales of inventory and product in the ordinary course of business; (l) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any agreement with respect to any of the foregoing; (m) the Corporation shall retain a minimum cash balance of $10,000,000 at all times while the Series A Preferred Stock is outstanding and will provide any Holder upon its request evidence of such minimum cash balance; and (n) the Corporation shall, on the Closing Date obtain the consent of the Holders of at least 51% of the Corporation’s voting stock, and, within thirty (30) days of the Original Issue Date file with the Commission a Preliminary Information Statement on Schedule 14C, approving the issuance of the Series A Preferred Stock, Series B Preferred Stock and related warrants and underlying shares of Common Stock and upon the earlier of ten days after such filing with the Commission if no comments are received from the Commission or two days after the last comment is received from the Commission file with the Commission a definitive Schedule 14C with the Commission. Section 9. Redemption (a) Mandatory Redemption. The Corporation shall redeem one-tenth of the number of shares of Series A Preferred Stock issued on the Original Issue Date, on a pro rata basis among all of the Holders of Series A Preferred Stock commencing on the earlier of (a) the three-month anniversary of the Closing Date and on each successive monthly anniversary date thereafter and (b) the date the Registration Statement is declared effective and on each successive monthly anniversary date thereafter (each, a “Monthly Mandatory Redemption Date”) for, at the option of the Corporation, which option shall be identified by written notice to the Holders at least ten (10)
24 Trading Days prior to each Monthly Mandatory Redemption Date, either (i) an amount in cash at a price per Series A Preferred Share equal to the sum of (x) 104.0% of the Stated Value plus (y) all accrued and unpaid Dividends and (z) all other amounts due in respect of the Series A Preferred Stock (the “Corporation’s Mandatory Redemption Price”); (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(a), or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock, the “Monthly Mandatory Redemption Share Amount”) (such redemption, the “Monthly Mandatory Redemption”). On the Monthly Mandatory Redemption Date, the Corporation shall pay the Corporation’s Mandatory Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the Holders of Series A Preferred Stock on a pro rata basis. If a Monthly Mandatory Redemption Date is not a Business Day, then the Corporation’s Mandatory Redemption Price shall be due and payable on the Business Day immediately following such Monthly Mandatory Redemption Date. The Corporation shall pay the monthly Installments of the Corporation’s Mandatory Redemption Price due under this Section 9(a) (the “Installments”) to the Holders in cash; provided, that on or after June 16, 2023 if the Equity Conditions are fulfilled for twenty (20) consecutive Trading Days immediately prior to applicable Mandatory Redemption Date the Corporation may choose to pay the installments in shares of Common Stock or a combination thereof. Shares of Common Stock used to pay an Installment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price, (ii) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the applicable Monthly Mandatory Redemption Date or (iii) 90% of the VWAP of the trading day prior to the applicable Monthly Mandatory Redemption Date. Installments may be deferred or reallocated to other dates at the Holders’ discretion. If funds are not legally available for the payment of Monthly Mandatory Redemption and the Equity Conditions have not been met or waived on or prior to the Monthly Mandatory Redemption Date, then, at the election of such Holder, such Monthly Mandatory Redemption Share Amount shall accrue to the next Monthly Mandatory Redemption Date or shall be accreted to, and increase, the outstanding Stated Value. Monthly Mandatory Redemption Share Amount is payable in full on the Monthly Mandatory Redemption Date, if in cash, and within two (2) Trading Days after the Monthly Mandatory Redemption Date, if in shares of Common Stock. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Monthly Mandatory Redemption Share Amount paid in full. (b) Accelerated Redemption. At the option of each Holder, the Holder may require the Corporation to redeem all of the shares of Series A Preferred Stock held by the Holder at any time on or after June 15, 2023 (the “Accelerated Redemption Date”). In addition, the Corporation may elect to redeem all of the shares of Series A Preferred Stock at any time on or after the Accelerated Redemption Date (any such redemption at the election of a Holder or the Corporation, an “Accelerated Redemption”). Any Accelerated Redemption shall be for, at the option of each Holder being redeemed: (i) cash at the Corporation’s Mandatory Redemption Price, (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(b), or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock). Shares of Common Stock used to pay the Accelerated Redemption payment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price, (ii) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the Accelerated Redemption Date or (iii) 90% of the VWAP of the trading day prior to the Accelerated Redemption Date. (c) Triggered Optional Redemption. If at any time after the Original Issue Date, the Corporation or any Subsidiary thereof closes any debt or equity financing (the “Triggered Optional Event”), the Corporation shall within one (1) Business Day deliver written notice thereof via
25 facsimile or electronic mail and overnight courier (with next day delivery specified) (an “Optional Triggering Event Notice”) to each Holder of Series A Preferred Stock. If at any time after the earlier of a Holder's receipt of an Optional Triggering Event Notice and such Holder becoming aware of an Triggering Optional Event (such earlier date, the “Optional Triggering Event Right Commencement Date”) and ending within ten (10) days after the Optional Triggering Event Right Commencement Date, the Holder shall provide notice to the Corporation (the “Holder’s Optional Triggered Notice”), at its option, to have proceeds of such financing used to redeem its shares of Series A Preferred Stock then the Corporation shall within five days of receipt of a Holder’s Optional Triggered Notice (such fifth day being the “Triggered Optional Redemption Date”) redeem such number of shares of Series A Preferred Stock, on a pro rata basis for each Holder requesting redemption, equal to such number of shares of Series A Preferred Stock that may be redeemable with 30% of the proceeds of the financing, for an amount per share in cash equal to the Corporation’s Mandatory Redemption Price (such redemption, the “Triggered Optional Redemption” and such payment amount, the “Triggered Optional Redemption Amount”). The Triggered Optional Redemption Amount is payable in full on the Triggered Optional Redemption Date. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Triggered Optional Redemption Amount paid in full. (d) Triggering Event Redemption. Each of the following events shall constitute a “Triggering Event” and each of the event in clause (v) shall constitute a “Bankruptcy Triggering Event”: (i) any failure to pay any Dividend, Buy-In or other amounts as and when the same shall become due and payable under the Certificate of Designation and/or any of the other Transaction Documents (whether on a Conversion Date, Accelerated Redemption Date, Triggered Optional Redemption Date, Monthly Mandatory Redemption Date, Triggering Event Redemption Date and/or any other date when any funds are due to be redeemed, converted and/or otherwise paid to the Holder by the Corporation and/or any Subsidiary, whether by acceleration or otherwise), including, without limitation, any failure to pay any redemption payments or amounts thereunder, or under any other Transaction Document or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby; (ii) the Corporation and/or any Subsidiary shall fail to maintain a minimum cash and cash equivalents balance of $10,000,000 at any time while the Series A Preferred Stock is outstanding or shall fail to observe, perform and/or breaches any material covenant, provision, or agreement contained in this Certificate of Designation, the Transaction Documents, a breach by the Corporation of its obligations to deliver Conversion Shares to the Holder upon conversion of the Series A Preferred Stock, which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days after notice of such failure is sent by the Holder or by any other Holder to the Corporation and (B) ten (10) Trading Days after the Corporation has become or should have become aware of such failure; (iii) a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which the Corporation or any Subsidiary is obligated (and not covered by clause (vi) below; (iv) any material representation or warranty made in any of the Transaction Documents, any written statement pursuant hereto or thereto, any other agreement, contract, lease, document or instrument to which the Corporation or any Subsidiary is obligated (including those covered by clause (vi) below), or any other report, financial statement or certificate made or
26 delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made; (v) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event; (vi) the Corporation or any Subsidiary shall default on any of its obligations under any mortgage, credit and/or loan agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $50,000 whether such Indebtedness now exists or shall hereafter be created, and (b) results in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; (vii) the suspension from trading or quotation of the Common Stock, or the failure of the Common Stock to be eligible for listing or quotation on a Trading Market for a period of five (5) consecutive Trading Days; (viii) the Corporation shall fail for any reason to deliver Common Stock to a Holder prior to the second (2nd) Trading Day after a Conversion Date or otherwise, or the Corporation shall provide at any time notice to the Holder, including by way of public announcement, of the Corporation’s intention to not honor requests for conversions of the Series A Preferred Stock in accordance with the terms hereof; (ix) the Corporation fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act, which failure is not cured, if possible to cure, prior to the expiration of the applicable grace period permitted under Rule 12b-25 of the Exchange Act, further provided that the Corporation files a Form 12b-25 for such report; (x) the Corporation shall fail to maintain a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation and such failure is not cured within five (5) Trading Days; (xi) any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any Subsidiary or any of their respective property or other assets for more than $250,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days; (xii) the Corporation shall fail to obtain all necessary approvals of the issue and sale of all Common Stock issuable in connection with the Series A Preferred Stock and/or Transaction Documents, including, but not limited to, all Conversion Shares and Common Stock to be issued as Dividends and or otherwise, consistent with the rules and regulations of the principal Trading Market as of the Original Issue Date; (xiii) the electronic transfer by the Corporation of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”; (xiv) any Change of Control Transaction occurs;
27 (xv) the Corporation fails to (1) file a Preliminary Information Statement on Schedule 14C with the Commission within thirty (30) days of the Closing Date, (2) to file a Definitive Information Statement on Schedule 14C with the SEC on the eleventh day after the requisite ten day waiting period and immediately mail the Definitive Information Statement on Schedule 14C to the Corporation’s shareholders (assuming no comments from the Commission have been received with respect to such filing prior to such eleventh day) or within five (5) days of the receipt of any comments, fails to file a response to such comments or (3) to obtain all necessary approvals (including approval of Nasdaq Capital Market) of the issue and sale of all Conversion Shares, without any Exchange Cap limitation and or otherwise, consistent with the rules and regulations of the principal Trading Market within six months of the Closing Date; and (xvi) the registration statement registering the Series A Preferred Stock and Common Stock shall no longer be effective. (e) Notice of a Triggering Event; Redemption Right. Upon the occurrence of a Triggering Event with respect to the Series A Preferred Stock, the Corporation shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (with next day delivery specified) (an “Triggering Event Notice”) to each Holder. At any time after the earlier of a Holder’s receipt of a Triggering Event Notice and such Holder becoming aware of a Triggering Event (such earlier date, the “Triggering Event Right Commencement Date”) and ending (such ending date, the “Triggering Event Right Expiration Date”, and each such period, an “Triggering Event Redemption Right Period”) on the sixtieth (60th) Trading Day after the later of (x) the date such Triggering Event is cured and (y) such Holder’s receipt of a Triggering Event Notice that includes (I) a reasonable description of the applicable Triggering Event, (II) a certification as to whether, in the opinion of the Corporation, such Triggering Event is capable of being cured and, if applicable, a reasonable description of any existing plans of the Corporation to cure such Triggering Event and (III) a certification as to the date the Triggering Event occurred and, if cured on or prior to the date of such Triggering Event Notice, the applicable Triggering Event Right Expiration Date, such Holder may require the Corporation to redeem ( a “Triggering Event Redemption”) for cash (regardless of whether such Triggering Event has been cured on or prior to the Triggering Event Right Expiration Date) all or any of the Series A Preferred Stock by delivering written notice thereof (the “Triggering Event Redemption Notice”) to the Corporation, which Triggering Event Redemption Notice shall indicate the number of the Series A Preferred Stock such Holder is electing to redeem. Each of the shares of Series A Preferred Stock subject to redemption by the Corporation pursuant to this Section 9(e) shall be redeemed by the Corporation within five days of delivery of Triggering Event Redemption Notice (the “Triggering Event Redemption Date”) at a price equal to the product of (x) 115% and (y) the Corporation’s Mandatory Redemption Price (the “Triggering Event Redemption Price”). To the extent redemptions required by this Section 9(e) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series A Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(e), until the Triggering Event Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 9(e) may be converted, in whole or in part, by such Holder into Common Stock pursuant to the terms of this Certificate of Designation. In the event of the Corporation’s redemption of any of the Series A Preferred Stock under this Section 9(e), a Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 9(e) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. Any redemption upon a Triggering Event
28 shall not constitute an election of remedies by the applicable Holder or any other Holder, and all other rights and remedies of each Holder shall be preserved. (f) Mandatory Redemption upon Bankruptcy Triggering Event. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Triggering Event, the Corporation shall immediately redeem, in cash, each of the shares of Series A Preferred Stock then outstanding at a redemption price equal to the applicable Triggering Event Redemption Price (calculated as if such Holder shall have delivered the Triggering Event Redemption Notice immediately prior to the occurrence of such Bankruptcy Triggering Event), without the requirement for any notice or demand or other action by any Holder or any other person or entity, provided that a Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Triggering Event, in whole or in part, and any such waiver shall not affect any other rights of such Holder or any other Holder hereunder, including any other rights in respect of such Bankruptcy Triggering Event, any right to conversion, and any right to payment of such Triggering Event Redemption Price or any other Redemption Price, as applicable. (g) Change of Control Redemption Right. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Change of Control (the “Change of Control Date”), but not prior to the public announcement of such Change of Control, the Corporation shall deliver written notice thereof via facsimile and overnight courier to each Holder (a “Change of Control Notice”) At any time during the period beginning after a Holder's receipt of a Change of Control Notice or such Holder becoming aware of a Change of Control if a Change of Control Notice is not delivered to such Holder in accordance with the immediately preceding sentence (as applicable) and ending on the later of twenty (20) Trading Days after (A) consummation of such Change of Control or (B) the date of receipt of such Change of Control Notice, such Holder may require the Corporation to redeem all or any portion of such Holder's Series A Preferred Stock (“Change of Control Redemption”) by delivering written notice thereof (“Change of Control Redemption Notice”) to the Corporation, which Change of Control Redemption Notice shall indicate the number of shares of Series A Preferred Stock such Holder is electing to have the Corporation redeem. Each share of Series A Preferred Stock subject to redemption pursuant to this Section 9(g) shall be redeemed by the Corporation in cash at a price equal to the greater of (i) product of 115% multiplied by the Corporation’s Mandatory Redemption Price and (ii) the prevailing Conversion Price plus all accrued but unpaid Dividends (the “Change of Control Redemption Price”). Redemptions required by this Section 9(g) shall have priority to payments to all other stockholders of the Corporation in connection with such Change of Control. To the extent redemptions required by this Section 9(g) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series A Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(g), but subject to Section 6(d), until the applicable Change of Control Redemption Price (together with any late charges thereon) is paid in full to the applicable Holder, the Series A Preferred Stock submitted by such Holder for redemption under this Section 9(g) may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 6 or in the event the Conversion Date is after the consummation of such Change of Control, stock or equity interests of the Successor Entity substantially equivalent to the Corporation’s shares of Common Stock pursuant to Section 7. In the event of the Corporation’s redemption of any of the Series A Preferred Stock under this Section 9(g), such Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for a Holder. Accordingly, any redemption premium due under this Section 9(g) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder's actual loss of its investment opportunity and not as
29 a penalty. The Corporation shall make payment of the applicable Change of Control Redemption Price concurrently with the consummation of such Change of Control if a Change of Control Redemption Notice is received prior to the consummation of such Change of Control and within two (2) Trading Days after the Corporation’s receipt of such notice otherwise (the “Change of Control Redemption Date”) Redemptions required by this Section 9 shall be made in accordance with the provisions of Section 9(h). (h) If a Holder has submitted a Change of Control Redemption Notice in accordance with Section 9(g), the Corporation shall deliver the applicable Change of Control Redemption Price to such Holder in cash concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Corporation's receipt of such notice otherwise. In the event that the Corporation does not pay the applicable Triggering Event Redemption Price or Change of Control Redemption Price to a Holder within the time period required for any reason (except if such payment is prohibited pursuant to the DGCL), at any time thereafter and until the Corporation pays such unpaid Triggering Event Redemption Price or Change of Control Redemption Price in full, such Holder shall have the option, in lieu of redemption, to require the Corporation to promptly return to such Holder all or any of the shares of Series A Preferred Stock that were submitted for redemption and for which the applicable Triggering Event Redemption Price or Change of Control Redemption Price (together with any late charges thereon) has not been paid. Upon the Corporation's receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Series A Preferred Stock, (y) the Corporation shall immediately return the applicable Series A Preferred Stock certificate, or issue a new Preferred Stock Certificate, to such Holder, and in each case the declared and unpaid dividend amount of such Preferred Stock shall be increased by an amount equal to the difference between (1) the applicable Redemption Price (as the case may be, and as adjusted pursuant to this Section 9(h), if applicable) minus (2) the Stated Value portion of the Conversion Amount submitted for redemption and (z) the Conversion Price of such Preferred Shares shall be automatically adjusted with respect to each conversion effected thereafter by such Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided, (B) the greater of (x) the Floor Price and (y) 75% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Corporation and ending on and including the date on which the applicable Redemption Notice is voided and (C) the greater of (x) the Floor Price and (y) 75% of the quotient of (I) the sum of the five (5) lowest VWAPs of the Common Stock during the twenty (20) consecutive Trading Day period ending and including the Trading Day immediately preceding the applicable Conversion Date divided by (II) five (5) (it being understood and agreed that all such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period). A Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Corporation’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Preferred Shares subject to such notice. (i) Independent Investigation. At the request of any Holder either (x) at any time when a Triggering Event has occurred and is continuing, (y) upon the occurrence of an event that with the passage of time or giving of notice would constitute a Triggering Event or (z) at any time such Holder reasonably believes a Triggering Event may have occurred or be continuing, the Corporation shall hire an independent, reputable investment bank selected by the Corporation and approved by such Holder to investigate as to whether any breach of the Certificate of Designation has occurred (the “Independent Investigator”). If the Independent Investigator determines that such Triggering Event has occurred, the Independent Investigator shall notify the Corporation of such Triggering
30 Event and the Corporation shall deliver written notice to each Holder of such Triggering Event. In connection with such investigation, the Independent Investigator may, during normal business hours, inspect all contracts, books, records, personnel, offices and other facilities and properties of the Corporation and its Subsidiaries and, to the extent available to the Corporation after the Corporation uses reasonable efforts to obtain them, the records of its legal advisors and accountants (including the accountants’ work papers) and any books of account, records, reports and other papers not contractually required of the Corporation to be confidential or secret, or subject to attorney- client or other evidentiary privilege, and the Independent Investigator may make such copies and inspections thereof as the Independent Investigator may reasonably request. The Corporation shall furnish the Independent Investigator with such financial and operating data and other information with respect to the business and properties of the Corporation as the Independent Investigator may reasonably request. The Corporation shall permit the Independent Investigator to discuss the affairs, finances and accounts of the Corporation with, and to make proposals and furnish advice with respect thereto to, the Corporation’s officers, directors, key employees and independent public accountants or any of them (and by this provision the Corporation authorizes said accountants to discuss with such Independent Investigator the finances and affairs of the Corporation and any Subsidiaries), all at such reasonable times, upon reasonable notice, and as often as may be reasonably requested. (j) General. Notwithstanding anything to the foregoing contained herein, on each Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date the Company shall (a) first redeem, on a pro rata basis in accordance with the number of shares of Series A Preferred Stock owned by each Holder, that number of outstanding shares of Series A Preferred Stock which the Corporation is obligated to redeem pursuant to this Section 9 and (b) next redeem, on a pro rata basis in accordance with the number of shares of Series B Preferred Stock owned by each holder, any shares of Series B Preferred Stock which the Corporation is obligated to redeem pursuant to Section 9 of the Series B Certificate of Designation. If on any Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date, Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Series A Preferred Stock and Series B Preferred Stock to be redeemed, the Corporation shall (1) first ratably redeem the maximum number of shares of Series A Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to this Section 9 are redeemed, and (2) next ratably redeem the maximum number of shares of Series B Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to Section 9 of the Series B Certificate of Designation are redeemed. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Series A Preferred Stock, if any, and Series B Preferred Stock, if any, which the Corporation is then obligated to redeem, such funds shall be used, within five (5) Business Days, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. If on any Accelerated Redemption Date, Triggered Optional Redemption Date or Triggering Event Redemption Date, any cash payment required to be made pursuant to this Section 9 is not made, then the Holder may provide to the Corporation written notice within five (5) Business Days of such date that it desires to retain its shares of Series A Preferred Stock that have not been redeemed for cash and sell the shares of Series A Preferred Stock to a third party and in the event the Corporation receives such notice from a Holder it shall honor the request or, if no such notice is sent, then the Corporation shall pay to the Holder the unpaid cash redemption payment in duly authorized, validly issued, fully paid and non- assessable shares of Common Stock in accordance with this Section 9.
31 Section 10. Miscellaneous. (a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile or email attachment, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 4800 140th Avenue N., Suite 101, Clearwater, Florida Attention: Joseph Marinucci, Chief Executive Officer, email address __________.com, or such other email address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of such Holder appearing on the books of the Corporation, or if no such email address or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. (b) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series A Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation (which shall not include the posting of any bond). (c) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation 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. (d) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. (e) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof. (f) Status of Converted or Redeemed Preferred Stock. Shares of Series A Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Series A Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares may not be reissued and shall automatically be retired and cancelled and shall resume the status of authorized but unissued shares of preferred stock.
32 *********************
33 IN WITNESS WHEREOF, the undersigned have executed this Certificate this day of March, 2023. Name: Joseph Marinucci Title: Chief Executive Officer
34 ANNEX A NOTICE OF CONVERSION (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A PREFERRED STOCK) The undersigned hereby elects to convert the number of shares of Series A Convertible Redeemable Preferred Stock indicated below into shares of common stock, par value $0.0001 per share (the “Common Stock”), of Digital Media Solutions, Inc., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes. Conversion calculations: Date to Effect Conversion: _____________________________________________ Number of shares of Series A Preferred Stock owned prior to Conversion: _______________ Number of shares of Series A Preferred Stock to be Converted: ________________________ Stated Value of shares of Series A Preferred Stock to be Converted: ____________________ Number of shares of Common Stock to be Issued: ___________________________ Applicable Conversion Price:____________________________________________ Number of shares of Series A Preferred Stock subsequent to Conversion: ________________ Address for Delivery: ______________________ Or DWAC Instructions: Broker no: _________ Account no: ___________ HOLDER By: Name: Title:
41 Exhibit C Form of Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Redeemable Preferred Stock (attached)
CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK PURSUANT TO SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW The undersigned, Joseph Marinucci, does hereby certify that: 1. He is the Chief Executive Officer of Digital Media Solutions, Inc., a Delaware corporation (the “Corporation”). 2. The Corporation is authorized to issue 100,000,000 shares of preferred stock, par value $0.0001 per share, of which no shares have been previously designated. 3. The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”): WHEREAS, the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), provides for a class of its authorized stock known as preferred stock, consisting of 100,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series; WHEREAS, the Board of Directors is authorized by resolution to provide for the issuance of preferred stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof; and WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as described above, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of 60,000 shares of the preferred stock which the Corporation has the authority to issue. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock to be designated “Series B Convertible Redeemable Preferred Stock” and does hereby fix and determine the designation, powers, privileges, preferences and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof as follows: Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings: “Accelerated Redemption” shall have the meaning set forth in Section 9(b). “Adjustment Right” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 7(e)) of Common Stock that could result in a decrease in the net consideration received by the Corporation in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
2 “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. “Alternate Consideration” shall have the meaning set forth in Section 7(d). “Alternate Conversion Price” shall have the meaning set forth in Section 6(b). “Applicable Price” shall have the meaning set forth in Section 7(e). “Bankruptcy Triggering Event” shall have the meaning set forth in Section 9(d). “Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d). “Black Scholes Consideration Value” means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing: (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be). “Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. “Buy-In” shall have the meaning set forth in Section 6(c)(iv). “Change of Control Date” shall have the meaning set forth in Section 9(g). “Change of Control Price” shall have the meaning set forth in Section 9(g). “Change of Control Notice” shall have the meaning set forth in Section 9(g). “Change of Control Redemption” shall have the meaning set forth in Section 9(g). “Change of Control Redemption Date” shall have the meaning set forth in Section 9(g). “Change of Control Redemption Price” shall have the meaning set forth in Section 9(g). “Change of Control Redemption Notice” shall have the meaning set forth in Section 9(g). “Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of
3 capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of the issuance, sale, conversion or exercise of Series A Preferred Stock or Series B Preferred Stock), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation (and all of its Subsidiaries, taken as a whole) sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above. “Closing” means the closing of the purchase and sale of the Series B Preferred Stock pursuant to Section 2.1 of the Purchase Agreement. “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Trading Market, as reported by Bloomberg, or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock. If the Corporation and the Holders of a majority of the then outstanding shares of Preferred Stock are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 10(k). All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period. “Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) each Holder’s obligations to pay the Purchase Price and (ii) the Corporation’s obligations to deliver the Series B Preferred Stock have been satisfied or waived. “Commission” means the United States Securities and Exchange Commission.
4 “Common Stock” means the Corporation’s Class A common stock, $0.0001 par value per share, and stock of any other class of securities into which such securities may hereafter be reclassified, converted or changed. “Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which 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. “Conversion Amount” means the sum of the Stated Value at issue and all accrued and unpaid dividends at issue. “Conversion Date” shall have the meaning set forth in Section 6(a). “Conversion Price” shall have the meaning set forth in Section 6(b). “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any Common Stock. “Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock in accordance with the terms hereof. “Corporation’s Mandatory Redemption Price” shall have the meaning set forth in Section 9(a). “Dilutive Issuance” shall have the meaning set forth in Section 7(e) “Dividend Date” shall have the meaning set forth in Section 3(b). “Dividend Rate” means four percent (4.0%) per annum. “Dividends” shall have the meaning set forth in Section 3(a). “Equity Conditions” means during the period in question: (a) the Corporation shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holders, if any, (b) there is an effective registration statement (“Registration Statement”) under the Securities Act pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the Common Stock issuable pursuant to the Certificate of Designation (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Certificate of Designation may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Corporation as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holders, (c) the Common Stock are trading on a Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (d) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation, (e) there is no existing breach of any of the representations, warranties, covenants or agreements made by the Corporation in the
5 Transaction Documents, and no existing event which, with the passage of time or the giving of notice, would constitute such a breach, (f) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (g) the limitations set forth under Section 6(d) will not be exceeded upon any requested conversion and (h) for each of the twenty (20) Trading Days prior to the applicable date in question, the closing price of the Common Stock on the Trading Market is at least equal to the Floor Price. “Escrow Agreement” means the escrow agreement to be entered into in connection with the Purchase Agreement, by and among the Corporation, Continental Stock Transfer & Trust Company, and the holder representative party thereto (the “Holder Representative”). “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Exchange Cap” shall have the meaning given such term in Section 6(e). “Exchange Cap Allocation” shall have the meaning given such term in Section 6(e). “Exchange Cap Shares” shall have the meaning given such term in Section 6(e). “Exempt Issuance” has the meaning set forth in the Purchase Agreement. “Floor Price” means $0.484. “Fundamental Transaction” shall have the meaning set forth in Section 7(d). “Holder” shall have the meaning given such term in Section 2. “Holder’s Optional Triggered Notice” shall have the meaning given such term in Section 9(c). “Installments” shall have the meaning given such term in Section 9(a). “Intellectual Property Rights” means, with respect to the Corporation and its Subsidiaries, all of their rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor. “Lien” means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature affecting property, real or personal, tangible or intangible, including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset, any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset, any lease in the nature thereof and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute of any jurisdiction). “Liquidation” shall have the meaning set forth in Section 5.
6 “Monthly Mandatory Redemption” shall have the meaning given such term in Section 9(a). “Monthly Mandatory Redemption Date” shall have the meaning given such term in Section 9(a). “Monthly Mandatory Redemption Share Amount” shall have the meaning given such term in Section 9(a). “New Issuance Price” shall have the meaning set forth in Section 7(e). “Notice of Conversion” shall have the meaning set forth in Section 6(a). “Optional Triggering Event Right Commencement Date” shall have the meaning given such term in Section 9(c). “Optional Triggering Event Notice” shall have the meaning given such term in Section 9(c). “Original Issue Date” means the date of the first issuance of any shares of the Series B Preferred Stock regardless of the number of transfers of any particular shares of Series B Preferred Stock and regardless of the number of certificates which may be issued to evidence such Series B Preferred Stock. “Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. “Primary Security” shall have the meaning set forth in Section 7(e)(iv). “Purchase Agreement” means the Securities Purchase Agreement, dated as of March 29, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. “Purchase Price” means, as to each Holder, the aggregate dollar amount to be paid for the Series B Preferred Stock pursuant to the Purchase Agreement. “Redemption” means any of or collectively all of an Accelerated Redemption, Monthly Mandatory Redemption, Triggering Event Redemption, Triggered Optional Redemption, Change of Control Redemption “Redemption Price” means any of the Corporation’s Mandatory Redemption Price, Triggering Event Redemption Price and the Change of Control Redemption Price, as applicable. “Registration Rights Agreement” means the Registration Rights Agreement, dated as of March 30, 2023, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. “Secondary Security” shall have the meaning set forth in Section 7(d).
7 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Series A Preferred Stock” shall have the meaning set forth in Section 2. “Series A Preferred Stock Certificate of Designation” means the Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Redeemable Preferred Stock of the Corporation, dated as of the date hereof. “Series B Preferred Stock” shall mean the Series B Convertible Redeemable Preferred Stock of the Corporation. “Share Delivery Date” shall have the meaning set forth in Section 6(c). “Stated Value” shall have the meaning set forth in Section 2. “Subsidiary” means any subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Corporation formed or acquired after the date of the Purchase Agreement. “Successor Entity” shall have the meaning set forth in Section 7(d). “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities. “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing). “Transaction Documents” means this Certificate of Designation, the Series A Preferred Stock Certificate of Designation, the Purchase Agreement, the Registration Rights Agreement, the Warrants, the Escrow Agreement, the Financial Advisory Agreement, the Lock-Up Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement, in each case as amended, modified or supplemented from time to time in accordance with its terms. “Transfer Agent” means Continental Stock Transfer & Trust Company, and any successor transfer agent of the Corporation. “Triggered Optional Redemption Amount” shall have the meaning set forth in Section 9(c).
8 “Triggering Event” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption” shall have the meaning set forth in Section 9(e). “Triggering Event Right Commencement Date” shall have the meaning set forth in Section 9(e). “Triggering Event Right Period” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption Date” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption Notice” shall have the meaning set forth in Section 9(e). “Triggering Event Redemption Price” shall have the meaning set forth in Section 9(e). “Triggered Optional Event” shall have the meaning set forth in Section 9(c). “Triggered Optional Redemption” shall have the meaning set forth in Section 9(c). “Triggered Optional Redemption Date” shall have the meaning set forth in Section 9(c). “Valuation Event” shall have the meaning set forth in Section 7(e)(iv). “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock is then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Series B Preferred Stock then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation. “Warrants” has the meaning set forth in the Purchase Agreement. Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as “Series B Convertible Redeemable Preferred Stock” (the “Series B Preferred Stock”) and the number of shares of such series shall be 60,000 (which shall not be subject to increase without the written consent of the holders of a majority of the then outstanding shares of the Series B Preferred Stock (each, a “Holder” and collectively, the “Holders”)). Each share of Series B Preferred Stock shall have a par value of $0.0001 per share and a stated value equal to $111.11 (as adjusted for any stock splits, stock dividends, recapitalizations, or similar transaction with respect to the Series B Preferred Stock, the “Stated Value”). Section 3. Dividends.
9 (a) From and after the Original Issue Date, each Holder shall be entitled to receive dividends (“Dividends”), which Dividends shall be cumulative and shall continue to accrue and compound annually whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of dividends in such fiscal year. Dividends on the Series B Preferred Stock shall commence accumulating on the Original Issue Date and shall be computed on the basis of a 360-day year and twelve 30-day months. (b) Dividends shall be payable on each Conversion Date and Redemption Date (each, a “Dividend Date”), as applicable, to the record holders of the Series B Preferred Stock on the applicable Dividend Date in accordance with the terms of the applicable conversion or redemption. Section 4. Voting Rights. (a) For purposes of determining the presence of a quorum at any meeting of the stockholders of the Corporation at which the shares of Series B Preferred Stock are entitled to vote and the voting power of the shares of Series B Preferred Stock, each Holder of outstanding shares of Series B Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such shares of Series B Preferred Stock are then convertible, disregarding, for such purposes, any limitations on conversion set forth herein. (b) Except as otherwise required by the Delaware General Corporation Law or the Certificate of Incorporation (including this Certificate of Designation), each share of Series B Preferred Stock shall be entitled to vote on each matter submitted to a vote of the stockholders generally and shall vote together with the Common Stock and any other class or series of capital stock entitled to vote thereon as a single class and on an as converted to Common Stock basis. Notwithstanding the foregoing, at no time shall the voting power of a share of Series B Preferred Stock voting on an as converted basis exceed the voting power of such share on the Initial Issuance Date based upon the Conversion Price of $0.6453 per share. Notwithstanding anything to the contrary in the first sentence of this Section 4(b), in addition, as long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Preferred Stock, voting as a separate class, (i) alter or change the powers, preferences or rights of the Series B Preferred Stock so as to affect them adversely, (ii) amend the Certificate of Incorporation or other charter documents in a manner adverse to the Holders, (iii) increase the number of authorized shares of Series B Preferred Stock, or (iv) enter into any agreement with respect to any of the foregoing. Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), prior and in preference to the Common Stock and after the payment of all preferential amounts required to be paid to the holders of shares of Series A Preferred Stock pursuant to the Series A Preferred Stock Certificate of Designation, the Holders shall be entitled to receive out of the assets available for distribution to stockholders an amount equal in cash to 115% of the aggregate Stated Value of all shares of Series B Preferred Stock held by such Holder, plus any accrued but unpaid Dividends thereon any other fees then due and owing thereon under this Certificate of Designation, and no more, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The preference set forth in this Section 5 with respect to distributions to the Series B Preferred Stock upon a Liquidation shall apply mutatis mutandis to any distributions to be made upon the consummation of a Fundamental Transaction. The Corporation shall mail written notice of any such Liquidation or Fundamental Transaction not less than 45 days prior to the payment date stated therein, to each Holder. To the extent necessary, the Corporation shall cause such actions to be taken by each of its Subsidiaries so as to enable, to the maximum extent permitted by law, the proceeds of a Liquidation to be distributed to the
10 Holders in accordance with this Section 5. All the preferential amounts to be paid to the Holders under this Section 5 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any Liquidation funds of the Corporation to the holders of shares of the Common Stock in connection with a Liquidation as to which this Section 5 applies. Section 6. Conversion. (a) Conversions at Option of Holder. Subject to Section 6(d), each share of Series B Preferred Stock shall be convertible, at any time and from time to time only after the Original Issuance Date, at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series B Preferred Stock by the Conversion Price or the Alternate Conversion Price, as the case may be. Holders shall effect conversions by delivering to the Corporation and the Holder Representative a conversion notice in the form attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series B Preferred Stock to be converted, the number of shares of Series B Preferred Stock owned prior to the conversion at issue, the number of shares of Series B Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be as of the close of business on the Business Day that such Notice of Conversion is delivered to the Corporation, or if such day is not a Business Day or if the Notice of Conversion is delivered after regular business hours, the next Business Day. No ink- original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. From and after the Conversion Date, until presented for transfer or exchange, certificates that previously represented shares of Series B Preferred Stock shall represent, in lieu of the number of shares of Series B Preferred Stock previously represented by such certificate, the number of shares of Series B Preferred Stock, if any, previously represented by such certificate that were not converted pursuant to the Notice of Conversion, plus the number of shares of Conversion Shares into which the shares of Series B Preferred Stock previously represented by such certificate were converted. To effect conversions of shares of Series B Preferred Stock, a Holder shall not be required to surrender the certificate(s), if any, representing the shares of Series B Preferred Stock to the Corporation unless all of the shares of Series B Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series B Preferred Stock promptly following the Conversion Date at issue. Shares of Series B Preferred Stock converted into Common Stock shall be canceled and shall not be reissued. (b) Conversion Price. The conversion price for the Series B Preferred Stock shall equal $0.56 per share, subject to adjustment herein (the “Conversion Price”); provided, however, that in lieu of the applicable Conversion Price, as adjusted herein, the Holder may elect to apply an alternate Conversion Price (the “Alternate Conversion Price”) equal to the lesser of (i) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the applicable Conversion Date or (ii) 90% of the VWAP of the trading day prior to the applicable Conversion Date; provided that neither the Conversion Price nor the Alternate Conversion Price shall be below the Floor Price. (c) Mechanics of Conversion i. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the
11 Corporation shall deliver, or cause to be delivered, to the converting Holder the number of Conversion Shares being acquired upon the conversion of the Series B Preferred Stock. If such Conversion Shares may be issued free of restrictive legends and trading restrictions, the Corporation shall cause such Conversion Shares to be issued free of such restrictive legends and trading legends. The Corporation shall use its reasonable best efforts to deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Corporation’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion. ii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Series B Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion. iii. Obligation Absolute; Partial Liquidated Damages. Subject to Section 6(d), the Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Series B Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance, which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Series B Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, other than pursuant to Section 6(d), unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series B Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of the Series B Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, subject to Section 6(d), the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the Share Delivery Date applicable to such conversion, other than pursuant to Section 6(d), the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Series B Preferred Stock being converted,
12 $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day after the Share Delivery Date and increasing to $200 per Trading Day on the sixth Trading Day after the Share Delivery Date) for each Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series B Preferred Stock equal to the number of shares of Series B Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series B Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a 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 Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Series B Preferred Stock as required pursuant to the terms hereof. v. Reservation of Shares Issuable Upon Conversion. From and after the Original Issue Date and until no shares of Series B Preferred Stock remain outstanding, the Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series B Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders
13 of the Series B Preferred Stock), not less than 150% of the aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account any adjustments under Section 7) upon the conversion of the then outstanding shares of Series B Preferred Stock at the Alternate Conversion Price. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable. vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series B Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding anything to the contrary contained herein, but consistent with the provisions of this subsection with respect to fractional Conversion Shares, nothing shall prevent any Holder from converting fractional shares of Series B Preferred Stock. vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of the Series B Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation 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 Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series B Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares. (d) [RESERVED.] (e) Principal Market Regulation. The Corporation shall not issue any shares of Common Stock upon conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations if the issuance of such shares of Common Stock (together with any shares issued upon exercise of any Warrants) would exceed the aggregate number of shares of Common Stock which the Corporation may issue upon conversion of the Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations without breaching the Corporation’s obligations under the rules or regulations of the Trading Market (the number of shares which may be issued without violating such rules and regulations, the “Exchange Cap”), except that such limitation shall not apply in the event that the Corporation (A) obtains the approval of its stockholders as required by the applicable rules of the Trading Market for issuances of shares of Common Stock in excess of such amount, (B) obtains a written opinion from outside counsel to the Corporation that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the outstanding shares of Preferred Stock or (C) issues the Preferred Stock through an effective registration statement in connection with a public offering in accordance with the rules and regulations of the Trading Market. Until such approval or such written opinion is obtained, or unless such effective registration statement is available, no Holder shall be issued in the aggregate, upon
14 conversion of any Preferred Stock or otherwise pursuant to the terms of this Certificate of Designations, shares of Common Stock (together with any shares issued upon exercise of any Warrants) in an amount greater than the product of (i) the Exchange Cap as of the Original Issuance Date multiplied by (ii) the quotient of (1) the aggregate original Stated Value of the Preferred Stock issued to such Holder divided by (2) the aggregate original Stated Value of the Preferred Stock issued to all Holders (with respect to each Holder, the “Exchange Cap Allocation”). In the event that any Holder shall sell or otherwise transfer any of such Holder’s shares of Preferred Stock, the transferee shall be allocated a pro rata portion of such Holder’s Exchange Cap Allocation with respect to such portion of such Preferred Stock so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation so allocated to such transferee. Upon conversion in full of a Holder’s Preferred Stock, the difference (if any) between such Holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder upon such Holder’s conversion in full of such Preferred Stock shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Preferred Stock on a pro rata basis in proportion to the shares of Common Stock underlying the Preferred Stock then held by each such Holder of Preferred Stock. In the event that the Corporation is prohibited from issuing any shares of Common Stock pursuant to this Section 6(e) (the “Exchange Cap Shares”) to a Holder, the Corporation shall pay cash to such Holder in exchange for the redemption of such number of shares of Preferred Stock held by the Holder that are not convertible into such Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Notice of Conversion with respect to such Exchange Cap Shares to the Corporation and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of Exchange Cap Shares, brokerage commissions, if any, of such Holder incurred in connection therewith. Section 7. Certain Adjustments. (a) Stock Dividends and Stock Splits. If the Corporation, at any time while the Series B Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions that is payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, the Series B Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price and the Floor Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) 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 re-classification. Notwithstanding the foregoing in no event may the Conversion Price be less than the par value per share of Series B Preferred Stock. (b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock or any class thereof (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could
15 have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Series B Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). (c) Distributions. During such time as the Series B Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders 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, scheme of arrangement or other similar transaction) (a “Distribution”), then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series B Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). (d) Fundamental Transaction. If, at any time while the Series B Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of at least 50% of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization 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, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental
16 Transaction”), then, upon any subsequent conversion of the Series B Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series B Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which the Series B Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series B Preferred Stock). For purposes of any such conversion, the determination of the Conversion 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 Corporation shall apportion the Conversion 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 conversion of the Series B Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(d) pursuant to written agreements in customary form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for the Series B Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Series B Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Series B Preferred Stock (without regard to any limitations on the conversion of the Series B Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Series B Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein. (e) Adjustment of Conversion Price upon Issuance of Common Stock. Except in respect of any Exempt Issuance, if and whenever on or after the Original Issue Date the Corporation issues or sells, or in accordance with this Section 7(e) is deemed to have issued or sold, any Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account
17 of the Corporation for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such Conversion Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the greater of the New Issuance Price and the Floor Price. For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and the New Issuance Price under this Section 7(e)), the following shall be applicable: (i) Issuance of Options. If the Corporation in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(e)(i), the “lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any convertible securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof, minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration consisting of cash, debt forgiveness, assets or any other property received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Corporation or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms thereof or upon the actual issuance of such Corporation upon conversion, exercise or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the lowest price per share for which Common Stock are at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(e)(ii), the “lowest price per share for which one share of Common Stock is at any time issuable (or may become issuable assuming all possible market conditions) upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of
18 (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Corporation with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) with respect to any one share of Common Stock upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable consisting of cash, debt forgiveness, assets or other property by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(e), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 7(a) above), the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7(e)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Original Issue Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(e) shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Corporation (as determined by the Holder, the “Primary Security,” and such Option and/or Convertible Security and/or Adjustment Right, the “Secondary Securities”), together comprising one integrated transaction (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Corporation either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per share for which one share of Common Stock was issued (or was deemed to be issued pursuant to Section
19 7(e)(i) or 7(e)(ii) above, as applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security, if any, in each case, as determined on a per share basis in accordance with this Section 7(e)(iv). If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the net amount of consideration received by the Corporation therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Corporation (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Corporation for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving entity, the amount of consideration therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Corporation and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Corporation and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Corporation. (v) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issuance or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be). (f) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum
20 of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding. (g) Notice of Holders. i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder by facsimile or email a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation (and all of its Subsidiaries, taken as a whole), or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series B Preferred Stock, and shall cause to be delivered by email to each Holder at its last email address as it shall appear upon the stock books of the Corporation, at least twenty (20) 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 the 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 or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of the Series B Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. Section 8. Covenants. As long as any shares of Series B Preferred Stock remain outstanding, unless the Holders of a majority of the then outstanding shares of the Series B Preferred Stock shall have otherwise given prior written consent (which consent may be withheld, delayed or conditioned in the sole discretion of such Holders):
21 (a) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into, create, incur, assume or suffer to exist any Liens, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom other than Liens existing on the Original Issue Date; (b) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly amend its charter documents, including, without limitation, its Certificate of Incorporation and bylaws and this Certificate of Designations, in any manner that materially and adversely affects any rights of the Holders; (c) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly redeem, repay, repurchase or offer to repay, repurchase or otherwise acquire any capital stock, except as required by the Certificate of Designation, the Series A Preferred Stock Certificate of Designation or de minimis number of shares of its Common Stock or Common Stock Equivalents, or any indebtedness, except for principal and interest payments as such terms are in effect as of the Original Issue Date; (d) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly pay cash dividends or distributions on any equity securities, other than to make any cash payments with respect to the Series A Preferred Stock or Series B Preferred Stock; (e) the Corporation shall not issue any Series B Preferred Stock (other than as contemplated by this Certificate of Designation) or issue any other securities that would cause a breach or default under this Certificate of Designation or the Transaction Documents; (f) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly engage in any material line of business substantially different from those lines of business conducted by or publicly contemplated to be conducted by the Corporation and each of its Subsidiaries on the Original Issue Date, or modify its or their corporate structure or purpose; (g) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to maintain and preserve its existence, rights and privileges, and 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; (h) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to take all action necessary or advisable to maintain all of the Intellectual Property Rights that are necessary or material to the conduct of its business in full force and effect; (i) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly fail to maintain insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated; (j) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made
22 on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum otherwise required for board approval); (k) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly directly or indirectly, sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Corporation or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Corporation and its Subsidiaries in the ordinary course of business consistent with its past practice and (ii) sales of inventory and product in the ordinary course of business; (l) the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into any agreement with respect to any of the foregoing; (m) the Corporation shall retain a minimum cash balance of $10,000,000 at all times while the Series B Preferred Stock is outstanding and will provide any Holder upon its request evidence of such minimum cash balance; and (n) the Corporation shall, on the Closing Date obtain the consent of the Holders of at least 51% of the Corporation’s voting stock, and, within thirty (30) days of the Original Issue Date file with the Commission a Preliminary Information Statement on Schedule 14C approving the issuance of the Series A Preferred Stock, Series B Preferred Stock and related warrants and underlying shares of Common Stock and upon the earlier of ten days after such filing with the Commission if no comments are received from the Commission or two days after the last comment is received from the Commission file with the Commission a definitive Schedule 14C with the Commission. Section 9. Redemption (a) Mandatory Redemption. The Corporation shall redeem one-tenth of the number of shares of Series B Preferred Stock issued on the Original Issue Date, on a pro rata basis among all of the Holders of Series B Preferred Stock commencing on the earlier of (a) the three-month anniversary of the Closing Date and on each successive monthly anniversary date thereafter and (b) the date the Registration Statement is declared effective and on each successive monthly anniversary date thereafter (each, a “Monthly Mandatory Redemption Date”) for, at the option of the Corporation, which option shall be identified by written notice to the Holders at least ten (10) Trading Days prior to each Monthly Mandatory Redemption Date, either (i) an amount in cash at a price per Series B Preferred Share equal to the sum of (x) 104.0% of the Stated Value plus (y) all accrued and unpaid Dividends and (z) all other amounts due in respect of the Series B Preferred Stock (the “Corporation’s Mandatory Redemption Price”); (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(a), or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock, the “Monthly Mandatory Redemption Share Amount”) (such redemption, the “Monthly Mandatory Redemption”). On the Monthly Mandatory Redemption Date, the Corporation shall pay the Corporation’s Mandatory Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the Holders of Series B Preferred Stock on a pro rata basis. If a Monthly Mandatory Redemption Date is not a Business Day, then the Corporation’s Mandatory Redemption Price shall be due and payable on the Business Day immediately following such Monthly Mandatory Redemption Date. The Corporation shall pay the monthly Installments of the Corporation’s Mandatory Redemption Price due under this Section 9(a) (the “Installments”) to the Holders in cash; provided, that on or after June 16, 2023 if the Equity Conditions are fulfilled for
23 twenty (20) consecutive Trading Days immediately prior to applicable Mandatory Redemption Date the Corporation may choose to pay the installments in shares of Common Stock or a combination thereof. Shares of Common Stock used to pay an Installment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price (ii) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the applicable Monthly Mandatory Redemption Date or (iii) 90% of the VWAP of the trading day prior to the applicable Monthly Mandatory Redemption Date. Installments may be deferred or reallocated to other dates at the Holders’ discretion. If funds are not legally available for the payment of Monthly Mandatory Redemption and the Equity Conditions have not been met or waived on or prior to the Monthly Mandatory Redemption Date, then, at the election of such Holder, such Monthly Mandatory Redemption Share Amount shall accrue to the next Monthly Mandatory Redemption Date or shall be accreted to, and increase, the outstanding Stated Value. Monthly Mandatory Redemption Share Amount is payable in full on the Monthly Mandatory Redemption Date, if in cash, and within two (2) Trading Days after the Monthly Mandatory Redemption Date, if in shares of Common Stock. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Monthly Mandatory Redemption Share Amount paid in full. (b) Accelerated Redemption. At the option of each Holder, the Holder may require the Corporation to redeem all of the shares of Series B Preferred Stock held by the Holder at any time on or after June 15, 2023 (the “Accelerated Redemption Date”) (any such redemption, an “Accelerated Redemption”). Any Accelerated Redemption shall be for, at the option of each Holder being redeemed: (i) cash at the Corporation’s Mandatory Redemption Price, (ii) in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 9(b), or (iii) a combination thereof (the dollar amount to be paid in shares of Common Stock). Shares of Common Stock used to pay the Accelerated Redemption payment will be valued at the lesser of (but in no event less than the Floor Price): (i) the prevailing Conversion Price (ii) 90% of the arithmetic average of the three lowest daily VWAPs of the 20 Trading Days prior to the Accelerated Redemption Date or (iii) 90% of the VWAP of the trading day prior to the Accelerated Redemption Date. (c) Triggered Optional Redemption. If at any time after the Original Issue Date, the Corporation or any Subsidiary thereof closes any debt or equity financing (the “Triggered Optional Event”), the Corporation shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (with next day delivery specified) (an “Optional Triggering Event Notice”) to each Holder of Series B Preferred Stock. If at any time after the earlier of a Holder’s receipt of an Optional Triggering Event Notice and such Holder becoming aware of an Triggering Optional Event (such earlier date, the “Optional Triggering Event Right Commencement Date”) and ending within ten (10) days after the Optional Triggering Event Right Commencement Date, the Holder shall provide notice to the Corporation (the “Holder’s Optional Triggered Notice”), at its option, to have proceeds of such financing used to redeem its shares of Series B Preferred Stock then the Corporation shall within five days of receipt of a Holder’s Optional Triggered Notice (such fifth day being the “Triggered Optional Redemption Date”) redeem such number of shares of Series B Preferred Stock, on a pro rata basis for each Holder requesting redemption, equal to such number of shares of Series B Preferred Stock that may be redeemable with 30% of the proceeds of the financing, for an amount per share in cash equal to the Corporation’s Mandatory Redemption Price (such redemption, the “Triggered Optional Redemption” and such payment amount, the “Triggered Optional Redemption Amount”). The Triggered Optional Redemption Amount is payable in full on the Triggered Optional Redemption Date. The Corporation covenants and agrees that it will honor all Notices of Conversion tendered up until the Triggered Optional Redemption Amount paid in full.
24 (d) Triggering Event Redemption. Each of the following events shall constitute a “Triggering Event” and each of the event in clause (v) shall constitute a “Bankruptcy Triggering Event”: (i) any failure to pay any Dividend, Buy-In or other amounts as and when the same shall become due and payable under the Certificate of Designation and/or any of the other Transaction Documents (whether on a Conversion Date, Accelerated Redemption Date, Triggered Optional Redemption Date, Monthly Mandatory Redemption Date, Triggering Event Redemption Date and/or any other date when any funds are due to be redeemed, converted and/or otherwise paid to the Holder by the Corporation and/or any Subsidiary, whether by acceleration or otherwise), including, without limitation, any failure to pay any redemption payments or amounts thereunder, or under any other Transaction Document or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby; (ii) the Corporation and/or any Subsidiary shall fail to maintain a minimum cash and cash equivalents balance of $10,000,000 at any time while the Series B Preferred Stock is outstanding or shall fail to observe, perform and/or breaches any material covenant, provision, or agreement contained in this Certificate of Designation, the Transaction Documents, a breach by the Corporation of its obligations to deliver Conversion Shares to the Holder upon conversion of the Series B Preferred Stock, which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days after notice of such failure is sent by the Holder or by any other Holder to the Corporation and (B) ten (10) Trading Days after the Corporation has become or should have become aware of such failure; (iii) a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which the Corporation or any Subsidiary is obligated (and not covered by clause (vi) below; (iv) any material representation or warranty made in any of the Transaction Documents, any written statement pursuant hereto or thereto, any other agreement, contract, lease, document or instrument to which the Corporation or any Subsidiary is obligated (including those covered by clause (vi) below), or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made; (v) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event; (vi) the Corporation or any Subsidiary shall default on any of its obligations under any mortgage, credit and/or loan agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $50,000 whether such Indebtedness now exists or shall hereafter be created, and (b) results in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;
25 (vii) the suspension from trading or quotation of the Common Stock, or the failure of the Common Stock to be eligible for listing or quotation on a Trading Market for a period of five (5) consecutive Trading Days; (viii) the Corporation shall fail for any reason to deliver Common Stock to a Holder prior to the second (2nd) Trading Day after a Conversion Date or otherwise, or the Corporation shall provide at any time notice to the Holder, including by way of public announcement, of the Corporation’s intention to not honor requests for conversions of the Series B Preferred Stock in accordance with the terms hereof; (ix) the Corporation fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act, which failure is not cured, if possible to cure, prior to the expiration of the applicable grace period permitted under Rule 12b-25 of the Exchange Act, further provided that the Corporation files a Form 12b-25 for such report; (x) the Corporation shall fail to maintain a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of 300% of all the shares then issuable pursuant to the Certificate of Designation and such failure is not cured within five (5) Trading Days; (xi) any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any Subsidiary or any of their respective property or other assets for more than $250,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days; (xii) the Corporation shall fail to obtain all necessary approvals of the issue and sale of all Common Stock issuable in connection with the Series B Preferred Stock and/or Transaction Documents, including, but not limited to, all Conversion Shares and Common Stock to be issued as Dividends and or otherwise, consistent with the rules and regulations of the principal Trading Market as of the Original Issue Date; (xiii) the electronic transfer by the Corporation of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”; (xiv) any Change of Control Transaction occurs; (xv) the Corporation fails to (1) file a Preliminary Information Statement on Schedule 14C with the Commission within thirty (30) days of the Closing Date, (2) to file a Definitive Information Statement on Schedule 14C with the SEC on the eleventh day after the requisite ten day waiting period and immediately mail the Definitive Information Statement on Schedule 14C to the Corporation’s shareholders (assuming no comments from the Commission have been received with respect to such filing prior to such eleventh day) or within five (5) days of the receipt of any comments, fails to file a response to such comments or (3) to obtain all necessary approvals (including approval of Nasdaq Capital Market) of the issue and sale of all Conversion Shares, without any Exchange Cap limitation and or otherwise, consistent with the rules and regulations of the principal Trading Market within six months of the Closing Date; and (xvi) the registration statement registering the Series B Preferred Stock and Common Stock shall no longer be effective.
26 (e) Notice of a Triggering Event; Redemption Right. Upon the occurrence of a Triggering Event with respect to the Series B Preferred Stock, the Corporation shall within one (1) Business Day deliver written notice thereof via facsimile or electronic mail and overnight courier (with next day delivery specified) (an “Triggering Event Notice”) to each Holder. At any time after the earlier of a Holder’s receipt of a Triggering Event Notice and such Holder becoming aware of a Triggering Event (such earlier date, the “Triggering Event Right Commencement Date”) and ending (such ending date, the “Triggering Event Right Expiration Date”, and each such period, an “Triggering Event Redemption Right Period”) on the sixtieth (60th) Trading Day after the later of (x) the date such Triggering Event is cured and (y) such Holder’s receipt of a Triggering Event Notice that includes (I) a reasonable description of the applicable Triggering Event, (II) a certification as to whether, in the opinion of the Corporation, such Triggering Event is capable of being cured and, if applicable, a reasonable description of any existing plans of the Corporation to cure such Triggering Event and (III) a certification as to the date the Triggering Event occurred and, if cured on or prior to the date of such Triggering Event Notice, the applicable Triggering Event Right Expiration Date, such Holder may require the Corporation to redeem ( a “Triggering Event Redemption”) for cash (regardless of whether such Triggering Event has been cured on or prior to the Triggering Event Right Expiration Date) all or any of the Series B Preferred Stock by delivering written notice thereof (the “Triggering Event Redemption Notice”) to the Corporation, which Triggering Event Redemption Notice shall indicate the number of the Series B Preferred Stock such Holder is electing to redeem. Each of the shares of Series B Preferred Stock subject to redemption by the Corporation pursuant to this Section 9(e) shall be redeemed by the Corporation within five days of delivery of Triggering Event Redemption Notice (the “Triggering Event Redemption Date”) at a price equal to the product of (x) 115% and (y) the Corporation’s Mandatory Redemption Price (the “Triggering Event Redemption Price”). To the extent redemptions required by this Section 9(e) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series B Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(e), until the Triggering Event Redemption Price is paid in full, the Conversion Amount submitted for redemption under this Section 9(e) may be converted, in whole or in part, by such Holder into Common Stock pursuant to the terms of this Certificate of Designation. In the event of the Corporation’s redemption of any of the Series B Preferred Stock under this Section 9(e), a Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 9(e) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. Any redemption upon a Triggering Event shall not constitute an election of remedies by the applicable Holder or any other Holder, and all other rights and remedies of each Holder shall be preserved. (f) Mandatory Redemption upon Bankruptcy Triggering Event. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Triggering Event, the Corporation shall immediately redeem, in cash, each of the shares of Series B Preferred Stock then outstanding at a redemption price equal to the applicable Triggering Event Redemption Price (calculated as if such Holder shall have delivered the Triggering Event Redemption Notice immediately prior to the occurrence of such Bankruptcy Triggering Event), without the requirement for any notice or demand or other action by any Holder or any other person or entity, provided that a Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Triggering Event, in whole or in part, and any such waiver shall not affect any other rights of such Holder or any other Holder hereunder, including any other rights in respect of such Bankruptcy Triggering Event, any right to conversion,
27 and any right to payment of such Triggering Event Redemption Price or any other Redemption Price, as applicable. (g) Change of Control Redemption Right. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Change of Control (the “Change of Control Date”), but not prior to the public announcement of such Change of Control, the Corporation shall deliver written notice thereof via facsimile and overnight courier to each Holder (a “Change of Control Notice”) At any time during the period beginning after a Holder’s receipt of a Change of Control Notice or such Holder becoming aware of a Change of Control if a Change of Control Notice is not delivered to such Holder in accordance with the immediately preceding sentence (as applicable) and ending on the later of twenty (20) Trading Days after (A) consummation of such Change of Control or (B) the date of receipt of such Change of Control Notice, such Holder may require the Corporation to redeem all or any portion of such Holder’s Series B Preferred Stock (“Change of Control Redemption”) by delivering written notice thereof (“Change of Control Redemption Notice”) to the Corporation, which Change of Control Redemption Notice shall indicate the number of shares of Series B Preferred Stock such Holder is electing to have the Corporation redeem. Each share of Series B Preferred Stock subject to redemption pursuant to this Section 9(g) shall be redeemed by the Corporation in cash at a price equal to the greater of (i) product of 115% multiplied by the Corporation’s Mandatory Redemption Price and (ii) the prevailing Conversion Price plus all accrued but unpaid Dividends (the “Change of Control Redemption Price”). Redemptions required by this Section 9(g) shall have priority to payments to all other stockholders of the Corporation in connection with such Change of Control. To the extent redemptions required by this Section 9(g) are deemed or determined by a court of competent jurisdiction to be prepayments of the Series B Preferred Stock by the Corporation, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 9(g), but subject to Section 6(d), until the applicable Change of Control Redemption Price (together with any late charges thereon) is paid in full to the applicable Holder, the Series B Preferred Stock submitted by such Holder for redemption under this Section 9(g) may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 6 or in the event the Conversion Date is after the consummation of such Change of Control, stock or equity interests of the Successor Entity substantially equivalent to the Corporation’s shares of Common Stock pursuant to Section 7. In the event of the Corporation’s redemption of any of the Series B Preferred Stock under this Section 9(g), such Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for a Holder. Accordingly, any redemption premium due under this Section 9(g) is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. The Corporation shall make payment of the applicable Change of Control Redemption Price concurrently with the consummation of such Change of Control if a Change of Control Redemption Notice is received prior to the consummation of such Change of Control and within two (2) Trading Days after the Corporation’s receipt of such notice otherwise (the “Change of Control Redemption Date”) Redemptions required by this Section 9 shall be made in accordance with the provisions of Section 9(h). (h) If a Holder has submitted a Change of Control Redemption Notice in accordance with Section 9(g), the Corporation shall deliver the applicable Change of Control Redemption Price to such Holder in cash concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Corporation’s receipt of such notice otherwise. In the event that the Corporation does not pay the applicable Triggering Event Redemption Price or Change of Control Redemption Price to a Holder within the time period required for any reason (except if such payment is prohibited
28 pursuant to the DGCL), at any time thereafter and until the Corporation pays such unpaid Triggering Event Redemption Price or Change of Control Redemption Price in full, such Holder shall have the option, in lieu of redemption, to require the Corporation to promptly return to such Holder all or any of the shares of Series B Preferred Stock that were submitted for redemption and for which the applicable Triggering Event Redemption Price or Change of Control Redemption Price (together with any late charges thereon) has not been paid. Upon the Corporation’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Series B Preferred Stock, (y) the Corporation shall immediately return the applicable Series B Preferred Stock certificate, or issue a new Preferred Stock Certificate, to such Holder, and in each case the declared and unpaid dividend amount of such Preferred Stock shall be increased by an amount equal to the difference between (1) the applicable Redemption Price (as the case may be, and as adjusted pursuant to this Section 9(h), if applicable) minus (2) the Stated Value portion of the Conversion Amount submitted for redemption and (z) the Conversion Price of such Preferred Shares shall be automatically adjusted with respect to each conversion effected thereafter by such Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided, (B) the greater of (x) the Floor Price and (y) 75% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Corporation and ending on and including the date on which the applicable Redemption Notice is voided and (C) the greater of (x) the Floor Price and (y) 75% of the quotient of (I) the sum of the five (5) lowest VWAPs of the Common Stock during the twenty (20) consecutive Trading Day period ending and including the Trading Day immediately preceding the applicable Conversion Date divided by (II) five (5) (it being understood and agreed that all such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period). A Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Corporation’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Preferred Shares subject to such notice. (i) Independent Investigation. At the request of any Holder either (x) at any time when a Triggering Event has occurred and is continuing, (y) upon the occurrence of an event that with the passage of time or giving of notice would constitute a Triggering Event or (z) at any time such Holder reasonably believes a Triggering Event may have occurred or be continuing, the Corporation shall hire an independent, reputable investment bank selected by the Corporation and approved by such Holder to investigate as to whether any breach of the Certificate of Designation has occurred (the “Independent Investigator”). If the Independent Investigator determines that such Triggering Event has occurred, the Independent Investigator shall notify the Corporation of such Triggering Event and the Corporation shall deliver written notice to each Holder of such Triggering Event. In connection with such investigation, the Independent Investigator may, during normal business hours, inspect all contracts, books, records, personnel, offices and other facilities and properties of the Corporation and its Subsidiaries and, to the extent available to the Corporation after the Corporation uses reasonable efforts to obtain them, the records of its legal advisors and accountants (including the accountants’ work papers) and any books of account, records, reports and other papers not contractually required of the Corporation to be confidential or secret, or subject to attorney- client or other evidentiary privilege, and the Independent Investigator may make such copies and inspections thereof as the Independent Investigator may reasonably request. The Corporation shall furnish the Independent Investigator with such financial and operating data and other information with respect to the business and properties of the Corporation as the Independent Investigator may reasonably request. The Corporation shall permit the Independent Investigator to discuss the affairs, finances and accounts of the Corporation with, and to make proposals and furnish advice with respect thereto to, the Corporation’s officers, directors, key employees and independent public
29 accountants or any of them (and by this provision the Corporation authorizes said accountants to discuss with such Independent Investigator the finances and affairs of the Corporation and any Subsidiaries), all at such reasonable times, upon reasonable notice, and as often as may be reasonably requested. (j) General. Notwithstanding anything to the foregoing contained herein, on each Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date shall (a) first redeem, on a pro rata basis in accordance with the number of shares of Series A Preferred Stock owned by each Holder, that number of outstanding shares of Series A Preferred Stock which the Corporation is obligated to redeem pursuant to Section 9 of the Series A Certificate of Designation and (b) next redeem, on a pro rata basis in accordance with the number of shares of Series B Preferred Stock owned by each Holder, any shares of Series B Preferred Stock which the Corporation is obligated to redeem pursuant to this Section 9. If on any Monthly Mandatory Redemption Date, Accelerated Redemption Date, Triggered Optional Redemption Date and Triggering Event Redemption Date, Delaware law governing distributions to stockholders prevents the Corporation from redeeming all shares of Series A Preferred Stock and Series B Preferred Stock to be redeemed, the Corporation shall (1) first ratably redeem the maximum number of shares of Series A Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to Section 9 of the Series A Certificate of Designation are redeemed, and (2) next ratably redeem the maximum number of shares of Series B Preferred Stock that it may redeem consistent with such law, until all shares which the Corporation is obligated to redeem pursuant to this Section 9 are redeemed. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Series A Preferred Stock, if any, and Series B Preferred Stock, if any, which the Corporation is then obligated to redeem, such funds shall be used, within five (5) Business Days, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. Section 10. Miscellaneous. (a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile or email attachment, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 4800 140th Avenue N., Suite 101, Clearwater, Florida Attention: Joseph Marinucci, Chief Executive Officer, email address __________.com, or such other email address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of such Holder appearing on the books of the Corporation, or if no such email address or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via email attachment at the email address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
30 (b) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Series B Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series B Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation (which shall not include the posting of any bond). (c) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation 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. (d) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. (e) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof. (f) Status of Converted or Redeemed Preferred Stock. Shares of Series B Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Series B Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares may not be reissued and shall automatically be retired and cancelled and shall resume the status of authorized but unissued shares of preferred stock. *********************
31 IN WITNESS WHEREOF, the undersigned have executed this Certificate this day of March, 2023. Name: Joseph Marinucci Title: Chief Executive Officer
32 ANNEX A NOTICE OF CONVERSION (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES B PREFERRED STOCK) The undersigned hereby elects to convert the number of shares of Series B Convertible Redeemable Preferred Stock indicated below into shares of common stock, par value $0.0001 per share (the “Common Stock”), of Digital Media Solutions, Inc., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes. Conversion calculations: Date to Effect Conversion: _____________________________________________ Number of shares of Series B Preferred Stock owned prior to Conversion: _______________ Number of shares of Series B Preferred Stock to be Converted: ________________________ Stated Value of shares of Series B Preferred Stock to be Converted: ____________________ Number of shares of Common Stock to be Issued: ___________________________ Applicable Conversion Price:____________________________________________ Number of shares of Series B Preferred Stock subsequent to Conversion: ________________ Address for Delivery: ______________________ Or DWAC Instructions: Broker no: _________ Account no: ___________ HOLDER By: Name: Title:
42 Exhibit D Form of Warrant (attached)
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE 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. 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 DIGITAL MEDIA SOLUTIONS, INC. Warrant Shares: [_____] Initial Exercise Date: March [__], 2023 Issue Date: March [__], 2023 THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [_________] or its 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 hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on March 29, 2028 (the “Termination Date”), but not thereafter, to subscribe for and purchase from Digital Media Solutions, Inc., a Delaware corporation (the “Company”), up to [____] shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) (as subject to adjustment hereunder, the “Warrant Shares”). This Warrant was issued pursuant to Sections 2.1 and 2.2 of that certain Securities Purchase Agreement, dated as of March 29, 2023, by and between the Company, the Holder and other purchasers signatory thereto (as may be amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms, the “Purchase Agreement”). Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. Section 2. Exercise. a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto as Exhibit A, and delivered in accordance with the notice requirements set forth in Section 5(h) (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased
2 all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. 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. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 4:00 p.m. (New York City time) on the Trading Date prior to the Initial Exercise Date, which may be delivered at any time after the time of execution of the Purchase Agreement, the Company agrees to deliver the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date and the Initial Exercise Date shall be the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by such Warrant Share Delivery Date. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof. “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non- essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day. b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $0.6453 subject to adjustment hereunder (the “Exercise Price”). c) Cashless Exercise. If after the Initial Exercise Date there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares determined according to the following formula: Net Number = (A x B) - (A x C) B For purposes of the foregoing formula: (A) = the total number of Warrant Shares with respect to which this Warrant is then being exercised if such exercise were by means of a cash exercise rather than a cashless exercise. (B) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b) of Regulation NMS
3 promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the shares of Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day; and (C) = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise. If Warrant Shares are issued in such a cashless exercise, the parties hereto acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and for purposes of Rule 144 of the Securities Act, the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c). Notwithstanding anything to the contrary, without limiting the rights of the Holder to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein and the right of the Holder to exercise this Warrant on a “cashless exercise” pursuant to this Section 2(c), in the event the Company does not have or maintain an effective registration statement, there are no circumstances that would require the Company to make any cash payments or net cash settle the purchase warrants to the holders. “Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the shares of Common Stock are then listed or quoted on a Trading Market, the bid price of the shares of Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the shares of Common Stock are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the shares of Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the shares of Common Stock are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the shares of Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Trading Market, or, if the Trading Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock
4 is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities. “Trading Market” means any of the following markets or exchanges on which the shares of Common Stock are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing). “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the shares of Common Stock are then listed or quoted on a Trading Market, the daily volume weighted average price of the shares of Common Stock for such date (or the nearest preceding date) on the Trading Market on which the shares of Common Stock are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the shares of Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the shares of Common Stock are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the shares of Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c). d) Mechanics of Exercise. i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants and subject to receipt from the Holder by the Company and the Transfer Agent of customary representations reasonably acceptable to the Company and the Transfer Agent in connection with such request), and otherwise by physical delivery of a certificate (or an account statement reflecting unrestricted shares of Common Stock), registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest
5 of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company by such date, and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, 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 Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company on or prior to the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the shares of Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the shares of Common Stock as in effect on the date of delivery of the Notice of Exercise. ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. iii. Rescission Rights. If the Company fails to cause Continental Stock Transfer & Trust Company, or the then current transfer agent of the Company (the “Transfer Agent”) to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise. iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases,
6 shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Warrants with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a 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 shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share of Common Stock. vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto as Exhibit B duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
7 vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. e) 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, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after 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 (such Persons, “Attribution Parties”)), 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 and Attribution Parties 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, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted 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 or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, 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 Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) 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 Attribution Parties) 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. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), 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 the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing 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 or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be [4.99/9/99]% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number
8 of the shares of 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 Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. Notwithstanding anything to the contrary contained herein, the Company shall not effect any exercise of this Warrant, and the Holder shall not be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such exercise, would cause (i) the aggregate number of shares of Common Stock beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, including any “group” of which the Holder is a member, to exceed 19.99% of the total number of issued and outstanding shares of Common Stock of the Company following such exercise, or (ii) the combined voting power of the securities of the Company beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act to exceed 19.99% of the combined voting power of all of the securities of the Company then outstanding following such exercise, in each case unless Company shareholder approval is obtained to exceed more than such 19.99% of the total number of issued and outstanding shares of Common Stock of the Company following such exercise in accordance with the rules of the Trading Market. For purposes of this Section 2(e), the aggregate number of shares of Common Stock or voting securities beneficially owned by the Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act shall include the shares of Common Stock issuable upon the 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 (x) exercise of the remaining unexercised and non-cancelled portion of this Warrant by the Holder and (y) exercise or conversion of the unexercised, non-converted or non-cancelled portion of any other securities of the Company that do not have voting power (including without limitation any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, right, option, warrant 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), is subject to a limitation on conversion or exercise analogous to the limitation contained herein and is beneficially owned by the Holder or any of its Affiliates and other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act. f) Principal Market Regulation. The Company shall not issue any Warrant Shares upon exercise of any Warrant or otherwise pursuant to the terms of the Warrants if the issuance of such Warrant Shares (together with any shares of Common Stock issued upon conversion of any Preferred Stock) would exceed the aggregate number of shares of Common Stock which the Company may issue upon exercise of any Warrant or otherwise pursuant to the terms of the Warrants without breaching the Company’s obligations under the rules or regulations of the
9 Trading Market (the number of shares which may be issued without violating such rules and regulations, the “Exchange Cap”), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the principal Trading Market for issuances of shares of Common Stock in excess of such amount, (B) obtains a written opinion from outside counsel to the Company that such approval is not required or (C) issues the Warrants through an effective registration statement in connection with a public offering in accordance with the rules and regulations of the Trading Market. Until such approval or such written opinion is obtained, or unless such effective registration statement is available, no Holder shall be issued in the aggregate, upon exercise of any Warrant or otherwise pursuant to the terms the Warrants, Warrant Shares (together with any shares issued upon conversion of any Preferred Stock) in an amount greater than the product of (i) the Exchange Cap as of the Issue Date multiplied by (ii) the quotient of (1) the total number of Common Shares underlying the Warrants issued to such holder pursuant to the Securities Purchase Agreement on the Issue Date divided by (2) the aggregate number of Common Shares underlying the Warrants issued to the Purchasers pursuant to the Securities Purchase Agreement on the Issue Date (with respect to each Holder, the “Exchange Cap Allocation”). In the event that any Holder shall sell or otherwise transfer any of such Holder’s Warrants, the transferee shall be allocated a pro rata portion of such Holder's Exchange Cap Allocation with respect to such Warrants so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation so allocated to such transferee. In the event that any holder of Warrants shall exercise all of such holder’s Warrants into a number of Common Shares which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference (if any) between such Holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder upon such Holder's exercise of all such Warrants shall be allocated to the respective Exchange Cap Allocations of the remaining Holders of Warrants on a pro rata basis in proportion to the shares of Common Stock underlying the Warrants then held by each such Holder of Warrants. In the event that the Company is prohibited from issuing any Warrant Shares pursuant to this Section 2(f) (the “Exchange Cap Shares”) to a Holder, the Company shall pay cash to such Holder in exchange for cancellation of such Warrant Shares held by the Holder that are not exercisable into such Exchange Cap Shares at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day immediately preceding the date such Holder delivers the applicable Notice of Exercise with respect to such Exchange Cap Shares to the Company and (ii) to the extent such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of Exchange Cap Shares, brokerage commissions, if any, of such Holder incurred in connection therewith. Section 3. Certain Adjustments. a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on its shares of Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issues by reclassification of shares of Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock
10 outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) 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 re-classification. b) [RESERVED.] c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend (other than cash) or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary),
11 directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of more than 50% of the outstanding shares of Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the shares of Common Stock or any compulsory share exchange pursuant to which the shares of Common Stock are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) and in connection with such transaction the Common Stock is converted into or exchanged for other securities, cash or property (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the securities, cash and other property of the successor or acquiring corporation (or ultimate parent company thereof) or of the Company, if it is the surviving corporation, as applicable (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). 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 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 shares 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. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of such Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity, the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of shares of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of shares of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of shares of Common Stock of the
12 Company are not offered or paid any consideration in such Fundamental Transaction, such holders of shares of Common Stock will be deemed to have received shares of common stock of the Successor Entity (which Successor Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable contemplated Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, (D) a remaining option time equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the Other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for the Alternate Consideration, and with an exercise price which applies the exercise price hereunder to such Alternate Consideration (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such Alternate Consideration, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding. g) Notice to Holder. i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such
13 adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment. ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the shares of Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the shares of Common Stock, (C) the Company shall authorize the granting to all holders of the shares of Common Stock rights or warrants to subscribe for or purchase any capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the 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 shares of Common Stock are 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, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least twenty (20) 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 the shares 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 or stock exchange is expected to become effective or close, and the date as of which it is expected that holders of the shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or stock exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice and provided further, that no notice shall be required if the information is disseminated in a press release or document publicly filed with the Commission. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. iii. Voluntary Adjustments by the Company. The Company may, subject to the rules and regulations of the Trading Market, at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and extend the term of this Warrant for any period of time deemed appropriate by the Board of Directors of the Company, with the prior written consent of the Holder. Section 4. Transfer of Warrant. a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Article IV of the Purchase
14 Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto. c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement. e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act. Section 5. Miscellaneous.
15 a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day. d) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued shares of Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the shares of Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, 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, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents
16 from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. e) Jurisdiction and Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with Section 5.9 of the Purchase Agreement. f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws. g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provision in Section 5.4 of the Purchase Agreement. i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate. k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares. l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder, on the other hand.
17 m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. ******************** (Signature Page Follows)
18 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated. DIGITAL MEDIA SOLUTIONS, INC. By: Name: Title:
19 Exhibit A NOTICE OF EXERCISE TO: DIGITAL MEDIA SOLUTIONS, INC. (1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Payment shall take the form of (check applicable box): ☐ in lawful money of the United States; or ☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c). (3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below: The Warrant Shares shall be delivered to the following DWAC Account Number: (4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended. _____________________ _____________________ [SIGNATURE OF HOLDER] Name of Investing Entity: ________________________________________________________________________ Signature of Authorized Signatory of Investing Entity: _________________________________________________ Name of Authorized Signatory: ___________________________________________________________________ Title of Authorized Signatory: ____________________________________________________________________ Date: _____________________________________________________________________________________
20 Exhibit B ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to Name: (Please Print) Address: (Please Print) Phone Number: Email Address: Dated: _______________ __, ______ Holder’s Signature:______________________ Holder’s Address:______________________
43 Exhibit E Form of Escrow Agreement (attached)
ESCROW AGREEMENT This ESCROW AGREEMENT (this “Agreement”) made as of March 29, 2023, by and between Digital Media Solutions, Inc., (the “Issuer”) and BPY Limited, in its capacity as agent and attorney in fact of the Investors (as defined below) (the “Investor Representative”), whose addresses and other information appear on the Information Sheet (as defined herein) attached to this Agreement, and Continental Stock Transfer & Trust Company, 1 State Street, 30th Floor, New York, NY 10004 (the “Escrow Agent”). WITNESSETH: WHEREAS, the Issuer is offering (the “Offering”) to “accredited investors,” (the “Investors”) on a “best efforts” basis, up to Eighty Thousand (80,000) shares of the Issuer’s Series A Convertible Redeemable Preferred Stock, Sixty Thousand (60,000) shares of the Issuer’s Series B Convertible Redeemable Preferred Stock and Fourteen Million Four Hundred Forty-Four Thousand Four Hundred Forty-Four (14,444,444) warrant shares (collectively, the “Securities”) for a total Offering of $14,000,000 (the “Maximum Offering Amount”), with a minimum amount to close of $13,000,000 (the “Minimum Offering Amount”). WHEREAS, the Issuer and the Investors propose to establish an escrow account (the “Escrow Account”), to which subscription monies which are received by the Escrow Agent from the Investors in connection with such private offering are to be credited, and the Escrow Agent is willing to establish the Escrow Account on the terms and subject to the conditions hereinafter set forth; and WHEREAS, the Escrow Agent has agreed to establish a special bank account at J.P. Morgan Chase Bank (the “Bank”) into which the subscription monies, which are received by the Escrow Agent from the Investors and credited to the Escrow Account, are to be deposited. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Information Sheet. Each capitalized term not otherwise defined in this Agreement shall have the meaning set forth for such term on the information sheet which is attached to this Agreement as Exhibit A and is incorporated by reference herein and made a part hereof (the “Information Sheet”). 2. Establishment of the Bank Account. 2.1 The Escrow Agent shall establish a non-interest-bearing bank account at the branch of Bank selected by the Escrow Agent, and bearing the designation set forth on the Information Sheet (heretofore defined as the “Bank Account”); while the funds are on deposit, the Escrow Agent may earn bank credits or other consideration. The purpose of the Bank Account is for (a) the deposit of all subscription monies (wire transfers) from prospective purchasers of the Securities which are delivered to the Escrow Agent, (b) the holding of amounts of subscription
monies which are collected through the banking system and (c) the disbursement of collected funds, all as described herein. 2.2 The “Offering Period,” which shall be deemed to commence on the date hereof, shall consist of the number of calendar days or business days set forth on the Information Sheet. The last day of the Offering Period is referred to herein as the “Termination Date”. Except as provided in Section 4.3 hereof, after the Termination Date, the Investors shall not deposit, and the Escrow Agent shall not accept, any additional amounts representing payments by prospective purchasers. 3. Deposits to the Bank Account. 3.1 The Investors shall promptly deliver to the Escrow Agent all monies required to purchase the Securities, which monies shall be in the form of wire transfers. Upon the Escrow Agent’s receipt of such monies, they shall be credited to the Escrow Account. 3.2 Promptly after receiving subscription monies as described in Section 3.1, the Escrow Agent shall deposit the same into the Bank Account. Amounts of monies so deposited are hereinafter referred to as “Escrow Amounts”. The Escrow Agent shall cause the Bank to process all Escrow Amounts for collection through the banking system. Simultaneously with each deposit to the Escrow Account, the Investors (or the Issuer) shall inform the Escrow Agent in writing of the name, address, and the tax identification number of the Investors, the amount of Securities subscribed for by such Investors, and the aggregate dollar amount of such subscription (collectively, the “Subscription Information”). 3.3 The Escrow Agent shall not accept or recognize for credit to the Escrow Account, any deposit, including deposits made by bank wire, for which the Escrow Agent has not received the appropriate Subscription Information defined in paragraph 3.2. 3.4 The Escrow Agent shall not be required to accept in the Escrow Account any amounts representing payments by prospective purchasers, whether by check or wire, except during the Escrow Agent’s regular business hours. 3.5 Only those Escrow Amounts, have been deposited into the Bank Account, accompanied by the required subscriber information, cleared the banking system and have been collected by the Escrow Agent, are herein referred to as the “Fund.” 3.6 If the Offering is terminated before the Termination Date, the Escrow Agent shall refund any portion of the Fund prior to disbursement of the Fund in accordance with Article 4 hereof upon instructions in writing signed by both the Issuer and the Investor Representative. 3.7 If prior to the disbursement of the Fund in accordance with Section 4.2 below, the Escrow Agent has received notice from the Issuer that the subscription of a purchaser has been rejected since such purchaser does not qualify as an investor in the Offering, the Escrow Agent shall promptly refund to such purchaser the amount of payment received from such purchaser which is then held in the Fund or which thereafter clears the banking system, without
interest thereon or deduction therefrom by the Escrow Agent, by rejecting the received deposits to the originating bank account and transmitting it to the purchaser. 4. Disbursement from the Bank Account. 4.1 If by the close of regular banking hours on the Termination Date (i) the Escrow Agent determines that the amount in the Fund is less than the Minimum Offering Amount, as indicated by the Subscription Information submitted to the Escrow Agent, or (ii) the Offering has not closed by the Termination Date, then in either such case, the Escrow Agent shall promptly refund to each prospective purchaser the amount of payment received from such purchaser which is then held in the Fund or which thereafter clears the banking system, without interest thereon or deduction there from by the Escrow Agent, by rejecting the received deposits to the originating bank account and transmitting it to the purchaser. In such event, the Escrow Agent shall promptly notify the Issuer and the Investor Representative of its distribution of the Fund. 4.2 If at any time up to the close of regular banking hours on the Termination Date, the Escrow Agent has received joint written instructions from the Issuer and the Investor Representative that all conditions for release of funds have been met for closing of the Offering, the Escrow Agent shall promptly disburse the Fund in accordance with instructions, which instructions shall include a payment of $75,000 to each of counsel to the Investors and counsel to the Issuer’s financial advisor. 4.3 Upon disbursement of the Fund pursuant to the terms of this Article 4, the Escrow Agent shall be relieved of further obligations and released from all liability under this Agreement. It is expressly agreed and understood that in no event shall the aggregate amount of payments made by the Escrow Agent exceed the amount of the Fund. 5. Rights, Duties and Responsibilities of Escrow Agent. It is understood and agreed that the duties of the Escrow Agent are purely ministerial in nature, and that: 5.1 The Escrow Agent shall notify the Investor Representative, on a daily basis, of the Escrow Amounts which have been deposited in the Bank Account and of the amounts, constituting the Fund, which have cleared the banking system and have been collected by the Escrow Agent. 5.2 The Escrow Agent shall not be responsible for or be required to enforce any of the terms or conditions of the selling agreement or any other agreement between the Investors and the Issuer nor shall the Escrow Agent be responsible for the performance by the Placement Agent or the Issuer of their respective obligations under this Agreement. 5.3 The Escrow Agent shall not be required to accept from the Investors (or the Issuer) any Subscription Information pertaining to prospective purchasers unless such Subscription Information is accompanied by wire transfers meeting the requirements of Section 3.1, nor shall the Escrow Agent be required to keep records of any information with respect to payments deposited by the Investors (or the Issuer) except as to the amount of such payments; however, the
Escrow Agent shall notify the Investor Representative within a reasonable time of any discrepancy between the amount set forth in any Subscription Information and the amount delivered to the Escrow Agent therewith. Such amount need not be accepted for deposit in the Escrow Account until such discrepancy has been resolved. 5.4 The Escrow Agent shall be under no duty or responsibility to enforce collection of any check delivered to it hereunder. The Escrow Agent, within a reasonable time, shall return to the respective Investor any check received which is dishonored, together with the Subscription Information, if any, which accompanied such check. 5.5 The Escrow Agent shall be entitled to rely upon the accuracy, act in reliance upon the contents, and assume the genuineness of any notice, instruction, certificate, signature, instrument or other document which is given to the Escrow Agent pursuant to this Agreement without the necessity of the Escrow Agent verifying the truth or accuracy thereof. The Escrow Agent shall not be obligated to make any inquiry as to the authority, capacity, existence or identity of any person purporting to give any such notice or instructions or to execute any such certificate, instrument or other document. 5.6 If the Escrow Agent is uncertain as to its duties or rights hereunder or shall receive instructions with respect to the Bank Account, the Escrow Amounts or the Fund which, in its sole determination, are in conflict either with other instructions received by it or with any provision of this Agreement, it shall be entitled to hold the Escrow Amounts, the Fund, or a portion thereof, in the Bank Account pending the resolution of such uncertainty to the Escrow Agent’s sole satisfaction, by final judgment of a court or courts of competent jurisdiction or otherwise; or the Escrow Agent, at its sole option, may deposit the Fund (and any other Escrow Amounts that thereafter become part of the Fund) with the Clerk of a court of competent jurisdiction in a proceeding to which all parties in interest are joined. Upon the deposit by the Escrow Agent of the Fund with the Clerk of any court, the Escrow Agent shall be relieved of all further obligations and released from all liability hereunder. 5.7 The Escrow Agent shall not be liable for any action taken or omitted hereunder, or for the misconduct of any employee, agent or attorney appointed by it, except in the case of willful misconduct or gross negligence. The Escrow Agent shall be entitled to consult with counsel of its own choosing and shall not be liable for any action taken, suffered or omitted by it in accordance with the advice of such counsel. 5.8 The Escrow Agent shall have no responsibility at any time to ascertain whether or not any security interest exists in the Escrow Amounts, the Fund or any part thereof or to file any financing statement under the Uniform Commercial Code with respect to the Fund or any part thereof. 6. Amendment; Resignation or Removal of Escrow Agent. This Agreement may be altered or amended only with the written consent of the Issuer, the Investor Representative and the Escrow Agent. The Escrow Agent may resign and be discharged from its duties hereunder at any time by giving written notice of such resignation to the Issuer and the Investor Representative specifying a date when such resignation shall take effect and upon delivery of the Fund to the
successor escrow agent designated by the Issuer or the Investor Representative in writing. Such successor Escrow Agent shall become the Escrow Agent hereunder upon the resignation date specified in such notice. If the Issuer fails to designate a successor Escrow Agent within thirty (30) days after such notice, then the resigning Escrow Agent shall promptly refund the amount in the Fund to each prospective purchaser, without interest thereon or deduction by the Escrow Agent. The Escrow Agent shall continue to serve until its successor accepts the escrow and receives the Fund. The Issuer shall have the right at any time to remove the Escrow Agent and substitute a new escrow agent by giving notice thereof to the Escrow Agent then acting. Upon its resignation and delivery of the Fund as set forth in this Section 6, the Escrow Agent shall be discharged of and from any and all further obligations arising in connection with the escrow contemplated by this Agreement. Without limiting the provisions of Section 8 hereof, the resigning Escrow Agent shall be entitled to be reimbursed by the Issuer for any expenses incurred in connection with its resignation, transfer of the Fund to a successor escrow agent or distribution of the Fund pursuant to this Section 6. 7. Representations and Warranties. The Issuer and the Investor Representative hereby severally represent and warrant to the Escrow Agent that: 7.1 No party other than the parties hereto and the prospective purchasers have, or shall have, any lien, claim or security interest in the Escrow Amounts or the Fund or any part thereof. 7.2 No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Amounts or the Fund or any part thereof. 7.3 The Subscription Information submitted with each deposit shall, at the time of submission and at the time of the disbursement of the Fund, be deemed a representation and warranty that such deposit represents a bona fide payment by the purchaser described therein for the amount of Securities set forth in such Subscription Information. 7.4 All of the information contained in the Information Sheet is, as of the date hereof, and will be, at the time of any disbursement of the Fund, true and correct. 7.5 Reasonable controls have been established and required due diligence performed to comply with "Know Your Customer" regulations, USA Patriot Act, Office of Foreign Asset Control (OFAC) regulations and the Bank Secrecy Act. 8. Fees and Expenses. The Escrow Agent shall be entitled to the Escrow Agent Fees set forth on the Information Sheet, payable as and when stated therein. In addition, the Issuer agrees to reimburse the Escrow Agent for any reasonable expenses incurred in connection with this Agreement, including, but not limited to, reasonable counsel fees. 9. Indemnification and Contribution. 9.1 The Issuer (the “Indemnitors”) agrees to indemnify the Escrow Agent and its officers, directors, employees, agents and shareholders (collectively referred to as the
“Indemnitees”) against, and hold them harmless of and from, any and all loss, liability, cost, damage and expense, including without limitation, reasonable counsel fees, which the Indemnitees may suffer or incur by reason of any action, claim or proceeding brought against the Indemnitees arising out of or relating in any way to this Agreement or any transaction to which this Agreement relates, unless such action, claim or proceeding is the result of the willful misconduct or gross negligence of the Indemnitees. 9.2 If the indemnification provided for in Section 9.1 is applicable, but for any reason is held to be unavailable, the Indemnitors shall contribute such amounts as are just and equitable to pay, or to reimburse the Indemnitees for, the aggregate of any and all losses, liabilities, costs, damages and expenses, including counsel fees, actually incurred by the Indemnitees as a result of or in connection with, and any amount paid in settlement of, any action, claim or proceeding arising out of or relating in any way to any actions or omissions of the Indemnitors. 9.3 The provisions of this Article 9 shall survive any termination of this Agreement, whether by disbursement of the Fund, resignation of the Escrow Agent or otherwise. 10. Termination of Agreement. This Agreement shall terminate on the final disposition of the Fund pursuant to Section 4, provided that the rights of the Escrow Agent and the obligations of the other parties hereto under Section 9 shall survive the termination hereof and the resignation or removal of the Escrow Agent. 11. Governing Law and Assignment. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflicts of laws principles thereof, and shall be binding, upon the parties hereto and their respective successors and assigns; provided, however, that any assignment or transfer by any party of its rights under this Agreement or with respect to the Escrow Amounts or the Fund shall be void as against the Escrow Agent unless (a) written notice thereof shall be given to the Escrow Agent; and (b) the Escrow Agent shall have consented in writing to such assignment or transfer. 12. Notices. All notices required to be given in connection with this Agreement shall be sent by registered or certified mail, return receipt requested, or by hand delivery with receipt acknowledged, or by the Express Mail service offered by the United States Postal Service, and addressed, if to the Issuer or the Investor Representative, at their respective addresses set forth on the Information Sheet, and if to the Escrow Agent, at its address set forth above, to the attention of the Trust Department. 13. Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be determined to be invalid or unenforceable, the remaining provisions of this Agreement or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law. 14. Execution in Several Counterparts. This Agreement may be executed in several counterparts or by separate instruments and by facsimile transmission and all of such counterparts and instruments shall constitute one agreement, binding on all of the parties hereto.
15. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings (written or oral) of the parties in connection therewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. ESCROW AGENT CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: ______________________________ Name: Title: INVESTOR REPRESENTATIVE BPY Limited By: ______________________________ ISSUER Digital Media Solutions, Inc. By: ____________________________ Name: Title:
EXHIBIT A ESCROW AGREEMENT INFORMATION SHEET 1. The Issuer Name: Digital Media Solutions, Inc. Address: 4800 140th Avenue N., Suite 101 Clearwater, Florida 33762 Tax Identification Number: 2. Investor Representative Name: BPY Limited Address: 3. The Securities Description of the Securities to be offered: Up to 80,000 shares of the Issuer’s Series A Convertible Redeemable Preferred Stock, 60,000 shares of the Issuer’s Series B Convertible Redeemable Preferred Stock and 14,444,444 warrant shares 4. Minimum Amounts and Conditions Required for Disbursement of the Escrow Account Aggregate dollar amount which must be collected before the Escrow Account may be disbursed to the Issuer: $13,000,000 5. Plan of Distribution of the Securities Initial Offering Period: Through April 4, 2023. 6. Title of Escrow Account: “CST&T AAF Digital Media Services, Inc. 7. Escrow Agent Fees and Charges $7,500 (for up to 50 investors); $8,500 (for up to 75 investors); $9,500 (for up to 100 investors) $10,500 (over 100 investors + $35.00 per each additional deposit); (Note: $250.00 online “view only” access to the bank account is included). A fee of $1,000 will be payable for document review services related to each amendment/extension to the Escrow Agreement. A fee of $5,000.00 will be charged if the escrow agreement is terminated for any reason and the deposited funds are required to be returned to the investors. Distribution charges: $50.00 per wire
44 Exhibit F Investor Side Letter (attached)
[Name] [Address] Reference is made to that certain Securities Purchase Agreement, dated as of March 29, 2023 (the “Securities Purchase Agreement”), by and among you, Digital Media Solutions, Inc. (the “Company”) and the other parties thereto, which provides for the issuance of Series A Convertible Redeemable Preferred Stock (“Series A Preferred Stock”) of the Company having the rights, preferences and privileges set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock (the “Certificate of Designations”), to be filed by the Company prior to the Closing (as defined in the Securities Purchase Agreement). Capitalized terms not otherwise defined in this letter agreement shall have the same meaning as defined in the Certificate of Designations. In connection with the issuance of the Series A Preferred Stock, the undersigned existing investors (the “Existing Investors”) hereby, severally and not jointly, grant you an option (the “Put Option”) to sell all or any portion of your Series A Preferred Stock (“Put Shares”) if on any Accelerated Redemption Date, Triggered Optional Redemption Date or Triggering Event Redemption Date, any cash payment required to be made pursuant to Section 9 of the Certificate of Designation is not made, and you have provided the Company written notice within five (5) Business Days of such date that you desire to retain your Series A Preferred Stock that have not been redeemed for cash. Each Existing Investor shall be obligated to purchase its pro rata share of the Put Shares based on the percentages set forth opposite such Existing Investor’s name on the signature pages hereto. The aggregate purchase price to be paid for the Put Shares shall be equal to the applicable Redemption Price. The Put Option may be exercised within five (5) Business Days of receipt of notice by you that the Company is unable to, or elects to, provide Common Stock in connection with any such redemption (the “Put Period”). The Put Option shall be exercisable by your delivery of written notice to the Existing Investors (the “Put Notice”), which shall be delivered within the applicable Put Period. The Put Notice shall be deemed to have been received on the date sent if sent by email or fax prior to 5:00 pm Pacific time on such date or on the next Business Day after it is sent if sent by email or fax after 5:00 pm Pacific time or by overnight courier service. If the applicable Put Notice is not timely delivered within the applicable Put Period, the Put Option shall expire with respect to the relevant Put Shares. The Put Notice shall specify the date on which the closing of the purchase of the Put Shares shall take place (the “Put Closing Date”), which such date shall be no earlier than ten (10) Business Days and no later than fifteen (15) Business Days from the date of the Put Notice. On or before the applicable Put Closing Date, the Existing Investors shall tender to you the Put Price in cash by wire transfer of immediately available funds to an account at a bank designated by you. Each Existing Investor hereby represents and warrants that: (i) it is an entity duly organized, validly existing and in good standing under the applicable law of the jurisdiction of its organization; (ii) it has all requisite power and authority necessary for the execution, delivery and performance of this Put Option. (iii) the execution, delivery and performance of this Put Option has been duly authorized by all necessary action on the part of the Existing Investor and no other corporate proceeding by the Existing Investor is necessary to authorize the execution, delivery or performance of this Put Option.
This letter agreement contains all of the terms and conditions of the Put Option and supersedes all prior and contemporaneous understandings, discussions, agreements, representations and warranties, both written and oral with respect to the Put Option. This letter agreement may not be amended or modified unless in writing signed by the Existing Investors and you. This letter agreement and all related documents, and all matters arising out of or relating to this letter agreement, are governed by, and construed in accordance with the laws of the State of New York without regard to any conflicts-of-law principles the application of which would cause the law of any other jurisdiction to govern. [Signature pages follow.]
Very truly yours, By: Name: Fernando Borghese By: Name: Joseph Marinucci By: Name: Matthew Goodman
ACCEPTED AND AGREED: EXISTING INVESTORS: PRISM DATA, LLC Pro Rata Portion - 33.33% By: Name: Title: Authorized Signatory [LION] Pro Rata Portion - 66.67% By: Name: Title: Authorized Signatory
45 DISCLOSURE SCHEDULES to the SECURITIES PURCHASE AGREEMENT by and among DIGITAL MEDIA SOLUTIONS, INC., and PURCHASERS March 29, 2023
46 Schedule 1.1 – Exempt Issuances The Company may determine to issue Common Stock to an affiliate of Prism Data, LLC in order to satisfy the Company’s obligation to redeem 600,000 shares of such affiliate’s Class B common stock.
1 Schedule 2.4 – Warrants Purchaser Number of Warrants 3i, LP 2,063,492 Anson Investments Master Fund LP 1,650,794 BPY Limited 825,397 Nomis Bay Ltd 1,238,095 Altium Growth Fund, LP 2,063,492 Anson East Master Fund LP 412,698 Fernando Borghese 1,031,746 Joseph Marinucci 773,809 Matthew Goodman 257,937 LionCapital (Guernsey) Bridgeco Limited 2,958,098 Leo Investors VII LP 1,168,886
48 Schedule 3.1(i) - Material Changes; Undisclosed Events, Liabilities or Developments During the course of 2022, the Company took steps to remediate certain material weaknesses that existed in 2021, including continued execution of revenue recognition and accounts receivable aging review controls. The Company remediated these weaknesses by enhancing the revenue and cash receipts process and instituting additional processes and controls around evaluating the collectability of customer receivables along with assessing the loss rates used to calculate the reserve for potential uncollectible receivables. However, four other controls within the revenue process failed to operate effectively throughout the course of 2022. Upon aggregation of these operating effectiveness deficiencies, the Company concluded that a material weakness exists in its internal controls. The four other controls within the revenue process include: (i) review of customer contracts, (ii) approval for updates to pricing within production systems, (iii) review of customer invoices, and (iv) appropriate access within the revenue production systems. The controls were designed to operate effectively, however there was inconsistent performance of the controls and lack of adequate documentation to support management’s conclusions. Furthermore, access within the revenue systems was not adequately maintained, leading management to perform a detailed analysis of all transactions by system administrators within the general ledger system to conclude that no inappropriate action was taken. As a result of these deficiencies, the Company will be unable to effectively conclude that the revenue recorded in its financial statements was valid, complete or accurate. Although these controls were deemed ineffective, the Company has not identified specific errors in its financial results pertaining to revenue recognition.
1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this “Agreement”) is made and entered into as of March 30, 2023, between Digital Media Solutions, Inc., a Delaware corporation (the “Company”), and each of the several purchasers signatory hereto (each such purchaser, a “Purchaser” and, collectively, the “Purchasers”). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “Purchase Agreement”). The Company and each Purchaser hereby agrees as follows: 1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: “Advice” shall have the meaning set forth in Section 6(c). “Effectiveness Date” means, with respect to the Initial Registration Statement required to be filed hereunder, June 15, 2023, if and only to the extent the Company has previously issued, or is then obligated to issue, Registrable Securities to the Purchasers pursuant to the Class A Certificate of Designation or Class B Certificate of Designation, as applicable. “Effectiveness Period” shall have the meaning set forth in Section 2(a). “Event” shall have the meaning set forth in Section 2(d). “Event Date” shall have the meaning set forth in Section 2(d). “Filing Date” means, with respect to the Initial Registration Statement required hereunder, the Company shall use its best efforts to file the Initial Registration Statement by: the 30th calendar day following the Closing Date and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities. “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities. “Indemnified Party” shall have the meaning set forth in Section 5(c). “Indemnifying Party” shall have the meaning set forth in Section 5(c). “Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement. “Losses” shall have the meaning set forth in Section 5(a). “Plan of Distribution” shall have the meaning set forth in Section 2(a).
2 “Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. “Registrable Securities” means, as of any date of determination, (a) all Conversion Shares then issued and issuable upon conversion of the Preferred Stock (assuming on such date the shares of Preferred Stock are converted in full at the Floor Price without regard to any exercise limitations therein), (b) all Warrant Shares then issued and issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein) and (c) any securities issued or then issuable upon any share split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company, as reasonably determined by the Company, upon the advice of counsel to the Company. “Registration Statement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement. “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. “Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a).
3 “SEC Guidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act. 2. Shelf Registration. (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “Plan of Distribution” attached hereto as Annex A and substantially the “Selling Shareholder” section attached hereto as Annex B; provided, however, that no Holder shall be required to be named as an “underwriter” without such Holder’s express prior written consent. Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “Effectiveness Period”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. (New York City time) on a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. (New York City time) on the Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within one (1) Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d). (b) Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); provided, however, that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.
4 (c) Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows: a. First, the Company shall reduce or eliminate any securities to be included other than Registrable Securities; b. Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Warrant Shares held by such Holders); and c. Third, the Company shall reduce Registrable Securities represented by Shares (applied, in the case that some Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Shares held by such Holders). In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Trading Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its commercially reasonable efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended. (d) If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five (5) Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within ten (10) calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective; provided, however, that to the extent that the filing of an amendment to the Registration Statement under paragraph (iii) would require updated audited financial statements to be filed by amendment to the Registration Statement pursuant to the Securities Act in advance of the applicable filing deadline for such audited financial statements under the Exchange Act, the applicable Event Date with respect thereto shall be five (5) Trading Days after the applicable Exchange Act deadline; or (iv) a Registration Statement registering for resale all of the Registrable Securities, subject to the cutback limitations set forth in Section 2(c) of this Agreement, is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement but prior to the end of the Effectiveness Period, such Registration Statement ceases for any reason to remain continuously
5 effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than ten (10) consecutive calendar days or more than an aggregate of fifteen (15) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “Event”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iii) the date which such ten (10) calendar day period is exceeded, and for purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, in newly issued shares of Common Stock, rounded down to the nearest whole share, (at the Per Share Purchase Price), or in Common Warrants to purchase the shares of Common Stock (based on the Exercise Price), at the sole option of the respective Purchaser, as partial liquidated damages and not as a penalty, equal to 2.0% of the Redemption Price; provided, that, in no case shall the Company be required to issue any shares of Common Stock or Common Warrants in violation of the listing rules of the New York Stock Exchange; and provided, further, that the Company shall not be required to make any payments pursuant to this Section 2(d) with respect to any Registrable Securities the Company is unable to register due to limits imposed by the Commission’s interpretation of Rule 415 under the Securities Act as contemplated by Section 2(b). If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. (e) If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission. (f) Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as any Underwriter without the prior written consent of such Holder. 3. Registration Procedures. In connection with the Company’s registration obligations hereunder, the Company shall: (a) Not less than one (1) Trading Day prior to the filing of the Initial Registration Statement and not less than three (3) Trading Days prior to the filing of each additional Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a
6 reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than three (3) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex C (a “Selling Shareholder Questionnaire”) on a date that is not less than three (3) Trading Days prior to the Filing Date or by the end of the fourth (4th) Trading Day following the date on which such Holder receives draft materials in accordance with this Section. In addition to the Selling Shareholder Questionnaire, each Holder shall furnish such other information 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) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. (c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities. (d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or
7 supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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 (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided, however, that in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries. (e) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission, provided that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form. (g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d). (h) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.
8 (i) If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request. (j) Upon the occurrence of any event contemplated by Section 3(d), if required to do so, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its shareholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will 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, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall so suspend use of such Prospectus. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period. (k) Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder. (l) The Company shall use its commercially reasonable efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of the Registrable Securities. (m) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company. 4. Registration Expenses. All fees and expenses incident to the performance of or compliance with, this Agreement 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
9 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 Commission, (B) with respect to filings required to be made with any Trading Market on which the shares of Common Stock are then listed for trading, and (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), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. 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 or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders. 5. Indemnification. (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of shares of Common Stock), investment advisors and employees (and any other Persons 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 Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, shareholders, partners, agents and employees (and any other Persons 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 Person, 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 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 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 Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the
10 receipt by such Holder of the Advice contemplated in Section 6(c). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(f). (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title), to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any 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 Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s information provided in the Selling Shareholder Questionnaire or the proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto. In no event shall the liability of a selling Holder be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof, provided that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding
11 (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party, provided that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder. (d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party 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 Indemnifying Party 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 such Indemnifying Party 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, such Indemnifying Party or 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, subject to the limitations set forth in this Agreement, 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 this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) 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 paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.
12 The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 6. Miscellaneous. (a) Remedies. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate. (b) No Piggyback on Registrations; Prohibition on Filing Other Registration Statements. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any other registration statements, other than with respect to an Exempt Issuance (as defined in the Purchase Agreement), until all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement so long as no new securities are registered on any such existing registration statements. (c) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d). (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 50.1% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security), provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(d). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
13 (e) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement. (g) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as set forth on Schedule 6(g), neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full. (h) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. (i) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement. (j) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law. (k) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (l) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof. (m) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by
14 any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders. (n) Termination. This Agreement shall be effective as of the Closing, and if the Closing has not occurred on or prior to fifth (5th) Trading Day following the date of the Purchase Agreement, unless otherwise mutually agreed, then this Agreement shall be null and void. ******************** (Signature Pages Follow)
15 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. DIGITAL MEDIA SOLUTIONS, INC. By: Name: Joseph Marinucci Title: President and Chief Executive Officer [SIGNATURE PAGE OF HOLDERS FOLLOWS]
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[SIGNATURE PAGE OF HOLDERS TO DMS RRA] Name of Holder: __________________________ Signature of Holder: __________________________ [SIGNATURE PAGES CONTINUE]
[SIGNATURE PAGE OF HOLDERS TO DMS RRA] Name of Holder: Lion Capital (Guernsey) Bridgeco Limited Signature of Authorized Signatory of Holder: __________________________ Name of Authorized Signatory: _________________________ Title of Authorized Signatory: __________________________ [SIGNATURE PAGES CONTINUE] Nick Barton Director
17 Schedule 6.1(g) Annex A Plan of Distribution Each Selling Shareholder (the “Selling Shareholder”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Shareholder may use any one or more of the following methods when selling securities: ● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; ● 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 in accordance with the rules of the applicable exchange; ● privately negotiated transactions; ● settlement of short sales; ● in transactions through broker-dealers that agree with the Selling Shareholders to sell a specified number of such securities at a stipulated price per security; ● through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; ● a combination of any such methods of sale; or ● any other method permitted pursuant to applicable law. The Selling Shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus. Broker-dealers engaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121. In connection with the sale of the securities or interests therein, the Selling Shareholders 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 Shareholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or
18 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 Selling Shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Shareholders has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Shareholders without registration and without regard to any volume or manner- of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the shares of Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the shares of common stock by the Selling Shareholders or any other person. We will make copies of this prospectus available to the Selling Shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
19 Annex B SELLING SHAREHOLDERS The shares of common stock being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those shares of common stock and warrants, see “Private Placement of Shares of Common Stock and Warrants” above. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling shareholders have not had any material relationship with us within the past three years. The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and warrants, as of ________, 2023, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises. The third column lists the shares of common stock being offered by this prospectus by the selling shareholders. In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of shares of common stock issued to the selling shareholders in the “Private Placement of Shares of Common Stock and Warrants” described above and (ii) the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus. Under the terms of the warrants [and other warrants held by the selling shareholders], a selling shareholder may not exercise [any such] warrants to the extent such exercise would cause such selling shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% or 9.99%, as applicable, of our then outstanding shares of common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of such warrants which have not been exercised. The number of shares in the second and fourth columns do not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.” Name of Selling Shareholder Number of Shares of Common Stock Owned Prior to Offering Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus Number of Shares of Common Stock Owned After Offering
20 Annex C DIGITAL MEDIA SOLUTIONS, INC. Selling Shareholder Notice and Questionnaire The undersigned beneficial owner of shares of common stock (the “Registrable Securities”) of Digital Media Solutions, Inc., a Delaware corporation (the “Company”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. Certain legal consequences arise from being named as a selling shareholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling shareholder in the Registration Statement and the related prospectus. NOTICE The undersigned beneficial owner (the “Selling Shareholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate: QUESTIONNAIRE 1. Name. (a) Full Legal Name of Selling Shareholder (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held: (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire): 2. Address for Notices to Selling Shareholder:
21 Telephone: Fax: Contact Person: 3. Broker-Dealer Status: (a) Are you a broker-dealer? Yes ☐ No ☐ (b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company? Yes ☐ No ☐ Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement. (c) Are you an affiliate of a broker-dealer? Yes ☐ No ☐ (d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities? Yes ☐ No ☐ Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement. 4. Beneficial Ownership of Securities of the Company Owned by the Selling Shareholder. Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement. (a) Type and Amount of other securities beneficially owned by the Selling Shareholder: 5. Relationships with the Company:
22 Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: The undersigned agrees to promptly notify the Company of any material inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective; provided, that the undersigned shall not be required to notify the Company of any changes to the number of securities held or owned by the undersigned or its affiliates. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto. IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Date: Beneficial Owner: By: Name: Title: PLEASE EMAIL A .PDF COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO: mailto:[ ]
AMENDMENT NO. 2 TO THE AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF DIGITAL MEDIA SOLUTIONS HOLDINGS, LLC a Delaware limited liability company This Amendment No. 2 to Amended and Restated Limited Liability Company Agreement (this “Amendment”), is dated effective as of March 30, 2023. Each capitalized term used but not defined in this Amendment has the meaning given to it in the Amended and Restated Limited Liability Company Agreement of Digital Media Solutions Holdings, LLC (the “LLC Agreement”). WHEREAS, it is contemplated that Digital Media Solutions, Inc., a Delaware corporation (“DMS”) will enter into a Securities Purchase Agreement (the “Securities Purchase Agreement”) pursuant to which DMS will issue and sell shares of Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock (collectively, the “Preferred Stock”) at a purchase price of $100.00 per Preferred Stock, and warrants to purchase 12,600,000 shares of Class A common stock of the Corporation, par value $0.0001, (the “Warrants” and together with the Preferred Stock, the “Securities”) at an exercise price of $0.6453 per share; WHEREAS, subsequent to the Securities Purchase Agreement, it is contemplated that DMS will contribute an amount up to the gross proceeds received from the Securities Purchase Agreement to the Company (the “Contribution”); and WHEREAS, in consideration of the Contribution, the Company desires to issue the Series A Preferred Units and Series B Preferred Units (each as defined herein) to DMS (as defined in the LLC Agreement). NOW, THEREFORE, the undersigned Members, being all of the Members of the Company, do hereby agree that the LLC Agreement be amended as follows: 1. Section 1.1 of the LLC Agreement is hereby amended by adding the following definitions: “Series A Preferred Units” means a Membership Interests designated as "Series A Preferred Units" in the Company having the economic rights, preferences and privileges set forth in Section 4.10(a). “Series B Preferred Unit” means a Membership Interests designated as "Series B Preferred Units" in the Company having the economic rights, preferences and privileges set forth in Section 4.10(b). 2. Section 4.2(a) of the LLC Agreement is hereby amended in its entirety to read as follows: “(a) Subject to Section 4.2(c), the Company is authorized to issue three (3) classes of Membership Interests: Common Units, each of which shall be identical, 80,000 Series A Preferred Units, which shall be converted to Common Units upon the Corporation’s Series A Convertible Redeemable Preferred Stock being converted to Common Shares and 60,000 Series B Preferred Units, which shall be converted to Common Units upon the Corporation’s Series A Convertible Redeemable Preferred Stock being converted to Common Shares. The name and address of, and
the class and number of Membership Interests held by, each Member from time to time shall be as set forth on Schedule I. Following the Closing Date, the Board of Managers shall amend Schedule I, without any further action by the Company or the Members, to reflect changes in the information intended to be reflected therein that occur pursuant to, and in accordance with, this Agreement. To the fullest extent permitted by applicable Law, and subject to Section 11.5, (i) Schedule I shall be the definitive record of the outstanding Membership Interests, the ownership of each outstanding Membership Interest and all relevant information with respect to each Member and each Assignee, (ii) any reference herein to Schedule I shall be deemed a reference to Schedule I, as amended and as in effect from time to time and (iii) the Company shall be entitled to recognize the exclusive right of a Person registered on Schedule I as the owner of the outstanding Membership Interests shown thereon for all purposes and shall not be bound to recognize any equitable or other claim to or interest in Membership Interests on the part of any other Person, whether or not it shall have express or other notice thereof. 3. The LLC Agreement is hereby amended to add Section 4.10 of the LLC Agreement is hereby amended by adding the follow provision: Section 4.10. Series A and Series B Preferred Units. (a) The Series A Preferred Units are intended to provide the holder there of with substantially identical economic rights, preferences and privileges identical to the Corporation’s Series A Convertible Redeemable Preferred Stock (“Corporation Series A Preferred Stock”) set forth in the Corporation’s Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock filed with the Delaware Secretary of State on March ____, 2023, which terms are incorporated by reference herein. To the extent the Corporation is required or is permitted to make a distribution or payment in respect of the Corporation Series A Preferred Stock in cash, the Company shall make an equivalent distribution in cash on the Series A Preferred Units, and the Series A Preferred Units shall be cancelled or redeemed if the Corporation Series A Preferred Stock or so cancelled or redeemed. To the extent the Corporation is required or is permitted to make a distribution or payment in respect of the Corporation Series A Preferred Stock in Class A Shares, the Company shall make a distribution or payment on the Class A Preferred Units in an equivalent number of Common Units, and the Series A Preferred Units shall be cancelled or redeemed if the Corporation Series A Preferred Stock or so cancelled or redeemed. (b) The Series B Preferred Units are intended to provide the holder there of with substantially identical economic rights, preferences and privileges identical to the Corporation’s Series B Convertible Redeemable Preferred Stock (“Corporation Series B Preferred Stock”) set forth in the Corporation’s Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock filed with the Delaware Secretary of State on March ____, 2023, which terms are incorporated by reference herein. To the extent the Corporation is required or is permitted to make a distribution or payment in respect of the Corporation Series B Preferred Stock in cash, the Company shall make an equivalent distribution in cash on the Series B Preferred Units, and the Series B Preferred Units shall be cancelled or redeemed if the Corporation Series A Preferred Stock or so cancelled or redeemed. To the extent the Corporation is required or is permitted to make a distribution or payment in respect of the Corporation Series B Preferred Stock in Class B Shares, the Company shall make a distribution or payment on the Class B Preferred Units in an equivalent number of Common Units, and the Series B Preferred Units shall be cancelled or redeemed if the Corporation Series B Preferred Stock or so cancelled or redeemed.
(c) Notwithstanding anything to the contrary herein, the Company shall always be permitted to elect to make any distribution or payment as provided in this Section 4.10 by payment in Common Units. [Signature Pages Follow]
IN WITNESS WHEREOF, the undersigned has duly executed this Amendment as of the date first written above. DIGITAL MEDIA SOLUTIONS HOLDINGS, LLC By: __________________ Name: Joseph Marinucci Title: Chief Executive Officer ACKNOWLEDGED AND AGREED: PRISM DATA, LLC, a Delaware limited liability company By: Name: Joseph Marinucci Title: Manager CEP V-A DMS AIV LIMITED PARTNERSHIP, a Delaware limited partnership By: Name: James H Miller Title: Corporate Secretary By: Name: Michael Wagman Title: President CEP V DMS US BLOCKER COMPANY, a Delaware corporation By: Name: James H Miller Title: Corporate Secretary By: Name: Michael Wagman Title: President
By: Name: Mathew Frary Title: Member By: Name: Stuart Butler Title: Member By: Name: Douglas Davis Title: Member By: Name: Beth Lazar Title: Member By: Name: Per Pettersen Title: Member By: Name: Nate Schaub Title: Member By: Name: Terra Matrix LLC Title: Member By: Name: Estalea I LP Title: Member Solely with respect to Section 4.4, Section 4.5, Section 4.6, Section 7.2, Section 7.3, Section 11.7 and Section 14.1(b):
DIGITAL MEDIA SOLUTIONS, INC., a Delaware corporation By: Name: Joseph Marinucci Title: Chief Executive Officer Solely with respect to Section 7.2(b) and Section 7.3(d): Joseph Marinucci Luis Ruelas / Fernando Borghese Matthew Goodman David Shteif Jonathan Katz
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Joseph Marinucci, certify that:
1. I have reviewed this Annual Report on Form 10-K/A for the year ended December 31, 2022 of Digital Media Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: April 5, 2023 | By: | /s/ Joseph Marinucci | |||||||||
| Joseph Marinucci President and Chief Executive Officer (Principal Executive Officer) | |||||||||||
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Richard Rodick, certify that:
1. I have reviewed this Annual Report on Form 10-K/A for the year ended December 31, 2022 of Digital Media Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: April 5, 2023 | By: | /s/ Richard Rodick | |||||||||
| Richard Rodick Chief Financial Officer (Principal Financial and Accounting Officer) | |||||||||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Annual Report of Digital Media Solutions, Inc. (the “Company”) on Form 10-K/A for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph Marinucci, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 5, 2023 | |||||||||||
| /s/ Joseph Marinucci | |||||||||||
| Name: | Joseph Marinucci | ||||||||||
| Title: | President and Chief Executive Officer (Principal Executive Officer) | ||||||||||
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Annual Report of Digital Media Solutions, Inc. (the “Company”) on Form 10-K/A for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Rodick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 5, 2023 | |||||||||||
| /s/ Richard Rodick | |||||||||||
| Name: | Richard Rodick | ||||||||||
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||||