As filed with the Securities and Exchange Commission on January 24, 2012

 

Registration No. [________]   

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 


SOCIAL REALITY, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   7311   45-2925231

(State or jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer Identification No.)

  

479 Rodeo Drive

Beverly Hills, CA 90210

(323) 229-0297

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

Christopher Miglino

Chief Executive Officer

479 Rodeo Drive

Beverly Hills, CA 90210

(323) 229-0297

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 


 

Copy to:

Raul Silvestre

Silvestre Law Group, P.C.

31200 Via Colinas, Suite 200

Westlake Village, CA 91362

(818) 597-7552

Fax (818) 597-7551


 

Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨   Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if smaller reporting company)   Smaller reporting company   x

  

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of
Securities to be Registered
  Amount to be
Registered(1)
    Proposed Maximum
Offering Price
    Proposed Maximum
Aggregate Offering
Price
    Amount of
Registration Fee
 
Common Stock, par value $0.001 per share     1,447,107     $ .8111 (2)   $ 1,173,749     $ 134.51  
      1,447,107             $ 1,173,749     $ 134.51  

 

(1)         Pursuant to SEC Rule 416, also covers additional common shares that may be offered to prevent dilution as a result of stock splits or stock dividends.

(2)         Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 of the Securities Act based upon a per share amount of $.8111, based on the price on which the securities were previously sold pursuant to the Company's January of 2012 private placements. There is currently no trading market for the Registrant's common stock. The price of $.8111 is a fixed price at which the selling stockholders identified herein may sell their shares until the Registrant's common stock is quoted, if ever, at which time the shares may be sold at prevailing market prices or privately negotiated prices.  

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. 

 

     
 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION JANUARY 24, 2012

 

 

  

Social Reality, Inc.

 

1,447,107 Shares of Common Stock

 


 

This prospectus relates to the resale of 1,447,107 shares of our Class A common stock, by the selling stockholders identified on page 10 of this prospectus. We will not receive any proceeds from the sale of these shares by the selling stockholders. We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock. As of the date of this prospectus, outstanding shares of Class A common stock will represent approximately 4% of the voting power of our outstanding capital stock, and outstanding shares of Class B common stock held by our founders, will represent approximately 96% of the voting power of our outstanding capital stock.

 

Our common stock is not presently traded on any market or securities exchange, and we have not applied for listing or quotation on any public market. We anticipate seeking sponsorship for the trading of our Class A common stock on the National Association of Securities Dealers OTC Bulletin Board upon the effectiveness of the registration statement of which this prospectus forms a part. However, we can provide no assurance that our shares will be traded on the OTC Bulletin Board or, if traded, that a public market will materialize. The Selling Stockholders will sell at a price of $0.8111 per share until our shares are quoted, if ever, on a stock exchange in which a market develops or trading facility on which the shares are traded, and thereafter, at prevailing market prices or privately negotiated prices.

 

Our principal executive offices are located at 479 Rodeo Drive Beverly Hills, CA 90210, telephone number (323) 229-0297.

 


 

Investing in our common stock is highly speculative and involves a high degree of risk. You should consider carefully the risks and uncertainties in the section entitled “Risk Factors” on page 4 of this prospectus.

 


 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The date of this Prospectus is [_________]

 

2
 

 

TABLE OF CONTENTS

 

    Page
FORWARD LOOKING STATEMENTS    
RISK FACTORS   4
USE OF PROCEEDS   10
DIVIDEND POLICY   10
DETERMINATION OF OFFERING PRICE   10
SELLING SECURITY HOLDERS   10
PLAN OF DISTRIBUTION   10
DESCRIPTION OF CAPITAL STOCK   11
INTERESTS OF NAMED EXPERTS AND COUNSEL   14
EXPERTS   14
OUR BUSINESS   14
PROPERTIES   19
LEGAL PROCEEDINGS   19
MARKET FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS   19
SHARES ELIGIBLE FOR FUTURE SALE   19
EQUITY COMPENSATION PLAN INFORMATION   21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   22
MANAGEMENT   24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   27
PRINCIPAL STOCKHOLDERS   27
INDEMNIFICATION OF DIRECTORS AND OFFICERS   29
WHERE YOU CAN FIND MORE INFORMATION   29
FINANCIAL STATEMENTS   30

 

You may rely only on the information contained in this prospectus. We have not authorized anyone to provide information or to make representations not contained in this prospectus. This prospectus is neither an offer to sell nor a solicitation of an offer to buy any securities other than those registered by this prospectus, nor is it an offer to sell or a solicitation of an offer to buy securities where an offer or solicitation would be unlawful. Neither the delivery of this prospectus, nor any sale made under this prospectus, means that the information contained in this prospectus is correct as of any time after the date of this prospectus.

3
 

 

RISK FACTORS

 

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our Class A common stock. If any of the following events were to occur, our business, financial condition or results of operations could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you could lose some or all of your investment

 

General Risks Relating To Our Business And Business Model

 

We have a limited operating history.

 

Our limited operating history means that there is a high degree of uncertainty in our ability to: (i) execute our business plan; (ii) obtain customers and create new products and services; (iii) respond to competition; or (iv) operate the business, as management has not previously undertaken such actions as a company. Our inability to achieve any of the foregoing, could materially and adversely affect our business.

 

We will require additional financing to expand our business.

 

Although we are currently profitable, we will require additional financing in the future to grow our business. The issuance of common or preferred stock in connection with a future financing will result in a decrease of stockholders percentage ownership of the Company. The Company has the authority to issue additional shares of common stock and preferred stock, as well as additional classes or series of ownership interests or debt obligations which may be convertible into any one or more classes or series of ownership interests. The Company is authorized to issue 250,000,000 shares of Class A and 9,000,000 shares of Class B common stock and 50,000,000 shares of preferred stock. Currently we have 3,775,874 shares of Class A common stock, 9,000,000 shares of Class B common stock and 0 shares of preferred stock issued and outstanding. Accordingly, we can issue an additional 246,224,126 shares of Class A common stock and 50,000,000 shares of preferred stock without the approval or consent of the Company's stockholders.

 

If we are unable to maintain a good relationship with Facebook, our business will suffer.

 

Facebook is the primary medium on which we undertake our marketing campaigns and promotions for our clients. We generate substantially all of our revenue through marketing campaigns on the Facebook platform and expect to continue to do so for the foreseeable future. Any deterioration in our relationship with Facebook would harm our business and adversely affect the value of our Class A common stock.

 

We are subject to Facebook’s standard terms and conditions for application developers, which govern the promotion, distribution and operation of applications on the Facebook platform. Our business would be harmed if:

 

  · Facebook discontinues or limits access to its platform by us and other application developers;
     
  · Facebook modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers, or Facebook changes how the personal information of its users is made available to application developers on the Facebook platform or shared by users;
     
  · Facebook establishes more favorable relationships with one or more of our competitors; or
     
  · Facebook develops its own competitive offerings.

 

We have benefited from Facebook’s strong brand recognition and large user base. If Facebook loses its market position or otherwise falls out of favor with Internet users, we would need to identify alternative channels for our marketing and promotional campaigns, which would consume substantial resources and may not be effective. In addition, Facebook has broad discretion to change its terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us. Facebook may also change its fee structure, add fees associated with access to and use of the Facebook platform, change how the personal information of its users is made available to application developers on the Facebook platform or restrict how Facebook users can share information with friends on their platform. Beginning in early 2010, Facebook changed its policies for application developers regarding use of its communication channels. These changes limited the level of communication among users about applications on the Facebook platform. As a result, our campaigns and promotions may be less effective. Any such changes in the future could significantly alter the value of our products and services and harm our business.

 

4
 

 

A small number of customers have generated a majority of our revenue.

 

The creation and management of social media marketing campaigns is relatively new. As a result, a majority of our revenue has come from test marketing campaigns or one off promotions. Our growth depends on our ability to develop and manage ongoing and recurring marketing and promotional campaigns. If we do not successfully attract and retain a significant number of recurring customers, our market share, reputation and financial results will be harmed.

 

Our profitability may not remain at current levels.

 

We face risks that could prevent us from achieving our current profitability levels in future periods. These risks include, but are not limited to, our ability to:

 

  adapt our products, services and cost structure to changing macroeconomic conditions;
     
  maintain and increase our inventory of advertising space on publisher websites, ad exchanges and other sources;
     
  maintain and increase the number of customers that use our products and services;
     
  continue to expand the number of products and services we offer and the capacity of our systems;
     
  adapt to changes in Web advertisers' promotional needs and policies, and the technologies used to satisfy such needs;
     
  respond to challenges presented by the large and increasing number of competitors in the industry;
     
  adapt to changes in legislation, taxation or regulation regarding Internet usage, advertising and e-commerce; and
     
  adapt to changes in technology related to online advertising.

 

If we are unsuccessful in addressing these or other risks and uncertainties, our business, results of operations and financial condition could be materially and adversely affected.

 

If advertising on the internet loses its appeal, our revenue could decline.

 

Our business models may not continue to be effective in the future for a number of reasons, including the following: decline in the rates we can charge for advertising and our promotional activities; our inability to create applications for our customers; Internet advertisements and promotions are, by their nature, limited in content relative to other media; companies may be reluctant or slow to adopt online advertising and promotional activities that replace, limit or compete with their existing direct marketing efforts; companies may prefer other forms of Internet advertising and promotions that we do not offer; and, regulatory actions may negatively impact our business practices. If the number of companies who purchase online advertising and promotional services from us does not grow, we may experience difficulty in attracting publishers, and our revenue could decline.

 

Our revenue could decline if we fail to effectively manage our media inventory.

 

Our success depends, in part, on our ability to effectively manage our existing advertising space and content, the acquisition of additional content publishers and our creation of custom applications. If a publisher decides not to make content from its websites available to us, we may not be able to replace this content with content from other publishers that have comparable traffic patterns and user demographics quickly enough to fulfill our customers’ requests. This would result in lost revenue.

 

We expect that our customers' requirements will become more sophisticated as the Web continues to mature as an advertising medium. If we fail to manage our existing media inventory, applications and publishers effectively to meet our customers' changing requirements, our revenue could decline. Our growth depends, in part, on our ability to expand our media inventory within our networks and to have access to new sources of advertising inventory such as new partner websites. To attract new customers, we must maintain a consistent supply of attractive advertising space and media as well as applications with increased functionality. Our success relies, in part, on expanding our media inventory by selectively adding new Web publishers to our networks that offer attractive demographics, innovative and quality content and growing Web user traffic volume. Our ability to attract new Web publishers to our networks and to retain Web publishers currently in our networks will depend on various factors, some of which are beyond our control. These factors include, but are not limited to, our ability to introduce new and innovative products and services, our ability to efficiently manage our existing inventory, our pricing policies, and the cost-efficiency to Web publishers of outsourcing their advertising sales. In addition, the number of competing intermediaries that purchase advertising inventory from Web publishers continues to increase. We cannot assure you that the size of our inventory will increase or remain constant in the future.

 

We may face intellectual property actions that are costly or could hinder or prevent our ability to deliver our products and services.

 

We may be subject to legal actions alleging intellectual property infringement (including patent infringement), unfair competition or similar claims against us. Companies may apply for or be awarded patents or have other intellectual property rights covering aspects of our technologies or businesses. Defending ourselves against intellectual property infringement or similar claims is expensive and diverts management's attention.

 

5
 

 

If we fail to compete effectively against other Internet advertising companies, we could lose customers or advertising inventory and our revenue and results of operations could decline.

 

The Internet advertising markets are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions, and changing customer demands. The introduction of new products and services embodying new technologies and the emergence of new industry standards and practices could render our existing products and services obsolete and unmarketable or require unanticipated technology or other investments. Our failure to adapt successfully to these changes could harm our business, results of operations and financial condition.

 

The market for Internet advertising and related products and services is highly competitive. We expect this competition to continue to increase, in part because there are no significant barriers to entry to our industry. Increased competition may result in price reductions for our products and services, reduced margins and loss of market share. Our principal competitors include other companies that provide advertisers with performance-based Internet advertising solutions and companies that offer Cost Per Thousand, pay-per-click and Cost Per Engagement services. We compete in the performance-based marketing segment with CPE and CPA performance-based companies, and with other large Internet display advertising networks. Competition for advertising placements among current and future suppliers of Internet navigational and informational services, high-traffic websites and Internet service providers ("ISPs"), as well as competition with other media for advertising placements, could result in significant price competition, declining margins and reductions in advertising revenue. In addition, as we continue our efforts to expand the scope of our services, we may compete with a greater number of publishers and other media companies across an increasing range of different services, including vertical markets where competitors may have advantages in expertise, brand recognition and other areas. If existing or future competitors develop or offer products or services that provide significant performance, price, creative or other advantages over those offered by us, our business, results of operations and financial condition could be negatively affected. We also compete with traditional advertising media, such as direct mail, television, radio, cable, and print, for a share of advertisers' total advertising budgets. Many current and potential competitors enjoy competitive advantages over us, such as longer operating histories, greater name recognition, larger customer bases, greater access to advertising space on high-traffic websites, and significantly greater financial, technical, sales, and marketing resources. As a result, we may not be able to compete successfully. If we fail to compete successfully, we could lose customers or advertising inventory and our revenue and results of operations could decline.

 

We depend on key personnel, the loss of whom could harm our business.

 

Our success depends in part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills, management expertise or key business relationships. We may be unable to retain existing management, finance, engineering, sales, customer support, and operations personnel that are critical to the success of the Company, which may result in disruption of operations, loss of key business relationships, information, expertise or know-how, unanticipated additional recruitment and training costs, and diminished anticipated benefits of acquisitions, including loss of revenue and profitability. Although we have entered into employment agreements with key management, there can be no assurance that these individuals will continue to provide services to us. Generally, a voluntary or involuntary termination of employment could have a materially adverse effect on our business.

 

We may be required to make significant payments to members of our management in the event their employment with us is terminated or if we experience a change of control.

 

We are a party to employment agreements with certain members of our management. In the event we terminate their employment, have a change in control or, in certain other cases, if such executive terminates his employment with us, such executive will be entitled to receive certain severance and related payments. Additionally, in such instances, certain securities held by these executives will become immediately vested and exercisable. Upon the occurrence of any such event, our obligation to make such payments could significantly impact our working capital and, accordingly, our ability to execute our business plan, which could have a materially adverse effect to our business. Also, these provisions may discourage potential takeover attempts.

 

Delaware law contains anti-takeover provisions that could deter takeover attempts that could be beneficial to our stockholders.

 

Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring us, without our board of directors' consent, for at least three years from the date they first hold 15% or more of the voting stock.

 

System failures could significantly disrupt our operations, which could cause us to lose customers or advertising inventory.

 

Our success depends on the continuing and uninterrupted performance of our systems. Sustained or repeated system failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and failures of our applications, would reduce significantly the attractiveness of our solutions to our customers and Web publishers. Our business, results of operations and financial condition could also be materially and adversely affected by any systems damage or failure that impacts data integrity or interrupts or delays our operations. Our computer systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious or accidental human acts, and natural disasters. Therefore, any of the above factors affecting any of these could substantially harm our business. Moreover, despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautions taken, unanticipated problems affecting our systems could cause interruptions in the delivery of our solutions in the future and our ability to provide a record of past transactions. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems.

 

6
 

 

It may be difficult to predict our financial performance because our quarterly operating results may fluctuate.

 

Our revenue and operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. The factors that may affect our quarterly operating results include, but are not limited to, the following:

 

  macroeconomic conditions;
     
  fluctuations in demand for our advertising solutions or changes in customer contracts;
     
  fluctuations in the amount of available advertising space, or views, on our networks;
     
  the timing and amount of sales and marketing expenses incurred to attract new advertisers;
     
  fluctuations in sales of different types of advertising and services; for example, the amount of advertising and services sold at higher rates rather than lower rates;
     
  fluctuations in the cost of online advertising;
     
  seasonal patterns in Internet advertisers' spending;
     
  changes in our pricing and publisher compensation policies, the pricing and publisher compensation policies of our competitors, the pricing and publisher compensation policies of our advertiser customers, or the pricing policies for advertising on the Internet generally;
     
  changes in the regulatory environment, including regulation of advertising on the Internet, that may negatively impact our marketing practices;
     
  fluctuations in levels of professional services fees or the incurrence of non-recurring costs;
     
  deterioration in the credit quality of our accounts receivable and an increase in the related provision;

 

Expenditures by advertisers also tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. Any decline in the economic prospects of advertisers or the economy generally may alter advertisers' current or prospective spending priorities, or may increase the time it takes us to close sales with advertisers, and could materially and adversely affect our business, results of operations, cash flows, and financial condition.

 

We may not be able to protect our intellectual property from unauthorized use, which could diminish the value of our products and services, weaken our competitive position and reduce our revenue.

 

Our success depends on our ability to create and protect our proprietary technologies relating to our services and custom applications. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer.

 

We currently rely on a combination of trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. Third-party software providers could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently, which may infringe upon our proprietary rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technologies or develop competing technologies. Intellectual property protection may also be unavailable or limited in some foreign countries.

 

We generally enter into confidentiality or license agreements with our employees, consultants, vendors, customers, and corporate partners, and generally control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, unauthorized parties may attempt to disclose, obtain or use our products and services or technologies. Our precautions may not prevent misappropriation of our products, services or technologies, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

 

7
 

 

Government enforcement actions, changes in government regulation, technical proposals and industry standards could decrease demand for our products and services and increase our costs of doing business .

 

Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the costs of communicating on the Web and could adversely affect the demand for our advertising solutions or otherwise harm our business, results of operations and financial condition. The United States Congress has enacted Internet legislation regarding children's privacy, copyrights, sending of commercial email (e.g., the Federal CAN-SPAM Act of 2003), and taxation. The United States Congress has passed legislation regarding spyware (i.e., H.R. 964, the "Spy Act of 2007") and the New York Attorney General's office has also pursued enforcement actions against companies in this industry. In addition, on December 1, 2010, the FTC issued its long-awaited staff report criticizing industry self-regulatory efforts as too slow and lacking adequate protections for consumers and emphasizing a need for simplified notice, choice and transparency to the consumer of the collection, use and sharing of their data. The FTC suggests various methods and measures, including an implementation of a "Do Not Track" mechanism—likely a persistent setting on consumers' browsers—that consumers can choose whether to allow the tracking of their online searching and browsing activities. As a result of the report, some of the browser makers have been working on their own do-not-track technical solutions, notably Microsoft Internet Explorer, Mozilla Firefox and Google Chrome. Microsoft's Internet Explorer 9 offers a tracking protection feature that doesn't allow for tracking by allowing internet users to download tracking protection block lists which consequently block any third-party domain included in such block lists from serving content. This content-blocking feature, depending on the adoption by internet users, may adversely affect our ability to grow our company, maintain our current revenues and profitability, serve and monetize content and utilize our behavioral targeting platform. Legislatively, Congressman Bobby Rush is working to reintroduce his bill from last year (H.R. 5777—Best Practices Act) and others within the House and the Senate are looking to introduce bills regarding the privacy of online and offline data. Other laws and regulations have been adopted and may be adopted in the future, and may address issues such as user privacy, spyware, "do not email" lists, pricing, intellectual property ownership and infringement, copyright, trademark, trade secret, export of encryption technology, acceptable content, search terms, lead generation, behavioral targeting, taxation, and quality of products and services. This legislation could hinder growth in the use of the Web generally and adversely affect our business. Moreover, it could decrease the acceptance of the Web as a communications, commercial and advertising medium. We do not use any form of spam or spyware and has policies to prohibit abusive Internet behavior, including prohibiting the use of spam and spyware by our Web publisher partners.

 

We could be subject to legal claims, government enforcement actions and damage to our reputation and held liable for our or our customers' failure to comply with federal, state and foreign laws, regulations or policies governing consumer privacy, which could materially harm our business.

 

Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices. The United States Congress currently has pending legislation regarding privacy and data security measures, such as S. 495, the "Personal Data Privacy and Security Act of 2007", and H.R. 5777, the Best Practices Act, introduced by Congressman Bobby Rush. Any failure by us to comply with applicable federal, state and foreign laws and the requirements of regulatory authorities may result in, among other things, indemnification liability to our customers and the advertising agencies we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability. Recently, class action lawsuits have been filed alleging violations of privacy laws by ISPs. The European Union's directive addressing data privacy limits our ability to collect and use information regarding Internet users. These restrictions may limit our ability to target advertising in most European countries. Our failure to comply with these or other federal, state or foreign laws could result in liability and materially harm our business.

 

In addition to government activity, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different self-regulatory standards. This focus, and any legislation, regulations or standards promulgated, may impact us adversely. Governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting our customers and us. Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these proposed laws or regulations may have on our business. However, if the gathering of profiling information were to be curtailed, Internet advertising would be less effective, which would reduce demand for Internet advertising and harm our business.

 

Third parties may bring class action lawsuits against us relating to online privacy and data collection. We disclose our information collection and dissemination policies, and we may be subject to claims if we act or are perceived to act inconsistently with these published policies. Any claims or inquiries could be costly and divert management's attention, and the outcome of such claims could harm our reputation and our business.

 

Our customers are also subject to various federal and state laws concerning the collection and use of information regarding individuals. These laws include the Children's Online Privacy Protection Act, the Federal Drivers Privacy Protection Act of 1994, the privacy provisions of the Gramm-Leach-Bliley Act, the Federal CAN-SPAM Act of 2003, as well as other laws that govern the collection and use of consumer credit information. We cannot assure you that our customers are currently in compliance, or will remain in compliance, with these laws and their own privacy policies. We may be held liable if our customers use our technologies in a manner that is not in compliance with these laws or their own stated privacy policies.

 

The two class structure of our common stock has the effect of concentrating voting control with our founders; this will limit your ability to influence corporate matters.

 

Our Class B common stock has 10 votes per share and our Class A common stock, which is the stock being registered in this prospectus, has one vote per share. The holders of Class B common stock collectively hold approximately 96% of the voting power of our outstanding capital stock. As a result, the holders of our Class B common stock will have significant influence over the management and affairs of the company and control over matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our Company or its assets, for the foreseeable future. This concentrated voting control will limit your ability to influence corporate matters and could adversely affect the price of our Class A common stock.

 

8
 

 

If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.

 

If we are unable to maintain adequate internal controls for financial reporting in the future, or if our auditors are unable to express an opinion as to the effectiveness of our internal controls as will be required pursuant to the Sarbanes-Oxley Act, investor confidence in the accuracy of our financial reports may be impacted or the market price of our Class A common stock could be negatively impacted.

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

 

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results.

 

We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

 

There is no public market for the company’s securities and no assurance can be given that one will ever develop.

 

The Company is a private company and this registration statement is its initial registration. Our stock is not traded on an exchange or on the OTC Bulletin Board. Without a market for our shares, there is only a limited ability of a security holder to sell their securities, if any, as those transfers or sales would be made privately. Therefore, an investment in our common stock should be considered as totally illiquid, and investors are cautioned that they may not be able to liquidate their investment readily, or at all, when the need or desire to sell arises. Moreover, no assurances can be given that a public market for our securities will ever materialize. Additionally, even if a public market for our securities develops and our securities become traded, the trading volume may be limited, making it difficult for an investor to sell their shares.

 

When and if the company becomes a public company, the company faces risks related to compliance with corporate governance laws and financial reporting standards.

 

We anticipate that costs associated with becoming public will add $150,000 of annual expenses in connection with professional, legal and accounting fees. Additionally, the Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the United States Securities and Exchange Commission (“SEC”) and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting (“Section 404”), will materially increase the Company's legal and financial compliance costs and make some activities more time-consuming and more burdensome. Presently we qualify as a non-accelerated filer and, accordingly, are exempt from the requirements of 404b and our independent registered public accounting firm is not required to audit the design and operating effectiveness of our internal controls and management's assessment of the design and the operating effectiveness of such internal controls. In the event we become an accelerated filer, we will be required to expend substantial capital in connection with compliance.

 

Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing 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. To mitigate the current limited resources and limited number of employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the Committee of Sponsoring Organizations of the Treadway Commission internal control framework.

 

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The company does not intend to pay cash dividends on its common stock in the foreseeable future.

 

Any payment of cash dividends will depend upon the Company's financial condition, results of operations, and capital requirements and will be at the discretion of the Board of Directors. The Company does not anticipate paying cash dividends on its Class A common stock in the foreseeable future. Furthermore, the Company may incur additional indebtedness that may severely restrict or prohibit the payment of dividends. Since we do not anticipate paying dividends, any gains on an investment will need to come through an increase in the price of our Class A common stock.

  

USE OF PROCEEDS

 

We will not receive any of the proceeds from the sale of the shares by any of the selling stockholders,

 

DIVIDEND POLICY

 

We have never paid or declared cash dividends on our common stock, and we do not intend to pay or declare cash dividends on either of our classes of common stock in the foreseeable future.

 

DETERMINATION OF OFFERING PRICE

  

The Selling Stockholders will initially offer their shares at $.8111 per share until such time as a trading market for outstanding shares develops, if ever.  Once a trading market develops, the shares will be offered at prevailing market prices, privately negotiated prices, or in any other fashion as described in the section of this Prospectus entitled “ Plan of Distribution .”  The selling price has no relationship to any established criteria of value, such as book value or earnings per share.  The price was chosen arbitrarily.

 

SELLING SECURITY HOLDERS

 

This prospectus relates to the offering and sale, from time to time, of up to 1,447,107 Class A common shares which are held by the stockholders named in the table below (“Selling Stockholders”). Set forth below is information, to the extent known to us, the name of each Selling Shareholder and the amount and percentage of Class A common stock owned by each (including shares that can be acquired on the exercise of outstanding securities, if any) prior to the offering, the shares to be sold in the offering, and the amount and percentage of Class A common stock to be owned by each (including shares that can be acquired on the exercise of outstanding securities, if any) after the offering assuming all shares are sold. The footnotes provide information about persons who have investment voting power for the Selling Shareholders and about material transactions between the Selling Shareholders and the Company.

The Selling Stockholders may sell all or some of the shares of common stock they are offering, and may sell shares of our common stock otherwise than pursuant to this prospectus. The tables below assumes that each selling stockholder sells all of the shares offered by it in offerings pursuant to this prospectus, and does not acquire any additional shares. We are unable to determine the exact number of shares that will actually be sold or when or if these sales will occur.

The Selling Stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

The total number of Class A common shares sold under this prospectus may be adjusted to reflect adjustments due to stock dividends, stock distributions, splits, combinations or recapitalizations with regard to the common stock and warrants. Unless otherwise stated below in the footnotes, to our knowledge, no Selling Stockholder nor any affiliate of such stockholder: (i) has held any position or office with, been employed by or otherwise has had any material relationship with us or our affiliates during the three years prior to the date of this prospectus; or (ii) is a broker-dealer, or an affiliate of a broker-dealer. We may amend or supplement this prospectus from time to time in the future to update or change this list and shares which may be resold.

The Class A common shares being sold under this prospectus were originally issued by us in connection with our January 2012 offering. The shares were originally sold at $.8111 per share. The offering resulted in us receiving gross proceeds of approximately $362,642.

 

    Common Shares Owned Before
Sale (1)
      Common Shares Owned After
Sale (2)
   
Name   Amount   % of class   Shares being
registered
  Amount   % of Class   Total
Voting %
Cary Sucoff     1,500     *       1,500       -         —         —    
James B. Edwards     2,500      *       2,500       -         —         —    
Marta L. Knutson     100,000       2.65 %     100,000       -         —         —    
Matthew O. Knutson     13,000     *       13,000       -         —         —    
Rachel Pettit     8,700     *       8,700       -         —         —    
Robert O. Knutson     25,000     *       25,000       -         —         —    
Ronit Sucoff     1,500     *       1,500       -         —         —    
Windermer Insurance Co.(3)     61,645     1.63 %     61,645       -         —         —    
Barry Goss, TTEE GOSS FAMILY TRUST EST. 12/16/1999     2,000     *       2,000       -         —         —    
Robert Scherne     1,542     *       1,542       -         —         —    
Lindsay Scherne     1,542     *       1,542       -         —         —    
Robin Scherne     1,542      *     1,542       -         —         —    
Theresa Scherne     1,542     *       1,542       -         —         —    
Mark R Bell MD Retirement Trust     43,152       1.14 %     43,152       -         —         —    
Brandon Hill(4)     4,000     *       4,000       -         —         —    
Benjamin Hill(4)     4,000      *       4,000       -         —         —    
Irv Edwards MD Inc. Retirement Trust     43,152       1.14 %     43,152       -         —         —    
Paul Darin     5,000     *       5,000       -         —         —    
Brodie Munro     2,500      *       2,500       -         —         —    
Daniel Rodriquez     123,290       3.27 %     123,290       -         —         —    
Moises Investment Group(5)     2,095,890       55.51 %     1,000,000       1,095,890       29 %     1.17 %
Total     2,542,997               1,447,107       1,095,890                  

 

Less than 1%. 

 

(1)  Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any common shares as to which a shareholder has sole or shared voting power or investment power, and also any common shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There were 3,775,874 Class A and 9,000,000 Class B common shares outstanding as of January 20, 2011. 

 

(2)  Assumes the sale of all common shares listed as being registered in this selling shareholder table. 

 

(3)  John Scardino has voting and dispositive control of the shares being offered. 

 

(4)  Associated person of Galt Financial, Inc., a Broker-Dealer. Galt has not received any compensation from the Company in connection with this offering. 

 

(5)  Edwardo M. Moises Serio has voting and dispositive control of the shares being offered. 

 

PLAN OF DISTRIBUTION

 

The Selling Stockholders (“Selling Stockholders”) will sell at a price of $0.8111 per share until our shares are quoted, if ever, on a stock exchange in which a market develops or trading facility on which the shares are traded. Thereafter, the Selling Stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange in which a market develops or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:

 

  · ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
     
  · block trades in which the broker-dealer will attempt to sell the shares 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 entered into after the effective date of the registration statement of which this prospectus is a part;
     
  · broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
     
  · 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 Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, 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 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

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In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, 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 shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

 

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.

 

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders 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 of 1933, as amended).

  

DESCRIPTION OF CAPITAL STOCK

 

General

 

The following is a summary of the rights of our common stock and preferred stock and related provisions of our certificate of incorporation and bylaws. For more detailed information, please see our certificate of incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.

 

Our certificate of incorporation provides that we will have two classes of common stock: Class A common stock, which has one vote per share, and Class B common stock, which has ten votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A common stock on a share-for-share basis. Otherwise the rights of the two classes of common stock will be identical. The rights of these classes of common stock are discussed in greater detail below.

 

Our authorized capital stock consists of 309,000,000 shares, each with a par value of $0.001 per share, of which:

 

  · 250,000,000 shares are designated as Class A common stock.
  · 9,000,000 shares are designated as Class B common stock.
  · 50,000,000 shares are designated as preferred stock.

 

At January 20, 2012, we had outstanding 3,775,874 shares of Class A common stock, held of record by 24 stockholders and 9,000,000 shares of Class B common stock, held of record by 2 stockholders and no preferred shares outstanding.

 

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Common Stock

 

Voting Rights

 

Holders of our Class A and Class B common stock have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to ten votes per share. Holders of shares of Class A common stock and Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. Delaware law could require either our Class A common stock or Class B common stock to vote separately as a single class in the following circumstances:

 

  · If we amended our certificate of incorporation to increase the authorized shares of a class of stock, or to increase or decrease the par value of a class of stock, then that class would be required to vote separately to approve the proposed amendment.
     
  · If we amended our certificate of incorporation in a manner that altered or changed the powers, preferences or special rights of a class of stock in a manner that affects them adversely then that class would be required to vote separately to approve the proposed amendment.

 

We have not provided for cumulative voting for the election of directors in our certificate of incorporation.

 

Dividends

 

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock and Class B common stock shall be entitled to share equally in any dividends that our board of directors may determine to issue from time to time. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of Class A common stock shall receive Class A common stock, or rights to acquire Class A common stock, as the case may be, and the holders of Class B common stock shall receive Class B common stock, or rights to acquire Class B common stock, as the case may be.

 

Liquidation Rights

 

Upon our liquidation, dissolution or winding-up, the holders of Class A common stock and Class B common stock shall be entitled to share equally all assets remaining after the payment of any liabilities and the liquidation preferences on any outstanding preferred stock.

 

Subdivision or Combinations.

 

Upon the subdivision or combination of the outstanding shares of one class of Common Stock, the outstanding shares of the other class of Common Stock will be subdivided or combined in the same manner.

 

Conversion

 

Our Class A common stock is not convertible into any other shares of our capital stock.

 

Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock shall convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our certificate of incorporation, including the following:

 

  · Transfers between one Class B Stockholder to another Class B Stockholder.
     
  · Transfers for tax and estate planning purposes, including to trusts, corporations and partnerships controlled by a holder of Class B common stock.

 

The death of any holder of Class B common stock who is a natural person will result in the conversion of his or her shares of Class B common stock to Class A common stock. Once transferred and converted into Class A common stock, the Class B common stock shall not be reissued. No class of common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the same proportion and in the same manner.

 

Preferred Stock

 

Our board of directors will have the authority, without approval by the stockholders, to issue up to a total of 50,000,000 shares of preferred stock in one or more series. Our board of directors may establish the number of shares to be included in each such series and may fix the designations, preferences, powers and other rights of the shares of a series of preferred stock. Our board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of Social Reality. We have no current plans to issue any shares of preferred stock.

 

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Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

 

Certain provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. In particular, our dual class common stock structure will concentrate ownership of our voting stock in the hands of our founders, board members, and employees. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

 

Dual Class Structure

 

As discussed above, our Class B common stock has ten votes per share, while our Class A common stock, which is the class of stock the Selling Stockholders are selling pursuant to this prospectus and which will be the only class of stock which is publicly traded, has one vote per share. Our Class B common stock is 100% controlled by our founders, executive officers and employees, representing 96% of the voting power of our outstanding capital stock. Because of our dual class structure, our founders, executives and employees will continue to be able to control all matters submitted to our stockholders for approval even if they come to own significantly less than 50% of the shares of our outstanding common stock. This concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that other stockholders may view as beneficial.

 

Special Approval for Change in Control Transactions

 

In the event a person seeks to acquire us by means of a merger or consolidation transaction, a purchase of all or substantially all of our assets, or an issuance of stock which constitutes 2% or more of our outstanding shares at the time of issuance and which results in any person or group owning more than 50% of our outstanding voting power, then these types of acquisition transactions must be approved by our stockholders at an annual or special meeting. At this meeting, we must obtain the approval of stockholders representing the greater of:

 

  · A majority of the voting power of our outstanding capital stock; and
     
  · 60% of the voting power of the shares of capital stock present in person or represented by proxy at the stockholder meeting and entitled to vote.

 

Undesignated Preferred Stock

 

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

 

Requirements for Advance Notification of Stockholder Nominations and Proposals

 

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. The bylaws do not give the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding business to be conducted at a special or annual meeting of the stockholders. However, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

Delaware Anti-Takeover Statute

 

We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless:

 

  · Prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder.
     
  · Upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer.

 

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  · On or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.

 

Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

 

The provisions of Delaware law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our Class A common stock is Transfer Online, Inc. 512 SE Salmon Street, Portland, OR 97214, 503-595-2982.

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

The Silvestre Law Group, P.C. has given us an opinion relating to the issuance of the common stock being registered. The Silvestre Law Group, P.C. or its various principals and/or affiliates, own 410,959 shares of our Class A common stock.

 

EXPERTS

 

The financial statements as of December 31, 2010 included in this prospectus and in the registration statement of which it forms a part, have been so included in reliance on the report of RBSM LLP, our independent registered public accounting firm, appearing elsewhere in this prospectus and the registration statement of which it forms a part, given on the authority of said firm as experts in auditing and accounting.

 

OUR BUSINESS

 

Our Business

 

Social Reality, Inc. develops and sells targeted and measurable social media advertising campaigns and programs to brand advertisers and digital advertising agencies. Social Reality delivers these programs across multiple third party Facebook applications and high traffic, targeted websites. These programs generate quantifiable engagement for clients, thereby driving revenue and increased brand recognition. We also develop custom Facebook applications to help grow our customer’s social media presence and drive engagement for their brands.

 

How We Derive Revenues

 

We derive our revenue from: (i) the development and management of social media marketing campaigns and programs; (ii) the sales of media on our partner websites and applications, and (iii) building custom applications for our partners in connection with such campaigns. We offer our customers a number of pricing options including cost-per-thousand-impression ("CPM"), whereby our customers pay based on the number of times the target audience is exposed to the advertisement and cost-per-engagement ("CPE"), whereby payment is triggered only when an individual takes a specific activity. We also generate revenue from the creation and management of custom social media applications, marketing campaigns and programs.

 

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Our Campaigns

 

Our campaigns use pre-existing social networks , reaching a portion of those networks’ more than 500 million monthly average users (Facebook applications, select websites), to increase brand awareness or to achieve other marketing objectives (such as product sales, Facebook “likes,” or sweepstakes entries) through a self-replicating viral processes. Our media is targeted across one of three channels: social good (Facebook applications and sites focused around causes and philanthropy), social gaming (leading social game apps and websites) and lifestyle (music & entertainment properties.) In connection with these campaigns, we develop and sell pop-ups, custom and standard Interactive Advertising Bureau (“IAB”) unit advertising to further enhance the impact and viral nature of these campaigns. We feel that these campaigns and programs provide better results to our customers through the creation of brand ambassadors. A brand ambassador is a participant in our customer’s target demographic who, instead of merely being a passive observer of the campaign, actually becomes involved and furthers the campaign or programs goals.

 

How We Market our Products and Services

 

We market our services through our in house sales team, which is divided into two distinct activities. One group is responsible for brand advertisers and the other is responsible for publisher acquisition and management. We market our services on industry related websites and blogs. We also have an in house public relations team that is focused on social media, PR, industry events and the creation of white papers.

 

Our Customers

 

We service two distinct customer bases, online publishers and direct marketers, brand advertisers and advertising agencies that service these brands.

 

The value propositions that we offer direct marketers, brand advertisers and the advertising agencies is the creation of social media programs that leverage the power of engagement through peer to peer referral to drive tangible results. We connect brands and nonprofits in the social space to further incentivize activity completion and viral sharing, by rewarding a nonprofit with a donation per completed activity. We accomplish this through arranging and facilitating partnerships with large Facebook applications, other social media applications and websites and thru the development of custom applications utilizing our proprietary technologies . Our marketing campaigns and programs are centered on the premise of creating brand ambassadors for our customers from participants in these campaign and programs. In short, our campaigns are designed to have participants “spread the word”, thereby creating a social engagement resulting in increases in brand recognition by driving traffic to our customer’s fan pages or achieving other marketing initiatives.

 

Our publisher partners enjoy higher monetization of their online advertising inventory through integration into our online advertising campaigns and programs. Through this integration, users of our publishing partner’s applications are encouraged to share their participation in these campaigns with individuals in their own unique social networks. This sharing thereby increases the awareness of both the publisher and brand advertiser. As we do not primarily compete directly with our publisher partners for online consumers, we act as a trusted partner in helping online publishers monetize their online audience and advertising inventory with both banner advertising and engagement based programs .

 

The following examples illustrate some of our services, marketing campaigns and programs:

 

Traditional banner

 

Traditional banner advertising living within a Facebook application:

 

15
 

  

 

 

Social Engagement Ads

 

Social Reality creates social engagement ads that drive traffic and engagement for brand advertisers. We work with large advertising agencies and brands to strategize on the programs and their implementation. We have created a number of social engagement ads for our clients. These ads typically include some form of activity that the user needs to take in order to make a donation or get some form of benefit, such as virtual currencies.

 

Video

 

In the fall of 2011 we created a viral video pop-up campaign for a well-known fast food retailer. The call to action asked users to “watch a video, which resulted in a 20 cent donation to a nonprofit organization.” After two weeks, the video received more than 100,000 views. The brand was able to drive a significant amount of traffic to their Facebook and web properties as a result, seed their video content, and support a trusted charity partner in the process.

 

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Voting and taking activities

 

Other engagement ads go beyond just watching a video and ask users to participate in some form of activity such as voting, selecting or engaging in a game activity. In the fall of 2011 we launched a program for Seventh Generation that was intended to engage users around the idea of selecting a bright idea. We worked closely with the brand and their agency to develop the program and launched the program on multiple partner sites resulting in a significant increase in traffic and brand recognition for Seventh Generation.

  

 

 

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Custom Build

 

Our services in this area include: social engagement strategy, graphical development, development, nonprofit or charity reward incentives, moderation and management of the app build or program. We work with both brands and advertising agencies on these custom projects.

 

To date, the majority of our custom Facebook builds have been consumer facing voting applications. As an example, in the case of Subaru, consumers could vote for the charity they wanted to see included in Subaru’s offline Share the Love program. Users could vote once per day, yet they could also tweet their choice, promote it to their timeline, group or friend’s timeline, and invite up to seventy-five Facebook friends per day to participate in the program. Each vote resulted in a .10 cent donation to the chosen charity.

 

Our custom programs also provide brands and agencies real time reporting into campaign analytics. We are able to showcase each metric, from the number of votes, number of invites sent, number of tweets, number of comments and total amount donated to a charity. We are building additional tracking and engagement technology that will allow us to follow individual promoters and credit them with rewards for sharing various activities, offers and programs with friends. This will allow us to isolate top fans and brand ambassadors and re-target them with specific offers that remain unavailable to the masses.

 

     

 

Our Competition

 

The creation of viral marketing programs is a very competitive space and there are many companies that are looking to capitalize on the growth of social media and the success of Facebook. Competition is from both large and small companies who are well funded, as well as from start-up companies. While there are many app developers and external sales teams looking to represent Facebook applications and publisher media, very few focus on social gaming, social good and lifestyle channels. Our experience with nonprofit partners sets us apart from the pack, offering clients, agencies and brands a level of expertise driving charity fueled engagement that is unmatched in our industry.

 

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Our Business is Seasonal

 

We believe that the advertising market is driven by seasonal factors and that brands make purchasing decisions during specific times of the year. Our experience has shown that most advertisers spend less money in the first quarter of the year then they do any other time of the year. Thus our revenue in the first quarter of each year is typically lower than other parts of the year.

 

Our Intellectual Property

 

We currently rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information

 

Employees

 

As of January 20, 2012, 2011 we had 6 full time employees and 2 part-time employees.  

 

Corporate Information

 

We were originally organized in August 2009 as a California limited liability company under the name Social Reality, LLC, and we converted to a Delaware corporation effective January 1, 2012. Social Reality, LLC began business in May, 2010. Upon the conversion, we changed our name to Social Reality, Inc. Our principal executive offices are located at 479 Rodeo Drive, Beverly Hills, CA 90210 and our telephone number is (323) 229-0297. Our website address is www.socialreality.com . Information contained on our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

PROPERTIES

 

Our executive   offices are located at 479 Rodeo Drive Beverly Hills, CA 90210. We lease this facility consisting of approximately 1,500 square feet, for approximately $2,000 per month. A number of our employees also work from homes offices throughout the United States.

 

LEGAL PROCEEDINGS

 

As of the date of this prospectus, there are no material pending legal or governmental proceedings relating to our company or properties to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

 

MARKET FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS  

 

Holders

 

There exists no market for our common stock. Private sales or transfers are permitted under the respective state and federal securities laws, subject to compliance with exemptions set forth under the respective statutory guidelines. As of January 20, 2012, we had 24 Class A common shareholders and 2 Class B common shareholders of record.

 

SHARES ELIGIBLE FOR FUTURE SALE  

 

To date, there has been no market for our Class A common stock. In the event a public market for our shares develops, future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices from time to time. Further, since only a limited number of shares will be available for sale shortly after this offering because of certain contractual and legal restrictions on resale described below, sales of substantial amounts of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.

 

Sale of Restricted Shares

 

As of January 20, 2012 we have 3,775,874 shares of Class A common stock and 9,000,000 shares of Class B common stock outstanding.   Of these shares, the shares registered in this offering will be freely tradable without restriction under the Securities Act, except for any shares purchased by our “affiliates” as that term is defined in Rule  144 under the Securities Act. In general, affiliates include executive officers, directors, and 10% stockholders. Shares purchased by affiliates will remain subject to the resale limitations of Rule 144.

 

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Upon the registration statement being declared effective, 2,328,767 shares of common stock will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under rules  144 or 701 under the Securities Act, which are summarized below.

 

As a result of the provisions of Rule 144 and Rule 701 of the Securities Act, the shares of our Class A and Class B common stock (excluding the shares being registered herein) will be available for sale in the public market as follows:

 

Date   Number 
of Shares
 
On the date of this prospectus     0  
Within 90 days after the date of this prospectus     0  
Between 90 and 360 days after the date of this prospectus(1)     11,328,767  
365 days after the effective date of this prospectus(1)     11,328,767  

  

 

(1) shares may be subject to volume limitations as a result of certain shareholders affiliate status and assumes the conversion of Class B common shares.

 

Rule 144  

 

Generally, Rule 144 (as amended effective February 15, 2008) provides that an affiliate who has beneficially owned “restricted” shares of our common stock for at least six months will be entitled to sell on the open market in brokers’ transactions, within any three-month period, a number of shares that does not exceed the greater of:

 

  1% of the number of shares of common stock then outstanding; or

 

  the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form  144 with respect to such sale.

 

In addition, sales under Rule 144 are subject to requirements with respect to manner of sale, notice, and the availability of current public information about us.

 

In the event that any person who is deemed to be our affiliate purchases shares of our common stock in this offering or acquires shares of our common stock pursuant to one of our employee benefits plans, sales under Rule 144 of the shares held by that person are subject to the volume limitations and other restrictions described in the preceding two paragraphs.

 

The volume limitation, manner of sale and notice provisions described above will not apply to sales by non-affiliates. For purposes of Rule 144, a non-affiliate is any person or entity who is not our affiliate at the time of sale and has not been our affiliate during the preceding three months. Once we have been a reporting company for 90 days, a non-affiliate who has beneficially owned restricted shares of our common stock for six months may rely on Rule 144 provided that certain public information regarding us is available. The six month holding period increases to one year in the event we have not been a reporting company for at least 90 days. However, a non-affiliate who has beneficially owned the restricted shares proposed to be sold for at least one year will not be subject to any restrictions under Rule 144 regardless of how long we have been a reporting company.

 

Rule 701  

 

Under Rule 701, each of our employees, officers, directors, and consultants who purchased shares pursuant to a written compensatory plan or contract is eligible to resell these shares 90 days after the effective date of this offering in reliance upon Rule 144, but without compliance with specific restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 without complying with the holding period requirement and that non-affiliates may sell their shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation, or notice provisions of Rule  144.

 

Form S-8 Registration Statements  

 

We intend to file one or more registration statements on Form S-8 under the Securities Act as soon as practicable after the completion of this offering for shares issued upon the exercise of options and shares to be issued under our employee benefit plans. As a result, any shares acquired upon the exercise of such options will be freely tradable in the public market.

 

 

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EQUITY COMPENSATION PLAN INFORMATION

 

The following table sets forth information with respect to our equity compensation plan which was adopted by our board of directors and approved by our shareholders.

 

    (a)     (b)     (c)  
    Number of Securities
to be Issued
upon Exercise of
Outstanding
Options, Warrants
and Rights
    Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
    Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
 
Equity compensation plans approved by security holders                        
2011 Equity Compensation Plan     —       $ —         3,000,000  
Equity compensation plans not approved by security holders     N/A       N/A       N/A  
Total     —       $ —         3,000,000  

 

2012 Equity Compensation Plan

 

Effective January 1, 2012, our Board of Directors and a majority of our shares issued and outstanding and eligible to vote, approved the 2012 Equity Compensation Plan (“2012 Plan”). The 2012 Plan permits the granting of up to 3,000,000 shares of our Class A common stock through the issuance of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights, Restricted Stock Units, Performance Units, Performance Shares and Other Stock Based Awards to our executive officers.

 

The purpose of our 2012 Plan is to advance the interests of Social Reality and our stockholders by attracting, retaining and rewarding persons performing services for us and to motivate such persons to contribute to our growth and profitability.

 

Issuance of Awards. The issuance of awards under our 2012 Plan is at the discretion of the Board, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2012 Plan, we may grant stock options and restricted stock to employees, directors and consultants. Our 2012 Plan authorizes the issuance of up to 3,000,000 shares of our Class A common stock for the foregoing awards. As of January 1, 2012, we have not made any awards under our 2012 Plan.

 

Exercise Price for Options. The exercise price of Nonqualified Stock Options shall not be less than 85% of the fair market value per share on the date of grant. The exercise price per share for Incentive Stock Option grants must be no less than 100% of the fair market value per share on the date of grant. The exercise price per share for an incentive stock option grant to an employee who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of stock of Social Reality or any parent or subsidiary, must be no less than 110% of the fair market value per share on the date of grant.

 

Payment of Exercise Price. Generally, the option exercise price may be paid in cash, by check, by cashless exercise, by net exercise or by tender or attestation of ownership of shares having a fair market value not less than the exercise price and that either (A) have been owned by the optionee for more than six months and not used for another exercise by tender or attestation, or (B) were not acquired, directly or indirectly, from us.

 

Exercisability and Vesting. At the time an award is granted, the Committee must fix the period within which the award may be exercised and determine any conditions that must be satisfied before the award may be exercised. The Committee may accelerate the exercisability of any or all outstanding options at any time for any reason.

 

Term of Options. The maximum term of an option granted under our 2012 Plan is ten years.

 

Transferability of Awards. Grants are nontransferable by the grantee other than by will or by the laws of descent and distribution and are exercisable during the grantee’s lifetime only by the grantee.

 

Change in Control. Our 2012 Plan provides that in the event of our merger with or into another corporation, the sale of substantially all of our assets, or the sale or exchange of more than 50% of our voting stock, each outstanding award shall be assumed or an equivalent award substituted by the surviving, continuing, successor or purchasing corporation or a parent thereof. The Committee may also deem an award assumed if the award confers the right to the award-holder to receive, for each share of stock subject to an award immediately prior to the change in control, the consideration that a stockholder is entitled on the effective date of the change in control. Upon a change in control, all outstanding options shall automatically accelerate and become fully exercisable and all restrictions and conditions on all outstanding restricted stock grants shall immediately lapse.

   

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations section (“MD&A”) contains statements and information about management’s view of our future expectations, plans and prospects, that constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those we anticipate. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial statements and notes in order to assist the reader in understanding our results of operations, financial condition, and cash flows. Our MD&A is organized as follows:

 

  · Overview —  Discussion of our business and plan of operations, overall analysis of financial and other highlights affecting our business in order to provide context for the remainder of MD&A.
     
  · Critical Accounting Policies — Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
     
  · Results of Operations — Analysis of our financial results for the year ended December 31, 2010 and comparing the nine months ended September 30, 2011 and 2010.
     
  · Liquidity and Capital Resources —  An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition including recent developments and potential sources of liquidity.

 

The various sections of this MD&A contain a number of forward-looking statements. Words such as “expects,” “goals,” “plans,” “believes,” “continues,” “may,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing (also see the “Risk Factors” section of this Registration Statement).  

 

Overview

 

Social Reality, Inc. develops and sells targeted and measurable social media advertising campaigns and programs to brand advertisers and digital advertising agencies. Social Reality delivers these programs across multiple third party Facebook applications and high traffic, targeted websites.

 

We derive our revenue from: (i) the development and management of social media marketing campaigns and programs; (ii) the sales of media on our partner websites and applications, and (iii) building custom applications for our partners in connection with such campaigns.

 

We market our services through our in house sales team, to two distinct customer bases, online publishers and direct marketers, brand advertisers and advertising agencies that service these brands. The value propositions that we offer direct marketers, brand advertisers and the advertising agencies are the creation of social media programs that leverage the power of engagement through peer to peer referral to drive tangible results.

 

Critical Accounting Policies

 

Our MD&A is based on our financial statements, which have been prepared in accordance GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.  

 

Revenue recognition.

We recognize revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured, and the fees are fixed or determinable.

 

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Revenues from sales of targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies are generally recognized on a net basis as the Company acts as an agent in these transactions and the payments to the websites are based on cash actually collected, rather than fees billed. Revenue from sponsored and custom campaigns is recognized on a gross basis in the period that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. Expenses that are directly related to a revenue-generating event are recorded as a component of cost of revenue.

 

Accounts receivable allowances.

 

Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made.

 

Use of estimates.

 

Accounting principles generally accepted in the United States ("GAAP") require management of the Company to make estimates and assumptions in the preparation of these consolidated financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

Income Taxes

 

Social Reality, LLC was a limited liability company. As a result, the Company’s income for federal and state income tax purposes is reportable on the tax returns of the individual partners. Accordingly, no recognition has been made for federal or state income taxes in the accompanying financial statements of the Company.

 

Results of Operations

 

We were originally organized in August 2009 as a California limited liability company under the name Social Reality, LLC. We began business in May 2010 and we converted to a Delaware corporation effective January 1, 2012.

 

Year ended December 31, 2010

 

Revenue

 

Revenue totaled $977,318 for the year ended December 31, 2010. Revenues from sales of targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies are generally recognized on a net basis as the Company acts as an agent in these transactions and the payments to the websites are based on cash actually collected, rather than fees billed. Revenues from these sources totaled $440,865 on a net basis (based on gross billings of $984,665). Revenue from sponsored and custom campaigns is recognized on a gross basis in the period that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. Revenues from these sources totaled $536,453.  

 

Cost of Revenue

 

Cost of revenue consists of payments to website publishers that are directly related to a revenue-generating event. The Company becomes obligated to make payments related to website publishers in the period the advertising impressions, click-throughs, actions or lead-based information are delivered or occur. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement.

 

Operating Expenses

 

Operating expense totaled $315,659 for 2010. Operating expense consisted primarily of compensation and related costs of approximately $250,000, with the balance spread over a number of varied operational expenses.

 

We expect that our operating expenses will increase as our business grows.

 

Nine Months ended September 30, 2011 compared to the Nine Months ended September 30, 2010

 

Revenue

 

Revenue totaled $1,127,075 for the nine months ended September 30, 2011, compared to revenue of $433,049 for the nine months ended September 30, 2010, an increase of $694,026 or 160%. We began business in May 2010. Revenues from sales of targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies are generally recognized on a net basis as the Company acts as an agent in these transactions and the payments to the websites are based on cash actually collected, rather than fees billed. Revenues from these sources totaled $405,497 and $231,172 on a net basis for 2011 and 2010, respectively (based on gross billings of $750,981 and $505,798 for 2011 and 2010, respectively). Revenue from sponsored and custom campaigns is recognized on a gross basis in the period that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. Revenues from these sources totaled $721,578 and $201,877 for 2011 and 2010, respectively.  

 

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Cost of Revenue

 

Cost of revenue consists of payments to website publishers that are directly related to a revenue-generating event and project and application design costs. The Company becomes obligated to make payments related to website publishers in the period the advertising impressions, click-throughs, actions or lead-based information are delivered or occur. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement.

 

Operating Expenses

 

Operating expense totaled $561,977 for the nine months ended September 30, 2011, compared to $179,495 for the nine months ended September 30, 2010, an increase of $382,482 or 213%. We began business in May of 2010. Operating expense for 2011 consisted primarily of compensation and related costs of approximately $300,000, professional fees of approximately $83,000, travel and entertainment of approximately $51,000 and promotional expense of approximately $28,000. Operating expense for 2010 consisted primarily of compensation and related costs of approximately $154,000.

 

We expect that our operating expenses will increase as our business grows.

 

Liquidity and Capital Resources

 

Our principal sources of operating capital have been cash flow from operations, along with an equity financing in 2011 of $100,000.

 

As of September 30, 2011 we had approximately $433,000 in cash and cash equivalents.

 

Net Cash Provided by Operating Activities

 

We generated $321,795 and $41,262 in cash from our operating activities for the nine months ended September 30, 2011 and the year ended December 31, 2010, respectively.  The increase in cash from operating activities was primarily attributable to our net income, increased by collections on accounts receivable and an increase in accounts payable.

 

Net Cash Provided by Financing Activities

 

We received $100,000 in cash from financing activities during 2011 from the sale of an equity interest.

 

  Off Balance Sheet Arrangements

 

The Company does not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.

 

Inflation

 

The effect of inflation on the Company's revenue and operating results was not significant.

 

MANAGEMENT

 

Executive Officers and Directors

 

Our executive officers and directors and their respective ages and positions as of the date hereof were as follows:

 

Name   Principal Occupation   Age
Christopher Miglino   Chief Executive Officer, Chief Financial Officer, Chairman, Director and Founder   42
         
Erin DeRuggiero   Chief Marketing Officer, Director and Founder   37
         
Mark Savas   Director   43

 

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Executive Officers

 

Christopher Miglino , age 42, has over 7 years of experience running various advertising companies. Beginning in April 2010 and still presently, he serves as Co-Founder and as the CEO of Social Reality, Inc., overseeing all of Social Reality’s affairs and being responsible for a wide array of high profile companies dealing with internet applications and advertising programs that yield measureable results for companies. Some of the companies Mr. Miglino has helped launch programs for include Diet Coke, Bank of America, Nestle, General Mills, HBO, National Geographic, Target, Aflac, and Bayer. In addition, from August 2008 until March 2010, Mr. Miglino was the CEO of the Lime Ad Network, a company where he managed interactive and innovative advertising programs for 250 “Green” and “Socially Conscious” websites. Prior to that, from June 2004 until August 2008, Mr. Miglino was the CEO of Conscious Enlightenment, where he oversaw their day to day operations in the publishing and advertising industry. Prior to that, in 2004, and still currently, Mr. Miglino served as and continues to serve as a board member for Golden Bridge Yoga in Los Angeles, a studio that encompasses over 20,000 square feet of yoga spaces including a restaurant. In evaluating Mr. Miglino’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of managing companies successfully with substantially similar business operations to that of Social Reality. Mr. Miglino has shown great success in managing these companies and a high degree of expertise in the advertising industry.

 

Erin DeRuggiero , age 37, has over 13 years of experience in advertising, sales and business development. Beginning in April 2010 and still presently, she serves as the Co-Founder and Chief Marketing Officer for Social Reality, Inc., where her responsibilities include digital media sales and strategy. In addition, from January 2009 until March 2010, Ms. DeRuggiero was also the Vice President Sponsorships & Digital Strategy for Lime Ad Network., a subsidiary of Gaiam, Inc, a publically traded advertising company where her responsibilities included digital sales and publisher strategies for Lime Media Network. Additionally, from December, 2006 until January 2009, Ms. DeRuggiero was the Chief Revenue Officer for JGG Consulting, a sales and new business development consultancy she founded, where her responsibilities included brand and digital retail partnerships for companies including Crocs, Inc. In evaluating Ms. DeRuggiero’s specific experience, qualifications, attributes and skills in connection with her appointment to our board, we took into account her numerous years of advertising sales, business development, and strategic implementation of new business ideas, and her track record of success in such endeavors.

 

Board of Directors

 

Marc Savas , age 43, has over 14 years of experience in management and sales consulting and 5 years of experience in real estate easement acquisitions. Beginning in January 2007 and still presently, he serves as the CEO of Living Full Blast, Inc., overseeing business development and consulting for numerous companies and putting together sales teams for such companies. In addition, from January 1998 until January 2006, Mr. Savas was also the CEO for Unfair Advantage Inc., where he conducted 118 management consulting projects, many of which were created using programs that his company had designed. Additionally, from January 2005 until January 2009, Mr. Savas was the national Vice President of Business Development for Connexion Technologies where he built national teams of qualified individuals to effectively secure easements from large real estate owners in order to build telecommunication systems through their properties. In evaluating Mr. Savas’ specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of consulting and managerial businesses and his proven track record of success in such endeavors.

 

Family Relationships

 

There are no family relationships between any director, executive officer, or person nominated or chosen by the registrant to become a director or executive officer.

 

Code of Ethics

 

We have adopted a "Code of Ethics” that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  A copy of our code can be viewed on our website at www.socialreality.com .

 

Committees

 

The board of directors currently does not have an audit, nomination, or compensation committee. Due to our size and limited resources and employees, our board has determined that the functions of such committees, including the compensation committee, will be undertaken by the entire board. Upon securing additional financing and the hiring of additional employees, the board of directors anticipates the creation of free standing committees. Executive compensation is determined by the entire board.

 

Independent Directors

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rules 4200. Pursuant to the definition, the Company has determined that Mr. Savas qualifies as independent.

 

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Executive Compensation

 

Summary Compensation

 

The following table sets forth information for our most recently completed fiscal year concerning the compensation of (i) the Principal Executive Officer and (ii) all other executive officers of Social Reality, Inc. who earned over $100,000 in salary and bonus during the last most recently completed fiscal years ended December 31, 2010 (together the “Named Executive Officers”).  No other employees earned a salary over $100,000 in the last completed fiscal years.

 

Name & Principal Position   Year     Salary ($)     Bonus ($)     Stock
Awards ($)
    Option
Awards ($)
    Non-Equity
Incentive Plan
Compensation ($)
    Nonqualified
Deferred
Compensation
Earnings ($)
    All Other
Compensation ($)
    Total ($)  
                                                                         
Christopher Miglino     2011     168,000       -       -       -       -       -       -       168,000  
      2010     110,500       -       -       -       -       -       -       110,500  
                                                                         
Erin DeRuggiero     2011     168,000       -       -       -       -       -       -       168,000  
      2010     110,500       -       -       -       -       -       -       110,500  

 

Employment Agreements and Arrangements

 

Christopher Miglino

 

In connection with Mr. Miglino’s employment, we have entered into: (i) an employment agreement; (ii) a proprietary information, inventions and competition agreement; and (iii) an indemnification agreement.

 

Employment Agreement:

 

We employ Christopher Miglino as our Chief Executive Officer for a term of 4 years from January 1, 2012.  As compensation for his services, Mr. Miglino receives a base salary of $192,000 per year effective January 1, 2012.   Such base salary is reviewed yearly with regard to possible increase.  In addition, Mr. Miglino is eligible to receive annual and discretionary bonuses as determined by the Board.  Mr. Miglino is also entitled to receive all Accrued Obligations (as defined in the Employment Agreement) in the event that he is terminated..  

 

Proprietary Information, Inventions and Competition Agreement:

 

The proprietary information, inventions and competition agreement requires Mr. Miglino to maintain the confidentiality of the Company’s intellectual property as well as the assignment of any inventions made by Mr. Miglino during his employment.  

 

Indemnification Agreement:

 

The indemnification agreement provides for the indemnification and defense of Mr. Miglino in the event of litigation, to the fullest extent permitted by law.  The Company has also adopted the form of indemnification agreement for use with its other executive officers, employees and directors.

 

Potential Payments upon Termination:

 

As part of the agreements, Mr. Miglino shall be entitled to

 

    Salary     Bonus     Health     Total  
Terminated without cause (1)   $ 384,000 (2)    $ 0 (3)    45,000 (4)  $ 429,000  
Termination for Cause, Death, Disability and by executive without Good Reason   $ 384,000 (2)    $     $   $ 384,000  

 

 

(1) Also includes termination by Mr. Miglino with Good Reason.
(2) Represents 24 months of Mr. Miglino’s base salary of $192,000.
(3) There has been no bonus established for the current year.
(4) Represents 18 months of Mr. Miglino’s estimated monthly health care reimbursement of $2,500.

 

The foregoing summary of Mr. Miglino’s:  (i) employment agreement; (ii) proprietary information, inventions and competition agreement; and (iii) indemnification agreement  is qualified in its entirety by reference to the full text of the agreements which are attached hereto as exhibits and incorporated hereby by reference.

 

Erin DeRuggerio

 

In connection with Ms. DeRuggerio’s employment, we have entered into: (i) an employment agreement; (ii) a proprietary information, inventions and competition agreement; and (iii) an indemnification agreement.

  

26
 

 

Employment Agreement: 

 

We employ Erin DeRuggerio as our Chief Marketing Officer for a term of 4 years commencing on January 1, 2012.  As compensation for her services, Ms. DeRuggerio receives a base salary of $192,000 per year effective January 1, 2012.   Such base salary is reviewed yearly with regard to possible increase.  In addition, Ms. DeRuggerio is eligible to receive annual and discretionary bonuses as determined by the Board.  Ms. DeRuggerio is also entitled to receive all Accrued Obligations (as defined in the Employment Agreement) in the event that he is terminated.  

 

Proprietary Information, Inventions and Competition Agreement:

 

The proprietary information, inventions and competition agreement requires Ms. DeRuggerio to maintain the confidentiality of the Company’s intellectual property as well as the assignment of any inventions made by Ms. DeRuggerio during her employment.  

 

Indemnification Agreement:

 

The indemnification agreement provides for the indemnification and defense of Ms. DeRuggerio in the event of litigation, to the fullest extent permitted by law.  The Company has also adopted the form of indemnification agreement for use with its other executive officers, employees and directors.

 

Potential Payments upon Termination:

 

As part of the agreements, Ms. DeRuggerio shall be entitled to

 

    Salary       Bonus       Health       Total  
Terminated without cause (1)   $ 384,000 (2)   $ 0 (3)   $ 36,000 (4)   $ 420,000  
Termination for Cause, Death, Disability and by executive without Good Reason   $ 384,000 (2)   $ —       $ —       $ 384,000  

 

 

(1) Also includes termination by Ms. DeRuggerio with Good Reason
(2) Represents 24 months of Ms. DeRuggerio’s base salary of $192,000.
(3) There has been no bonus established for the current year.
(4) Represents 18 months of Ms. DeRuggerio’s estimated monthly health care reimbursement of $2,000.

 

The foregoing summary of Ms. DeRuggerio’s:  (i) employment agreement; (ii) proprietary information, inventions and competition agreement; and (iii) indemnification agreement  is qualified in its entirety by reference to the full text of the agreements which are attached hereto as exhibits and incorporated hereby by reference.

 

Director Compensation

 

Pursuant to the terms of our non-executive director compensation policy, non-employee directors will be entitled to the following compensation for service on our Board:

 

Inducement/First Year Grant.   Upon joining the Board, individual will receive options to purchase 15,000 shares of our Class A common stock.  The options vest as follows: 15,000 shares immediately upon appointment to the Board.

 

Annual Grant.   Subject to shareholder rights to elect any individual director, starting on the first year anniversary of service, and each subsequent anniversary thereafter, each eligible director will be granted options to purchase 12,000 shares of our Class A common stock.  The annual grants vest quarterly during the grant year.

 

Exercise Price and Term .  All options issued pursuant to the Director Plan will have an exercise price equal to the fair market value of the Company’s common stock at close of market on the grant date.  The term of the options shall be for a period of 5 years from the grant date.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Information regarding disclosure of an employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment relationship or transaction is incorporated by reference from the section of this Prospectus entitled “ Executive Compensation .”

 

Information regarding disclosure of compensation to a director is incorporated by reference from the section of this Prospectus entitled “ Director Compensation .”

 

PRINCIPAL STOCKHOLDERS

 

The following table sets forth, as of January 20, 2012, information regarding beneficial ownership of our capital stock by:

 

27
 

 

  · each person, or group of affiliated persons, known by us to be the beneficial owner of 5% or more of any class of our voting securities;
     
  · each of our current directors and nominees;
     
  · each of our current named executive officers; and
     
  · all current directors and named executive officers as a group.

 

Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership means that a person has or shares voting or investment power of a security and includes any securities that person or group has the right to acquire within 60 days after the measurement date. This table is based on information supplied by officers, directors and principal stockholders. Except as otherwise indicated, we believe that each of the beneficial owners of the common stock listed below, based on the information such beneficial owner has given to us, has sole investment and voting power with respect to such beneficial owner’s shares, except where community property laws may apply.

 

Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrant. There are 3,775,874 Class A and 9,000,000 Class B common shares outstanding as of January 20, 2011.

 

    Class A 
Common Stock
    Class B 
Common Stock
       
Name and Address of Beneficial Owner(1)   Shares     %     Shares     %     % Total Voting 
Power (2)
 
Directors and named executive officers                                        
Christopher Miglino                 4,500,000       50 %     48 %
Erin DeRuggiero                 4,500,000       50 %     48 %
Marc Savis                              
All directors and executive officers as a group (3 persons)                     9,000,000       100 %     96 %
Beneficial Owners of 5% or more                                        
Moises Investment Group(3)     2,095,890       56 %                 2 %
Castle Bison, Inc.(4)     410,959       11 %                     *  
Washington Capital, LLC(5)     410,959       11 %                     *  
Ralph Olson     410,959       11 %                     *  

 

* Less than one percent.

 

(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is c/o Social Reality, Inc. 479 Rodeo Drive, Beverly Hills, CA 90210.

 

(2)

Percentage total voting power represents voting power with respect to all shares of our Class A and Class B common stock, as a single class. Each holder of Class B common stock shall be entitled to 10 votes per share of Class B common stock and each holder of Class A common stock shall be entitled to one vote per share of Class A common stock on all matters submitted to our stockholders for a vote. The Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by law or our amended and restated certificate of incorporation. The Class B common stock is convertible at any time by the holder into shares of Class A common stock on a share-for-share basis. See "Description of Capital Stock."

 

(3) Eduardo Moises has voting and dispositive control over the shares. 

 

(4) Raul Silvestre has voting and dispositive control over the shares. 

 

(5) Larry Anderson has voting and dispositive control over the shares. 

 

28
 

 

INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

The Corporation Laws of the State of Delaware and the Company's Bylaws provide for indemnification of the Company's Directors for expenses actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding in which they, or any of them, are made parties, or a party, by reason of having been Director(s) or Officer(s) of the corporation, or of such other corporation, except, in relation to matter as to which any such Director or Officer or former Director or Officer or person shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty.  Furthermore, the personal liability of the Directors is limited as provided in the Company's Articles of Incorporation.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We will file annual, quarterly and other reports, proxy statements and other information with the SEC. You may read and copy any document we file at the public reference facilities of the SEC at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov. We will furnish our stockholders with annual reports containing audited financial statements.

 

This prospectus is part of a registration statement on Form S-1 that we filed with the SEC. Certain information in the registration statement has been omitted from this prospectus in accordance with the rules and regulations of the SEC. We have also filed exhibits and schedules with the registration statement that are excluded from this prospectus. For further information you may:

 

  · read a copy of the registration statement, including the exhibits and schedules, without charge at the SEC’s public reference rooms; or

 

  · obtain a copy from the SEC upon payment of the fees prescribed by the SEC.

 

 

29
 

 

 

 

 INDEX TO FINANCIAL STATEMENTS

 

  Page 
   
Audited Financial Statements:  
Report of RBSM, LLP, Independent Registered Public Accounting Firm 31
Balance Sheet 32
Income Statement 33
Statement of Members’ Equity 34
Statement of Cash Flows 35
Notes to Financial Statements 36
   
Unaudited Condensed Financial Statements:  
Condensed Balance Sheets 39
Condensed Income Statements 40
Condensed Statements of Members’ Equity 41
Condensed Statements of Cash Flows 42
Notes to Unaudited Condensed Financial Statements 43

 

30
 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Board of Directors and Stockholders

Social Reality, LLC

 

We have audited the accompanying balance sheet of Social Reality, LLC (the "Company") as of December 31, 2010 and the related income statement, members’ equity and cash flows for the year then December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Social Reality, LLC. as of December 31, 2010, and the results of their operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

 

/s/ RBSM LLP 

 

 

New York, New York

January 24, 2012

 

31
 

 

 

SOCIAL REALITY, LLC

BALANCE SHEET

DECEMBER 31, 2010

 

    December 31,  
    2010  
         
Assets        
         
Current assets:        
Cash and cash equivalents   $ 11,262  
Accounts receivable, net of allowance for doubtful accounts of $0     870,982  
         
Total assets   $ 882,244  
         
Liabilities and members' equity        
         
Current liabilities:        
Accounts payable and accrued expenses   $ 502,445  
Customer prepayments     40,000  
Total current liabilities     542,445  
         
Members' equity     339,799  
         
Total liabilities and members' equity   $ 882,244  

 

The accompanying notes are an integral part of these financial statements.

 

32
 

 

SOCIAL REALITY, LLC

INCOME STATEMENT

YEAR ENDED DECEMBER 31, 2010

 

    Year ended  
    December 31, 2010  
       
Revenues   $ 977,318  
Cost of revenue     299,860  
         
Gross profit     677,458  
         
Operating expense     315,659  
         
Income from operations     361,799  
         
Provision for income taxes     -  
         
Net income   $ 361,799  
         
Unaudited pro forma income tax information:        
         
Net income (per above)   $ 361,799  
         
Unaudited pro forma provision for income taxes     140,306  
         
Unaudited pro forma net income   $ 221,493  
         
Unaudited pro forma earnings per share information:        
         
Net income per share (basic and diluted)   $ 0.02  
         
Unaudited pro forma weighted average shares outstanding     9,000,000  

 

The accompanying notes are an integral part of these financial statements.

 

33
 

 

 

SOCIAL REALITY, LLC

STATEMENT OF MEMBERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2010

 

    Year ended  
    December 31, 2010  
         
Balance, January 1, 2010   $ -  
         
Net income     361,799  
         
Expense paid by members     8,000  
         
Distributions to members     (30,000 )
         
Balance, December 31, 2010   $ 339,799  

 

The accompanying notes are an integral part of these financial statements.

 

34
 

 

 

SOCIAL REALITY, LLC

STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2010

 

    Year ended  
    December 31, 2010  
       
Cash flows from operating activities:        
Net income   $ 361,799  
Adjustments to reconcile net income to net cash provided by operating activities:        
Rent expense contibution by members     8,000  
Changes in operating assets and liabilities:        
Accounts receivable     (870,982 )
Accounts payable and accrued expenses     502,445  
Customer prepayments     40,000  
         
Cash provided by operating activities     41,262  
         
Cash flows from financing activities:        
Distributions to members     (30,000 )
         
Cash used in financing activities     (30,000 )
         
Net increase in cash     11,262  
Cash, beginning of period     -  
Cash, end of period   $ 11,262  
         
Supplemental Schedule of Cash Flow Information:        
Cash paid for interest   $ -  
Cash paid for taxes   $ -  

 

The accompanying notes are an integral part of these financial statements.

 

35
 

 

 

SOCIAL REALITY, LLC
NOTES TO FINANCIAL STATEMENTS

 

DECEMBER 31, 2010

 

Note 1 - Organization and Summary of Significant Accounting Policies

 

Organization and Basis of Presentation

 

Social Reality, LLC ("Social Reality", “we”, “us” or "the Company") is a California limited liability company, formed on August 14, 2009, which began business in May of 2010. Social Reality is primarily an approved and accredited Facebook advertising network and application (“app”) development company. We sell targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies across large Facebook apps and large websites, generating qualified Facebook likes and quantifiable engagement for our clients, driving online sales and increased brand equity. A primary focus of the company has been to generate these activities with cause specific campaigns. We also create custom applications for large brands that leverage traffic on our partner sites to seed the applications to help them go viral.

 

We derive our revenue from the sales of media on our partner websites and of our own products and from building custom applications for our partners. We offer our customers a number of pricing options including cost-per-thousand-impression ("CPM"), whereby our customers pay based on the number of times the target audience is exposed to the advertisement and cost-per-click ("CPE"), whereby payment is triggered only when an individual takes a specific activity.

 

We are headquartered in Beverly Hills, California.

 

Basis of Presentation and Use of Estimates

 

Accounting principles generally accepted in the United States ("GAAP") require management of the Company to make estimates and assumptions in the preparation of these consolidated financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

 

The most significant area that requires management judgment and which is susceptible to possible change in the near term include the Company's revenue recognition policies, discussed elsewhere in these financial statements.

 

Cash and Cash Equivalents

 

The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents.

 

Revenue Recognition

 

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured, and the fees are fixed or determinable.

 

Revenues from sales of targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies are generally recognized on a net basis as the Company acts as an agent in these transactions and the payments to the websites are based on cash actually collected, rather than fees billed. Revenue from sponsored and custom campaigns is recognized on a gross basis in the period that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. Expenses that are directly related to a revenue-generating event are recorded as a component of cost of revenue.

 

36
 

 

Cost of Revenue

 

Cost of revenue consists of payments to website publishers that are directly related to a revenue-generating event. The Company becomes obligated to make payments related to website publishers in the period the advertising impressions, click-throughs, actions or lead-based information are delivered or occur. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement.

 

Accounts Receivable

 

Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. No allowance was recorded as of December 31, 2010. The Company usually does not require collateral.

 

Concentration of Credit Risk, Significant Customers and Supplier Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited in the United States. The balances in the United States held at any one financial institution are generally in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits.

 

At December 31, 2010, two customers accounted for more than 10% of the accounts receivable balance (for a total of 67%). For the year ended December 31, 2010, one customer accounted for 44% of total revenue. During 2010, we generated our revenue from advertising and campaigns sold on a single website.

 

Fair Value of Financial Instruments

 

The Company's financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses, are carried at historical cost. At December 31, 2010 the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.

 

Income Taxes

 

Social Reality is a limited liability company. As a result, the Company’s income for federal and state income tax purposes is reportable on the tax returns of the individual partners. Accordingly, no recognition has been made for federal or state income taxes in the accompanying financial statements of the Company.

 

Unaudited Pro Forma Information

 

The unaudited pro forma income tax information and earnings per share for the year ended December 31, 2010 presented in the income statement reflects federal income taxes calculated at the statutory rate of 40% as if the Company was a taxable entity and the number of shares the members are to receive in Social Reality, Inc. in exchange for their membership interests.

 

37
 

 

Recently Issued Accounting Standards

 

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

 

Note 2 - Related Party Transactions

 

During 2010, the members of Social Reality conducted the Company’s operations from their personal residences. We have ascribed a value of $8,000 to rent expense for the use of these premises in 2010, with a corresponding credit to members’ equity.

 

Note 3 – Subsequent Events

 

In accordance with FASB ASC 855 “Subsequent Events”, the Company has evaluated subsequent events through the date of the issuance January 24, 2012.

 

On July 1, 2011 the Company sold a 5.66% non-voting, non-participating member interest to a third party for $100,000 cash.

 

On June 27, 2011 we issued a 3.34% non-voting, non-participating member interest as payment for legal services to be rendered. The interest has been valued at $59,010, based on the value of the sale to the third party for cash described above. The value of the services will be charged to expense over the estimated service period, July 1, 2011 to March 31, 2012.

 

On June 27, 2011 we issued a 6.66% non-voting, non-participating member interest as payment for consulting services to be rendered. The interest has been valued at $117,668, based on the value of the sale to the third party for cash described above. The value of the services will be charged to expense over the service period, July 1, 2011 to June 30, 2014.

 

During the fourth quarter of 2011 the Company sold an additional 11.32% non-voting, non-participating member interest to the third party mentioned above for $200,000 cash.

 

The Company converted to a Delaware corporation named Social Reality, Inc. effective January 1, 2012. Effective January 1, 2012, Social Reality, Inc. issued 3,328,767 Class A common shares and 9,000,000 Class B common shares in exchange for 100% of the Company’s membership interest. The Class A common shares were issued to holders of our non-voting, non-participating membership interest and the Class B common shares were issued to our general membership interest holders who are also our founders.

 

Effective January 1, 2012 Social Reality, Inc. entered into two employment agreements with the Chief Executive Officer and Chief Marketing Officer. Both employment agreements have a four year term with defined severance and change of control provisions.

 

On January 20, 2012, Social Reality, Inc. completed the offering of 447,107 of its Class A common shares at a price per share of $0.8111, for proceeds of approximately $362,642.

 

38
 

 

 

SOCIAL REALITY, LLC

CONDENSED BALANCE SHEETS

SEPTEMBER 30, 2011 AND 2010

(Unaudited)

 

    September 30,     September 30,  
    2011     2010  
                 
Assets                
                 
Current assets:                
Cash and cash equivalents   $ 433,057     $ 51,028  
Accounts receivable, net of allowance for doubtful accounts of $0     778,041       403,151  
Prepaid expenses     180,302       -  
Other current assets     5,300       -  
                 
Total assets     1,396,700     $ 454,179  
                 
Liabilities and members' equity                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 666,401     $ 269,891  
Customer prepayments     -       40,000  
Total current liabilities     666,401       309,891  
                 
Members' equity     730,299       144,288  
                 
Total liabilities and members' equity   $ 1,396,700     $ 454,179  

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

39
 

 

SOCIAL REALITY, LLC

CONDENSED INCOME STATEMENTS

NINE MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(Unaudited)

 

    Nine Month Periods Ended September 30,  
    2011     2010  
             
Revenues   $ 1,127,075     $ 433,049  
Cost of revenue     460,276       114,266  
                 
Gross profit     666,799       318,783  
                 
Operating expense     561,977       179,495  
                 
Income from operations     104,822       139,288  
                 
Provision for income taxes     -       -  
                 
Net income   $ 104,822     $ 139,288  
                 
Unaudited pro forma income tax information:                
                 
Net income (per above)   $ 104,822     $ 139,288  
                 
Unaudited pro forma provision for income taxes     33,971       49,271  
                 
Unaudited pro forma net income   $ 70,851     $ 90,017  
                 
Unaudited pro forma earnings per share information:                
                 
Net income per share (basic and diluted)   $ 0.01     $ 0.01  
                 
Unaudited pro forma weighted average shares outstanding     9,668,975       9,000,000  

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

40
 

 

SOCIAL REALITY, LLC

CONDENSED STATEMENTS OF MEMBERS' EQUITY

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(Unaudited)

 

    Nine Months Ended     Nine Months Ended  
    September 30, 2011     September 30, 2010  
             
Balance, January 1   $ 339,799     $ -  
                 
Net income     104,822       139,288  
                 
Sale of member interest for cash     100,000       -  
                 
Member interest issued for services     176,678       -  
                 
Expense paid by members     9,000       5,000  
                 
Balance, September 30   $ 730,299     $ 144,288  

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

41
 

 

SOCIAL REALITY, LLC

CONDENSED STATEMENTS OF CASH FLOWS

NINE MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

(Unaudited)

 

    Nine Month Periods Ended September 30,  
    2011     2010  
             
Cash flows from operating activities:                
Net income   $ 104,822     $ 139,288  
Adjustments to reconcile net income to net cash provided by operating activities:                
Amortization of stock based prepaid fees     29,476          
Rent expense contibution by members     9,000       5,000  
Changes in operating assets and liabilities:                
Accounts receivable     92,941       (403,151 )
Prepaid expenses     (33,100 )        
Other current assets     (5,300 )        
Accounts payable and accrued expenses     163,956       269,891  
Customer prepayments     (40,000 )     40,000  
                 
Cash provided by operating activities     321,795       51,028  
                 
Cash flows from financing activities:                
Sale of member interest     100,000       -  
                 
Cash provided by financing activities     100,000       -  
                 
Net increase in cash     421,795       51,028  
Cash, beginning of period     11,262       -  
Cash, end of period   $ 433,057     $ 51,028  
                 
Supplemental Schedule of Cash Flow Information:                
Cash paid for interest   $ -     $ -  
Cash paid for taxes   $ -     $ -  
Non-cash financial activities:                
Member interests issued for services   $ 176,678     $ -  

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

42
 

 

 

SOCIAL REALITY, LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2011 AND 2010

 

(Unaudited)

 

Note 1 - Organization and Summary of Significant Accounting Policies

 

Organization and Basis of Presentation

 

Social Reality, LLC ("Social Reality", “we”, “us” or "the Company") is a California limited liability company, formed on August 14, 2009, which began business in May of 2010. Social Reality is primarily an approved and accredited Facebook advertising network and application (“app”) development company. We sell targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies across large Facebook apps and large websites, generating qualified Facebook likes and quantifiable engagement for our clients, driving online sales and increased brand equity. A primary focus of the company has been to generate these activities with cause specific campaigns. We also create custom applications for large brands that leverage traffic on our partner sites to seed the applications to help them go viral.

 

We derive our revenue from the sales of media on our partner websites and of our own products and from building custom applications for our partners. We offer our customers a number of pricing options including cost-per-thousand-impression ("CPM"), whereby our customers pay based on the number of times the target audience is exposed to the advertisement and cost-per-click ("CPE"), whereby payment is triggered only when an individual takes a specific activity.

 

We are headquartered in Beverly Hills, California.

 

Basis of Presentation and Use of Estimates

 

The accompanying condensed balance sheet as of September 30, 2011and 2010, the condensed statements of income and cash flows for the nine months ended September 30, 2011 and 2010 and the condensed statement of members’ equity for the nine months ended September 30, 2011 are unaudited. The unaudited interim financial statements have been prepared in accordance with U.S. GAAP. These interim financial statements as of and for the nine months ended September 30, 2011 and 2010 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented.  The results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011 or for any future period. All references to September 30 in these footnotes are unaudited.

 

The most significant area that requires management judgment and which is susceptible to possible change in the near term include the Company's revenue recognition policies, discussed elsewhere in these financial stateme n ts.

 

Cash and Cash Equivalents

 

The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents.

 

43
 

 

Revenue Recognition

 

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured, and the fees are fixed or determinable.

 

Revenues from sales of targeted and measurable online advertising campaigns and programs to brand advertisers and advertising agencies are generally recognized on a net basis as the Company acts as an agent in these transactions and the payments to the websites are based on cash actually collected, rather than fees billed. Revenue from sponsored and custom campaigns is recognized on a gross basis in the period that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. Expenses that are directly related to a revenue-generating event are recorded as a component of cost of revenue.

 

Cost of Revenue

 

Cost of revenue consists of payments to website publishers that are directly related to a revenue-generating event and project and application design costs. The Company becomes obligated to make payments related to website publishers in the period the advertising impressions, click-throughs, actions or lead-based information are delivered or occur. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying income statement.

 

Accounts Receivable

 

Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. No allowance was recorded as of September 30 2011 or 2010. The Company usually does not require collateral.

 

Concentration of Credit Risk, Significant Customers and Supplier Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited in the United States. The balances in the United States held at any one financial institution are generally in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits.

 

At September 30, 2011 and 2010 three and two customers accounted for 92% and 59%, respectively, of the accounts receivable balance. For the nine month periods ended September 30, 2011 and 2010, four and six customers accounted for 70% and 81%, respectively, of total revenue. During 2010 we generated our revenue from advertising and campaigns sold on a single website.

 

Fair Value of Financial Instruments

 

The Company's financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses, are carried at historical cost. At September 30, 2011 and 2010 the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.

 

Income Taxes

 

Social Reality is a limited liability company. As a result, the Company’s income for federal and state income tax purposes is reportable on the tax returns of the individual partners. Accordingly, no recognition has been made for federal or state income taxes in the accompanying financial statements of the Company.

 

44
 

 

Unaudited Pro Forma Information

 

 

The unaudited pro forma income tax information and earnings per share for the nine months ended September 30, 2011 and 2010 presented in the income statement reflects federal income taxes calculated at the statutory rate of 40% as if the Company was a taxable entity and the number of shares the members are to receive in Social Reality, Inc. in exchange for their membership interests.

 

Recently Issued Accounting Standards

 

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited financial statements.

 

Note 2 - Related Party Transactions

 

During 2011 and 2010, the members of Social Reality conducted the Company’s operations from their personal residences. We have ascribed a value of $9,000 and $5,000, respectively, to rent expense for the use of these premises for the periods ended September 30, 2011 and 2010, with a corresponding credit to members’ equity.

 

Note 3 – Members’ Equity

 

On July 1, 2011, the Company sold a 5.66% member interest to a third party for $100,000 cash.

 

On June 27, 2011, we issued a 3.34% member interest as payment for legal services to be rendered. The interest has been valued at $59,010, based on the value of the sale to the third party for cash described above. The value of the services will be charged to expense over the estimated service period, July 1, 2011 to March 31, 2012. As of September 30, 2011, we have charged $19,670 to expense and the balance of $39,340 is recorded as prepaid expense.

 

On June 27, 2011, we issued a 6.66% member interest as payment for consulting services to be rendered. The interest has been valued at $117,668, based on the value of the sale to the third party for cash described above. The value of the services will be charged to expense over the service period, July 1, 2011 to June 30, 2014. As of September 30, 2011, we have charged $9,806 to expense and the balance of $107,862 is recorded as prepaid expense.

 

Note 4 – Subsequent Events

 

In accordance with FASB ASC 855 “Subsequent Events”, the Company has evaluated subsequent events through the date of the issuance January 24, 2012.

 

During the fourth quarter of 2011, the Company sold an additional 11.32% non-voting, non-participating member interest to the third party mentioned above for $200,000 cash.

 

The Company converted to a Delaware corporation named Social Reality, Inc. effective January 1, 2012. Effective January 1, 2012, Social Reality, Inc. issued 3,328,767 Class A common shares and 9,000,000 Class B common shares in exchange for 100% of the Company’s membership interest. The Class A common shares were issued to holders of our non-voting, non-participating membership interest and the Class B common shares were issued to our general membership interest holders who are also our founders.

 

Effective January 1, 2012, Social Reality, Inc. the Company entered into two employment agreements with the Chief Executive Officer and Chief Marketing Officer. Both employment agreements have a four year term with defined severance and change of control provisions.

 

On January 20, 2012, Social Reality, Inc. completed the offering of 447,107 of its Class A common shares at a price per share of $0.8111, for proceeds of approximately $362,642.

 

45
 

 

 

1,447,107

Shares of Common Stock

 


 

Prospectus

 


 

January 24, 2012

 

 

46
 

 

 

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13.   Other Expenses of Issuance and Distribution.

 

The following table sets forth the estimated costs and expenses in connection with the sale and distribution of the securities being registered, other than underwriting discounts and commissions. All expenses incurred will be paid by the Company.  All of the amounts shown are estimates except the Securities and Exchange Commission, or SEC, registration fees.

 

    To be Paid
by the
Registrant
 
SEC registration fees   $ 135  
Legal fees and expenses   $ 50,000  
Accounting fees and expenses   $ 10,000  
Printing and engraving expenses   $ 5,000  
Transfer agent’s fees   $ 2,000  
Miscellaneous fees and expenses   $ 5,000  
Total   $ 72,135

 

Item 14.   Indemnification of Directors and Officers.

 

Section 102 of the Delaware General Corporation Law, as amended, or DGCL, allows a corporation to eliminate the personal liability of directors to a corporation or its stockholders for monetary damages for a breach of a fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase or redemption in violation of Delaware corporate law or obtained an improper personal benefit.

 

Section 145 of the DGCL provides, among other things, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the corporation’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding. The power to indemnify applies if (i) such person is successful on the merits or otherwise in defense of any action, suit or proceeding or (ii) such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense expenses (including attorneys’ fees but excluding amounts paid in settlement) actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct in the performance of his duties to the corporation, unless a court believes that in light of all the circumstances indemnification should apply.

 

Section 174 of the DGCL provides, among other things, that a director who willfully and negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time the action occurred or immediately after the absent director receives notice of the unlawful acts.

 

Our certificate of incorporation states that, to the fullest extent permitted by the DGCL, no director shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as director.

 

Our bylaws provide that we shall, to the fullest extent authorized by the DGCL, indemnify any person who was or is made a party or threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was our director or officer or is or was serving at our request as a director or officer of another corporation, or as a controlling person of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, against all expenses, liability or loss reasonably incurred or suffered by such person in connection with such action, suit or proceeding. Our bylaws also provide that we may enter into one or more agreements with any director, officer, employee or agent of ours, or any person serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, that provides for indemnification rights equivalent to or, if our board of directors so determines, greater than, those provided for in such bylaws.

 

47
 

We maintain a liability insurance policy for our directors and officers, subject to certain exclusions.

 

Item 15.   Recent Sales of Unregistered Securities.

 

The following information is given with regard to unregistered securities sold during the preceding three years including the dates and amounts of securities sold, the persons or class of persons to whom we sold the securities, the consideration received in connection with such sales and, if the securities were issued or sold other than for cash, the description of the transaction and the type and amount of consideration received.  The descriptions contained below are a summary and qualified by the agreements, if applicable, included as Exhibits to this Registration Statement. The following securities were issued in private offerings pursuant to the exemption from registration contained in Section 4(2) of the Securities Act and the rules promulgated thereunder:

 

  · In 2010, we issued our founders 100% of the membership interest in our predecessor company, Social Reality, LLC.
     
  · During 2011, as compensation for services rendered, we issued an aggregate of ten percent membership interest in our predecessor company, Social Reality, LLC, to consultants.  The membership interest issued to consultants was none voting and non-participating.
     
  · During 2011, we sold an aggregate of seventeen percent of our membership interest in our predecessor company, Social Reality, LLC. for aggregate consideration of $300,000. The membership interest issued to consultants was none voting and non-participating.
     
  · Effective January 1, 2012, we issued 3,328,767 Class A common shares and 9,000,000 Class B common shares in exchange for 100% of the of the membership interest of our predecessor company, Social Reality, LLC.  The Class A common shares were issued to holders of our non-voting, non-participating membership interest and the Class B common shares were issued to our general membership interest holders who are also our founders.
     
  · On January 20, 2012, we completed the offering of approximately $362,642 of our Class A common shares at a price per share of $0.8111.  As a result of the offering, we issued approximately 447,107 Class A common shares.

 

Item 16.   Exhibits.

 

See Exhibit Index beginning on page 50 of this registration statement.

 

Item 17.   Undertakings.

 

Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 15 of this registration statement or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

 

The undersigned Registrant hereby undertakes:

 

(1)  To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

  (i)  To include any prospectus required by section 10(a)(3) of the Securities Act;

 

  (ii)  To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

48
 

 

 

  (iii)  To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2)  That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3)  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

  

SIGNATURES

 

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Beverly Hills, State of California, on January 24, 2012.

 

SOCIAL REALITY, INC.
     
By:    
     
    /S/ CHRISTOPHER MIGLINO
     
    Christopher Miglino
    Chief Executive Officer

 

POWER OF ATTORNEY

 

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher Miglino and Erin Ruggiero, and each of them acting alone, with full power of substitution and resubstitution and full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and all documents in connection therewith (including all post-effective amendments and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act), with the SEC, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/S/    CHRISTOPHER MIGLINO   Chief Executive Officer, President and Director   January 24, 2012
Christopher Miglino   (Principal Executive Officer)    
         
/S/    CHRISTOPHER MIGLINO   Chief Financial Officer   January 24, 2012
Christopher Miglino   (Principal Financial and Accounting Officer)    
         
/S/    ERIN DERUGGIERO   Director   January 24, 2012
Erin DeRuggiero        
         
/S/    MARC SAVAS   Director   January 24, 2012
Mark Savas        

 

49
 

 

 

INDEX TO EXHIBITS

 

            Incorporated by Reference

Exhibit

No.

 

  

Description

 

  Filed

Herewith

  Form  

Exhibit

No. 

  File No.   Filing Date
3.01   Certificate of Incorporation   *                
                         
3.02   Certificate of Correction   *                
                         
3.03   Bylaws   *                
                         
4.01   Specimen of Class A Common Stock certificate   *                
                         
4.02**   2012 Equity Compensation Plan adopted on January 1, 2012   *                
                         
4.03**    Form of 2012 Equity Compensation Plan Option Grant   *                
                         
4.04**   Form of 2012 Equity Compensation Plan Restricted Stock Unit Grant (RSU)   *                
                         
4.05**   Form of 2012 Equity Compensation Plan Restricted Stock Award (RSA)   *                
                         
5.01   Opinion of Silvestre Law Group, P.C.   *                
                         
10.01**  

Christopher Miglino Employment Agreement 

  *                
                         
10.02**  

Erin DeRuggiero Employment Agreement 

  *                
                         
10.03**   Form of Proprietary Information, Inventions, And Confidentiality Agreement   *                
                         
10.04**   Form of Indemnification Agreement   *                
                         
23.01   Consent of RBSM LLP   *                
                         
23.02   Consent of Silvestre Law Group, P.C. (contained in opinion filed as Exhibit 5.01 to this registration statement)   *                
                         
24.01   Power of Attorney – Included on the signature page   *                

 

 

**Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

 

50

 

 
 

   

  

 
 

  

 

 
 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 

 

  

 
 

  

   

 

 

BYLAWS

 

OF

 

SOCIAL REALITY, INC. 

 

 
 

 

BYLAWS OF SOCIAL REALITY, INC.

 

ARTICLE I

CORPORATE OFFICES

 

1.1          REGISTERED OFFICE.

 

The registered office of Social Reality, Inc. shall be fixed in the corporation’s certificate of incorporation, as the same may be amended and/or restated from time to time (as so amended and/or restated, the “ Certificate ”).

 

1.2          OTHER OFFICES.

 

The corporation’s Board of Directors (the “ Board ”) may at any time establish other offices at any place or places.

 

ARTICLE II

MEETINGS OF STOCKHOLDERS

 

2.1          PLACE OF MEETINGS.

 

Meetings of stockholders shall be held at any place within or outside the State of Delaware as designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “ DGCL ”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.

 

2.2          ANNUAL MEETING.

 

The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board. At the annual meeting, directors shall be elected and any other proper business may be transacted.

 

2.3          SPECIAL MEETING.

 

Unless otherwise required by law or the Certificate, special meetings of the stockholders may be called at any time, for any purpose or purposes, only by (i) the Board, (ii) the Chairman of the Board, (iii) the chief executive officer (or, in the absence of a chief executive officer, the president) of the corporation, or (iv) holders of more than twenty percent (20%) of the total voting power of the outstanding shares of capital stock of the corporation then entitled to vote.

 

If any person(s) other than the Board calls a special meeting, the request shall:

 

  (i) be in writing;
     
  (ii) specify the general nature of the business proposed to be transacted; and
     
  (iii) be delivered personally or sent by registered mail or by facsimile transmission to the secretary of the corporation.

 

1
 

 

Upon receipt of such a request, the Board shall determine the date, time and place of such special meeting, which must be scheduled to be held on a date that is within ninety (90) days of receipt by the secretary of the request therefor, and the secretary of the corporation shall prepare a proper notice thereof. No business may be transacted at such special meeting other than the business specified in the notice to stockholders of such meeting.

 

2.4          NOTICE OF STOCKHOLDERS’ MEETINGS.

 

All notices of meetings of stockholders shall be sent or otherwise given in accordance with either Section 2.5 or Section 8.1 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, except as otherwise required by applicable law. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Any previously scheduled meeting of stockholders may be postponed, and, unless the Certificate provides otherwise, any special meeting of the stockholders may be cancelled by resolution duly adopted by a majority of the Board members then in office upon public notice given prior to the date previously scheduled for such meeting of stockholders.

 

Whenever notice is required to be given, under the DGCL, the Certificate or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate with the Secretary of State of Delaware, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

 

Whenever notice is required to be given, under any provision of the DGCL, the Certificate or these bylaws, to any stockholder to whom (a) notice of two (2) consecutive annual meetings, or (b) all, and at least two (2) payments (if sent by first-class mail) of dividends or interest on securities during a twelve (12) month period, have been mailed addressed to such person at such person’s address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth such person’s then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate with the Secretary of State of Delaware, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to Section 230(b) of the DGCL.

 

The exception in subsection (a) of the above paragraph to the requirement that notice be given shall not be applicable to any notice returned as undeliverable if the notice was given by electronic transmission.

 

2.5          MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

 

Notice of any meeting of stockholders shall be given:

 

  (i) if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the corporation’s records;
     
  (ii) if electronically transmitted, as provided in Section 8.1 of these bylaws; or
     
  (iii) otherwise, when delivered.

 

2
 

An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or any other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

Notice may be waived in accordance with Section 7.13 of these bylaws.

 

2.6          QUORUM

 

Unless otherwise provided in the Certificate or required by law, stockholders representing a one-third of the voting power of the issued and outstanding capital stock of the corporation, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. If such quorum is not present or represented at any meeting of the stockholders, then the chairman of the meeting, or the stockholders representing a majority of the voting power of the capital stock at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. The stockholders present at a duly called meeting at which quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

 

2.7          ADJOURNED MEETING; NOTICE

 

When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place if any thereof, and the means of remote communications if any by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the continuation of the adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with the provisions of Section 2.4 and 2.5 of these bylaws.

 

2.8          ADMINISTRATION OF THE MEETING

 

Meetings of stockholders shall be presided over by the chairman of the Board or, in the absence thereof, by such person as the chairman of the Board shall appoint, or, in the absence thereof or in the event that the chairman shall fail to make such appointment, any officer of the corporation elected by the Board. In the absence of the secretary of the corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints.

 

The Board shall, in advance of any meeting of stockholders, appoint one (1) or more inspector(s), who may include individual(s) who serve the corporation in other capacities, including without limitation as officers, employees or agents, to act at the meeting of stockholders and make a written report thereof. The Board may designate one (1) or more persons as alternate inspector(s) to replace any inspector, who fails to act. If no inspector or alternate has been appointed or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one (1) or more inspector(s) to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector(s) or alternate(s) shall have the duties prescribed pursuant to Section 231 of the DGCL or other applicable law.

 

The Board shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including without limitation establishing an agenda of business of the meeting, rules or regulations to maintain order, restrictions on entry to the meeting after the time fixed for commencement thereof and the fixing of the date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting (and shall announce such at the meeting).

 

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2.9          VOTING.

 

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

 

Except as otherwise provided in the provisions of Section 213 of the DGCL (relating to the fixing of a date for determination of stockholders of record) or these bylaws, each stockholder shall be entitled to that number of votes for each share of capital stock held by such stockholder as set forth in the Certificate.

 

In all matters, other than the election of directors and except as otherwise required by law, the Certificate or these bylaws, the affirmative vote of a majority of the voting power of the shares present or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

 

The stockholders of the corporation shall not have the right to cumulate their votes for the election of directors of the corporation.

 

2.10        STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

 

Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office, its principal place of business, or an officer or agent of the corporation having custody of the book in which minutes of proceedings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by law, be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by holders representing a sufficient amount of shares to take the action were delivered to the corporation.

 

2.11        RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.

 

In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other such action.

 

If the Board does not fix a record date in accordance with these bylaws and applicable law:

 

  (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
     
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  (ii) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the first day on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation.
     
  (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

 

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

 

2.12         PROXIES.

 

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A stockholder may also authorize another person or persons to act for him, her or it as proxy in the manner(s) provided under Section 212(c) of the DGCL or as otherwise provided under Delaware law. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

 

2.13         LIST OF STOCKHOLDERS ENTITLED TO VOTE.

 

The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporation’s principal place of business.

 

In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

 

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2.14         ADVANCE NOTICE OF STOCKHOLDER BUSINESS

 

Only such business shall be conducted as shall have been properly brought before a meeting of the stockholders of the corporation. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) a proper matter for stockholder action under the DGCL that has been properly brought before the meeting by a stockholder (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.14 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.14. For such business to be considered properly brought before the meeting by a stockholder such stockholder must, in addition to any other applicable requirements, have given timely notice in proper form of such stockholder’s intent to bring such business before such meeting. To be timely, such stockholder’s notice must be delivered to or mailed and received by the secretary of the corporation at the principal executive offices of the corporation not later than the close of business on the 90 th day, nor earlier than the close of business on the 120 th day, prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10 th ) day following the day on which such notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever occurs first.

 

To be in proper form, a stockholder’s notice to the secretary shall be in writing and shall set forth:

 

  (a) the name and record address of the stockholder who intends to propose the business and the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by such stockholder;
     
  (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to introduce the business specified in the notice;
     
  (c) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting;
     
  (d) any material interest of the stockholder in such business; and
     
  (e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”).

 

Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by, and otherwise comply with the requirements of, the Exchange Act and the regulations promulgated thereunder.

 

No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.14. The chairman of the meeting may refuse to acknowledge the proposal of any business not made in compliance with the foregoing procedure.

 

2.15        ADVANCE NOTICE OF DIRECTOR NOMINATIONS

 

Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the corporation, except as may be otherwise provided in the Certificate with respect to the right of holders of preferred stock of the corporation to nominate and elect a specified number of directors. To be properly brought before an annual meeting of stockholders, or any special meeting of stockholders called for the purpose of electing directors, nominations for the election of director must be (a) specified in the notice of meeting (or any supplement thereto), (b) made by or at the direction of the Board (or any duly authorized committee thereof) or (c) made by any stockholder of the corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.15 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 2.15.

 

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In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the corporation. To be timely, a stockholder’s notice to the secretary must be delivered to or mailed and received at the principal executive offices of the corporation, in the case of an annual meeting, in accordance with the provisions set forth in Section 2.14, and, in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.

 

To be in proper written form, a stockholder’s notice to the secretary must set forth:

 

  (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by the person, (iv) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (v) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and
     
  (b) as to such stockholder giving notice, the information required to be provided pursuant to Section 2.14.

 

Subject to the rights of any holders of preferred stock of the corporation, no person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2.15. If the chairman of the meeting properly determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

 

ARTICLE III

DIRECTORS

 

3.1          POWERS.

 

Subject to the provisions of the DGCL and any limitations in the Certificate, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board.

 

3.2          NUMBER OF DIRECTORS.

 

Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, the authorized number of directors shall be determined from time to time by resolution of the Board, provided the Board shall consist of at least one member. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

 

3.3          ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

 

Except as provided in Section 3.4 and Section 3.13 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the Certificate or these bylaws. The Certificate or these bylaws may prescribe other qualifications for directors. Each director, including a director elected to fill a vacancy, shall hold office until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal.

 

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All elections of directors shall be by written ballot, unless otherwise provided in the Certificate. If authorized by the Board, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission, provided that any such electronic transmission must be either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized.

 

3.4          RESIGNATION AND VACANCIES.

 

Any director may resign at any time upon written notice or by electronic transmission to the corporation.

 

Subject to the rights of the holders of any series of preferred stock of the corporation then outstanding and unless the Board otherwise determines, newly created directorships resulting from any increase in the authorized number of directors, or any vacancies on the Board resulting from the death, resignation, retirement, disqualification, removal from office or other cause shall, unless otherwise required by law, be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board, or by a sole remaining director. When one or more directors resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this Section 3.4 in the filling of other vacancies.

 

3.5          PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

 

The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

 

Unless otherwise restricted by the Certificate or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

 

3.6          REGULAR MEETINGS.

 

Regular meetings of the Board may be held with at least five business days prior notice at such time and at such place as shall from time to time be determined by the Board.

 

3.7          SPECIAL MEETINGS; NOTICE.

 

Special meetings of the Board for any purpose or purposes may be called at any time by the chairman of the Board, the chief executive officer, a president, the secretary or any two directors. The person(s) authorized to call special meetings of the Board may fix the place and time of the meeting.

 

Notice of the time and place of special meetings shall be:

 

(i)         delivered personally by hand, by courier or by telephone;

 

(ii)        sent by United States first-class mail, postage prepaid;

 

(iii)       sent by facsimile; or

 

(iv)       sent by electronic mail,

 

directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporation’s records.

 

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If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least twenty-four (24) hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated either to the director or to a person at the office of the director who the person giving notice has reason to believe will promptly communicate such notice to the director. The notice need not specify the place of the meeting if the meeting is to be held at the corporation’s principal executive office nor the purpose of the meeting.

 

3.8          QUORUM.

 

Except as otherwise required by law or the Certificate, at all meetings of the Board, a majority of the authorized number of directors (as determined pursuant to Section 3.2 of these bylaws) shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.11 of these bylaws. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the Certificate or these bylaws.

 

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the directors present at that meeting.

 

3.9          WAIVER OF NOTICE

 

Whenever notice is required to be given under any provisions of the DGCL, the Certificate or these bylaws, a written waiver thereof, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting solely for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate or these bylaws.

 

3.10        BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

 

Unless otherwise restricted by the Certificate or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

3.11        ADJOURNED MEETING; NOTICE.

 

If a quorum is not present at any meeting of the Board, then a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

 

3.12        FEES AND COMPENSATION OF DIRECTORS.

 

Unless otherwise restricted by the Certificate or these bylaws, the Board shall have the authority to fix the compensation of directors.

 

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3.13        REMOVAL OF DIRECTORS.

 

Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director or the entire Board may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of the issued and outstanding shares of capital stock of the corporation then entitled to vote in the election of directors.

 

3.14        CORPORATE GOVERNANCE COMPLIANCE.

 

Without otherwise limiting the powers of the Board set forth in Section 3.1 and provided that shares of capital stock of the corporation are listed for trading on either The Nasdaq National Market (“ NASDAQ ”) or the New York Stock Exchange (“ NYSE ”), the corporation shall comply with the corporate governance rules and requirements of the NASDAQ or the NYSE, as applicable.

  

ARTICLE IV

COMMITTEES

 

4.1          COMMITTEES OF DIRECTORS.

 

The Board may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise such lawfully delegable powers and duties as the Board may confer. Each committee will comply with all applicable provisions of: the Sarbanes-Oxley Act of 2002, the rules and regulations of the Securities and Exchange Commission, and the rules and requirements of NASDAQ or NYSE, as applicable, and will have the right to retain independent legal counsel and other advisers at the corporation’s expense.

 

4.2          COMMITTEE MINUTES.

 

Each committee shall keep regular minutes of its meetings and report to the Board when required.

 

4.3          MEETINGS AND ACTION OF COMMITTEES.

 

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

 

  (i) Section 3.5 (place of meetings and meetings by telephone);
     
  (ii) Section 3.6 (regular meetings);
     
  (iii) Section 3.7 (special meetings and notice);
     
  (iv) Section 3.8 (quorum);
     
  (v) Section 3.9 (waiver of notice);
     
  (vi) Section 3.10 (action without a meeting); and
     
  (vii) Section 3.11 (adjournment and notice of adjournment).
     
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with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members.

 

Notwithstanding the foregoing:

 

  (i) the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
     
  (ii) special meetings of committees may also be called by resolution of the Board; and
     
  (iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

 

4.4         AUDIT COMMITTEE

 

The Board may establish an Audit Committee whose principal purpose will be to oversee the corporation’s and its subsidiaries’ accounting and financial reporting processes, internal systems of control, independent auditor relationships and audits of consolidated financial statements of the corporation and its subsidiaries. The Audit Committee will also determine the appointment of the independent auditors of the corporation and any change in such appointment and ensure the independence of the corporation’s auditors. In addition, the Audit Committee will assume such other duties and responsibilities as the Board may confer upon the committee from time to time. In the event of any inconsistency between this Section 4.4 and the Certificate, the terms of the Certificate will govern.

 

4.5         CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

 

The Board may establish a Corporate Governance and Nominating Committee whose principal duties will be to assist the Board by identifying individuals qualified to become Board members consistent with criteria approved by the Board, to recommend to the Board for its approval the slate of nominees to be proposed by the Board to the stockholders for election to the Board, to develop and recommend to the Board the governance principles applicable to the corporation, as well as such other duties and responsibilities as the Board may confer upon the committee from time to time. In the event the Corporate Governance and Nominating Committee will not be recommending a then incumbent director for inclusion in the slate of nominees to be proposed by the Board to the stockholders for election to the Board, and provided such incumbent director has not notified the Committee that he or she will be resigning or that he or she does not intend to stand for re-election to the Board, then, in the case of an election to be held at an annual meeting of stockholders, the Committee will recommend the slate of nominees to the Board at least thirty (30) days prior to the latest date required by the provisions of Sections 2.14 and 2.15 of these bylaws for stockholders to submit nominations for directors at such annual meeting, or in the case of an election to be held at a special meeting of stockholders, at least ten (10) days prior to the latest date required by the provisions of Sections 2.14 and 2.15 of these bylaws for stockholders to submit nominations for directors at such special meeting. In the event of any inconsistency between this Section 4.5 and the Certificate, the terms of the Certificate will govern.

 

4.6         COMPENSATION COMMITTEE

 

The Board may establish a Compensation Committee whose principal duties will be to review employee compensation policies and programs as well as the compensation of the chief executive officer and other executive officers of the corporation, to recommend to the Board a compensation program for outside Board members, as well as such other duties and responsibilities as the Board may confer upon the committee from time to time. In the event of any inconsistency between this Section 4.6 and the Certificate, the terms of the Certificate will govern.

 

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ARTICLE V

OFFICERS

 

5.1         OFFICERS.

 

The officers of the corporation shall be a chief executive officer, one or more presidents (at the discretion of the Board), a chairman of the Board and a secretary. The corporation may also have, at the discretion of the Board, a vice chairman of the Board, a chief financial officer, a treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws.

 

Any number of offices may be held by the same person.

 

5.2         APPOINTMENT OF OFFICERS.

 

The Board shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. A failure to elect officers shall not dissolve or otherwise affect the corporation.

 

5.3         SUBORDINATE OFFICERS.

 

The Board may appoint, or empower the chief executive officer and/or one or more presidents of the corporation, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

 

5.4         REMOVAL AND RESIGNATION OF OFFICERS.

 

Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer appointed by the Board, by any officer upon whom such power of removal may be conferred by the Board.

 

Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

 

5.5         VACANCIES IN OFFICES.

 

Any vacancy occurring in any office of the corporation shall be filled by the Board or as provided in Section 5.2.

 

5.6          CHAIRMAN OF THE BOARD.

 

The chairman of the Board shall be a member of the Board and, if present, preside at meetings of the Board and exercise and perform such other powers and duties as may from time to time be assigned to him or her by the Board or as may be prescribed by these bylaws. The chairman shall be appointed by a majority of the Board then in office. If there is no chief executive officer or president of the corporation as a result of the death, resignation or removal of such officer, then the chairman of the Board may also serve in an interim capacity as the chief executive officer of the corporation until the Board shall appoint a new chief executive officer and, while serving in such interim capacity, shall have the powers and duties prescribed in Section 5.7 of these bylaws.

 

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5.7         CHIEF EXECUTIVE OFFICER.

 

Subject to the control of the Board and any supervisory powers the Board may give to the chairman of the Board, the chief executive officer shall, together with the president or presidents of the corporation, have general supervision, direction, and control of the business and affairs of the corporation and shall see that all orders and resolutions of the Board are carried into effect. The chief executive officer shall, together with the president or presidents of the corporation, also perform all duties incidental to this office that may be required by law and all such other duties as are properly required of this office by the Board of Directors. The chief executive officer shall serve as chairman of and preside at all meetings of the stockholders. In the absence of the chairman of the Board, the chief executive officer shall preside at all meetings of the Board.

 

5.8         PRESIDENTS.

 

Subject to the control of the Board and any supervisory powers the Board may give to the chairman of the Board, the president or presidents of the corporation shall, together with the chief executive officer, have general supervision, direction, and control of the business and affairs of the corporation and shall see that all orders and resolutions of the Board are carried into effect. A president shall have such other powers and perform such other duties as from time to time may be prescribed for him or her by the Board, these bylaws, or the chairman of the Board.

 

5.9         VICE PRESIDENTS.

 

In the absence or disability of any president, the vice presidents, if any, in order of their rank as fixed by the Board or, if not ranked, a vice president designated by the Board, shall perform all the duties of a president. When acting as a president, the appropriate vice president shall have all the powers of, and be subject to all the restrictions upon, that president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, these bylaws, the chairman of the Board, the chief executive officer or, in the absence of a chief executive officer, one of more of the presidents.

 

5.10       SECRETARY.

 

The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show:

 

  (i) the time and place of each meeting;
     
  (ii) whether regular or special (and, if special, how authorized and the notice given);
     
  (iii) the names of those present at directors’ meetings or committee meetings;
     
  (iv) the number of shares present or represented at stockholders’ meetings; and
     
  (v) the proceedings thereof.

 

The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the Board, a share register, or a duplicate share register showing:

 

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  (i) the names of all stockholders and their addresses;
     
  (ii) the number and classes of shares held by each;
     
  (iii) the number and date of certificates evidencing such shares; and
     
  (iv) the number and date of cancellation of every certificate surrendered for cancellation.

 

The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board required to be given by law or by these bylaws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board or by these bylaws.

 

5.11       CHIEF FINANCIAL OFFICER.

 

The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director.

 

The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as the Board may designate. The chief financial officer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the chief executive officer or, in the absence of a chief executive officer, any president and directors, whenever they request it, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board or these bylaws.

 

The chief financial officer may be the treasurer of the corporation.

 

5.12        TREASURER.

 

The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director.

 

The treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as the Board may designate. The treasurer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the chief executive officer or, in the absence of a chief executive officer, one or more of the presidents and directors, whenever they request it, an account of all his or her transactions as treasurer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board or these bylaws.

 

5.13        ASSISTANT SECRETARY.

 

The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of the secretary’s inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the Board or these bylaws.

 

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5.14        ASSISTANT TREASURER.

 

The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or treasurer or in the event of the chief financial officer’s or treasurer’s inability or refusal to act, perform the duties and exercise the powers of the chief financial officer or treasurer, as applicable, and shall perform such other duties and have such other powers as may be prescribed by the Board or these bylaws.

 

5.15        REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

 

The chairman of the Board, the chief executive officer, any president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board, the chief executive officer, a president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares or other equity interests of any other corporation or entity standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

 

5.16        AUTHORITY AND DUTIES OF OFFICERS.

 

In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board. Any officer may hold two or more offices.

 

ARTICLE VI

RECORDS AND REPORTS

 

6.1          MAINTENANCE AND INSPECTION OF RECORDS.

 

The corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws, as may be amended to date, minute books, accounting books and other records.

 

Any such records maintained by the corporation may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to the provisions of the DGCL. When records are kept in such manner, a clearly legible paper form produced from or by means of the information storage device or method shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper form accurately portrays the record.

 

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal executive office.

 

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6.2          INSPECTION BY DIRECTORS.

 

Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director.

 

ARTICLE VII

GENERAL MATTERS

 

7.1          CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.

 

From time to time, the Board shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

 

7.2          EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

 

Except as otherwise provided in these bylaws, the Board, or any officers of the corporation authorized thereby, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances.

 

7.3          STOCK CERTIFICATES; PARTLY PAID SHARES.

 

The shares of the corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board, or a president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

 

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, and upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

 

7.4          SPECIAL DESIGNATION ON CERTIFICATES.

 

If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided , however , that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

 

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7.5          LOST CERTIFICATES.

 

Except as provided in this Section 7.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

 

7.6          CONSTRUCTION; DEFINITIONS.

 

Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

 

7.7          DIVIDENDS.

 

The Board, subject to any restrictions contained in either (i) the DGCL, or (ii) the Certificate, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock.

 

The Board may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

 

7.8          FISCAL YEAR.

 

The fiscal year of the corporation shall be fixed by resolution of the Board and may be changed by the Board.

 

7.9          SEAL.

 

The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

 

7.10        TRANSFER OF STOCK.

 

Transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with Section 7.5 of these bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

 

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7.11         STOCK TRANSFER AGREEMENTS.

 

The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes or series of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes or series owned by such stockholders in any manner not prohibited by the DGCL.

 

7.12         REGISTERED STOCKHOLDERS.

 

The corporation:

 

  (i) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;
     
  (ii) shall be entitled to hold liable for calls and assessments on partly paid shares the person registered on its books as the owner of shares; and
     
  (iii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

7.13         WAIVER OF NOTICE.

 

Whenever notice is required to be given under any provision of the DGCL, the Certificate or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting solely for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate or these bylaws.

 

7.14         CHARITABLE FOUNDATION.

 

The establishment by the corporation of a charitable foundation will require Board approval, as will contributions by the corporation to the foundation and disbursements by the foundation. The Board may delegate authority over the foundation to one or more persons who are not directors of the corporation with the approval of two-thirds of the members of the Board.

 

ARTICLE VIII

NOTICE BY ELECTRONIC TRANSMISSION

 

8.1          NOTICE BY ELECTRONIC TRANSMISSION.

 

Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the Certificate or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the Certificate or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:

 

  (i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and
     
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  (ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.

 

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

 

Any notice given pursuant to the preceding paragraph shall be deemed given:

 

  (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
     
  (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
     
  (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
     
  (iv) if by any other form of electronic transmission, when directed to the stockholder.

 

An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

8.2         DEFINITION OF ELECTRONIC TRANSMISSION.

 

An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

8.3         INAPPLICABILITY.

 

Notice by a form of electronic transmission shall not apply to Section 164 (failure to pay for stock; remedies), Section 296 (adjudication of claims; appeal), Section 311 (revocation of voluntary dissolution), Section 312 (renewal, revival, extension and restoration of certificate of incorporation) or Section 324 (attachment of shares of stock) of the DGCL.

 

ARTICLE IX

INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

9.1         POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION.

 

Subject to Section 9.3 of this Article IX, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person (or the legal representative of such person) is or was a director or officer of the corporation or any predecessor of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

 

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9.2         POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION

 

Subject to Section 9.3 of this Article IX, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person (or the legal representative of such person) is or was a director or officer of the corporation or any predecessor of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

9.3         AUTHORIZATION OF INDEMNIFICATION

 

Any indemnification under this Article IX (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 9.1 or Section 9.2 of this Article IX, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders (but only if a majority of the directors who are not parties to such action, suit or proceeding, if they constitute a quorum of the board of directors, presents the issue of entitlement to indemnification to the stockholders for their determination). Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the corporation. To the extent, however, that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

 

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9.4          GOOD FAITH DEFINED

 

For purposes of any determination under Section 9.3 of this Article IX, to the fullest extent permitted by applicable law, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the corporation or another enterprise, or on information supplied to such person by the officers of the corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise. The term “another enterprise” as used in this Section 9.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, employee or agent. The provisions of this Section 9.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 9.1 or 9.2 of this Article IX, as the case may be.

 

9.5         INDEMNIFICATION BY A COURT

 

Notwithstanding any contrary determination in the specific case under Section 9.3 of this Article IX, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 9.1 and 9.2 of this Article IX. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 9.1 or 9.2 of this Article IX, as the case may be. Neither a contrary determination in the specific case under Section 9.3 of this Article IX nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 9.5 shall be given to the corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

 

9.6         EXPENSES PAYABLE IN ADVANCE

 

To the fullest extent not prohibited by the DGCL, or by any other applicable law, expenses incurred by a person who is or was a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that if the DGCL requires, an advance of expenses incurred by any person in his or her capacity as a director or officer (and not in any other capacity) shall be made only upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article IX.

 

9.7         NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

 

The indemnification and advancement of expenses provided by or granted pursuant to this Article IX shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate, any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the corporation that indemnification of the persons specified in Sections 9.1 and 9.2 of this Article IX shall be made to the fullest extent permitted by law. The provisions of this Article IX shall not be deemed to preclude the indemnification of any person who is not specified in Section 9.1 or 9.2 of this Article IX but whom the corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.

 

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9.8          INSURANCE

 

To the fullest extent permitted by the DGCL or any other applicable law, the corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was a director, officer, employee or agent of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article IX.

 

9.9         CERTAIN DEFINITIONS

 

For purposes of this Article IX, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article IX, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Article IX.

 

9.10         SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

 

The rights to indemnification and advancement of expenses conferred by this Article IX shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, administrators and other personal and legal representatives of such a person.

 

9.11         LIMITATION ON INDEMNIFICATION

 

Notwithstanding anything contained in this Article IX to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 9.5 hereof), the corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the board of directors of the corporation.

 

9.12         INDEMNIFICATION OF EMPLOYEES AND AGENTS

 

The corporation may, to the extent authorized from time to time by the board of directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the corporation similar to those conferred in this Article IX to directors and officers of the corporation.

 

9.13         EFFECT OF AMENDMENT OR REPEAL

 

Neither any amendment or repeal of any Section of this Article IX, nor the adoption of any provision of the Certificate or the bylaws inconsistent with this Article IX, shall adversely affect any right or protection of any director, officer, employee or other agent established pursuant to this Article IX existing at the time of such amendment, repeal or adoption of an inconsistent provision, including without limitation by eliminating or reducing the effect of this Article IX, for or in respect of any act, omission or other matter occurring, or any action or proceeding accruing or arising (or that, but for this Article IX, would accrue or arise), prior to such amendment, repeal or adoption of an inconsistent provision.

 

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ARTICLE X

MISCELLANEOUS

 

10.1          PROVISIONS OF CERTIFICATE GOVERN

 

In the event of any inconsistency between the terms of these bylaws and the Certificate, the terms of the Certificate will govern.

 

10.2          AMENDMENT

 

The bylaws of the corporation may be adopted, amended or repealed by the corporation’s Board. The fact that such power has been so conferred upon the Board shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. The fact that such power has been so conferred upon the Board shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

 

*        *        *        *        *

 

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SOCIAL REALITY, INC.

a Delaware corporation

 

CERTIFICATE OF ADOPTION OF BYLAWS

 

The undersigned hereby certifies that he is the duly elected, qualified, and acting Chief Executive Officer of Social Reality, Inc., a Delaware corporation and that the foregoing bylaws, comprising twenty three (23) pages, were adopted as the corporation’s bylaws on August [___] , 2011 by the corporation’s incorporator.

 

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this      day of August, 2011.

 

   
Christopher Miglino  
Chief Executive Officer  

 

 

 

  

 
 

  

 

 

 

 

 

SOCIAL REALITY, INC.

 

2012 EQUITY COMPENSATION PLAN

 

1.               Purposes of the Plan . The purposes of this Plan are:

 

    •         to attract and retain the best available personnel for positions of substantial responsibility,

 

        •         to provide additional incentive to Employees, Directors and Consultants, and

 

        •         to promote the success of the Company’s business.

 

        The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights, Restricted Stock Units, Performance Units, Performance Shares and Other Stock Based Awards.

 

2.             Definitions . As used herein, the following definitions will apply:

 

(a)         “ Administrator ” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.

 

(b)         “ Applicable Laws ” means the requirements relating to the administration of equity-based awards or equity compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

 

(c)         “ Award ” means, individually or collectively, a grant under the Plan of Options, SARs, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares or Other Stock Based Awards.

 

(d)         “ Award Agreement ” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.

 

 

(e)         “ Awarded Stock ” means the Common Stock subject to an Award.

 

(f)         “ Board ” means the Board of Directors of the Company.

 

(g)         “ Change in Control ” means the occurrence of any of the following events:

 

(i)         Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities and within three (3) years from the date of such acquisition, a merger or consolidation of the Company with or into the person (or affiliate thereof) holding such beneficial ownership of securities of the Company is consummated; or

 

(ii)         The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

 

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(iii)         A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

 

(iv)         The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

 

For purposes of this Section, “affiliate” will mean, with respect to any specified person, any other person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person (“control,” “controlled by” and “under common control with” will mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contact or credit arrangement, as trustee or executor, or otherwise).

 

(h)         “ Code ” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

 

(i)         “ Committee ” means a committee of Directors or other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 of the Plan.

 

(j)          “ Common Stock ” means the Class A Common Stock of the Company, or in the case of Performance Units and certain Other Stock Based Awards, the cash equivalent thereof.

 

(k)          “ Company ” means Social Reality, Inc., a Delaware corporation, or any successor thereto.

 

(l)          “ Consultant ” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

 

(m)          “ Director ” means a member of the Board.

 

(n)           “ Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.

 

(o)           “ Dividend Equivalent ” means a credit, made at the discretion of the Administrator, to the account of a Participant in an amount equal to the cash dividends paid on one Share for each Share represented by an Award held by such Participant.

 

(p)           “ Employee ” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

 

(q)           “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

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(r)            “ Exchange Program ” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, and/or (ii) the exercise price of an outstanding Award is reduced. The terms and conditions of any Exchange Program will be determined by the Administrator in its sole discretion.

 

(s)            “ Fair Market Value ” means, as of any date and unless the Administrator determines otherwise, the value of Common Stock determined as follows:

 

(i)         If the Common Stock is listed on any established stock exchange or a national market system, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

(ii)         If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock will be the mean between the high bid and low asked prices for the Common Stock for the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

 

(iii)         In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.

 

(iv)         Notwithstanding the preceding, for federal, state, and local income tax reporting purposes and for such other purposes as the Administrator deems appropriate, the Fair Market Value shall be determined by the Administrator in accordance with uniform and nondiscriminatory standards adopted by it from time to time.

  

(t)           “ Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

 

(u)           “ Individual Objectives ” means as to a Participant, the objective and measurable goals set by a “management by objectives” process and approved by the Committee (in its discretion).

 

(v)           “ Nonstatutory Stock Option ” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

 

(w)           “ Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(x)              “ Option ” means a stock option granted pursuant to the Plan.

 

(y)             “ Other Stock Based Awards ” means any other awards not specifically described in the Plan that are valued in whole or in part by reference to, or are otherwise based on, Shares and are created by the Administrator pursuant to Section 12.

 

(z)              “ Outside Director ” means a Director who is not an Employee.

 

(aa)            “ Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

(bb)            “ Participant ” means the holder of an outstanding Award granted under the Plan.

 

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(cc)           “ Performance Goals ” means the goal(s) (or combined goal(s)) determined by the Committee (in its discretion) to be applicable to a Participant with respect to an Award. The Performance Goals may differ from Participant to Participant and from Award to Award. Any criteria used may be measured, as applicable, in absolute or relative terms (including passage of time and/or against another company or companies), on a per share basis, against the performance of the Company as a whole or any segment of the Company, and on a pre-tax or after-tax basis.

 

(dd)           “ Performance Share ” means an Award granted to a Service Provider pursuant to Section 10 of the Plan.

 

(ee)            “ Performance Unit ” means an Award granted to a Service Provider pursuant to Section 10 of the Plan.

 

(ff)             “ Period of Restriction ” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.

 

(gg)            “ Plan ” means this 2012 Stock Plan.

 

(hh)            “ Restricted Stock ” means shares of Common Stock issued pursuant to a Restricted Stock award under Section 8, Section 11 or Section 12 of the Plan or issued pursuant to the early exercise of an Option.

 

(ii)               “ Restricted Stock Unit ” means an Award that the Administrator permits to be paid in installments or on a deferred basis pursuant to Section 11 of the Plan.

  

(jj)                “ Rule 16b-3 ” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

 

(kk)               “ Section 16(b) ” means Section 16(b) of the Exchange Act.

 

(ll)                 “ Service Provider ” means an Employee, Director or Consultant.

 

(mm)             “ Share ” means a share of the Class A Common Stock, as adjusted in accordance with Section 15 of the Plan.

 

(nn)              “ Stock Appreciation Right ” or “ SAR ” means an Award, granted alone or in connection with an Option, that pursuant to Section 9 of the Plan is designated as a SAR.

 

(oo)             “ Subsidiary ” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

(pp)             “ Unvested Awards ” means Options or Restricted Stock that (i) were granted to an individual in connection with such individual’s position as a Service Provider and (ii) are still subject to vesting or lapsing of Company repurchase rights or similar restrictions.

 

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3.         Stock Subject to the Plan .

 

(a)             Stock Subject to the Plan . The maximum number of Shares that may be issued under the Plan is 3,000,000. The Shares may be authorized, but unissued, or reacquired Common Stock. Shares shall not be deemed to have been issued pursuant to the Plan (i) with respect to any portion of an Award that is settled in cash, or (ii) to the extent such Shares are withheld in satisfaction of tax withholding obligations. Upon payment in Shares pursuant to the exercise of an Award, the number of Shares available for issuance under the Plan shall be reduced only by the number of Shares actually issued in such payment. If a Participant pays the exercise price (or purchase price, if applicable) of an Award through the tender of Shares, the number of Shares so tendered shall again be available for issuance pursuant to future Awards under the Plan. Notwithstanding anything in the Plan, or any Award Agreement to the contrary, Shares attributable to Awards transferred under any Award Transfer Program shall not be again available for grant under the Plan.

 

(b)            Lapsed Awards . If any outstanding Award expires or is terminated or canceled without having been exercised or settled in full, or if Shares acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company, the Shares allocable to the terminated portion of such Award or such forfeited or repurchased Shares shall again be available for grant under the Plan.

 

4.         Administration of the Plan .

 

(a)           Procedure .

 

(i)         Section 162(m) . To the extent that the Administrator determines it to be desirable and necessary to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

 

(ii)         Rule 16b-3 . To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.

 

(iii)          Other Administration . Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.

 

(iv)       Delegation of Authority for Day-to-Day Administration . Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it in this Plan. Such delegation may be revoked at any time.

 

(b)           Powers of the Administrator . Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:

 

(i)         to determine the Fair Market Value;

 

(ii)         to select the Service Providers to whom Awards may be granted hereunder;

 

(iii)        to determine the number of Shares to be covered by each Award granted hereunder;

 

(iv)        to approve forms of agreement for use under the Plan;

 

(v)        to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture or repurchase restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, will determine;

 

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(vi)        to reduce the exercise price of any Award to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Award shall have declined since the date the Award was granted;

 

(vii)        to institute an Exchange Program;

 

(viii)       to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

 

(ix)        to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws and/or qualifying for preferred tax treatment under applicable foreign tax laws;

 

(x)         to modify or amend each Award (subject to Section 18(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Awards longer than is otherwise provided for in the Plan;

 

(xi)        to allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares or cash to be issued upon exercise or vesting of an Award that number of Shares or cash having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of any Shares to be withheld will be determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares or cash withheld for this purpose will be made in such form and under such conditions as the Administrator may deem necessary or advisable;

 

(xii)        to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

 

(xiii)        to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award;

 

(xiv)        to determine whether Awards will be settled in Shares, cash or in any combination thereof;

 

(xv)         to determine whether Awards will be adjusted for Dividend Equivalents;

 

(xvi)        to create Other Stock Based Awards for issuance under the Plan;

 

(xvii)       to establish a program whereby Service Providers designated by the Administrator can reduce compensation otherwise payable in cash in exchange for Awards under the Plan;

 

(xvii)        to impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any Shares issued as a result of or under an Award, including without limitation, (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers; and

 

(xix)         to make all other determinations deemed necessary or advisable for administering the Plan.

 

(c)            Effect of Administrator’s Decision . The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.

 

5.            Eligibility . Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights, Performance Units, Performance Shares, Restricted Stock Units and Other Stock Based Awards may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

 

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6.            Limitations .

 

(a)         ISO $100,000 Rule . Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.

 

(b)          No Rights as a Service Provider . Neither the Plan nor any Award shall confer upon a Participant any right with respect to continuing his or her relationship as a Service Provider, nor shall they interfere in any way with the right of the Participant or the right of the Company or its Parent or Subsidiaries to terminate such relationship at any time, with or without cause.

 

(c)          162(m) Limitation . For purposes of qualifying Awards as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals shall be set by the Administrator on or before the latest date permissible to enable the Award to qualify as “performance-based compensation” under Section 162(m) of the Code. In granting Awards which are intended to qualify under Section 162(m) of the Code, the Administrator shall follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).

 

7.             Stock Options .

 

(a)         Term of Option . The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

 

(b)           Option Exercise Price and Consideration .

 

(i)            Exercise Price . The per Share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, subject to the following:

 

(1)          In the case of an Incentive Stock Option

 

        (A)         granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant.

 

        (B)         granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.

 

(2)         In the case of a Nonstatutory Stock Option, the per Share exercise price will be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.

 

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(3)         Notwithstanding the foregoing, Incentive Stock Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.

 

(ii)         Waiting Period and Exercise Dates . At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.

 

(c)          Form of Consideration . The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration to the extent permitted by Applicable Laws may consist entirely of:

 

(i)         cash;

 

(ii)         check;

 

(iii)         promissory note;

 

(iv)       other Shares which meet the conditions established by the Administrator to avoid adverse accounting consequences (as determined by the Administrator);

 

(v)         consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

 

(vi)        a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participant’s participation in any Company-sponsored deferred compensation program or arrangement;

 

(vii)        any combination of the foregoing methods of payment; or

 

(viii)        such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

 

(d)           Exercise of Option .

 

(i)         Procedure for Exercise; Rights as a Stockholder . Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.

 

An Option will be deemed exercised when the Company receives: (x) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (y) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Awarded Stock, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 15 of the Plan or the applicable Award Agreement.

 

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Exercising an Option in any manner will decrease the number of Shares thereafter available for sale under the Option, by the number of Shares as to which the Option is exercised.

 

(ii)         Termination of Relationship as a Service Provider . If a Participant ceases to be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan on the date one (1) month following the Participant’s termination. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

(iii)         Disability of Participant . If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan on the date one (1) month following the Participant’s termination. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

(iv)         Death of Participant . If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan on the date one (1) month following the Participant’s death. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

(e)         Buyout Provisions . The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Participant at the time that such offer is made.

 

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8.             Restricted Stock .

 

(a)         Grant of Restricted Stock . Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine. Subject to any restrictions specifically provided for in this Plan, the Administrator shall have complete discretion to determine (i) the number of Shares subject to a Restricted Stock award granted to any Participant, and (ii) the conditions, if any, that must be satisfied, which typically will be based principally or solely on continued provision of services but may include a performance-based component, upon which is conditioned the grant, vesting or issuance of Restricted Stock.

 

(b)         Restricted Stock Agreement . Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as escrow agent until the restrictions on such Shares have lapsed.

 

(c)         Transferability . Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise

 

(d)         Other Restrictions . The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.

 

(e)         Removal of Restrictions . Except as otherwise provided in this Section 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.

 

(f)         Voting Rights . During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.

 

(g)         Dividends and Other Distributions . During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

 

(h)         Return of Restricted Stock to Company . On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.

 

9.             Stock Appreciation Rights .

 

(a)          Grant of SARs . Subject to the terms and conditions of the Plan, a SAR may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.

 

(b)          Number of Shares . Subject to Section 6(c)(i) of the Plan, the Administrator will have complete discretion to determine the number of SARs granted to any Service Provider.

 

(c)          Exercise Price and Other Terms . The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of SARs granted under the Plan.

 

(d)          Exercise of SARs . SARs will be exercisable on such terms and conditions as the Administrator, in its sole discretion, will determine.

 

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(e)           SAR Agreement . Each SAR grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

 

(f)           Expiration of SARs . An SAR granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Sections 7(d)(ii), 7(d)(iii) and 7(d)(iv) also will apply to SARs.

 

(g)           Payment of SAR Amount . Upon exercise of an SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

 

(i)         The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times

 

(ii)         The number of Shares with respect to which the SAR is exercised.

 

At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

 

(h)         Buyout Provisions . The Administrator may at any time offer to buy out for a payment in cash or Shares a Stock Appreciation Right previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Participant at the time that such offer is made.

 

10.            Performance Units and Performance Shares .

 

(a)         Grant of Performance Units/Shares . Subject to the terms and conditions of the Plan, Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. Subject to any restrictions specifically provided for in this Plan, the Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.

 

(b)         Value of Performance Units/Shares . Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.

 

(c)         Performance Objectives and Other Terms . The Administrator will set performance objectives in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives must be met will be called the “Performance Period.” Each Award of Performance Units/ Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.

 

(d)         Earning of Performance Units/Shares . After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit/Share.

 

11
 

 

(e)         Form and Timing of Payment of Performance Units/Shares . Payment of earned Performance Units/Shares will be made as soon after the expiration of the applicable Performance Period at the time determined by the Administrator. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.

 

(f)         Cancellation of Performance Units/Shares . On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.

 

11.            Restricted Stock Units . Restricted Stock Units shall consist of a Restricted Stock, Performance Share or Performance Unit Award that the Administrator, in its sole discretion permits to be paid out in installments or on a deferred basis, in accordance with rules and procedures established by the Administrator.

 

12.            Other Stock Based Awards . Other Stock Based Awards may be granted either alone, in addition to, or in tandem with, other Awards granted under the Plan and/or cash awards made outside of the Plan. The Administrator shall have authority to determine the Service Providers to whom and the time or times at which Other Stock Based Awards shall be made, the amount of such Other Stock Based Awards, and all other conditions of the Other Stock Based Awards including any dividend and/or voting rights.

 

13.            Leaves of Absence . Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence and will resume on the date the Participant returns to work on a regular schedule as determined by the Company; provided, however, that no vesting credit will be awarded for the time vesting has been suspended during such leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three months following the 91 st day of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.

 

14.            Non-Transferability of Awards . Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.

 

15.            Adjustments; Dissolution or Liquidation; Merger or Change in Control .

 

(a)         Adjustments . In the event that any dividend (excluding an ordinary dividend) or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, then the Administrator shall appropriately adjust the number and class of Shares which may be delivered under the Plan, the 162(m) annual share issuance limits under Section 6(c) of the Plan, and the number, class, and price of Shares subject to outstanding Awards. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.

 

12
 

  

(b)         Dissolution or Liquidation . In the event that any dividend (excluding an ordinary dividend) or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs then the Administrator shall appropriately adjust the number and class of Shares which may be delivered under the Plan, the 162(m) annual share issuance limits under Section 6(c) of the Plan, and the number, class, and price of Shares subject to outstanding Awards. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.

 

(c)         Merger or Change in Control .

 

             (i)          Stock Options and SARS . In the event of a merger or Change in Control, each outstanding Option and SAR shall be assumed or an equivalent option or SAR substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. With respect to Options and SARs granted to an Outside Director that are assumed or substituted for, if immediately prior to or after the merger or Change in Control the Participant’s status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, then the Participant shall fully vest in and have the right to exercise such Options and SARs as to all of the Awarded Stock, including Shares as to which it would not otherwise be vested or exercisable. Unless determined otherwise by the Administrator, in the event that the successor corporation refuses to assume or substitute for the Option or SAR, the Participant shall fully vest in and have the right to exercise the Option or SAR as to all of the Awarded Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or SAR is not assumed or substituted in the event of a merger or Change in Control, the Administrator shall notify the Participant in writing or electronically that the Option or SAR shall be exercisable, to the extent vested, for a period of up to fifteen (15) days from the date of such notice, and the Option or SAR shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or SAR shall be considered assumed if, following the merger or Change in Control, the option or stock appreciation right confers the right to purchase or receive, for each Share of Awarded Stock subject to the Option or SAR immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or SAR, for each Share of Awarded Stock subject to the Option or SAR, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control. Notwithstanding anything herein to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-merger or post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

   

13
 

 

(ii)         Restricted Stock, Performance Shares, Performance Units, Restricted Stock Units and Other Stock Based Awards . In the event of a merger or Change in Control, each outstanding Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award and Restricted Stock Unit awards shall be assumed or an equivalent Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award and Restricted Stock Unit award substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. With respect to Awards granted to an Outside Director that are assumed or substituted for, if immediately prior to or after the merger or Change in Control the Participant’s status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, then the Participant shall fully vest in such Awards, including Shares as to which it would not otherwise be vested. Unless determined otherwise by the Administrator, in the event that the successor corporation refuses to assume or substitute for the Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award or Restricted Stock Unit award, the Participant shall fully vest in the Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award or Restricted Stock Unit including as to Shares which would not otherwise be vested. For the purposes of this paragraph, a Restricted Stock, Performance Share, Performance Unit, Other Stock Based Award and Restricted Stock Unit award shall be considered assumed if, following the merger or Change in Control, the award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received, for each Share and each unit/right to acquire a Share subject to the Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control. Notwithstanding anything herein to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-merger or post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

 

16.            Date of Grant . The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.

 

17.            Term of Plan . Subject to Section 22 of the Plan, the Plan will become effective upon its adoption by the Board. The Plan will continue in effect for a term ending 10 years after the effective date unless terminated earlier under Section 18 of the Plan.

 

18.            Amendment and Termination of the Plan .

 

(a)         Amendment and Termination . The Board may at any time amend, alter, suspend or terminate the Plan.

 

(b)         Stockholder Approval . The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

 

(c)         Effect of Amendment or Termination . Subject to Section 20 of the Plan, no amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

 

19.            Conditions Upon Issuance of Shares .

 

(a)          Legal Compliance . Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.

 

(b)         Investment Representations . As a condition to the exercise or receipt of an Award, the Company may require the person exercising or receiving such Award to represent and warrant at the time of any such exercise or receipt that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

 

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20.            Severability . Notwithstanding any contrary provision of the Plan or an Award to the contrary, if any one or more of the provisions (or any part thereof) of this Plan or the Awards shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan or Award, as applicable, shall not in any way be affected or impaired thereby.

 

21.            Inability to Obtain Authority . The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.

 

22.            Stockholder Approval . The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.

 

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SOCIAL REALITY

2012 EQUITY COMPENSATION PLAN

STOCK OPTION AGREEMENT

 

Unless otherwise defined herein, the terms defined in the Social Reality, Inc. (“Company”) 2012 Equity Compensation Plan, as amended (“Plan”) shall have the same defined meanings in this Stock Option Agreement.

 

I.     NOTICE OF STOCK OPTION GRANT

 

[Optionee’s Name and Address]

 

You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:

 

  Grant Number    
     
  Date of Grant    
     
  Vesting Commencement Date    
     
  Exercise Price per Share    
     
  Total Number of Shares Granted    
     
  Total Exercise Price    
     
  Type of Option:   _____ Incentive Stock Option
     
      _____ Nonstatutory Stock Option
     
  Term/Expiration Date:    

 

Vesting Schedule:

 

This Option shall be exercisable, in whole or in part, in accordance with the following vesting schedule:

 

[__________________________]

  

Termination Period:

 

This Option may be exercised for [_______] months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for [______] months after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.

 

II.     AGREEMENT

 

A.       Grant of Option .

 

The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the “Optionee”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 18(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

 

 
 

 

If designated in the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option (“NSO”).

 

B.       Exercise of Option .

 

(a)       Right to Exercise . This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement.

 

(b)        Method of Exercise . This Option is exercisable by delivery of an exercise notice (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Stock Administration Team of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

 

No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

 

Method of Payment .

 

Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

 

1.               cash; or

 

2.               check; or

 

3.              consideration received by the Company under a formal cashless exercise program implemented by the Company in connection with the Plan; or

 

4.               to the extent permitted by the Administrator, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale proceeds required to pay the Exercise Price.

 

C.       Non-Transferability of Option .

 

This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

 

D.       Term of Option .

 

This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

 

 
 

 

E.       Tax Obligations .

 

(a)        Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

 

(b)        Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee.

 

F.       Entire Agreement; Governing Law .

 

The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California.

 

G.       NO GUARANTEE OF CONTINUED SERVICE .

 

OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

 

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

 

OPTIONEE:    SOCIAL REALITY, INC. 
   
     

 

 

 

 

SOCIAL REALITY, INC.

 

2012 EQUITY COMPENSATION PLAN

 

RESTRICTED STOCK UNIT AGREEMENT

 

I.    NOTICE OF GRANT

 

Unless otherwise defined herein, the terms defined in the 2012 Equity Compensation Plan (the “Plan”) will have the same defined meanings in this Notice of Grant. 

       
  Name:   (“Participant”)
     
  Address:    

 

The Participant has been granted Restricted Stock Units (“ RSUs ”). Each RSU represents the right to receive one Share, subject to the terms and conditions of the Plan and this Restricted Stock Unit Agreement (“ Agreement ”), as follows: 

       
  Grant Number:                                                                                
     
  Date of Grant:                                                                                
     
  Vesting Commencement Date:                                                                                
     
  Number of RSUs:                                                                                

 

Vesting Schedule:

 

[[ADD SCHEDULE], subject to the Participant continuing to be a Service Provider through each vesting date.]

 

Resale Restrictions

 

[ADD ANY APPLICABLE RESALE RESTRICTIONS]

 

II.          AGREEMENT

 

1.           Grant of the RSUs . As set forth in the Notice of Grant, the Company has granted the Participant RSUs. However, unless and until the RSUs will have vested, the Participant will have no right to the payment of any Shares subject thereto. Prior to actual payment of any Shares, such RSUs will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.

 

2.            Vesting of RSUs . Subject to Section 4, the Participant will vest in the RSUs in accordance with the vesting schedule set forth in the Notice of Grant; provided, that, in the event Participant ceases to be a Service Provider, the Participant’s right to vest in the RSUs and to receive the Shares related thereto will terminate effective as of the date that Participant ceases to be a Service Provider and the Participant will have no further rights to such unvested RSUs or the related Shares.

 

3.            Issuance of Shares . No Shares shall be issued to the Participant prior to the date on which the RSUs vest. After any RSUs vest and subject to the terms of this Agreement, the Company shall promptly cause to be issued (either in book-entry form or otherwise) to the Participant or the Participant’s beneficiaries, as the case may be, Shares with respect to such vested RSUs. No fractional Shares shall be issued under this Agreement.

 

4.            Administrator Discretion; Leave of Absence . The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the RSUs at any time, subject to the terms of the Plan. If so accelerated, such RSUs will be considered as having vested as of the date specified by the Administrator. [The Participant’s rights with respect to the RSU in the event of a leave of absence or a change in the Participant’s regularly scheduled hours of employment (other than a change due to termination of employment) will be affected in accordance with the Company’s applicable employment policies or the terms of any agreement between the Participant and the Participant’s employer with respect thereto.]

 
 

 

5.            Death of Participant . Any distribution or delivery to be made to the Participant under this Agreement will, if the Participant is then deceased, be made to the administrator or executor of the Participant’s estate. Any such administrator or executor must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

 

6.            Resale Restrictions . Any Shares issued to Participant may be subject to restrictions on resale as provided for in the Notice of Grant.

 

7.           Taxes.

 

(a)            Generally . The Participant is ultimately liable and responsible for all taxes owed in connection with the RSU, regardless of any action the Company or any of its Subsidiaries takes with respect to any tax withholding obligations that arise in connection with the RSU. Neither the Company nor any of its Subsidiaries makes any representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of the RSU or the subsequent sale of Shares issuable pursuant to the RSU. The Company and its Subsidiaries do not commit and are under no obligation to structure the RSU to reduce or eliminate the Participant’s tax liability.

 

(b)            Payment of Withholding Taxes . Notwithstanding any contrary provision of this Agreement, no Shares will be issued to the Participant, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by the Participant with respect to the payment of any taxes which the Company determines must be withheld with respect to the RSUs. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may satisfy such tax withholding obligations, in whole or in part, by withholding otherwise deliverable Shares having an aggregate Fair Market Value sufficient to (but not exceeding) the minimum amount required to be withheld. In addition and to the maximum extent permitted by law, the Company has the right to retain without notice from salary or other amounts payable to the Participant, cash having a value sufficient to satisfy any tax withholding obligations that cannot be satisfied by the withholding of otherwise deliverable Shares.

 

8.            Changes in Shares . In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs such that an adjustment is determined by the Administrator (in its sole discretion) to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Award, the Administrator may, in such manner as it shall deem equitable or appropriate in order to prevent the diminution or enlargement of any such benefits or potential benefits, make adjustments to this Award, including adjustments in the number and type of Shares Participant would have received upon vesting of the RSUs; provided, however , that the number of Shares into which the RSUs may be converted shall always be a whole number.

 

9.            Rights as Stockholder . Neither the Participant nor any person claiming under or through the Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

 

10.           No Effect on Employment . The transactions contemplated hereunder and the vesting schedule set forth in the Notice of Grant do not constitute an express or implied promise of continued employment for any period of time.

 

11.           Award is Not Transferable . Except to the limited extent provided in Section 5 above, this Award of RSUs and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way by the Participant (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Participant has been issued the Shares. Upon any attempt by the Participant to transfer, assign, pledge, hypothecate or otherwise dispose of this Award, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this Award and the rights and privileges conferred hereby immediately will become null and void.

 

12.           Entire Agreement . This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the RSUs.

 

 
 

13.           Binding Agreement . Subject to the limitation on the transferability of this Award contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

 

14.           Additional Conditions to Issuance of Certificates for Shares . The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any state or federal governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the date of vesting of the RSUs as the Administrator may establish from time to time for reasons of administrative convenience.

 

15.           Plan Governs . This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.

 

16.           Administrator Authority . The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Participant, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

 

17.           Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

18.           Agreement Severable . In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

 

19.           Notice of Governing Law . This Agreement will be governed by the internal substantive laws, but not the choice of law rules of the State of Delaware.

 

20.           Employee Data Privacy .

 

(a)           Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by the Company for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.

 

(b)           Participant understands that the Company holds certain personal information, including, but not limited to, name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor, for the purpose of implementing, administering and managing the Plan (“ Data ”).

 

(c)           Participant understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Participant’s country. Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting Participant’s local human resources representative.

 

(d)           Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Participant’s local human resources representative. Participant understands, however, that refusing or withdrawing consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of the refusal to consent or withdrawal of consent, Participant understands that he or she may contact Participant’s local human resources representative.

 

[Signature Pages to Follow]

 

********************************

 

 
 

[Signature Page to Social Reality, Inc. Restricted Stock Unit]

 

By your signature and the signature of the Company’s representative below, you and the Company agree that this Award of Restricted Stock Units is granted under and governed by the terms and conditions of the Plan and the Agreement.

 

PARTICIPANT:   SOCIAL REALITY, INC.
   
     
     
Signature   By
     
Print Name   Title
   
Date:                          , 20___   Date:                          , 20____

 

 

 

SOCIAL REALITY, INC.

2012 EQUITY COMPENSATION PLAN

RESTRICTED STOCK AWARD AGREEMENT

Unless otherwise defined herein, the terms defined in the Social Reality, Inc. 2012 Equity Compensation Plan (the “Plan”) will have the same defined meanings in this Restricted Stock Award Agreement (the “Award Agreement”).

 

I.        NOTICE OF RESTRICTED STOCK GRANT

Participant Name:

Address:

You have been granted the right to receive an Award of Restricted Stock, subject to the terms and conditions of the Plan and this Award Agreement, as follows:

 

Grant Number      
     
Date of Grant      
       
Vesting Commencement Date      
       
Total Number of Shares Granted      

 

Vesting Schedule :

Subject to any acceleration provisions contained in the Plan or set forth below, the Restricted Stock will vest and the Company’s right to reacquire the Restricted Stock will lapse in accordance with the following schedule:

 

[Insert Vesting Schedule]

 

II.            TERMS AND CONDITIONS OF RESTRICTED STOCK GRANT

1.          Grant of Restricted Stock . The Company hereby grants to the individual named in the Notice of Grant in Part I of this Award Agreement (the “Participant”) under the Plan for past services and as a separate incentive in connection with his or her services and not in lieu of any salary or other compensation for his or her services, an Award of Shares of Restricted Stock, subject to all of the terms and conditions in this Award Agreement and the Plan, which is incorporated herein by reference. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Award Agreement, the terms and conditions of the Plan will prevail.

2.          Escrow of Shares .

(a)           All Shares of Restricted Stock will, upon execution of this Award Agreement, be delivered and deposited with an escrow holder designated by the Company (the “Escrow Holder”). The Shares of Restricted Stock will be held by the Escrow Holder until such time as the Shares of Restricted Stock vest or the date Participant ceases to be an Employee, (Eligible) Director, Consultant or Advisor (collectively “Service Provider”).

 

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(b)           The Escrow Holder will not be liable for any act it may do or omit to do with respect to holding the Shares of Restricted Stock in escrow while acting in good faith and in the exercise of its judgment.

(c)           Upon Participant’s termination as a Service Provider for any reason, the Escrow Holder, upon receipt of written notice of such termination, will take all steps necessary to accomplish the transfer of the unvested Shares of Restricted Stock to the Company. Participant hereby appoints the Escrow Holder with full power of substitution, as Participant’s true and lawful attorney-in-fact with irrevocable power and authority in the name and on behalf of Participant to take any action and execute all documents and instruments, including, without limitation, stock powers which may be necessary to transfer the certificate or certificates evidencing such unvested Shares of Restricted Stock to the Company upon such termination.

(d)          The Escrow Holder will take all steps necessary to accomplish the transfer of Shares of Restricted Stock to Participant after they vest following Participant’s request that the Escrow Holder do so.

(e)          Subject to the terms hereof, Participant will have all the rights of a stockholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon.

(f)          In the event of any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares, the Shares of Restricted Stock will be increased, reduced or otherwise changed, and by virtue of any such change Participant will in his or her capacity as owner of unvested Shares of Restricted Stock be entitled to new or additional or different shares of stock, cash or securities (other than rights or warrants to purchase securities); such new or additional or different shares, cash or securities will thereupon be considered to be unvested Shares of Restricted Stock and will be subject to all of the conditions and restrictions which were applicable to the unvested Shares of Restricted Stock pursuant to this Award Agreement. If Participant receives rights or warrants with respect to any unvested Shares of Restricted Stock, such rights or warrants may be held or exercised by Participant, provided that until such exercise any such rights or warrants and after such exercise any shares or other securities acquired by the exercise of such rights or warrants will be considered to be unvested Shares of Restricted Stock and will be subject to all of the conditions and restrictions which were applicable to the unvested Shares of Restricted Stock pursuant to this Award Agreement. The Administrator or Committee (collectively “Administrator”) in its absolute discretion at any time may accelerate the vesting of all or any portion of such new or additional shares of stock, cash or securities, rights or warrants to purchase securities or shares or other securities acquired by the exercise of such rights or warrants.

(g)          The Company may instruct the transfer agent for its Common Stock to place a legend on the certificates representing the Restricted Stock or otherwise note its records as to the restrictions on transfer set forth in this Award Agreement.

3.           Vesting Schedule . Except as provided in Section 5, and subject to Section 6, the Shares of Restricted Stock awarded by this Award Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. Shares of Restricted Stock scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Award Agreement, unless Participant will have been continuously a Service Provider from the Date of Grant until the date such vesting occurs.

 

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4.          Administrator Discretion . The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock will be considered as having vested as of the date specified by the Administrator.

5.           Forfeiture upon Termination of Status as a Service Provider . Notwithstanding any contrary provision of this Award Agreement, the balance of the Shares of Restricted Stock that have not vested at the time of Participant’s termination as a Service Provider for any reason will be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company upon the date of such termination and Participant will have no further rights thereunder. Participant will not be entitled to a refund of the price paid for the Shares of Restricted Stock, if any, returned to the Company pursuant to this Section 6. Participant hereby appoints the Escrow Agent with full power of substitution, as Participant’s true and lawful attorney-in-fact with irrevocable power and authority in the name and on behalf of Participant to take any action and execute all documents and instruments, including, without limitation, stock powers which may be necessary to transfer the certificate or certificates evidencing such unvested Shares to the Company upon such termination of service.

6.           Death of Participant . Any distribution or delivery to be made to Participant under this Award Agreement will, if Participant is then deceased, be made to Participant’s designated beneficiary, or if no beneficiary survives Participant, the administrator or executor of Participant’s estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

7.           Withholding of Taxes . Notwithstanding any contrary provision of this Award Agreement, no certificate representing the Shares of Restricted Stock may be released from the escrow established pursuant to Section 2, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by Participant with respect to the payment of income, employment and other taxes which the Company determines must be withheld with respect to such Shares. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such tax withholding obligation, in whole or in part (without limitation) by (a) paying cash, (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value equal to the minimum amount required to be withheld, (c) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld, or (d) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld. To the extent determined appropriate by the Company in its discretion, it will have the right (but not the obligation) to satisfy any tax withholding obligations by reducing the number of Shares otherwise deliverable to Participant. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the time any applicable Shares otherwise are scheduled to vest pursuant to Sections 3 or 5, Participant will permanently forfeit such Shares and the Shares will be returned to the Company at no cost to the Company.

8.           Rights as Stockholder . Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant or the Escrow Agent. Except as provided in Section 2, after such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

 

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9.           No Guarantee of Continued Service . PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE SHARES OF RESTRICTED STOCK PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS RESTRICTED STOCK OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

 

10.          Address for Notices . Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company, in care of its Stock Administration at Social Reality Inc., 479 Rodeo Drive, Suite 308, Beverly Hills, CA 90210 or at such other address as the Company may hereafter designate in writing.

11.          Grant is Not Transferable . Except to the limited extent provided in Section 7, the unvested Shares subject to this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any unvested Shares of Restricted Stock subject to this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

12.           Binding Agreement . Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

13.           Additional Conditions to Release from Escrow . The Company will not be required to issue any certificate or certificates for Shares hereunder or release such Shares from the escrow established pursuant to Section 2 prior to fulfillment of all the following conditions: (a) the completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator will, in its absolute discretion, deem necessary or advisable; (b) the obtaining of any approval or other clearance from any state or federal governmental agency, which the Administrator will, in its absolute discretion, determine to be necessary or advisable; and (c) the lapse of such reasonable period of time following the date of grant of the Restricted Stock as the Administrator may establish from time to time for reasons of administrative convenience.

14.           Plan Governs . This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Award Agreement and one or more provisions of the Plan, the provisions of the Plan will govern. Capitalized terms used and not defined in this Award Agreement will have the meaning set forth in the Plan.

 

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15.           Administrator Authority . The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Shares of Restricted Stock have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award Agreement.

 

16.           Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Shares of Restricted Stock awarded under the Plan or future Restricted Stock that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.

17.           Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.

18.           Agreement Severable . In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.

19.           Modifications to the Agreement . This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code in connection to this Award of Restricted Stock.

20.          Amendment, Suspension or Termination of the Plan . By accepting this Award, Participant expressly warrants that he or she has received an Award of Restricted Stock under the Plan, and has received, read and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.

21.           Governing Law . This Award Agreement will be governed by the laws of the State of Delaware, without giving effect to the conflict of law principles thereof. For purposes of litigating any dispute that arises under this Award of Restricted Stock or this Award Agreement.

 

By your signature and the signature of the Company’s representative below, you and the Company agree that this Award is granted under and governed by the terms and conditions of the Plan and this Award Agreement. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.

 

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PARTICIPANT:    SOCIAL REALITY, INC.: 
     
     
Signature   By
   
     
Print Name   Title

  

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THE SILVESTRE LAW GROUP, P.C.

 

31200 Via Colinas, Suite 200

Westlake Village, CA 91362

(818) 597-7552

Fax (818) 597-7551

 

January 24, 2012

   

VIA ELECTRONIC TRANSMISSION

 

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

 

Re:        SOCIAL REALITY, INC., Form S-1 Registration Statement

 

Ladies and Gentlemen:

 

We refer to the the registration statement on Form S-1 (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Act”), filed by SOCIAL REALITY, INC., a Delaware corporation (the “Company”), with the Securities and Exchange Commission on January 24, 2012 registering 1,447,107 of the Company’s Class A common shares for resale by the selling shareholders named therein.

 

We have examined the originals, photocopies, certified copies or other evidence of such records of the Company, certificates of officers of the Company and public officials, and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents.

 

Based on our examination mentioned above, we are of the opinion that the securities being sold pursuant to the Registration Statement are duly authorized and will be, when issued in the manner described in the Registration Statement, legally and validly issued, fully paid and non-assessable.

 

We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under “Legal Matters” in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act, or the rules and regulations of the Securities and Exchange Commission.

 

Very truly yours,

 

/s/ Silvestre Law Group, P.C.

 

Silvestre Law Group, P.C.

 

 

 

 

EMPLOYMENT AGREEMENT

This Employment Agreement (the “ Agreement ”), dated as of January 1, 2012 (the “ Effective Date ”), is made by and between Social Reality, Inc., a Delaware corporation (the “ Company ”), and Christopher Miglino (“ Executive ”).  This Agreement is intended to confirm the understanding and set forth the agreement between the Company and Executive with respect to Executive’s employment by the Company.  In consideration of the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the Company and the Executive hereby agree as follows:

1.             Employment & Directorship .

(a)           Title and Duties .  Subject to the terms and conditions of this Agreement, the Company will employ Executive, and Executive will be employed by the Company, as Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), reporting to the Board of Directors of the Company (the “ Board ”).  Executive will have the responsibilities, duties and authority commensurate with said position.  Executive will also perform such other services of an executive nature for the Company as may be reasonably assigned to Executive from time to time by the Board.

(b)           Devotion to Duties .  For so long as Executive is employed hereunder, Executive will devote substantially all of Executive’s business time and energies to the business and affairs of the Company; provided that nothing contained in this Section 1(b) will be deemed to prevent or limit Executive’s right to manage Executive’s personal investments on Executive’s own personal time, including, without limitation, the right to make investments in the securities of any entity which Executive does not control, directly or indirectly, and which does not compete with the Company.

(c)            Directorship . In the event that Executive is elected to serve on the Company’s Board, the Executive agrees to accept election, as director of the Company, without any compensation therefore other than as specified in this Agreement.

 

2.             Term of Agreement; Termination of Employment .

(a)           Term of Agreement .  The term of this Agreement shall commence on the Effective Date and shall continue in effect for four (4) years; provided however , that commencing on the third anniversary of the Effective Date and continuing each anniversary thereafter, the Term shall automatically be extended for two (2) additional year unless, not later than three (3) months before the conclusion of the Term, the Company or the Executive shall have given notice not to extend the Term.  Such notice or such termination of this Agreement shall not on its own have the effect of terminating Executive’s employment, nor shall it constitute Cause (as defined below).  The duration of this Agreement is referred to as the “ Term .”

(b)           Termination of Employment . Subject to the provisions of Section 4, either the Executive or the Company may terminate the employment relationship at any time for any reason.  Notwithstanding anything else contained in this Agreement, Executive’s employment during the Term will terminate upon the earliest to occur of the following:

(i)            Death .  Immediately upon Executive’s death;

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(ii)           Termination by the Company .

(A)          If because of Disability (as defined below), then upon written notice by the Company to Executive that Executive’s employment is being terminated as a result of Executive’s Disability, which termination shall be effective on the date of such notice;

(B)           If for Cause (as defined below), then upon written notice by the Company to Executive that states that Executive’s employment is being terminated for Cause and sets forth the specific alleged Cause for termination and the factual basis supporting the alleged Cause, which termination shall be effective on the date of such notice or such later date as specified in writing by the Board; or

(C)           If without Cause (i.e., for reasons other than Sections 2(b)(ii)(A) or (B)), then upon written notice by the Company to Executive that Executive’s employment is being terminated without Cause, which termination shall be effective on the date of such notice or such later date as specified in writing by the Board; or

(iii)          Termination by Executive

(A)         If for Good Reason (as defined below), then upon written notice by Executive to the Company that states that Executive is terminating Executive’s employment for Good Reason and sets forth the specific alleged Good Reason for termination and the factual basis supporting the alleged Good Reason, such termination shall be effective on the date of such notice; or

(B)         If without Good Reason, then upon written notice by Executive to the Company that Executive is terminating Executive’s employment, which termination shall be effective, at Executive’s election, not less than thirty (30) days and not more than sixty (60) days after the date of such notice; provided that the Executive may request a shorter period subject to Board approval; and further provided that the Board may choose to accept Executive’s resignation effective as of an earlier date.

Notwithstanding anything in this Section 2(b), the Company may at any point terminate Executive’s employment for Cause prior to the effective date of any other termination contemplated hereunder if such Cause exists.

(C)           Definition of “Disability” .  For purposes of this Agreement, “ Disability ” shall mean that Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months.  Whether the Executive has a Disability will be determined by a majority of the Board based on evidence provided by one or more physicians selected by the Board and approved by Executive, which approval shall not be unreasonably withheld.

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(D)           Definition of “Cause” .  For purposes of this Agreement, “ Cause ” shall mean that Executive has:

(i)          intentionally committed an unlawful act or omission in the performance of Executives duties that materially harms the Company;

(ii)          been grossly negligent in the performance of Executive’s duties to the Company;

(iii)        willfully failed or refused to follow the lawful and proper directives of the Board;

(iv)         been convicted of, or pleaded guilty to a felony;

(v)          committed an act involving moral turpitude;

(vi)         committed an act relating to the Company involving fraud or theft resulting in harm to the Company;

(vii)        breached any material provision of this Agreement or any nondisclosure or non-competition agreement (including the Proprietary Information, Inventions, and Competition Agreement attached here as Exhibit A ), between Executive and the Company, as all of the foregoing may be amended prospectively from time to time; or

(viii)       breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time.

(E)        Definition of “Good Reason” .  For purposes of this Agreement, “Good Reason” shall mean the occurrence of one or more of the following without the Executive’s consent:  (i) a change in the principal location at which the Executive performs his duties for the Company to a new location that is at least forty (40) miles from the prior location without Executives consent; or (ii) a material change in the Executive’s authority, functions, duties or responsibilities, which would cause his position with the Company to become of less responsibility, importance or scope than his position on the date of this Agreement, provided, however, that such material change is not in connection with the termination of the Executive’s employment by the Company for Cause or death or Disability and further provided that it shall not be considered a material change if the Company becomes a subsidiary of another entity and Executive continues to hold the same position in the subsidiary.

(F)        Board Membership .  Upon: (i) termination of Executive’s employment for any reason,(ii) the removal of the Executive from the Board by a majority vote of the shareholder, or (iii) Executives failure to be re-elected to the Board at a meeting of shareholder, if so requested by a majority of the Board, Executive shall immediately resign in writing as a director of the Company.

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3.             Compensation .

 

(a)           Base Salary .  While Executive is employed hereunder, the Company will pay Executive a base salary at the gross annualized rate of $192,000.00 (the “ Base Salary ”), paid in accordance with the Company’s usual payroll practices.  The Base Salary will be subject to review annually or on such periodic basis (no less than annually) as the Company reviews the compensation of the Company’s other senior executives and may be adjusted upwards in the sole discretion of the Board or its designee.  The Company will deduct from each such installment any amounts required to be deducted or withheld under applicable law or under any employee benefit plan in which Executive participates.

(b)           Annual Bonus .  Executive may be eligible to earn an Annual Bonus relating to each fiscal year, based on the achievement of individual and Company written goals established on an annual basis by the Board within thirty (30) days of the beginning of the fiscal year.  Such goals may include minimum working capital or other financial requirements as a condition to receiving the Annual Bonus. The applicable bonus amount shall be determined at such time as the Board establishes the written goals for each applicable year (“ Target Annual Bonus ”). Any awarded Annual Bonus shall be paid within 2 ½ months of the year to which it relates. Notwithstanding the forgoing, Executive acknowledges that the bonus may be comprised of cash and non-cash compensation as determined at the sole discretion of the Board or its designee.

(c)          Discretionary Bonus . At the sole discretion of the Board, the Executive shall be eligible to receive an annual discretionary bonus (the “ Discretionary Bonus ”) based upon his performance during the prior year. Any awarded Discretionary Bonus shall be paid within 2 ½ months of being granted. Notwithstanding the forgoing, Executive acknowledges that the bonus may be comprised of cash or non-cash compensation as determined at the sole discretion of the Board or its designee.

 

(d)           Fringe Benefits .  In addition to any benefits provided by this Agreement, Executive shall be entitled to participate generally in all employee benefit, welfare and other plans, practices, policies and programs (collectively “ Benefit Plans ”) and fringe benefits maintained by the Company from time to time on a basis no less favorable than those provided to other similarly-situated executives of the Company.  Executive understands that, except when prohibited by applicable law, the Company’s Benefit Plans and fringe benefits may be amended, enlarged, diminished or terminated prospectively by the Company from time to time, in its sole discretion, and that such shall not be deemed to be a breach of this Agreement. Executive acknowledges that at present, the Company does not maintain any Benefit Plans and nothing contained herein shall obligate the Company to establish any such plans.

(e)           Paid Time Off .  Executive will be entitled to an initial thirty (30) days of Paid Time Off (“ PTO ”) per year, administered in accordance with and subject to the terms of the Company’s PTO policy, as it may be amended prospectively from time to time. Executive is entitled to accrue additional PTO days for any days not taken in the prior year provided that in no event shall Executive be entitled to more than forty five (45) PTO days per any calendar year.

(f)           Reimbursement of Expenses .  The Company will promptly reimburse Executive for all ordinary and reasonable out-of-pocket business expenses that are incurred by Executive in furtherance of the Company’s business in accordance with the Company’s policies with respect thereto as in effect from time to time.

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4.             Compensation Upon Termination .

(a)           Definition of Accrued Obligations .  For purposes of this Agreement, “ Accrued Obligations ” means (i) the portion of Executive’s Base Salary that has accrued prior to any termination of Executive’s employment with the Company and has not yet been paid; (ii) to the extent required by law and the Company’s policy, an amount equal to the value of Executive’s accrued but unused PTO days; (iii) the amount of any expenses properly incurred by Executive on behalf of the Company prior to any such termination and not yet reimbursed; (iv) the Annual Bonus related to the most recently completed fiscal year, if not already paid and if the termination is not for Cause (the amount of which shall be determined in accordance with Section 3(b) above); (v) any accrued but unused PTO days; and (vi) any applicable Discretionary Bonus previously awarded, if not already paid and if the termination is not for Cause.

(b)           Termination for Cause, By the Executive without Good Reason, or as a Result of Executive’s Disability or Death .

(i)            If Executive’s employment is terminated during the Term either by the Company for Cause or by Executive without Good Reason, or if Executive’s employment terminates as a result of the Executive’s death, the Company will pay the Accrued Obligations to Executive, or his estate, promptly following the effective date of such termination.

(ii)           In case of termination during the Term by the Company as a result of the Executive’s Disability, the Company will pay Executive the Accrued Obligations plus an amount equal to twenty four (24) months of Executive’s then-current Base Salary, or the salary in this agreement whichever is greater.

(c)           Termination by the Company without Cause or by Executive with Good Reason .  If Executive’s employment is terminated by the Company without Cause or by Executive with Good Reason, during the Term, then:

(i)            The Company will pay the Accrued Obligations to Executive promptly following the effective date of such termination;

(ii)           The Company will pay Executive a total amount equal to twenty four (24 months of Executive’s then current Base Salary, less applicable taxes and deductions; to be made in approximately equal biweekly installments in accordance with the Company’s usual payroll practices over a period of twenty four (24) months beginning after the effective date of the separation agreement described in Section 4(d);

(iii)          The Company will continue to provide medical insurance coverage for Executive and Executive’s family, subject to the requirements of COBRA and subject to Executive’s payment of a premium co-pay related to the coverage that is no less favorable than the premium co-pay charged to active employees of the Company electing the same coverage, for twenty four (24 months from the Separation Date; provided , that the Company shall have no obligation to provide such coverage if Executive fails to elect COBRA benefits in a timely fashion or if Executive becomes eligible for medical coverage with another employer. In the event the Company does not provide medical insurance coverage to its employees but instead provides for expense reimbursement in connection with the such premiums, the Company will continue to reimburse Execute for such premiums for a period of eighteen (18) months; and

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(iv)          That portion of unvested or restricted securities then held by Executive, whether granted herein or subsequently, if any, shall vest and be immediately exercisable as of the date of the employment termination.  All options and shares of restricted stock shall otherwise be subject to the terms and conditions of their respective agreements and with the applicable plan.

(d)           Release of Claims/Board Resignation .  The Company shall not be obligated to pay Executive any of the compensation or provide Executive any of the benefits set forth in Section 4(b)(i) or 4(c) (other than the Accrued Obligations) unless and until Executive has (i) executed a timely separation agreement in a form acceptable to the Company, which shall include a release of claims between the Company and the Executive and may include provisions regarding mutual non-disparagement and confidentiality; and (ii) resigned from the Board, if so requested pursuant to Section2(b)(iii)(F).

(e)           Other Payments or Benefits Owing .  The payments and benefits set forth in this Section 4 shall be in addition to any payments or benefits owing to Executive pursuant to a severance agreement.  Executive shall not be eligible for any other payments, including but not limited to additional Base Salary payments, bonuses, commissions, or other forms of compensation or benefits, except as may otherwise be set forth in this Agreement, other agreements between the Company and Executive, including severance agreements, or in Company plan documents with respect to plans in which Executive is a participant.

(f)            Notwithstanding any other provision with respect to the timing of payments under Section 4, if, at the time of Executive’s termination, Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then limited only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which Executive may become entitled under Section 4 which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first (1 st ) business day of the seventh (7 th ) month following the termination of Executive’s employment, at which time Executive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to Executive under the terms of Section 4.

5.             Competition and Confidentiality .   Executive agrees to sign and understands that his or her employment as an Executive is contingent on signing and returning to the Company the Proprietary Information, Inventions, Confidentiality and Competition Agreement (the “Proprietary Information Agreement”) attached hereto as Exhibit A concurrently with the execution of this Agreement.  The parties agree that the obligations set forth in the Proprietary Information Agreement shall survive termination of this Agreement and termination of the Executive’s employment, regardless of the reason for such termination.

6.             Property and Records .  Upon termination of Executive’s employment hereunder for any reason or for no reason, Executive will deliver to the Company any property of the Company which may be in Executive’s possession, including blackberry-type devices, laptops, cell phones, products, materials, memoranda, notes, records, reports or other documents or photocopies of the same.

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7.             General .

 

(a)           Notices .  Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by facsimile transmission upon acknowledgment of receipt of electronic transmission; (iv) by certified or registered mail, return receipt requested, upon verification of receipt, or (v) via facsimile with confirmation of receipt at the Company’s primary facsimile number.  Notices to Executive shall be: (x) sent to the last known address in the Company’s records or such other address as Executive may specify in writing; or (y) via facsimile with confirmation of receipt at the facsimile number provided to the Company by Executive.  Notices