UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): April 28, 2014

 

LOTON, CORP

(Exact name of registrant as specified in its charter)

 

Nevada 333-167219 90-0657263
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation)   Identification No.)
     
4751 Wilshire Blvd., Third Floor    
Los Angeles, California   90010
(Address of principal executive offices)   (Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (310) 601-2500

 

NOT APPLICABLE

 

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

 

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

This Current Report on Form 8-K (“Form 8-K”) and other reports filed by the Registrant (collectively the “Filings”) from time to time with the Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Registrant’s management as well as estimates and assumptions made by the Registrant’s management. When used in the filings the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” “may,” “will,” or the negative of these terms and similar expressions as they relate to the Registrant or the Registrant’s management identify forward-looking statements. Such statements reflect the current view of the Registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this report entitled “Risk Factors”) relating to the Registrant’s industry, the Registrant’s operations and results of operations and any businesses that may be acquired by the Registrant. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Although the Registrant believes that the expectations reflected in the forward-looking statements are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Registrant does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with the financial statements of Obar Camden Holdings Limited and pro forma financial statements and the related notes filed with this Form 8-K, the financial statements of the Registrant for the year ended April 30, 2013, which are included in the Registrant’s Annual Report on Form 10-K, filed with the SEC on July 29,2013, and the unaudited financial statements of the Registrant for the quarterly periods ended July 31, 2013 October 31, 2013 and January 31, 2014 which are included in the Registrant’s Quarterly Reports on Form 10-Q, filed with the SEC on September 16, 2013, December 16, 2013 and March 12, 2014, respectively.

 

Unless otherwise indicated, in this Form 8-K, for periods following the Merger, references to “we,” “our,” “us,” the “Company” or the “Registrant” refer to Loton, Corp., a Nevada corporation, and its 50%-owned subsidiary Obar Camden Holdings Limited, a private limited company registered in England and Wales.

 

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Item 1.01 Entry into a Material Definitive Agreement

 

Merger Agreement

 

On April 28, 2014, Loton, Corp., a Nevada corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Loton Acquisition Sub I, Inc., a Delaware corporation (“Acquisition Sub”) and KoKo (Camden) Holdings (US), Inc. (“KoKo Parent”), a Delaware corporation and wholly-owned subsidiary of JJAT Corp. (“JJAT”), a Delaware corporation wholly-owned by Robert Ellin, the Company’s Chief Executive Officer, Director and controlling shareholder (“Mr. Ellin”), and his affiliates (the “Merger”). As a result of the Merger, KoKo Parent became a wholly-owned subsidiary of the Company, and the Company’s primary business became that of KoKo Parent and its subsidiaries, KoKo (Camden) Limited, a private limited company registered in England and Wales (“KoKo UK”) which owns 50% of OBAR Camden Holdings Limited, a private limited company registered in England and Wales (“OCHL”) which in turn wholly-owns its operating subsidiary OBAR Camden Limited, a private limited company registered in England and Wales (“OCL”). Upon the closing of the Merger, pursuant to the terms of the Merger Agreement, KoKo Parent’s former sole shareholder, JJAT Corp., received 29,000,000 shares of Loton, Corp common stock (“Company Common Stock”), or approximately 73.9% of the shares of the Company outstanding post-merger. The shares of Company Common Stock were issued pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. The shares are unregistered, restricted stock bearing a restrictive legend.

 

The material terms of the Merger Agreement are described more fully in Item 2.01 of this Current Report on Form 8-K. The information therein is hereby incorporated into this Item 1.01 by reference.

 

Variation to Shareholder Agreement

 

On April 25, 2014, the Company entered into a Variation to Shareholder Agreement with Olly Bengough, an individual residing in the United Kingdom (“Bengough”) and KoKo Parent, described more fully in Item 2.01 of this Current Report on Form 8-K under the heading “ The OCHL Shareholders Agreement ” (the “Variation Agreement”) pursuant to which Mr. Bengough agreed, subject to Mr. Bengough’s receipt of satisfactory tax clearances under the tax laws of the United Kingdom, to transfer all shares of OCHL held by him to the Company in exchange for 29,000,000 shares of Company Common Stock, or approximately 42.5% of the shares of the Company outstanding post-exchange (including giving effect to the Merger described above) with the result that upon closing of that transaction, OCHL would become a wholly-owned subsidiary of our wholly-owned subsidiary, KoKo UK. The shares of Company Common Stock would be issued pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. The shares would be unregistered, restricted stock bearing a restrictive legend.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

The Merger and Related Transactions

 

As described in Item 1.01 above, on April 28, 2014, the Company acquired KoKo Parent and its wholly-owned subsidiary, KoKo UK which owns 50% of the capital stock of OCHL. OCHL wholly-owns OCL, a music and entertainment company whose principal business is the operation of a live music venue and nightclub known as KOKO located in Camden, London. The following sets forth information about the agreements and events relating to the acquisition.

 

The Share Purchase Agreement and Minority Share Purchase Agreement

 

On February 13, 2014, KoKo UK entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Alex Rutherford, an individual residing in the United Kingdom (the “Seller”), pursuant to which KoKo UK acquired 47.475% of the outstanding ordinary shares of OCHL owner of OCL, for £1,104,250 at the closing and £1,318,250 in deferred consideration, subject to working capital adjustments. The closing of the Share Purchase Agreement occurred on February 13, 2014. The deferred consideration was paid on April 28, 2014, and the working capital adjustment is expected to be paid shortly.

 

On February 13, 2014, KoKo UK entered into a Share Purchase Agreement (the “Minority Share Purchase Agreement”) with Hugh Doherty and Laurence Seymour, each an individual residing in the United Kingdom (collectively, the “Minority Sellers”), pursuant to which (i) KoKo UK, and, at KoKo UK’s direction, JJAT, each acquired 2.525% of the outstanding ordinary shares and 50% of the outstanding deferred shares of OCHL for an aggregate of £255,002 paid by KoKo UK, and (ii) Oliver Bengough agreed to purchase from JJAT its 2.525% of the outstanding ordinary shares and the outstanding deferred shares of OCHL on April 24, 2014 (the “Bengough Minority Share Purchase Agreement”). The closing of the Minority Share Purchase Agreement and the Bengough Minority Share Purchase Agreement occurred on April 28, 2014 and, at that time, Mr. Bengough purchased from JJAT its 2.525% of the outstanding ordinary shares and the outstanding deferred shares of OCHL. Mr. Bengough purchased the shares from JJAT for a promissory note in the principal amount of £127,501 (the “Bengough Promissory Note”). All debt owed from KoKo UK to JJAT (approximately $1,533,333) was converted to equity in KoKo UK effective April 25, 2014, and JJAT indirectly owned 100% of KoKo UK on such date.

 

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The Share Purchase Agreement and the Minority Share Purchase Agreement include certain representations, warranties and covenants made by KoKo UK and KoKo UK’s obligations of performance thereunder are guaranteed by Trinad Capital Master Fund, Ltd., a fund controlled by Mr. Ellin (“Trinad Capital”), Mr. Bengough and OCL. The assertions embodied in the representations and warranties were made solely for purposes of the Share Purchase Agreement and Minority Share Purchase Agreement, directly, and are not intended to provide factual, business, or financial information about Loton, OCHL, OCL or any other party to the Share Purchase Agreement or Minority Share Purchase Agreement. The guarantees under each agreement were made solely for purposes of such agreement and are not intended to guarantee any obligations other than as reflected in the terms thereof. Moreover, some of those representations and warranties (i) may not be accurate or complete as of any specified date, (ii) may be subject to a contractual standard of materiality different from those generally applicable to shareholders or different from what a shareholder might view as material, (iii) may have been used for purposes of allocating risk among Seller, KoKo UK and Guarantor, rather than establishing matters as facts, and/or (iv) may have been qualified by certain disclosures not reflected in the Share Purchase Agreement or Minority Share Purchase Agreement that were made to the other party in connection with the negotiation thereof and generally were solely for the benefit of the parties thereto.

 

In connection with entering into the Share Purchase Agreement and the Minority Share Purchase Agreement, on February 13, 2014, KoKo UK, Seller, Minority Sellers, Oliver Bengough and Mint Group Holdings Limited, a company incorporated in England, entered into an agreement pursuant to which KoKo UK reimbursed the expenses of the other parties thereto in the amount of approximately £226,000 relating to the proposed sale of OCHL.

 

KoKo UK, Trinad Capital, JJAT Corp., Sellers and Minority Sellers also entered into a Deed of Subordination dated February 13, 2014 pursuant to which the parties agreed that KoKo UK’s collective indebtedness to Trinad Capital and JJAT is subordinate to KoKo UK’s deferred consideration payment obligations under the Share Purchase Agreement and Minority Share Purchase Agreement, respectively.

 

Trinad Capital also entered into a Negative Pledge and Agreement to Create Lien dated February 13, 2014 with each of the Seller and the Minority Sellers pursuant to which Trinad Capital made that certain negative pledge and covenants with respect to certain of its assets in connection with the future payment of the deferred consideration under the Share Purchase Agreement and Minority Share Purchase Agreement.

 

The OCHL Shareholders’ Agreement

 

On February 12, 2014, (1) Mr. Bengough, and (2) KoKo UK, Mr. Ellin, Trinad Capital Master Fund Limited, Ltd. (the “Ellin Parties”) and (3) OCHL entered into a Shareholders’ Agreement (the “OCHL Shareholders’ Agreement”) pursuant to which the Ellin Parties make certain representations to Mr. Bengough with regard to Guarantees under the Share Purchase Agreement and reimbursement of expenses relating to the transaction. The parties also agreed to terms relating to payment obligations with respect to the financing of the Merger which are reflected in more detail below, under the heading “ Reimbursement of Expenses between JJAT and Bengough and the OCHL and OCL Promissory Notes” . The OCHL Shareholders’ Agreement further provides that each of Mr. Ellin and Mr. Bengough shall constitute the Board of Directors of OCHL and each shall be restricted from taking actions on behalf of OCHL without the written consent of the other individual, including, but not limited to, changes in the nature of the business, amendments to governing documents, restructuring or recapitalizations, issuances of stock, purchases of material assets, entry into material contracts, incurring or guaranteeing debt, removal of any director or restructure the board of OCHL. Because OCHL is the sole parent of OCL, the Company’s ability to manage OCHL and OCL is subject to the terms of the OCHL Shareholder Agreement and Mr. Bengough’s consent is required for most material actions to be taken by OCHL and OCL, so long as the OCHL Shareholders’ Agreement remains in effect. Each of Mr. Bengough and Mr. Ellin are entitled to serve on the board of OCHL so long as the OCHL Shareholders’ Agreement is in effect, and the board cannot take action without the consent of both board members. Pursuant to the OCHL Shareholder Agreement, any cash distributions by OCHL must be distributed pro rata to each of KoKo UK and Mr. Bengough. Finally, the OCHL Shareholder Agreement restricts the transfer of shares in OCHL or OCL by KoKo UK or Mr. Bengough and grants each a right of first refusal and the right to have the proposed shares valued by an independent accounting firm and sold to the other party at a price determined by valuation rather than the price necessarily offered by the prospective purchaser.

 

On April 24, 2014, the OCHL Shareholders Agreement was amended pursuant to the terms of the Variation to Shareholders Agreement among Bengough, KoKo UK, the Ellin Parties, OCHL, OCL, JJAT and the Company which (1) joined OCL, JJAT and the Company as parties to the OCHL Shareholders Agreement, (2) designated that Mr. Bengough and Mr. Ellin will split any of the transaction expenses relating to the Share Purchase Agreement, the Minority Share Purchase Agreement and the Merger Agreement in excess of $4,000,000, and (3) Mr. Bengough agreed to purchase from JJAT (as assignee of KoKo UK) its 2.525% of the outstanding ordinary shares and 50% of the outstanding deferred shares of OCHL acquired under the Minority Share Purchase Agreement on April 25, 2014. These agreements were effected pursuant to the Bengough Promissory Note, the Bengough Expense Note, the OCHL Senior Promissory Note, the OCHL Junior Promissory Note, the Bengough Minority Share Purchase Agreement and the Bengough Share Charge, each summarized below. The parties further agreed to seek debt financing from a financial institution to prepay these notes. Mr. Bengough has certain obligations to prepay approximately $500,000 under the Bengough Promissory Note and the Bengough Expense Note within 75 days, or the holders of the notes will have the right to secure additional collateral from Mr. Bengough with respect to the repayment of such notes. Mr. Bengough also agreed to transfer all of his interests in OCHL in exchange for 29,000,000 shares of common stock of the Company to be issued in a private placement transaction, which will constitute no less than 42.5% of the outstanding capital stock of the Company on a fully diluted basis (but before the Company’s future issuance of up to 3,200,000 shares of common stock to advisors, consultants and key employees of the Company as approved by the board) and pursuant to the OCHL Shareholders’ Agreement, subject to Mr. Bengough’s receipt of satisfactory tax clearances under the tax laws of the United Kingdom. The Company has agreed to indemnify Mr. Bengough from any adverse tax expenses and costs required to be paid by Mr. Bengough in connection with the Bengough Minority Share Purchase Agreement.

 

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Effective April 24, 2014, JJAT and Mr. Bengough entered into the Bengough Minority Share Purchase Agreement and, as of such date, Mr. Bengough owned 50% of the outstanding capital stock of OCHL. JJAT and Mr. Bengough also executed a share charge (the “Bengough Share Charge”) placing a charge over the shares of OCHL acquired by Bengough under the Bengough Minority Share Purchase Agreement until the Bengough Promissory Note and Bengough Expense Note are repaid in full.

 

Reimbursement of Expenses between JJAT and Bengough and the OCHL and OCL Promissory Notes

 

The Bengough Promissory Note, dated April 28, 2014, is due October 28, 2015 and interest accrues at the rate of 8% per annum. Subject to repayment under the Bengough Expense Note (defined below) which shall be repaid ahead of the Bengough Promissory Note, the balance owed under the Bengough Promissory Note shall be reduced by an amount equal to 50% of any payments made by OCHL or OCL to KoKo UK pursuant to the OCHL Senior Promissory Note (defined below) and shall be credited against the principal and interest of the Bengough Promissory Note, until all principal and interest under the Bengough Promissory Note is repaid in full.

 

Mr. Bengough also entered into a separate promissory note dated April 28, 2014 with JJAT to repay to JJAT $688,062 of expenses from the acquisitions under the Share Purchase Agreement and Minority Share Purchase Agreement, due on October 28, 2015 that accrues interest at a rate of 8% per annum (the “Bengough Expense Note”). Outstanding interest payable under the Bengough Expense Note is due on the first anniversary of the note with the balance payable upon maturity of the note. The balance owed under the Bengough Expense Note shall be reduced by an amount equal to 50% of any payments made by OCHL or OCL to JJAT pursuant to the OCHL Senior Promissory Note (defined below). Such payments shall be credited, ahead of any credit to the Bengough Promissory Note, until all principal and interest under the Bengough Expense Note is repaid in full.

 

As stated above under the heading “ The OCHL Shareholder’s Agreement, pursuant to the OCHL Shareholder’s Agreement, OCHL and OCL are obligated to pay to JJAT and to Mr. Bengough certain expenses incurred in connection with the acquisition of 50% of the shares of OCHL by JJAT and in connection with the Merger Agreement.

 

OCHL entered into a Senior Promissory Note (the “OCHL Senior Promissory Note”), dated April 28, 2014 to repay $1,376,124 of transaction expenses to JJAT, due October 28, 2015 that accrues interest at a rate of 8% per annum. Outstanding interest payable under the OCHL Senior Promissory Note is due on the first anniversary of the note with the balance payable upon maturity of the note. So long as the note is outstanding, OCHL shall not make any distributions or pay any compensation to Mr. Ellin or Mr. Bengough and the net proceeds from any debt and equity financings obtained by OCHL or OCL, as allowed, shall be applied as prepayments under the note and such amounts paid shall be credited against the outstanding principal and interest owed under the note. In addition, (1) the first $300,000 of net revenue of OCHL or OCL, (2) thereafter, on a monthly basis, all revenues generated by OCHL or OCL in each month, net of operating expenses, debt service and reasonable reserves for operating expenses and (3) any financing obtained from financial institutions shall be credited against the principal and interest owed by OCHL and OCL under the note, subject to any limitations established by senior creditors, if applicable.

 

OCHL entered into a Promissory Note (the “OCHL Junior Promissory Note”), dated April 28, 2014, to repay $494,749 of transaction expenses to the Company, due October 28, 2015 that accrues interest at a rate of 8% per annum. Outstanding interest payable under the OCHL Junior Promissory Note is due on the first anniversary of the note with the balance payable upon maturity of the note. So long as the note is outstanding, OCHL shall not make any distributions or pay any compensation to Mr. Ellin or Mr. Bengough and the net proceeds from any debt and equity financings obtained by OCHL or OCL, as allowed, shall be applied as prepayments under the note and such amounts paid shall be credited against the outstanding principal and interest owed under the note Payments under the OCHL Junior Promissory Note are subordinate to payments under the OCHL Senior Promissory Note.

 

The Merger Agreement

 

On April 28, 2014, the Company, through its wholly-owned subsidiary, Acquisition Sub, acquired all of JJAT’s ownership interests in KoKo UK (which owns 50% of the shares of OCHL) by merger with KoKo Parent (the “Merger”). The Merger was consummated pursuant to the terms of a Merger Agreement, dated April 28, 2014 among the Company, Acquisition Sub and KoKo Parent (the “Merger Agreement”). Prior to entering into the Merger Agreement, JJAT contributed all of its ownership interests in KoKo UK to KoKo Parent, pursuant to a Contribution Agreement dated April 24, 2014 among JJAT, KoKo Parent and KoKo UK (the “Contribution Agreement”), in a tax-free contribution under Section 351 of the U.S. Internal Revenue Code.

 

Pursuant to the terms of the Merger Agreement and the filing of a Certificate of Merger in the State of Delaware on April 28, 2014: (1) Acquisition Sub merged with and into KoKo Parent, with KoKo Parent surviving the Merger; (2) each share of common stock of Acquisition Sub automatically converted into one share of common stock of KoKo Parent such that the Company became the holder of all of the issued and outstanding shares of common stock of KoKo Parent immediately following the Merger; (3) each share of common stock of KoKo Parent issued and outstanding was converted into 11,600 shares of common stock of the Company (the “Merger Consideration”) and otherwise ceased to exist; (4) Mr. Bengough was appointed to the Board of Directors of the Company, (5) Mr. Bengough was appointed as interim Chief Executive Officer of the Company; and (6) KoKo Parent’s Certificate of Incorporation and Bylaws continue to govern KoKo Parent, as the survivor, following the Merger.

 

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The Acquisition

 

Each of the foregoing agreements and the events relating thereto, including but not limited to the consummation of the Share Purchase Agreement, the Minority Share Purchase Agreement, the Contribution Agreement, the Merger Agreement, the OCHL Shareholders Agreement, the Variation Agreement, the Bengough Minority Share Purchase Agreement, the promissory notes and the share charges, are collectively referred to herein as the “Acquisition”, which resulted in the acquisition of KoKo UK and its 50%-owned subsidiary, OCHL, which in turn wholly owns OCL, by the Company on April 28, 2014.

 

The agreements relating to the Acquisition should not be read alone, but should instead be read in conjunction with the other information regarding us and our business that has been, is or will be contained in, or incorporated by reference into, the Forms 10-K, Forms 10-Q, Forms 8-K, and other documents that we file with the SEC. The description of the foregoing agreements constituting the Acquisition are qualified in their entirety by reference to the full text of the agreements, each of which is filed as an Exhibit to this Current Report on Form 8-K and is incorporated herein by reference.

 

As a result of the closing of the Acquisition, we have abandoned our prior business plan and we are now pursuing the operations of OCL as a premier live music brand in the music venue and entertainment field. For purposes of this Current Report on Form 8-K, “we”, “us”, “our” and “the Company” refer to Loton, Corp, co-operating, as 50% owner of OCHL, the business of OCL for periods following the closing of the Acquisition and to Loton, Corp. as a shell entity, for statements specifically referring to periods prior to the closing of the Acquisition.

 

Post-Purchase Company Ownership

 

Immediately prior to the Acquisition, the Company had 9,120,000 shares of common stock issued and outstanding. Immediately after the Acquisition, the Company had 38,120,000 shares of common stock issued and outstanding.

 

Upon the closing of the Merger, JJAT received 29,000,000 shares of our common stock. After giving effect to the closing of the Acquisition, the securities of the Company (on a fully diluted basis) are owned as follows:

 

· JJAT holds 29,000,000 shares of the Company’s common stock, or approximately 73.9% of the Company on a fully diluted basis;
· Stockholders of the Company prior to the closing of the Acquisition, including consultants and advisors of the Company that were issued 1,675,000 shares of our common stock in restricted stock grants, hold 9,120,000 shares of the Company’s common stock, or approximately 23.2% of the Company on a fully diluted basis; and
· 1,125,000 shares of the Company’s common stock are initially reserved for issuance to the holder of warrants issued by the Company prior to the Acquisition, representing approximately 2.9% of the Company on a fully diluted basis.

 

Prospective Transactions

 

Pursuant to the Variation Agreement, as provided above, Mr. Bengough has agreed, promptly following the closing of the Acquisition, subject to Mr. Bengough’s receipt of satisfactory tax clearances under the tax laws of the United Kingdom, to transfer all shares of OCHL held by him, constituting 50% of the outstanding ordinary shares and deferred ordinary shares of OCHL, to KoKo UK in exchange for 29,000,000 shares of Company Common Stock, or approximately 42.5% of the shares of the Company outstanding after such exchange (including giving effect to the Merger described above) with the result that upon closing of that exchange OCHL would become a wholly-owned subsidiary of our wholly owned subsidiary, KoKo UK. While Mr. Bengough has agreed to transfer his shares of OCHL to KoKo UK, causing the Company to control 100% of OCHL and its subsidiary OCL, there is no assurance that Mr. Bengough will obtain such satisfactory tax clearances and that he will close on the exchange agreement to transfer his shares of OCHL to KoKo UK or that he will enter into an agreement to become the Chief Executive Officer of the Company on a non-interim basis. If Mr. Bengough fails to close on the exchange agreement to transfer his shares of OCHL to KoKo UK, then the Company will continue to co-operate with OCHL and with Mr. Bengough and seek expansion through other means such as acquisition of other live concert or event or media companies, licensing opportunities and hiring skilled personnel in the concert venue, media and night-club operations industries.

 

Accounting Treatment of the Merger

 

For financial reporting purposes, the Acquisition represents a “reverse merger” rather than a business combination and OCHL is deemed to be the accounting acquirer in the transaction. We accounted for our 50% investment in OCHL under the equity method of accounting as the Company has significant influence but not control in the operating or financial policies. Consequently, an investor shall recognize its share of the earnings or losses of an investee in the periods for which they are reported by the investee in its financial statements. These items can have a significant impact on the amount of equity income in our consolidated statements of operations and our carrying value in this investment.

 

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FORM 10 INFORMATION

 

Prior to the Acquisition, we were a public reporting “shell company,” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder (“Exchange Act”). Accordingly, pursuant to the requirements of Item 2.01(f) of Form 8-K, set forth below is the information that would be required if we were filing a general form for registration of securities on Form 10 under the Exchange Act for our common stock, which is the only class of our securities subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act upon consummation of the Acquisition.

 

Appointment of Director

 

Immediately after the effective time of the Acquisition, the current two directors on the Board, Robert Ellin and Jay Krigsman, will remain on the Board and Mr. Bengough will be appointed to the Board, effective May 1, 2014.

 

Interim CEO

 

On April 28, 2014, Mr. Bengough entered into a letter agreement with the Company pursuant to which he will become the Company’s Interim Chief Executive Officer effective May 1, 2014, pending the subsequent negotiation and execution of a definitive employment agreement. Robert Ellin will remain the Executive Chairman and President of the Company.

 

Corporate Headquarters

 

In connection with the closing of the Acquisition, Loton, Corp’s corporate headquarters remained the same at 4751 Wilshire Blvd., 3 rd Floor, Los Angeles, CA 90010.

 

Additional information regarding the officers and directors listed above is contained below in “ Directors and Officers ”.

 

BUSINESS

 

Background and Corporate Overview

 

OBAR Camden Holdings Limited

 

OCHL was incorporated in England and Wales on October 17, 2012 to become a comprehensive digital music and entertainment company.

 

Loton, Corp.

 

The Registrant was incorporated in the State of Nevada on December 28, 2009 to provide 3D rendering, animation and architectural visualization services using advanced computer technology to produce photo realistic 3D rendering, walk-through animation and 360 degree panorama.

 

On September 9, 2011, Trinad Capital Master Fund, Ltd. (“Trinad Capital”) entered into a Securities Purchase Agreement with Alex Kuznetsov, a shareholder and the sole director and executive officer of the Company (the “Trinad Purchase Agreement”). Pursuant to the terms of the Trinad Purchase Agreement, Mr. Kuznetsov sold to Trinad Capital an aggregate of 4,000,000 shares of the Company’s common stock $.001 par value per share, representing 75% of the issued and outstanding Common Stock of the Company as of October 31, 2011. Trinad Capital paid $311,615 for the shares. Trinad Management, LLC (“Trinad Management”) is the investment manager of Trinad Capital. The managing member of Trinad Management and the Managing Director of Trinad Capital is Robert S. Ellin, the Company’s President and CEO, Chairman and controlling shareholder. In accordance with the Trinad Purchase Agreement, effective upon the closing (a) Alex Kuznetsov resigned as the Company’s Chief Executive Officer, President and sole director, (b) Mr. Ellin was appointed as the sole director of the Board, and (c) Robert S. Ellin was appointed President, Chairman and Chief Executive Officer of the Company. On April 26, 2012, Jay Krigsman was appointed to our Board as a Director. On October 1, 2013, Barry Regenstein was appointed as the Company’s Interim Chief Financial Officer.

 

The Acquisition closed on April 28, 2014, and, as a result, we have abandoned our prior business plan and are now pursuing the business of OCL as our sole business. The following is a discussion of the business of OCL that we are now pursuing.

 

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Our Current Business

 

Overview

 

Our principal business, through our ownership of 50% of OCHL, which wholly-owns OCL, is the operation of a live music venue and nightclub known as KOKO located in Camden, London. OCL provides live shows, club nights, corporate and other events. The venue has been used to record live performances which have been broadcast to an international audience.

 

The KOKO venue began as a Victorian theatre in the early 20th century where Charlie Chaplin regularly performed. It was operated as a cinema from 1913 to 1940. After being closed for several years it became a BBC Theatre from 1945 to approximately 1965. During most of the 1970’s it was a punk music oriented club known as The Music Machine. In 1982 it became The Camden Palace where appeared such acts as the Eurythmics, the Cure and Madonna. The Camden Palace was closed for refurbishment in 2004. After a significant restoration project, it reopened in 2005 as KOKO’s . OCL has leased the venue from February 2004 until November 2028. Since its opening in 2005, KOKO has become one of London's premier live music venues attracting pop stars, rock legends and world class DJs as well as prestigious corporate events.

 

The KOKO venue employs state-of-the-art multimedia and outstanding production facilities, allowing for a diverse range of uses – from small cabaret performances to hosting international awards, from intimate musical performances to world-acclaimed rock concerts and from banquets and seminars to TV production. As a result, KOKO can be operating for many more nights per annum than most other clubs.

 

KOKO is the only central London music venue with a capacity as large as 1,400. Each year KOKO delivers approximately 238 live events including concerts, club nights and corporate events with aggregate admissions of approximately 300,000.

 

Live Music Events : Each year KOKO hosts a “core” of approximately 100 live music events where the venue is used for live music performances by major artists as well as “up-and-coming” talents crossing all musical genres. These concerts are run by specialist external promoters, such as Live Nation, SJM and Metropolis. KOKO generates revenue mainly from bar sales and venue hire fees paid by the promoter. The promoter is responsible for arranging and paying the artist, and retains all ticket revenue for the show. In a number of cases, KOKO will be allocated a portion of tickets to sell on behalf of the promoter at the door and online, for which it receives a commission. While the promoter is primarily responsible for marketing each event, KOKO also carries out a significant amount of marketing, including posters outside and around the venue, website and social media promotion and advertisements in the music press.

 

Club NME : On Friday nights, KOKO hosts “Club NME” nights. NME (New Musical Express) is a weekly music publication in the UK. An online version of NME (nme.com) was launched in 1996. It is now amongst the world's most visited music-based websites, with over 8 million users per month.

 

These events are promoted by KOKO with branding from NME magazine, and consist of DJ and live music performances by up-and-coming bands, targeted at students and guests in their early 20s. Generally, the DJs performing are selected from a regular pool of resident DJs, and bands are scheduled through inbound interest or via introduction from NME. KOKO is the promoter of Club NME, booking all talent and retaining all revenue from admissions and bar sales on the night of the event.

 

Club Nights : Every Saturday night, KOKO hosts “club nights” promoted and operated by specialist external promoters. Events include “Guilty Pleasures” (mainstream party night for affluent late 20s / early 30s), “Buttoned Down Disco” (indie, dance music), “SoundCrash” (electronic dance music) and “Annie Mac Presents” (Radio 1 DJ). OCL generates revenue from bar sales and venue hire fees paid by the promoter. All event specific overheads, such as payment of DJs / bands and marketing, are the responsibility of the promoter.

 

Corporate Events : On approximately 20 nights per year, KOKO hosts a variety of personalized events for businesses, such as holiday parties, product (i.e. film) launches, award ceremonies and locations for film shoots. OCL generates revenue from venue hire fees and bar sales on the night itself, and employs a full time corporate event booker who manages inbound interest and, in some cases, a commission is paid to a third-party specialist event broker where applicable.

 

Television Location : KOKO has been used extensively as a location for TV recordings including, “the Album Chart Show” (syndicated as “London Live” internationally), “Stand Up for the Week” and KOKO POP. The Album Chart Show was a flagship music show for Channel 4 broadcast until 2012, with more than 80 episodes produced. Each show featured four bands that had a new album or were currently in the UK Album Chart all performing live at KOKO in Camden and was broadcast on Channel 4 in the United Kingdom.

 

Television Program : KOKO POP was a 30-minute, multi-artist, music magazine television program hosted by Jameela Jamil that aired on Saturday mornings on Channel 4 in the United Kingdom. The show brought viewers live performances, exclusive interviews and videos from some of the biggest names in the UK and the USA, including Nicole Scherzinger, Jessie J, McFly and Justin Bieber. The show was co-produced with 3DD Productions, who were responsible for the production costs and marketing. KOKO was responsible for funding certain equipment, small production elements and contributed marketing and branding expertise to maximize audience acquisition. Channel 4 holds all UK broadcast rights, while 3DD and KOKO jointly own the international rights and KOKO has the sole right to any ancillary revenue (i.e. associated concerts, clothing and merchandise).

 

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KOKO POP has completed three series, having been on air three years in a row and securing a peak weekly viewership of 250,000 16-24’s year olds (including repeats). The program helped to associate the KOKO brand with the latest music and biggest stars. It is also a demonstration of OCL’s ability to generate revenue from non-brick-and-mortar media properties. KOKO POP is no longer in production.

 

Industry

 

OCL operates in the live entertainment/night club business, including live music events, promoting its own club nights and venue operations. OCL provides day-to-day management and operation of the premises. It also provides booking, that is, locates and contracts for the artists and talent for KOKO. In addition, OCL contracts for the services of the Mint Group to provide management services for the KOKO venue including oversight of our operational, financial and marketing activities.

 

The live music industry includes concert promotion and/or production of music events or tours. Typically, to initiate live music events, booking agents directly contract with artists to represent them for defined periods. Booking agents then contact promoters, who will contract with them or directly with artists to arrange events. Booking agents generally receive fixed or percentage fees from artists for their services. Promoters earn revenue primarily from the sale of tickets. Artists are paid by the promoter under one of several different formulas, which may include fixed guarantees and/or a percentage of ticket sales or event profits. In addition, promoters may also reimburse artists for certain costs of production, such as sound and lights. Under guaranteed payment formulas, promoters assume the risks of unprofitable events. Promoters may renegotiate lower guarantees or cancel events because of insufficient ticket sales in order to reduce their losses. Promoters can also reduce the risk of losses by entering into global or national touring agreements with artists and including the right to offset lower performing shows against higher performing shows on the tour in the determination of overall artist fees.

 

For music tours, one to four months typically elapse between booking artists and the first performances. Promoters, in conjunction with artists, managers and booking agents, set ticket prices and advertise events. Promoters market events, sell tickets, rent or otherwise provide venues and arrange for local production services, such as stages and sets.

 

Venue operators such as KOKO typically contract with promoters to rent their venues for specific events on specific dates and receive fixed fees or percentages of ticket sales as rental income. In addition, venue operators provide services such as concessions, parking, security, ushering and ticket-taking, and receive some or all of the revenue from concessions, merchandise, venue sponsorships, parking and premium seating. Venues will often also sell tickets through a local box office at the venue using the ticketing company’s technology; on these box office tickets, the ticketing company will generally not earn a fee. The ticketing company receives the cash for the ticket sales and related service charges at the time the ticket is sold and periodically remits these receipts to the venue and/or promoter after deducting their fee.

 

Development and Commercialization Strategy

 

OCL’s present business model is to operate with a relatively small internal team of key personnel. OCL also engages the Mint Group, a third-party contractor, to provide management services. In addition, OCL engages the services of technical security functions through external contractors.

 

KOKO has a single well-established venue. The Company’s strategy is to leverage KOKO’s success and brand in live entertainment and relationships with fans, artists and advertisers via venue expansion into the United States alongside a digital/TV content and editorial platform, to grow revenue, earnings and cash flow. In order to most effectively leverage the brand and execute its strategy, the Company is dependent on Mr. Bengough promptly transferring his shares of OCHL to KoKo UK, as agreed under the Variation Agreement, which would cause the Company to control 100% of the operations of KOKO. The closing of this exchange agreement is subject to Mr. Bengough’s receipt of satisfactory tax clearances under the tax laws of the United Kingdom and mutually acceptable transaction documents, and there is no assurance that Mr. Bengough will obtain such satisfactory tax clearances and that he will close on the exchange agreement or that he will enter into an agreement to become the Chief Executive Officer of the Company on a non-interim basis. If Mr. Bengough fails to close on the exchange agreement to transfer his shares of OCHL to KoKo UK, then the Company will continue to co-operate OCHL with Mr. Bengough and seek expansion through other means such as acquisition of other live concert or event or media companies, licensing opportunities and hiring skilled personnel in the concert venue, media and night-club operations industries to help it co-operate OCL and oversee its new acquisitions and business ventures in the U.S., and internationally.

 

The Company’s strategy is to grow and innovate through the initiatives listed below:

 

· Selectively expand into additional top global music markets, both internationally and domestically, with new venues that host artists from emerging talent to global super-stars, stunning lifestyle, and VIP services, delivering the best consumer music experiences.
· Identify, develop and grow key sponsorship and advertising strategic partnerships. The Company’s goal is to continue to drive growth in this area and capture a larger share of the music sponsorship market. It will focus on expanding and developing new relationships with corporate sponsors to provide them with targeted strategic programs through its unique relationship with fans and artists, its distribution network of venues and its online presence. The Company will continue to look for new innovative products and offerings that give its sponsors and advertisers a unique ability to reach consumers through the power of live music.

 

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· The Company plans to utilize OCL’s existing venue and other Company-proposed new venues to capture originated content, create owned/co-owned branded activity and create and develop new and complimentary brand extensions and intellectual property.
· Create and develop opportunities to self-promote, co-promote and license KOKO branded activity and ways to increase e-commerce.

 

Accomplishment of the foregoing initiatives, in the absence of the closing of the exchange agreement with Mr. Bengough, could affect the Company’s ability to fully execute its strategy to leverage OCL’s existing venue and create co-branded and brand extensions and to create and develop opportunities to promote and license KOKO branded activity. The Company would otherwise seek to acquire other live concert venues or event or media companies, enter into other licensing opportunities and hire skilled personnel in the concert venue, event, media and night-club operations industries to help it co-operate OCL and oversee these strategies.

 

OCL, with the assistance of the Mint Group has delivered a consistently high quality standard of entertainment and superior service. They understand food and beverage and front-of-house operations, along with the dynamics of staging live shows and events to a high standard.

 

Music Team : OCL’s music team populates KOKO’s events schedule, identifies suitable promoters and events for the venue, actively promotes Friday Club Nights and generally maintains an awareness of the entertainment scene and sector and makes sure the venue is well paced within it. They promote shows wherever possible. They manage artist bookings and promotions and maintain relationships with agents, managers and other stakeholders.

 

Operations Management Team : This team insures compliance with applicable regulations and licensing requirements, selects and develops staff, manages stock purchasing and controls cash reconciliation control and customer care and service.

 

Marketing and Promotion Team : OCL’s marketing and promotions team handles in-house marketing, social media activity, brand development and utilization, advertising expenditures, database management, website maintenance and our weekly newsletter.

 

The KOKO team has successfully leveraged their skills to attract leading artists and brands and create highly regarded events. Short of being satisfied with the near-term growth initiatives, its management already has an ambitious plan for the next phases of the KOKO story: To focus on international expansion based on a roll-out model comparable to that of Soho House where music, venue and lifestyle are all combined through the internationalization of the brand, and further enhanced digitally, including production and online distribution of content as well as an e-Commerce platform.

 

Government Regulation

 

OCL’s operations are subject to national statutes, rules, regulations policies and procedures, both domestically and internationally, which are subject to change at any time, governing matters such as:

 

· construction, renovation and operation of our venues;
· licensing and planning laws, including in relation to noise levels, the operation of security and the playing of copyright protected music and sound recordings;
· human health, safety and sanitation requirements;
· the service of food and alcoholic beverages;
· working conditions, labor, minimum wage and hour, immigration and employment laws (including anti-discrimination legislation);
· compliance with the Disability Discrimination Act 1995 (“DDA”) and the Disability Discrimination (Services and Premises) Regulations 1999 (“DDR”);
· listed building regulation;
· compliance with United States FCPA, the United Kingdom’s Bribery Act 2010 (“BA”) and similar regulations in other countries;
· advertising regulations;
· hazardous and non-hazardous waste and other environmental protection laws;
· sales and other taxes and withholding of taxes;
· privacy laws and protection of personal information; and marketing activities via post, telephone, text and online;
· the timely filing of corporate documentation with the Company Registrar (including in relation to financial accounts).

 

 

 

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We believe that OCL is in material compliance with these laws. Applicable laws generally prohibit serving alcoholic beverages to certain persons such as an individual who is intoxicated or a minor. If OCL violates such laws, we or OCL may be liable to third parties for the acts of the customer. We cannot guarantee that intoxicated or minor customers will not be served or that liability for their acts will not be imposed on OCL or on us.

 

OCL may also be required to comply with the UK’s DDA and the DDR regulations which, among other things, require that public places, including both existing and newly constructed venues, be accessible to customers with disabilities. The DDA and DDR require that venues be constructed to permit persons with disabilities full use of a live entertainment venue. However, OCL does not need to take any steps that would fundamentally alter the nature of the service it provides, e.g. OCL is not required to improve lighting for partially sighted customers where this would fundamentally change the atmosphere or ambience of our service. The DDA and DDR may also require that certain modifications be made to existing venues to make them accessible to customers and employees who are disabled. In order to comply with the ADA, the DDA and other similar ordinances, OCL may face substantial capital expenditures in the future.

 

OCL is required to comply with the laws of the countries it operates and also the United States FCPA and the United Kingdom’s BA regarding anti-bribery regulations. These regulations make it illegal for us or OCL to pay, promise to pay or receive money or anything of value to, or from, any government or foreign public official for the purpose of directly or indirectly obtaining or retaining business or an advantage in the conduct of business. This ban on illegal payments and bribes also applies to subsidiaries, employees, agents or intermediaries who use funds for purposes prohibited by the statutes. The BA also makes it an offense for OCL or us (and all group companies, employees, agents, sub-contractors, agents and any other person who performs services on behalf of OCL or us) to offer, promise or give a financial advantage to any other person where OCL or we intend the advantage to bring about or reward such person’s improper performance or where OCL or we believe that the acceptance of the advantage offered itself constitutes improper performance. It is also an offense for us to accept a bribe.

 

OCL and we are required to comply with national and international laws regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and user data. Specifically, personal information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction.

 

From time to time, governmental bodies have proposed legislation that could have an effect on OCL’s business. For example, some legislatures have proposed or implemented laws in the past that would impose potential liability on OCL and other promoters and producers of live music events for entertainment taxes/levies and for incidents that occur at OCL’s events or in the vicinity of OCL’s venues, particularly relating to drugs and alcohol abuse e.g. the “Late Night Levy” under the Police Reform and Social Responsibility Act 2011 which allows licensing authorities to raise a contribution from late-opening alcohol suppliers towards policing the night-time economy or an Early Morning Alcohol Restriction Order which enables licensing authorities to restrict the sale of alcohol for any specified period between midnight and 6am.

 

In addition, under the laws of the United Kingdom, OCL owes a common law duty of care to its customers and there will be a potential for claims to be made by customers who feel that OCL has breached that duty in relation to incidents that occur at its events or in the vicinity of its venues. In order to safeguard against such claims and comply with this duty, we and OCL shall take such care as is reasonable to ensure that customers will be reasonably safe when using our venues.

 

In addition, OCL’s venues are subject to extensive environmental laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances, as well as planning and noise level restrictions which may affect, among other things, the hours of operations of OCL’s venues.

 

Employees

 

As of March 31, 2014, OCL had approximately 50 full-time employees including 10 salaried positions for operations, sales and marketing and administration.

 

OCL’s weekly staffing needs vary throughout the year depending upon the number and type of events appearing at KOKO and consist principally of personnel associated with running the bar and coatroom. OCL also hires third party providers for KOKO security, cleaning and technical crews. In addition, our business operations at our facility may be interrupted as a result of labor disputes by outside unions attempting to unionize the venue even though OCL does not have unionized labor at the venue. A work stoppage at KOKO or at one of OCL’s promoted events could have a material adverse effect on our business, results of operations and financial condition. We cannot predict the effect that a potential work stoppage would have on our results of operations.

 

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Legal Proceedings

 

We are not aware of any material pending legal proceedings to which we or our subsidiaries are a party or to which any of our property is subject.

 

Competition

 

Competition in the live entertainment industry is intense. We believe that OCL competes primarily on the basis of its ability to deliver quality music events and provide enhanced fan and artist experiences. We believe that OCL’s primary strengths include:

 

· the quality of service delivered to our artists, fans and corporate sponsors;
· our track record in producing live music concerts, club nights and corporate events at KOKO;
· excellent relationships with artists, managers, record labels and agents;;
· distribution platform via expanding KOKO into new venues in the United States; and
· the scope and effectiveness in OCL’s expertise of marketing and sponsorship programs.

 

Although we believe that OCL’s products and services currently compete favorably with respect to such factors, we cannot provide any assurance that OCL can maintain its competitive position against current and potential competitors, especially those with significantly greater brand recognition, or financial, marketing, support, technical and other resources.

 

In the markets in which OCL produces music concerts, it faces competition from both promoters and other venue operators. We believe that barriers to entry into the promotion services business are low and that certain local promoters are increasingly expanding the geographic scope of their operations.

 

OCL’s main competitors in the live music industry include all other live music venues in London including without limitation the Forum, Electric Brixton, the Electric Ballroom, the Village Underground and the Shepherd’s Bush Empire. Some of OCL’s competitors in the live music industry may have greater financial resources than we do which may enable them to gain a greater competitive advantage in relation to us.

 

In markets where OCL currently operates and/or plans to operate a venue, it competes with other venues to serve artists likely to perform in that general region. Consequently, artists have various alternatives to OCL’s venues when scheduling performances. Some of OCL’s competitors in venue management have a greater number of venues in certain markets and may have greater financial resources in those markets.

 

RISK FACTORS

 

You should carefully consider each of the following risks and all of the other information set forth in this Form 8-K. The following risks relate principally to our business and our common stock. These risks and uncertainties are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the risks and uncertainties develop into actual events, this could have a material adverse effect on our business, financial condition or results of operations. In that case, the trading price of our common stock could decline.

 

Risks Relating to Our Business

 

We do not control KOKO .

 

We own 50% of the shares of capital stock of OCHL. OCHL is the sole owner of OCL which owns and operates KOKO. As 50% owner of OCHL, we have the right to appoint half of the members of the board of directors of OCHL and, as a result of the OCHL Shareholders Agreement, as amended, of OCL also. Following the merger, the Board of OCHL shall be comprised of Mr. Ellin and Mr. Bengough and both will manage pursuant to the terms of the OCHL Shareholders’ Agreement and the Variation Agreement. Pursuant to the OCHL Shareholder Agreement discussed above under the heading “ The OCHL Shareholder Agreement ,” we are subject to shared control of OCHL and thus of KOKO with regard to the management of KOKO so long as the OCHL Shareholder Agreement is in effect and the Company controls 50% or less of the shares of capital stock of OCHL. In the absence of control, neither we nor the other owner of 50% of OCHL, Mr. Bengough can unilaterally implement decisions pertaining to the operation or disposition of KOKO.

 

Pursuant to the Variation Agreement, Mr. Bengough has agreed, promptly following the closing of the Acquisition, subject to Mr. Bengough’s receipt of satisfactory tax clearances under the tax laws of the United Kingdom, and entry into mutually acceptable documentation, to transfer all shares of OCHL held by him to KoKo UK with the result that OCHL would become an indirect, wholly-owned subsidiary of the Company. There is no assurance that Mr. Bengough will obtain such satisfactory tax clearances and will close on the exchange agreement to transfer his shares of OCHL to KoKo UK, or that he will enter into an agreement to become the full-time Chief Executive Officer of the Company on a non-interim basis. If Mr. Bengough fails to close on the exchange agreement to transfer his shares of OCHL to KoKo UK, then the Company will continue to co-operate OCHL with Mr. Bengough and seek expansion through other means such as acquisition of other live concert or event or media companies, licensing opportunities and hiring skilled personnel in the concert venue, media and night-club operations industries. In such a case, the Company may not be able to fully leverage its strategies or to direct the expansion of the KOKO brand or enter into licensing or promotional arrangements, or to exploit the KOKO venue, without the consent of Mr. Bengough.

 

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Our business is highly sensitive to public tastes and is dependent on our ability to maintain our attractiveness and reputation.

 

Our business is highly sensitive to rapidly changing public tastes and is dependent on our ability to maintain the attractiveness of our venue and reputation as a place where shows can be successfully promoted and performed.

 

Our business depends on relationships between key promoters, executives, agents, managers, artists and clients and any adverse changes in these relationships could adversely affect our business, financial condition and results of operations.

 

The live music business is uniquely dependent upon personal relationships, as executives within live music companies such as ours leverage their existing network of relationships with artists, agents, promoters and managers in order to secure the rights to live music performances and events which are critical to our success. Due to the importance of those industry contacts to our business, the loss of any of OCL’s or our officers or other key personnel could adversely affect our business. We can give no assurance that all or any of these key employees or managers will remain with us or will retain their associations with key business contacts, including musical artists.

 

Similarly, OCL depends upon the Mint Group for management services including oversight of operational, financial and marketing activities. OCL’s contract with the Mint Group is of one year duration. It is generally renewed each year but there is no assurance that at the end of any given one-year term, it will be renewed. If it were not renewed, OCL would have to hire employees or enter a contract with a different service provider. There is no assurance that OCL would be able to do so successfully or within a time period that would not have a material adverse effect upon our business, financial condition and results of operations.

 

Another important component of our success is our ability to maintain existing and to build new relationships with third-party distribution channels, advertisers, sponsors and service providers. Any adverse change in these relationships including the inability of these parties to fulfill their obligations to our businesses for any reason, would adversely affect our business, financial condition and results of operations.

 

We face intense competition in the live music industry, and we may not be able to maintain or increase our current revenue, which could adversely affect our business, financial condition and results of operations.

 

Our business is in a highly competitive industry, and we may not be able to maintain or increase our current revenue due to such competition. The live music industry competes with other forms of entertainment for consumers’ discretionary spending and within this industry we compete with other venues to book artists, and, in the markets in which we promote music concerts; we face competition from other promoters and venue operators. Our competitors compete with us for key employees who have relationships with popular music artists and that have a history of being able to book such artists for concerts and tours. These competitors may engage in more extensive development efforts, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential artists. Our competitors may develop services, advertising options or music venues that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. It is possible that new competitors may emerge and rapidly acquire significant market share.

 

Other variables that could adversely affect our financial performance by, among other things, leading to decreases in overall revenue, the number of sponsors, event attendance, ticket prices and fees or profit margins include:

 

· unfavorable fluctuations in operating costs which we may be unwilling or unable to pass through to our customers;
· competitors’ offerings that may include more favorable terms than we offer in order to obtain agreements for new venues or ticketing arrangements or to obtain events for the venues they operate;
· technological changes and innovations that we are unable to adopt or are late in adopting that offer more attractive entertainment alternatives than we or other live entertainment providers currently offer, which may lead to a reduction in attendance at live events;
· other entertainment options available to our audiences that we do not offer;
· general economic conditions which could cause our consumers to reduce discretionary spending;
· unfavorable changes in labor conditions which may require us to spend more to retain and attract key employees; and
· unfavorable shifts in population and other demographics which may cause us to lose audiences as people migrate to markets where we have a smaller presence, or which may cause sponsors to be unwilling to pay for sponsorship and advertising opportunities if the general population shifts into a less desirable age or geographical demographic from an advertising perspective.

 

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Our success depends, in significant part, on entertainment and leisure events and factors adversely affecting such events could have a material adverse effect on our business, financial condition and results of operations.

 

A decline in attendance at or reduction in the number of live entertainment and leisure events may have an adverse effect on our revenue and operating income. In addition, during past economic slowdowns and recessions, many consumers reduced their discretionary spending and advertisers reduced their advertising expenditures. The impact of economic slowdowns on our business is difficult to predict, but they may result in reductions in sponsorship opportunities and our ability to generate revenue. The risks associated with our businesses may become more acute in periods of a slowing economy or recession, which may be accompanied by a decrease in attendance at live entertainment and leisure events.

 

Our business depends on discretionary consumer and corporate spending. Many factors related to corporate spending and discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, fuel prices, interest and tax rates and inflation can significantly impact our operating results. Business conditions, as well as various industry conditions, including corporate marketing and promotional spending and interest levels, can also significantly impact our operating results. These factors can affect attendance at our events, premium seat sales, sponsorship, advertising and hospitality spending, concession and merchandise sales, as well as the financial results of sponsors of our venues, events and the industry. Negative factors such as challenging economic conditions, public concerns over terrorism and security incidents, particularly when combined, can impact corporate and consumer spending, and one negative factor can impact our results more than another. There can be no assurance that consumer and corporate spending will not be adversely impacted by current economic conditions, or by any further or future deterioration in economic conditions, thereby possibly impacting our operating results and growth.

 

OCL currently operates in the London market, but we plan to expand internationally which may expose us to risks not found doing business in the United Kingdom.

 

OCL currently provides services in the United Kingdom but we expect to expand our presence internationally. We expect to face additional risks in the case of our existing and future international operations, including:

· political instability, adverse changes in diplomatic relations and unfavorable economic conditions in our current market and in new markets into which we may expand;
· more restrictive or otherwise unfavorable government regulation of the music and live entertainment industries, which could result in increased compliance costs and/or otherwise restrict the manner in which we provide services and the amount of related fees charged for such services;
· limitations on the ability of foreign subsidiaries to repatriate profits or otherwise remit earnings;
· adverse tax consequences;
· any failure to comply with foreign laws and regulations could subject us to fines and penalties;
· operating in foreign countries subjects us to risk from currency fluctuations;
· expropriations of property and risks of renegotiation or modification of existing agreements with governmental authorities;
· diminished ability to legally enforce our contractual rights in foreign countries;
· lower levels of internet usage, credit card usage and consumer spending in comparison to those in the United Kingdom; and
· difficulties in managing operations and adapting to consumer desires due to distance, language and cultural differences, including issues associated with (i) business practices and customs that are common in certain foreign countries but might be prohibited by U.S. or British law and our internal policies and procedures, and (ii) management and operational systems and infrastructures, including internal financial control and reporting systems and functions, staffing and managing of foreign operations, which we might not be able to do effectively, or if so, on a cost-efficient basis.

 

Until such time that Mr. Bengough has closed on the exchange agreement to transfer all of his shares of OCHL to KoKo UK, and the finalization of the agreement for Mr. Bengough to become the full-time Chief Executive Officer of the Company on a non-interim basis, our ability to expand our international operations into new jurisdictions, or further into existing jurisdictions is limited, and we cannot conduct acquisitions in the short term outside of the ordinary course under the terms of the Variation Agreement. After the installment of Mr. Bengough as Chief Executive Officer on a non-interim basis, we will be able to identify potential acquisition candidates, joint venture or other partners, and enter into arrangements with these parties, as well as have the ability to make continued investments to maintain and grow KOKO’s existing international operations. If Mr. Bengough fails to close on the exchange agreement to transfer his shares of OCHL to KoKo UK, then the Company will need to seek expansion through other means such as acquisition of other live concert or event or media companies, seeking out licensing opportunities and hiring skilled personnel in the concert venue, media and night-club operations industries.

 

If the revenue generated by international operations is insufficient to offset expenses incurred in connection with the maintenance and growth of these operations, our business, financial condition and results of operations could be materially and adversely affected. In addition, in an effort to make international operations in one or more given jurisdictions profitable over the long term, significant additional investments that are not profitable over the short term could be required over a prolonged period.

 

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OCL may fail to adequately protect its intellectual property rights or may be accused of infringing upon intellectual property rights of third parties.

 

OCL may fail to adequately protect its intellectual property rights or may be accused of infringing upon intellectual property rights of third parties. We regard our and OCL’s intellectual property rights, including service marks, trademarks, domain names, copyrights, trade secrets and other intellectual property (as applicable) as critical to our success.

 

OCL relies on a combination of laws and contractual restrictions with employees, customers, suppliers, affiliates and others to establish and protect these proprietary rights. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use trade secrets, trademarks, service marks, domain names, or copyrighted intellectual property without authorization which, if discovered, might require legal action to correct. In addition, third parties may independently and lawfully develop substantially similar intellectual properties.

 

OCL has generally registered and continues to apply to register, or secure by contract when appropriate, our trademarks and service marks as they are developed and used. OCL considers the protection of its trademarks and service marks to be important for purposes of brand maintenance and reputation. While OCL vigorously protects its trademarks, service marks and domain names, effective trademark protection may not be available or may not be sought in every country in which OCL may operate, and contractual disputes may affect the use of marks governed by private contract. As we expand internationally, we may become aware of third parties in other jurisdictions that already own prior rights to the KOKO trademark. Depending on the circumstances, we may deem it appropriate, for instance, to acquire a license or a consent from any such prior mark owners, or we may determine to operate under a different mark in that jurisdiction. Also, OCL has generally also registered and continues to reserve and register domain names as we deem appropriate. Not every variation of a domain name may be available, however, or OCL may determine not to register it, even if available. Our or OCL’s failure to protect our intellectual property rights in a meaningful manner or challenges to related contractual rights could result in erosion of brand names and limit our ability to control marketing on or through the internet using our various domain names or otherwise, which could adversely affect our business, financial condition and results of operations.

 

In addition, litigation may be necessary in the future to enforce our intellectual property rights, protect trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business, financial condition and results of operations.

 

Exchange rates may cause fluctuations in our results of operations that are not related to our operations.

 

Because we own, through OCL, assets overseas and derive revenue from our international operations, we may incur currency translation losses or gains due to changes in the values of foreign currencies relative to the United States Dollar. We cannot predict the effect of exchange rate fluctuations upon future operating results.

 

There is the risk of personal injuries and accidents in connection with OCL’s live music events, which could subject us or OCL to personal injury or other claims and increase our expenses, as well as reduce attendance at OCL’s live music events, causing a decrease in our revenue.

 

There are inherent risks involved with producing live music events. As a result, personal injuries and accidents have, and may, occur from time to time, which could subject us to claims and liabilities for personal injuries. Incidents in connection with OCL’s live music events at any of our venues could also result in claims, reducing operating income or reducing attendance at our events, which could cause a decrease in our revenue. While we maintain insurance policies that provide coverage within limits that are sufficient, in management’s judgment, to protect us from material financial loss for personal injuries sustained by persons at OCL’s venues or events or accidents in the ordinary course of business, there can be no assurance that such insurance will be adequate at all times and in all circumstances.

 

Activities or conduct, such as illegal drug use, at OCL’s properties or the events OCL produces may expose OCL to liability, cause OCL to lose business licenses or government approvals, result in the cancellation of all or a part of an event or result in adverse publicity.

 

OCL is subject to risks associated with activities or conduct, such as drug use at our events or venue that are illegal or violate the terms of our OCL’s business licenses. Illegal activities or conduct at any of our events or venue may result in negative publicity, adverse consequences (including illness, injury or death) to the persons engaged in the illegal activity or others, and litigation against us. OCL has developed policies and procedures aimed at ensuring that the operation of each event is conducted in conformance with local, state and federal laws. Additionally, OCL has a ‘‘no tolerance’’ policy on illegal drug use in or around its facilities, and OCL continually monitors the actions of entertainers, fans and our employees to ensure that proper behavioral standards are met. However, such policies, no matter how well designed and enforced, cannot provide absolute assurance that the policies’ objectives are achieved. Because of the inherent limitations in all control systems and policies, there can be no assurance that our policies will prevent deliberate acts by persons attempting to violate or circumvent them. The consequences of these acts may increase our costs, result in the loss or termination of the lease for OCL’s venue by the property owner, result in our inability to get the necessary permits and locations for our events, or lead to the cancellation of all or part of an event. These consequences may also make it more difficult for OCL to obtain or retain sponsorships, lower consumer demand for OCL’s events, subject OCL to liability claims, divert management’s attention from OCL’s business and make an investment in our securities unattractive to current and potential investors. These outcomes could have the effect of lowering our revenue, profitability and/or our stock price.

 

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Costs associated with, and our ability to obtain, adequate insurance could adversely affect our profitability and financial condition.

 

Heightened concerns and challenges regarding property, casualty, liability, business interruption and other insurance coverage have resulted from terrorist and related security incidents along with varying weather-related conditions and incidents. As a result, OCL may experience increased difficulty obtaining high policy limits of coverage at reasonable rates, including coverage for acts of terrorism and weather-related property damage. OCL has a material investment in property and equipment at its existing venue and may have material investments at future venues, which are located in or near major cities and which hold events typically attended by a large number of fans.

 

These operational, geographical and situational factors, among others, may result in significant increases in insurance premium costs and difficulties obtaining sufficiently high policy limits with deductibles that we believe to be reasonable. OCL cannot assure that future increases in insurance costs and difficulties obtaining high policy limits will not adversely impact its profitability, thereby possibly impacting our operating results and growth.

 

We cannot guarantee that our insurance policy coverage limits, including insurance coverage for property, casualty, liability and business interruption losses and acts of terrorism, would be adequate under the circumstances should one or multiple events occur at or near any of our venues, or that our insurers would have adequate financial resources to sufficiently or fully pay our related claims or damages. We cannot guarantee that adequate coverage limits will be available, offered at reasonable rates, or offered by insurers with sufficient financial soundness. The occurrence of such an incident or incidents affecting our existing venue or any one or more of our future venues could have a material adverse effect on our financial position and future results of operations if asset damage and/or company liability were to exceed insurance coverage limits or if an insurer were unable to sufficiently or fully pay our related claims or damages.

 

Costs associated with capital improvements could adversely affect our profitability and liquidity.

 

Growth or maintenance of OCL’s existing revenue depends in part on consistent investment in its venue. Therefore, OCL expects to continue to make substantial capital improvements to meet long-term increasing demand, value and revenue. OCL frequently may have a number of significant capital projects underway. Numerous factors, many of which are beyond OCL’s control, may influence the ultimate costs and timing of various capital improvements, including:

 

· availability of financing on favorable terms;
· advances in technology and related changes in customer expectations;
· unforeseen changes in design;
· increases in the cost of materials, equipment and labor;
· fluctuations in foreign exchange rates;
· litigation, accidents or natural disasters;
· national or regional economic changes; and
· additional venue acquisition costs.

 

The amount of capital expenditures can vary significantly from year to year. In addition, actual costs could vary materially from our estimates if the factors listed above and our assumptions about the quality of materials, equipment or workmanship required or the cost of financing such expenditures were to change. Construction is also subject to governmental permitting processes which, if changed, could materially affect the ultimate cost.

 

OCL is subject to extensive governmental regulation, and our failure to comply with these regulations could adversely affect our business, financial condition and results of operations.

 

OCL’s operations are subject to national statutes, rules, regulations, policies and procedures, both domestically and internationally, which are subject to change at any time, governing matters such as:

 

· construction, renovation and operation of our venues;
· licensing and planning laws, including those relating to noise, security and playing copyrighted music and sound recordings;
· human health, safety and sanitation requirements;
· the service of food and alcoholic beverages;
· working conditions, labor, minimum wage and hour, immigration and employment laws;
· compliance with the DDA, DDR and regarding any operations in the US, the ADA;
· listed building regulation;
· compliance with United States FCPA, the United Kingdom’s Bribery Act 2010 and similar regulations in other countries;
· advertising regulation;
· hazardous and non-hazardous waste and other environmental protection laws;
· sales and other taxes and withholding of taxes;

 

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· privacy laws and protection of personally identifiable information;
· marketing activities via post, telephone, text and online; and
· the timely filing of corporate documentation with the Company Registrar (including in relation to financial accounts).

 

OCL’s failure to comply with these laws and regulations could result in fines and/or proceedings against us by governmental agencies and/or consumers, which if material, could adversely affect our business, financial condition and results of operations. While OCL attempts to conduct its business and operations in a manner that it believes to be in compliance with such laws and regulations, there can be no assurance that a law or regulation will not be interpreted or enforced in a manner contrary to OCL’s current understanding of the law or regulation. In addition, the promulgation of new laws, rules and regulations could restrict or unfavorably impact our business, which could decrease demand for services, reduce revenue, increase costs and/or subject us to additional liabilities.

 

Unfavorable outcomes in legal proceedings may adversely affect our business and operating results.

 

Our results may be affected by the outcome of any future litigation. Unfavorable rulings in future legal proceedings may have a negative impact on us that may be greater or smaller depending on the nature of the rulings. In addition, from time to time in the future we may be subject to various claims, investigations, legal and administrative cases and proceedings (whether civil or criminal) or lawsuits by governmental agencies or private parties, as further described in the immediately preceding risk factor. If the results of these investigations, proceedings or suits are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay monetary damages or may be subject to fines, penalties, injunctions or other censure that could have a material adverse effect on our business, financial condition and operating results. Even if we adequately address the issues raised by an investigation or proceeding or successfully defend a third-party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues, which could harm our business, financial condition and operating results.

 

Our primary strategy for growth is dependent upon our ability to lease, acquire and develop live music venues, and if we are unable to do so on acceptable terms, or at all, our results of operations could be adversely affected.

 

The growth strategy for our business requires access to venues to generate increasing revenue from live music events. If Mr. Bengough fails to close on the exchange agreement to transfer his shares of OCHL to KoKo UK, then the Company may incur difficulties expanding its access to venues and its control over KOKO will be limited to matters on which it can obtain Mr. Bengough’s consent. OCL currently uses a venue that it can operate pursuant to a long-term lease with a third party. Our long-term success in the live music business will depend in part on the availability of new venues and our ability to lease these venues, as well as the closing of the exchange agreement with Mr. Bengough to acquire the remaining 50% of the shares of OCHL. Without a successful closing of this transaction, or as the Company looks to expand following such closing. we may be unable to enter into agreements for new venues on acceptable terms or at all. Our ability to obtain new agreements on favorable terms depends on a number of other factors, many of which are also beyond our control, such as national and local business conditions and competition from other promoters. If the terms of any new agreement with a new venue are unacceptable or incompatible with our existing operations, we may decide to forego these opportunities.

 

We may continue to expand our operations through the development of live music venues and the expansion of existing live music venues, which poses a number of risks, including:

 

· construction of live music venues may result in cost overruns, delays or unanticipated expenses;
· desirable sites for live music venues may be unavailable or costly; and
· the attractiveness of our venue locations may deteriorate over time.

 

Additionally, the market potential of live music venue sites cannot be precisely determined, and our live music venues may face competition in markets from unexpected sources. Newly constructed live music venues may not perform up to our expectations. We face significant competition for potential live music venue locations and for opportunities to acquire existing live music venues. Because of this competition, we may be unable to add to or maintain the number of our live music venues on terms we consider acceptable.

 

Our revenue depends in part on the promotional success of our marketing campaigns, and there can be no assurance that such advertising, promotional and other marketing campaigns will be successful or will generate revenue or profits.

 

Such marketing activities include, among others, promotion of events and ticket sales, premium seat sales, hospitality and other services for our events and venues and advertising associated with our distribution of related merchandise and apparel. There can be no assurance that these marketing or advertising efforts will be successful or will generate revenue or profits.

 

We are vulnerable to the potential difficulties associated with rapid growth.

 

We believe that our future success depends on our ability to manage the rapid growth that we expect to achieve organically and through acquisitions and the demands and additional responsibilities that our growth will place on our management.

 

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The following factors could present us with difficulties in managing our growth:

 

· a lack of sufficient executive-level personnel;
· the inability to successfully develop, expand and monetize our digital music, video and other content offerings;
· an increased administrative burden on our employees;
· the inability to attract, train, manage and retain the qualified personnel necessary to manage and operate a greater number of venues, events and other business activities; and
· the inability to integrate acquired businesses.

 

If we fail to address these and other challenges associated with our anticipated growth, our growth itself may fail to materialize, we may grow without achieving profitability, we may have difficulty with our internal controls and procedures and the quality of our events and other offerings may decline, among other things. Any of these could harm our business and financial results.

 

OCL may be adversely affected by the occurrence of extraordinary events, such as terrorist attacks.

 

The occurrence and threat of extraordinary events, such as terrorist attacks, intentional or unintentional mass-casualty incidents, natural disasters or similar events, may substantially decrease the use of and demand for our services and the attendance at live music events, which may decrease OCL’s revenue or expose it to substantial liability. The terrorism and security incidents in the past, military actions in foreign locations and periodic elevated terrorism alerts have raised numerous challenging operating factors, including public concerns regarding air travel, military actions and additional national or local catastrophic incidents, causing a nationwide disruption of commercial and leisure activities.

 

Following past terrorism actions, some artists refused to travel or book tours, which adversely affected our business. The occurrence or threat of future terrorist attacks, military actions by the United States or others, contagious disease outbreaks, natural disasters such as earthquakes and severe floods or similar events cannot be predicted, and their occurrence can be expected to negatively affect the economies of the United States, the United Kingdom and other foreign countries where we may do business in the future.

 

To service OCL’s lease obligations and to fund potential acquisitions and capital expenditures, OCL will require a significant amount of cash, which depends on many factors beyond our control.

 

OCL’s ability to service its lease obligations and to fund potential acquisitions and capital expenditures will require a significant amount of cash, which depends on many factors beyond our control. This is, to an extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

 

We cannot assure you that OCL’s business will generate sufficient cash flow or that future borrowings will be available to OCL in an amount sufficient to enable OCL to pay its lease obligations or to fund its other liquidity needs. If OCL’s future cash flow from operations and other capital resources are insufficient to pay its obligations as they occur or to fund its liquidity needs, it may be forced to reduce or delay business activities and capital expenditures, sell assets or obtain additional equity capital.

 

These measures might also be unsuccessful or inadequate in permitting OCL to meet scheduled lease obligations. It may be unable to restructure or refinance its obligations and obtain debt or equity financing or sell assets on satisfactory terms or at all. Capital markets have been volatile in the recent past; a downturn could negatively impact our ability to access capital should the need arise. As a result, the inability to meet OCL’s lease obligations could cause it to default on those obligations. Any such defaults could materially harm our financial condition and liquidity.

 

Risks Relating to Our Common Stock

 

We cannot predict the prices at which our common stock may trade.

 

The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

· our quarterly or annual earnings, or those of other companies in our industry;
· actual or anticipated fluctuations in our operating results due to the seasonality of our business and other factors related to our business;
· our loss of or inability to obtain significant popular artists;
· changes in accounting standards, policies, guidance, interpretations or principles;
· announcements by us or our competitors of significant contracts, acquisitions or divestitures;
· the publication by securities analysts of financial estimates or reports about our business;
· changes by securities analysts of earnings estimates or reports, or our inability to meet those estimates or achieve any goals described in those reports;

 

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· the disclosure of facts about our business that may differ from those assumed by securities analysts in preparing their estimates or reports about us;
· media reports, whether accurate or inaccurate;
· the operating and stock price performance of other comparable companies;
· overall market fluctuations; and
· general economic conditions.

 

In particular, the realization of any of the risks described in these Risk Factors could have a significant and adverse impact on the market price of our common stock.

 

In addition, in the past, some companies that have had volatile market prices for their securities have been subject to securities class action suits filed against them. If a suit were to be filed against us, regardless of the outcome, it could result in substantial legal costs and a diversion of our management’s attention and resources. This could have a material adverse effect on our business, results of operations and financial condition.

 

We have no plans to pay dividends on our common stock, which could affect its market price.

 

We currently intend to retain any future earnings to finance the growth, development and expansion of our business and/or to repay existing indebtedness. Accordingly, we do not intend to declare or pay any dividends on our common stock for the foreseeable future. The declaration, payment and amount of future dividends, if any, will be at the sole discretion of the board of directors after taking into account various factors, including our financial condition, results of operations, cash flow from operations, current and anticipated capital requirements and expansion plans, the income tax laws then in effect and the requirements of Nevada law. Accordingly, holders of common stock will not receive cash payments on their investment and the market price may be adversely affected.

 

Future sales or other issuances of our common stock could adversely affect its market price.

 

We have a large number of shares of common stock outstanding and available for resale beginning at various points in time in the future. Sales of a substantial number of shares of our common stock in the public market, or the possibility that these sales may occur, could cause the market price for our common stock to decline. As of the closing of the Merger, there were 38.1 million shares of Loton, Corp. common stock outstanding (including 1.175 million shares of unvested restricted stock awards), and a warrant to purchase 1.125 million shares of common stock at an exercise price of $0.15 per share.

 

We continually explore acquisition opportunities consistent with our strategy. These acquisitions may involve the payment of cash, the incurrence of debt or the issuance of common stock or other securities. Any such issuance could be at a valuation lower than the trading price of our common stock at the time. The price of our common stock could also be affected by possible sales of our common stock by hedging or arbitrage trading activity that may develop involving our common stock.

 

Our directors and officers do not have the ability to control or to submit to stockholders for approval matters related to the operations of OCHL, OCL or KOKO.

 

Pursuant to the OCHL Shareholder Agreement and the Variation Agreement, the Company is restricted from taking actions on behalf of OCHL without the written consent of Mr. Bengough, and Mr. Bengough’s consent is required for most material actions to be taken by OCHL and OCL, so long as the OCHL Shareholder’s Agreement and the Variation Agreement remain in effect. This severely limits the power of the shareholders of the Company to vote to take actions with respect to KOKO’s business. Until the closing of Mr. Bengough’s transfer of all of his shares of OCHL to the Company in exchange for 29,000,000 shares of Company Common Stock, the management of the Company will need to make decisions relating to the operations of KOKO in consultation with Mr. Bengough and subject to the terms of the OCHL Shareholders Agreement and the Variation Agreement.

 

FINANCIAL INFORMATION

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of the results of operations and financial condition of Obar Camden Holdings Limited and its wholly-owned subsidiary, Obar Camden Limited (collectively, for purposes of this section “OCHL”) for the fiscal years ended March 31, 2013 and 2012 and the nine months ended December 31, 2013 and 2012 should be read in conjunction with the consolidated financial statements of OCHL, and the notes to those consolidated financial statements that are included elsewhere in this Form 8-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as OCHL’s plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Current Report on Form 8-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

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For a discussion and analysis of the Company’s financial condition and results of operations prior to the Acquisition, please refer to the information set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the related financial statements, in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2013 filed with the SEC on July 29, 2013 and in the Company’s Quarterly Report on Form 10-Q for the quarters ended July 31, 2013, October 31, 2013 and January 31, 2014 filed with the SEC on September 16, 2013, December 16, 2013 and March 12, 2014, which information and financial statements are incorporated herein by reference.

 

Overview

 

OCHL’s principal business is the operation of a live music venue and nightclub known as KOKO located in Camden, London. OCHL provides live shows, club nights, corporate and other events. The venue has been used to record live performances which have been broadcast to an international audience.

 

The KOKO venue began as a Victorian theatre in the early 20th century where Charlie Chaplin regularly performed. It was operated as a cinema from 1913 to 1940. After being closed for several years it became a BBC Theatre from 1945 to approximately 1965. During most of the 1970’s it was a punk music oriented club known as The Music Machine. In 1982 it became The Camden Palace where appeared such acts as the Eurythmics, the Cure and Madonna. The Camden Palace was closed for refurbishment in 2004. After a significant restoration project it reopened in 2005 as KOKO . OCHL leased the venue from February 2004 until November 2028. Since its opening in 2005, KOKO has become one of London's premier live music venues attracting pop stars, rock legends and world class DJs as well as prestigious corporate events.

 

The KOKO venue employs state-of-the-art multimedia and outstanding production facilities, allowing for a diverse range of uses – from small cabaret performances to hosting international awards, from intimate musical performances to world-acclaimed rock concerts and from banquets and seminars to TV production. As a result, KOKO can be operating for many more nights per annum than most other clubs.

 

KOKO is the only central London music venue with a capacity as large as 1,400. Each year KOKO delivers approximately 238 live events including concerts, club nights and corporate events with aggregate admissions of approximately 300,000.

 

Significant and Critical Accounting Policies and Practices

 

The management of OCHL is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of OCHL’s financial condition and results and 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. OCHL’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

 

Basis of Presentation – Unaudited Interim Financial Information

 

OCHL’s unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) applicable to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full year.  These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of OCHL for the fiscal year ended March 31, 2013 and notes thereto contained elsewhere in the Company’s Current Report on Form 8-K, of which this is a part.

 

Fiscal Year End

 

OCHL elected March 31st as its fiscal year end date upon its formation.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

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Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. OCHL’s critical accounting estimates and assumptions affecting the financial statements were:

 

(i) Fair value of long-lived assets : Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. OCHL considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in OCHL’s overall strategy with respect to the manner or use of the acquired assets or changes in OCHL’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in OCHL’s stock price for a sustained period of time; and (vi) regulatory changes. OCHL evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

OCHL’s management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

OCHL’s management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Principles of Consolidation

 

OCHL applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC") to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree . The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.

 

OCHL’s consolidated subsidiary and/or entity is as follows:

 

Name of consolidated subsidiary
or entity
  State or other jurisdiction of
incorporation or organization
  Date of incorporation or formation
(date of acquisition, if applicable)
  Attributable interest  
               
Obar Camden Limited   The United Kingdom   November 13, 2003     100 %

 

The consolidated financial statements include all accounts of OCHL and the consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

 

All inter-company balances and transactions have been eliminated.

 

Fair Value of Financial Instruments

 

OCHL follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

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Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts of OCHL’s financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, deferred taxes, accounts payable, income tax payable, payroll liabilities, accrued expenses and other current liabilities, and deferred rent approximate their fair values because of the short maturity of these instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis

 

OCHL’s non-financial assets include inventories. OCHL identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. OCHL provides lower of cost or market reserves for such identified excess and slow-moving inventories. OCHL establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

OCHL has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. OCHL’s long-lived assets, which include property and equipment, and intangible assets other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

OCHL assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

 

OCHL considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in OCHL’s overall strategy with respect to the manner or use of the acquired assets or changes in OCHL’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in OCHL’s stock price for a sustained period of time if OCHL's stock was publicly listed; and (vi) regulatory changes. OCHL evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.

 

Cash Equivalents

 

OCHL considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. OCHL follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. OCHL performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay.

 

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Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. OCHL has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.

 

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is OCHL’s best estimate of the amount of probable credit losses in OCHL’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any.

 

There was no allowance for doubtful accounts at December 31, 2013 or March 31, 2013.

 

There was no bad debt expense for the reporting period ended December 31, 2013 or 2012.

 

OCHL does not have any off-balance-sheet credit exposure to its customers at December 31, 2013 or March 31, 2013.

 

Inventories

 

Inventory Valuation

 

OCHL values inventories, consisting of consumables and purchased merchandise for resale, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method. OCHL reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data, (ii) estimates of future demand, (iii) competitive pricing pressures, and (iv) product expiration dates.

 

Inventory Obsolescence and Markdowns

 

OCHL evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the statements of income as a component of cost of sales pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.

 

OCL normally carries four (4) weeks’ worth of pre-packaged and fresh food, soft drinks and liquor supplies and replenishes them when the number of individual items falls below the reorder point.

 

Lower of Cost or Market Adjustments

 

There was no lower of cost or market adjustments for the reporting period ended December 31, 2013 or 2012.

 

Slow-Moving or Obsolescence Markdowns

 

OCHL recorded no inventory obsolescence adjustments for the reporting period ended December 31, 2013 or 2012.

 

Property and Equipment

 

Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

Leasehold improvements

 

Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

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Leases

 

Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 A lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. In accordance with paragraphs 840-10- 25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

 

Operating leases primarily relate to OCHL’s leases of nightclub and concert performance venue spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, OCHL establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.

 

Intangible Assets Other Than Goodwill

 

OCHL has adopted Subtopic 350-30 of the FASB Accounting Standards Codification for intangible assets other than goodwill. Under the requirements, OCHL amortizes the acquisition costs of intangible assets other than goodwill on a straight-line basis over their estimated useful lives, the terms of the exclusive licenses and/or agreements, or the terms of legal lives of the patents, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Website Development Costs

 

OCHL has adopted Subtopic 350-50 of the FASB Accounting Standards Codification for website development costs. Under the requirements of Sections 350-50-15 and 350-50-25, OCHL capitalizes c osts incurred to develop a website as website development costs, which are amortized on a straight-line basis over the estimated useful lives of three (3) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Related Parties

 

OCHL follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the Related parties include a. affiliates of OCHL; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of OCHL; e. management of OCHL; f. other parties with which OCHL may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

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Commitment and Contingencies

 

OCHL follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to OCHL but which will only be resolved when one or more future events occur or fail to occur. OCHL assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against OCHL or unasserted claims that may result in such proceedings, OCHL evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in OCHL’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on OCHL’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect OCHL’s business, financial position, and results of operations or cash flows.

 

Revenue Recognition

 

OCHL follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. OCHL will recognize revenue when it is realized or realizable and earned. OCHL considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies:

 

Revenue from ticket sales from events and concerts is recognized when the performance occurs. Ticket sales collected in advance of an event date are recorded as deferred revenue.

 

OCHL evaluates the criteria outlined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 605-45, "Revenue Recognition—Principal Agent Considerations," in determining whether it is appropriate to record the gross amount of revenues and related costs or the net revenues. Under the guidance of ASC Subtopic 605-45, if OCHL is the primary obligor to perform the services being sold, has general inventory risk as it pertains to recruiting and compensating the talent, has the ability to control the ticket pricing, has discretion in selecting the talent, is involved in the production of the event, generally bears the majority of the credit or collection risk, or has several but not all of these indicators, revenue is recorded gross. If OCHL does not have several of these indicators, it records revenues or losses on a net basis.

 

In accordance with the guidance Subtopic 605-45, for the majority of OCHL’s events, OCHL has several of the above indicators and therefore it recognizes revenue gross as a principal. Additionally, OCHL charges for and collects ticketing and credit card processing surcharges and records the amounts in revenue on a gross basis. Actual expenses paid to the ticket service provider and credit card merchant processors are reflected in expenses.

 

Net sales of products and services represent the invoiced value of goods or services, net of value added taxes (“VAT”). OCHL is subject to VAT which is levied on all of OCHL’s products and services at the rate of 20% on the invoiced value of sales. Sales or Output VAT is borne by customers in addition to the invoiced value of sales and purchases and Purchase or Input VAT is borne by the Company in addition to the invoiced value of purchases.

 

Income Tax Provision

 

OCHL accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.

 

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OCHL adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. OCHL periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, OCHL operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Uncertain Tax Positions

 

OCHL did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended December 31, 2013 or 2012.

 

Foreign Currency Translation

 

OCHL follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars.  Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.

 

The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.  If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If OCHL disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss).  If OCHL determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).

 

Based on an assessment of the factors discussed above, the management of OCHL determined the relevant subsidiary’s local currencies to be their respective functional currencies.

 

The financial records of OCHL’s UK operating subsidiary are maintained in their local currency, the British Pound (“GBP”), which is the functional currency.  Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date.  Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements.  Foreign currency   translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.

 

Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation ( www.oanda.com ) contained in its consolidated financial statements.  Management believes that the difference between GBP vs. U.S. dollar exchange rate quoted by the Bank of England and GBP vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial.  Translations do not imply that the GBP amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.  Translation of amounts from GBP into U.S. dollars has been made at the following exchange rates for the respective periods:

 

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    December 31,
2013
    March 31, 2013     December 31,
2012
    March 31, 2012  
                         
Balance sheets     0.6064       0.6580       0.6188       0.6254  
                                 
Statements of operations and comprehensive income (loss)     0.6381       0.6329       0.6292          

 

Cash Flows Reporting

 

OCHL adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  OCHL reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

 

Subsequent Events

 

OCHL follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. OCHL will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, OCHL as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Recently Issued Accounting Pronouncements

 

In January 2013, the FASB issued ASU No. 2013-01, " Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities ". This ASU clarifies that the scope of ASU No. 2011-11, " Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. " applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013.

 

In February 2013, the FASB issued ASU No. 2013-02, " Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. " The ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income by component and their corresponding effect on net income. The ASU is effective for public entities for fiscal years beginning after December 15, 2013.

 

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-04, " Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date ." This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013.

 

In March 2013, the FASB issued ASU No. 2013-05, " Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.

 

In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

 

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OCHL’s management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Results of Operations for the Twelve-month Period Ended March 31, 2013 vs. 2012

 

Net Sales

 

OCHL’s net sales decreased by $215,840, or 3.2%, to $6,258,657 for the fiscal year ended March 31, 2013, from $6,744,497 in the prior year. The decrease in net sales reflects a reduction in the number of events in the year to 217 compared to 248 in the prior year and the effect of fluctuation in the average rates of exchange used in translating U.K. sales to their U.S. dollar equivalent. The decrease was partially offset by higher average revenue per event.

 

Cost of Sales

 

Cost of sales decreased by $109,293, or 10.6%, compared with the corresponding period of the previous year. The decrease in cost of sales reflects the reduction in the number of events and the effect of fluctuation in the average rates of exchange used in translating U.K. costs to their U.S. dollar equivalent. The decrease was partially offset by an increase in liquor sales margins.

 

Gross Margin

 

Gross margin decreased by $106,547, or 1.9%, to $5,609,270 (85.9% of net sales) for the fiscal year ended March 31, 2013, from $5,715,817 (84.7% of net sales) in the prior year due primarily to the decrease in net sales above. The increase in gross margin percentage to 85.9% from 84.7% of net sales is principally due to an increase in liquor sales margins.

 

Operating Expenses

 

Operating expenses decreased by $200,354, or 4.0%, to $4,868,393 for the fiscal year ended March 31, 2013, from $5,068,717 in the prior year. The decrease in operating expenses was due mainly to: (i) lower management fees associated with a one-time bonus recharged in the prior year; (ii) lower salaries and wages resulting from a reduction in the number of events and improved management and (iii) the effect of fluctuation in the average rates of exchange used in translating U.K. expenses to their U.S. dollar equivalent. The decrease was partially offset by an increase in repairs and painting to the façade of the building and general and administrative expenses due primarily to an increase in depreciation expense.

 

Other (Income) Expense

 

Other (income) expense increased by $62,958 for the fiscal year ended March 31, 2013 which reflects professional fees incurred in connection with the merger of Obar Camden Ltd into Obar Camden Holdings Limited.

 

Income Tax Provision

 

The income tax provision increased by $8,856, or 5.1%, to $183,843 for the fiscal year ended March 31, 2013, from $174,987 in the prior year primarily as a result of the increase in pretax income.

 

Results of Operations for the Nine-month Period Ended December 31, 2013 vs. 2012

 

Net Sales

 

OCHL’s net sales increased by $150,391, or 3.0%, to $5,099,857 for the nine months ended December 31, 2013, from $4,949,466 in the prior year. The increase in net sales primarily reflects additional live events and higher average revenues for Saturday night and corporate events during the nine months ended December 31, 2013 compared to the same period in the previous year. Partially offsetting the increase in net sales was the effect of fluctuation in the average rates of exchange used in translating U.K. sales to their U.S. dollar equivalent as underlying net sales increased 4.5%.

 

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Cost of Sales

 

Cost of sales increased by $81,670, or 11.8%, compared with the corresponding period of the previous year. The increase in cost of sales primarily reflects a change in sales mix to a higher proportion of drink sales associated with more live music events. Partially offsetting the increase in cost of sales was the effect of fluctuation in the average rates of exchange used in translating U.K. costs to their U.S. dollar equivalent as underlying cost of sales increased 13.4%.

 

Gross Margin

 

Gross margin increased by $68,721, or 1.6%, to $4,327,575 (84.9% of net sales) for the nine months ended December 31, 2013, from $4,258,854 (86.0% of net sales) in the prior year due primarily to the additional live events and higher average revenues for Saturday night and corporate events. Partially offsetting the increase in gross margin was the higher cost of sales as noted above and the effect of fluctuation in the average rates of exchange used in translating U.K. sales and cost of sales to their U.S. dollar equivalent as underlying gross margins increased 3.1%.

 

Operating Expenses

 

Operating expenses increased by $784,972, or 24.1%, to $4,036,717 for the nine months ended December 31, 2013, from $3,251,745 in the prior year. The increase in operating expenses was due mainly to management fees charged during the nine months ended December 31, 2013, which were not recorded until the fourth quarter in the prior year and higher general and administrative expenses. Partially offsetting the increase in operating expenses was the effect of fluctuation in the average rates of exchange used in translating U.K. expenses to their U.S. dollar equivalent.

 

Other (Income) Expense

 

Other (income) expense decreased by $61,699 for the nine months ended December 31, 2013 which reflects professional fees incurred in connection with the merger of Obar Camden Ltd into Obar Camden Holdings Limited in the prior year period.

 

Income Tax Provision

 

The income tax provision decreased by $180,645, or 72.9%, to $67,068 for the nine months ended December 31, 2013, from $247,713 in the prior year primarily as a result of the higher management fees noted above which resulted in a decrease in pretax income.

 

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Liquidity and Capital Resources

 

OCL’s working capital requirements and capital for OCL’s general corporate purposes, including capital expenditures, are funded from operations or from borrowings from OCL’s parent company.

 

As of December 31, 2013, OCHL had cash on hand of $407,178 and positive working capital of $411,032. We believe that its existing funds, cash generated from operations, and existing sources of and access to financing are adequate to satisfy OCHL and OCL working capital, capital expenditures and debt service requirements for the foreseeable future. However, we cannot assure you that this will be the case, and OCL may be required to obtain alternative or additional financing to maintain and expand our existing operations through an increase in the amount of borrowings from its parent company, obtaining additional financing from other financial institutions or otherwise. The failure by us to obtain such financing, if needed, would have a material adverse effect upon our business, financial condition and results of operations.

 

Net cash used in operating activities was $40,183 for the nine months ended December 31, 2013 and net cash provided by operating activities was $1,408,885 for the nine months ended December 31, 2012. The decrease is mainly attributable to lower net income of $473,907 and a decrease in accounts payable, income taxes payable, payroll liabilities, and accrued expenses and other current liabilities of $1,011,679.

 

Cash used in investing activities was $55,363 and $147,655 for the nine months ended December 31, 2013 and 2012, respectively, consisting of the purchase of property, plant and equipment.

 

Cash used in financing activities was $336,781 and $758,972 for the nine months ended December 31, 2013 and 2012, respectively. Cash used in financing activities reflects advances made to related parties during the nine months ended December 31, 2013 and 2012, respectively.

 

Capital Expenditures

 

Capital expenditures are associated with renewal and improvement of existing venues and technology systems, web development, major renovations to existing buildings and technology enhancements. Certain capital expenditures such as major renovations to existing buildings are made to increase net sales and/or improve operating income.

 

OCHL has no material commitments for capital expenditures at this time.

 

Off-Balance Sheet Arrangements

 

OCHL does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on OCHL’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Contractual Obligations

 

The following table summarizes OCHL’s contractual obligations and the effect these obligations are currently expected to have on its liquidity and cash flow in future periods, over the periods shown, exclusive of interest:

 

    Payments due by Period  
    Less than     One to     Three to     More Than        
    One Year     Three Years     Five Years     Five Years     Total  
Operating Lease Obligations   $ 904,250     $ 1,808,500     $ 1,808,500     $ 9,169,464     $ 13,690,714  
Long-Term Debt Obligations     -       -       -       -       -  
Capital Lease Obligations     -       -       -       -       -  
TOTAL   $ 904,250     $ 1,808,500     $ 1,808,500     $ 9,169,464     $ 13,690,714  

 

The above table outlines OCHL’s obligations as of December 31, 2013 and does not reflect any changes in its obligations that have occurred after that date.

 

PROPERTIES

 

OCHL utilizes the office space and equipment of its management at no cost for its corporate offices. OCHL’s present business activities are conducted on the property known as Camden Palace Nightclub located at 1 Camden High Street, London NW1, consisting of approximately 28,000 square feet, under a long-term property rental agreement which terminates in November 2028. OCHL currently does not own any real property. OCHL believes its existing property is in good condition and is suitable for the conduct of our business and planned near-term operations.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Security Ownership Prior to the Merger

 

The Company has one class of its stock outstanding, its common stock. The following table sets forth certain information as of April 25, 2014, immediately prior to the closing of the Merger Agreement, with respect to the beneficial ownership of our common stock for (i) all persons known to us to be beneficial owners of more than 5% of our outstanding common stock; (ii) each director and executive officer of the Company, and (iii) all of our officers and directors as a group. Each of the persons in the table below has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them, except as otherwise indicated.

 

Name and address of beneficial owner   Number of Shares
Beneficially Owned(1)
    Percent of
Outstanding Shares(1)
 
             
Certain Beneficial Owners and Named Executive Officers                
                 
Robert S. Ellin (2)(3)     5,125,000       50.00 %
                 
Sandor Capital Master Fund (4)     1,675,000       18.37 %
                 
Barry Regenstein (5)     100,000       1.10 %
                 
Directors and Director Nominees*                
                 
Jay Krigsman (6)     336,784       3.69 %
                 
Oliver Bengough     -       -  
                 
All officers and directors as a group (4 persons)     5,561,784       52.43 %

 

 

 

*Information with respect to our common shares that are owned by Mr. Ellin, who is also a member of our Board, is set forth above in this table under the heading “Certain Beneficial Owners and Named Executive Officers.”

 

(1)         For the purposes of this table, a person is deemed to have “beneficial ownership” of any shares of capital stock that such person has the right to acquire within 60 days of April 25, 2014 and in accordance with SEC rules are deemed to be issued and outstanding and have been outstanding in calculating the percentage ownership of those individuals. Except as noted in the preceding sentence, all percentages for common stock are calculated based upon a total of 10,245,000 shares outstanding as of April 25, 2014.

 

(2)         4,000,000 shares of the Company are owned by Trinad Capital Master Fund, Ltd. Robert Ellin is the portfolio manager of Trinad Capital Master Fund, Ltd. and is deemed to have voting and dispositive power over such shares. Trinad Management, LLC owns warrants to purchase 1,125,000 shares of common stock of the Company issuable upon the exercise of a 10 year warrant. The warrant may be exercised in whole or in part at an exercise price of $0.15 per share. Robert Ellin is the managing member of Trinad Management, LLC and is deemed to have voting and dispositive power over such shares. Accordingly, securities owned by these entities may be regarded as being beneficially owned by Mr. Ellin. Mr. Ellin disclaims beneficial ownership in the shares held by Trinad Management and Trinad Capital Master Fund. The address for Mr. Ellin, Trinad Management and Trinad Capital Master Fund is 4751 Wilshire Blvd., 3rd Floor, Los Angeles, CA 90010. See “ Certain Relationships and Related Transactions, and Director Independence - Management Agreement .”

 

(3)         Does not include 231,648 shares held in family trusts as to which Mr. Ellin does not exercise voting dispositive power.

 

(4)         John Lemak is the principal of Sandor Capital Master Fund, and its address is 2828 Routh St., Ste. 500, Dallas TX 75201.

 

(5)         Includes 100,000 shares of restricted common stock of the Company, issued to Mr. Regenstein on October 1, 2013 for services as interim Chief Financial Officer of the Company. The shares vest on the first anniversary of the date of the grant and are subject to a one-year restriction on transfer following the vesting date.

 

(6)         Includes 100,000 shares of restricted common stock of the Company, issued to Mr. Krigsman on January 29, 2013 for services as a director to the Company. The shares vested on the first anniversary of the date of the grant and are subject to a two-year restriction on transfer following the vesting date.

 

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Security Ownership After the Merger

 

The following table sets forth certain information as of April 29, 2014, after giving effect to the closing of the Merger Agreement, with respect to the beneficial ownership of our common stock for (i) all persons known to us to be beneficial owners of more than 5% of our outstanding common stock; (ii) each director and executive officer of the Company, and (iii) all of our officers and directors as a group. Each of the persons in the table below has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them, except as otherwise indicated.

 

Name and address of beneficial owner   Number of Shares
Beneficially Owned(1)
    Percent of
Outstanding Shares(1)
 
             
Certain Beneficial Owners and Named Executive Officers          
                 
Robert S. Ellin (2)(3)     34,125,000       86.95 %
                 
Barry Regenstein (4)     100,000       0.26 %
                 
Directors and Director Nominees*                
                 
Jay Krigsman (5)     336,784       0.88 %
                 
Oliver Bengough     -       -  
                 
All officers and directors As a group (4 persons)     34,561,784       88.07 %

 

 

 

*Information with respect to our common shares that are owned by Mr. Ellin, who is also a member of our Board, is set forth above in this table under the heading “Named Executive Officers.”

 

(1)         For the purposes of this table, a person is deemed to have “beneficial ownership” of any shares of capital stock that such person has the right to acquire within 60 days of April 29, 2014 and in accordance with SEC rules are deemed to be issued and outstanding and have been outstanding in calculating the percentage ownership of those individuals. Except as noted in the preceding sentence, all percentages for common stock are calculated based upon a total of 39,245,000 shares outstanding as of April 29, 2014.

 

(2)         4,000,000 shares of the Company are owned by Trinad Capital Master Fund, Ltd. Robert Ellin is the portfolio manager of Trinad Capital Master Fund, Ltd. and is deemed to have voting and dispositive power over such shares.  Trinad Management, LLC owns warrants to purchase 1,125,000 shares of common stock of the Company issuable upon the exercise of a 10 year warrant.  The warrant may be exercised in whole or in part at an exercise price of $0.15 per share.  Robert Ellin is the managing member of Trinad Management, LLC and is deemed to have voting and dispositive power over such shares.  29,000,000 shares of common stock are owned by JJAT Corp., an entity owned by Mr. Ellin, pursuant to the Merger Agreement, and Mr. Ellin is deemed to have voting and dispositive power over such shares.  Accordingly, securities owned by these entities may be regarded as being beneficially owned by Mr. Ellin.  Mr. Ellin disclaims beneficial ownership in the shares held by Trinad Management, and Trinad Capital Master Fund.  The address for Mr. Ellin, JJAT Corp. Trinad Management and Trinad Capital Master Fund is 4751 Wilshire Blvd., 3rd Floor, Los Angeles, CA 90010.  See “ Certain Relationships and Related Transactions, and Director Independence - Management Agreement .”

 

(3)         Does not include 231,648 shares held in family trusts as to which Mr. Ellin does not exercise voting dispositive power.

 

(4)         Includes 100,000 shares of restricted common stock of the Company, issued to Mr. Regenstein on October 1, 2013 for services as interim Chief Financial Officer of the Company.  The shares vest on the first anniversary of the date of the grant and are subject to a one-year restriction on transfer following the vesting date.

 

(5)         Includes 100,000 shares of restricted common stock of the Company, issued to Mr. Krigsman on January 29, 2013 for services as a director to the Company.  The shares vested on the first anniversary of the date of the grant and are subject to a two-year restriction on transfer following the vesting date.

 

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Changes in Control

 

Pursuant to the Variation Agreement, Mr. Bengough agreed, subject to Mr. Bengough’s receipt of satisfactory tax clearances and mutually acceptable transaction documents under the tax laws of the United Kingdom, to transfer all shares of OCHL held by him to the Company in exchange for 29,000,000 shares of Company Common Stock, or approximately 42.5% of the shares of the Company outstanding post-exchange with the result that upon closing of that transaction, OCHL would become a wholly-owned subsidiary of our wholly-owned subsidiary, KoKo UK (the “Bengough Transaction”). The Bengough Transaction is expected to occur promptly following the filing of this Current Report on Form 8-K. As a result of the Bengough Transaction, it is likely that Mr. Bengough will be entitled to appoint a director to our Board, and Mr. Bengough would therefore control 50% our Board. Mr. Bengough is also expected to become the full time Chief Executive Officer of the Company following the closing of the Bengough Transaction and the completion of an employment agreement between Mr. Bengough and the Company.

 

DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth certain information regarding the Company’s current directors and executive officers and director appointee:

 

Name   Age   Position
         
Robert S. Ellin   49   Executive Chairman, President & Director
         
Oliver Bengough   39   Director Appointee
         
Jay Krigsman   49   Director
         
Barry I. Regenstein   57   Interim Chief Financial Officer

 

Robert S. Ellin has served as our Chief Executive Officer and as a director since September 9, 2011. He also served as our Chief Financial Officer from April 26, 2012 until September 30, 2013. Mr. Ellin has more than twenty years of investment and turnaround experience. He is Managing Director and Portfolio Manager of Trinad Capital Master Fund, Ltd. Trinad Capital Master Fund, Ltd. is our principal stockholder and a hedge fund dedicated to investing in micro-cap public companies. Mr. Ellin served as a member of the board of directors from February 2005 to September 2013, and as Executive Chairman from December 2011 to April 2013, of Mandalay Digital Group, Inc. He has also served on the Board of Governors at Cedars-Sinai Hospital in Los Angeles, California since March 2007. Prior to joining Trinad Capital Master Fund, Ltd., Mr. Ellin was the founder and President of Atlantis Equities, Inc. (“Atlantis”), a private investment company. Founded in 1990, Atlantis actively managed an investment portfolio of small capitalization public companies as well as select private company investments. Mr. Ellin played an active role in Atlantis investee companies including board representation, management selection, corporate finance and other advisory services. Through Atlantis and related companies, Mr. Ellin spearheaded investments into THQ, Inc., Grand Toys, Forward Industries, Inc. (FORD), Majesco Entertainment and iWon.com. Mr. Ellin also completed a leveraged buyout of S&S Industries, Inc. where he served as President from 1996 to 1998. The company was the largest manufacturer in the world of underwires which had strong partnerships with leading companies including Bally’s, Maidenform, and Sara Lee. Prior to founding Atlantis Equities, Mr. Ellin worked in Institutional Sales at LF Rothschild and was Manager of Retail Operations at Lombard Securities. Mr. Ellin received his Bachelor of Arts degree from Pace University.

 

Oliver Bengough has been appointed to our Board of Directors and will become our Interim Chief Executive Officer, effective May 1, 2014. Mr. Bengough has served as CEO and co-founder of the Mint Group since 2000. He co-developed Lunasa on the Kings Road, which was shortlisted by the Evening Standard as one of the top ten bars in London. Under his management, Mint Group has amassed acclaim, notably opening Clapham-based Infernos in July 2001. Eager to service a similarly affluent clientele in neighboring Fulham, Elk Bar was launched in September 2003. Mr. Bengough also created the initial implementation of the Lovebox Festival at Clapham Junction, one of London’s and the UK’s most credible and exciting music festivals. Soon after, he launched KOKO in 2005. In 2009, Mr. Bengough launched Cinemoi, a French film channel with subtitles on Sky and Virgin. The channel went on to launch in 2012 on Direct TV into 20 million homes across the U.S., broadening the concept to the best of film and fashion.

 

Jay Krigsman has served as our director since April 26, 2012. Mr. Krigsman has been the Executive Vice President and Asset Manager of The Krausz Companies since 1992, where he oversees the company’s property management team and is responsible for developing and implementing strategic leasing programs. Prior to joining The Krausz Companies, Mr. Krigsman had the senior leasing responsibilities for Birtcher Development Co. Mr. Krigsman holds a Certified Commercial Investment Member designation from the CCIM Institute, a Sr. Certified Leasing Specialist designation from the International Council of Shopping Centers and holds a California Real Estate Broker’s License. Mr. Krigsman is currently a director of Lateral Media Inc. Mr. Krigsman received a B.A. in Business Administration from the University of Maryland.

 

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Barry I. Regenstein has served as our Interim Chief Financial Officer since October 1, 2013. Mr. Regenstein served as Command Security Corporation’s President from January 2006 to March 2013, and as its Executive Vice President and Chief Operating Officer from August 2004 until December 2005, and also as its Chief Financial Officer from October 2004 to January 2013. Mr. Regenstein has over thirty years of experience including twenty-six years in operations and finance of contract services companies. Mr. Regenstein rendered consulting services for Trinad Capital, L.P., a shareholder of the Company, and its affiliates, from February 2004 until August 2004. Prior to that period, Mr. Regenstein served as a Senior Vice President and Chief Financial Officer of GlobeGround North America LLC (formerly Hudson General Corporation), an airport services company from 2001 until 2003. Mr. Regenstein also served as Vice President and Chief Financial Officer of GlobeGround North America LLC from 1997 to 2001 and was employed in various executive capacities with GlobeGround North America LLC since 1982.  Prior to joining Hudson General Corporation, he was with Coopers & Lybrand in Washington, D.C. Mr. Regenstein is a Certified Public Accountant and received a B.S. in Accounting from the University of Maryland and an M.S. in Taxation from Long Island University. Mr. Regenstein has also held board seats in several public companies.

 

Audit Committee and Audit Committee Financial Expert

 

We do not currently have an audit committee financial expert, nor do we have an audit committee. Our entire Board of Directors handles the functions that would otherwise be handled by an audit committee. We do not currently have the capital resources to pay director fees to a qualified independent expert who would be willing to serve on our Board of Directors and who would be willing to act as an audit committee financial expert.

 

Nominating Committee

 

The Board of Directors has not established a nominating committee due to our early stage of development. Our entire Board of Directors currently operates as our nominating committee. We have not adopted any procedures by which security holders may recommend nominees to our Board of Directors.

 

Code of Ethics

 

We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions because of the small number of persons involved in the management of the Company.

 

Board Leadership Structure and Role in Risk Oversight

 

Due to the small size and early stage of the Company, we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, and the Board of Directors does not currently have a Chairman.

 

Our Board of Directors is primarily responsible for overseeing our risk management processes.

 

Compensation Committee Interlocks and Insider Participation

 

The Company has no compensation committee, and during its last completed fiscal year, its directors and officers participated in deliberations of our Board of Directors regarding officer compensation. During the last completed fiscal year, no executive officer of our Company (i) served as a member of the compensation committee (or other committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Company’s Board of Directors, (ii) served as a director of another entity, one of whose executive officers served on our Company’s Board of Directors, or (iii) served as a member of the compensation committee (or other committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of our Company.

 

EXECUTIVE COMPENSATION

 

Other than as set forth on the table below, no officer of the Company receives any compensation for the services they render to the Company, has received compensation in the past, and is accruing any compensation pursuant to any agreement with the Company. We currently have no formal written salary arrangement with any of our officers. We have, however, entered into an offer letter with Mr. Bengough, pursuant to which he will be paid $1,333 per month beginning May 1, 2014 on an interim basis until we enter into an employment agreement with him to be our full time Chief Executive Officer on a non-interim basis. Our executive officers may receive a salary or other compensation for services that they provide to the Company in the future, but there are not any current understandings or agreements regarding compensation our management will receive after a business combination. No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of the Company’s employees.

 

SUMMARY COMPENSATION TABLE

 

The following table sets forth information concerning the total compensation paid during our fiscal year ended April 30, 2013, and our fiscal year ended April 30, 2012, for our Chief Executive Officer and new executive officers. We have no other executive officers or individuals who are former executive officers of the Company.

 

34
 

 

Position  

Fiscal

Year

Ended

 

Salary

($)

   

Bonus

($)

   

Stock (1)

($)

   

All Other

($)

   

Total

($)

 
Robert S. Ellin (1)   April 30, 2013           103,772                   103,772  
Chief Executive Officer   April 30, 2012                              
Barry I. Regenstein (2)   April 30, 2013                              
Interim Chief Financial Officer   April 30, 2012                              

 

(1) Mr. Ellin has served as our Chief Executive Officer since September 9, 2011. We are currently a party to a Management Agreement, dated September 23, 2011 with Trinad Management, LLC, the manager of Trinad Capital Master Fund, Ltd. which is one of our principal stockholders. Mr. Ellin is the managing director of and portfolio manager for Trinad Management, LLC. Pursuant to the terms of the Management Agreement, Trinad Management, LLC provides certain management services, including, without limitation, relating to the sourcing, structuring and negotiation of a potential business combination involving the Company, for (i) a fee equal to $2,080,000, with $90,000 payable in advance of each consecutive three-month period during the term of the Agreement and with $1,000,000 due at the end of the 3 year term unless the Management Agreement is otherwise terminated earlier in accordance with its terms, and (ii) issuance of a warrant to purchase 1,125,000 shares of the Company’s common stock at an exercise price of $0.15 per share. The warrant may be exercised in whole or in part by Trinad Management, LLC at any time for a period of ten (10) years.
(2) Mr. Regenstein commenced employment with the Company on October 1, 2013.

 

Outstanding Equity Awards at April 30, 2013

 

Our named executive officers held no outstanding options or unvested stock awards as of April 30, 2013.

 

Director Compensation

 

The following table presents information regarding compensation paid to our current directors during the fiscal year ended April 30, 2013.

 

Name  

Fees Earned or

Paid in Cash

($)

   

Stock Awards

($)(1)

   

Option Awards

($)(1)

   

All Other

Compensation ($)

    Total ($)  
Robert Ellin (2)                              
Jay Krigsman (3)           100,000                   100,000  
Andrew Schleimer (4)           100,000                   100,000  

 

(1) The amounts in this column reflect the aggregate grant date fair value of each restricted stock award computed in accordance with FASB ASC Topic 718. The fair value for awards that are expected to vest is then amortized on a straight-line basis over the requisite service period of the award, which is generally the stock vesting term. The amount of expense recognized represents the expense associated with the stock we expect to ultimately vest based upon an estimated rate of forfeitures; this rate of forfeitures is updated as necessary and any adjustments needed to recognize the fair value of stock that actually vest or are forfeited are recorded.
(2) Mr. Ellin received no compensation for his service as a director.
(3) On January 29, 2013, Mr. Krigsman received a grant of 100,000 shares of restricted common stock for services as a director of the Company.  The shares vested on the first anniversary of the date of the grant and are subject to a two-year restriction on transfer following the vesting date.
(4) On January 29, 2013, Mr. Schleimer received a grant of 100,000 shares of restricted common stock for services as a director of the Company. The shares were to be vested on the first anniversary of the date of the grant with a two-year restriction on transfer following the vesting date. On August 21, 2013, Mr. Schleimer resigned from the Company’s board of directors. Upon Mr. Schleimer’s resignation, 100,000 shares of the Company’s common stock were forfeited.

 

Narrative to Director Compensation Table

 

Non-employee director compensation for a new director is determined on an ad hoc basis by the existing members of the board of directors at the time a director is elected.

 

Narrative Disclosure of Compensation Policies and Practices as They Relate to the Company’s Risk Management

 

We believe that our compensation policies and practices for all employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on us.

 

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Director Independence

 

Our Board of Directors has determined that Jay Krigsman would qualify as “independent” as that term is defined by Nasdaq Listing Rule 5605(a)(2). Further, although we do not presently have established separately designated audit, nominating or compensation board committees, Mr. Krigsman would qualify as “independent” under Nasdaq Listing Rules applicable to such board committees. Mssrs. Ellin and Bengough would not qualify as “independent” under Nasdaq Listing Rules applicable to the Board of Directors generally or to separately designated board committees because Mr. Ellin currently serves as our Executive Chairman and President and, effective May 1, 2014, Mr. Bengough will serve as our Interim Chief Executive Officer.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Prior to the closing of the Acquisition, the Company had been provided office space by its principal stockholder, Trinad Capital Master Fund, Ltd. at no cost. The management determined that such cost is nominal and did not recognize rent expense in its financial statements. Robert Ellin, the Company’s Chief Executive Officer, Director and controlling shareholder, is the Managing Director of Trinad Capital Master Fund, Ltd.

 

Management Agreement

 

On September 23, 2011, the Company entered into a Management Agreement (the “Management Agreement”) with Trinad Management. Pursuant to the Management Agreement, Trinad Management has agreed to provide management services to the Company for a period of three (3) years, including without limitation the sourcing, structuring and negotiation of a potential business combination transaction involving the Company. Under the Management Agreement, the Company compensates Trinad Management for its services as follows: (i) a fee equal to $2,080,000, with $90,000 payable in advance of each consecutive three-month period during the term of the Agreement and $1,000,000 due at the end of the 3 year term unless the Management Agreement is otherwise terminated earlier in accordance with its terms, and (ii) issuance of a warrant to purchase 1,125,000 shares of the Company’s common stock at an exercise price of $0.15 per share. The warrant may be exercised in whole or in part by Trinad Management at any time for a period of ten (10) years from the date of issuance of the warrant.

 

Company Promissory Notes

 

On April 2, 2012, the Company issued a promissory note in the amount of $150,000 to Trinad Capital Master Fund, Ltd. The note originally matured on April 1, 2013, but the maturity date was extended to November 1, 2014 by the parties, pursuant to a Note Extension Agreement dated November 1, 2013. The note is subject to interest at an annual rate of 6%. Robert Ellin, the Company’s Chief Executive Officer, Director and controlling shareholder, is the Managing Director of Trinad Capital Master Fund, Ltd.

 

On June 21, 2012, the Company issued a promissory note in the amount of $150,000 to Trinad Capital Master Fund, Ltd. The note originally matured on June 20, 2013, but the maturity date was extended to November 1, 2014 by the parties pursuant to a Note Extension Agreement dated November 1, 2013. The Note is subject to interest at an annual rate of 6%. Robert Ellin, the Company’s Chief Executive Officer, Director and controlling shareholder, is the Managing Director of Trinad Capital Master Fund, Ltd.

 

We entered into a series of promissory notes dated May 13, May 23, June 17, July 2 and July 3, 2013 with Trinad Capital Master Fund, Ltd. to borrow a total of $200,000 from Trinad Capital Master Fund, Ltd. The notes mature on the first anniversary of the date that they were entered into. Robert Ellin the Company’s Chief Executive Officer, Director and controlling shareholder, is the Managing Director of Trinad Capital Master Fund, Ltd.

 

In connection with the Acquisition, the Company entered into the OCHL Junior Promissory Note with Mr. Bengough dated April 28, 2014, to be repaid $494,749 of transaction expenses, due October 28, 2015 that accrues interest at a rate of 8% per annum. Outstanding interest payable under the OCHL Junior Promissory Note is due on the first anniversary of the note with the balance payable upon maturity of the note. So long as the note is outstanding, OCHL shall not make any distributions or pay any compensation to Mr. Ellin or Mr. Bengough and the net proceeds from any debt and equity financings obtained by OCHL or OCL, as allowed, shall be applied as prepayments under the note and such amounts paid shall be credited against the outstanding principal and interest owed under the note Payments under the OCHL Junior Promissory Note are subordinate to payments under the OCHL Senior Promissory Note, described above under the heading “ Reimbursement of Expenses between JJAT and Bengough and the OCHL and OCL Promissory Notes .”

 

The Merger

 

In connection with the Merger, on April 28, 2014, the Company, through the Acquisition Sub, acquired from JJAT Corp. a 50% ownership interest in OCHL by merging with JJAT’s wholly-owned subsidiary KoKo Parent in exchange for 29,000,000 shares of common stock of the Company (the “Merger Consideration”). The Merger was consummated pursuant to the terms of a Merger Agreement, dated April 28, 2014 among the Company, the Acquisition Sub and KoKo Parent. Robert Ellin, the Company’s Executive Chairman, President, Director and controlling shareholder, owns, either directly or through related trusts, 100% of the outstanding capital stock of JJAT, the sole shareholder of KoKo Parent.

 

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The Merger Consideration was determined through a series of arms’ length negotiations. Beginning around September 2013, Mr. Ellin, as CEO of the Company, originally negotiated for the Company to acquire 100% of the stock of OCHL from its shareholders for an aggregate purchase consideration comprised of both cash and common stock of the Company, based on an enterprise value of £5,100,000 (or approximately $8,120,000). In January 2014, the Company determined as a result of the substantial transaction expenses and its inability to raise sufficient capital, that it could not at such time acquire OCHL. Thereafter, with the permission of the independent director of the Company’s Board, JJAT agreed to undertake to complete the transaction in the place of the Company, and to pay for and reimburse the Company for all of the transaction related expenses that the Company had paid or incurred with respect to the transaction (the “Transaction Expenses”).

 

Thereafter, on February 13, 2014, KoKo UK, a company wholly owned by JJAT, purchased from Alex Rutherford, an individual residing in the United Kingdom, 47.475% of the outstanding ordinary shares of OCHL, owner of OCL, for £1,104,250 at the closing and £1,318,250 in deferred consideration, subject to working capital adjustments. The deferred consideration was paid on April 28, 2014, and the working capital adjustment is expected to be paid shortly. At the same time, KoKo UK entered into an agreement with certain minority shareholders of OCHL pursuant to which (i) KoKo UK, and, at KoKo UK’s direction, JJAT, each acquired 2.525% of the outstanding ordinary shares and 50% of the outstanding deferred shares of OCHL for an aggregate of £255,002 paid by KoKo UK, and (ii) Oliver Bengough agreed to purchase from JJAT its 2.525% of the outstanding ordinary shares and its 50% of the outstanding deferred shares of OCHL on April 24, 2014. The closing of each of these agreements occurred on April 28, 2014. Mr. Bengough purchased the 2.525% of OCHL shares from JJAT for a promissory note in the principal amount of £127,501. These transactions resulted in JJAT and its subsidiary KoKo UK acquiring 50% of OCHL for approximately $4,250,000 and Mr. Bengough, (who had previously owned 47.475% of OCHL) acquiring 2.525% of OCHL at the same price per share for total ownership of 50% of OCHL. Through this means, the price of OCHL was established via an extensive process of arms’ length negotiations between Mr. Ellin on behalf of JJAT and its subsidiary KoKo UK, and Mr. Bengough on behalf of the other OCHL shareholders.

 

Around March 2014, Mr. Ellin and Mr. Bengough began again discussing the acquisition of OCHL by the Company. Negotiations were carried out primarily by Barry Regenstein, Interim CFO of the Company, in consultation with Mr. Ellin on behalf of the Company, and Mr. Bengough. After extensive arms’ length negotiations, Mr. Bengough ultimately agreed to sell his 50% interest in OCHL to the Company for approximately 42.5% of the outstanding common shares of the Company on a fully diluted basis (exclusive of 3.2 million shares to be issued to advisors, consultants and other key employees). Since JJAT also owned 50% of OCHL, it too agreed to transfer its interest in OCHL to the Company for 42.5% of the Company’s shares, the same percentage of the Company’s shares to be issued to Mr. Bengough for his shares. JJAT did not increase the sale price of its 50% interest in OCHL above the price it paid for such interest. The 42.5% interest in the Company on a post-Closing basis equated to 29,000,000 shares of common stock. Hence, under the Variation Agreement, JJAT agreed to transfer its 50% interest in OCHL to the Company through merger, and Mr. Bengough committed to transfer his 50% interest in OCHL to the Company through a share exchange transaction, each for 29,000,000 shares of the Company’s common stock. The Company also reassumed JJAT’s obligation to pay the Transaction Expenses. Since the Company was now acquiring OCHL, it also agreed to reassume responsibility for the transaction related expenses previously assumed by JJAT.

 

A special committee of the Board of Directors of the Company engaged Valuescope, Inc., a value measurement consulting firm, on April 8, 2014 to advise it as to the valuation and fairness of a proposed transaction whereby the Company would issue 29,000,000 shares of restricted common stock through a merger with KoKo Parent to acquire 50% of OCHL. Valuescope performed an analysis to determine the fairness of the transaction, from a financial point of view, by comparing the price paid for the 50% interest in OCHL against a range of values developed under the income and market approaches. The 50% interest in OCHL was purchased in April 2014 for approximately $4.25 million. Valuescope determined the fair market value of a 50% interest in OCHL under the income approach was estimated to be $4.05 million while its value under the market approach was estimated to be $5.00 million. After determining the pre-transaction per share value of the Company, Valuescope determined that the value of the 50% interest in OCHL contributed in exchange for 29,000,000 shares of the Company’s common stock falls within the fairness range indicated by its analysis. Based on its analysis and methodologies on April 28, 2014, Valuescope presented its opinion that the transaction is fair from a financial point of view.

 

In connection with the negotiating process, as a result of Mr. Ellin’s ownership of JJAT and his control positions as to the Company, the Company appointed a special committee consisting of the sole independent director on its Board to negotiate the Merger. The Special committee engaged counsel. Notwithstanding, the special committee process was not utilized (except for its engagement of Valuescope in connection with the previously mentioned fairness opinion) as the transaction was negotiated primarily by the interim CFO of the Company in consultation with Mr. Ellin. The special committee counsel withdrew from representation of the committee due to non-utilization of the special committee process.

 

OCHL Variation Agreement

 

Pursuant to the Variation Agreement, as provided above, Mr. Bengough has agreed, promptly following the closing of the Merger, subject to Mr. Bengough’s receipt of satisfactory tax clearances under the tax laws of the United Kingdom and to mutually acceptable transaction documentation, to transfer all shares of OCHL held by him, constituting 50% of the outstanding ordinary shares and deferred ordinary shares of OCHL, to KoKo UK in exchange for 29,000,000 shares of Company Common Stock, or approximately 42.5% of the shares of the Company outstanding after such exchange (including giving effect to the Merger described above) with the result that upon closing of that exchange OCHL would become a wholly-owned subsidiary of our wholly owned subsidiary, KoKo UK.

 

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LEGAL PROCEEDINGS

 

We are not aware of any material pending legal proceedings to which we or our subsidiary is a party or of which any of our property is subject.

 

MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

 

Common Stock

 

Our Articles of Incorporation authorize the issuance of up to 75,000,000 shares of common stock, par value $.001 per share. The common stock is eligible for trading on the Over-the-Counter Bulletin Board under the symbol “LTNR,” but a trading market has not developed to date. As of March 31, 2014, there were approximately 30 holders of record of the common stock.

 

The Company’s common stock is a “penny stock” as defined in Rule 3a51-1 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the common stock of the Company is subject to the penny stock rules, it may be more difficult to sell the Company’s common stock.

 

Dividend Policy

 

The Company has not declared or paid any cash dividends on its common stock and does not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends, if any, is within the discretion of the Board of Directors and will depend on the Company’s earnings, if any, its capital requirements and financial condition and such other factors as the Board of Directors may consider.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The Company does not have any equity compensation plans or any individual compensation arrangements with respect to its common stock. The issuance of any of our common stock is within the discretion of our Board of Directors, which has the power to issue any or all of our authorized but unissued shares without stockholder approval.

 

RECENT SALES OF UNREGISTERED SECURITIES

 

On August 28, 2013, the Company entered into a Stock Purchase Agreement with an accredited investor, pursuant to which the Company agreed to issue an aggregate of 250,000 shares of its common stock for an aggregate purchase price of $250,000.

 

On September 19, 2013, the Company entered into a Stock Purchase Agreement with an accredited investor, pursuant to which the Company agreed to issue an aggregate of 300,000 shares of its common stock for an aggregate purchase price of $300,000.

 

On October 7, 2013, the Company entered into a Stock Purchase Agreement with an accredited investor, pursuant to which the Company agreed to issue an aggregate of 400,000 shares of its common stock for an aggregate purchase price of $400,000.

 

On October 30, 2013, the Company entered into a Stock Purchase Agreement with an accredited investor, pursuant to which the Company agreed to issue an aggregate of 300,000 shares of its common stock for an aggregate purchase price of $300,000.

 

On February 26, 2014, the Company entered into a securities purchase agreement with an investor pursuant to which the Company issued the investor 200,000 shares of common stock for an aggregate purchase price of $200,000.

 

Each of the transactions and related issuance of securities was pursuant to an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D of the 1933 Act. No commissions were paid to any person in connection with these transactions.

 

On April 2, 2012, the Company signed a promissory note with the Trinad Capital Master Fund, Ltd. for the amount of $150,000, with interest at 6% per annum, with principal due on April 1, 2013 and it was subsequently extended to November 1, 2014.

 

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On June 21, 2012, the Company signed a promissory note with the Trinad Capital Master Fund, Ltd. for the amount of $150,000, with interest at 6% per annum, with principal due on June 20, 2013 and it was subsequently extended to November 1, 2014.

 

On May 13, 2013, the Company signed a promissory note with Trinad Capital Master Fund for the amount of $10,000, with interest at 6% per annum, and principal due on May 13, 2014.

 

On May 23, 2013, the Company signed a promissory note with Trinad Capital Master Fund for the amount of $50,000, with interest at 6% per annum, and principal due on May 23, 2014.

 

On June 17, 2013, the Company signed a promissory note with the Trinad Capital Master Fund for the amount of $100,000, with interest at 6% per annum, with principal due on June 17, 2014.

 

On July 2, 2013, the Company signed a promissory note with Trinad Capital Master Fund for the amount of $10,000, with interest at 6% per annum, and principal due on July 2, 2014.

 

On July 3, 2013, the Company signed a promissory note with Trinad Capital Master Fund for the amount of $30,000, with interest at 6% per annum, and principal due on July 3, 2014.

 

As more fully described in Item 2.01 above, in connection with the Merger Agreement, we issued a total of 29,000,000 shares of our common stock to JJAT. Reference is made to the disclosures set forth under Item 2.01 of this Form 8-K, which disclosures are incorporated herein by reference. The issuance of the common stock to JJAT pursuant to the Merger Agreement was exempt from registration in reliance upon Section 4(2) of the Securities Act of 1933 and Regulation D of the 1933 Act.

 

DESCRIPTION OF REGISTRANT’S SECURITIES

 

The following description is only a summary of certain significant provisions of the rights, preferences, qualifications and restrictions of the Company’s capital stock.

 

Authorized Capital Stock

 

The Company’s authorized capital stock consists of 75,000,000 shares of common stock, $0.001 par value per share.

 

As of April 22, 2014, 9,120,000 shares of the Company’s Common Stock were outstanding and were held of record by 31 holders. Following the Merger, there were 38,120,000 shares of Common Stock outstanding held by 32 holders.

 

Common Stock

 

We are authorized to issue 75,000,000 shares of common stock. The holders of our common stock will be entitled to cash dividends as may be declared, if any, by our Board of Directors from funds available. Upon liquidation, dissolution or winding up of our company, the holders of our common stock will be entitled to receive pro rata all assets available for distribution to the holders. No holder of any shares of common stock has a pre-emptive right to subscribe for any securities nor are any common shares subject to redemption or convertible into other securities. Upon liquidation, dissolution or winding up, and after payment of creditors and preferred stockholders, if any, the assets will be divided pro-rata on a share-for-share basis among the holders of the shares of common stock. All shares of common stock now outstanding are fully paid, validly issued and non-assessable. Each share of common stock is entitled to one vote on the election of any director or any other matter upon which shareholders are required or permitted to vote. Holders of our common stock do not have cumulative voting rights, so that the holders of more than 50% of the combined shares voting for the election of directors may elect all of the directors, if they choose to do so and, in that event, the holders of the remaining shares will not be able to elect any members to the board of directors. Issuance of additional common stock in the future will reduce proportionate ownership and voting power of each share outstanding. Directors can issue additional common stock without shareholder approval, to the extent authorized.

 

Applicable Nevada law requires any amendment to our articles of incorporation to be approved by stockholders holding shares entitling them to exercise at least a majority of the voting power of the Company. All rights of our common stockholders described in this paragraph could be subject to any preferential voting, liquidation or other rights of any series of preferred stock that we may authorize and issue in the future.

 

Warrants

 

In connection with the Management Agreement with Trinad Management, LLC, we have issued to Trinad Management, LLC warrants purchase 1,125,000 shares of our common stock at an exercise price of $0.15 per share. The warrants are exercisable immediately, and have a term of exercise of 10 years following the date of issuance. The shares issuable upon exercise of the warrants are subject to adjustment for stock splits, stock dividends, reclassifications, reorganizations or other changes of the outstanding securities of the Company.

 

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Transfer Agent

 

The transfer agent and registrar for our common stock is Island Stock Transfer, 15500 Roosevelt Boulevard Clearwater, FL 33760.

 

Anti-Takeover Provisions of Nevada State Law

 

Some features of the Nevada Revised Statutes, which are further described below, may have the effect of deterring third parties from making takeover bids for control of us or may be used to hinder or delay a takeover bid. This would decrease the chance that our stockholders would realize a premium over market price for their shares of common stock as a result of a takeover bid.

 

Acquisition of Controlling Interest

 

The Nevada Revised Statutes contain provisions governing acquisition of a controlling interest of a Nevada corporation. These provisions provide generally that any person or entity that acquires a certain percentage of the outstanding voting shares of a Nevada corporation may be denied voting rights with respect to the acquired shares, unless certain criteria are satisfied. Our amended and restated bylaws provide that these provisions will not apply to us or to any existing or future stockholder or stockholders.

 

Combination with Interested Stockholder

 

The Nevada Revised Statutes contain provisions governing combination of a Nevada corporation that has 200 or more stockholders of record with an interested stockholder. These provisions may have the effect of delaying or making it more difficult to affect a change in control of the Company.

 

A corporation affected by these provisions may not engage in a combination within three years after the interested stockholder acquires his, her or its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired such shares. Generally, if approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the board of directors before the person became an interested stockholder or a majority of the voting power held by disinterested stockholders, or if the consideration to be received per share by disinterested stockholders is at least equal to the highest of:

 

· having an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation;

 

· the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or within three years immediately before, or in, the transaction in which he, she or it became an interested stockholder, whichever is higher;

 

· the market value per share on the date of announcement of the combination or the date the person became an interested stockholder, whichever is higher; or

 

· if higher for the holders of preferred stock, the highest liquidation value of the preferred stock, if any.

 

Generally, these provisions define an interested stockholder as a person who is the beneficial owner, directly or indirectly of 10% or more of the voting power of the outstanding voting shares of a corporation, and define combination to include any merger or consolidation with an interested stockholder, or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an interested stockholder of assets of the corporation:

 

· having an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation;

 

· having an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or

 

· representing 10% or more of the earning power or net income of the corporation.

 

INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

We have entered into separate indemnification agreements with our directors pursuant to which we are required to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law and our governing documents. The form of our indemnification agreements with our directors is attached as Exhibit 10.14 to this Current Report on Form 8-K.

 

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Our bylaws, as amended provide that we shall indemnify any director or officer for obligations of the Company and for acts and conduct performed on behalf of the Company. Our bylaws, as amended, further provide that we shall pay the expenses incurred by an officer or director (acting in his capacity as such) in defending any action, suit or proceeding reasonably incurred by him in connection with any such claim or liability including power to defend an officer or director from all suits or claims as provided for under the provisions of the Nevada Revised Statutes; provided, however, that no director or officer shall be indemnified against, or be reimbursed for, any expense incurred in connection with any claim or liability arising out of his own willful misconduct.

 

Nevada Law

 

The Nevada Revised Statutes provide us with the power to indemnify any of our directors, officers, employees and agents as follows:

 

· 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, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he or she acted in good faith and in a manner which 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 or her conduct was unlawful;

 

· 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 or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him or her in connection with the defense or settlement of the action or suit if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper; and

 

· to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation must indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense.

 

The Nevada Revised Statutes provide that a corporation may make any discretionary indemnification only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made:

 

· by the stockholders of the corporation;

 

· by the board of directors of the corporation by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding;

 

· if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion;

 

· if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion; or

 

· by court order.

 

The Nevada Revised Statutes further provide that a corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. We have not yet secured a directors’ and officers’ liability insurance policy. However, we expect that we will enter into such a policy in the near future.

 

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Reference is made to the financial statements and pro forma financial information relating to OCHL contained in Item 9.01 of this Current Report on Form 8-K, which is incorporated herein by reference.

 

Our audited financial statements for the fiscal years ended April 30, 2013 and 2012 are available in our Annual Report on Form 10-K for the fiscal year ended April 30, 2013 filed with the SEC on July 29, 2013, and are incorporated herein by reference. Our unaudited financial statements for the three months ended January 31, 2014 are available in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2014 filed with the SEC on March 12, 2014, and are incorporated herein by reference.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

During the Company’s two most recent fiscal years, neither the Company nor anyone on its behalf consulted with Li and Company, PC (“Li”) regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the Company’s financial statements, and no written report or oral advice was provided to the Company by Li that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K promulgated under the Securities Act and the related instructions) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K) relating to the Company.

 

Item 3.02         Unregistered Sales of Equity Securities.

 

Reference is made to the disclosures set forth in Items 1.01 and 2.01 of this Current Report on Form 8-K, which disclosures are incorporated by reference into this Item 3.02.

 

Item 5.01         Changes in Control of Registrant.

 

Reference is made to the disclosures set forth in Items 1.01 and 2.01 of this Current Report on Form 8-K, which disclosures are incorporated by reference into this Item 5.01. Other than the transactions and agreements described such Items, our officers and directors know of no arrangements that may result in a change in control of the Company at a subsequent date.

 

Item 5.02         Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

In connection with the Acquisition, Oliver Bengough has been appointed to the Board of Directors of the Company and as the Company’s Interim Chief Executive Officer, effective May 1, 2014. Reference is made to the disclosures set forth in Item 2.01 of this Current Report on Form 8-K, relating to Mr. Bengough which disclosures are incorporated by reference into this Item 5.02.

 

Item 5.03         Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

On April 25, 2014, the stockholders of the Company voted, following the recommendation of the Board of Directors, to amend the bylaws of the Company to allow corporate action by written consent of the Board of Directors and to provide for expanded indemnification of the Company’s directors under the laws of the State of Nevada. The stockholders also adopted a form of indemnification agreement for the Company’s directors.

 

The First Amendment to the Bylaws of the Company are attached hereto as Exhibit 3.3 and the Form of Indemnification Agreement is attached hereto as Exhibit 10.14 and incorporated herein by reference.

 

Item 5.06         Change in Shell Company Status.

 

We have determined that, as the result of the closing of the Merger Agreement as described above under Item 2.01 of this Current Report on Form 8-K, we have ceased to be a shell company as that term is defined in Rule 12b-2 promulgated under the Exchange Act. Reference is made to the disclosures set forth in Item 2.01 of this Current Report on Form 8-K, which disclosures are incorporated by reference into this Item 5.06.

 

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Item 9.01         Financial Statements and Exhibits.

 

Reference is made to the shares of OCHL acquired under the Merger Agreement, as described in Item 2.01, which is incorporated herein by reference. As a result of the closing of the Merger Agreement, our primary operations consist of the business and operations of OCHL. Accordingly, we are presenting the financial statements of OCHL for the nine months ended December 31, 2013 and 2012, and for the fiscal years ended March 31, 2013 and 2012 after giving effect to the acquisition of OCHL by the Company.

 

(a) Financial statements of business acquired.

 

The audited financial statements of OCHL as of and for the fiscal years ended March 31, 2013 and 2012, and the unaudited financial statements of OCHL for the nine months ended December 31, 2013 and 2012, including the notes to such financial statements, are incorporated herein by reference to Exhibits 99.1 and 99.2 of this Current Report on Form 8-K.

 

(b) Pro forma financial information.

 

The unaudited pro forma financial information of the Company and its 50%-owned subsidiary OCHL are incorporated herein by reference to Exhibit 99.3 of this Current Report on Form 8-K.

 

(c) Shell company transactions.

 

Reference is made to the disclosure set forth in Items 9.01(a) and 9.01(b), which disclosure is incorporated herein by reference.

 

(d) Exhibits.

 

Exhibit   Description
     
2.1   Agreement and Plan of Merger, dated April 28, 2014, by and among the Company, Loton Acquisition Sub I, Inc. and KoKo Camden Holdings (US), Inc. *
     
3.1   Articles of Incorporation of the Company (previously filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on June 1, 2010, and incorporated herein by reference).
     
3.2   Bylaws of the Company (previously filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on June 1, 2010, and incorporated herein by reference).
     
3.3   Amendment to Bylaws of the Company dated April 24, 2014*
     
4.1   Senior Promissory Note, dated April 28, 2014 between OCHL as Promisor and JJAT as Payee*
     
4.2   Promissory Note, dated April 28, 2014 between OCHL as Promisor and the Company as Payee*
     
4.3   Form of Warrant, dated September 23, 2011 issued to Trinad Management, LLC (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 28, 2011, and incorporated herein by reference).
     
4.4   Form of Note, dated April 2, 2012, issued by Loton, Corp to Trinad Master Fund, Ltd. (previously filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K, filed with SEC on August 15, 2012, and incorporated herein by reference).
     
4.5   Form of Note, dated June 21, 2012, issued by Loton, Corp to Trinad Master Fund, Ltd. (previously filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K, filed with SEC on August 15, 2012, and incorporated herein by reference).
     
10.1   Share Purchase Agreement relating to OCHL, dated February 13, 2014 among Alex Rutherford and KoKo (Camden) Limited and certain Guarantors.*
     
10.2   Share Sale Agreement relating to shares in OBAR Camden Holdings Limited, dated February 13, 2014 among Hugh Doherty and Laurence Seymour and KoKo (Camden) Limited and certain Guarantors.*
     
10.3   Shareholders Agreement, dated February 12, 2014, in relation to OCHL between Oliver Bengough and KoKo (Camden) Limited and Robert Ellin and OCHL and Trinad Capital Master Fund Limited.*

 

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10.4   Deed of Reimbursement, dated February 2014 amongst KoKo (Camden) Limited, Alex Rutherford, Oliver Bengough, Hugh Doherty and Laurence Seymour and Mint Group Holdings Limited.*
     
10.5   Deed of Subordination, dated February 2014 amongst Alex Rutherford, Hugh Doherty and Laurence Seymour and KoKo (Camden) Limited and Trinad Capital Master Funds, Ltd. and JJAT Corp.*
     
10.6   Variation to Shareholders Agreement, dated April 24, 2014, among Oliver Bengough, Koko (Camden) Limited, Robert Ellin, Trinad Capital Master Fund LTD, Obar Camden Holdings Limited, Obar Camden Limited, JJAT Corp. and the Company*
     
10.7   Share Purchase Agreement relating to certain shares of Obar Camden Holdings Limited dated April 24, 2014 between JJAT Corp and Oliver Bengough*
     
10.8   Share Charge in respect of Ordinary Shares of Obar Camden Holdings Limited, dated April 24, 2014 between Oliver Bengough and JJAT Corp.*
     
10.9   Promissory Note, dated April 24, 2014 between Oliver Bengough as Promisor and KoKo (Camden) Limited as Payee.*
     
10.10   Promissory Note, dated April 24, 2014 between Oliver Bengough as Promisor and JJAT Corp. as payee.*
     
10.11   Reimbursement Agreement, effective as of January 29, 2014, between JJAT Corp. and Loton, Corp (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 6, 2014 and incorporated herein by reference). *
     
10.12   Termination of Reimbursement Agreement, dated April 25, 2014 by and between JJAT Corp. and Loton, Corp.*
     
10.13   Contribution Agreement, dated April 24, 2014 between JJAT Corp. and KoKo (Camden) Holdings (US), Inc.*
     
10.14   Form of Director Indemnification Agreement*
     
10.15   Form of Securities Purchase Agreement, dated September 11 and September 20, 2012, between the Company and certain investors (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on December 12, 2012, and incorporated herein by reference).
     
10.16   Form of Restricted Stock Agreement (previously filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on March 21, 2013, and incorporated herein by reference).
     
10.17   Form of Advisory Board Agreement (previously filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on March 21, 2013, and incorporated herein by reference)
     
10.18   Form of Consulting Agreement (previously filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on March 21, 2013, and incorporated herein by reference).
     
10.19   Secured Convertible Note Purchase Agreement, dated as of March 25, 2013, between the Company and Penzance, LLC, d/b/a Acheven, LLC (previously filed as Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on July 29, 2013).
     
10.20   Secured Convertible Note, dated as of March 25, 2013, between the Company and Penzance, LLC, d/b/a Acheven, LLC (previously filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on July 29, 2013).
     
10.21   Security Agreement, dated as of March 25, 2013, among Penzance, LLC, Investors and the Company (previously filed as Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on July 29, 2013).
     
10.22   Form of Promissory Notes dated May 13, May 23, June 17 and July 3, 2013 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 29, 2013, and incorporated herein by reference)

 

44
 

 

10.23   Form of Note Extension Agreement dated July 15, 2013 (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 29, 2013, and incorporated herein by reference)
     
10.24   Securities Purchase Agreement, dated August 28, 2013 between Sandor Capital Master Fund and the Company (previously filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on September 16, 2013, and incorporated herein by reference)
     
10.25   Advisory Board Consulting Agreement, dated August 30, 2013 (previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on September 16, 2013, and incorporated herein by reference)
     
10.26   Employment Agreement effective as of October 1, 2013 between Barry Regenstein and Loton, Corp. (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 6, 2013, and incorporated herein by reference).
     
10.27   Advisory Board Agreement, effective as of October 1, 2013, by and between Barry Regenstein and Loton, Corp.  (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 6, 2013, and incorporated herein by reference).
     
10.28   Stock Purchase Agreement, dated as of September 19, 2013 (previously filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on December 16, 2013, and incorporated herein by reference).
     
10.29   Stock Purchase Agreement, dated as of October 7, 2013 (previously filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on December 16, 2013, and incorporated herein by reference)
     
10.30   Stock Purchase Agreement, dated as of October 8, 2013 (previously filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on December 16, 2013, and incorporated herein by reference)
     
10.31   Stock Purchase Agreement, dated as of October 30, 2013 (previously filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on December 16, 2013, and incorporated herein by reference)
     
21.1   List of Subsidiaries*
     
99.1   Consolidated Financial Statements of OBAR Camden Holdings Limited as of and for the year ended March 31, 2013 and March 31, 2012*
     
99.2   Consolidated Financial Statements of OBAR Camden Holdings Limited as of and for the nine months ended December 31, 2013 and 2012*
     
99.3   Pro Forma Combined Financial Information of Loton, Corp. as of January 31, 2014 and April 30, 2013*

 

 

 

*Filed Herewith

 

45
 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a) Documents filed as part of this report are as follows:

 

(1) Financial Statements and Report of Independent Registered Public Accounting Firm

 

(2) Financial Statement Schedules

 

None required.

 

(3) Exhibits:

 

The exhibit list required by this item is incorporated by reference to the Exhibit Index included in this Current Report on Form 8-K.

 

46
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  LOTON, CORP
     
Date:  April 30, 2014 By: /s/Robert S. Ellin
    Robert S. Ellin
    Executive Chairman and President
    (Principal Executive Officer)

 

47

 

 

 

AGREEMENT AND PLAN OF MERGER

by and among

LOTON CORP.,

 

LOTON ACQUISITION SUB I, INC.

and

KOKO (CAMDEN) HOLDINGS (US), INC.

 


_________________________

Dated as of April 28, 2014

_________________________

 

 

 

 

 

 
 
 

TABLE OF CONTENTS

 

Page

ARTICLE I THE MERGER 1
Section 1.1 The Merger 1
Section 1.2 Closing 1
Section 1.3 Effective Time 2
Section 1.4 Effects of the Merger 2
Section 1.5 Certificate of Incorporation 2
Section 1.6 Bylaws 2
Section 1.7 Directors 2
Section 1.8 Officers 2
     
ARTICLE II EFFECT OF THE MERGER ON CAPITAL STOCK 2
Section 2.1 Conversion of Capital Stock 2
Section 2.2 Surrender and Exchange of Certificates 3
     
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4
Section 3.1 Organization and Power 4
Section 3.2 Corporate Authorization 4
Section 3.3 Enforceability 4
     
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB 5
Section 4.1 Organization and Power 5
Section 4.2 Corporate Authorization 5
Section 4.3 Enforceability 5
     
ARTICLE V MISCELLANEOUS 5
Section 5.1 Governing Law 5
Section 5.2 Submission to Jurisdiction 5
Section 5.3 Notices 6
Section 5.4 Amendment 6
Section 5.5 Entire Agreement 6
Section 5.6 Severability 6
Section 5.7 Counterparts; Effectiveness 7

 

 

 
 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER, dated as of April 28, 2014 (this “ Agreement ”), is by and among Loton Corp., a Nevada corporation (“ Parent ”), Loton Acquisition Sub I, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), and KoKo (Camden) Holdings (US), Inc., a Delaware corporation (the “ Company ”).

 

RECITALS

 

A.           The Company is primarily engaged in the business of owning and operating a live music and event venue in London operating under the brand “KOKO” (the " Business ").

 

B.           The Board of Directors of each of Parent, Merger Sub and the Company has approved, and deems it advisable and in the best interests of its stockholders to consummate, the acquisition of the Company by Parent, which acquisition is to be effected by the merger of Merger Sub with and into the Company, with the Company being the surviving entity (the " Merger ”), upon the terms and subject to the conditions set forth in this Agreement.

 

C.           The parties intend that the Merger shall qualify as a reorganization within the meaning of Section 368(a)(l)(A) of the Internal Revenue Code of 1986, as amended (the " Code "), by reason of Section 368(a)(2)(E) of the Code.

 

In consideration of the mutual agreements and covenants hereinafter set forth, the parties, intending to be legally bound, agree as follows:

 

Article I

THE MERGER

 

Section 1.1             The Merger . Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”), at the Effective Time, (a) Merger Sub shall be merged with and into the Company, (b) the separate corporate existence of Merger Sub shall cease and the Company shall continue its corporate existence under the DGCL as the surviving corporation in the Merger (the “ Surviving Corporation ”) and (c) the Surviving Corporation shall become a wholly-owned subsidiary of Parent.

 

Section 1.2             Closing . The closing of the Merger (the “ Closing ”) shall take place (a) at the offices of Manatt, Phelps & Phillips, LLP, 11355 West Olympic Blvd., Los Angeles, California, at 10:00 a.m. (local time) on April 28, 2014 or (b) at such other place and time as Parent and the Company may agree in writing. The date on which the Closing occurs is referred to as the “ Closing Date .”

 

1
 

 

Section 1.3             Effective Time . At the Closing, Parent and the Company shall cause a certificate of merger (the “ Certificate of Merger ”) to be executed, signed, acknowledged and filed with the Secretary of State of the State of Delaware in such form as is required by the relevant provisions of the DGCL. The Merger shall become effective when the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or at such other subsequent date or time as Parent and the Company may agree and specify in the Certificate of Merger in accordance with the DGCL (the “ Effective Time ”).

 

Section 1.4             Effects of the Merger . The Merger shall have the effects set forth in the DGCL, this Agreement and the Certificate of Merger. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, immunities, powers, franchises and authority of the Company and Merger Sub will be vested in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub will become the debts, liabilities and duties of the Surviving Corporation.

 

Section 1.5             Certificate of Incorporation . The certificate of incorporation of the Company shall, at the Effective Time, be the certificate of incorporation of the Surviving Corporation (the “ Surviving Charter ”).

 

Section 1.6             Bylaws . The bylaws of the Company in effect immediately before the Effective Time shall be, from and after the Effective Time, the bylaws of the Surviving Corporation (the “ Surviving Bylaws ”).

 

Section 1.7             Directors . The individuals identified on Exhibit A hereto shall be, from and after the Effective Time, the directors of the Surviving Corporation until their successors are duly elected and qualified or until their earlier death, resignation or removal in accordance with the Surviving Charter, the Surviving Bylaws and applicable law.

 

Section 1.8             Officers . The individuals identified on Exhibit B hereto shall be, from and after the Effective Time, the officers of the Surviving Corporation until their successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Charter, the Surviving Bylaws and applicable law.

 

Article II

EFFECT OF THE MERGER ON CAPITAL STOCK

 

Section 2.1             Conversion of Capital Stock . At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holder of any shares of capital stock of Merger Sub or the Company:

 

(a)             Conversion of Merger Sub Capital Stock . Each share of common stock, no par value, of Merger Sub issued and outstanding immediately before the Effective Time shall automatically be converted into and become one fully paid and non-assessable share of common stock, no par value, of the Surviving Corporation such that, after giving effect to Section 2.1(b) hereof, Parent shall be the holder of all of the issued and outstanding shares of common stock of the Surviving Corporation immediately following the Merger.

 

2
 

 

(b)             Company Common Stock . Each share of common stock of the Company issued and outstanding immediately before the Effective Time shall automatically be converted into and become 11,600 fully paid and nonassessable shares of common stock of Parent (the “ Merger Consideration ”). All shares of common stock of the Company that have been converted pursuant to this Section 2.1(b) shall be cancelled automatically and shall cease to exist, and the holders of certificates which immediately before the Effective Time represented such shares shall cease to have any rights with respect to those shares, other than the right to receive the Merger Consideration in accordance with this Section 2.2.

 

(c)              No Fractional Shares . No fractional shares of Parent common stock shall be issued in, or as a result of, the Merger. Any fractional share of Parent common stock that a record holder of Company common stock would otherwise be entitled to receive as a result of the Merger shall be aggregated. If a fractional share of Parent common stock results from such aggregation, the number of shares required to be issued to such record holder shall be rounded up to the nearest whole number of shares of Parent common stock.

 

Section 2.2             Surrender and Exchange of Certificates .

 

(a)              Surrender of Shares . Parent shall issue to each former record holder of common stock of the Company, upon delivery to Parent (or a duly authorized agent of Parent) of certificate(s) formerly representing ownership of common stock of the Company endorsed in blank or accompanied by duly executed stock powers (or an affidavit of lost certificate and indemnification in form and substance reasonably acceptable to Parent stating that, among other things, the former record holder has lost its, his or her certificate(s) or that such certificate(s) have been destroyed), a certificate or certificates registered in the name of such former record holder representing the number of shares of common stock of Parent that such former record holder is entitled to receive in accordance with Section 2.1(b) hereof.

 

(b)             Parent Common Stock . Parent shall reserve a sufficient number of shares of common stock of Parent to complete the conversion and exchange of common stock of Company into common stock of Parent as contemplated by Section 2.1(b) hereof. Parent covenants and agrees that immediately prior to the Effective Time there will be no more than 9,120,000 shares of common stock of Parent issued and outstanding, and no more than 1,125,000 warrants to purchase shares of common stock of Parent outstanding. No other options, warrants, rights or other agreements or instruments convertible, exchangeable or exercisable into common or preferred stock or equity securities of Parent, shall be issued or outstanding at the Effective Time.

 

3
 

 

Article III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Parent and Merger Sub that:

 

Section 3.1             Organization and Power . The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as now conducted. Each of the Company’s subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as now conducted. The copies of the Company’s organizational documents have been previously furnished or made available to Parent, are true, complete and correct copies of such documents as in effect on the date of this Agreement.

 

Section 3.2             Corporate Authorization . The Company has all necessary corporate power and authority to enter into this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The Company Board, by unanimous vote of all directors, at a meeting duly called and held has: (a) determined that this Agreement and the transactions contemplated hereby are fair to the Company and the stockholders of the Company, (b) approved and declared advisable this Agreement, the Merger and the transactions contemplated by this Agreement, (c) declared that it is in the best interests of the stockholders of the Company that the Company enter into this Agreement and consummate the Merger on the terms and subject to the conditions set forth in this Agreement, (d) directed that the adoption of this Agreement be submitted to a vote at a meeting of the stockholders of the Company and (e) recommended to the stockholders of the Company that they adopt this Agreement. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action on the part of the Company and no other corporate action on the part of the Company is necessary to authorize the execution, delivery and performance of this Agreement by the Company or to consummate the transactions so contemplated to consummate the transactions contemplated by this Agreement.

 

Section 3.3             Enforceability . This Agreement has been duly executed and delivered by the Company and this Agreement constitutes a legal, valid and binding agreement of the Company.

 

Section 3.4             Benefit of Company . The Company is the sole and true purchasing party in interest, and is not entering into this Agreement for the benefit of any other person or with a view or intent to distribute any of the Merger Consideration.

 

Section 3.5             “Accredited Investor” Status . Each holder of the outstanding capital stock of the Company and of any affiliate of the Company as of the Effective Time is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the “ Act ”).

 

4
 

 

Article IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Parent and Merger Sub, jointly and severally, represent and warrant to the Company that:

 

Section 4.1             Organization and Power . Each of Parent and Merger Sub is duly organized, validly existing and in good standing under the law of its jurisdiction of organization. Each of Parent and Merger Sub has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as now conducted.

 

Section 4.2             Corporate Authorization . Each of Parent and Merger Sub has all necessary power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The board of directors of each of Parent and Merger Sub has adopted resolutions approving this Agreement and the transactions contemplated by this Agreement. The board of directors of each of Parent and Merger Sub at a meeting duly called and held have (a) approved and declared advisable this Agreement, the Merger and the transactions contemplated by this Agreement and (b) declared that it is in the best interests of the stockholders of Parent or Merger Sub that Parent or Merger Sub, as applicable, enter into this Agreement and consummate the Merger on the terms and subject to the conditions set forth in this Agreement. The execution, delivery and performance of this Agreement, by each of Parent and Merger Sub and the consummation by each of Parent and Merger Sub of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary action on the part of Parent and Merger Sub. This Agreement constitutes a legal, valid and binding agreement of Parent and Merger Sub.

 

Section 4.3             Enforceability . This Agreement has been duly executed and delivered by the Parent and the Merger Sub and this Agreement constitutes a legal, valid and binding agreement of Parent and Merger Sub.

 

Article V

MISCELLANEOUS

 

Section 5.1             Governing Law . This Agreement, and any dispute, claim, legal action, suit, proceeding or controversy arising out of or relating hereto, shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflict of law principles thereof.

 

Section 5.2             Submission to Jurisdiction . Each party to this Agreement irrevocably and unconditionally submits to the personal jurisdiction of the federal courts of the United States of America located in the State of Delaware and the Court of Chancery of the State of Delaware.

 

5
 

 

Section 5.3             Notices . All notices and other communications hereunder shall be in writing and shall be addressed as follows (or at such other address for a party as shall be specified by like notice):

 

If to Parent or Merger Sub, to:

 

c/o Loton, Corp.
4751 Wilshire Blvd., 3rd Floor

Los Angeles, California 90010

Attention: Jay Krigsman

 

If to the Company, to:

JJAT Corp.

c/o Kaller Management, Inc.

30423 Canwood Street, Suite 227

Agoura Hills, California 91301
Attention: Robert Ellin

 

All such notices or communications shall be deemed to have been delivered and received (a) if delivered in person, on the day of such delivery, (b) if by facsimile or electronic mail, on the day on which such facsimile or electronic mail was sent; provided , that receipt is personally confirmed by telephone, (c) if by certified or registered mail (return receipt requested), on the seventh business day after the mailing thereof or (d) if by reputable overnight delivery service, on the second business day after the sending thereof.

 

Section 5.4             Amendment . This Agreement may be amended by the parties to this Agreement at any time before the Effective Time so long as such amendment has been duly approved by the board of directors of each of Merger Sub, Parent and the Company. This Agreement may not be amended except by an instrument in writing signed by each of the parties to this Agreement.

 

Section 5.5             Entire Agreement . This Agreement contains all of the terms, conditions and representations and warranties agreed to by the parties relating to the subject matter of this Agreement and supersede all prior or contemporaneous agreements, negotiations, correspondence, undertakings, understandings, representations and warranties, both written and oral, among the parties to this Agreement with respect to the subject matter of this Agreement.

 

Section 5.6             Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions of this Agreement. If any provision of this Agreement, or the application of that provision to any person or any circumstance, is invalid or unenforceable, then (a) a suitable and equitable provision shall be substituted for that provision in order to carry out, so far as may be valid and enforceable, the intent and purpose of the invalid or unenforceable provision and (b) the remainder of this Agreement and the application of that provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of that provision, or the application of that provision, in any other jurisdiction.

 

6
 

 

Section 5.7             Counterparts; Effectiveness . This Agreement may be executed in any number of counterparts, as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Agreement. Facsimile signatures or signatures received as a pdf attachment to electronic mail shall be treated as original signatures for all purposes of this Agreement. This Agreement shall become effective when, and only when, each party hereto shall have received a counterpart signed by all of the other parties hereto.

 

[ Signature page follows ]

 

7
 

 

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties to this Agreement as of the date first written above.

 

  LOTON CORP.
       
       
  By:    
    Name: Jay Krigsman  
    Title: Director  
       
       
  LOTON ACQUISITION SUB I, INC.
       
       
  By:    
    Name:  
    Title:  
       
       
  KOKO (CAMDEN) HOLDINGS (US), INC.
       
       
  By:    
    Name:  
    Title:  

 

 

 

[ Signature Page to Agreement and Plan of Merger ]

8
 

EXHIBIT A

 

DIRECTORS

 

Robert Ellin

 

Jay Krigsman

 

 

 

 

9
 

EXHIBIT B

 

OFFICERS

 

Robert Ellin, Executive Chairman and President

 

Barry Regenstein, Interim Chief Financial Officer

 

 

 

10

FIRST AMENDMENT TO THE

BYLAWS OF

LOTON, CORP

 

The Bylaws of Loton Corp., a Nevada corporation (the “Corporation”) are hereby amended to add the following new Article III, Section 13:

 

“13. Any corporate action required by the Articles of Incorporation, Bylaws, or the laws under which this Corporation is formed, to be voted upon or approved at a duly called meeting of the Directors may be accomplished without a meeting if a written memorandum setting forth the action so taken, shall be signed by all the Directors. Any corporate action required by the Articles of Incorporation, Bylaws, or the laws under which this Corporation is formed, to be voted upon or approved at a duly called meeting of the stockholders, may be accomplished without a meeting if a written memorandum setting forth the action so taken, shall be signed by holders of a majority of the total outstanding shares of common stock.”

 

Article VII of the Bylaws of the Corporation is hereby amended and restated in its entirety as follows:

 

Article VII

Indemnification

 

“No Officer or Director shall be personally liable for any obligations of the Corporation or for any duties or obligations arising out of any acts or conduct of said Officer or Director performed for or on behalf of the Corporation, including without limitation, acts of negligence or contributory negligence. The Corporation shall and does hereby indemnify and hold harmless each person and their heirs and administrators who shall serve at any time hereafter as a Director or Officer of the Corporation from and against any and all claims, judgments and liabilities to which such persons shall become subject by reason of their having heretofore or hereafter been a Director or Officer of the Corporation, or by reason of any action alleged to have heretofore or hereafter taken or omitted to have been taken by him as such Director or Officer, and shall reimburse each such person for all legal and other expenses reasonably incurred by him in connection with any such claim or liability, including power to defend such persons from all suits or claims as provided for under the provisions of the Nevada Revised Statutes; provided, however, that no such persons shall be indemnified against, or be reimbursed for, any expense incurred in connection with any claim or liability arising out of his (or her) own willful misconduct. The rights accruing to any person under the foregoing provisions of this section shall not exclude any other right to which he or she may lawfully be entitled, by contract or otherwise, nor shall anything herein contained restrict the right of the Corporation to indemnify or reimburse such person in any proper case, even though not specifically herein provided for. The Corporation, its Directors, Officers, employees and agents shall be fully protected in taking any action or making any payment, or in refusing so to do in reliance upon the advice of counsel.”

 

SENIOR PROMISSORY NOTE

 

Dated: 28 April 2014

 

OBAR Camden Holdings Limited, a private company registered in England and Wales under company number 08763877 and OBAR Camden Limited, a private company registered in England and Wales under company number 04962866, jointly and severally, for value received (collectively, “ Promisors” ) promise to pay to JJAT Corp, a Delaware corporation (“ Payee” ) the principal amount of US$1,376,124 (“ Principal Amount” ) representing certain transaction expenses by Payee incurred in connection with various transactions involving Promisors for which JJAT is entitled to reimbursement as provided by that certain Shareholders’ Agreement dated 12 February 2014, between, amongst others, the Promisors and the Payee ( Transaction Expenses ). The due date of this promissory note shall be eighteen months from the date hereof (“ Due Date ”).

 

Interest shall accrue on this promissory note at the rate of 8% per annum (“ Interest” ). The Interest shall accrue on a daily basis and shall be payable on the first 12 month anniversary of the date of this promissory note with any remaining balance payable on the Due Date.

 

The Promisors shall have a cure period of 60 business days in respect of any payment of Interest and/or Principal Amount due under this promissory note.

 

So long as this promissory note is outstanding, Promisors shall not make any shareholder distributions, nor shall Promisors pay compensation to Rob Ellin or Olly Bengough, and the net proceeds from any debt and equity financings obtained by either of the Promisors shall be applied as prepayments under this promissory note (except to the extent, in the case of any debt financing, where the credit facility shall limit the portion of borrowings that may be used to pay this promissory note).

 

Any amount outstanding under this promissory note shall be reduced by an amount equal to any payments made directly by the Promisors to any supplier, service provider, consultant or adviser to the extent such fees and expenses are included within the Transaction Expenses.

 

The Promisors shall each procure that, without limitation to the generality of the above statement: (i) the first US$300,000 of net revenue generated by either Promisor as set out in clause 2.3 of the SHA (but without duplication if applied in reduction to Transaction Expenses prior to the date of this note); (ii) thereafter, on a monthly basis, within 10 business days of the end of each calendar month, all revenues generated by OBAR Camden Holdings Limited or OBAR Camden Limited in such calendar month, net of operating expenses, debt service and reasonable reserves for operating expenses, and subject to any restrictive covenants in favour of any senior lenders to either of Promisors; and (iii) any financing obtained from Barclays or any other financial institution (except to the extent such facility shall limit the portion of borrowings that may be used to pay this promissory note) shall be credited to the Payee to satisfy firstly the Principal Amount and thereafter any Interest due under this promissory note.

 

1
 

 

All payments shall be made in US dollars in immediately cleared funds in full and without any deduction or withholding.

 

The Promisors hereby waive presentment, demand for payment, notice of dishonour, protest and any and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this promissory note.

 

This promissory note is personal to the parties and neither party shall assign, transfer, mortgage, charge, subcontract, declare a trust over or deal in any other manner with any of its rights and obligations under this promissory note.

 

This promissory note (and any non-contractual obligations arising out of or in connection with it) shall be governed by, and construed in accordance with, the law of England and Wales. The Promisors irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction over any dispute or claim arising out of or in connection with this promissory note.

 

This promissory note has been entered into as a deed on the date stated at the beginning of it.

 

2
 

Executed as a deed by

 

OBAR Camden Holdings Limited

 

acting by Olly Bengough, a director,

 

 

 

in the presence of:

 

 

Witness Name:

 

Witness Signature:

 

Address:

 

Occupation:

 

 

Executed as a deed by

 

Obar Camden Limited

 

acting by Olly Bengough, a director,

 

 

 

in the presence of:

 

 

Witness Name:

 

Witness Signature:

 

Address:

 

Occupation:

 

 

 

 

Executed as a deed by

 

JJAT Corp

 

acting by Robert Ellin, a director,

 

 

 

in the presence of:

 

 

Witness Name:

 

Witness Signature:

 

Address:

 

Occupation:

 

 

3

PROMISSORY NOTE

 

Dated: 28 April 2014

 

OBAR Camden Holdings Limited, a private company registered in England and Wales under company number 08763877 and OBAR Camden Limited, a private company registered in England and Wales under company number 04962866, jointly and severally, for value received (collectively, “ Promisors ”) promise to pay to Loton Corp, a Nevada corporation (“ Payee ”) the principal amount of US$494,749 (“ Principal Amount ”) representing certain transaction expenses by Payee incurred in connection with various transactions involving Promisors for which Payee is entitled to reimbursement as provided by that certain Shareholders’ Agreement dated 12 February 2014, between, amongst others, the Promisors and the Payee ( Transaction Expenses ). The due date of this promissory note shall be eighteen months from the date hereof (“ Due Date ”).

 

Interest shall accrue on this promissory note at the rate of 8% per annum (“ Interest ”). The Interest shall accrue on a daily basis and shall be payable on the first 12 month anniversary of the date of this promissory note with any remaining balance payable on the Due Date.

 

The Promisors shall have a cure period of 60 business days in respect of any payment of Interest and/or Principal Amount due under this promissory note.

 

So long as this promissory note is outstanding. Promisors shall not make any shareholder distributions, nor shall Promisors pay compensation to Rob Ellin or Oily Bengough, and the net proceeds from any debt and equity financings obtained by either of the Promisors shall be applied as prepayments under this promissory note (except to the extent, in the case of any debt financing, where the credit facility shall limit the portion of borrowings that may be used to pay this promissory note).

 

Payment of this note is subordinate to payment in full of that certain Senior Promissory Note of even date herewith executed by Promisors in favour of JJAT Corp, and subject to any restrictive in favour of any senior lenders to either of Promisors.

 

All payments shall be made in US dollars in immediately cleared funds in full and without any deduction or withholding.

 

The Promisors hereby waive presentment, demand for payment, notice of dishonour, protest and any and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this promissory note.

 

This promissory note is personal to the parties and neither party shall assign, transfer, mortgage, charge, subcontract, declare a trust over or deal in any other manner with any of its rights and obligations under this promissory note.

 

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This promissory note (and any non-contractual obligations arising out of or in connection with it) shall be governed by, and construed in accordance with, the law of England and Wales. The Promisors irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction over any dispute or claim arising out of or in connection with this promissory note.

 

This promissory note has been entered into as a deed on the date stated at the beginning of it.

 

 

 

 

 

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Executed as a deed by
OBAR Camden Holdings Limited
acting by Oily Bengough, a director,

 

in the presence of:

 

Witness Name:
Witness Signature:
Address:
Occupation:

 

Executed as a deed by
OBAR Camden Limited
acting by Oily Bengough, a director,

 

in the presence of:

 

Witness Name:
Witness Signature:
Address:
Occupation:

 

Executed as a deed by
LOTON Corp
acting by Robert Ellin, a director,

 

in the presence of:

 

Witness Name:
Witness Signature:
Address:
Occupation:

 

 

 

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Private and Confidential

 

Dated: February 13, 2014

_____________________________

 

THE SELLER

 

and

 

THE PURCHASER

 

and

 

THE GUARANTORS

 _____________________________________________

 

Share Purchase Agreement

 

relating to

 

OBAR Camden Holdings Limited

 _____________________________________________

 

 
 

 

CONTENTS

 

Clause Heading Page
     
1. Sale of the Shares 1
     
2. Consideration 2
     
3. Completion 2
     
4. Warranties 5
     
5. Tax 9
     
6. Protective Covenants 9
     
7. Definitions, Interpretation and terms and conditions 9

 

Schedule 1 The Sellers, their Shareholdings and Consideration 12
   
Schedule 2 Corporate Particulars 14
   
Schedule 3 The Warranties 16
   
Schedule 4 Adjustment to the Consideration 25
   
Schedule 5 Completion Obligations 29
   
Schedule 6 Limitations on Liabilities under the Warranties 31
   
Schedule 7 Tax Covenant 35
   
Schedule 8 Protective Covenants 43
   
Schedule 9 Addresses for Notices 45
   
Schedule 10 Property 46
   
Schedule 11 Terms and Conditions 47
   
Schedule 12 Definitions and Interpretation 51

 

 
 

   

AGREEMENT

 

THIS AGREEMENT dated February 13, 2014 is made

 

BETWEEN

 

(1) The person whose name and address is shown in column (1) of Part 1 of Schedule 1 ( The Seller ) (the " Seller ");

 

(2) KOKO (CAMDEN) LIMITED, a private limited company registered in England and Wales under company no. 08763877 and whose registered office is at 55 Colmore Row, Birmingham, B3 2AS (the " Purchaser "); and

 

(3) The persons whose names and addresses are shown in column (1) of Part 2 of Schedule 1 ( The Guarantors ).

 

BACKGROUND

 

(A) The Seller is the registered holders and the beneficial owner of the number of shares in the Company set opposite his name in column (2) of Schedule 1 (the " Sale Shares "), which are fully paid or credited as fully paid.

 

(B) The Company is the beneficial owner of the entire issued share capital of the Subsidiary, particulars of which are set out in Part 2 of Schedule 2 ( Corporate Particulars ).

 

(C) The Seller wishes to sell and the Purchaser is willing to purchase all of the Sale Shares (being all the shares in the Company currently registered in the name of the Seller) on the terms and conditions of this Agreement.

 

(D) The Guarantors have agreed to guarantee to the Seller the performance of this Agreement (including in particular, but without limitation, the payment of all sums due to the Seller from the Purchaser in accordance with this Agreement) by the Purchaser subject to the terms and conditions set out below and have agreed to provide security to the Seller in respect of such obligations.

 

1. SALE OF THE SHARES

 

1.1 Sale and Purchase

 

The Seller shall sell with full title guarantee the Sale Shares set out opposite his name in Schedule 1 ( The Seller and Shareholding ) and the Purchaser shall purchase the Sale Shares on the terms of this Agreement free from all Encumbrances and together with all rights attaching to them.

 

1.2 Right to Sell

 

The Seller agrees with the Purchaser that he has the right to sell and transfer the full legal and beneficial interest in the Sale Shares set out opposite his name in Schedule 1 ( The Seller and Shareholding ) to the Purchaser on the terms set out in this Agreement and acknowledges that the Purchaser is purchasing the Shares in reliance on the warranties and undertakings given by the Seller in this Agreement.

 

1.3 Waiver of Pre-emption Rights

 

The Seller waives all rights of pre-emption conferred upon him by the articles of association of the Company or in any other way in respect of the sale and transfer of the Sale Shares to the Purchaser and the transfer of any shares by any of Oliver Bengough, Hugh Doherty and/or Laurence Seymour to the Purchaser whether such transfers are effected before, after or simultaneous with the transfer of the Sale Shares pursuant to this Agreement.

 

1.4 Conditionality of the Agreement

 

The sale of the Sale Shares pursuant to this Agreement is conditional upon the delivery to the Seller (or such person as he shall nominate):

 

(a) by Oliver Bengough of a share pledge in a form agreed between the Seller, Hugh Doherty, Laurence Seymour and Oliver Bengough in favour of the Seller, Hugh Doherty and Laurence Seymour duly executed by Oliver Bengough pursuant to which Oliver Bengough grants to the Seller, Hugh Doherty and Laurence Seymour a charge over his interests in shares in Mint Leisure Limited by way of security in respect of his obligations under this Agreement to the Seller and to Hugh Doherty and Laurence Seymour under the Alex SPA; and

 

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(b) by TRINAD Capital Master Fund Ltd, the Negative Pledge and Charge Agreement duly executed by TRINAD Capital Master Fund Ltd in respect of the granting of security in favour of the Seller, Hugh Doherty and Laurence Seymour in respect of the respective obligations of TRINAD Capital Master Fund Ltd. under this Agreement and under the Minority Interests Share Sale Agreement;

 

(c) by the Subsidiary of a deed of debenture by way of fixed charge over the Property executed by the Subsidiary in a form agreed between the Seller, Hugh Doherty and Laurence Seymour pursuant to which the Subsidiary grants security in respect of its obligations to the Seller under this Agreement and to Hugh Doherty and Laurence Seymour under the Minority Interests Share Sale Agreement;

 

(d) a deed of reimbursement (the “ Deed of Reimbursement ”) in the agreed form to be entered into between the Purchaser, Alex Rutherford, Hugh Doherty, Laurence Seymour, Oliver Bengough and Mint Group Holdings Limited in relation to the reimbursement of certain fees incurred by the parties thereto (other than the Purchaser) in relation to entering into this transaction.

 

2. CONSIDERATION

 

2.1 Consideration 1

 

The consideration for the sale of the Sale Shares (subject to adjustment in accordance with Clause 2.2) (the “Consideration” ) shall be the sum of £2,442,500 payable to the Seller:

 

(a) as to £1,104,250as at Completion in accordance with Schedule 5; and

 

(b) as to £1,338,250 (the “Deferred Consideration” ) to be paid on the Deferred Consideration Payment Date by way of electronic transfer in cleared funds to such account as the Seller shall notify to the Purchaser in writing and, in the absence of any such notification, to the Seller’s Solicitors Client Account; and

 

in each case in accordance with the remaining provisions of this Agreement.

 

2.2 Adjustment of Consideration

 

The Consideration shall be adjusted as required in accordance with Schedule 4 ( Adjustment to the Consideration ).

 

3. COMPLETION

 

3.1 Time for Completion

 

Completion shall take place immediately after the signing and exchanging of this Agreement at the offices of Winston & Strawn London, City Point, One Ropemaker Street, London EC2Y 9HU (or any other location agreed upon by the Seller and the Buyer).

 

3.2 Seller's Completion Obligations

 

The Purchaser shall not be obliged to complete this Agreement unless the Seller complies with the requirements of Part 1 of Schedule 5 ( Completion Obligations ) in relation to Completion.

 

3.3 Purchaser's Completion Obligations

 

Upon completion of all the matters referred to in Part 1 of Schedule 5 ( Completion Obligations ) in relation to the Completion, the Purchaser shall comply with the requirements of Part 2 of Schedule 5 ( Completion Obligations ) and the Seller shall not be obliged to complete this Agreement unless the Purchaser complies with the requirements set out in Part 2 of Schedule 5.

 

3.4 Conditionality of Completion

 

Neither the Seller nor the Purchaser shall be obliged to effect Completion pursuant to this Agreement unless each of the following has occurred:

 

 

1 These numbers may need to be conformed to the final allocation of funds for the first tranche

 

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AGREEMENT

 

(a) each of Hugh Doherty and Laurence Seymour and the Purchaser have entered into the Minority Interests Share Sale Agreement (the “ Minority Interest Shares ”);

 

(b) the Companies have entered into a settlement and release agreement with Albion Ventures LLP in the agreed form pursuant to which Albion Ventures LLP and any of the funds advised by them who are parties to an exclusivity agreement dated 30 July 2013 agree to irrevocably waive all any claims they have for breach of such exclusivity agreement in return for a compensatory payment of £30,000 (“ the Break Fee ”); and

 

the Purchaser has paid to Albion Ventures LLP the Break Fee and to the Seller’s Solicitors Client Account the balance of the sums due (other than the Break Fee) under the Deed of Reimbursement.

 

3.5 Consequences of Default

 

If any of the provisions of Part 1 of Schedule 5 ( Completion Obligations ) is not complied with in relation to Completion:

 

(a) If such default is due to a failure of the Seller, the Purchaser shall not be obliged to complete this Agreement and may (in addition and without prejudice to all other rights or remedies available to it):

 

(i) defer the relevant Completion to a date not more than 28 days thereafter (and so that the provisions of this Clause 3.5 shall apply to Completion as so deferred);

 

(ii) proceed to the relevant Completion so far as practicable and without prejudice to its rights under this Agreement;

 

(iii) waive all or any of the requirements contained in Part 1 of Schedule 5 (Completion Obligations) at its discretion.

 

(b) If such default is due to a failure of the Purchaser, the Seller shall not be obliged to complete this Agreement and may (in addition and without prejudice to all other rights and remedies available to him):

 

(i) defer the relevant Completion to a date not more than 28 days thereafter (and so that the provisions of this Clause 3.5 shall apply to Completion as so deferred);

 

(ii) proceed to the relevant Completion so far as practicable and without prejudice to his rights under this Agreement;

 

(iii) waive all or any of the requirements contained in Part 2 of Schedule 5 (Completion Obligations) at his discretion.

 

3.6 Consequences of Failure to pay Deferred Consideration

 

In addition to and without prejudice to any other rights and entitlements which the Seller may have pursuant to this Agreement or pursuant to the obligations of the Guarantors as set out in this Agreement or to any rights he may have under any other document to be entered into by the Seller in connection with this Agreement, in the event that any of the Deferred Consideration remains due and outstanding for a period of 30 days or more following the Deferred Consideration Payment Date, the Purchaser and Seller shall (if the Guarantors have not paid the Deferred Consideration following a demand on their guarantee in accordance with clause 6) exercise the rights and undertake the sale process described below in this clause 3.6. The terms of this sale process are as follows:

 

(a) the Seller shall have the right to appoint any three persons as he may, at his absolute discretion, nominate, as directors of the Company and/or the Subsidiary and such persons shall remain in office until such time as the Seller has received all sums due in respect of the Deferred Consideration (including all interest payable in respect thereof) (the “ Appointment Period ”) and the Seller shall be entitled by notice in writing served on the Company and/or the Subsidiary (as the case may be) at its registered office to remove any such persons so appointed and to replace them with any other person as the Seller shall at his absolute discretion nominate;

 

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AGREEMENT

 

(b) during the Appointment Period, the number of directors who shall be maintained in office as directors of the Company and/or the Subsidiary by the Purchaser and Oliver Bengough (and in the case of the Subsidiary, by the Company) shall not exceed 2 in number and both the Purchaser and Oliver Bengough shall exercise all rights and powers as directors and/or as shareholder or in any other capacity (whether directly or their nominees or appointees) to the board of the Company and/or the Subsidiary to:

 

(i) remove any director (other than directors appointed pursuant to (a) above) so that the number of directors in office (excluding those persons appointed pursuant to (a) above) shall be no more than 2 in total;

 

(ii) shall not exercise any voting rights so as to either remove any directors appointed pursuant to (a) above or to appoint any other person as a director of either the Company or the Subsidiary;

 

(iii) shall vest in the Seller and his appointees the power and authority to organise the sale of the Property in accordance with the provisions of (c) below;

 

(c) there shall be delegated to the Seller and his appointees as directors the power and authority to take whatever actions in good faith are required in connection with a sale of the Property by the Subsidiary to be effected as soon as possible following the commencement of the Appointment Period and the application of sale proceeds from such sale towards discharge of the sums due in respect of the Deferred Consideration and in particular the Seller and his appointees shall procure that the bars and restaurants team at the Leisure Team at Davis Coffer Lyons of 52 Portland Place, London W1B 1NH (or such other reputable agents specialising in the disposal of leisure property as may be agreed between the Seller and the Purchaser) (the “ Appointed Agents ”) shall be appointed to advise on and market the sale of the Property to obtain fair market value for the Property within a period of 3 months from the commencement of the appointment of the Appointed Agents (the “Sale Period” ) and in connection with such sale the Seller and his appointees shall:

 

(i) be authorised in good faith to accept bids on behalf of the Subsidiary in respect of the sale of the Property and execute the same on behalf of the Property provided that the acceptance of such bid has been recommended by the Appointed Agents as being a reasonable price for the Property given the nature of the Property and the state of the market at that time;

 

(ii) incur such costs and expenses on behalf of the Company and/or the Subsidiary as may be reasonably required to be incurred in connection with such sale process;

 

(iii) procure that the proceeds of sale are applied first by way of a payment from the Subsidiary (or as the case may be, the Company) in payment of the Deferred Consideration on behalf of, and by way of a deemed loan from the Subsidiary or the Company to the Purchaser and the balance to be held in the Subsidiary pending the resignation of the Seller and his appointees as directors of the Subsidiary and/or Company (such resignations to be effected by the Seller upon receipt of the Deferred Consideration subject to the Seller having procured that his appointees as directors waive in writing (and in a form satisfactory to the Purchaser (acting reasonably) all and any claims they may have against the Company, Subsidiary in connection with such resignation or their office as a director of the Company and/or the Subsidiary.

 

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AGREEMENT

 

4. WARRANTIES AND SPECIFIC INDEMNITIES

 

4.1 Warranties

 

The Seller warrants to the Purchaser that:

 

(a) each of the Warranties in Part 1 of Schedule 3 is true and accurate as at the date of this Agreement ; and

 

(b) each of the Warranties in Part 2 of Schedule 3 is true and accurate as at the date of this Agreement.

 

4.2 Reliance

 

The Seller acknowledges that the Purchaser is entering into this Agreement in reliance on each Warranty.

 

4.3 Disclosure

 

The Warranties are given subject to matters fairly disclosed in this Agreement or in the Disclosure Letter with sufficient detail to identify the nature and scope of the matters disclosed but a matter shall be regarded as disclosed by the Disclosure Letter only to the extent that accurate information, which is not misleading, about that matter is contained in the Disclosure Letter in sufficient detail for the Purchaser reasonably to identify the nature and scope of that matter.

 

4.4 Knowledge not to prevent claim

 

Except in relation to matters fairly disclosed in the Disclosure Letter in accordance with Clause 4.3, none of the Warranties shall be qualified by any imputed or constructive knowledge on the part of Purchaser, its agents or advisers and no such knowledge shall prejudice or be used as a defence to any Warranty Claim or otherwise operate to reduce the amount recoverable. The Purchaser warrants that as at the date hereof it is not intending to make a Warranty Claim against the Seller for breach of Warranty in respect of any matter, event or circumstances it has actual knowledge of as at the date of this Agreement and knows constitutes a breach of a Warranty.

 

4.5 Construction of Warranties

 

Each of the Warranties set out in the several paragraphs of Schedule 3 ( Warranties ) is separate and independent and, except as expressly provided to the contrary in this Agreement, is not limited by reference to any other paragraphs of Schedule 3 ( Warranties ).

 

4.6 Waiver of Rights

 

The Seller agrees with the Purchaser (for itself and for the Companies and their directors, officers, employees and consultants as Third Parties) that, save in the case of fraud, he shall waive any rights or claims which the Seller may have in respect of any misrepresentation, inaccuracy or omission in, or from, any information or advice supplied or given by the Companies or their directors, officers, employees or consultants on which the Seller may have relied in connection with the giving of the Warranties and the preparation of the Disclosure Letter.

 

4.7 Non-discharge of Warranties

 

None of the Warranties or the Tax Covenant shall be deemed in any way modified or discharged by reason of Completion nor shall the Purchaser be deemed to have knowledge (as opposed to having actual knowledge) arising from any investigation or inquiry made on behalf of the Purchaser and accordingly neither Completion nor deemed, constructive or imputed knowledge which would otherwise be imputed on the Purchaser shall prejudice any claim which the Purchaser shall be entitled to bring or shall operate to reduce any amount recoverable under this Agreement.

 

4.8 Reduction in Consideration

 

Any payment made by the Seller for any breach of the Warranties or under the Tax Covenant shall be deemed to be a reduction in the Consideration.

 

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AGREEMENT

 

4.9 Notifications by Purchaser

 

If the Purchaser becomes aware of a matter or circumstance which is likely to give rise to a Warranty Claim, the Purchaser shall give notice to the Seller in writing specifying that matter or circumstance in reasonable detail (given the level of detail available to the Purchaser at the time) as soon as reasonably practicable after it becomes aware of that matter or circumstance. Any failure by the Purchaser to give notice as contemplated by this clause shall not prevent the Purchaser from making any Warranty Claim arising from that circumstance but the Seller shall not be liable for any losses or liabilities incurred to the extent that they are foreseeably increased as a result of such failure.

 

4.10 Specific Indemnities

 

The Seller agrees and undertakes to the Purchaser that, subject to the provisions of clause 4.11 below he shall indemnify the Purchaser in respect of 47.475% of any Losses arising in the Company or the Subsidiary:

 

(a) by reason of the Company and/or the Subsidiary not having registered with the Data Protection Registrar prior to the date of this Agreement; and

 

(b) in relation to any claim from any third party (not being a Seller, Oliver Bengough or Alex Rutherford or any person who is a connected person in relation to the Seller, Oliver Bengough or Alex Rutherford) which has been received by the Company and/or the Subsidiary and which has been notified to the insurers of the Company or the Subsidiary on or before the date of this Agreement and which such insurers refuse or otherwise fail to pay by reason of such insurance not covering the relevant claim, being void or voidable or otherwise (save to the extent that such Losses relate to any excess payable by the Company or the Subsidiary under the terms of the relevant insurance).

 

4.11 Seller's Protections

 

Schedule 6 ( Limitations ) shall apply so as to limit the liability of the Sellers in respect of the Warranties, the Tax Covenant and the indemnities provided pursuant to clause 4.10 save that:

 

(a) Schedule 6 shall not apply to the extent that any claim arises out of fraud, dishonesty, wilful misstatement or wilful concealment on the part of the Seller;

 

(b) The provisions of paragraphs 1, 2, 3 (mutatis mutandis), 7 (c), 8 (mutatis mutandis) and 10 (mutatis mutandis) only of Schedule 6 shall apply to any claim and any liability arising pursuant to clause 4.10(a) or 4.10(b).

 

4.12 Seller’s Covenants

 

The Seller covenants that:

 

(a) he has the requisite capacity and authority to enter into and perform this Agreement and any other documents that are to be executed by him pursuant to this Agreement (the " Sellers’ Completion Documents ");

 

(b) this Agreement and the Sellers’ Completion Documents will, when executed by him, constitute binding obligations on him enforceable in accordance with their respective terms;

 

(c) no consent, approval, authorisation or order of any court of government or local agency or body or any other person is required by him for the execution or implementation of this Agreement and the Sellers’ Completion Documents and compliance with the terms of this Agreement and the Sellers’ Completion Documents does not:

 

(i) conflict with, result in the breach of or constitute a default under any agreement, instrument or obligation by which he may be bound or any provision of the articles of association of the Company or Subsidiary; or

 

(ii) result in the creation, imposition, crystallisation or enforcement of any Encumbrance on, over or affecting any of the assets of the Company or the Subsidiary;

 

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(d) his shares in the Company , details of which are set out in column (2) of paragraph (9) of part 1 of Schedule 2 constitute the whole of the allotted and issued share capital of the Company (when taken with the shares in the Company currently registered in the names of Oliver Bengough and Alex Rutherford on the date of this Agreement) and are fully paid up or credited as fully paid up as to their nominal value;

 

(e) he is the legal and beneficial owner of the Sale Shares shown against his name in column 2 of Schedule 1 and is entitled to transfer the Sale Shares to the Purchaser free from any Encumbrances;

 

(f) there is no Encumbrance on, over or affecting any of the Sale Shares and no person has claimed to be entitled to any such Encumbrance;

 

(g) apart from this Agreement, the Alex SPA and the share purchase agreement between Oliver Bengough and the Purchaser, there is no agreement, arrangement or commitment outstanding which calls for the allotment, issue or transfer of, or accords to any person the right to call for the allotment, issue or transfer of, any share or loan capital of the Company or the Subsidiary;

 

(h) neither he nor any person connected with him has any claim of any kind (actual or contingent) against the Companies (or any one of them) on any account as at the date of this Agreement;

 

(i) he irrevocably and unconditionally waives and undertakes to procure that each person being a connected person shall waive with effect from Completion any claim (actual or contingent) which any of them may have against the Companies (or any one of them);

 

(j) there is no indebtedness outstanding at Completion from him to either of the Companies;

 

(k) all indebtedness outstanding at Completion from either of the Companies to him has either been repaid or irrevocably waived in full (including interest);

 

(l) no bankruptcy order has been made in respect of him, nor has any petition for any such order been presented;

 

(m) no application has been made in respect of him for an interim order under section 253 Insolvency Act 1986;

 

(n) he is not currently in a position whereby he is unable to pay or has no reasonable prospect of being able to pay any debt as those expressions are defined in section 268 Insolvency Act 1986;

 

(o) no person has been appointed by the court to prepare a report in respect of him under section 273 Insolvency Act 1986;

 

(p) no interim receiver has been appointed of the property of him under section 286 Insolvency Act 1986; and

 

(q) the Seller is not insolvent or bankrupt within the meaning of any applicable law;

 

and the transfer of the Sale Shares to the Purchaser shall be deemed to include expressly and be made subject to all the above provisions of this clause 4.12.

 

5. INTEREST ON LATE PAYMENT

 

5.1 Applicable interest rate

 

If either party is late in paying any sum due to the other under this Agreement, the party under the obligation to make the payment (the “ Payer ”) shall pay interest to the party owed the payment (the “ Payee ”) on the sum which is not paid on the due date. Interest shall accrue at the rate of 4% above the base rate of Barclays Bank PLC from time to time and shall accrue on a daily basis and be paid on demand semi-annualy in arrears; provided if not so paid, shall be compounded and, provided further, in the case of the Deferred Consideration (and any interest payable thereon) only, any unpaid Deferred Consideration (and interest thereon) shall bear interest at the rate of 4% over the base rate of Barclays Bank PLC from 31 March 2014 to 30th June 2014 and at the rate of 8% over the base rate of Barclays Bank PLC thereafter. The applicable rate shall apply both before and after any judgement has been obtained.

 

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5.2 Interest not subject to deduction

 

Interest shall be paid without any deduction or withholding, except as required by law. If interest payable under this Clause is subject to deduction or withholding, the Payer shall increase the amount paid so that the net amount received by the Payee is the amount which he would have received had no deduction or withholding been made.

 

6. GUARANTEE

 

6.1 Guarantee by the Guarantors

 

In consideration of the Seller agreeing to enter into this Agreement with the Purchaser, each of the Guarantors irrevocably and unconditionally jointly and severally as primary obligor (and not just as surety) undertakes and guarantees to the Seller the performance by the Purchaser of all its obligations under this Agreement including the due and punctual payment of all sums now or subsequently payable by the Purchaser to the Seller under this Agreement. For the avoidance of doubt, all of the Guarantors obligations to the Seller under this Agreement or otherwise are to be read subject to clause 6.5.

 

6.2 Default by the Purchaser

 

If the Purchaser defaults in the performance of any obligations under this Agreement, the Guarantor shall on demand perform (or procure the performance of) that obligation, so that the same benefits shall be conferred on the Sellers as they would have received if the Purchaser had duly performed that obligation (including, without limitation, the payment of interest with effect from the Deferred Consideration Payment Date until the discharge of all sums due to the Seller in respect of the Deferred Consideration and all interest due in respect thereof).

 

6.3 Continuing Obligations

 

The obligations and liabilities of each Guarantor in this Clause:

 

6.3.1 are continuing obligations and liabilities which shall remain in force until all the obligations of the Purchaser under this Agreement have been performed.

 

6.3.2 shall not be affected by anything which, but for this Clause, might operate to release or otherwise exonerate him from or affect its obligations, including:

 

(i) any time, indulgence, waiver or consent given at any time to the Purchaser or another person or any amendment to or variation of the terms of any of this Agreement or another document referred to in this Agreement, save to the extent that such time, indulgence, waiver, consent, amendment or variation has been agreed in writing between the Purchaser and the Sellers and such agreement specifically refers to such time, indulgence, waiver, consent, amendment or variation being made in respect of this Agreement or the relevant document referred to in this Agreement in which event the obligations of the Guarantor will be deemed to have agreed to be bound by, and shall have the benefit of the terms of such agreement for time, indulgence, waiver, consent, amendment or variation to the same extent as such benefits have been granted to the Purchaser;

 

(ii) any abstention from perfecting or enforcing any rights or remedies against the Purchaser or another;

 

(iii) a legal limitation, disability, incapacity or other circumstances relating to the Purchaser or another person;

 

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(iv) an irregularity, unenforceability or invalidity of the obligations of a party to any of this Agreement;

 

(v) the dissolution, amalgamation or reconstruction of the Purchaser;

 

(vi) the insolvency of, or any other similar proceedings or arrangement in relation to the Purchaser

 

Provided always and it is agreed by each of the Sellers, the Purchaser and the Guarantor that in the event that the Sellers or any them releases in writing the Purchaser from any obligation or liability arising under this agreement then such release shall apply equally to the Guarantor to the effect that following such release, the Guarantor shall not be under any greater obligation to the Sellers than the Purchaser would be following such release.

 

6.4 No Requirement to exhaust remedies against the Purchaser

 

The obligations and liabilities contained in this Clause may be enforced without the Seller having first taken any action against the Purchaser.

 

6.5 Demands under this Guarantee

 

The Seller may make one or more demands under the guarantees given in this clause 6 provided always, and the Seller hereby agrees that, in the case of a default in respect of the payment of any monetary obligation of the Purchaser under this Agreement, such demand shall not be made until the date being 10 days after such obligation became due and owing and the Purchaser has remained in default, and in the case of a non-monetary obligation, until the date being 30 days after such obligation arose.

 

7. TAX

 

The provisions of Schedule 7 ( Tax Covenant ) shall have effect in relation to tax liabilities of each of the Companies.

 

8. PROTECTIVE COVENANTS

 

The provisions of Schedule 8 ( Protective Covenants ) shall have effect following Completion to protect the Purchaser.

 

9. DEFINITIONS, INTERPRETATION AND TERMS AND CONDITIONS

 

The definitions and rules of interpretation set out in Schedule 12 ( Definitions ) and the terms and conditions set out in Schedule 11 ( Terms and Conditions ) shall apply to this Agreement.

 

10. POWER OF ATTORNEY

 

10.1 The Seller declares that until such time as the stock transfer delivered pursuant to the Purchaser pursuant to Schedule 5 has been duly stamped for stamp duty purposes, he shall, in respect of any of the Sale Shares after Completion he shall:

 

(a) hold the Sale Shares and the dividends and other distributions of profits or surplus or other assets declared, paid or made in respect of them after Completion and all rights arising out of or in connection with them in trust for the Purchaser and any successors in title to the Purchaser; and

 

(b) at the Purchaser’s cost, deal with and dispose of the Sale Shares and all such dividends, distributions and rights as are described in clause 3.7(a) as the Purchaser or any such successor may direct Provided that the Purchaser shall not create or require the Seller to accept any further obligations or give any warranties or representations or create any further liabilities in addition to those arising under this agreement for or on the part of or on behalf of the Seller in relation to such dealing or disposal.

 

(c) The Seller appoints the Purchaser as his lawful attorney for the purpose of signing any written resolution (or receiving notices of and attending and voting at all meetings) of the members of the Company from Completion to the day on which the Purchaser or its nominee is entered in the register of members of the Company as the holder of the Sale Shares and for that purpose the Seller authorises:

 

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AGREEMENT

 

I. the Company to send any written resolutions, notices or other communications in respect of his holding of Sale Shares to the Purchaser; and

 

II. the Purchaser to complete in such manner as it thinks fit and to return written resolutions, proxy forms, consents to short notice and any other document required to be signed by him in his capacity as a member,

 

and this power of attorney (which is given by way of security to secure the performance of obligations owed by the Seller to the Purchaser under this Agreement) shall be irrevocable.

 

10.2 The Purchaser agrees and undertakes to the Seller that it will, as soon as reasonably practicable following Completion and, in any event, within 30 days, submit to HMRC and pay all stamp duty due and payable in respect of the transfer of the Sale Shares pursuant to the stock transfers delivered by the Seller to the Purchaser pursuant to Schedule 5.

 

11. Purchaser’s Warranties and Covenants

 

11.1 The Purchaser hereby warrants to the Seller as follows:

 

11.1.1 The Purchaser has the requisite capacity and authority to enter into and perform this Agreement and any other documents that are to be executed by the Purchaser pursuant to this Agreement (the " Purchaser’s Documents ").

 

11.1.2 This Agreement and the Purchaser’s Documents will, when executed by the Purchaser, constitute binding obligations of the Purchaser enforceable in accordance with their respective terms.

 

11.1.3 No consent, approval, authorisation or order of any court of government or local agency or body or any other person is required by the Purchaser for the execution or implementation of this Agreement and the Purchaser’s Documents and compliance with the terms of this Agreement and the Purchaser’s Documents do not:

 

(a) conflict with, result in the breach of or constitute a default under any agreement, instrument or obligation by which the Purchaser may be bound or any provision of the articles of association of the Purchaser; or

 

(b) result in the creation, imposition, crystallisation or enforcement of any Encumbrance on, over or affecting any of the assets of the Purchaser.

 

11.2          The Purchaser hereby covenants to each of the Sellers that:

 

11.2.1 no administration order has been made, no petition for one has been presented and no notice of intention to appoint an administrator has been given in respect of the Purchaser;

 

11.2.2 no administrator, receiver or administrative receiver has been appointed in respect of the Purchaser or any of its assets and no application for the appointment of an administrator has been made by the Purchaser or any of its shareholders in accordance with the out of court procedure under the Enterprise Act 2002;

 

11.2.3 the Purchaser has not failed , nor is unable , to pay any of its debts as they fall due, within the meaning of section 123 of the Insolvency Act 1986;

 

11.2.4 no voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of the Purchaser and the Purchaser has not made or proposed any arrangement or composition with its creditors or any class of them;

 

11.2.5 no steps have been taken to obtain a moratorium under Schedule A1 of the Insolvency Act 1986 or otherwise in respect of the Purchaser;

 

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AGREEMENT

 

11.2.6 no distress, execution or other process has been levied on Purchaser’s assets or action taken at the Purchaser’s address to repossess goods in the possession of the Purchaser;

 

11.2.7 no unsatisfied judgment is outstanding against the Purchaser and no demand has been served on the Purchaser under section 123(1)(a) of the Insolvency Act 1986;

 

11.2.8 no meeting to approve a compromise or scheme of arrangement under the Companies Act 2006 has been convened and no such compromise or scheme has been agreed to or sanctioned in respect of the Purchaser;

 

11.2.9 has not entered into any compromise or arrangement with its creditors or any class of its creditors generally;

 

11.2.10 the Purchaser is not insolvent according to any laws in any relevant jurisdiction;

 

and the transfer of the Sale Shares to the Purchaser and the agreement of the Sellers to effect such transfer in accordance with the terms and conditions of this Agreement shall be deemed to include expressly and be made subject to all the above provisions of this clause 11.

 

IN WITNESS of which this Agreement has been executed and delivered as a deed by the parties on the date at the beginning of this Agreement.

 

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Schedule 1
The Seller and his Shareholding and the Guarantors

Part 1

 

The Seller and his Shareholding

 

Shareholder   Sale Shares     Ownership
Percentage
of Ordinary
Shares
 
Alex Rutherford     46,410       47.475 %

 

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Part 2
The Guarantors

 

Guarantor   Address
Oliver Bengough  
TRINAD Capital Master Fund Limited  

OBAR Camden Limited  

 

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Schedule 3
The Warranties

 

Unless the context otherwise requires, references in this Schedule 3 to the "Company" shall mean the Company and the Subsidiary.

 

1.           Company and Subsidiary

 

1.1          The information in parts 1 and 2 of Schedule 2 relating to the Company and the Subsidiary respectively is true and accurate.

 

1.2          The Company has not allotted or issued any securities that are convertible into shares of the Company.

 

1.3          No shares of the Company have been issued and no transfer of shares in the Company has been registered, except in accordance with applicable law and the then applicable articles of association or other constitutional documents of the Company;

 

1.4          There has been no transaction pursuant to or as a result of which; (i) any of the shares of the Company; or (ii) any asset owned, purportedly owned or otherwise held by the Company is liable to be transferred or re-transferred to another person or which gives or may give rise to a right of compensation or other payment in favour of another person under the law of any relevant jurisdiction.

 

1.5          No transaction at an undervalue (within the meaning of Section 423 of the Insolvency Act 1986) (a) relating to any of the shares of the Company or (b) to which the Company has been a party, has been effected prior to the date of this Agreement.

 

1.6          The Company has not at any time:

 

(a)                   issued any loan capital;

 

(b)                   reduced its share capital;

 

(c)                   redeemed any share capital;

 

(d)                   purchased any of its shares; or

 

(e)                   forfeited any of its shares (or taken a surrender in lieu of any forfeiture).

 

1.7          The Company has not directly or indirectly provided any financial assistance for the purpose of the acquisition of shares in breach of the provisions of the Companies Acts.

 

1.8          The Company is not, nor has it agreed to become, bound by any guarantee, indemnity, surety or similar commitment.

 

1.9          The Company does not act or carry on business in partnership with any other person and is not a member of any corporate or unincorporated body, undertaking or association.

 

1.10          The Company is not a party to any joint venture agreement or arrangement or any agreement or arrangement under which it is to participate with any other person in any business.

 

1.11          The Company has never had any subsidiary or held any interest in any shares in any other company other than the Subsidiary.

 

1.12          The Subsidiary has never held any interest in any shares in any other company.

 

2.           Arrangements with the Seller

 

2.1          During the three year period prior to the date of this Agreement there were no, and there are not currently outstanding, any contracts, agreements or arrangements (including, without limitation, customer and supply contracts) to which the Company is a party and in which any director or shareholder of the Company or any person connected with any of them is interested (and for the purposes of this paragraph a person shall be deemed to be interested in a contract if, were he a director of the Company, he would be interested in that contract for the purposes of section 177 of the Companies Act).

 

2.2          The business of the Company does not depend on the use of assets owned by or facilities or services provided by the Seller (other than those services which are to be provided pursuant to the Transitional Services Agreement or which may be provided by the Seller in his capacity as an officer or employee of the Company) which are not being acquired pursuant to this Agreement.

 

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3.           Insolvency of the Company

 

3.1          No order has been made, no resolution has been passed, no petition has been presented and no meeting has been convened for the winding up of the Company or for a provisional liquidator to be appointed in respect of the Company and the Company has not been a party to any transaction which could be avoided in a winding up.

 

3.2          No administration order has been made, no petition for one has been presented and no notice of intention to appoint an administrator has been given in respect of the Company.

 

3.3          No administrator, receiver or administrative receiver has been appointed in respect of the Company or any of its assets. No application for the appointment of an administrator has been made by the Company or the Seller in accordance with the out of court procedure under the Enterprise Act 2002.

 

3.4          The Company has not failed , nor is unable , to pay any of its debts as they fall due, within the meaning of section 123 of the Insolvency Act 1986.

 

3.5          No voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of the Company and the Company has not made or proposed any arrangement or composition with its creditors or any class of them.

 

3.6          No steps have been taken to obtain a moratorium under Schedule A1 of the Insolvency Act 1986 or otherwise in respect of the Company.

 

3.7          No distress, execution or other process has been levied on the Company's assets or action taken at the Company’s address to repossess goods in the possession of the Company.

 

3.8          No unsatisfied judgment is outstanding against the Company and no demand has been served on the Company under section 123(1)(a) of the Insolvency Act 1986.

 

3.9          No meeting to approve a compromise or scheme of arrangement under the Companies Act 2006 has been convened and no such compromise or scheme has been agreed to or sanctioned in respect of the Company.

 

3.10          The Company has not entered into any compromise or arrangement with its creditors or any class of its creditors generally.

 

3.11          The Company is not bankrupt or insolvent within the meaning of any applicable law.

 

4.           Statutory books and documents filed

 

4.1          The statutory books, including all registers and minute books, of the Company have been properly kept and are up to date and contain an accurate and complete record of the matters with which those books should deal. No notice or allegation has been received that any such books or registers are incomplete or incorrect or should be rectified.

 

4.2          All documents which should have been delivered by the Company to the Registrar of Companies in England and Wales are complete and accurate and have been properly so delivered in accordance with any time-scale provided for such delivery.

 

4.3          The copy of the memorandum and articles of association of the Company Disclosed is currently in force, has embodied in it or annexed to it a copy of each resolution as referred to in section 29 of the Companies Act 2006, is accurate and complete in all respects and fully sets out the rights and restrictions attaching to each class of shares in the Company.

 

4.4          Since the Accounts Date the members of the Company in general meeting, or of any class of them, have not passed any resolution.

 

5.           Accounts

 

5.1          The Accounts have been prepared in all material respects in accordance with the United Kingdom Generally Accepted Accounting Practice and applicable laws and show a true and fair view of and accurately reflect the state of affairs and the financial position of the Company as at the Accounts Date and the profits/losses of the Company for the financial year ended on that date.

 

5.2           Since the Accounts Date, the Company has carried on its business in the ordinary and usual course and there has been no material adverse change in the financial or trading position of the Company and, so far as the Seller is aware, no fact, matter, event or circumstance has occurred which they are aware will give rise to any such change , which fact, matter, event or circumstance is specific to the Company only.

 

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5.3          The Management Accounts (a copy of which is attached to the Disclosure Letter):

 

(a) have been prepared on a prudent basis consistent with the basis for the preparation of management accounts for the Company over the period since the Subsidiary became a subsidiary of the Company; and

 

(b) so far as the Seller is aware, contain no material errors or omissions.

 

6.           Property

 

6.1          Schedule 10 contains a list of the real estate owned, controlled, used or occupied by the Company or in which the Company has any interest or liability (whether actual or contingent) and the information given in Schedule 10 is complete and accurate.

 

6.2          The written replies given by the Seller or the Seller’s Solicitors to any written enquiries raised in respect of the Property were , so far as the Seller is aware complete and accurate in all material respects and contain no material omissions as at the date they were given and so far as the Seller is aware, no fact, matter, event or circumstance has occurred which the Seller is aware would result in any material changes to such replies. In this paragraph, the expression "written" shall include e-mail.

 

6.3          The Company has not given any guarantee or indemnity for any liability relating to the Property.

 

6.4          In relation to the Lease, the parties thereto have observed and performed in all material respects all covenants, restrictions, stipulations and other encumbrances and there has not been (expressly or impliedly) any waiver of or acquiescence to any breach of them.

 

6.5          In relation to the Lease, all principal rent and additional rent and all other sums payable by the Company (" Lease Sums ") have been paid as and when they became due and no Lease Sums have been:

 

(a)          set off or withheld; or

 

(b)          commuted, waived or paid in advance of the due date for payment.

 

6.6          There is no pending rent review under the Lease.

 

6.7          The Deed of Variation dated 7 December 2004 (between the Company, CGIS Camden Palace Limited and Scottish Courage Limited) which effected a variation of the Lease did not oblige the Company (nor any party connected with it) to pay rent under the Lease prior to 1 July 2005 (being the ‘Rent Commencement Date’ as defined in the Lease), and was not treated as so obliging the Company or any party connected with it and, for the avoidance of doubt, neither the Company nor any party connected with it did otherwise pay rent in relation to the Lease prior to 1 July 2005.

 

6.8          The Company properly pays Value Added Tax on rents due under the Lease because the landlord under the lease has made an option to tax (or an election to waive exemption) in relation to the Property.

 

7.           Assets and Contracts

 

7.1           So far as the Seller is aware, there are no assets used by the Company and which are necessary for the operation of its business which are not owned by the Company, and the facilities and services to which the Company has a contractual right, include all rights, properties, assets, facilities and services necessary to enable the Company to carry on its business in the manner in which it is currently carried on.

 

7.2          Complete and accurate copies of the Material Contracts (being all contracts with which annual costs or revenue exceeding £10,000 or are otherwise material in the context of the business) being the contracts listed in Schedule 14 have been Disclosed.

 

8.           Compliance and Litigation

 

8.1          So far as the Seller is aware the Company and its officers and employees (past and present) in the course of their respective duties have complied in all material respects with all applicable laws and regulations of the United Kingdom (including in respect of immigration compliance).

 

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8.2          The Subsidiary has:

 

(a) obtained and maintained in full force and effect and paid all sums due in respect of:

 

(i)                 a Premises Licence granted under the Licensing Act 2003 in respect of the Property authorising the licensable activities comprising the sale of alcohol, the provision of late night refreshment and the provision of regulated entertainment comprising of live music, recorded music, dancing and the showing of film;

 

(ii) a licence from Phonographic Performance Limited in relation to the playing in public of sound recordings; and

 

(iii) a licence from the Performing Rights Society for the playing in public of copyrighted music (together the “ Licences ”);

 

(b) not received any notice that there has been any breach of the terms and conditions of the Licences and the Seller is not aware of any fact, matter or circumstance which he is aware is likely to lead to the Licences being breached, withdrawn or terminated by the relevant issuing authority or body.

 

8.3          There is no other material licence, approval or authority (other than the Licences referred to in paragraph 8.2 above) which is necessary for the operation of the business of the Subsidiary as currently conducted by the Subsidiary.

 

8.4           The Company has not received any notice in writing from any authority with statutory powers to enforce the same, that the Company does not have, or is otherwise in material breach of, nor is the Seller aware of any circumstances which might result in the revocation of any of the licences, consents, approvals, permissions, permits, certificates, qualifications, registrations and other authorisations (public and private) necessary for the operation of its business in the manner in which it is currently carried on.

 

8.5          Neither the Company nor the Seller is involved in any civil, criminal or arbitration proceedings in relation to the business and which would involve any appearance before any court, tribunal or similar body with the authority to make orders which are legally binding on the Company or the relevant director in any jurisdiction (together the " Proceedings ") and so far as the Seller is aware:

 

(a)           no Proceedings nor any notice in writing threatening any such Proceedings against the Company have been received by the Company; and

 

(b)           there are no facts or circumstances which the Seller is aware will give rise to any such Proceedings being commenced by or against the Company.

 

9.           Employees

 

9.1          The schedule of the employees of the Company that has been Disclosed includes complete and accurate details of all the employees of the Company. No change to the remuneration or benefits of the employees is due or expected within six months from the date of this Agreement. The Company has not made any outstanding offer nor agreed to employ any person who is not an employee of the Company at the date of this Agreement.

 

9.2          Complete and accurate details of the terms and conditions of employment, including all remuneration, incentive arrangements and other benefits, for any employee of the Company who is paid more than £ 50,000 per annum have been Disclosed. No employees are entitled to receive a bonus or other incentive payment or benefit.

 

9.3          Other than salary for the current months, reimbursement of out-of-pocket expenses and pay in respect of accrued but untaken holiday for the current holiday year, no amount is owing to any present or former officer, employee or worker of the Company.

 

9.4           So far as the Seller is aware the Company has complied in all material respects at all relevant times with:

 

(a)                    all its obligations under the Employment Legislation; and

 

(b)                    all its obligations to applicants for employment, its employees and workers and former employees and workers.

 

9.5          The Company has not offered, promised or agreed to vary the terms of employment of any of its officers or employees.

 

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9.6          The Company does not operate or contribute (and has never operated or contributed) to a pension scheme or any like arrangement, save to the extent required by law. Full details of all pension schemes operated by the Company are set out in the Disclosure Letter.

 

9.7          Details of any existing consultancy and outsource service arrangements entered into by the Company have been Disclosed.

 

9.8          The Company has obtained and maintained full and complete records in relation to each of its employees' eligibility to work for the Company in the United Kingdom in accordance with the provisions of the Immigration Acts which were in force on the date when each individual's period of continuous employment with the Company commenced.

 

9.9          All employees of the Company have valid and subsisting permission or authority to remain in the UK and work for the Company and in relation to any senior employee earning £50,000 per annum or more, no such permission or authority will expire within the next six (6) months.

 

9.10           So far as the Seller is aware, no individual is currently employed or engaged in such a way or in such a role that could expose the Company to or render it liable for a penalty (whether civil or criminal) under the Immigration Acts.

 

9.11          No employee or worker of the Company is, or has within the last three years been, involved in any criminal proceedings relating to the business of the Company.

 

9.12          No officer or employee of the Company earning over £50,000 per annum has given notice of resignation or is under notice of dismissal, nor is there any plan or proposal to dismiss any officer such employee and so far as the Seller is aware no notice has been received from such an employee whereby he or she proposes to resign from his or her employment.

 

10.           Indebtedness

 

10.1          The Company has no liability or contingent liability under any guarantee, indemnity or other agreement to secure or incur a financial or other obligation relating to the failure of another person to perform its obligations.

 

10.2          No part of the borrowings or indebtedness in the nature of borrowings of the Company is dependent on the guarantee or indemnity of, or security provided by, another person. No contract or arrangement to which the Company is party is dependent on the guarantee or indemnity of, or security provided by, another person.

 

10.3          The Disclosure Letter contains full details of each of the investment, deposit and bank accounts maintained by or on behalf of the Company and of the banks and other financial institutions at which they are kept.

 

10.4 Neither the Company nor the Subsidiary have any overdraft, loan or other financial facilities or any similar arrangement in the nature of borrowings from any banks or financial institutions.

 

11.           Insurances

 

11.1           Copies of the insurance policies maintained by or for the benefit of the Company including any insurance policies maintained by the landlord in respect of the Property (together the "Policies" and each a "Policy") have been Disclosed.

 

11.2          There are no outstanding claims and so far as the Seller is aware nothing has occurred which they are aware will result in a claim being made under the Policies or which they consider would be required to be notified to the insurers and so far as the Seller is aware, nothing has been done or omitted to be done which has made or will make any Policy void or voidable or entitle the insurer to reject any claim in whole or in part or as a result of which the renewal of any Policy might be refused or the premiums due in respect of them may be liable to be materially increased .

 

11.3          None of the Policies will cease to be available as a result of Completion.

 

11.4          The Company has at all times maintained all insurances which it is required by law to carry and all such insurances continue in full force and effect.

 

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12.           Intellectual Property

 

12.1          Complete and accurate details of all registered Intellectual Property Rights owned and/or used by the Company and copies of all licences and other agreements relating to Intellectual Property Rights are contained in the Disclosure Letter.

 

12.2          All registered Intellectual Property Rights owned by the Company (including the domain names listed in schedule 13) are in the sole legal and beneficial ownership of the Company free from all licences, charges or other encumbrances ; and in either case so far as the Seller is actually aware nothing has been done or omitted to be done whether by the Company or by any person which would jeopardise the validity, enforceability or subsistence of any Intellectual Property Rights.

 

12.3           All Intellectual Property Rights which are material to the operations of the Company and which are owned by third parties are the subject of binding and enforceable licences from third parties in favour of the Company:

 

(i) of which none will terminate, or be liable be to terminated by the other party to such licence, by virtue of this Agreement, and of which no notice to terminate has been received;

 

(ii) all parties to which have fully complied with all obligations in those licences; and

 

(iii) in relation to which no claim, dispute or proceeding has arisen or is foreseeable;

 

and in either case nothing has been done or omitted to be done whether by the Company or as far as the Seller is aware by any person who would jeopardise the validity, enforceability or subsistence of any such licence.

 

12.4           Any Intellectual Property Rights and domain names owned and/or used by the Company which are capable of registration have been registered or are the subject of an application for registration, and is or will when duly registered be valid, binding and enforceable and:

 

(a)                    in the case of registrations, all renewal fees have been paid and renewals made by their due date and all such action necessary to preserve and maintain the registration has been taken;

 

(b)                    in the case of registrations contained in the Disclosure Letter each is presently used by the Group and is in full force and effect and has not been abandoned;

 

(c)                    in the case of pending applications, the Seller is aware of no reason why any such applications should not proceed to grant;

 

(d)                    none of the Intellectual Property Rights are subject to any use, claim, application, proceeding or attack by any other person; and

 

(e)                    nothing is required to be done in relation to any such Intellectual Property Right within 30 days of the date of this Agreement the omission of which would jeopardise the Company's rights in relation to that Intellectual Property Right.

 

12.5          No licences, registered user or other rights have been granted or agreed to be granted by the Company to any person in respect of any registered Intellectual Property Rights, except as Disclosed.

 

12.6          Except where the Company has a valid and subsisting licence to do so, the Company does not use any Intellectual Property Rights in respect of which any third party has any right, title or interest, and all such licences are Disclosed.

 

12.7          So far as the Seller is aware, at no time during the past 2 years has there been any unauthorised use or infringement by any person of any Intellectual Property Rights or domain names owned and/or used by the Company which may jeopardise the validity or subsistence of such Intellectual Property Rights or agreements relating to the same.

 

12.8           So far as the Seller is actually aware none of the processes employed, or products or services dealt in, by the Company infringes any rights of any third party relating to intellectual property nor makes the Company liable to pay a fee or royalty and no claims have been made, threatened or are pending, in relation to any Intellectual Property Rights against the Company.

 

12.9          Except in the ordinary course of business and on a confidential basis (and for the avoidance of doubt this includes disclosure to professional advisors), no disclosure has been made of any of the confidential information, Intellectual Property, financial or trade secrets or customer or supplier lists of the Company.

 

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12.10          In accordance with paragraph 12.9 above, any agreements or arrangements relating to the confidentiality of information are valid and enforceable.

 

12.11          Any names used by the Company other than its corporate name are contained in the Disclosure Letter and do not infringe the rights of any person.

 

12.12          The Company does not use any software products, materials or IT systems which incorporate, contain or use in any manner (in whole or in part) any open source or general public licence materials.

 

12.13          The Company has not:

 

(a)          incorporated or combined open source or general public licence materials with the Intellectual Property Rights; or

 

(b)          distributed or licensed open source or general public licence materials in conjunction with any Intellectual Property Rights.

 

13.           Other

 

14.1          The Company is not liable to pay, in connection with the sale of any of the Sale Shares or otherwise in connection with this Agreement or the transactions contemplated by this Agreement:

 

(a)          any success or other fee, brokerage, commission or like payment; or

 

(b)          any sum whatsoever to any of its directors, employees, agents or advisers (past or present).

 

14.           Effect of this Agreement

 

The execution and delivery of, and compliance with the terms of, this Agreement does not and will not:

 

(a)          conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any agreement or instrument to which the Company or the Seller is a party;

 

(b)          relieve any person from any obligation to the Company (whether contractual or otherwise) or enable any person to determine any such obligation or any right or benefit enjoyed by the Company or to exercise any right whether under an agreement with or otherwise in respect of the Company;

 

(c)          result in the creation, imposition, crystallisation or enforcement of any Encumbrance on any of the Sale Shares or on any of the assets of the Company; or

 

(d)          result in any present or future indebtedness of the Company becoming due or capable of being declared due and payable prior to its stated maturity.

 

15.           Accuracy of Information

 

All information contained , in replies to written enquiries raised by the Purchaser or its professional advisers with the Seller or his professional advisers in relation to the Company or its affairs, assets or liabilities are true and accurate in all material respects at the time that the same were given and so far as the Seller is aware there is no other fact, matter or circumstance which renders any such information misleading.

 

16.           Tax

 

16.1          Provision or reserve (as appropriate) has been made in the Accounts for all Taxation liable to be assessed on the Company or for which the Company is accountable in respect of all Profits earned, accrued or received on or before the Accounts Date, and in respect of any Event occurring or deemed to have occurred on or before the Accounts Date. Since the Accounts Date no Taxation has or may have arisen to the Company (or would have arisen but for the use of any available reliefs) other than in the ordinary course of the Company's business.

 

16.2          The Company has made all returns, claims for relief, applications, notifications, computations, reports, accounts, statements, supplies of information, registrations and assessments (" Returns ") it is or was required by law to submit to a Taxation Authority. All Returns have been in the required form and have been properly submitted by the Company within any relevant time limits. The Returns were and remain complete, true and accurate and give full disclosure of all material facts and circumstances. The Company has prepared, kept and preserved full and sufficient records as required by law and to enable it to deliver correct and complete Returns and to calculate any present or, so far as possible, future liability for Taxation of the Company in respect of assets held at Completion . Such records are accurate and up-to-date.

 

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16.3          The Company has paid by the due date all Taxation which it has become liable to pay. The Company has, where legally obliged to do so, deducted or withheld amounts in respect of Taxation and has accounted by the due date to the relevant Taxation Authority for the Taxation so deducted or withheld.

 

16.4           The Company has not , within the last four years , paid or become liable to pay, nor so far as the Seller is aware are there any circumstances which may cause the Company to become liable to pay, any penalty, fine, surcharge or interest in connection with Taxation. The Company is not and has not within the last six years been, and is not so far as the Seller is aware likely to be, involved in a dispute (which term does not include a routine audit) in relation to Taxation.

 

16.5          The entry into or Completion of this Agreement will not result in any charge to Tax on the Company pursuant to section 179 of the Taxation of Chargeable Gains Act 1992 or section 780 of the Corporation Tax Act 2009 or otherwise.

 

16.6          The Company has not entered into any election pursuant to sections 171A or 179A of the Taxation of Chargeable Gains Act 1992 or section 792 of the Corporation Tax Act 2009.

 

16.7          There are set out in the Disclosure Letter (with express reference to this paragraph) particulars of all current arrangements relating to Group Relief to which the Company is a party including particulars of all claims for Group Relief which have been made within the last 4 years and:

 

(a) details of any payment which the Company has made or is liable to make under any arrangement or agreement for the surrender of group relief to that group company; and

 

(b) all payments due to the Company under any arrangement or agreement for surrender of Group Relief by it for periods ending on or prior to Completion.

 

16.8           The Company is not, and has not in the last 4 years been, party to any group payment arrangements under sections 59F to 59H of the Taxes Management Act.

 

16.9          The Company is a registered and taxable person for the purposes of the Value Added Tax Act 1994, such registration not being pursuant to paragraph 2 Schedule 1 Value Added Tax Act 1994 and not subject to any conditions imposed by or agreed with HM Revenue & Customs.

 

16.10          There is set out in the Disclosure Letter with express reference to this warranty full details of any option to tax exercised by the Company under Part 1 schedule 10 of the Value Added Tax Act 1994. All such elections have full effect and none is likely to be ineffective by virtue of paragraph 12 schedule 10 of the Value Added Tax Act 1994.

 

16.11          No person has acquired any securities, any securities option or any interest in securities (in each case, within the meaning of Part 7 of the Income Tax (Earnings and Pensions) Act 2003) where the right or opportunity to acquire the same is or was available by reason of an employment of that or any other person for the purposes of that Part.

 

16.12          No relevant step s (within the meaning of Part 7A of the Income Tax (Earnings and Pensions) Act 2003) have been taken in pursuance of, or has some connection with, arrangements concerned with the provision of rewards or recognition or loans in connection with any employee or former employee (or any associate of such person) of the Company.

 

16.13          The Disclosure Letter contains details of all land transactions (as defined in section 43 of the Finance Act 2003) to which the Company was a party, and of all interests which the Company holds in land, in respect of which the Company may have any future obligations relating to stamp duty land tax under Schedule 17A of the Finance Act 2003.

 

16.14          The Company was incorporated in, and is and always has been resident in, the United Kingdom for taxation purposes and is not and has never been resident or treated as resident or has or has had a branch, agency or permanent establishment in any other jurisdiction (or constitutes or has constituted an agent or permanent establishment of any person) for any tax purpose or for the purposes of any double taxation agreement. The Company is not liable to, and so far as the Seller is aware, has at no time incurred any, Taxation in any jurisdiction other than the United Kingdom.

 

16.15          The Company is a close company within the meaning of section 439 of the Corporation Tax Act 2010. The Company has never been a close investment-holding company (as defined in Section 34 of the Corporation Tax Act 2010).

 

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16.16          No loan or advance within sections 455, 459 and 460 of the Corporation Tax Act 2010 has been made or released by the Company and there is no agreement or arrangement for such loan advance or debt to be made or released. The Company has not met any expenses for participators treated as a distribution by virtue of section 1064 of the Corporation Tax Act 2010 and there has been no alteration of the share or loan capital of the Company within section 98 of the Inheritance Tax Act 1984 (" IHTA ").The Company has not made any transfers of value within sections 94 and 202 of the IHTA, nor has it received any value such that a liability might arise under section 199 of the IHTA, nor has it been a party to associated operations in relation to a transfer of value as defined in section 268 of the IHTA.

 

16.17.1 No person has acquired any securities, any securities option or any interest in securities (in each case, within the meaning of Part 7 of the Income Tax (Earnings and Pensions) Act 2003) where the right or opportunity to acquire the same is or was available by reason of an employment of that or any other person for the purposes of that Part.

 

16.18          The Company has not received any asset as mentioned in section 282 of the TCGA

 

16.19          So far as the Seller is aware, there are no circumstances whereby any such power as is mentioned in section 212 of the IHTA could be exercised in relation to any shares in, securities of, or assets of the Company.

 

16.20          There is no unsatisfied inheritance tax liability attached to the Sale Shares or any asset of the Company and none of them are subject to any HMRC charge as mentioned in section 237 and 238 of the IHTA.

 

16.21          So far as the Seller is aware, all arrangements, transactions or series of transactions between the Company and any person connected to or associated with the Company have been and are on arm's length terms, and the Company is not, nor has it been, liable to have its profits for Tax purposes adjusted pursuant to Part 4 of the Taxation (International and Other Provisions) Act 2010 (provisions not at arm's length).

 

16.22          The Company has not been involved in a demerger to which a chargeable payment under Chapter 5 of Part 23 of the Corporation Tax Act 2010 could arise.

 

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Schedule 4
Adjustment to the Consideration

 

Part 1 - Calculation of Adjustment

 

In this Schedule, unless the context otherwise requires:

 

" Adjustment " means the amount calculated and payable in cash by the Purchaser or the Seller (as the case may be) in accordance with this Schedule 4;

 

Company’s auditors” for the purposes of this Schedule 4 shall be the auditors of the Company current as at the Completion Date;

 

“Completion Balance Sheet” has the meaning given to it in paragraph 5(a) below;

 

" Net Working Capital " has the meaning given to it in paragraph 2 below; and

 

" Net Working Capital Statement " has the meaning given to it in paragraph 5(d) below.

 

1. The Adjustment to the Consideration shall be calculated and payable as follows:

 

(a) if the Net Working Capital is more than £57,000 the Adjustment payable by the Purchaser to the Seller shall be equal to 47.475% of the amount by which Net Working Capital is more than £47,000 and

 

(b) if the Net Working Capital is less than of £37,000 (i.e the deficit in Net Working Capital is more than £10,000 below the target Net Working Capital of £47,000) the Adjustment repayable to the Purchaser by the Seller shall be equal to 47.475% of the amount by which the Net Working Capital is less than £47,000.

 

2. For this purpose, " Net Working Capital " means the consolidated net working capital of the Company and the Subsidiary as at the Completion Date as adjusted and ascertained in accordance with the following provisions of this Schedule 4 and set out in the agreed or determined Net Working Capital Statement;

 

3. The Net Working Capital shall be ascertained from the Completion Balance Statement which shall be prepared:

 

(a) in accordance with the specific accounting treatments set out in Paragraph 5(c) of this Schedule 4; and, subject thereto.

 

(b) subj ect to paragraph 5(c) of this Schedule 4, in accordance with the treatments, methods, practices, policies and principles adopted by the Company and the Subsidiary for the preparation of the Accounts (and for the avoidance of doubt containing a general provision for Taxation);

 

(c) insofar as no treatment, method, practice, policy or principal previously adopted in the Accounts as referred to in (b) above, such, treatment, method, practice, policy or principal which complies with generally accepted accounting principles applied in the UK, incorporating Statements of Standard Accounting Practice, Financial Reporting Standards and Urgent Issues Task Force Abstracts issued by the Accounting Standards Board including in relation to the exercise of accounting discretion and judgement.

 

4. For the avoidance of doubt:

 

(a) paragraph 3(a) shall take precedence over paragraphs 3(b) and 3(c); and

 

(b) paragraph 3(b) shall take precedence over paragraph 3(c).

 

5. For the purposes of calculating the Net Working Capital:

 

(a) the parties in conjunction with Hugh Doherty, Laurence Seymour and Oliver Bengough shall undertake a joint stock take of the Subsidiary in the morning of the day immediately following the date of this Agreement to ascertain the level of stock in the Subsidiary and the Seller shall in conjunction with Hugh Doherty and Laurence Seymour procure as soon as practicable (and in any event no later than 30 days after Completion) the preparation of a consolidated balance sheet of the Companies as at the date of this Agreement in the form set out in part 3 of this Schedule 4 and otherwise in accordance with this Schedule (the " Completion Balance Sheet ") which shall be prepared by the Seller in conjunction with Hugh Doherty and Laurence Seymour and have been approved by the Companies auditors;

 

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(b) the Completion Balance Sheet shall only take account of information available to the parties at the date of delivery of the Net Working Capital Statement from the Seller to the Purchaser in accordance with paragraph 6 below (the " First Delivery Date ") and not take account of any event happening after the First Delivery Date (except in relation to information known to the parties about that event at the First Delivery Date);

 

(c) the Completion Balance Sheet shall not take account of:

 

(i)          any event happening after Completion (save that information allowing a more accurate quantification of a liability which existed on or before Completion will be taken into account to the extent that such information is available at the First Delivery Date; and

 

(ii)          any matter arising from the change of control of the Company effected by the sale of the Sale Shares and the sale by Hugh Doherty, Laurence Seymour and/or Oliver Bengough of the other shares in the Company to the Purchaser.

 

(d) for the purposes of preparing the Completion Balance Sheet:

 

(i) a provision of £7,500 will be made for any stamp duty land tax payable in relation to a Deed of Variation dated 7 December 2004 between the Company, CGIS Camden Palace Limited and Scottish Courage Limited which effected a variation the Lease to the extent that the relevant stamp duty land tax has not been paid prior to Completion, such amount to include any penalties and interest payable in respect of the late payment of such sum (calculated in reliance on the warranty at Schedule 3 paragraph 6.7 and without prejudice to any claim by the Purchaser under the Tax Covenant or otherwise);

 

(ii) a liability shall be included in the Completion Balance Sheet for any corporation tax on any income, profits or gains earned, accrued or received by the Companies on or before the Completion Date calculated as if the Completion Date were the end of an accounting period of the Companies;

 

(iii) no asset or liability shall be recorded in the Completion Balance Sheet in respect of deferred tax;

 

(iv) stock-in-trade shall be valued at the lower of cost (excluding the cost of warehousing, selling, distribution and administration) and market value (which shall itself be taken as the lower of net realisable value and replacement cost);

 

(v) normal adjustments and allowances will be made for unusable, unsaleable or deteriorated stocks;

 

(vi) the unamortised amount of the contribution by the landlord of the Property by way of any rent free period under the lease of the Property and any contributions towards the refurbishment of the premises shall be excluded from the calculation of the Net Working Capital;

 

(vii) appropriate provisions will be made for bad or doubtful debts;

 

(viii) an accrual shall be included in the Completion Balance Sheet for VAT, general sales tax or other similar sales taxes, payroll taxes (including national insurance contributions) and any tax penalty payments and interest charges thereon where a notice has been raised by HMRC or the relevant payment was paid late or overdue as of the Completion Balance Sheet Date; and

 

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(ix) such further provisions, adjustments and allowances will be made as the Company’s auditors agree to be appropriate.

 

(e) the Company ’s auditors shall be instructed to certify the calculations of the Net Working Capital (based on the amounts shown in the Completion Balance Sheet) and produce a certified statement of the Net Working Capital (the “Net Working Capital Statement” ).

 

6. The Seller in conjunction with Hugh Doherty and Laurence Seymour shall procure that there is delivered to the Purchaser a copy of the Net Working Capital Statement and the Completion Balance Sheet as soon as reasonably practicable after they are prepared and in any event not later than the date falling 30 days after the Completion Date. If the Seller and Hugh Doherty and Laurence Seymour fail to comply with the obligations under this paragraph, the Purchaser will automatically have the right to produce (in conjunction with the Company’s auditors and at the Seller’s cost) the Net Working Capital Statement and the provisions of this schedule shall be read mutatis mutandis.

 

7. Within 30 Business Days of delivery of the certified statement referred to in P aragraph 6, the Purchaser may notify the Seller in writing of any item or items it wishes to dispute, failing which the Net Working Capital Statement shall be final and binding on the parties.

 

8. If the amount of the Net Working Capital Statement is disputed in accordance with P aragraph 7 , the item or items in dispute shall be determined by:

 

(a) such firm of independent chartered accountants as the parties may agree in writing; or

 

(b) failing agreement on the identity of the firm of independent chartered accountants within a further seven days from the expiry of the period referred to above in paragraph 7, such firm of chartered accountants as may be appointed for this purpose on the application of any party to this Agreement by the President for the time being of the Institute of Chartered Accountants in England and Wales.

 

9. The Adjustment shall be payable within 21 days of its being ascertained under the above provisions.

 

10. If the Net Working Capital is less than £37,000 the Adjustment shall be paid by the Seller by payment to the Purchaser’s Solicitors Client Account or such other account as the Purchaser may notify in writing to the Seller in immediately available funds by electronic transfer under the CHAPS system.

 

11. If the Net Working Capital is greater than £57,000 the Adjustment shall be paid by payment to the Seller’s Solicitors Client Account or such other account as the Seller may notify in writing to the Purchaser in immediately available funds by electronic transfer under the CHAPS system.

 

12. The Adjustment shall be deemed to be an increase in or, as the case may be, reduction in the Consideration.

 

13. For the purposes of calculating, determining and agreeing the Net Working Capital in accordance with this Schedule, the parties shall, and (to the extent that they are able) shall procure that the Companies shall provide the Seller and Purchaser, the Company’s auditors and the accountants appointed in accordance with paragraph 8 with all information, assistance and access to books of account, documents, files and papers which they reasonably require.

 

Part 2 - Basis on which Independent Accountants are to act

 

14. The accountants appointed under paragraph 8 of Part 1 above (the " Independent Accountants ") shall act on the following basis:

 

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(a) they shall act as experts and not as arbitrators;

 

(b) their terms of reference shall be to determine an amount which in their opinion represents the item or items in dispute, as notified to them in writing by either the Seller or the Purchaser within 30 Business Days of their appointment;

 

(c) the Seller and the Purchaser shall each provide the Independent Accountants with all information which they reasonably require and the Independent Accountants shall be entitled (to the extent they consider it appropriate) to base their opinion on such information and on the accounting and other records of the Companies;

 

(d) the determination of the Independent Accountants shall (in the absence of manifest error) be conclusive;

 

(e) their costs shall be borne equally as between the Sellers on the one hand and the Purchaser on the other hand; and

 

(f) if they become unwilling or incapable of acting, then a new firm of chartered accountants shall be appointed and the provisions of paragraph 8 above shall apply mutatis mutandis in relation to the making of such appointment.

 

Part 3 – Form of Completion Balance Sheet

 

Completion Net Working Capital
    £     £  
CURRENT ASSETS            
Bank & Cash     X          
Stock     X          
Debtors & Prepayments     X          
              X  
                 
CREDITORS                
Creditors & Accruals     X          
Other Creditors     X          
Directors Loan Account     X          
VAT/NIC/Corporation Tax     X          
              X  
                 
Adjustments:                
[ ]     [X]          
[ ]     X          
              X  
                 
COMPLETION NET WORKING CAPITAL             X  
                 
Other net assets/liabilities excluded from net working capital:     X          
Intangible Fixed Assets     X          
Tangible Fixed Assets     X          
Other Creditors – unamortised Landlord contributions     (X)       X  
COMPLETION NET ASSETS                

 

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Schedule 5
Completion Obligations

 

Part 1 - Seller's Completion Obligations

 

The matters to be undertaken by the Seller at Completion for the purposes of Clause 3.2 are as follows:

 

1. Seller’s Obligations at Completion

 

1.1 At Completion the Seller shall deliver or cause to be delivered to the Purchaser:

 

(a) a transfer in respect of the Sale Shares duly completed in favour of the Purchaser or as it may direct;

 

(b) the share certificates representing the Sale Shares (or an express indemnity in a form satisfactory to the Purchaser in the case of any found to be missing);

  

(c) confirmation that all bank security has been released on or before the Completion Date;

 

(d) appoint such persons as the Purchaser may nominate as Directors of the relevant company; and

 

(e) letters of resignation (expressed to be with effect from the end of the relevant meeting of the Boards of the Company and the Subsidiary from the Seller, acknowledging his resignation as a director of the Companies and that he has no claim outstanding for compensation or otherwise and executed as a deed by him in the agreed form;

 

(f) an original of the Transitional Services Agreement duly signed on behalf of Mint Group Holdings Limited;

 

(g) a release in the agreed form duly executed as a deed by Barclays Bank plc, releasing the Companies from the charge created by the Debenture dated 24 October 2005 between Barclays Bank plc and the Subsidiary and from the obligations of the Subsidiary under the bank facilities provided by Barclays Bank plc to Mint Group Holdings Limited and its subsidiaries;

 

(h) a Land Registry official copy of the Lease and certified copies (or copies of certified copies) of any deed of variation to it;

 

(i) the Deed of Subordination in the agreed form (as referred to in Part 2 1(e) below) duly executed on behalf of the Seller;

 

(j) a Deed of Release in the agreed form duly executed on behalf of each of Mint Bars and Clubs Limited, the Seller, Hugh Doherty, Laurence Seymour, Oliver Bengough and the Company in respect of the release of the Company and the Subsidiary from all obligations under a Demerger Agreement dated 29 th November 2012 between Mint Bars and Clubs Limited, the Company, the Seller, Hugh Doherty, Laurence Seymour and Oliver Bengough.

 

1.2 The Seller shall deliver or cause to be delivered to the Purchaser as agent for the Company:

 

(a) all the Statutory and Minute Books of each of the Companies and their respective Common Seals, Certificates of Incorporation and Certificates of Incorporation on Change of Name (if any); and

 

(b) certificates in respect of all issued shares in the capital of the Subsidiary.

 

1.3 The Seller shall cause a meeting of the Board of each of the Companies to be held at which the appropriate Board shall:

 

(a) accept the letters of resignation referred to paragraph 1.1(e); and

 

(b) (in the case of the Company's Board) vote in favour of the registration of the Purchaser as a member of the Company, subject only to the production of duly stamped and completed transfers in favour of the Purchaser in respect of the Sale Shares.

 

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Part 2 - Purchaser's Completion Obligations

 

1. The Completion

 

The matters to be undertaken by the Purchaser for the purposes of the Completion pursuant to Clause 3.3 are as follows:

 

(a) pay to the Seller's Solicitors Client Account the sum of £1,104,250 in immediately available funds by electronic transfer under the CHAPS system;

 

(b) deliver to the Seller’s Solicitors a copy of a resolution of the Board of Directors of the Purchaser authorising the execution of and the performance by the Purchaser of its obligations under this Agreement and each of the other documents to be executed by the Purchaser;

 

(c) deliver to the Seller’s Solicitors the Negative Pledge in the agreed form, duly executed on behalf of the Guarantor;

 

(d) a Deed of Subordination in the Agreed Form executed by each of the Purchaser, the Guarantors and JJAT Corporation in favour of the Seller pursuant to which the Guarantors and JJAT Corporation agree to subordinate any claims it has (whether for monies loaned, sums owed or any other claim whatsoever) behind all and any claims which the Seller may have against the Purchaser.

 

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Schedule 6
Limitations on Liabilities under the Warranties, Tax Covenant and Indemnity

 

Exclusions

 

1. The Seller shall not be liable in respect of a Warranty Claim to the extent that the matter or circumstance giving rise to that claim:

 

(a) was taken into account in the Completion Balance Sheet prepared for the purposes of determining the Net Working Capital by way of an identified (as opposed to general) provision in respect of such matter or circumstance or a note constituting Disclosure of that matter or circumstance or a statement in any report forming part of the Accounts constituting Disclosure of that matter or circumstance; or

 

(b) is the subject of a claim under the Tax Covenant and the Purchaser receives a payment in respect thereof under the Tax Covenant.

 

2. The Seller shall not be liable in respect of a Warranty Claim to the extent that the relevant liability arises or is increased by:

 

(a) a change in legislation announced, or the withdrawal of any extra-statutory concession previously made by any Taxation Authority, after the Completion Date (whether or not the change or withdrawal purports to be effective retrospectively in whole or in part); or

 

(b) a change after the Completion Date in the accounting policies, practices, treatments or methods adopted by the Company (other than a change made in order to comply with generally accepted accounting principles applied in the UK, incorporating Statements of Standard Accounting Practice, Financial Reporting Standards and Urgent Issues Task Force Abstracts issued by the Accounting Standards Board to the extent that the Company did not comply with such generally accepted accounting principles applied in the United Kingdom prior to the Completion Date;

 

(c) in respect of Tax Warranties only, a change in the nature of, transfer, winding up or cessation of a trade or business carried on by the Company after the Completion Date;

 

(d) the Company or the Subsidiary failing to maintain the levels of insurance applicable to the Company at the Completion Date at the date the Warranty Claim was made;

 

(e) the Company or the Subsidiary having done (or omitted to do) something before the Completion Date at the Purchaser’s written request or with the Purchaser’s prior written consent;

 

or is otherwise subject to the provisions of Schedule 6.

 

Direct Claims .

 

3. If the Purchaser becomes aware of facts which appear reasonably likely to give rise to a Warranty Claim against the Seller (other than any Third Party Claim governed by paragraph 10 of this Schedule 6), the Purchaser shall, as reasonably practicable, give the Seller written notice in reasonable detail, given the extent of the information available to the Purchaser, of all relevant circumstances with respect to the Warranty Claim. Except in any case where, in the reasonable belief of the Purchaser, immediate action is required by Purchaser to avoid further prejudice to the Purchaser, the Seller shall have twenty days from the date of the notice to remedy or cure the Warranty Claim.

 

This paragraph 3, and permitting the Seller the opportunity to undertake remedial action pursuant to this paragraph is without prejudice to:

 

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(a) the rights of the Seller under paragraph 10 (Third Party Claims) of this Schedule 6; and

 

(b) the rights and remedies of the Purchaser pursuant to this agreement to the effect that if the remedy or cure is not, in the reasonable opinion of the Purchaser, satisfactory or complete, or if the Seller fails or refuses to undertake and complete a remedy or cure within the20 day period specified above, the Purchaser shall thereafter have all rights and remedies with respect to the Seller afforded to the Purchaser under this Agreement pursuant and subject to the remaining provisions of this Schedule 6 or applicable law to recover with respect to the Warranty Claim.

 

De minimis claims

 

4. Subject to paragraph 4, the Seller shall not be liable in respect of any Warranty Claim unless the liability in respect of the Warranty Claim is at least £10,000.

 

5. If more than one Warranty Claim arises from, or is caused by, the same or similar matter, matters, circumstance or circumstances and the aggregate amount of damages to which the Purchaser would be entitled as a result of those Warranty Claims is equal to or exceeds the sum specified in paragraph 3, paragraph 3 shall not apply to any of those Warranty Claims.

 

Threshold

 

6. The Seller shall not be liable in respect of any Warranty Claim unless the liability of that Warranty Claim, together with the aggregate liability of all other single Warranty Claims of £10,000 or more exceeds 47.475% of £200,000, in which case the Purchaser shall be entitled to all amounts resulting from those claims (and not just the excess over that sum).

 

Aggregate limit

 

7. Subject to paragraph 6, the maximum aggregate liability of the Seller in respect of:

 

(a) any and all liability in relation to Warranty Claims (excluding any and all claims under those Warranties set out in paragraph 16 (Tax) of Schedule 3 ( Warranties ) or the Key Warranties but including all costs of recovery incurred by the Purchaser and/or the Companies) shall not exceed:

 

(i) 47.475% of the total liability for breach of the relevant Warranty; and

 

(ii) in aggregate as regards the total amount claimed against the Seller an amount equal to 50% of the Consideration;

 

(b) any and all liability in relation to the Warranties set out in paragraph 16 (Tax) of Schedule 3 including all costs of recovery incurred by the Purchaser and/or the Companies shall not exceed 47.475% of the total liability for breach of the relevant Warranty set out in paragraph 16 (Tax)

 

(c) any and all claims under the Key Warranties, or those Warranties set out in paragraph 16 (Tax) of Schedule 3 ( Warranties ), or the indemnities in clause 4.10 and/or under the Tax Covenant (including in each case any costs of recovery) shall not exceed, when added together with any liability in respect of any Warranty Claim, an amount equal to 100% of the Consideration.

 

Actual Loss

 

8. No payment shall be due from the Seller in respect of a Proven Claim until actual loss in relation to the Warranty Claim has been suffered by the Purchaser or the Company (as the case may be) as a consequence of the matter which is the subject of the Warranty Claim.

 

Time limits

 

9. The liability of the Seller in respect of the Warranties and the Tax Covenant shall terminate:

 

(a) subject to paragraph 9(b) below, in relation to a Warranty Claim if notice of such claim has not been given within 15 calendar months of the date of this Agreement.

 

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(b) in relation to those Warranties set out in paragraph 16 (Tax) of Schedule 3 ( Warranties ) and of any other Warranties so far as they relate to Taxation or in respect of the Tax Covenant notice of such claim has not been given before the fifth anniversary of Completion; and

 

(c) in relation to a Warranty Claim (other than one relating to the Warranties set out in paragraph 16 (Tax) of Schedule 3 ( Warranties ) or which relates to Taxation) which has not been resolved on or before six months from the date on which the Purchaser first served written notice on the Seller unless the Purchaser has by then issued and served legal proceedings in respect of the Warranty Claim on the Seller or, if later, in relation to a Warranty Claim where notice has been served in accordance with, and within the time periods set out in either sub-paragraph (a) or (b) above but in circumstances where no actual loss has been suffered by the relevant party at the time of the notification of the claim, the date being six months from the date upon which the actual Loss has been suffered by the relevant party, the date being the date upon which the actual loss has been suffered by the third party

 

Provided Always that the Seller shall have no liability in respect of an amendment or addition to a Warranty Claim in legal proceedings which would constitute a Warranty Claim other than the original Warranty Claim unless notice of the circumstances giving rise to the amendment or addition was served on the Seller before the date set out in paragraph 9(c) above.

 

10. Conduct of Third Party Claims

 

10.1 The Purchaser shall procure that, if either it or the Company or Subsidiary becomes aware of a claim by a third party which appears to it reasonably likely to give rise to a Warranty Claim (a “Third Party Claim”) or that it is likely (in the Purchaser’s reasonable opinion) to be entitled to make a recovery from a third party in respect of circumstances which have given or are likely to give rise to a Third Party Claim, it shall:

 

(a) as soon as reasonably practicable give to the Seller written notice in reasonable detail given the extent of the information available to the Purchaser of all relevant circumstances and consult with the Seller in relation to those circumstances;

 

(b) keep the Seller informed of material advice received and material developments which would be likely to affect the amount the subject of a Third Party Claim;

 

(c) shall not and shall procure that neither the Company nor the Subsidiary shall admit or concede liability or agree a compromise or settlement with a third party without first obtaining the Seller’s written agreement;

 

(d) save where to do so may breach legal or professional privilege of the Purchaser or the Companies, give the Seller and his advisers reasonable access to the premises and personnel of the Purchaser or the Companies as they may reasonably require and opportunity to examine and copy relevant documents and records and photograph premises, asset or personnel within the control of the Purchaser or the Companies and, if required by the Seller, procure that all personnel of the Purchaser or the Companies having knowledge of or involvement with the facts and circumstances giving rise to the Third Party Claim afford the Seller all reasonable assistance to properly resist, contest, defend or appeal against the Third Party Claim;

 

(e) take such action as the Seller requires in relation to the Third Party Claim and permit the Seller (in his own name or in the name of the Purchaser, Company or Subsidiary or in any combination of those names) to conduct, settle, compromise, defend or appeal relevant proceedings and to enforce any relevant rights and entitlements;

 

(f) use all reasonable endeavours itself, and will procure that the Companies each use their respective reasonable endeavours, to mitigate its or their loss which is or is likely to become the subject matter of a Third Party Claim (but for the avoidance of doubt the Purchaser shall not be required to take any steps that may increase the amount of any future Tax liability of the Companies or utilise any Relief of the Companies)

 

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10.2 subject to the Seller having complied with the provisions of paragraph 10.4, without limiting the provisions of sub-paragraph 10.1. where having discharged a liability arising in respect of a Third Party Claim, the Seller requests the assignment to it of any right of the Purchaser or of the Company or Subsidiary to make recovery in whole or in part from any third party, the Purchaser will assign or procure the assignment to the Seller of such right and, if that right is not legally capable of effective assignment will pursue such right on behalf of the Seller and promptly pay over and account to the Seller all amounts recovered

 

10.3 subject to the Seller having complied with the provisions of paragraph 10.4 and a Third Party Claim having been notified in writing to the Purchaser, the Purchaser shall use reasonable endeavours to procure that it and the Companies shall preserve within its control originals (where it is so entitled) or (in every other case) copies of all documents and other material information relevant to matters giving rise to the Third Party Claim or a right of recovery from a third party in respect of matters which may give rise to Third Party Proven Claim relating to the relevant Third Party Claim.

 

10.4 The Seller shall indemnify the Purchaser to its reasonable satisfaction in respect of all liabilities, costs, charges and expenses that are reasonably and properly incurred by the Purchaser or any of the Companies as a consequence of it complying with its obligations under this paragraph 10 or as a consequence of any actions taken at the request of the Seller in accordance with this paragraph 10.

 

10.5 Nothing in this paragraph 10 shall require the Purchaser or the Companies to take any action or refrain from taking any action, if the Purchaser in its reasonable opinion and acting in good faith considers such action or omission is or is likely to be materially prejudicial to the goodwill or business of the Purchaser’s Group.

 

Mitigation

 

11. Nothing in this agreement shall be deemed to relieve the Purchaser from any common law duty to take reasonable steps to mitigate any loss or damage suffered or incurred by it as a result of any of the Warranties being untrue or inaccurate or imposed any higher duty on the Purchaser to mitigate its loss beyond its common law duties.

 

Recovery from third parties

 

12.          If:

 

(a) the Seller makes a payment in respect of a Warranty Claim (a “ Damages Payment ”);

 

(b) following the making of such payment any of the Companies or the Purchaser receives any sum other than from that Seller or Oliver Bengough, Hugh Doherty or Laurence Seymour which would not have been received but for the matter or circumstance giving rise to the relevant Warranty Claim (the “ Third Party Sum ”);

 

(c) the receipt of the Third Party Sum was not taken into account in calculating the Damages Payment; and

 

(d) the aggregate of the Third Party Sum and the Damages Payment exceeds the amount required to compensate the Purchaser or the Companies concerned (as the case may be) in full for the matter or circumstance which gave rise to the relevant Warranty Claim (such excess being the “ Excess Recovery ”),

 

the Purchaser shall within 10 Business Days following receipt of the Third Party Sum by it or the Companies concerned, repay to the Seller an amount equal to the lower of 47.475% of (i) the Excess Recovery and (ii) the Damages Payment, after deducting (in either case) all costs incurred by the Purchaser or the Companies concerned in recovering the Third Party Sum and any and all Taxation payable by the Purchaser or the Companies concerned by virtue of its receipt.

 

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Schedule 7
Tax Covenant

 

1. Definitions and interpretation

 

1.1 In this Schedule, unless the context otherwise requires, the following words have the following meanings:

 

"Claim for Taxation" means any notice, demand, assessment, letter or other document issued or action taken by or on behalf of any Tax Authority or any person (including the Company) indicating that any person is or may be placed or sought to be placed under either a liability to Taxation or a claim for Taxation to which paragraph 5 may apply.

 

"CTA 2010" means the Corporation Tax Act 2010.

 

"Event" means any event, deed, transaction, act, omission, payment or receipt and whether actual or deemed for Tax purposes, including entering into this Agreement and including any combination of two or more Events.

 

"Group Companies" means the Company and the Subsidiary and reference to " Group Company " means any one of them.

 

"ICTA" means the Income and Corporation Taxes Act 1988.

 

"ITA" means the Income Tax Act 2007.

 

"Profits" means income, profits and gains, the value of any supply and any other consideration, value, measure or receipt used or charged for Taxation purposes and references to " Profits earned, accrued or received " include Profits deemed to have been earned, accrued or received for Taxation purposes.

 

"Tax Claim" means a claim by the Purchaser against the Sellers under the Tax Covenant or for breach of any of the Tax Warranties or, as the case may be, a claim by the Sellers against the Purchaser under the covenant in paragraph 5.

 

"Tax Counsel" means a barrister of at least 7 years call, experienced in tax matters.

 

"Sellers’ Associate" means any Sellers and any other person with whom the Sellers and/or the Company is either associated (within the meaning of section 448, CTA 2010) or connected (within the meaning of section 1122, CTA 2010 or, as the case may be, section 993, ITA).

 

"Sellers’ Representative" means Hugh Doherty.

 

1.2 In this Schedule:

 

(a) a reference to a jurisdiction shall include any union (including for the avoidance of doubt, the European Union), country, state, province, district or division of whatever nature which imposes or raises Taxation;

 

(b) a reference to any law shall include any statute, statutory instrument, law, regulation, treaty, notice, directive or similar provision relating to Taxation, whether of the United Kingdom or elsewhere; and

 

(c) references to specific parts of the law of the United Kingdom shall be taken to include a reference to the law of any other jurisdiction so far as the same may apply to any Group Company and may be similar to or have a similar purpose to the law of the United Kingdom to which reference is made.

 

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2. Tax Covenant

 

2.1 Save as hereinafter provided, the Seller hereby covenants to pay to the Purchaser such amount as is equal, on an after Tax basis (but subject to paragraph 4.4. of Schedule 11) , to 47.475% of :

 

(a) any liability to Tax of the Company or the Subsidiary (including any liability which would have been payable but for the application or set off of any Relief against a liability to Tax, other than any Relief arising to the Company or the Subsidiary on or before the date of this Agreement but which is not shown as an asset in the Completion Balance Sheet or taken into account in computing any corporation tax provision in the Completion Balance Sheet) arising in respect of or as a consequence of or by reference to:

 

(i) any income, profits or gains actually or deemed to be earned, accrued or received by the Company or the Subsidiary on or before the date of this Agreement; or

 

(ii) any Event occurring or deemed to occur on or before the date of this Agreement; or

 

(iii) the failure by any other person connected for Tax purposes with or in the same group as the Company or the Subsidiary for any Tax purpose at any time before the date of this Agreement (the "Pre-Completion Connection" ) to discharge a liability to Tax which falls on the Company or the Subsidiary as a result of that Pre-Completion Connection for which the Company or the Subsidiary is not primarily liable; or

 

(iv) the sale of Sale Shares under this Agreement and any payments to the Seller in respect thereof; or

 

(v) arrangements made in connection with the transfer of the Subsidiary to the Company; or

 

(b) any liability to Tax of the Company or the Subsidiary arising as a result of:

 

(i) any acquisition of a chargeable interest before the date of this Agreement (whether deemed or actual) in relation to which stamp duty land tax compliance (including, but not limited to the preparation and filing of necessary returns, and the payment of any stamp duty land tax due) has not been properly or duly undertaken; or

 

(ii) the submission or amendment (or notice of amendment) of any form or notice for stamp duty land tax purposes after the date of this Agreement where a land transaction return was submitted prior to the date of this Agreement calculating stamp duty land tax by reference to an estimate except where such submission or amendment is required as a result of an Event outside of the ordinary course of business of the Company or the Subsidiary after the date of this Agreement which gives rise to or increases any stamp duty land tax;

 

(c) the loss of any Relief shown as an asset in the Completion Balance Sheet; or

 

(d) any inheritance tax which is at the date of this Agreement or which subsequently becomes as a result in whole or in part of a transfer of value occurring on or before the date of this Agreement a charge or encumbrance on any of the Sale Shares or assets of the Company or the Subsidiary; or

 

(e) any liability of the Company or Subsidiary to pay for Group Relief or to repay, in whole or in part, any payment previously made for Group Relief pursuant to any arrangement or agreement entered into prior to the date of this Agreement save for any payment or repayment between the Company and the Subsidiary; or

 

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(f) the loss in whole or in part of the right to receive any payment for Group Relief to the extent that such right to payment is provided for as an asset in the Completion Balance Sheet;

 

together with all reasonable costs and expenses incurred by the Company, the Subsidiary or the Purchaser in connection with any successful claim under paragraph 2.1 (a)-(e) above or in successfully taking any action under this Clause unless provision or reserve in respect of the liability has been made in the Completion Balance Sheet.

 

2.2 The provisions of Schedule 6 shall, to the extent specifically provided for under that Schedule, apply to the Seller’s liability under this Schedule as if expressly stated herein save that paragraph 6 shall not apply to any liability falling within paragraphs 2.1(a)(iii) and 2.1(a)(v) of this Schedule.

 

3. Amount of liability to Taxation

 

The amount of any liability under paragraphs 2.1(a) and (b) of the Tax Covenant shall be:

 

(a) in the case of an actual payment of Tax or loss of a repayment, the amount of the payment or repayment;

 

(b) in the case of the loss of a Relief,

 

(i) if the Relief is a right to repayment of Tax, the amount of the repayment that is lost,

 

(ii) the amount of Taxation saved as a result of the loss of the Relief, if the Relief was set off against Profits or set-off and credited against a liability to pay Taxation,

 

(iii) in any other case, the amount of Taxation that would have been saved but for the loss of the Relief on the assumption that the relevant Group Company would have been able to fully utilise the Relief in the accounting period during which the Relief was lost.

 

4. Date for payment

 

4.1 Where the Seller becomes liable to make any payment under the Tax Covenant, the due date for the making of that payment shall be:

 

(a) in a case that involves an actual payment of Taxation by any Group Company, the date that is two Business Days before the last date on which the relevant Group Company is liable to pay to the appropriate Tax Authority the Taxation in question in order to avoid incurring a liability to interest or penalties or, if later, five Business Days following a written demand from the Purchaser giving details of the payment in question;

 

(b) in the case of the set off or application of any Relief against a liability to Taxation, the date that is the date on which the Taxation saved would otherwise have become payable to the relevant Tax Authority the or, if later, five Business Days following a written demand from the Purchaser giving details of the payment in question;

 

(c) in the case of costs and expenses, the date falling five Business Days following the date on which the Sellers’ Representative receives a written demand for such amount from the Purchaser together with a copy of the relevant third party invoice; or

 

(d) in any other case, the date falling five Business Days following the date on which the Sellers’ Representative receives a written demand for such amount from the Purchaser.

 

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5. Covenant to Seller

 

5.1 The Purchaser covenants with the Seller to pay to the Seller an amount equal to 2.5% of any Taxation which is assessed on the Seller or on any Seller Associate pursuant to either section 710, CTA 2010 or section 713, CTA 2010 by reason of Taxation assessed on or primarily or directly attributable to the Purchaser, any member of the Purchaser's group, or the Subsidiary, or the Company for any accounting period remaining unpaid provided that this covenant shall not apply to any Taxation in respect of which the Purchaser is entitled to bring a Tax Claim against the Seller or would have been so entitled but for paragraphs 6 (Limitations on liability), 7 (Repayment) and 8 (Over-provisions and Reliefs) below or clause 4.10 of the Agreement (Sellers’ Protections).

 

5.2 The Seller covenants that he shall make no claim under paragraph 5.1 above to the extent that they shall have recovered the Taxation in question under section 717, CTA 2010) and that to the extent that they recover any amount under paragraph 5.1 they shall not seek to recover payment under section 717, CTA 2010.

 

6. Limitations on liability

 

6.1 The liability of the Seller under the Tax Covenant shall be reduced if and to the extent that the liability shall have been recovered under the Warranties or under any other part of the Tax Covenant or Agreement (and vice versa).

 

6.2 The Seller shall not be liable to the Purchaser for a Tax Claim in respect of any liability:

 

(a) to the extent that provision or reserve in respect of that liability was included in the Completion Balance Sheet or the obligation to make payment or discharge of such liability was otherwise taken into account therein in determining the Consideration;

 

(b) to the extent that the liability arises or is increased as a result only of:

 

(i) any increase in rates of Taxation;

 

(ii) any change in law or in the published practice of any Tax Authority;

 

(iii) any change in accounting practice or principles or any change in the bases on which the accounts of the relevant Group Company are prepared except in either case in order to comply with generally accepted accounting practice; or

 

(iv) any change in the date to which the relevant Group Company makes up its accounts ;

 

(c) the liability has been relieved or mitigated because the Seller has procured within a reasonable time for no consideration a surrender of Group Relief to the Company or the Subsidiary, as the case may be;

 

(d) such liability would not have arisen but for a voluntary act or omission carried out or effected by the Company, the Subsidiary or the Purchaser at any time after the date of this Agreement, other than any act or omission carried out or effected:

 

(i) under a legally binding commitment created on or before the date of this Agreement;

 

(ii) in order to comply with any law or in order to comply with generally accepted accounting principles; or

 

(iii) in the ordinary and normal course of the business carried on by the Company;

 

(iv) that is or was required by law;

 

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(e) such liability would not have arisen or would have been reduced but for a failure or omission on the part of the Company, the Subsidiary or the Purchaser after the date of this Agreement to make any claim or election, the making or claiming of which was taken into account in computing the provision or reserve for Taxation in the Completion Balance Sheet;

 

(f) there is or is made available to the relevant Group Company (at no cost to the Buyer or the relevant Group Company) to relieve or mitigate such liability to Taxation any Relief arising to the Company or the Subsidiary on or before the date of this Agreement but which is not shown as an asset in the Completion Balance Sheet or taken into account in computing any corporation tax provision in the Completion Balance Sheet;

 

(g) the Purchaser or the relevant Group Company has already been compensated in respect of such Liability to Taxation at no cost to the Purchaser or relevant Group Company;

 

(h) such Liability to Taxation can be properly and fully discharged out of monies deducted for the purpose from sums payable or paid by any Group Company provided the Company still holds the monies at the date of this Agreement to discharge the Liability to Taxation; or

 

(i) it arises or is increased as a consequence of any failure by the Purchaser or the any Group Company to comply with any of their respective obligations under the Agreement in so far as it relates to Taxation.

 

7. Repayment

 

7.1 If the Seller shall make any payment to the Purchaser in relation to any Tax Claim and the Purchaser or any Group Company subsequently receives from any Tax Authority or any person (other than another Group Company) any amount referable to the subject matter of that Tax Claim, the Purchaser shall, once it or any Group Company has received such amount, repay (after deducting the costs and expenses of the Purchaser or any Group Company incurred in recovering such amount and any Taxation payable on it or on any interest) to the Seller either:

 

(a) a sum equal to 47.475% of such amount to the Seller; or

 

(b) if lesser a sum equal to the Tax Claim paid by the Seller to the Purchaser,

 

together with any interest paid to the Purchaser or the relevant Group Company in respect of such sum.

 

8. Over-provision and Reliefs

 

8.1 If on or before the fourth anniversary of the date of this Agreement, the auditors for the time being of the relevant Group Company shall confirm in writing (on instruction of the relevant Group Company but at the request and expense of the Sellers) that (applying the same policies, principles and practices as used in preparing the Completion Balance Sheet) any provision for Taxation (excluding any provision for deferred taxation) on the balance sheet in the Completion Balance Sheet (other than by reason of the availability of a Relief arising after the date of this Agreement and ignoring the effect of any change in law made after the date of this Agreement) has proved to be an over-provision and that over-provision reduces a liability to make an actual payment of Tax of the relevant Group Company or the Purchaser (other than a liability for which the Purchaser would be entitled to bring a Tax Claim), then an amount equal to 2.5% of the amount of such over-provision shall be dealt with in accordance with paragraph 8.3.

 

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Reliefs

 

8.2 If on or before the fourth anniversary of the date of this Agreement, the auditors for the time being of the relevant Group Company shall confirm in writing (at the request and expense of the Seller) that any liability which has resulted in a payment having been made or becoming due from the Seller under the Tax Covenant will give rise to a Relief for a Group Company (other than a Relief arising after the date of this Agreement) which would not otherwise have arisen, then as and when such Relief reduces a liability to make an actual payment of Tax (other than a liability for which the Purchaser would be entitled to bring a Tax Claim), the amount of that reduction shall be dealt with in accordance with paragraph 8.3 below.

 

Conduct

 

8.3 Where it is provided under paragraphs 8.1 or 8.2 that any amount (the "relevant amount") is to be dealt with in accordance with this sub-paragraph:

 

(a) the relevant amount shall first be set-off against any payment then due from the Seller under the Tax Covenant;

 

(b) to the extent that there is an excess, a refund shall be made to the Seller of any previous payment made by the Seller under the Tax Covenant (to the extent not previously refunded under this paragraph 8) up to the amount of such excess; and

 

(c) to the extent that the excess referred to in paragraph 8.3(b) above is not exhausted under that paragraph, the remainder of the excess shall be carried forward and set off against any future payment or payments which become due from the Seller under the Tax Covenant.

 

8.4 Where any written confirmation referred to in paragraphs 8.1 or 8.2 has been made, the Seller or the Purchaser or the Company may request, at the sole expense of the party making the request, the auditors to review such written confirmation in the light of all relevant circumstances, including any facts which have become known only since such written confirmation, and to certify whether such written confirmation remains correct or whether the amount in such written confirmation should be amended.

 

8.5 If the auditors certify under paragraph 8.4 that an amount previously determined should be amended, that amended amount shall be substituted for the purposes of paragraph 8.3 as the relevant amount in respect of the written confirmation in question in place of the amount originally included, and such adjusting payment (if any) as may be required shall be made as soon as practicable by the Seller to give effect to the revised amount.

 

9. Claims Procedure

 

9.1 On the Purchaser or the Company becoming aware of a Claim for Taxation which may result in a Tax Claim the Purchaser shall:

 

(a) as soon as reasonably practicable (but not as a condition precedent to the making of a Tax Claim) give written notice of that Claim for Taxation to the Sellers’ Representative or, as the case may be, shall procure that the Company forthwith give written notice of that Claim for Taxation to the Sellers’ Representative;

 

(b) subject always to the terms of this paragraph 9 and the Seller indemnifying the Purchaser and/or the relevant Group Company to its reasonable satisfaction against all losses, costs, damages and expenses, which may be incurred (and promptly reimbursing any costs actually incurred), procure that the Company take such action and give such information and assistance in connection with the affairs of the Company as the Sellers’ Representative may reasonably and promptly by written notice request to avoid, resist, appeal or compromise the Claim for Taxation; and

 

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(c) procure that the Sellers’ Representative is promptly provided with copies of any material correspondence with the Tax Authority.

 

9.2 The Purchaser shall not be obliged to procure that the relevant Group Company appeals against any tax assessment if, the Sellers’ Representative, having been given written notice of the receipt of that Claim for Taxation in accordance with paragraph 9.1 above, the Purchaser has not within 21 days (or, if there is a statutory time limit of not more than 30 days, within 14 days) thereafter received instructions promptly in writing from the Sellers’ Representative, in accordance with the preceding provisions of this paragraph 9, to make that appeal.

 

9.3 The Purchaser shall not be obliged to procure that the relevant Group Company take any action under paragraph 9.1 above which involves contesting any matter with any Tax Authority (excluding the authority or body demanding the Tax in question) or any court or tribunal unless the Sellers’ Representative furnishes the Purchaser with the written opinion of Tax Counsel to the effect that the appeal in question will, on the balance of probabilities, succeed. Such Tax Counsel shall be instructed by the Sellers' Representative and at the Seller’s expense but the Sellers’ Representative shall promptly provide the Purchaser with a copy of such instructions and give the Purchaser or its representative a reasonable opportunity to attend any conference with Tax Counsel.

 

9.4 The Purchaser agrees to delegate the conduct of the submission of any stamp duty land tax documentation or returns (which relate to any period prior to Completion) to any Tax Authority in respect of the Lease of the Property (and any action, negotiations, returns, correspondence or other documentation that follow from any such submission) to the Seller and the Seller’s Representative and paragraphs 9.1(b) and (c) above shall apply as if any such action, documentation, returns, correspondence or negotiations are a “Claim for Taxation” for eh purpose of those paragraphs and paragraph 9.1(b) shall apply as if it includes an agreement to delegate all such matters to the Seller and the Seller’s Representative. The Purchaser agrees, and agrees to procure that the Company, shall not submit any documentation, returns or correspondence to, or enter into negotiations with any Tax Authority in respect of the Lease of the Property without the Seller’s prior written approval, such approval not to be unreasonably withheld.

 

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10. Tax Returns

 

10.1 The Seller or his duly authorised agent shall at the relevant Group Company's expense (to the extent provided for in the Completion Balance Sheet) prepare the corporation tax returns (including all computations and the provision of financial information, together with all necessary claims, elections, surrenders and notices required for such returns) of the Company and the Subsidiary for all the accounting periods ended on the Accounts Date to the extent that they have not been prepared prior to Completion. The Seller or his duly authorised agent shall, at the relevant Group Company’s expense (to the extent provided for in the Completion Balance Sheet) also deal with all matters (including correspondence) relating to such corporation tax returns provided that the Sellers’ Representative shall provide the Purchaser with copies of any correspondence relating to such tax returns prior to submission, and copies of any correspondence from the relevant Tax Authority. The Seller shall give the Purchaser a reasonable opportunity to comment on such correspondence prior to submission and shall take account of the Purchaser’s reasonable comments.

 

10.2 The Purchaser shall procure that the Company and the Subsidiary shall cause the tax returns mentioned in paragraph 10.1 above to be authorised, signed and submitted to the relevant Tax Authority without amendment or with such amendments as the Sellers’ Representative shall reasonably agree provided that the Purchaser shall not be obliged to procure that the Company or the Subsidiary takes any such action as is mentioned in this paragraph 10 in relation to any tax return that is not true and accurate in all material respects or conflicts with anything agreed in respect of the Completion Balance Sheet.

 

10.3 The Purchaser shall provide the Sellers’ Representative with a copy of the corporation tax return relating to the accounting period current at Completion at least 28 days prior to the date for submission of that corporation tax return. The Purchaser shall give the Seller a reasonable opportunity to comment on such return prior to its submission to the relevant Tax Authority and shall take account of the Sellers’ Representative reasonable comments in relation to any period ending on or prior to the Completion.

 

10.4 The Purchaser shall upon reasonable notice (having regard to the circumstances) being given by the Seller procure that the relevant Group Company shall afford such access to such information and is given such assistance as is necessary and reasonable to enable the Seller or his duly authorised agent to prepare those tax returns and conduct matters relating thereto in accordance with the Sellers’ rights under this paragraph 10.

 

10.5 The Purchaser shall procure that the relevant Group Company shall at the reasonable request of the Sellers’ Representative do all such things which may be reasonably necessary to ensure that full effect is given to any claim, surrender or election made to or by the relevant Group Company and which is reflected or taken into account in the Accounts or the Completion Balance Sheet including for the avoidance of doubt signing and submitting any revised claim, election or surrender and progressing any such claim, surrender or election or revised claim surrender or election with the relevant Tax Authority.

 

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Schedule 8
Protective Covenants

 

1. The Seller covenants with the Purchaser and the Company and the Subsidiary as Third Parties that he shall not:

 

(a) for a period of twenty-four calendar months after Completion be concerned in any business carrying on business within the Relevant North London Boroughs that involves the operation of live music venues with a capacity of 500 or more people; or

 

(b) for a period of two years after Completion:

 

(i) canvass, solicit, induce or attempt to induce any person who is at Completion a director or employee of the Company earning over £50,000 per annum (a “ key employee ”) to leave the employment of the Company; or

 

(ii) employ or attempt to employ any person who is at Completion a director or key employee of the Company; or

 

(iii) procure or facilitate the making of an offer of employment to any person who is at Completion a director or key employee of the Company;

 

(c) for a period of two years after Completion induce or attempt to induce any person, who is at Completion or has been at any time within the year prior to Completion a supplier of goods or services to the Company, to cease to supply, or to restrict or vary the terms of supply, to that company; or

 

(d) for a period of two years after Completion do or say anything which may lead a person to cease to deal with any of the Companies on substantially equivalent terms to those previously offered or at all; or

 

(e) after Completion do or say anything which is harmful to the reputation of any of the Companies, their shareholders or their officers; or

 

(f) after Completion make use of information of a secret or confidential nature relating to, or to the business or affairs of, any of the Companies; or

 

(g) after Completion (except as required by law or any competent regulatory body) disclose or divulge to any third party any information of a secret or confidential nature relating to, or to the business or affairs of, any of the Companies (save in so far as such disclosure may be necessary in order to enable Mint Group Holdings Limited to carry out its duties and obligations under the Transitional Services Agreement) ; or

 

(h) after Completion use or (insofar as he can reasonably do so) allow to be used (except by the any of the Companies) any trade name, trade or service mark, business or domain name, design or logo used by any of the Companies at Completion or any other name, mark, domain name, design or logo intended or likely to be confused with any trade name, trade or service mark, business or domain name, design or logo used by any of the Companies at Completion; or

 

(i) after Completion present himself or permit himself to be presented as connected in any way with any of the Companies (save in the normal course of his employment by any of the Companies or as a former owner of Sale Shares in the Company ) or as interested in the Shares following Completion .

 

2. For the purposes of this schedule:

 

(a) a person is concerned in a business if it carries on the business as principal or agent or if:

 

(i) he is a partner, director, employee, secondee, consultant or agent in, of or to any person who carries on the business; or

 

(ii) he has any direct or indirect financial interest (as shareholder or otherwise) in any person who carries on the business; or

 

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(iii) he is a partner, director, employee, secondee, consultant or agent in, of or to any person who has a direct or indirect financial interest (as shareholder or otherwise) in any person who carries on the business; or

 

(iv) it is concerned or interested in, or otherwise assists the business in any way;

 

(b) the restrictions in paragraph 1 apply to actions carried out by the Seller in any capacity and whether directly or indirectly on his own behalf or on behalf of, or jointly with, any other person;

 

(c) no regard shall be had to any financial interest of a person in securities which are held for investment purposes only and are listed on a recognised securities exchange if that person, and any person connected with that person (the “ Investors ”) are together interested in securities which amount to less than 5% of the issued securities of that class and which, in all circumstances, carry less than 5% of the voting rights (if any) attaching to the issued securities of that class, and provided that none of the Investors is involved in the management of the business of the issuer of the relevant securities or of any person connected with it otherwise than by the exercise of voting rights attaching to securities .

 

3. Each of the restrictions in each paragraph or sub clause above shall be enforceable independently of each of the others and its validity shall not be affected if any of the others is invalid.

 

4. If any of those restrictions is void but would be valid if some part of the restriction were deleted, the restriction in question shall apply with such modification as may be necessary to make it valid.

 

5. The Seller acknowledges that the above provisions of this schedule are no more extensive than is reasonable to protect the Purchaser as the purchaser of the Sale Shares.

 

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Schedule 10
Property

 

The leasehold property known as Camden Palace Nightclub, Camden High Street, London NW1 0JH.

 

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Schedule 11
Terms and Conditions

 

1. Further Assurance

 

1.1 On or after Completion, the Seller will at his cost and expense, execute and do (or procure to be executed and done by any necessary party) all such deeds, documents, acts and things as the Purchaser may from time to time reasonably require in order to vest any of the Sale Shares set opposite his name in Schedule 1 ( The Seller and Shareholding ) in the Purchaser or its assignee.

 

2. Confidentiality

 

2.1 Subject to paragraph 2.2 below the Seller undertakes to the Purchaser (for itself and for each of the Companies as Third Parties) that he will (both before and after Completion):

 

(a) not at any time after the date of this Agreement use, divulge or communicate to any person other than to officers or employees of the Companies who need to know the same any Confidential Information which may be in or come to his knowledge; and

 

(b) use his reasonable endeavours at the cost of the Purchaser to prevent publication or disclosure of any Confidential Information.

 

2.2 Paragraph 2.1 shall not apply if and to the extent that the Seller, in disclosing Confidential Information, can demonstrate that:

 

(a) such disclosure is required by law or by any securities exchange or regulatory or governmental body having jurisdiction over it (including but not limited to the UK Listing Authority, the London Stock Exchange, the Panel on Takeovers and Mergers and the Serious Fraud Office) and whether or not the requirement has the force of law, provided that the Seller shall promptly notify the Purchaser before such disclosure is made (where it is lawful to do so) and shall co-operate with the Purchaser at the Purchaser’s expense and subject to the Seller being duly secured and indemnified by the Purchaser if the Purchaser wishes to challenge the need for such disclosure or the timing and content of such disclosure; or

 

(b) such disclosure is to a professional or financial adviser for the purpose of advising the Seller in connection with the transactions contemplated by this Agreement, provided that such disclosure is necessary for these purposes, such adviser is made aware of the obligations of this paragraph 2 and such adviser is bound by a duty of confidentiality (whether express or implied); or

 

(c) the Confidential Information concerned has come into the public domain other than through the fault of any person to whom such Confidential Information has been disclosed in accordance with paragraph 2.1

 

Provided always that the restrictions contained in this paragraph 2 shall survive Completion and shall continue without limit of time.

 

3. Announcements

 

The Seller and the Purchaser shall as soon as practicable after Completion procure that a joint announcement of the sale and purchase of the Shares in the agreed form is made. Otherwise no announcement shall be made about the deal without the written approval of each of the parties save to the extent that the Purchase is obliged to report to shareholders or is otherwise required by law or the rules of any listing authority in which event the Seller shall be consulted by the Purchase (who shall consider carefully the inclusion of any comments which the Seller may make) prior to the issuing of such announcement.

 

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4. Payments

 

4.1 Unless otherwise expressly stated all payments to be made under this Agreement shall be made in Sterling to the party to be paid by transfer in immediately available funds by telegraphic transfer for the credit of such account in the United Kingdom as the party to be paid may specify or in such other manner as the parties may agree.

 

4.2 Any payment falling to be made or document falling to be delivered to the Seller under any provision of this Agreement may be made to the Seller’s Solicitors Client Account whose receipt shall be sufficient discharge.

 

4.3 Each payment to be made by the Seller under this Agreement shall be made free and clear of all deductions, withholdings, counterclaims or set-off of any kind except for those required by law.

 

4.4 In the event that:

 

(a) any deduction or withholding is required by law to be made from any sum payable by the Seller to the Purchaser pursuant to this Agreement, the Seller, shall be obliged to pay such increased sum as will, after the deduction or withholding has been made, leave the Purchaser with the same amount as it would have been entitled to receive in the absence of such requirement to make a deduction or withholding unless such withholding or deduction is required by reason of the Purchaser being a US entity and which withholding or deduction would not have been required if the Purchaser had been an entity incorporated in the United Kingdom in which event no further sum in respect of such deduction or withholding will be payable by the Seller; and

 

(b) any sum paid to the Purchaser pursuant to this Agreement, is or will be chargeable to Tax, the Seller, shall be obliged to pay such further sum as will, after payment of the Tax, leave a sum equal to the amount that would otherwise have been payable if Tax had not been so chargeable.

 

5. Costs

 

5.1 Subject to payment of sums pursuant to the Deed of Reimbursement, each party shall pay the costs and expenses incurred by him or it in connection with the entering into and completion of this Agreement.

 

6. Constitution of this Agreement

 

6.1 This Agreement, together with the documents referred to in it, contain the entire agreement between the parties relating to the transactions contemplated by this Agreement and replaces and extinguishes all prior drafts, previous agreements, arrangements and understandings, whether in writing or oral, between the parties relating to these transactions except to the extent that they are repeated in this Agreement.

 

6.2 The Seller acknowledges to the Purchaser, and the Purchaser acknowledges to the Seller, that in agreeing to enter into this Agreement they, he or it has not relied on any representation, warranty, undertaking, promise or other assurance (whether contractual or otherwise) given by or on behalf of the other, except the warranties and undertakings set out in this Agreement, and waives all rights and remedies, which, but for this paragraph might be available to them, him or it in respect of any such representation, warranty or other assurance, provided that nothing in this paragraph shall limit or exclude any liability for fraudulent misrepresentation or fraudulent concealment.

 

6.3 This Agreement may be executed in any number of counterparts, but shall not be effective until each party has executed at least one counterpart, all of which, taken together shall constitute one and the same Agreement and any party may enter into this Agreement by executing a counterpart.

 

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6.4 No variation of this Agreement shall be effective unless made in writing and signed by each of the parties.

 

7. Rights

 

7.1 The rights, powers, privileges and remedies provided in this Agreement are cumulative and are not exclusive of any rights, powers, privileges or remedies provided by law or otherwise.

 

7.2 No failure to exercise nor any delay in exercising any right, power, privilege or remedy under this Agreement shall in any way impair or affect its exercise or operate as a waiver in whole or in part.

 

7.3 No single or partial exercise of any right, power, privilege or remedy under this Agreement shall prevent any further or other exercise or the exercise of any other right, power, privilege or remedy.

 

7.4 The provisions of this Agreement shall remain in full force and effect notwithstanding Completion.

 

8. Liabilities

 

8.1 The Purchaser may release or compromise in whole or in part the liability of any of the Seller under this Agreement or grant any time or other indulgence without affecting its rights or remedies.

 

9. Successors and Assigns

 

9.1 This Agreement shall be binding upon and benefit the successors of the parties but, subject to paragraph 9.2, none of the rights or obligations under this Agreement may be assigned, transferred, sub-licensed, charged or dealt with in any other manner without the prior written consent of all the other parties.

 

9.2 The Purchaser may, after having given prior written notice to the Seller, assign any or all of its benefits under this Agreement to a member of the Purchaser’s Group Provided Always that:

 

(a) if such assignee shall cease to be a member of the Purchaser’s Group, the benefit of this Agreement shall be deemed to have been re-assigned to the Purchaser;

 

(b) the liability of the Seller to the assignee shall not be greater than any liability that the Seller would have had for that matter to the Purchaser.

 

10. Third Parties

 

10.1 Except where expressly stated in this Agreement to the contrary:

 

(a) a person (other than Oliver Bengough, Hugh Doherty, Laurence Seymour or Mint Group Holdings Limited) who is not a party to this Agreement or any of the documents referred to in this Agreement (or his successors or permitted assignees under paragraph 9) has no rights under the Contract (Right of Third Parties) Act 1999 (the “ Act ”) or otherwise to enforce or enjoy the benefit of any term of this Agreement; and

 

(b) no termination, amendment, compromise, waiver or settlement of this Agreement or any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) require the consent of any person who is not a party to it.

 

10.2 Each of the Companies shall be entitled under the Act to enforce any term of this Agreement which expressly or by implication confers any benefit on it and each of the persons described in clause 4.6 shall have the benefit of clause 4.6 under the Act.

 

11. Illegality

 

If any provision of this Agreement shall be held to be illegal, void, invalid or unenforceable under the laws of any jurisdiction, the legality, validity and enforceability of the remainder of this Agreement in that jurisdiction shall not be affected, and the legality, validity and enforceability of the whole of this Agreement in any other jurisdiction shall not be affected.

 

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12. Notices

 

12.1 Any notice or other document to be served under this Agreement may be delivered or sent by registered or recorded post (or equivalent in any other jurisdiction) to the party to be served at his address appearing in this Agreement or at such other address as he may have notified to the other parties in accordance with this paragraph.

 

12.2 Any notice or document shall be deemed to have been served:

 

(c) if delivered, at the time of delivery; or

 

(d) if posted inland, at 10.00 hours on the second Business Day after it was posted; or

 

(e) if posted airmail, at 10.00 hours (local time at the recipient's address) on the fifth Business Day after it was posted.

 

12.3 In proving service of a notice or document it shall be sufficient to prove that delivery was made or that the envelope containing the notice or document was properly addressed and posted (first class if UK inland) as a prepaid registered or recorded post (or equivalent in any other jurisdiction) letter.

 

12.4 The address details of the parties for the purposes of this paragraph are set out in Schedule 9 ( Addresses ).

 

13. Governing law and Jurisdiction

 

13.1 This Agreement and any dispute or claim arising out of or in connection with it or its subject matter (including any dispute or claim relating to non-contractual obligations) shall be governed by and construed in accordance with English law.

 

13.2 The courts of England have exclusive jurisdiction to settle any dispute or claim (" action ") arising out of, or in connection with, this Agreement or its subject matter or formation (including any dispute or claim relating to non-contractual obligations).

 

13.3 Each party irrevocably waives any right that it may have to object to an action being in such courts on the grounds of venue, on the grounds that an action has been brought in an inappropriate or inconvenient forum or that such courts do not have jurisdiction.

 

13.4 Each party agrees that without preventing any other mode of service allowed by law, any document in an action (including, but not limited to, a claim form or any other document to be served under the Civil Procedure Rules in England and Wales) may be served on any party by being delivered to or left for that party at its address for service of notices under Schedule 9 ( Addresses ).

 

13.5 TRINAD Capital Master Fund Ltd irrevocably appoints the Purchaser as its agent for service of process in relation to any English court proceedings in connection with this Agreement and any other agreement or document entered into by it in connection with the Agreement.

 

13.6 Service on the agent (as named above or notified in accordance with this Clause) shall be deemed to be valid service whether or not the process is received by TRINAD Capital Master Fund Ltd.

 

13.7 If the agent changes its address to another address in England, TRINAD Capital Master Fund Ltd shall within five Business Days notify the other parties 1 of the new address.

 

13.8 If the agent ceases to be able to act as agent or to have an address in England, TRINAD Capital Master Fund Ltd shall within five Business Days notify the Seller of the appointment of a new agent acceptable to the Seller, failing which the Seller may serve proceedings on TRINAD Capital Master Fund Ltd by an advertisement in the Financial Times newspaper stating how TRINAD Capital Master Fund Ltd may obtain a copy of the proceedings. The proceedings shall be deemed to be served on the date of publication of the advertisement.

 

Nothing in any of this Agreement or any other agreement entered into by TRINAD Capital Master Fund Ltd in connection with this Agreement shall affect the Seller’s right to serve process in any other manner permitted by law.

 

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Schedule 12
Definitions and Interpretation

 

1. Definitions

 

In this Agreement, unless the context otherwise requires:

 

" Accounts " means all or any one of:

 

(c) the audited balance sheet of the Subsidiary ; and

 

(d) the audited profit and loss account of the Subsidiary;

 

together with the notes to such accounts and the directors reports and the other documents required by law to be annexed thereto;

 

" Accounts Date " means 31 March 2013 ;

 

" agreed form " means, in relation to any document, the form of that document which has been agreed and initialled by or on behalf of the Seller and the Purchaser for the purpose of identification immediately prior to the signing of this Agreement;

 

" Business Day " means any day other than a Saturday or a Sunday or public holiday in England;

 

" Companies " means the Company and the Subsidiary;

 

" Companies Act " means Companies Act 2006 and all other statutes and subordinate legislation from time to time in force concerning companies and other bodies corporate;

 

" Company " has the meaning given to it in Recital (A);

 

" Completion " means completion of the sale and purchase of the Shares in accordance with Clause 3;

 

" Completion Date " means the date of this Agreement;

 

" Confidential Information " means all information in any medium or format of a confidential nature which (i) relates to the Purchaser or (ii) is used in or otherwise relates to any of the Companies or their business, including but not limited to:

 

(a) the accounts, finance or contractual arrangements or other dealings, transactions or affairs or officers, employees or contractors of any of the Companies;

 

(b) the marketing and supply of goods or services, including customer and supplier names and lists and other details of customers and suppliers, sales targets, sales statistics, market share statistics, prices, market research reports and surveys, and advertising or other promotional materials; or

 

(e) future projects, business development or planning, commercial relationships and negotiations;

 

Deed of Subordination ” means a deed of subordination in the agreed form to be entered into between JJAT Corporation (1) the Guarantors (2) the Purchaser and (3) and the Seller, Hugh Doherty and Laurence Seymour in relation to the subordination of any sums owed to JJAT Corporation, its subsidiaries and/or the Guarantor behind the Deferred Consideration which will rank in priority in all respects to such sums as regards payment;

 

" Deferred Consideration Payment Date " means 31 March 2014;

 

Deferred Share ” means a deferred ordinary share of £0.05 in the Company;

 

" Disclosed " means disclosed in accordance with Clause 4.3;

 

" Disclosure Letter " means the letter in the agreed form from the Seller to the Purchaser of the same date as this Agreement and which has been delivered to the Purchaser prior to the signing of this Agreement;

 

" Employment Legislation " means legislation applying in England and Wales affecting contractual or other relations between employers and their current or former employees or workers or applicants for employment or engagement including, but not limited to, any legislation and any amendment, extension or re-enactment of such legislation and any claim arising under European treaty provisions or directives enforceable against the Company by any employee, officer or worker;

 

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" Encumbrance " includes any claim, interest or equity of any person (including any right to acquire, option or right of pre-emption), any debenture, mortgage, charge, pledge, lien, deposit by way of security, restriction, assignment, hypothecation, security interest, option, right of pre-emption or assignment or factoring or similar agreement (including any created by law), title retention or transfer or other security or preferential agreement or arrangement, and any rental, bill of sale, hire purchase, credit sale or other agreement for payment on deferred terms or any agreement or commitment to give or create any of the foregoing;

 

" Group Relief " means:

 

(a) any relief capable of being surrendered or claimed pursuant to Part 5 of the Corporation Tax Act 2010; or

 

(b) any Tax refund capable of being surrendered or claimed pursuant to Section 963 of the Corporation Tax Act 2010 (previously section 102 of the Finance Act 1989); or

 

(c) the notional transfer of any asset or reallocation of a gain or loss in accordance with section 171A or section 179A of the Taxation of Chargeable Gains Act 1992 or any reallocation of a gain in accordance with section 792 of the Corporation Tax Act 2009 (previously paragraph 66 of Schedule 29 to the Finance Act 2002); or

 

(d) any relief the subject of a surrender of eligible unrelieved foreign tax in accordance with The Double Taxation Relief (Surrender of Relievable Tax Within a Group) Regulations 2001 (S.I. 2001 No. 1163); or

 

(e) any other relief available to be transferred or surrendered between or claimed from other members of a group for Tax purposes;

 

holding company ” means a holding company as defined for the purpose of the definition of “subsidiary”;

 

" Immigration Acts " means the Asylum & Immigration Act 1996 and the Immigration, Asylum and Nationality Act 2006 together with any Statutory Instrument or Order made by a Secretary of State in exercise of powers conferred by such acts and any related or accompanying guidance issued by the UK Border Agency or other UK Government Department responsible for immigration from time to time;

 

" Intellectual Property Rights " means:

 

(a) patents, designs, trade marks and trade names (whether registered or unregistered), copyright and related rights, database rights, know how and confidential information;

 

(b) all other intellectual property rights and similar or equivalent rights anywhere in the world which currently exist or are recognised in the future; and

 

(c) applications, extensions and renewals in relation to any such rights;

 

" Lease " means the lease under which the Property is held;

 

" Key Warranties " means the warranties in paragraphs 3, 6, 8.1, 8.2, 8.4, 11.2 and 12.2;

 

" Losses " means " means direct losses, liabilities (including tax), damages, costs, expenses, fines, penalties, legal and other professional fees and costs incurred before, on or after Completion but shall exclude any indirect losses, consequential losses or indirect loss of profits;

 

" Management Accounts " means the unaudited profit and loss accounts of the Subsidiary and the unaudited balance sheet of the Subsidiary (copies of which are attached to the Disclosure Letter) for each month starting on the day after the Accounts Date and ending on 31 December 2013;

 

49
 

  

" Minority Interests Share Sale Agreement " means the agreement in the agreed form, to be entered into between Hugh Doherty, Laurence Seymour and the Purchaser, pursuant to which the Purchaser shall acquire and Hugh Doherty and Laurence Seymour shall sell to the Purchaser the Minority Interest Shares;

 

Minority Interest Shares ” means the shares in the Company registered in the names of Hugh Doherty and Laurence Seymour as identified in Part One of Schedule 2.

 

Negative Pledge and Charge Agreement ” means the Deed in the agreed form pursuant to which TRINAD Capital Fund GP Limited agrees that it will not undertake various actions as set out therein in relation to the assets referred to therein without the prior consent of the Seller and, thereafter, will, if required and at the request of the Seller grant a charge in favour of the Seller in relation to the assets referred to therein;

 

" parties " means the parties to this Agreement and includes their respective successors and permitted assigns;

 

" proceedings " means any action or proceedings before a court or tribunal or a statutory, governmental or regulatory body (including an arbitration) which has the power and authority to hear such action and who have statutory power to deliver and to enforce any judgement that such body may deliver ;

 

" Property " means the property described in Schedule 10;

 

Proven Claim ” means a Warranty Claim or claim under the Tax Covenant against the Seller which is either agreed by the Seller or otherwise finally determined or resolved by a court or tribunal from which no leave to appeal is permitted where such determination is in favour of the Purchaser and which results in a liability being established against the Seller;

 

" Purchaser’s Group " means any of the following from time to time: the Purchaser, the Guarantor, Loton Corporation and any entity controlled or under common control of any of them (including without limitation their subsidiaries and subsidiary undertakings and any holding company of the Purchaser, the Guarantor or Loton Corporation and all other subsidiaries and subsidiary undertakings of any holding company of the Purchaser, including the Companies, the Guarantor or Loton Corporation) and “ member of the Purchaser’s Group ” shall be construed accordingly;

 

" Purchaser's Solicitors " means Wragge & Co LLP, 3 Waterhouse Square, 142 Holborn, London EC1N 2SW;

 

Purchaser’s Solicitors Client Account ” means the client account of Wragge & Co LLP held with Lloyds Bank PLC;

 

Relevant North London Boroughs ” means the London Boroughs of Camden, Islington, Hackney and Haringey;

 

" Relief " shall include any loss, relief, allowance, credit, deduction, exemption or set-off in respect of any Tax or relevant to the computation of any income, profits or gains for the purposes of any Tax, or any right to repayment of or saving of Tax;

 

" Seller’s Solicitors " means Peter Martin of Hollow Combe, Dome Hill Park, Sydenham Hill, London SE26 6SP ;

 

Seller’s Solicitors Client Account ” means the client account of Berwin Leighton Paisner LLP held;

 

" Sale Shares " has the meaning given to it in Recital (B);

 

" Subsidiary " means the company, brief particulars of which are set out in Part 2 of Schedule 2 ( Corporate Particulars );

 

subsidiary ” mean, in relation to a company (the “holding company”) any company in which the holding company (or persons acting on its behalf) controls either:

 

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(a) a majority of the voting rights exercisable at shareholder meetings of that company; or

 

(b) the right to appoint or remove a majority of its board of directors,

 

and any company which is a subsidiary of another company is also a subsidiary of that company's holding company;

 

" Tax " or " Taxation " means:

 

(a) any and all forms of taxes, contributions, levies, imposts, duties or charges in the nature of taxation and all withholdings or deductions in respect thereof of any nature whenever created or imposed and whether of the United Kingdom or elsewhere (including for the avoidance of doubt any liability under section 455 of the Corporation Tax Act 2010 and employee and employer National Insurance Contribution liabilities in the United Kingdom and corresponding obligations elsewhere) chargeable by or accountable or payable to or imposed by, any Tax Authority and whether directly or primarily chargeable against, recoverable from or attributable to the Company or any other person; and

 

(b) all charges, interest, penalties, surcharges and fines incidental or relating to any Taxation falling within (a) above or which arise as a result of the failure to pay any Taxation on the due date or to comply with any obligation relating to Taxation;

 

" Taxation Authority " means HM Revenue and Customs or any other taxing or other authority (whether within or outside the United Kingdom) competent to impose, administer or collect any tax;

 

" Tax Warranties " means each and every warranty contained in the Part of Schedule 3 ( Warranties ) entitled "Taxation";

 

" Tax Covenant " means the provisions of Schedule 7 ( Tax Covenant );]

 

" Third Party " means any person in whose favour any right or benefit under this Agreement is extended by the express use of the term "Third Party", in which case the terms of paragraph 10 of Schedule 11 ( Terms and Conditions ) shall apply;

 

Transitional Services Agreement ” means the agreement to be entered into between Mint Group Holdings Limited (1) and the Subsidiary (2) and to be delivered at Completion;

 

" Warranties " means all and any of the warranties set out in Clause 4 and Schedule 3 ( Warranties );

 

" Warranty Claim " means a claim by the Purchaser the basis of which is that any of the Warranties is, or is alleged to be untrue or inaccurate; and

 

2. Interpretation

 

In, and for the purposes of, this Agreement unless the context otherwise requires:

 

2.1 Gender, Number, Persons etc .

 

(a) The masculine gender shall include the feminine and vice versa.

 

(b) References to any person shall include any individual, body corporate and unincorporated association.

 

(c) References to a company include any company and body corporate, wherever incorporated, and includes any limited liability partnership under the law of the United Kingdom.

 

(d) References to any party include a reference to the estate, legal personal representative, successor, or permitted assigns of that party.

 

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(e) A person shall be deemed to be connected with another if that person is connected with that other within the meaning of section 993 Income Tax Act 2007 and section 1122 Corporation Tax Act 2010.

 

2.2 Currency

 

(c) Sterling is the sole currency of account and payment for all sums payable under or in connection with this Agreement, including damages.

 

2.3 Concerning Warranties

 

Where any statement is qualified by the expression " so far as the Seller is aware " or " to the best of the Seller’s knowledge information and belief " or any similar expression that statement shall be deemed to include an additional statement that it has been made after having made (or authorised the making of) diligent enquiry of each of Oliver Bengough, Hugh Doherty, Laurence Seymour but having made no other enquiry;

 

2.4 Parts of this Agreement

 

(a) Except where the contrary is stated, any reference to a Clause or Schedule or Annexure is to a Clause or Schedule or Annexure of this Agreement.

 

(b) The headings and sub-headings are inserted for convenience only and shall not affect the construction of this Agreement.

 

(c) The Schedules and Annexures form part of this Agreement and shall have the same force and effect as if set out in the body of this Agreement.

 

2.5 Companies

 

(a) A " subsidiary undertaking " or "parent undertaking" has the meaning given in section 1162 of the Companies Act 2006 and a " subsidiary " or " holding company " is to be construed in accordance with section 1159 of the Companies Act 2006.

 

(b) References to " Group " in relation to any company mean that company, its subsidiaries, its holding companies and every subsidiary of each such holding company from time to time; and

 

(c) Terms defined in part 38 of the Companies Act 2006 (as applicable) shall bear the same meanings in this Agreement.

 

2.6 Statute and Law

 

References to any enactment shall include (i) that enactment as respectively amended, modified, consolidated or re-enacted from time to time, and (ii) any enactment which that enactment re-enacts (with or without modification) and (iii) any subordinate legislation made under that enactment (as so amended, modified, consolidated or re-enacted) in each case before the date of this Agreement, provided always that any such amendment, modification, consolidation or enactment or re-enactment or subordinate legislation shall not result in any new liability or any increase in any liability which would not otherwise have arisen under the original legislation or statute.

 

2.7 Certain words

 

Any undertaking by a party not to do any act or thing includes an undertaking not to allow, cause or assist the doing of that act or thing and to exercise all rights of control over the affairs of any other person which that party is able to exercise (directly or indirectly) in order to secure performance of that undertaking.

 

2.8 Canons of Construction

 

The rule known as the ejusdem generis rule shall not apply and accordingly general words introduced by the word " other " shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things.

 

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(c) General words shall not be given a restrictive meaning by reason of the fact that they are followed by particular examples intended to be embraced by the general terms.

 

2.9 Certain Implied Terms

 

The Law of Property (Miscellaneous Provisions) Act 1994 applies to the disposition of the Shares and any other property made under or pursuant to this Agreement, save that:

 

(a) the word " reasonably " shall be deleted from the covenant set out in Section 2(1)(b) of that Act;

 

(b) the covenant set out in Section 3(1) of that Act shall not be qualified by the words "other than any charges, encumbrances or rights which that person does not and could not reasonably be expected to know about"; and

 

(c) the provisions of Section 6(2) of that Act are excluded from this Agreement.

 

3. Language

 

The English language is the language of choice of the parties in relation to this Agreement; notices, demands and other communications given in connection with this Agreement shall be in the English language and if this Agreement is translated into any language other than English, the English language text shall prevail.

 

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Executed as a deed by )
ALEX RUTHERFORD )
in the presence of:  
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  
   
Executed as a deed by KOKO (CAMDEN)  
LIMITED acting by a director  
in the presence of:  
Witness name:  
Signature of witness:  
   
Address:  
   
Occupation:  
   
   
Executed as a deed by )
OLIVER BENGOUGH )
in the presence of: )
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  

 

 
 

 

 

 

Executed as a deed by TRINAD CAPITAL )
MASTER FUND LTD acting by a director )
in the presence of: )
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  
   
   
  )
  )
  )
Executed as a deed by OBAR CAMDEN )
LIMITED acting by a director )
in the presence of: )
   
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  

 

 

 

Private and Confidential

 

Dated:February 13, 2014

 

_____________________________

 

HUGH DOHERTY and LAURENCE SEYMOUR

 

and

 

THE PURCHASER

 

and

 

THE GUARANTORS

 

_____________________________________________

 

Share Sale Agreement 

relating to shares in 

OBAR Camden Holdings Limited

 

_____________________________________________

 

 
 

 

CONTENTS

 

Clause Heading Page
     
1. Sale of the Shares 1
2. Consideration 2
3. Completion 2
4. Warranties 4
5. Tax 8
6. Protective Covenants 8
7. Definitions, Interpretation and terms and conditions 8
Schedule 1 The Sellers, their Shareholdings and Consideration 11
Schedule 2 Corporate Particulars 13
Schedule 3 The Warranties 15
Schedule 4 Adjustment to the Consideration 24
Schedule 5 Completion Obligations 28
Schedule 6 Limitations on Liabilities under the Warranties 29
Schedule 7 Tax Covenant 33
Schedule 8 Protective Covenants 41
Schedule 9 Addresses for Notices 43
Schedule 10 Property 44
Schedule 11 Terms and Conditions 45
Schedule 12 Definitions and Interpretation 49

 

 

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THIS AGREEMENT dated February 13, 2014 is made

 

BETWEEN

 

(1) The persons whose names and addresses are shown in column (1) of Part 1 of Schedule 1 ( The Sellers ) (each a " Seller " and together the " Sellers ");

 

(2) KOKO (CAMDEN) LIMITED, a private limited company registered in England and Wales under company no. 08763877 and whose registered office is at 55 Colmore Row, Birmingham, B3 2AS (the " Purchaser "); and

 

(3) The persons whose names and addresses are shown in column (1) of Part 2 of Schedule 1 ( The Guarantors ).

 

BACKGROUND

 

(A) The Sellers are the registered holders and the beneficial owners of the number of shares in the Company set opposite their names in column (2) of Schedule 1 (the " Sale Shares "), which are fully paid or credited as fully paid.

 

(B) The Company is the beneficial owner of the entire issued share capital of the Subsidiary, particulars of which are set out in Part 2 of Schedule 2 ( Corporate Particulars ).

 

(C) The Sellers wish to sell and the Purchaser is willing to purchase all of the Sale Shares (being all the shares in the Company currently registered in their names) on the terms and conditions of this Agreement.

 

(D) The Guarantors have agreed to guarantee to the Sellers the performance of this Agreement (including in particular, but without limitation, the payment of all sums due to the Sellers from the Purchaser in accordance with this Agreement) by the Purchaser subject to the terms and conditions set out below and have agreed to provide security to the Sellers in respect of such obligations.

 

Sale and Purchase

 

1. SALE OF THE SHARES

 

1.1 Sale and Purchase

 

Each of the Sellers shall sell with full title guarantee those shares set out opposite his name in Schedule 1 ( The Sellers ) and the Purchaser shall purchase the Sale Shares on the terms of this Agreement free from all Encumbrances and together with all rights attaching to them.

 

1.2 Right to Sell

 

Each Seller agrees with the Purchaser that he has the right to sell and transfer the full legal and beneficial interest in the Sale Shares set out opposite his name in Schedule 1 ( The Sellers ) to the Purchaser on the terms set out in this Agreement and acknowledges that the Purchaser is purchasing the Sale Shares in reliance on the warranties and undertakings given by the Sellers in this Agreement.

 

1.3 Waiver of Pre-emption Rights

 

Each Seller waives all rights of pre-emption conferred upon him by the articles of association of the Company or in any other way in respect of the sale and transfer of the Sale Shares to the Purchaser and the transfer of any shares by each other or either of Oliver Bengough and/or Alex Rutherford to the Purchaser, whether such transfers are effected before, after or simultaneous with the transfer of the Sale Shares pursuant to this Agreement.

 

1.4 Conditionality of the Agreement

 

The sale of the Sale Shares pursuant to this Agreement is conditional upon the delivery to the Sellers (or such person as they shall nominate):

 

(a) by Oliver Bengough of a share pledge in a form agreed between the Sellers, Alex Rutherford and Oliver Bengough in favour of the Sellers and to Alex Rutherford pursuant to which he grants to the Sellers and Alex Rutherford a charge over his interests in shares in Mint Leisure Limited by way of security in respect of his obligations under this Agreement to the Sellers and to Alex Rutherford under the Alex SPA; and

 

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(b) by TRINAD Capital Master Fund Ltd, the Negative Pledge and Charge Agreement duly executed by TRINAD Capital Master Fund Ltd in respect of the granting of security in favour of the Sellers and Alex Rutherford in respect of the respective obligations of TRINAD Capital Master Fund Ltd. under this Agreement and under the Alex SPA;

 

(c) by the Subsidiary of a deed of debenture by way of fixed charge over the Property executed by the Subsidiary in a form agreed between the Sellers and Alex Rutherford pursuant to which the Subsidiary grants security in respect of its obligations to the Sellers under this Agreement and to Alex Rutherford under the Alex SPA

 

(d) a deed of reimbursement (the “ Deed of Reimbursement ”) in the agreed form to be entered into between the Purchaser, Alex Rutherford, Hugh Doherty, Laurence Seymour, Oliver Bengough and Mint Group Holdings Limited in relation to the reimbursement of certain fees incurred by the parties thereto (other than the Purchaser) in relation to entering into this transaction and all sums to be paid thereunder to the Sellers, Alex Rutherford and Mint Group Holdings Limited have been received into the Sellers’ Solicitors Client Account or otherwise properly paid directly to the relevant payee thereunder

 

2. CONSIDERATION

 

2.1 Consideration

 

The consideration for the sale of the Sale Shares (subject to adjustment in accordance with Clause 2.2) (the “ Consideration ”) shall be:

 

(a) the payment of £127,500 to Hugh Doherty in respect of the 2,468 Ordinary Shares registered in his name as at Completion; and

 

(b) the payment of £1 to Hugh Doherty in respect of the 2,750 Deferred Ordinary Shares registered in his name as at Completion;

 

(c) the payment of £127,500 to Laurence Seymour in respect of the 2,468 Ordinary Shares registered in his name as at Completion; and

 

(d) the payment of £1 to Laurence Seymour in respect of the 2,750 Deferred Ordinary Shares registered in his name as at Completion

 

in each case in accordance with the remaining provisions of this Agreement.

 

2.2 Adjustment of Consideration

 

The Consideration shall be adjusted as required in accordance with Schedule 4 ( Adjustment to the Consideration ).

 

3. COMPLETION

 

3.1 Time and Place for Completion

 

Completion shall take place on 31 March 2014 (the “Completion Date” ) at the offices of Winston & Strawn London, City Point, One Ropemaker Street, London EC2Y 9HU (or any other location agreed upon in writing by the Sellers and the Purchaser)

 

3.2 Sellers’ Completion Obligations

 

The Purchaser shall not be obliged to complete this Agreement unless each of the Sellers complies with the requirements of Part 1 of Schedule 5 ( Completion Obligations ) in relation to the relevant Completion.

 

3.3 Purchaser's Completion Obligations

 

Upon completion of all the matters referred to in Part 1 of Schedule 5 ( Completion Obligations ) in relation to the relevant Completion, if the Purchaser shall fail to comply with the requirements of Part 2 of Schedule 5 ( Completion Obligations ) and/or shall fail to complete the purchase of each of the Sale Shares the Sellers shall not be obliged to complete this Agreement.

 

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3.4 Conditionality of Completion

 

None of the Sellers nor the Purchaser shall be obliged to effect Completion pursuant to this Agreement unless Alex Rutherford and the Purchaser have entered into an agreement for the sale by Alex Rutherford to the Purchaser of the whole of the issued share capital in the Company registered in the name of Alex Rutherford.

 

3.5 Interest

 

If either party is late in paying any sum due to the other under this Agreement, the party under the obligation to make the payment (the “Payer”) shall pay interest to the party owed the payment (the “Payee”) on the sum which is not paid on the due date. Interest shall accrue at the rate of 4% above the base rate of Barclays Bank PLC from time to time and shall accrue on a daily basis and be paid on demand semi-annually in arrears and shall be compounded if not paid. In the case of the Consideration, if not paid at Completion it shall bear interest at the rate of 4% over the base rate from March 31, 2014 to June 30, 2014 and 8% over the base rate thereafter. The applicable rate shall apply both before and after any judgment has been obtained.

 

3.6 Consequences of Default

 

If any of the provisions of Part 1 of Schedule 5 ( Completion Obligations ) is not complied with in relation to the relevant Completion:

 

(a) if such default is due to a failure of any Seller, the Purchaser shall not be obliged to complete this Agreement and may (in addition and without prejudice to all other rights or remedies available to it):

 

(i) defer the relevant Completion to a date not more than 28 days thereafter (and so that the provisions of this Clause 3.5 shall apply to Completion as so deferred);

 

(ii) proceed to the relevant Completion so far as practicable and without prejudice to its rights under this Agreement;

 

(iii) waive all or any of the requirements contained in Part 1 of Schedule 5 (Completion Obligations) at its discretion

 

Provided always that save with the written agreement of the relevant Seller (the “ Non-Defaulting Seller ”), the Non-Defaulting Seller shall not be obliged to complete the sale of his Sale Shares unless the sale of the Sale Shares held by the other Seller is completed;

 

(b) if such default is due to a failure of the Purchaser to comply with its obligations under Schedule 5 as referred to in Clause 3.4(b):

 

(i) neither of the Sellers shall be obliged to complete this Agreement and may (in addition and without prejudice to all other rights and remedies available to them) and by joint notice signed by each of the Sellers:

 

(a)   defer the relevant Completion to a date not more than 28 days thereafter (and so that the provisions of this Clause 3.5 shall apply to Completion as so deferred);

 

(b)   proceed to the relevant Completion so far as practicable and without prejudice to its rights under this Agreement;

 

(c)   waive all or any of the requirements contained in Part 2 of Schedule 5 (Completion Obligations) at their discretion; and

 

(ii) the Purchaser shall pay interest to the Sellers at the rate specified in Clause 5 with effect from the due date until the date that all sums due to the Sellers pursuant to Part 2 of Schedule 5 have been paid in full.

  

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4. WARRANTIES AND SPECIFIC INDEMNITIES

 

4.1 Warranties

 

Each of the Sellers severally warrants to the Purchaser that each of the Warranties in Schedule 3 is true and accurate as at the date of this Agreement.

 

4.2 Reliance

 

The Sellers acknowledge that the Purchaser is entering into this Agreement in reliance on each Warranty.

 

4.3 Disclosure

 

The Warranties are given subject to matters fairly disclosed in this Agreement or in the Disclosure Letter with sufficient detail to identify the nature and scope of the matters disclosed but a matter shall be regarded as disclosed by the Disclosure Letter only to the extent that accurate information, which is not misleading, about that matter is contained in the Disclosure Letter in sufficient detail for the Purchaser reasonably to identify the nature and scope of that matter.

 

4.4 Knowledge not to prevent claim

 

Except in relation to matters fairly disclosed in the Disclosure Letter in accordance with Clause 4.3, none of the Warranties shall be qualified by any imputed or constructive knowledge on the part of the Purchaser, its agents or advisers and no such knowledge shall prejudice or be used as a defence to any Warranty Claim or otherwise operate to reduce the amount recoverable. The Purchaser warrants that as at the date hereof it is not intending to make a Warranty Claim against the Sellers for breach of Warranty in respect of any matter, event or circumstances it has actual knowledge of as at the date of this Agreement and knows constitutes a breach of a Warranty.

 

4.5 Construction of Warranties

 

Each of the Warranties set out in the several paragraphs of Schedule 3 ( Warranties ) is separate and independent and, except as expressly provided to the contrary in this Agreement, is not limited by reference to any other paragraphs of Schedule 3 ( Warranties ).

 

4.6 Waiver of Rights

 

Each Seller agrees with the Purchaser (for itself and for the Companies and their directors, officers, employees and consultants as Third Parties) that, save in the case of fraud, he shall waive any rights or claims which such Seller may have in respect of any misrepresentation, inaccuracy or omission in, or from, any information or advice supplied or given by the Companies or their directors, officers, employees or consultants on which the Seller may have relied in connection with the giving of the Warranties and the preparation of the Disclosure Letter.

 

4.7 Non-discharge of Warranties

 

None of the Warranties or the Tax Covenant shall be deemed in any way modified or discharged by reason of Completion nor shall the Purchaser be deemed to have knowledge (as opposed to having actual knowledge) arising from any investigation or inquiry made on behalf of the Purchaser and accordingly neither Completion nor deemed, constructive or imputed knowledge which would otherwise be imputed on the Purchaser shall prejudice any claim which the Purchaser shall be entitled to bring or shall operate to reduce any amount recoverable under this Agreement.

 

4.8 Reduction in Consideration

 

Any payment made by a Seller for any breach of the Warranties or under the Tax Covenant shall be deemed to be a reduction in the Consideration in relation to that Seller.

 

4.9 Notifications by Purchaser

 

If the Purchaser becomes aware of a matter or circumstance which is likely to give rise to a Warranty Claim, the Purchaser shall give notice to each of the Sellers in writing specifying that matter or circumstance in reasonable detail (given the level of detail available to the Purchaser at the time) as soon as reasonably practicable after it becomes aware of that matter or circumstance. Any failure by the Purchaser to give notice as contemplated by this clause shall not prevent the Purchaser from making any Warranty Claim arising from that circumstance but the Sellers shall not be liable for any losses or liabilities incurred to the extent that they are foreseeably increased as a result of such failure.

 

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4.10 Specific Indemnities

 

Each Seller agrees and undertakes to the Purchaser that, subject to the provisions of clause 4.11 below he shall indemnify the Purchaser in respect of 2.525% of any Losses arising in the Company or the Subsidiary:

 

(a) by reason of the Company and/or the Subsidiary not having registered with the Data Protection Registrar prior to the date of this Agreement; and

 

(b) in relation to any claim from any third party (not being a Seller, Oliver Bengough or Alex Rutherford or any person who is a connected person in relation to a Seller, Oliver Bengough or Alex Rutherford) which has been received by the Company and/or the Subsidiary and which has been notified to the insurers of the Company or the Subsidiary on or before the date of this Agreement and which such insurers refuse or otherwise fail to pay by reason of such insurance not covering the claim, being void or voidable or otherwise (save to the extent that such Losses relate to any excess payable by the Company or the Subsidiary under the terms of the relevant insurance).

 

4.11 Sellers’ Protections

 

Schedule 6 ( Limitations ) shall apply so as to limit the liability of the Sellers in respect of the Warranties, the Tax Covenant and the indemnities provided pursuant to clause 4.10 save that:

 

(a) Schedule 6 shall not apply to the extent that any claim arises out of fraud, dishonesty, wilful misstatement or wilful concealment on the part of a Seller;

 

(b) The provisions of paragraphs 1, 2, 3 (mutatis mutandis), 7 (c), 8 (mutatis mutandis) and 10 (mutatis mutandis) only of Schedule 6 shall apply to any claim and any liability arising pursuant to clause 4.10(a) or 4.10(b).

 

4.12 Sellers’ Covenants

 

Each of the Sellers covenants in respect of himself that:

 

(a) he has the requisite capacity and authority to enter into and perform this Agreement and any other documents that are to be executed by him pursuant to this Agreement (the " Sellers’ Completion Documents ");

 

(b) this Agreement and the Sellers’ Completion Documents will, when executed by him, constitute binding obligations on him enforceable in accordance with their respective terms;

 

(c) no consent, approval, authorisation or order of any court of government or local agency or body or any other person is required by him for the execution or implementation of this Agreement and the Sellers’ Completion Documents and compliance with the terms of this Agreement and the Sellers’ Completion Documents does not:

 

(i) conflict with, result in the breach of or constitute a default under any agreement, instrument or obligation by which he may be bound or any provision of the articles of association of the Company or Subsidiary; or

 

(ii) result in the creation, imposition, crystallisation or enforcement of any Encumbrance on, over or affecting any of the assets of the Company or the Subsidiary;

 

(d) his shares in the Company , details of which are set out in column (2) of paragraph (9) of part 1 of Schedule 2 constitute the whole of the allotted and issued share capital of the Company (when taken with the shares in the Company currently registered in the names of Oliver Bengough and Alex Rutherford on the date of this Agreement) and are fully paid up or credited as fully paid up as to their nominal value;

 

(e) he is the legal and beneficial owner of the Sale Shares shown against his name in column 2 of Schedule 1 and is entitled to transfer the Sale Shares to the Purchaser free from any Encumbrances;

 

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(f) there is no Encumbrance on, over or affecting any of the Sale Shares and no person has claimed to be entitled to any such Encumbrance;

 

(g) apart from this Agreement, the Alex SPA and the share purchase agreement between Oliver Bengough and the Purchaser, there is no agreement, arrangement or commitment outstanding which calls for the allotment, issue or transfer of, or accords to any person the right to call for the allotment, issue or transfer of, any share or loan capital of the Company or the Subsidiary;

 

(h) neither he nor any person connected with him has any claim of any kind (actual or contingent) against the Companies (or any one of them) on any account as at the date of this Agreement;

 

(i) he irrevocably and unconditionally waives and undertakes to procure that each person being a connected person shall waive with effect from Completion any claim (actual or contingent) which any of them may have against the Companies (or any one of them);

 

(j) there is no indebtedness outstanding at Completion from him to either of the Companies;

 

(k) all indebtedness outstanding at Completion from either of the Companies to him has either been repaid or irrevocably waived in full (including interest);

 

(l) no bankruptcy order has been made in respect of him, nor has any petition for any such order been presented;

 

(m) no application has been made in respect of him for an interim order under section 253 Insolvency Act 1986;

 

(n) he is not currently in a position whereby he is unable to pay or has no reasonable prospect of being able to pay any debt as those expressions are defined in section 268 Insolvency Act 1986;

 

(o) no person has been appointed by the court to prepare a report in respect of him under section 273 Insolvency Act 1986;

 

(p) no interim receiver has been appointed of the property of him under section 286 Insolvency Act 1986; and

 

(q) he is not insolvent or bankrupt within the meaning of any applicable law;

 

and the transfer of the Sale Shares to the Purchaser shall be deemed to include expressly and be made subject to all the above provisions of this clause 4.12.

 

4.13 No Claims unless Completion Occurs

 

In the event that Completion does not occur then the Sellers shall not be liable for breach of Warranty or any indemnity under this clause 4 or any claim under Schedule 7.

 

4.14 Reduction in liability under Warranty Claims in respect of prior recovery

 

The amount that the Purchaser shall be entitled to recover under a Warranty Claim which arises out of events, facts, matters or circumstances in relation to which the Sellers have indemnified the Purchaser pursuant to any of the indemnities provided pursuant to Clause 4.10 shall be reduced by the amount paid by the Sellers pursuant to the relevant indemnity.

 

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5. INTEREST ON LATE PAYMENT

 

5.1 Applicable interest rate

 

If either party is late in paying any sum due to another under this Agreement, the party under the obligation to make payment (the “Payer ”) shall pay interest to the party owed the payment (the “ Payee ”) on the sum which is not paid on the due date. Interest shall accrue at the rate of 4% above the base rate of Barclays Bank PLC from time to time and shall accrue on a daily basis and be paid on demand monthly in arrears and shall be compounded if not paid. That rate shall apply both before and after any judgment has been obtained.

 

5.2 Interest not subject to deduction

 

Interest shall be paid without any deduction or withholding, except as required by law. If interest payable under this Clause is subject to deduction or withholding, the Payer shall increase the amount paid so that the net amount received by the Payee is the amount which he would have received had no deduction or withholding been made.

 

6. GUARANTEE

 

6.1 Guarantee by the Guarantors

 

In consideration of the Sellers agreeing to enter into this Agreement with the Purchaser, each of the Guarantors irrevocably and unconditionally jointly and severally as primary obligor (and not just as surety) undertakes and guarantees to the Sellers the performance by the Purchaser of all its obligations under this Agreement including the due and punctual payment of all sums now or subsequently payable by the Purchaser to each of the Sellers under this Agreement. For the avoidance of doubt, all of the Guarantors obligations to the Sellers under this Agreement or otherwise are to be read subject to clause 6.5.

 

6.2 Default by the Purchaser

 

If the Purchaser defaults in the performance of any obligations under this Agreement, the Guarantor shall on demand perform (or procure the performance of) that obligation, so that the same benefits shall be conferred on the Sellers as they would have received if the Purchaser had duly performed that obligation (including, without limitation, the payment of interest with effect from the relevant due date until the discharge of all sums due to the Sellers pursuant to Part 2 of Schedule 5).

 

6.3 Continuing Obligations

 

The obligations and liabilities of each Guarantor in this Clause:

 

(a) are continuing obligations and liabilities which shall remain in force until all the obligations of the Purchaser under this Agreement have been performed.

 

(b) shall not be affected by anything which, but for this Clause, might operate to release or otherwise exonerate him from or affect its obligations, including:

 

(i) any time, indulgence, waiver or consent given at any time to the Purchaser or another person or any amendment to or variation of the terms of any of this Agreement or another document referred to in this Agreement, save to the extent that such time, indulgence, waiver, consent, amendment or variation has been agreed in writing between the Purchaser and the Sellers and such agreement specifically refers to such time, indulgence, waiver, consent, amendment or variation being made in respect of this Agreement or the relevant document referred to in this Agreement in which event the obligations of the Guarantor will be deemed to have agreed to be bound by, and shall have the benefit of the terms of such agreement for time, indulgence, waiver, consent, amendment or variation to the same extent as such benefits have been granted to the Purchaser;

 

(ii) any abstention from perfecting or enforcing any rights or remedies against the Purchaser or another;

 

(iii) a legal limitation, disability, incapacity or other circumstances relating to the Purchaser or another person;

 

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(iv) an irregularity, unenforceability or invalidity of the obligations of a party to any of this Agreement;

 

(v) the dissolution, amalgamation or reconstruction of the Purchaser;

 

(vi) the insolvency of, or any other similar proceedings or arrangement in relation to the Purchaser

 

Provided always and it is agreed by each of the Sellers, the Purchaser and the Guarantor that in the event that the Sellers or any them releases in writing the Purchaser from any obligation or liability arising under this agreement then such release shall apply equally to the Guarantor to the effect that following such release, the Guarantor shall not be under any greater obligation to the Sellers than the Purchaser would be following such release.

 

6.4 No Requirement to exhaust remedies against the Purchaser

 

The obligations and liabilities contained in this Clause may be enforced without the Sellers having first taken any action against the Purchaser.

 

6.5 Demands under this Guarantee

 

The Sellers may make one or more demands under this clause 6 provided always, and the Seller hereby agrees that, in the case of a default in respect of the payment of any monetary obligation of the Purchaser under this Agreement, such demand shall not be made until the date being 10 days after such obligation became due and owing and the Purchaser has remained in default, and in the case of a non-monetary obligation, until the date being 30 days after such obligation arose.

 

7. TAX

 

The provisions of Schedule 7 ( Tax Covenant ) shall have effect in relation to tax liabilities of each of the Companies.

 

8. PROTECTIVE COVENANTS

 

The provisions of Schedule 8 ( Protective Covenants ) shall have effect following Completion to protect the Purchaser.

 

9. DEFINITIONS, INTERPRETATION AND TERMS AND CONDITIONS

 

The definitions and rules of interpretation set out in Schedule 12 ( Definitions ) and the terms and conditions set out in Schedule 11 ( Terms and Conditions ) shall apply to this Agreement.

 

10. POWER OF ATTORNEY

 

10.1 Each of the Sellers declares that until such time as the stock transfer delivered pursuant to the Purchaser pursuant to Schedule 5 has been duly stamped for stamp duty purposes, he shall, in respect of any of the Sale Shares after Completion he shall:

 

(a) hold the Sale Shares and the dividends and other distributions of profits or surplus or other assets declared, paid or made in respect of them after Completion and all rights arising out of or in connection with them in trust for the Purchaser and any successors in title to the Purchaser; and

 

(b) at the Purchaser’s cost, deal with and dispose of the Sale Shares and all such dividends, distributions and rights as are described in clause 3.7(a) as the Purchaser or any such successor may direct Provided that the Purchaser shall not create or require such Seller to accept any further obligations or give any warranties or representations or create any further liabilities in addition to those arising under this agreement for or on the part of or on behalf of such Seller in relation to such dealing or disposal.

 

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10.2 Each of the Sellers appoints the Purchaser as his lawful attorney for the purpose of signing any written resolution (or receiving notices of and attending and voting at all meetings) of the members of the Company from Completion to the day on which the Purchaser or its nominee is entered in the register of members of the Company as the holder of the Sale Shares and for that purpose each of the Sellers authorises:

 

(a)         the Company to send any written resolutions, notices or other communications in respect of his holding of Sale Shares to the Purchaser; and

 

(b)         the Purchaser to complete in such manner as it thinks fit and to return written resolutions, proxy forms, consents to short notice and any other document required to be signed by him in his capacity as a member,

 

and this power of attorney (which is given by way of security to secure the performance of obligations owed by the relevant Seller to the Purchaser under this Agreement) shall be irrevocable.

 

10.3 The Purchaser agrees and undertakes to each of the Sellers that it will, as soon as reasonably practicable following Completion and, in any event, within 30 days, submit to HMRC and pay all stamp duty due and payable in respect of the transfer of the Sale Shares pursuant to the stock transfers delivered by each Seller to the Purchaser pursuant to Schedule 5.

 

11. Purchaser’s Warranties and Covenants

 

11.1 The Purchaser hereby warrants to each of the Sellers as follows:

 

11.1.1 The Purchaser has the requisite capacity and authority to enter into and perform this Agreement and any other documents that are to be executed by the Purchaser pursuant to this Agreement (the " Purchaser’s Documents ").

 

11.1.2 This Agreement and the Purchaser’s Documents will, when executed by the Purchaser, constitute binding obligations of the Purchaser enforceable in accordance with their respective terms.

 

11.1.3 No consent, approval, authorisation or order of any court of government or local agency or body or any other person is required by the Purchaser for the execution or implementation of this Agreement and the Purchaser’s Documents and compliance with the terms of this Agreement and the Purchaser’s Documents do not:

 

(a) conflict with, result in the breach of or constitute a default under any agreement, instrument or obligation by which the Purchaser may be bound or any provision of the articles of association of the Purchaser; or

 

(b) result in the creation, imposition, crystallisation or enforcement of any Encumbrance on, over or affecting any of the assets of the Purchaser.

 

11.2 The Purchaser hereby covenants to each of the Sellers that:

 

11.2.1 no administration order has been made, no petition for one has been presented and no notice of intention to appoint an administrator has been given in respect of the Purchaser;

 

11.2.2 no administrator, receiver or administrative receiver has been appointed in respect of the Purchaser or any of its assets and no application for the appointment of an administrator has been made by the Purchaser or any of its shareholders in accordance with the out of court procedure under the Enterprise Act 2002;

 

11.2.3 the Purchaser has not failed , nor is unable , to pay any of its debts as they fall due, within the meaning of section 123 of the Insolvency Act 1986;

 

11.2.4 no voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of the Purchaser and the Purchaser has not made or proposed any arrangement or composition with its creditors or any class of them;

 

11.2.5 no steps have been taken to obtain a moratorium under Schedule A1 of the Insolvency Act 1986 or otherwise in respect of the Purchaser;

 

11.2.6 no distress, execution or other process has been levied on Purchaser’s assets or action taken at the Purchaser’s address to repossess goods in the possession of the Purchaser;

 

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11.2.7 no unsatisfied judgment is outstanding against the Purchaser and no demand has been served on the Purchaser under section 123(1)(a) of the Insolvency Act 1986;

 

11.2.8 no meeting to approve a compromise or scheme of arrangement under the Companies Act 2006 has been convened and no such compromise or scheme has been agreed to or sanctioned in respect of the Purchaser;

 

11.2.9 has not entered into any compromise or arrangement with its creditors or any class of its creditors generally;

 

11.2.10 the Purchaser is not insolvent according to any laws in any relevant jurisdiction

 

and the transfer of the Sale Shares to the Purchaser and the agreement of the Sellers to effect such transfer in accordance with the terms and conditions of this Agreement shall be deemed to include expressly and be made subject to all the above provisions of this clause 11.

 

IN WITNESS of which this Agreement has been executed and delivered as a deed by the parties on the date at the beginning of this Agreement.

 

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SCHEDULE 1

 

PART 1 – The Sellers, their Shareholdings and Consideration

 

Shareholder   Shares   Ownership Percentage   Cash Consideration
payable
Hugh Doherty  

2,468 ordinary shares of 5p each

2,750 deferred ordinary shares of 5p each

 

 

2.525% of ordinary shares of 5p each

50% of deferred ordinary shares of 5p each

 

£127,500

£1

Laurence Seymour  

2,468 ordinary shares of 5p each

2750 deferred ordinary shares of 5p each

 

 

2.525% of ordinary shares of 5p each

50% of deferred ordinary shares of 5p each

 

£127,500

£1

 

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PART 2
The Guarantors

 

Guarantor   Address
Oliver Bengough  
TRINAD Capital Master Fund Limited  
OBAR Camden Limited  

 

 

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Schedule 3
The Warranties

 

Unless the context otherwise requires, references in this Schedule 3 to the "Company" shall mean the Company and the Subsidiary.

 

1.             Company and Subsidiary

 

1.1           The information in parts 1 and 2 of Schedule 2 relating to the Company and the Subsidiary respectively is true and accurate.

 

1.2           The Company has not allotted or issued any securities that are convertible into shares of the Company.

 

1.3           No shares of the Company have been issued and no transfer of shares in the Company has been registered, except in accordance with applicable law and the then applicable articles of association or other constitutional documents of the Company;

 

1.4           There has been no transaction pursuant to or as a result of which; (i) any of the shares of the Company; or (ii) any asset owned, purportedly owned or otherwise held by the Company is liable to be transferred or re-transferred to another person or which gives or may give rise to a right of compensation or other payment in favour of another person under the law of any relevant jurisdiction.

 

1.5           No transaction at an undervalue (within the meaning of Section 423 of the Insolvency Act 1986) (a) relating to any of the shares of the Company or (b) to which the Company has been a party, has been effected prior to the date of this Agreement.

 

1.6           The Company has not at any time:

 

(a)           issued any loan capital;

 

(b)          reduced its share capital;

 

(c)          redeemed any share capital;

 

(d)          purchased any of its shares; or

 

(e)          forfeited any of its shares (or taken a surrender in lieu of any forfeiture).

 

1.7           The Company has not directly or indirectly provided any financial assistance for the purpose of the acquisition of shares in breach of the provisions of the Companies Acts.

 

1.8           The Company is not, nor has it agreed to become, bound by any guarantee, indemnity, surety or similar commitment.

 

1.9           The Company does not act or carry on business in partnership with any other person and is not a member of any corporate or unincorporated body, undertaking or association.

 

1.10         The Company is not a party to any joint venture agreement or arrangement or any agreement or arrangement under which it is to participate with any other person in any business.

 

1.11         The Company has never had any subsidiary or held any interest in any shares in any other company other than the Subsidiary.

 

1.12         The Subsidiary has never held any interest in any shares in any other company.

 

2.             Arrangements with the Seller

 

2.1           During the three year period prior to the date of this Agreement there were no, and there are not currently outstanding, any contracts, agreements or arrangements (including, without limitation, customer and supply contracts) to which the Company is a party and in which any director or shareholder of the Company or any person connected with any of them is interested (and for the purposes of this paragraph a person shall be deemed to be interested in a contract if, were he a director of the Company, he would be interested in that contract for the purposes of section 177 of the Companies Act).

 

2.2           The business of the Company does not depend on the use of assets owned by or facilities or services provided by either Seller (other than those services which are to be provided pursuant to the Transitional Services Agreement or which may be provided by a Seller in his capacity as an officer or employee of the Company) which are not being acquired pursuant to this Agreement. 

 

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3.              Insolvency of the Company

 

3.1           No order has been made, no resolution has been passed, no petition has been presented and no meeting has been convened for the winding up of the Company or for a provisional liquidator to be appointed in respect of the Company and the Company has not been a party to any transaction which could be avoided in a winding up.

 

3.2           No administration order has been made, no petition for one has been presented and no notice of intention to appoint an administrator has been given in respect of the Company.

 

3.3           No administrator, receiver or administrative receiver has been appointed in respect of the Company or any of its assets. No application for the appointment of an administrator has been made by the Company or either of the Sellers in accordance with the out of court procedure under the Enterprise Act 2002.

 

3.4           The Company has not failed , nor is unable , to pay any of its debts as they fall due, within the meaning of section 123 of the Insolvency Act 1986.

 

3.5           No voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of the Company and the Company has not made or proposed any arrangement or composition with its creditors or any class of them.

 

3.6           No steps have been taken to obtain a moratorium under Schedule A1 of the Insolvency Act 1986 or otherwise in respect of the Company.

 

3.7           No distress, execution or other process has been levied on the Company's assets or action taken at the Company’s address to repossess goods in the possession of the Company.

 

3.8           No unsatisfied judgment is outstanding against the Company and no demand has been served on the Company under section 123(1)(a) of the Insolvency Act 1986.

 

3.9           No meeting to approve a compromise or scheme of arrangement under the Companies Act 2006 has been convened and no such compromise or scheme has been agreed to or sanctioned in respect of the Company.

 

3.10         The Company has not entered into any compromise or arrangement with its creditors or any class of its creditors generally.

 

3.11         The Company is not bankrupt or insolvent within the meaning of any applicable law.

 

4.              Statutory books and documents filed

 

4.1           The statutory books, including all registers and minute books, of the Company have been properly kept and are up to date and contain an accurate and complete record of the matters with which those books should deal. No notice or allegation has been received that any such books or registers are incomplete or incorrect or should be rectified.

 

4.2           All documents which should have been delivered by the Company to the Registrar of Companies in England and Wales are complete and accurate and have been properly so delivered in accordance with any time-scale provided for such delivery.

 

4.3           The copy of the memorandum and articles of association of the Company Disclosed is currently in force, has embodied in it or annexed to it a copy of each resolution as referred to in section 29 of the Companies Act 2006, is accurate and complete in all respects and fully sets out the rights and restrictions attaching to each class of shares in the Company.

 

4.4           Since the Accounts Date the members of the Company in general meeting, or of any class of them, have not passed any resolution.

 

5.              Accounts

 

5.1           The Accounts have been prepared in all material respects in accordance with the United Kingdom Generally Accepted Accounting Practice and applicable laws and show a true and fair view of and accurately reflect the state of affairs and the financial position of the Company as at the Accounts Date and the profits/losses of the Company for the financial year ended on that date.

 

5.2            Since the Accounts Date, the Company has carried on its business in the ordinary and usual course and there has been no material adverse change in the financial or trading position of the Company and, so far as the Sellers are aware, no fact, matter, event or circumstance has occurred which they are aware will give rise to any such change , which fact, matter, event or circumstance is specific to the Company only.

 

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5.3           The Management Accounts (a copy of which is attached to the Disclosure Letter):

 

(a)          have been prepared on a prudent basis consistent with the basis for the preparation of the management accounts for the Subsidiary over the period since the Subsidiary became a subsidiary of the Company; and

 

(b)          so far as the Sellers are aware, contain no material errors or omissions.

 

6.             Property

 

6.1           Schedule 10 contains a list of the real estate owned, controlled, used or occupied by the Company or in which the Company has any interest or liability (whether actual or contingent) and the information given in Schedule 10 is complete and accurate.

 

6.2           The written replies given by the Sellers or the Sellers' Solicitors to any written enquiries raised in respect of the Property were , so far as the Sellers are aware complete and accurate in all material respects and contain no material omissions as at the date they were given and so far as the Sellers are aware, no fact, matter, event or circumstance has occurred which the Sellers are aware would result in any material changes to such replies. In this paragraph, the expression "written" shall include e-mail.

 

6.3           The Company has not given any guarantee or indemnity for any liability relating to the Property.

 

6.4           In relation to the Lease, the parties thereto have observed and performed in all material respects all covenants, restrictions, stipulations and other encumbrances and there has not been (expressly or impliedly) any waiver of or acquiescence to any breach of them.

 

6.5           In relation to the Lease, all principal rent and additional rent and all other sums payable by the Company (" Lease Sums ") have been paid as and when they became due and no Lease Sums have been:

 

(a)          set off or withheld; or

 

(b)          commuted, waived or paid in advance of the due date for payment.

 

6.6           There is no pending rent review under the Lease.

 

6.7           The Deed of Variation dated 7 December 2004 (between the Company, CGIS Camden Palace Limited and Scottish Courage Limited) which effected a variation of the Lease did not oblige the Company (nor any party connected with it) to pay rent under the Lease prior to 1 July 2005 (being the ‘Rent Commencement Date’ as defined in the Lease), and was not treated as so obliging the Company or any party connected with it and, for the avoidance of doubt, neither the Company nor any party connected with it did otherwise pay rent in relation to the Lease prior to 1 July 2005.

 

6.8           The Company properly pays Value Added Tax on rents due under the Lease because the landlord under the lease has made an option to tax (or an election to waive exemption) in relation to the Property.

 

7.              Assets and Contracts

 

7.1            So far as the Sellers are aware, there are no assets used by the Company and which are necessary for the operation of the business which are not owned by the Company, and the facilities and services to which the Company has a contractual right, include all rights, properties, assets, facilities and services necessary to enable the Company to carry on its business in the manner in which it is currently carried on

 

7.2           Complete and accurate copies of the Material Contracts (being all contracts with which annual costs or revenue exceeds £10,000 or are otherwise material in the context of the business) being the contracts listed in Schedule 14 have been Disclosed.

 

8.              Compliance and Litigation

 

8.1           So far as the Sellers are aware the Company and its officers and employees (past and present) in the course of their respective duties have complied in all material respects with all applicable laws and regulations of the United Kingdom (including in respect of immigration compliance).

 

8.2           The Subsidiary has:

 

(a) obtained and maintained in full force and effect and paid all sums due in respect of:

 

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(i) a Premises Licence granted under the Licensing Act 2003 in respect of the Property authorising the licensable activities comprising the sale of alcohol, the provision of late night refreshment and the provision of regulated entertainment comprising of live music, recorded music, dancing and the showing of film;

 

(ii) a licence from Phonographic Performance Limited in relation to the playing in public of sound recordings; and

 

(iii) a licence from the Performing Rights Society for the playing in public of copyrighted music (together the “ Licences ”);

 

(b) not received any notice that there has been any breach of the terms and conditions of the Licences and the Seller is not aware of any fact, matter or circumstance which he is aware is likely to lead to the Licences being breached, withdrawn or terminated by the relevant issuing authority or body.

 

8.3           There is no other material licence, approval or authority (other than the Licences referred to in paragraph 8,2 above) which is necessary for the operation of the business of the Subsidiary as currently conducted by the Subsidiary.

 

8.4            The Company has not received any notice in writing from any authority with statutory powers to enforce the same, that the Company does not have, or is otherwise in material breach of, nor is the Seller aware of any circumstances which might result in the revocation of any of the licences, consents, approvals, permissions, permits, certificates, qualifications, registrations and other authorisations (public and private) necessary for the operation of its business in the manner in which it is currently carried on.

 

8.5           Neither the Company nor the Seller is involved in any civil, criminal, or arbitration proceedings in relation to the business and which would involve any appearance before any court, tribunal or similar body with the authority to make orders which are legally binding on the Company or the relevant director in any jurisdiction (together the " Proceedings ") and so far as the Seller is aware:

 

(a)           no Proceedings nor any notice in writing threatening any such Proceedings against the Company have been received by the Company; and

 

(b)           there are no facts or circumstances which the Seller is aware will give rise to any such Proceedings being commenced by or against the Company.

 

9.             Employees

 

9.1           The schedule of the employees of the Company that has been Disclosed includes complete and accurate details of all the employees of the Company. No change to the remuneration or benefits of the employees is due or expected within six months from the date of this Agreement. The Company has not made any outstanding offer nor agreed to employ any person who is not an employee of the Company at the date of this Agreement.

 

9.2           Complete and accurate details of the terms and conditions of employment, including all remuneration, incentive arrangements and other benefits, for any employee of the Company who is paid more than £ 50,000 per annum have been Disclosed. No employees are entitled to receive a bonus or other incentive payment or benefit.

 

9.3           Other than salary for the current months, reimbursement of out-of-pocket expenses and pay in respect of accrued but untaken holiday for the current holiday year, no amount is owing to any present or former officer, employee or worker of the Company.

 

9.4            So far as the Sellers are aware the Company has complied in all material respects at all relevant times with:

 

(a)                  all its obligations under the Employment Legislation; and

 

(b)                 all its obligations to applicants for employment, its employees and workers and former employees and workers.

 

9.5           The Company has not offered, promised or agreed to vary the terms of employment of any of its officers or employees.

 

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9.6           The Company does not operate or contribute (and has never operated or contributed) to a pension scheme or any like arrangement, save to the extent required by law. Full details of all pension schemes operated by the Company are set out in the Disclosure Letter.

 

9.7           Details of any existing consultancy and outsource service arrangements entered into by the Company have been Disclosed.

 

9.8           The Company has obtained and maintained full and complete records in relation to each of its employees' eligibility to work for the Company in the United Kingdom in accordance with the provisions of the Immigration Acts which were in force on the date when each individual's period of continuous employment with the Company commenced.

 

9.9           All employees of the Company have valid and subsisting permission or authority to remain in the UK and work for the Company and in relation to any senior employee earning £50,000 per annum or more, no such permission or authority will expire within the next six (6) months.

 

9.10          So far as the Sellers are aware, no individual is currently employed or engaged in such a way or in such a role that could expose the Company to or render it liable for a penalty (whether civil or criminal) under the Immigration Acts.

 

9.11         No employee or worker of the Company is, or has within the last three years been, involved in any criminal proceedings relating to the business of the Company.

 

9.12         No officer or employee of the Company earning over £50,000 per annum has given notice of resignation or is under notice of dismissal, nor is there any plan or proposal to dismiss any officer such employee and so far as the Sellers are aware no notice has been received from such an employee whereby he or she proposes to resign from his or her employment.

 

10.            Indebtedness

 

10.1         The Company has no liability or contingent liability under any guarantee, indemnity or other agreement to secure or incur a financial or other obligation relating to the failure of another person to perform its obligations.

 

10.2         No part of the borrowings or indebtedness in the nature of borrowings of the Company is dependent on the guarantee or indemnity of, or security provided by, another person. No contract or arrangement to which the Company is party is dependent on the guarantee or indemnity of, or security provided by, another person.

 

10.3         The Disclosure Letter contains full details of each of the investment, deposit and bank accounts maintained by or on behalf of the Company and of the banks and other financial institutions at which they are kept.

 

10.4 Neither the Company nor the Subsidiary have any overdraft, loan or other financial facilities or any similar arrangement in the nature of borrowings from any banks or financial institutions.

 

11.           Insurances

 

11.1         Copies of the insurance policies maintained by the Company ("Policies" and each a "Policy") have been Disclosed.

 

11.2         All premiums due under the Policies have been paid

 

11.3         There are no outstanding claims and so far as the Seller is aware nothing has occurred which they are aware will result in a claim being made under the Policies or which they consider would be required to be notified to the insurers and so far as the Seller is aware, nothing has been done or omitted to be done which they are aware has made or will make any Policy void or voidable or as a result of which the renewal of any Policy might be refused or the premiums due in respect of them may be liable to be materially increased.

 

11.4         None of the Policies will cease to be available as a result of Completion.

 

11.5         The Company has at all times maintained all insurances which it is required by law to carry and all such insurances continue in full force and effect.

 

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12.            Intellectual Property

 

12.1         Complete and accurate details of all registered Intellectual Property Rights owned and/or used by the Company and copies of all licences and other agreements relating to Intellectual Property Rights are contained in the Disclosure Letter.

 

12.2         All registered Intellectual Property Rights owned by the Company (including the domain names listed in Schedule 13 are in the sole legal and beneficial ownership of the Company free from all licences, charges or other encumbrances and in either case so far as the Sellers are actually aware nothing has been done or omitted to be done whether by the Company or by any person which would jeopardise the validity, enforceability or subsistence of any Intellectual Property Rights

 

12.3          All Intellectual Property Rights which are material to the operations of the Company and which are owned by third parties are t he subject of binding and enforceable licences from third parties in favour of the Company

 

(i) of which none will terminate, or be liable be to terminated by the other party to such licence, by virtue of this Agreement, and of which no notice to terminate has been received;

 

(ii) all parties to which have fully complied with all obligations in those licences; and

 

(iii) in relation to which no claim, dispute or proceeding has arisen or is foreseeable;

 

and in either case nothing has been done or omitted to be done whether by the Company or as far as the Sellers are aware by any person who would jeopardise the validity, enforceability or subsistence of any such licence.

 

12.4          Any Intellectual Property Rights and domain names owned and/or used by the Company which are capable of registration have been registered or are the subject of an application for registration, and is or will when duly registered be valid, binding and enforceable and:

 

(a)          in the case of registrations, all renewal fees have been paid and renewals made by their due date and all such action necessary to preserve and maintain the registration has been taken;

 

(b)          in the case of registrations contained in the Disclosure Letter each is presently used by the Group and is in full force and effect and has not been abandoned;

 

(c)          in the case of pending applications, the Sellers are aware of no reason why any such applications should not proceed to grant;

 

(d)          none of the Intellectual Property Rights are subject to any use, claim, application, proceeding or attack by any other person; and

 

(e)          nothing is required to be done in relation to any such Intellectual Property Right within 30 days of the date of this Agreement the omission of which would jeopardise the Company's rights in relation to that Intellectual Property Right.

 

12.5         No licences, registered user or other rights have been granted or agreed to be granted by the Company to any person in respect of any registered Intellectual Property Rights, except as Disclosed.

 

12.6         Except where the Company has a valid and subsisting licence to do so, the Company does not use any Intellectual Property Rights in respect of which any third party has any right, title or interest, and all such licences are Disclosed.

 

12.7         So far as the Sellers are aware, at no time during the past 2 years has there been any unauthorised use or infringement by any person of any Intellectual Property Rights or domain names owned and/or used by the Company which may jeopardise the validity or subsistence of such Intellectual Property Rights or agreements relating to the same.

 

12.8          So far as the Sellers are actually aware none of the processes employed, or products or services dealt in, by the Company infringes any rights of any third party relating to intellectual property nor makes the Company liable to pay a fee or royalty and no claims have been made, threatened or are pending, in relation to any Intellectual Property Rights against the Company.

 

12.9         Except in the ordinary course of business and on a confidential basis (and for the avoidance of doubt this includes disclosure to professional advisors), no disclosure has been made of any of the confidential information, Intellectual Property, financial or trade secrets or customer or supplier lists of the Company.

 

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12.10       In accordance with paragraph 12.9 above, any agreements or arrangements relating to the confidentiality of information are valid and enforceable.

 

12.11      Any names used by the Company other than its corporate name are contained in the Disclosure Letter and do not infringe the rights of any person.

 

12.12      The Company does not use any software products, materials or IT systems which incorporate, contain or use in any manner (in whole or in part) any open source or general public licence materials.

 

12.13      The Company has not:

 

(a)          incorporated or combined open source or general public licence materials with the Intellectual Property Rights; or

 

(b)          distributed or licensed open source or general public licence materials in conjunction with any Intellectual Property Rights.

 

13.            Other

 

The Company is not liable to pay, in connection with the sale of any of the Sale Shares or otherwise in connection with this Agreement or the transactions contemplated by this Agreement:

 

(a)          any success or other fee, brokerage, commission or like payment; or

 

(b)          any sum whatsoever to any of its directors, employees, agents or advisers (past or present).

 

14.           Effect of this Agreement

 

The execution and delivery of, and compliance with the terms of, this Agreement does not and will not:

 

(a)          conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any agreement or instrument to which the Company or the Seller is a party;

 

(b)          relieve any person from any obligation to the Company (whether contractual or otherwise) or enable any person to determine any such obligation or any right or benefit enjoyed by the Company or to exercise any right whether under an agreement with or otherwise in respect of the Company;

 

(c)          result in the creation, imposition, crystallisation or enforcement of any Encumbrance on any of the Sale Shares or on any of the assets of the Company; or

 

(d)          result in any present or future indebtedness of the Company becoming due or capable of being declared due and payable prior to its stated maturity.

 

15.           Accuracy of Information

 

All information contained in replies to written enquiries raised by the Purchaser or its professional advisers with the Sellers or their professional advisers in relation to the Company or its affairs, assets or liabilities are true and accurate in all material respects at the time that the information was given and so far as the Sellers are aware there is no other fact, matter or circumstance which renders any such information misleading.

 

16.           Tax

 

16.1         Provision or reserve (as appropriate) has been made in the Accounts for all Taxation liable to be assessed on the Company or for which the Company is accountable in respect of all Profits earned, accrued or received on or before the Accounts Date, and in respect of any Event occurring or deemed to have occurred on or before the Accounts Date. Since the Accounts Date no Taxation has or may have arisen to the Company (or would have arisen but for the use of any available reliefs) other than in the ordinary course of the Company's business.

 

16.2         The Company has made all returns, claims for relief, applications, notifications, computations, reports, accounts, statements, supplies of information, registrations and assessments (" Returns ") it is or was required by law to submit to a Taxation Authority. All Returns have been in the required form and have been properly submitted by the Company within any relevant time limits. The Returns were and remain complete, true and accurate and give full disclosure of all material facts and circumstances. The Company has prepared, kept and preserved full and sufficient records as required by law and to enable it to deliver correct and complete Returns and to calculate any present or, so far as possible, future liability for Taxation of the Company in respect of assets held at Completion . Such records are accurate and up-to-date.

 

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16.3         The Company has paid by the due date all Taxation which it has become liable to pay. The Company has, where legally obliged to do so, deducted or withheld amounts in respect of Taxation and has accounted by the due date to the relevant Taxation Authority for the Taxation so deducted or withheld.

 

16.4          The Company has not , within the last four years , paid or become liable to pay, nor so far as the Sellers are aware are there any circumstances which may cause the Company to become liable to pay, any penalty, fine, surcharge or interest in connection with Taxation. The Company is not and has not within the last six years been, and is not so far as the Sellers are aware likely to be, involved in a dispute (which term does not include a routine audit) in relation to Taxation.

 

16.5         The entry into or Completion of this Agreement will not result in any charge to Tax on the Company pursuant to section 179 of the Taxation of Chargeable Gains Act 1992 or section 780 of the Corporation Tax Act 2009 or otherwise.

 

16.6         The Company has not entered into any election pursuant to sections 171A or 179A of the Taxation of Chargeable Gains Act 1992 or section 792 of the Corporation Tax Act 2009.

 

16.7         There are set out in the Disclosure Letter (with express reference to this paragraph) particulars of all current arrangements relating to Group Relief to which the Company is a party including particulars of all claims for Group Relief which have been made within the last 4 years and:

 

(a) details of any payment which the Company has made or is liable to make under any arrangement or agreement for the surrender of group relief to that group company; and

 

(b) all payments due to the Company under any arrangement or agreement for surrender of Group Relief by it for periods ending on or prior to Completion.

 

16.8          The Company is not, and has not in the last 4 years been, party to any group payment arrangements under sections 59F to 59H of the Taxes Management Act.

 

16.9         The Company is a registered and taxable person for the purposes of the Value Added Tax Act 1994, such registration not being pursuant to paragraph 2 Schedule 1 Value Added Tax Act 1994 and not subject to any conditions imposed by or agreed with HM Revenue & Customs.

 

16.10         There is set out in the Disclosure Letter with express reference to this warranty full details of any option to tax exercised by the Company under Part 1 schedule 10 of the Value Added Tax Act 1994. All such elections have full effect and none is likely to be ineffective by virtue of paragraph 12 schedule 10 of the Value Added Tax Act 1994.

 

16.11         No person has acquired any securities, any securities option or any interest in securities (in each case, within the meaning of Part 7 of the Income Tax (Earnings and Pensions) Act 2003) where the right or opportunity to acquire the same is or was available by reason of an employment of that or any other person for the purposes of that Part.

 

16.12         No relevant step s (within the meaning of Part 7A of the Income Tax (Earnings and Pensions) Act 2003) have been taken in pursuance of, or has some connection with, arrangements concerned with the provision of rewards or recognition or loans in connection with any employee or former employee (or any associate of such person) of the Company.

 

16.13         The Disclosure Letter contains details of all land transactions (as defined in section 43 of the Finance Act 2003) to which the Company was a party, and of all interests which the Company holds in land, in respect of which the Company may have any future obligations relating to stamp duty land tax under Schedule 17A of the Finance Act 2003.

 

16.14         The Company was incorporated in, and is and always has been resident in, the United Kingdom for taxation purposes and is not and has never been resident or treated as resident or has or has had a branch, agency or permanent establishment in any other jurisdiction (or constitutes or has constituted an agent or permanent establishment of any person) for any tax purpose or for the purposes of any double taxation agreement. The Company is not liable to, and so far as the Sellers are aware, has at no time incurred any, Taxation in any jurisdiction other than the United Kingdom.

 

16.15         The Company is a close company within the meaning of section 439 of the Corporation Tax Act 2010. The Company has never been a close investment-holding company (as defined in Section 34 of the Corporation Tax Act 2010).

 

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16.16         No loan or advance within sections 455, 459 and 460 of the Corporation Tax Act 2010 has been made or released by the Company and there is no agreement or arrangement for such loan advance or debt to be made or released. The Company has not met any expenses for participators treated as a distribution by virtue of section 1064 of the Corporation Tax Act 2010 and there has been no alteration of the share or loan capital of the Company within section 98 of the Inheritance Tax Act 1984 (" IHTA ").The Company has not made any transfers of value within sections 94 and 202 of the IHTA, nor has it received any value such that a liability might arise under section 199 of the IHTA, nor has it been a party to associated operations in relation to a transfer of value as defined in section 268 of the IHTA.

 

16.17         No person has acquired any securities, any securities option or any interest in securities (in each case, within the meaning of Part 7 of the Income Tax (Earnings and Pensions) Act 2003) where the right or opportunity to acquire the same is or was available by reason of an employment of that or any other person for the purposes of that Part.

 

16.18         The Company has not received any asset as mentioned in section 282 of the TCGA.

 

16.19         So far as the Sellers are aware, there are no circumstances whereby any such power as is mentioned in section 212 of the IHTA could be exercised in relation to any shares in, securities of, or assets of the Company.

 

16.20         There is no unsatisfied inheritance tax liability attached to the Sale Shares or any asset of the Company and none of them are subject to any HMRC charge as mentioned in section 237 and 238 of the IHTA.

 

16.21         So far as the Seller are aware, all arrangements, transactions or series of transactions between the Company and any person connected to or associated with the Company have been and are on arm's length terms, and the Company is not, nor has it been, liable to have its profits for Tax purposes adjusted pursuant to Part 4 of the Taxation (International and Other Provisions) Act 2010 (provisions not at arm's length).

 

16.22         The Company has not been involved in a demerger to which a chargeable payment under Chapter 5 of Part 23 of the Corporation Tax Act 2010 could arise.

 

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Schedule 4
Adjustment to the Consideration

 

Part 1 - Calculation of Adjustment

 

In this Schedule, unless the context otherwise requires:

 

" Adjustment " means the amount calculated and payable in cash by the Purchaser or the Sellers (as the case may be) in accordance with this Schedule 4;

 

Company’s auditors” for the purposes of this Schedule 4 shall be the auditors of the Company current as at the Completion Date;

 

“Completion Balance Sheet” has the meaning given to it in paragraph 5(a) below;

 

" Net Working Capital " has the meaning given to it in paragraph 2 below; and

 

" Net Working Capital Statement " has the meaning given to it in paragraph 5(d) below.

 

1. The Adjustment to the Consideration shall be calculated and payable as follows:

 

(a) if the Net Working Capital is more than £57,000 the Adjustment payable by the Purchaser to each of the Sellers shall be equal to 2.525% of the amount by which Net Working Capital is more than £47,000; and

 

(b) if the Net Working Capital is less than of £37,000 (i.e the deficit in Net Working Capital is more than £10,000 below the target Net Working Capital of £47,000) the Adjustment repayable to the Purchaser by each of the Sellers shall be equal to 2.525% of the amount by which the Net Working Capital is less than £47,000

 

Provided always that no sum will be due and payable unless and until Completion has been effected under this Agreement in accordance with Clause 3 and Schedule 5

 

2. For this purpose, " Net Working Capital " means the consolidated net working capital of the Company and the Subsidiary as at the date of this agreement as adjusted and ascertained in accordance with the following provisions of this Schedule 4 and set out in the agreed or determined Net Working Capital Statement;

 

3. The Net Working Capital shall be ascertained from the Completion Balance Statement which shall be prepared:

 

(a) in accordance with the specific accounting treatments set out in Paragraph 5(c) of this Schedule 4; and, subject thereto.

 

(b) subj ect to paragraph 5(c) of this Schedule 4, in accordance with the treatments, methods, practices, policies and principles adopted by the Company and the Subsidiary for the preparation of the Accounts (and for the avoidance of doubt containing a general provision for Taxation);

 

(c) insofar as no treatment, method, practice, policy or principal previously adopted in the Accounts as referred to in (b) above, such, treatment, method, practice, policy or principal which complies with generally accepted accounting principles applied in the UK, incorporating Statements of Standard Accounting Practice, Financial Reporting Standards and Urgent Issues Task Force Abstracts issued by the Accounting Standards Board including in relation to the exercise of accounting discretion and judgement.

 

4. For the avoidance of doubt:

 

(a) paragraph 3(a) shall take precedence over paragraphs 3(b) and 3(c); and
(b) paragraph 3(b) shall take precedence over paragraph 3(c).

 

5. For the purposes of calculating the Net Working Capital:

 

(a) the parties in conjunction with Alex Rutherford and Oliver Bengough shall undertake a joint stock take of the Subsidiary in the morning of the day immediately following the date of this Agreement to ascertain the level of stock in the Subsidiary and the Sellers shall in conjunction with Alex Rutherford and Oliver Bengough procure as soon as practicable (and in any event no later than 30 days after the date of this Agreement) the preparation of a consolidated balance sheet of the Companies as at the date of this Agreement in the form set out in part 3 of this Schedule 4 and otherwise in accordance with this Schedule (the " Completion Balance Sheet ") which shall be prepared by the Sellers in conjunction with Alex Rutherford and Oliver Bengough and have been approved by the Companies auditors;

 

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(b) the Completion Balance Sheet shall only take account of information available to the parties at the date of delivery of the Net Working Capital Statement from the Sellers to the Purchaser in accordance with paragraph 6 below (the " First Delivery Date ") and not take account of any event happening after the First Delivery Date (except in relation to information known to the parties about that event at the First Delivery Date);

 

(c) the Completion Balance Sheet shall not take account of:

 

(i)          any event happening after Completion (save that information allowing a more accurate quantification of a liability which existed on or before Completion will be taken into account to the extent that such information is available at the First Delivery Date; and

 

(ii)         any matter arising from the change of control of the Company effected by the sale of the Sale Shares and the sale by Alex Rutherford and Oliver Bengough of the other shares in the Company to the Purchaser.

 

(d) for the purposes of preparing the Completion Balance Sheet:

 

(i) a provision of £7,500 will be made for any stamp duty land tax payable in relation to a Deed of Variation dated 7 December 2004 between the Company, CGIS Camden Palace Limited and Scottish Courage Limited which effected a variation to the Lease to the extent that the relevant stamp duty land tax has not been paid such amount to include any penalties and interest payable in respect of the late payment of such sum (calculated in reliance on the warranty at Schedule 3 paragraph 6.7 and without prejudice to any claim by the Purchaser under the Tax Covenant or otherwise);

 

(ii) a liability shall be included in the Completion Balance Sheet for any corporation tax on any income, profits or gains earned, accrued or received by the Companies on or before the date of this Agreement calculated as if the Completion Date were the end of an accounting period of the Companies;

 

(iii) no asset or liability shall be recorded in the Completion Balance Sheet in respect of deferred tax;

 

(iv) stock-in-trade shall be valued at the lower of cost (excluding the cost of warehousing, selling, distribution and administration) and market value (which shall itself be taken as the lower of net realisable value and replacement cost);

 

(v) normal adjustments and allowances will be made for unusable, unsaleable or deteriorated stocks;
     
(vi) the unamortised amount of the contribution by the landlord of the Property by way of any rent free period under the lease of the Property and any contributions towards the refurbishment of the premises shall be excluded from the calculation of the Net Working Capital;
     
(vii) appropriate provisions will be made for bad or doubtful debts;

 

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(viii) an accrual shall be included in the Completion Balance Sheet for VAT, general sales tax or other similar sales taxes, payroll taxes (including national insurance contributions) and any tax penalty payments and interest charges thereon where a notice has been raised by HMRC or the relevant payment was paid late or overdue as of the date of this Agreement; and

 

(ix) such further provisions, adjustments and allowances will be made as the Company’s auditors agree to be appropriate.

 

(e) the Company ’s auditors shall be instructed to certify the calculations of the Net Working Capital (based on the amounts shown in the Completion Balance Sheet) and produce a certified statement of the Net Working Capital (the “Net Working Capital Statement” ).

 

6. The Sellers in conjunction with Alex Rutherford shall procure that there is delivered to the Purchaser a copy of the Net Working Capital Statement and the Completion Balance Sheet as soon as reasonably practicable after they are prepared and in any event not later than the date falling 30 days after the date of this agreement. If the Sellers and Alex Rutherford fail to comply with his obligations under this paragraph, the Purchaser will automatically have the right to produce (in conjunction with the Company’s auditors and at the Sellers’ cost) the Net Working Capital Statement and the provisions of this schedule shall be read mutatis mutandis.

 

7. Within 30 Business Days of delivery of the certified statement referred to in P aragraph 6, the Purchaser may notify the Sellers in writing of any item or items it wishes to dispute, failing which the Net Working Capital Statement shall be final and binding on the parties.

 

8. If the amount of the Net Working Capital Statement is disputed in accordance with P aragraph 7 , the item or items in dispute shall be determined by:

 

(a) such firm of independent chartered accountants as the parties may agree in writing; or

 

(b) failing agreement on the identity of the firm of independent chartered accountants within a further seven days from the expiry of the period referred to above in paragraph 7, such firm of chartered accountants as may be appointed for this purpose on the application of any party to this Agreement by the President for the time being of the Institute of Chartered Accountants in England and Wales.

 

9. The Adjustment shall be payable within 21 days of its being ascertained under the above provisions.

 

10. If there is a shortfall such that the Net Working Capital is less than £37,000 the Adjustment shall be paid by payment to the Purchaser’s Solicitors Client Account or such other account as the Purchaser may notify in writing to the Sellers in immediately available funds by electronic transfer under the CHAPS system.

 

11. If the Net Working Capital is more than £57,000 the Adjustment shall be paid by payment to the Seller’s Solicitors Client Account or such other account as the Sellers may notify in writing to the Purchaser in immediately available funds by electronic transfer under the CHAPS system.

 

12. The Adjustment shall be deemed to be an increase in or, as the case may be, reduction in the Consideration.

 

13. For the purposes of calculating, determining and agreeing the Net Working Capital in accordance with this Schedule, the parties shall, and (to the extent that they are able) shall procure that the Companies shall provide the Sellers and Purchaser, the Company’s auditors and the accountants appointed in accordance with paragraph 8 with all information, assistance and access to books of account, documents, files and papers which they reasonably require.

 

Part 2 - Basis on which Independent Accountants are to act

 

14. The accountants appointed under paragraph 8 of Part 1 above (the " Independent Accountants ") shall act on the following basis:

 

(a) they shall act as experts and not as arbitrators;

 

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(b) their terms of reference shall be to determine an amount which in their opinion represents the item or items in dispute, as notified to them in writing by either the Sellers or the Purchaser within 30 Business Days of their appointment;

 

(c) the Sellers and the Purchaser shall each provide the Independent Accountants with all information which they reasonably require and the Independent Accountants shall be entitled (to the extent they consider it appropriate) to base their opinion on such information and on the accounting and other records of the Companies;

 

(d) the determination of the Independent Accountants shall (in the absence of manifest error) be conclusive;

 

(e) their costs shall be borne equally as between the Sellers on the one hand and the Purchaser on the other hand; and

 

(f) if they become unwilling or incapable of acting, then a new firm of chartered accountants shall be appointed and the provisions of paragraph 8 above shall apply mutatis mutandis in relation to the making of such appointment.

 

Part 3 – Form of Completion Balance Sheet

 

Completion Net Working Capital
  £   £
CURRENT ASSETS      
Bank & Cash X    
Stock X    
Debtors & Prepayments X    
      X
       
CREDITORS      
Creditors & Accruals X    
Other Creditors X    
Directors Loan Account X    
VAT/NIC/Corporation Tax X    
      X
       
Adjustments:      
[ ] [X]    
[ ] X    
      X
       
COMPLETION NET WORKING CAPITAL     X
       
Other net assets/liabilities excluded from net working capital: X    
Intangible Fixed Assets X    
Tangible Fixed Assets X    
Other Creditors – unamortised Landlord contributions (X)   X
COMPLETION NET ASSETS      

 

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Schedule 5
Completion Obligations

 

Part 1 - Sellers’ Completion Obligations

 

The matters to be undertaken by the Seller at Completion for the purposes of Clause 5.2 are as follows:

 

1. Sellers’ Obligations at Completion

 

1.1 At Completion the Sellers shall deliver or cause to be delivered to the Purchaser:

 

(a) transfers of the Sale Shares duly completed in favour of the Purchaser or as it may direct; and

 

(b) the share certificates representing the Sale Shares (or an express indemnity in a form satisfactory to the Purchaser in the case of any found to be missing).

 

Part 2 - Purchaser's Completion Obligations

 

1. The Completion

 

The Purchaser shall, upon compliance by the Sellers with their obligations under Part 1 above pay to such account of the Sellers’ Solicitors as they shall advise in writing the sum of £255,002 in immediately available funds by electronic transfer under the CHAPS system.

 

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Schedule 6
Limitations on Liabilities under the Warranties, Tax Covenant and Indemnity

 

For the purposes of this Schedule 6, references to the Company shall be deemed to include a separate reference to the Subsidiary.

 

Exclusions

 

1. The Sellers shall not be liable in respect of a Warranty Claim to the extent that the matter or circumstance giving rise to that claim:

 

(a) was taken into account in the Completion Balance Sheet prepared for the purposes of determining the Net Working Capital by way of an identified (as opposed to general) provision in respect of such matter or circumstance or a note constituting Disclosure of that matter or circumstance or a statement in any report forming part of the Accounts constituting Disclosure of that matter or circumstance; or

 

(b) is the subject of a claim under the Tax Covenant and the Purchaser receives a payment in respect thereof under the Tax Covenant.

 

2. The Sellers shall not be liable in respect of a Warranty Claim to the extent that the relevant liability would not have arisen but for:

 

(a) a change in legislation announced or the withdrawal of any extra-statutory concession previously made by any Taxation Authority, after the date of this Agreement (whether or not the change or withdrawal purports to be effective retrospectively in whole or in part); or

 

(b) a change after the date of this agreement in the accounting policies, practices, treatments or methods adopted by the Company other than a change made in order to comply with generally accepted accounting principles applied in the UK, incorporating Statements of Standard Accounting Practice, Financial Reporting Standards and Urgent Issues Task Force Abstracts issued by the Accounting Standards Board to the extent that the Company did not comply with such generally accepted accounting principles applied in the UK prior to the date of this agreement;

 

(c) in respect of Tax Warranties only, a change in the nature of, transfer, winding up or cessation of a trade or business carried on by or by the Company after the date of this Agreement;

 

(d) the Company or the Subsidiary failing to maintain the levels of insurance applicable to the Company and the Subsidiary at the Completion Date at the date the Warranty Claim is made;

 

(e) the Company or the Subsidiary having done (or omitted to do) something before the Date of this Agreement at the Purchaser’s written request or with the Purchaser’s prior written consent

 

   or is otherwise subject to the provisions of Schedule 6.

 

Direct Claims .

 

3. If the Purchaser becomes aware of facts which appear reasonably likely to give rise to a Warranty Claim against the Sellers (other than any Third Party Claim governed by paragraph 10 of this Schedule 6), the Purchaser shall, as reasonably practicable, give the Sellers written notice in reasonable detail, given the extent of the information available to the Purchaser, of all relevant circumstances with respect to the Warranty Claim. Except in any case where, in the reasonable belief of the Purchaser, immediate action is required by Purchaser to avoid further prejudice to the Purchaser, Sellers shall have twenty days from the date of the notice to remedy or cure the Warranty Claim.

 

This paragraph 3, and permitting the Sellers the opportunity to undertake remedial action pursuant to this paragraph is without prejudice to:

 

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(a) the rights of the Sellers under paragraph 10 (Conduct of Third Party Claims) of this Schedule 6; and

 

(b) the rights and remedies of the Purchaser pursuant to this agreement to the effect that if the remedy or cure is not, in the reasonable opinion of the Purchaser, satisfactory or complete, or if the Sellers fail or refuse to undertake and complete a remedy or cure within the 20 day period specified above, the Purchaser shall thereafter have all rights and remedies with respect to the Sellers afforded to the Purchaser under this Agreement pursuant and subject to the remaining provisions of this Schedule 6 or applicable law to recover with respect to the Warranty Claim.

 

De minimis claims

 

4. Subject to paragraph 4, the Sellers shall not be liable in respect of any Warranty Claim unless the liability in respect of such Warranty Claim is at least £10,000.

 

5. If more than one Warranty Claim arises from, or is caused by, the same or similar matter, matters, circumstance or circumstances and the aggregate amount of damages to which the Purchaser would be entitled as a result of those Warranty Claims is equal to or exceeds the sum specified in paragraph 3, paragraph 3 shall not apply to any of those Warranty Claims.

 

Threshold

 

6. Neither Seller shall be liable in respect of any Warranty Claim unless the liability for all Warranty Claims together with the aggregate liability of all other single Warranty Claims of £10,000 or more exceeds exceeds 2.525% of £200,000, in which case the Purchaser shall be entitled to all amounts resulting from those claims (and not just the excess over that sum).

 

Aggregate limit

 

7. Subject to paragraph 6, the maximum aggregate liability of each of the Sellers in respect of:

 

(a) any and all liability in relation to Warranty Claims (excluding any and all claims under those Warranties set out in paragraph 16 (Tax) of Schedule 3 ( Warranties ) or the Key Warranties but including all costs of recovery incurred by the Purchaser and/or the Companies) shall not exceed:

 

(i) 2.525% of the total liability for breach of the relevant Warranty; and

 

(ii) in aggregate as regards the total amount claimed against the Sellers an amount equal to 50% of the Consideration

 

(b) any and all liability in relation to the Warranties set out in paragraph 16 (Tax) of Schedule 3 including all costs of recovery incurred by the Purchaser and/or the Companies shall not exceed, in the case of each Seller, 2.525% of the total liability for breach of the relevant Warranty set out in paragraph 16 (Tax);

 

(c) any and all claims under the Key Warranties or those Warranties set out in paragraph 16 (Tax) of Schedule 3 (Warranties), or the indemnities in clause 4.10(a) and 4.10(b) and/or under the Tax Covenant (including in each case any costs of recovery) shall not exceed, when added together with any liability in respect of any Warranty Claim, an amount equal to 100% of the Consideration.

 

Actual Loss

 

8. No payment shall be due from the Sellers in respect of a Proven Claim until actual loss in relation to the Warranty Claim has been suffered by the Purchaser or the Company (as the case may be) as a consequence of the matter which is the subject of the Warranty Claim.

 

Time limits

 

9. The liability of each Seller in respect of the Warranties and the Tax Covenant shall terminate:

 

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(a) subject to paragraph 9(c) below, in relation to a Warranty Claim if notice of such claim has not been given within 15 calendar months of the date of this Agreement.
   
(b) in relation to those Warranties set out in paragraph 16 (Tax) of Schedule 3 ( Warranties ) and of any other Warranties so far as they relate to Taxation or in respect of the Tax Covenant notice of such claim has not been given before the fifth anniversary of Completion; and
   
(c) in relation to a Warranty Claim (other than one relating to the Warranties set out in paragraph 16 (Tax) of Schedule 3 ( Warranties ) or which relates to Taxation) which has not been resolved on or before six months from the date on which the Purchaser first served written notice on the Seller unless the Purchaser has by then issued and served legal proceedings in respect of the Warranty Claim on the Seller or, if later, in relation to a Warranty Claim where notice has been served in accordance with, and within the time periods set out in either sub-paragraph (a) or (b) above but in circumstances where no actual loss has been suffered by the relevant party at the time of the notification of the claim, the date being six months from the date upon which the actual loss has been suffered by the relevant party

 

Provided Always that the Seller shall have no liability in respect of an amendment or addition to a Warranty Claim in legal proceedings which would constitute a Warranty Claim other than the original Warranty Claim unless notice of the circumstances giving rise to the amendment or addition was served on the Seller before the date set out in paragraph 9(c) above.

 

10. Conduct of Third Party Claims

 

10.1 The Purchaser shall procure that, if either it or the Company or Subsidiary becomes aware of circumstances which appears to it likely to give rise to a Warranty Claim (a “ Third Party Claim ”) or that it is or is likely (in the Purchaser’s reasonable opinion) to be entitled to make a recovery from a third party in respect of circumstances which have given or are likely to give rise to a Third Party Claim, it shall:

 

(a) as soon as reasonably practicable give to the Sellers written notice in reasonable detail given the extent of the information available to the Purchaser of all relevant circumstances and consult with the Sellers in relation to those circumstances;

 

(b) keep the Sellers informed of material advice received and material developments which would be likely to affect the amount the subject of a Third Party Claim;

 

(c) shall not and shall procure that neither the Company nor the Subsidiary shall admit or concede liability or agree a compromise or settlement with a third party without first obtaining the Seller’s written agreement;

 

(d) save where to do so may breach legal or professional privilege of the Purchaser or the Companies, give the Sellers and their advisers reasonable access to the premises and personnel of the Purchaser or the Companies as they may reasonably require and opportunity to examine and copy relevant documents and records and photograph premises, asset or personnel within the control of the Purchaser or the Companies and, if required by the Sellers, procure that all personnel of the Purchaser or the Companies having knowledge of or involvement with the facts and circumstances giving rise to the Third Party Claim afford the Sellers all reasonable assistance to properly resist, contest, defend or appeal against the Third Party Claim;

 

(e) take such action as the Sellers require in relation to the Third Party Claim and permit the Sellers (in their own name or in the name of the Purchaser, Company or Subsidiary or in any combination of those names) to conduct, settle, compromise, defend or appeal relevant proceedings and to enforce any relevant rights and entitlements;

 

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(f) use all reasonable endeavours itself, and will procure that the Companies each use their respective reasonable endeavours, to mitigate its or their loss which is or is likely to become the subject matter of a Third Party Claim (but for the avoidance of doubt the Purchaser shall not be required to take any steps that may increase the amount of any future Tax liability of the Companies or utilise any Relief of the Companies)

 

Provided always that if notice of a warranty claim has been given to Alex Rutherford pursuant to the Alex SPA and Alex Rutherford has notified the Purchaser that he wishes to exercise any of his rights under sub-paragraph 10.1(d) or (e) of Schedule 6 of that agreement in relation to a warranty claim thereunder relating to the same subject matter as the Warranty Claim being made against the Sellers then the rights of the Sellers in relation to paragraphs 10.1(c), 10.1(d) and (e) above shall be suspended in relation to that Warranty Claim alone.

 

10.2 Subject to the Seller having complied with the provisions of paragraph 10.4, without limiting the provisions of sub-paragraph 10.1. where having discharged a liability arising in respect of a Third Party Claim, the Seller requests the assignment to it of any right of the Purchaser or of the Company or Subsidiary to make recovery in whole or in part from any third party, the Purchaser will assign or procure the assignment to the Seller of such right and, if that right is not legally capable of effective assignment will pursue such right on behalf of the Seller and promptly pay over and account to the Seller all amounts recovered

 

10.3 Subject to the Seller having complied with the provisions of paragraph 10.4 and a Third Party Claim having been notified in writing to the Purchaser, the Purchaser shall use reasonable endeavours to procure that it and the Companies shall preserve within its control originals (where it is so entitled) or (in every other case) copies of all documents and other material information relevant to matters giving rise to the Third Party Claim or a right of recovery from a third party in respect of matters which may give rise to Third Party Proven Claim relating to the relevant Third Party Claim.

 

10.4 The Seller shall indemnify the Purchaser to its reasonable satisfaction in respect of all liabilities, costs, charges and expenses that are reasonably and properly incurred by the Purchaser or any of the Companies as a consequence of it complying with its obligations under this paragraph 10 or as a consequence of any actions taken at the request of the Seller in accordance with this paragraph 10.

 

10.5 Nothing in this paragraph 10 shall require the Purchaser or the Companies to take any action or refrain from taking any action, if the Purchaser in its reasonable opinion and acting in good faith considers such action or omission is or is likely to be materially prejudicial to the goodwill or business of the Purchaser’s Group.

 

Mitigation

 

11. Nothing in this agreement shall be deemed to relieve the Purchaser from any common law duty to take reasonable steps to mitigate any loss or damage suffered or incurred by it as a result of any of the Warranties being untrue or inaccurate or impose any higher duty on the Purchaser to mitigate its loss beyond its common law duties.

 

Recovery from third parties

 

12. If:

 

(a) either of the Sellers makes a payment in respect of a Warranty Claim (a “ Damages Payment ”);

 

(b) following the making of such payment any of the Companies or the Purchaser receives any sum other than from the Sellers or Oliver Bengough or Alex Rutherford which would not have been received but for the matter or circumstance giving rise to the relevant Warranty Claim (the “ Third Party Sum ”);

 

(c) the receipt of the Third Party Sum was not taken into account in calculating the Damages Payment; and

 

(d) the aggregate of the Third Party Sum and the Damages Payment exceeds the amount required to compensate the Purchaser or the Companies concerned (as the case may be) in full for the matter or circumstance which gave rise to the relevant Warranty Claim (such excess being the “ Excess Recovery ”),

 

the Purchaser shall within 10 Business Days following receipt of the Third Party Sum by it or the Companies concerned, repay to the relevant Seller or Sellers an amount equal to the lower of 2.525% of (i) the Excess Recovery and (ii) the Damages Payment, after deducting (in either case) all costs incurred by the Purchaser or the Companies concerned in recovering the Third Party Sum and any and all Taxation payable by the Purchaser or the Companies concerned by virtue of its receipt.

 

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Schedule 7
Tax Covenant

 

1. Definitions and interpretation

 

1.1 In this Schedule, unless the context otherwise requires, the following words have the following meanings:

 

"Claim for Taxation" means any notice, demand, assessment, letter or other document issued or action taken by or on behalf of any Tax Authority or any person (including the Company) indicating that any person is or may be placed or sought to be placed under either a liability to Taxation or a claim for Taxation to which paragraph 5 may apply.

 

"CTA 2010" means the Corporation Tax Act 2010.

 

"Event" means any event, deed, transaction, act, omission, payment or receipt and whether actual or deemed for Tax purposes, including entering into this Agreement and including any combination of two or more Events.

 

"Group Companies" means the Company and the Subsidiary and reference to " Group Company " means any one of them.

 

"ICTA" means the Income and Corporation Taxes Act 1988.

 

"ITA" means the Income Tax Act 2007.

 

"Profits" means income, profits and gains, the value of any supply and any other consideration, value, measure or receipt used or charged for Taxation purposes and references to " Profits earned, accrued or received " include Profits deemed to have been earned, accrued or received for Taxation purposes.

 

"Tax Claim" means a claim by the Purchaser against the Sellers under the Tax Covenant or for breach of any of the Tax Warranties or, as the case may be, a claim by the Sellers against the Purchaser under the covenant in paragraph 5.

 

"Tax Counsel" means a barrister of at least 7 years call, experienced in tax matters.

 

"Sellers’ Associate" means any Sellers and any other person with whom the Sellers and/or the Company is either associated (within the meaning of section 448, CTA 2010) or connected (within the meaning of section 1122, CTA 2010 or, as the case may be, section 993, ITA).

 

"Sellers’ Representative" means Hugh Doherty.

 

1.2 In this Schedule:

 

(a) a reference to a jurisdiction shall include any union (including for the avoidance of doubt, the European Union), country, state, province, district or division of whatever nature which imposes or raises Taxation;

 

(b) a reference to any law shall include any statute, statutory instrument, law, regulation, treaty, notice, directive or similar provision relating to Taxation, whether of the United Kingdom or elsewhere; and

 

(c) references to specific parts of the law of the United Kingdom shall be taken to include a reference to the law of any other jurisdiction so far as the same may apply to any Group Company and may be similar to or have a similar purpose to the law of the United Kingdom to which reference is made.

 

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2. Tax Covenant

 

2.1 Save as hereinafter provided, each of the Sellers hereby covenant to pay to the Purchaser such amount as is equal, on an after Tax basis (but subject to paragraph 4.4. of Schedule 11) , to 2.525% of :

 

(a) any liability to Tax of the Company or the Subsidiary (including any liability which would have been payable but for the application or set off of any Relief against a liability to Tax, other than any Relief arising to the Company or the Subsidiary on or before the date of this Agreement but which is not shown as an asset in the Completion Balance Sheet or taken into account in computing any corporation tax provision in the Completion Balance Sheet) arising in respect of or as a consequence of or by reference to:

 

(i) any income, profits or gains actually or deemed to be earned, accrued or received by the Company or the Subsidiary on or before the date of this Agreement; or

 

(ii) any Event occurring or deemed to occur on or before the date of this Agreement; or

 

(iii) the failure by any other person connected for Tax purposes with or in the same group as the Company or the Subsidiary for any Tax purpose at any time before the date of this Agreement (the "Pre-Completion Connection" ) to discharge a liability to Tax which falls on the Company or the Subsidiary as a result of that Pre-Completion Connection for which the Company or the Subsidiary is not primarily liable; or

 

(iv) the sale of Sale Shares under this Agreement and any payments to the Sellers in respect thereof; or

 

(v) arrangements made in connection with the transfer of the Subsidiary to the Company; or

 

(b) any liability to Tax of the Company or the Subsidiary arising as a result of:

 

(i) any acquisition of a chargeable interest before the date of this Agreement (whether deemed or actual) in relation to which stamp duty land tax compliance (including, but not limited to the preparation and filing of necessary returns, and the payment of any stamp duty land tax due) has not been properly or duly undertaken; or

 

(ii) the submission or amendment (or notice of amendment) of any form or notice for stamp duty land tax purposes after the date of this Agreement where a land transaction return was submitted prior to the date of this Agreement calculating stamp duty land tax by reference to an estimate except where such submission or amendment is required as a result of an Event outside of the ordinary course of business of the Company or the Subsidiary after the date of this Agreement which gives rise to or increases any stamp duty land tax;

 

(c) the loss of any Relief shown as an asset in the Completion Balance Sheet; or

 

(d) any inheritance tax which is at the date of this Agreement or which subsequently becomes as a result in whole or in part of a transfer of value occurring on or before the date of this Agreement a charge or encumbrance on any of the Sale Shares or assets of the Company or the Subsidiary; or

 

(e) any liability of the Company or Subsidiary to pay for Group Relief or to repay, in whole or in part, any payment previously made for Group Relief pursuant to any arrangement or agreement entered into prior to the date of this Agreement save for any payment or repayment between the Company and the Subsidiary; or

 

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(f) the loss in whole or in part of the right to receive any payment for Group Relief to the extent that such right to payment is provided for as an asset in the Completion Balance Sheet;

 

together with all reasonable costs and expenses incurred by the Company, the Subsidiary or the Purchaser in connection with any successful claim under paragraph 2.1 (a)-(e) above or in successfully taking any action under this Clause unless provision or reserve in respect of the liability has been made in the Completion Balance Sheet.

 

2.2 The provisions of Schedule 6 shall, to the extent specifically provided for under that Schedule, apply to the Sellers’ liability under this Schedule as if expressly stated herein save that paragraph 6 shall not apply to any liability falling within paragraphs 2.1(a)(iii) and 2.1(a)(v) of this Schedule.

 

3. Amount of liability to Taxation

 

The amount of any liability under paragraphs 2.1(a) and (b) of the Tax Covenant shall be:

 

(a) in the case of an actual payment of Tax or loss of a repayment, the amount of the payment or repayment;

 

(b) in the case of the loss of a Relief,

 

(i) if the Relief is a right to repayment of Tax, the amount of the repayment that is lost,

 

(ii) the amount of Taxation saved as a result of the loss of the Relief, if the Relief was set off against Profits or set-off and credited against a liability to pay Taxation,

 

(iii) in any other case, the amount of Taxation that would have been saved but for the loss of the Relief on the assumption that the relevant Group Company would have been able to fully utilise the Relief in the accounting period during which the Relief was lost.

 

4. Date for payment

 

4.1 Where the Sellers become liable to make any payment under the Tax Covenant, the due date for the making of that payment shall be:

 

(a) in a case that involves an actual payment of Taxation by any Group Company, the date that is two Business Days before the last date on which the relevant Group Company is liable to pay to the appropriate Tax Authority the Taxation in question in order to avoid incurring a liability to interest or penalties or, if later, five Business Days following a written demand from the Purchaser giving details of the payment in question;

 

(b) in the case of the set off or application of any Relief against a liability to Taxation, the date that is the date on which the Taxation saved would otherwise have become payable to the relevant Tax Authority the or, if later, five Business Days following a written demand from the Purchaser giving details of the payment in question;

 

(c) in the case of costs and expenses, the date falling five Business Days following the date on which the Sellers’ Representative receives a written demand for such amount from the Purchaser together with a copy of the relevant third party invoice; or

 

(d) in any other case, the date falling five Business Days following the date on which the Sellers’ Representative receives a written demand for such amount from the Purchaser.

 

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5. Covenant to Sellers

 

5.1 The Purchaser covenants with the Sellers to pay to each Seller an amount equal to 2.525% of any Taxation which is assessed on the Seller or on any Seller Associate pursuant to either section 710, CTA 2010 or section 713, CTA 2010 by reason of Taxation assessed on or primarily or directly attributable to the Purchaser, any member of the Purchaser's group, or the Subsidiary, or the Company for any accounting period remaining unpaid provided that this covenant shall not apply to any Taxation in respect of which the Purchaser is entitled to bring a Tax Claim against the Sellers or would have been so entitled but for paragraphs 6 (Limitations on liability), 7 (Repayment) and 8 (Over-provisions and Reliefs) below or clause [4.10] of the Agreement (Sellers’ Protections).

 

5.2 Each of the Sellers covenants that he shall make no claim under paragraph 5.1 above to the extent that they shall have recovered the Taxation in question under section 717, CTA 2010) and that to the extent that they recover any amount under paragraph 5.1 they shall not seek to recover payment under section 717, CTA 2010.

 

6. Limitations on liability

 

6.1 The liability of the Sellers under the Tax Covenant shall be reduced if and to the extent that the liability shall have been recovered under the Warranties or under any other part of the Tax Covenant or Agreement (and vice versa).

 

6.2 The Sellers shall not be liable to the Purchaser for a Tax Claim in respect of any liability:

 

(a) to the extent that provision or reserve in respect of that liability was included in the Completion Balance Sheet or the obligation to make payment or discharge of such liability was otherwise taken into account therein in determining the Consideration;

 

(b) to the extent that the liability arises or is increased as a result only of:

 

(i) any increase in rates of Taxation;

 

(ii) any change in law or in the published practice of any Tax Authority;

 

(iii) any change in accounting practice or principles or any change in the bases on which the accounts of the relevant Group Company are prepared except in either case in order to comply with generally accepted accounting practice; or

 

(iv) any change in the date to which the relevant Group Company makes up its accounts ;

 

(c) the liability has been relieved or mitigated because the Sellers have procured within a reasonable time for no consideration a surrender of Group Relief to the Company or the Subsidiary, as the case may be;

 

(d) such liability would not have arisen but for a voluntary act or omission carried out or effected by the Company, the Subsidiary or the Purchaser at any time after the date of this Agreement, other than any act or omission carried out or effected:

 

(i) under a legally binding commitment created on or before the date of this Agreement;

 

(ii) in order to comply with any law or in order to comply with generally accepted accounting principles; or

 

(iii) in the ordinary and normal course of the business carried on by the Company;

 

(iv) that is or was required by law;

 

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(e) such liability would not have arisen or would have been reduced but for a failure or omission on the part of the Company, the Subsidiary or the Purchaser after the date of this Agreement to make any claim or election, the making or claiming of which was taken into account in computing the provision or reserve for Taxation in the Completion Balance Sheet;

 

(f) there is or is made available to the relevant Group Company (at no cost to the Buyer or the relevant Group Company) to relieve or mitigate such liability to Taxation any Relief arising to the Company or the Subsidiary on or before the date of this Agreement but which is not shown as an asset in the Completion Balance Sheet or taken into account in computing any corporation tax provision in the Completion Balance Sheet;

 

(g) the Purchaser or the relevant Group Company has already been compensated in respect of such Liability to Taxation at no cost to the Purchaser or relevant Group Company;

 

(h) such Liability to Taxation can be properly and fully discharged out of monies deducted for the purpose from sums payable or paid by any Group Company provided the Company still holds the monies at the date of this Agreement to discharge the Liability to Taxation; or

 

(i) it arises or is increased as a consequence of any failure by the Purchaser or the any Group Company to comply with any of their respective obligations under the Agreement in so far as it relates to Taxation.

 

7. Repayment

 

7.1 If the Sellers shall make any payment to the Purchaser in relation to any Tax Claim and the Purchaser or any Group Company subsequently receives from any Tax Authority or any person (other than another Group Company) any amount referable to the subject matter of that Tax Claim, the Purchaser shall, once it or any Group Company has received such amount, repay (after deducting the costs and expenses of the Purchaser or any Group Company incurred in recovering such amount and any Taxation payable on it or on any interest) to the Sellers either:

 

(a) a sum equal to 2.525% of such amount to each Seller; or

 

(b) if lesser a sum equal to the Tax Claim paid by the Sellers to the Purchaser,

 

together with any interest paid to the Purchaser or the relevant Group Company in respect of such sum.

 

8. Over-provision and Reliefs

 

8.1 If on or before the fourth anniversary of the date of this Agreement, the auditors for the time being of the relevant Group Company shall confirm in writing (on instruction of the relevant Group Company but at the request and expense of the Sellers) that (applying the same policies, principles and practices as used in preparing the Completion Balance Sheet) any provision for Taxation (excluding any provision for deferred taxation) on the balance sheet in the Completion Balance Sheet (other than by reason of the availability of a Relief arising after the date of this Agreement and ignoring the effect of any change in law made after the date of this Agreement) has proved to be an over-provision and that over-provision reduces a liability to make an actual payment of Tax of the relevant Group Company or the Purchaser (other than a liability for which the Purchaser would be entitled to bring a Tax Claim), then an amount equal to 2.525% of the amount of such over-provision shall be dealt with in accordance with paragraph 8.3.

 

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Reliefs

 

8.2 If on or before the fourth anniversary of the date of this Agreement, the auditors for the time being of the relevant Group Company shall confirm in writing (at the request and expense of the Sellers) that any liability which has resulted in a payment having been made or becoming due from the Sellers under the Tax Covenant will give rise to a Relief for a Group Company (other than a Relief arising after the date of this Agreement) which would not otherwise have arisen, then as and when such Relief reduces a liability to make an actual payment of Tax (other than a liability for which the Purchaser would be entitled to bring a Tax Claim), the amount of that reduction shall be dealt with in accordance with paragraph 8.3 below.

 

Conduct

 

8.3 Where it is provided under paragraphs 8.1 or 8.2 that any amount (the "relevant amount") is to be dealt with in accordance with this sub-paragraph:

 

(a) the relevant amount shall first be set-off against any payment then due from the Sellers under the Tax Covenant;

 

(b) to the extent that there is an excess, a refund shall be made to the Sellers of any previous payment made by the Sellers under the Tax Covenant (to the extent not previously refunded under this paragraph 8) up to the amount of such excess; and

 

(c) to the extent that the excess referred to in paragraph 8.3(b) above is not exhausted under that paragraph, the remainder of the excess shall be carried forward and set off against any future payment or payments which become due from the Sellers under the Tax Covenant.

 

8.4 Where any written confirmation referred to in paragraphs 8.1 or 8.2 has been made, the Sellers or the Purchaser or the Company may request, at the sole expense of the party making the request, the auditors to review such written confirmation in the light of all relevant circumstances, including any facts which have become known only since such written confirmation, and to certify whether such written confirmation remains correct or whether the amount in such written confirmation should be amended.

 

8.5 If the auditors certify under paragraph 8.4 that an amount previously determined should be amended, that amended amount shall be substituted for the purposes of paragraph 8.3 as the relevant amount in respect of the written confirmation in question in place of the amount originally included, and such adjusting payment (if any) as may be required shall be made as soon as practicable by the Sellers or (as the case may be) to the Sellers to give effect to the revised amount.

 

9. Claims Procedure

 

9.1 On the Purchaser or the Company becoming aware of a Claim for Taxation which may result in a Tax Claim the Purchaser shall:

 

(a) as soon as reasonably practicable (but not as a condition precedent to the making of a Tax Claim) give written notice of that Claim for Taxation to the Sellers’ Representative or, as the case may be, shall procure that the Company forthwith give written notice of that Claim for Taxation to the Sellers’ Representative;

 

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(b) subject always to the terms of this paragraph 9 and the Sellers indemnifying the Purchaser and/or the relevant Group Company to its reasonable satisfaction against all losses, costs, damages and expenses, which may be incurred (and promptly reimbursing any costs actually incurred), procure that the Company take such action and give such information and assistance in connection with the affairs of the Company as the Sellers’ Representative may reasonably and promptly by written notice request to avoid, resist, appeal or compromise the Claim for Taxation; and

 

(c) procure that the Sellers’ Representative is promptly provided with copies of any material correspondence with the Tax Authority.

 

9.2 The Purchaser shall not be obliged to procure that the relevant Group Company appeals against any tax assessment if, the Sellers’ Representative, having been given written notice of the receipt of that Claim for Taxation in accordance with paragraph 9.1 above, the Purchaser has not within 21 days (or, if there is a statutory time limit of not more than 30 days, within 14 days) thereafter received instructions promptly in writing from the Sellers’ Representative, in accordance with the preceding provisions of this paragraph 9, to make that appeal.

 

9.3 The Purchaser shall not be obliged to procure that the relevant Group Company take any action under paragraph 9.1 above which involves contesting any matter with any Tax Authority (excluding the authority or body demanding the Tax in question) or any court or tribunal unless the Sellers’ Representative furnishes the Purchaser with the written opinion of Tax Counsel to the effect that the appeal in question will, on the balance of probabilities, succeed. Such Tax Counsel shall be instructed by the Sellers' Representative and at the Seller’s expense but the Sellers’ Representative shall promptly provide the Purchaser with a copy of such instructions and give the Purchaser or its representative a reasonable opportunity to attend any conference with Tax Counsel.

 

9.4 The Purchaser agrees to delegate the conduct of the submission of any stamp duty land tax documentation or returns (which relate to any period prior to Completion) to any Tax Authority in respect of the Lease of the Property (and any action, negotiations, returns, correspondence or other documentation that follow from any such submission) to the Seller and the Seller’s Representative and paragraphs 9.1(b) and (c) above shall apply as if any such action, documentation, returns, correspondence or negotiations are a “Claim for Taxation” for eh purpose of those paragraphs and paragraph 9.1(b) shall apply as if it includes an agreement to delegate all such matters to the Seller and the Seller’s Representative. The Purchaser agrees, and agrees to procure that the Company, shall not submit any documentation, returns or correspondence to, or enter into negotiations with any Tax Authority in respect of the Lease of the Property without the Seller’s prior written approval, such approval not to be unreasonably withheld.

 

10. Tax Returns

 

10.1 The Sellers or their duly authorised agent shall at the relevant Group Company's expense (to the extent provided for in the Completion Balance Sheet) prepare the corporation tax returns (including all computations and the provision of financial information, together with all necessary claims, elections, surrenders and notices required for such returns) of the Company and the Subsidiary for all the accounting periods ended on the Accounts Date to the extent that they have not been prepared prior to Completion. The Seller or his duly authorised agent shall, at the relevant Group Company’s expense (to the extent provided for in the Completion Balance Sheet) also deal with all matters (including correspondence) relating to such corporation tax returns provided that the Sellers Representative shall provide the Purchaser with copies of any correspondence relating to such tax returns prior to submission, and copies of any correspondence from the relevant Tax Authority. The Sellers shall give the Purchaser a reasonable opportunity to comment on such correspondence prior to submission and shall take account of the Purchaser’s reasonable comments.

 

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10.2 The Purchaser shall procure that the Company and the Subsidiary shall cause the tax returns mentioned in paragraph 10.1 above to be authorised, signed and submitted to the relevant Tax Authority without amendment or with such amendments as the Sellers’ Representative shall reasonably agree provided that the Purchaser shall not be obliged to procure that the Company or the Subsidiary takes any such action as is mentioned in this paragraph 10 in relation to any tax return that is not true and accurate in all material respects or conflicts with anything agreed in respect of the Completion Balance Sheet.

 

10.3 The Purchaser shall provide the Sellers’ Representative with a copy of the corporation tax return relating to the accounting period current at Completion at least 28 days prior to the date for submission of that corporation tax return. The Purchaser shall give the Sellers a reasonable opportunity to comment on such return prior to its submission to the relevant Tax Authority and shall take account of the Sellers’ Representative reasonable comments in relation to any period ending on or prior to the Completion.

 

10.4 The Purchaser shall upon reasonable notice (having regard to the circumstances) being given by the Sellers procure that the relevant Group Company shall afford such access to such information and is given such assistance as is necessary and reasonable to enable the Sellers or his duly authorised agent to prepare those tax returns and conduct matters relating thereto in accordance with the Sellers’ rights under this paragraph 10.

 

10.5 The Purchaser shall procure that the relevant Group Company shall at the reasonable request of the Sellers’ Representative do all such things which may be reasonably necessary to ensure that full effect is given to any claim, surrender or election made to or by the relevant Group Company and which is reflected or taken into account in the Accounts or the Completion Balance Sheet including for the avoidance of doubt signing and submitting any revised claim, election or surrender and progressing any such claim, surrender or election or revised claim surrender or election with the relevant Tax Authority.

 

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Schedule 8
Protective Covenants

 

1. Each of Sellers (for himself only) covenants with the Purchaser, the Company and the Subsidiary as Third Parties that they shall not:

 

(a) for a period of twelve calendar months after Completion be concerned in any business carrying on business within the Relevant North London Boroughs that involves the operation of live music venues with a capacity of 500 or more people; or

 

(b) for a period of twelve calendar months after Completion:

 

(i) canvass, solicit, induce or attempt to induce any person who is at the date of this Agreement a director or employee of the Company earning over £50,000 per annum (a “ key employee ”) to leave the employment of the Company; or

 

(ii) employ or attempt to employ any person who is at the date of this Agreement a director or key employee of the Company; or

 

(iii) procure or facilitate the making of an offer of employment to any person who is at the date of this Agreement a director or key employee of the Company;

 

(c) for a period of twelve calendar months after Completion induce or attempt to induce any person, who is at the date of this Agreement or has been at any time within the year prior to the date of this Agreement a supplier of goods or services to the Company, to cease to supply, or to restrict or vary the terms of supply, to that company; or

 

(d) for a period of twelve calendar months after Completion do or say anything which may lead a person to cease to deal with any of the Companies on substantially equivalent terms to those previously offered or at all; or

 

(e) after the date of this Agreement do or say anything which is harmful to the reputation of any of the Companies, their shareholders or their officers; or

 

(f) after Completion make use of information of a secret or confidential nature relating to, or to the business or affairs of, any of the Companies; or

 

(g) after Completion (except as required by law or any competent regulatory body) disclose or divulge to any third party any information of a secret or confidential nature relating to, or to the business or affairs of, any of the Companies (save in so far as such disclosure may be necessary in order to enable Mint Group Holdings Limited to carry out its duties and obligations under the Transitional Services Agreement) ; or

 

(h) after Completion use or (insofar as he can reasonably do so) allow to be used (except by the any of the Companies) any trade name, trade or service mark, business or domain name, design or logo used by any of the Companies at Completion or any other name, mark, domain name, design or logo intended or likely to be confused with any trade name, trade or service mark, business or domain name, design or logo used by any of the Companies at Completion; or

 

(i) after Completion present himself or permit himself to be presented as connected in any way with any of the Companies (save in the normal course of his employment by any of the Companies or as a former owner of Sale Shares in the Company ) or as interested in the Shares following Completion .

 

2. For the purposes of this schedule:

 

(a) a person is concerned in a business if it carries on the business as principal or agent or if:

 

(i) he is a partner, director, employee, secondee, consultant or agent in, of or to any person who carries on the business; or

 

(ii) he has any direct or indirect financial interest (as shareholder or otherwise) in any person who carries on the business; or

 

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(iii) he is a partner, director, employee, secondee, consultant or agent in, of or to any person who has a direct or indirect financial interest (as shareholder or otherwise) in any person who carries on the business; or

 

(iv) it is concerned or interested in, or otherwise assists the business in any way;

 

(b) the restrictions in paragraph 1 apply to actions carried out by the Sellers in any capacity and whether directly or indirectly on their own behalf or on behalf of, or jointly with, any other person;

 

(c) no regard shall be had to any financial interest of a person in securities which are held for investment purposes only and are listed on a recognised securities exchange if that person, and any person connected with that person (the “ Investors ”) are together interested in securities which amount to less than 5% of the issued securities of that class and which, in all circumstances, carry less than 5% of the voting rights (if any) attaching to the issued securities of that class, and provided that none of the Investors is involved in the management of the business of the issuer of the relevant securities or of any person connected with it otherwise than by the exercise of voting rights attaching to securities .

 

3. Each of the restrictions in each paragraph or sub clause above shall be enforceable independently of each of the others and its validity shall not be affected if any of the others is invalid.

 

4. If any of those restrictions is void but would be valid if some part of the restriction were deleted, the restriction in question shall apply with such modification as may be necessary to make it valid.

 

5. The Sellers acknowledge that the above provisions of this schedule are no more extensive than is reasonable to protect the Purchaser as the purchaser of the Sale Shares.

 

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Schedule 10
Property

 

The leasehold property known as Camden Palace Nightclub, Camden High Street, London NW1 0JH.

 

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Schedule 11
Terms and Conditions

 

1. Further Assurance

 

1.1 On or after Completion, Sellers will at their cost and expense, execute and do (or procure to be executed and done by any necessary party) all such deeds, documents, acts and things as they ought to have done on or prior to Completion (acting reasonably) in order to vest any of the Sale Shares set opposite his name in Schedule 1 ( The Sellers ) in the Purchaser or its assignee or otherwise as may be necessary to give full effect to this Agreement.

 

2. Confidentiality

 

2.1 Subject to paragraph 2.2 below each Seller undertakes to the Purchaser (for itself and for each of the Companies as Third Parties) that he will (both before and after Completion):

 

(a) not at any time after the date of this Agreement use, divulge or communicate to any person other than to officers or employees of the Companies who need to know the same any Confidential Information which may be in or come to his knowledge; and

 

(b) use his reasonable endeavours at the cost of the Purchaser to prevent publication or disclosure of any Confidential Information.

 

2.2 Paragraph 2.1 shall not apply if and to the extent that the Seller, in disclosing Confidential Information, can demonstrate that:

 

(a) such disclosure is required by law or by any securities exchange or regulatory or governmental body having jurisdiction over it (including but not limited to the UK Listing Authority, the London Stock Exchange, the Panel on Takeovers and Mergers and the Serious Fraud Office) and whether or not the requirement has the force of law, provided that the relevant Seller required to disclose the Confidential Information shall promptly notify the Purchaser before such disclosure is made (where it is lawful to do so) and shall co-operate with the Purchaser at the Purchaser’s expense and subject to each of the relevant Seller being duly secured and indemnified by the Purchaser if the Purchaser wishes to challenge the need for such disclosure or the timing and content of such disclosure; or

 

(b) such disclosure is to a professional or financial adviser for the purpose of advising the relevant Seller in connection with the transactions contemplated by this Agreement, provided that such disclosure is necessary for these purposes, such adviser is made aware of the obligations of this paragraph 2 and such adviser is bound by a duty of confidentiality (whether express or implied); or

 

(c) the Confidential Information concerned has come into the public domain other than through the fault of any person to whom such Confidential Information has been disclosed in accordance with paragraph 2.1

 

Provided always that the restrictions contained in this paragraph 2 shall survive Completion and shall continue without limit of time.

 

3. Announcements

 

The Sellers and the Purchaser shall, as soon as practicable after Completion procure that a joint announcement of the sale and purchase of the Sale Shares in the agreed form is made. Otherwise no announcement shall be made about the deal without the written approval of each of the parties save to the extent that the Purchase is obliged to report to shareholders or is otherwise required by law or the rules of any listing authority in which event the Sellers shall be consulted by the Purchase (who shall consider carefully the inclusion of any comments which the Sellers may make) prior to the issuing of such announcement.

 

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4. Payments

 

4.1 Unless otherwise expressly stated all payments to be made under this Agreement shall be made in Sterling to the party to be paid by transfer in immediately available funds by telegraphic transfer for the credit of such account in the United Kingdom as the party to be paid ma specify or in such other manner as the parties may agree.

 

4.2 Any payment falling to be made or document falling to be delivered to the Sellers under any provision of this Agreement may be made to the Sellers’ Solicitors Client Account whose receipt shall be sufficient discharge.

 

4.3 Each payment to be made by the Sellers under this Agreement shall be made free and clear of all deductions, withholdings, counterclaims or set-off of any kind except for those required by law.

 

4.4 In the event that:

 

(a) any deduction or withholding is required by law to be made from any sum payable by a Seller to the Purchaser pursuant to this Agreement, such Seller shall be obliged to pay such increased sum as will, after the deduction or withholding has been made, leave the Purchaser with the same amount as it would have been entitled to receive in the absence of such requirement to make a deduction or withholding unless such withholding or deduction is required by reason of the Purchaser being a US entity and which withholding or deduction would not have been required if the Purchaser had been an entity incorporated in the United Kingdom in which event no further sum in respect of such deduction or withholding will be payable by the relevant Seller; and

 

(b) any sum paid to the Purchaser pursuant to this Agreement, is or will be chargeable to Tax, the relevant Seller, shall be obliged to pay such further sum as will, after payment of the Tax, leave a sum equal to the amount that would otherwise have been payable if Tax had not been so chargeable.

 

5. Costs

 

5.1 Subject to the payment of sums pursuant to the Deed of Reimbursement, each party shall pay the costs and expenses incurred by him or it in connection with the entering into and completion of this Agreement.

 

6. Constitution of this Agreement

 

6.1 This Agreement, together with the documents referred to in it, contain the entire agreement between the parties relating to the transactions contemplated by this Agreement and replaces and extinguishes all prior drafts, previous agreements, arrangements and understandings, whether in writing or oral, between the parties relating to these transactions except to the extent that they are repeated in this Agreement.

 

6.2 Each Seller acknowledges to the Purchaser, and the Purchaser acknowledges to the Sellers, that in agreeing to enter into this Agreement they, he or it has not relied on any representation, warranty, undertaking, promise or other assurance (whether contractual or otherwise) given by or on behalf of the other, except the warranties and undertakings set out in this Agreement, and waives all rights and remedies, which, but for this paragraph might be available to them, him or it in respect of any such representation, warranty or other assurance, provided that nothing in this paragraph shall limit or exclude any liability for fraudulent misrepresentation or fraudulent concealment.

 

6.3 This Agreement may be executed in any number of counterparts, but shall not be effective until each party has executed at least one counterpart, all of which, taken together shall constitute one and the same Agreement and any party may enter into this Agreement by executing a counterpart.

 

6.4 No variation of this Agreement shall be effective unless made in writing and signed by each of the parties.

 

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7. Rights

 

7.1 The rights, powers, privileges and remedies provided in this Agreement are cumulative and are not exclusive of any rights, powers, privileges or remedies provided by law or otherwise.

 

7.2 No failure to exercise nor any delay in exercising any right, power, privilege or remedy under this Agreement shall in any way impair or affect its exercise or operate as a waiver in whole or in part.

 

7.3 No single or partial exercise of any right, power, privilege or remedy under this Agreement shall prevent any further or other exercise or the exercise of any other right, power, privilege or remedy.

 

7.4 The provisions of this Agreement shall remain in full force and effect notwithstanding Completion.

 

8. Liabilities

 

8.1 The Purchaser may release or compromise in whole or in part the liability of any one of the Sellers under this Agreement or grant any time or other indulgence without affecting the liability of the other Sellers.

 

9. Successors and Assigns

 

9.1 This Agreement shall be binding upon and benefit the successors of the parties but, subject to paragraph 9.2, none of the rights or obligations under this Agreement may be assigned, transferred, sub-licensed, charged or dealt with in any other manner without the prior written consent of all the other parties.

 

9.2 The Purchaser may, after having given prior written notice to the Seller, assign any or all of its benefits under this Agreement to a member of the Purchaser’s Group Provided Always that:

 

(a) if such assignee shall cease to be a member of the Purchaser’s Group, the benefit of this Agreement shall be deemed to have been re-assigned to the Purchaser;

 

(b) the liability of the Seller to the assignee shall not be greater than any liability that the Seller would have had for that matter to the Purchaser.

 

10. Third Parties

 

10.1 Except where expressly stated in this Agreement to the contrary:

 

(a) a person (other than Oliver Bengough or Alex Rutherford or Mint Group Holdings Limited) who is not a party to this Agreement or any of the documents referred to in this Agreement (or his successors or permitted assignees under paragraph 9) has no rights under the Contract (Right of Third Parties) Act 1999 (the “ Act ”) or otherwise to enforce or enjoy the benefit of any term of this Agreement; and

 

(b) no termination, amendment, compromise, waiver or settlement of this Agreement or any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) require the consent of any person who is not a party to it.

 

10.2 Each of the Companies shall be entitled under the Act to enforce any term of this Agreement which expressly or by implication confers any benefit on it and each of the persons described in clause 4.6 shall have the benefit of clause 4.6 under the Act.

 

11. Illegality

 

If any provision of this Agreement shall be held to be illegal, void, invalid or unenforceable under the laws of any jurisdiction, the legality, validity and enforceability of the remainder of this Agreement in that jurisdiction shall not be affected, and the legality, validity and enforceability of the whole of this Agreement in any other jurisdiction shall not be affected.

 

12. Notices

 

12.1 Any notice or other document to be served under this Agreement may be delivered or sent by registered or recorded post (or equivalent in any other jurisdiction) to the party to be served at his address appearing in this Agreement or at such other address as he may have notified to the other parties in accordance with this paragraph.

 

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12.2 Any notice or document shall be deemed to have been served:

 

(a) if delivered, at the time of delivery; or

 

(b) if posted inland, at 10.00 hours on the second Business Day after it was posted; or

 

(c) if posted airmail, at 10.00 hours (local time at the recipient's address) on the fifth Business Day after it was posted.

 

12.3 In proving service of a notice or document it shall be sufficient to prove that delivery was made or that the envelope containing the notice or document was properly addressed and posted (first class if UK inland) as a prepaid registered or recorded post (or equivalent in any other jurisdiction) letter.

 

12.4 The address details of the parties for the purposes of this paragraph are set out in Schedule 9 ( Addresses ).

 

13. Governing law and Jurisdiction

 

13.1 This Agreement and any dispute or claim arising out of or in connection with it or its subject matter (including any dispute or claim relating to non-contractual obligations) shall be governed by and construed in accordance with English law.

 

13.2 The courts of England have exclusive jurisdiction to settle any dispute or claim (" action ") arising out of, or in connection with, this Agreement or its subject matter or formation (including any dispute or claim relating to non-contractual obligations).

 

13.3 Each party irrevocably waives any right that it may have to object to an action being in such courts on the grounds of venue, on the grounds that an action has been brought in an inappropriate or inconvenient forum or that such courts do not have jurisdiction.

 

13.4 Each party agrees that without preventing any other mode of service allowed by law, any document in an action (including, but not limited to, a claim form or any other document to be served under the Civil Procedure Rules in England and Wales) may be served on any party by being delivered to or left for that party at its address for service of notices under Schedule 8 ( Addresses ).

 

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Schedule 12
Definitions and Interpretation

 

1. Definitions

 

In this Agreement, unless the context otherwise requires:

 

" Accounts " means all or any one of:

 

(a)          the audited balance sheet of the Subsidiary ; and

 

(b)          the audited profit and loss account of the Subsidiary;

 

together with the notes to such accounts and the directors reports and the other documents required by law to be annexed thereto;

 

" Accounts Date " means 31 March 2013 ;

 

" agreed form " means, in relation to any document, the form of that document which has been agreed and initialled by or on behalf of the Sellers and the Purchaser for the purpose of identification immediately prior to the signing of this Agreement;

 

“Alex SPA” means the sale and purchase agreement entered into on or around the date of this Agreement relating to the sale of Alex Rutherford’s shares in the Company to the Purchaser and made between Alex Rutherford(1); the Purchaser (2) and the Guarantors (3);

 

" Business Day " means any day other than a Saturday or a Sunday or public holiday in England;

 

“" Companies " means the Company and the Subsidiary;

 

" Companies Act " means Companies Act 2006 and all other statutes and subordinate legislation from time to time in force concerning companies and other bodies corporate;

 

" Company " has the meaning given to it in Recital (A);

 

" Completion " means completion of the sale and purchase of the Shares in accordance with Clause 3;

 

" Completion Date " has the meaning given to it in clause 3.1;

 

" Confidential Information " means all information in any medium or format of a confidential nature which (i) relates to the Purchaser or (ii) is used in or otherwise relates to any of the Companies or their business, including but not limited to:

 

(a) the accounts, finance or contractual arrangements or other dealings, transactions or affairs or officers, employees or contractors of any of the Companies;

 

(b) the marketing and supply of goods or services, including customer and supplier names and lists and other details of customers and suppliers, sales targets, sales statistics, market share statistics, prices, market research reports and surveys, and advertising or other promotional materials; or

 

(c) future projects, business development or planning, commercial relationships and negotiations;

 

Deferred Share ” means a deferred ordinary share of £0.05 in the Company;

 

" Disclosed " means disclosed in accordance with Clause 4.3;

 

" Disclosure Letter " means the letter in the agreed form from the Sellers to the Purchaser of the same date as this Agreement and which has been delivered to the Purchaser prior to the signing of this Agreement;

 

" Employment Legislation " means legislation applying in England and Wales affecting contractual or other relations between employers and their current or former employees or workers or applicants for employment or engagement including, but not limited to, any legislation and any amendment, extension or re-enactment of such legislation and any claim arising under European treaty provisions or directives enforceable against the Company by any employee, officer or worker;

 

46
 

 

" Encumbrance " includes any claim, interest or equity of any person (including any right to acquire, option or right of pre-emption), any debenture, mortgage, charge, pledge, lien, deposit by way of security, restriction, assignment, hypothecation, security interest, option, right of pre-emption or assignment or factoring or similar agreement (including any created by law), title retention or transfer or other security or preferential agreement or arrangement, and any rental, bill of sale, hire purchase, credit sale or other agreement for payment on deferred terms or any agreement or commitment to give or create any of the foregoing;

 

" Group Relief " means:

 

(i) any relief capable of being surrendered or claimed pursuant to Part 5 of the Corporation Tax Act 2010; or

 

(ii) any Tax refund capable of being surrendered or claimed pursuant to Section 963 of the Corporation Tax Act 2010 (previously section 102 of the Finance Act 1989); or

 

(iii) the notional transfer of any asset or reallocation of a gain or loss in accordance with section 171A or section 179A of the Taxation of Chargeable Gains Act 1992 or any reallocation of a gain in accordance with section 792 of the Corporation Tax Act 2009 (previously paragraph 66 of Schedule 29 to the Finance Act 2002); or

 

(iv) any relief the subject of a surrender of eligible unrelieved foreign tax in accordance with The Double Taxation Relief (Surrender of Relievable Tax Within a Group) Regulations 2001 (S.I. 2001 No. 1163); or

 

(v) any other relief available to be transferred or surrendered between or claimed from other members of a group for Tax purposes;

 

" Immigration Acts " means the Asylum & Immigration Act 1996 and the Immigration, Asylum and Nationality Act 2006 together with any Statutory Instrument or Order made by a Secretary of State in exercise of powers conferred by such acts and any related or accompanying guidance issued by the UK Border Agency or other UK Government Department responsible for immigration from time to time;

 

" Intellectual Property Rights " means:

 

(i) patents, designs, trade marks and trade names (whether registered or unregistered), copyright and related rights, database rights, know how and confidential information;

 

(ii) all other intellectual property rights and similar or equivalent rights anywhere in the world which currently exist or are recognised in the future; and

 

(iii) applications, extensions and renewals in relation to any such rights;

 

Key Warranties ” means the warranties in paragraphs 3, 6, 8.1, 8.2, 8.4, 11.2 and 12.2.

 

" Lease " means the lease under which the Property is held;

 

" Losses " means direct losses, liabilities (including tax), damages, costs, expenses, fines, penalties, legal and other professional fees and costs incurred before, on or after Completion but shall exclude any indirect losses, consequential losses or indirect loss of profits;

 

" Management Accounts " means the unaudited profit and loss accounts of the Subsidiary and the unaudited balance sheet of the Subsidiary (copies of which are attached to the Disclosure Letter) for each month starting on the day after the Accounts Date and ending on 31 December 2013;

 

" parties " means the parties to this Agreement and includes their respective successors and permitted assigns;

 

" proceedings " means any action or proceedings before a court or tribunal or a statutory, governmental or regulatory body (including an arbitration) which has the power and authority to hear such action and who have statutory power to deliver and to enforce any judgement that such body may deliver ;

 

" Property " means the property described in Schedule 10;

 

47
 

 

Proven Claim ” means a Warranty Claim or claim under the Tax Covenant against the Sellers which is either agreed by the Sellers or otherwise finally determined or resolved by a court or tribunal from which no leave to appeal is permitted where such determination is in favour of the Purchaser and which results in a liability being established against the Sellers;

 

" Purchaser’s Group " means any of the following from time to time: the Purchaser, the Guarantor, Loton Corporation and any entity controlled or under common control of any of them (including without limitation their subsidiaries and subsidiary undertakings and any holding company of the Purchaser, the Guarantor or Loton Corporation and all other subsidiaries and subsidiary undertakings of any holding company of the Purchaser, including the Companies, the Guarantor or Loton Corporation) and “ member of the Purchaser’s Group ” shall be construed accordingly;

 

" Purchaser's Solicitors " means Wragge & Co LLP, 3 Waterhouse Square, 142 Holborn, London EC1N 2SW;

 

Purchaser’s Solicitors Client Account ” means the client account of Wragge & Co LLP held with;

 

" Records " means the Company’s books and records (including, without limitation, all bought and sold ledgers, purchase and sales day books and purchase and sales invoices and the registration and renewal certificates for each Intellectual Property Right registered at the date of this Agreement;

 

Relevant North London Boroughs ” means the London Boroughs of Camden, Islington, Hackney and Haringey;

 

" Relief " shall include any loss, relief, allowance, credit, deduction, exemption or set-off in respect of any Tax or relevant to the computation of any income, profits or gains for the purposes of any Tax, or any right to repayment of or saving of Tax;

 

" Sellers’ Solicitors " means Peter Martin of Hollow Combe, Dome Hill Park, Sydenham Hill, London SE26 6SP ;

 

Sellers’ Solicitors Client Account ” means the client account of Berwin Leighton Paisner LLP held.

 

" Sale Shares " has the meaning given to it in Recital (B);

 

" Subsidiary " means the company, brief particulars of which are set out in Part 2 of Schedule 2 ( Corporate Particulars );

 

" Tax " or " Taxation " means:

 

(a)          any and all forms of taxes, contributions, levies, imposts, duties or charges in the nature of taxation and all withholdings or deductions in respect thereof of any nature whenever created or imposed and whether of the United Kingdom or elsewhere (including for the avoidance of doubt any liability under section 455 of the Corporation Tax Act 2010 and employee and employer National Insurance Contribution liabilities in the United Kingdom and corresponding obligations elsewhere) chargeable by or accountable or payable to or imposed by, any Tax Authority and whether directly or primarily chargeable against, recoverable from or attributable to the Company or any other person; and

 

(b)          all charges, interest, penalties, surcharges and fines incidental or relating to any Taxation falling within (i) above or which arise as a result of the failure to pay any Taxation on the due date or to comply with any obligation relating to Taxation;

 

" Taxation Authority " means HM Revenue and Customs or any other taxing or other authority (whether within or outside the United Kingdom) competent to impose, administer or collect any tax;

 

48
 

 

" Tax Warranties " means each and every warranty contained in the Part of Schedule 3 ( Warranties ) entitled "Taxation";

 

" Tax Covenant " means the provisions of Schedule 7 ( Tax Covenant );

 

" Third Party " means any person in whose favour any right or benefit under this Agreement is extended by the express use of the term "Third Party", in which case the terms of paragraph 10 of Schedule 11 ( Terms and Conditions ) shall apply;

 

Transitional Services Agreement ” means the agreement to be entered into between Mint Group Holdings Limited (1) and the Subsidiary(2) and to be delivered at Completion;

 

" Warranties " means all and any of the warranties set out in Clause 4 and Schedule 3 ( Warranties );

 

" Warranty Claim " means a claim by the Purchaser the basis of which is that any of the Warranties is, or is alleged to be untrue or inaccurate; and

 

2. Interpretation

 

In, and for the purposes of, this Agreement unless the context otherwise requires:

 

2.1 Gender, Number, Persons etc .

 

(a) The masculine gender shall include the feminine and vice versa.

 

(b) References to any person shall include any individual, body corporate and unincorporated association.

 

(c) References to a company include any company and body corporate, wherever incorporated, and includes any limited liability partnership under the law of the United Kingdom.

 

(d) References to any party include a reference to the estate, legal personal representative, successor, or permitted assigns of that party.

 

(e) A person shall be deemed to be connected with another if that person is connected with that other within the meaning of section 993 Income Tax Act 2007 and section 1122 Corporation Tax Act 2010.

 

2.2 Currency

 

(a) Sterling is the sole currency of account and payment for all sums payable under or in connection with this Agreement, including damages.

 

2.3 Concerning Warranties

 

(a) Where any statement is qualified by the expression " so far as the Sellers are aware " or " to the best of the Sellers’ knowledge information and belief " or any similar expression that statement shall be deemed to include an additional statement that it has been made after having made (or authorised the making of) diligent enquiry of each other Seller, Alex Rutherford and Oliver Bengough but having made no other enquiry;

 

2.4 Parts of this Agreement

 

(a) Except where the contrary is stated, any reference to a Clause or Schedule or Annexure is to a Clause or Schedule or Annexure of this Agreement.

 

(b) The headings and sub-headings are inserted for convenience only and shall not affect the construction of this Agreement.

 

(c) The Schedules and Annexures form part of this Agreement and shall have the same force and effect as if set out in the body of this Agreement.

 

2.5 Companies

 

(a) A " subsidiary undertaking " or "parent undertaking" has the meaning given in section 1162 of the Companies Act 2006 and a " subsidiary " or " holding company " is to be construed in accordance with section 1159 of the Companies Act 2006.

 

49
 

 

(b) References to " Group " in relation to any company mean that company, its subsidiaries, its holding companies and every subsidiary of each such holding company from time to time; and

 

(c) Terms defined in part 38 of the Companies Act 2006 (as applicable) shall bear the same meanings in this Agreement.

 

2.6 Statute and Law

 

(a) References to any enactment shall include (i) that enactment as respectively amended, modified, consolidated or re-enacted from time to time, and (ii) any enactment which that enactment re-enacts (with or without modification) and (iii) any subordinate legislation made under that enactment (as so amended, modified, consolidated or re-enacted) in each case before the date of this Agreement provided always that any such amendment, modification, consolidation or enactment or re-enactment or subordinate legislation shall not result in any new liability or any increase in any liability which would not otherwise have arisen under the original legislation or statute.

 

2.7 Certain words

 

(a) Any undertaking by a party not to do any act or thing includes an undertaking not to allow, cause or assist the doing of that act or thing and to exercise all rights of control over the affairs of any other person which that party is able to exercise (directly or indirectly) in order to secure performance of that undertaking.

 

2.8 Canons of Construction

 

(a) The rule known as the ejusdem generis rule shall not apply and accordingly general words introduced by the word " other " shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things.

 

(b) General words shall not be given a restrictive meaning by reason of the fact that they are followed by particular examples intended to be embraced by the general terms.

 

2.9 Certain Implied Terms

 

The Law of Property (Miscellaneous Provisions) Act 1994 applies to the disposition of the Sale Shares and any other property made under or pursuant to this Agreement, save that:

 

(a) the word " reasonably " shall be deleted from the covenant set out in Section 2(1)(b) of that Act;

 

(b) the covenant set out in Section 3(1) of that Act shall not be qualified by the words "other than any charges, encumbrances or rights which that person does not and could not reasonably be expected to know about"; and

 

(c) the provisions of Section 6(2) of that Act are excluded from this Agreement.

 

3. Language

 

The English language is the language of choice of the parties in relation to this Agreement; notices, demands and other communications given in connection with this Agreement shall be in the English language and if this Agreement is translated into any language other than English, the English language text shall prevail.

 

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Executed as a deed by )
HUGH DOHERTY )
in the presence of: )
Witness name:  
Signature of witness:  
   
Address:  
   
Occupation:  
   
Executed as a deed by )
LAURENCE SEYMOUR )
in the presence of: )
Witness name:  
Signature of witness:  
   
Address:  
   
Occupation:  
   
Executed as a deed by KOKO (CAMDEN) )
LIMITED acting by a director )
in the presence of: )
   
Witness name:  
Signature of witness:  
   
Address:  
   
Occupation:  

 

 
 

 

Executed as a deed by )
OLIVER BENGOUGH )
in the presence of: )
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  

 

Executed as a deed by TRINAD CAPITAL )

MASTER FUND LTD acting by a director

)
 in the presence of: )
   
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  
   
  )
  )
  )

 

 
 

 

Executed as a deed by OBAR CAMDEN )
LIMITED acting by a director )
in the presence of: )
 
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  

 

 

 

EXECUTION VERSION

 

DATED: 12TH FEBRUARY, 2014

 

SHAREHOLDERS’ AGREEMENT IN RELATION TO OBAR CAMDEN HOLDINGS LIMITED

 

Between

 

OLIVER BENGOUGH

 

And

 

KOKO (CAMDEN) LIMITED

 

And

 

ROBERT ELLIN

 

And

 

OBAR CAMDEN HOLDINGS LIMITED

 

And

 

TRINAD CAPITAL MASTER FUND LIMITED

 

 
 

 

CONTENTS

 

CLAUSE

1. Interpretation 2
2. Business of OBAR Camden Holdings 4
3. OB Share Exchange 5
4. Matters requiring consent of the Shareholders 6
5. Transfer of shares 7
6. Events of default 8
7. Completion of share purchase 9
8. Fair value 10
9. Issue of further shares 10
10. The board 11
11. Termination 12
12. Accounting 13
13. Status of this agreement and the parties’ obligations 14
14. No partnership 14
15. Confidentiality 14
16. Notices 14
17. Power of Attorney 16
18. Severance 16
19. Variation and waiver 16
20. Assignment 16
21. Transaction expenses 16
22. Entire agreement 17
23. Third party rights 17
24. Counterparts 17
25. Governing law and jurisdiction 17

 

 
 

 

THIS DEED is dated 12th February, 2014

 

PARTIES

 

(1)          OLIVER BENGOUGH of (“ OB ”); and

 

(2)          KOKO (CAMDEN) LIMITED , a private limited company registered in England and Wales under company number 08763877 and whose registered office is at (“ KOKO UK Holdco ”); and

 

(3)          ROBERT ELLIN of c/o (“RE”); and

 

(4)          TRINAD CAPITAL MASTER FUND LIMITED of (“ Trinad ”);

 

(5)          OBAR CAMDEN HOLDINGS LIMITED , a private limited company registered in England and Wales under company number 08257455 and whose registered office is at (“ OBAR Camden Holdings ”).

 

BACKGROUND

 

(A)         OBAR Camden Holdings has an issued share capital of £5,162.80 divided into 97,756 ordinary shares of £0.05 each and 5,500 deferred ordinary shares of £0.05 each all of which are issued and fully paid.

 

(B)         OBAR Camden Holdings is the legal and beneficial owner of 100% of the issued share capital of OBAR Camden Limited.

 

(C)         RE and the RE Affiliates currently own 100% of shares in KOKO US Holdco which is the 100% shareholder of KOKO UK Holdco.

 

(D)         Pursuant to separate sale and purchase agreements dated on or about the date hereof (i) Alex Rutherford has agreed to sell to KOKO UK Holdco 46,410 ordinary shares of £0.05 each in OBAR Camden Holdings (the “ First Sale Agreement ”) and (ii) Hugh Doherty and Laurence Seymour have collectively agreed to sell to KOKO UK Holdco 4,936 ordinary shares of £0.05 each and 5,500 deferred ordinary shares in OBAR Camden Holdings (the “ Second Sale Agreement ”)- The First Sale Agreement and the Second Sale Agreement are collectively referred to as the “ Purchase Transaction ” and Alex Rutherford, Hugh Doherty and Laurence Seymour are collectively referred to as the “ Sellers ”.

 

(E)         Following completion of the First Sale Agreement, OB and KOKO UK Holdco will be the registered owners of the following ordinary shares of £0.05 each in the capital of OBAR Camden Holdings:

 

1
 

 

OLIVER BENGOUGH 46,410 ordinary shares
   
KOKO (CAMDEN) LIMITED 46,410 ordinary shares

 

Hugh Doherty and Laurence Seymour will hold the following shares pending completion of the Second Sale Agreement:

 

HUGH DOHERTY 2,498 ordinary shares and 2,750 deferred ordinary shares
   
LAURENCE SEYMOUR 2,498 ordinary shares and 2,750 deferred ordinary shares

 

(F)         Immediately following completion under the Second Sale Agreement, Koko UK Holdco will sell to OB, and OB will purchase from Koko UK Holdco, 2,468 ordinary shares of £0.05 each and 2,750 deferred ordinary shares in OBAR Camden Holdings on the terms and conditions specified in this agreement (“ OB Purchase Agreement ”). Following completion of that transaction, the ownership of OBAR Camden Holdings will be:

 

OLIVER BENGOUGH 46,410 ordinary shares
   
  2,750 deferred ordinary shares
   
KOKO (CAMDEN) LIMITED 46,410 ordinary shares
   
  2,750 deferred ordinary shares

 

(G)         The Shareholders have agreed to enter into this agreement for the purpose of:

 

(a)          OB and KOKO UK Holdco controlling their capacity as shareholders of OBAR Camden Holdings, before and after completion of the Purchase Transaction;

 

(b)          agreeing on the responsibility for Transaction Expenses relation to the Purchase Transaction; and

 

(c)          implementing the OB Purchase Agreement between OB and KOKO UK Holdco, in a form agreed between OB and KOKO UK Holdco which shall include the assignment of ail rights acquired by KOKO UK Holdco under the Second Sale Agreement in relation to 50% of the Minority Holding.

 

AGREED TERMS

 

1.             Interpretation

 

1.1           The following definitions shall apply in this agreement.

 

Board means the board of directors of OBAR Camden Holdings and the Subsidiary as constituted from time to time.

 

Business Day: a day (other than a Saturday, Sunday or public holiday in the United Kingdom) when banks in the City of London are generally open for business.

 

2
 

 

Continuing Shareholders: has the meaning given in clause 5.3 and Continuing Shareholder means any of them.

 

Director: means a director of OBAR Camden Hoidings and the Subsidiary.

 

Guarantor: has the same meaning as defined in the First Sale Agreement and the Second Sale Agreement.

 

JJAT: JJAT CORP., a private company limited by shares incorporated and registered under the laws of the State of Delaware.

 

Price Notice: has the meaning given in clause 5.4 .

 

Sale Price: subject to clause 5.2(a), the Proposed Sale Price or, following service of a Price Notice, the price per Sale Share determined in accordance with clause 5.4 .

 

Shareholder: each of the parties from time to time to this agreement (including any person who becomes a party by executing a deed of adherence pursuant to clause 5.8(b) ) and who hold shares in OBAR Camden Holdings or the Subsidiary, together with their respective successors and assigns and Shareholders means all of them together.

 

Transaction Expenses: means the purchase price payable in connection with the Purchase Transaction and the transaction costs and expenses incurred by the parties in connection with the Purchase Transaction, including, without limitation, the costs and expenses as set out in accordance with the Schedule hereto and such other reasonable additional costs as may be agreed between OB and RE.

 

OB Director: means any Director appointed to the Board by OB.

 

RE Affiliates: means each of The Robert Ellin 2011 Family Trust III, Maile Moore, Robert & Nancy Ellin Family Foundation, and Robert S. Ellin Profit Sharing Plan.

 

RE Director: means any Director appointed to the Board by KOKO UK Holdco.

 

Subsidiary: means OBAR Camden Limited.

 

Valuers: an independent firm of accountants appointed by the Seller and by the Continuing Shareholder(s) or, in the absence of agreement between them on the identity of the expert within 30 days of the expiry of the 30 day period following service of a Price Notice, an independent firm of accountants appointed by the President, for the time being, of the Institute of Chartered Accountants of England and Wales (in each case acting as an expert and not as an arbitrator).

 

1.2           Clause headings do not affect the interpretation of this agreement.

 

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1.3           A reference to a person includes a natural person, a corporate or unincorporated body (whether or not having a separate legal personality).

 

1.4           A reference to a particular law is a reference to it as it is in force for the time being taking account of any amendment, extension, application or re-enactment, and includes any subordinate legislation for the time being in force made under it.

 

1.5           A reference to writing or written includes faxes but not e-mail.

 

1.6           Words in the singular include the plural and in the plural include the singular.

 

2.             Business of OBAR Camden Holdings

 

2.1           Each Shareholder shall, for as long as he holds any shares in the capital of OBAR Camden Holdings, procure (so far as is lawfully possible in the exercise of his rights and powers as a shareholder of OBAR Camden Holdings) that the business of OBAR Camden Holdings is carried on in accordance with the memorandum and articles of association as bye-laws, as the case may be, as adopted by OBAR Camden Holdings for the time being.

 

2.2           RE shall obtain, or shall arrange for not less than US$ 4,000,000 in financing to KOKO UK Holdco in order to fund KOKO UK Holdco’s obligation to acquire the shares of Alex Rutherford under the terms of the First Sale Agreement.

 

2.3           Each Shareholder intends that KOKO UK Holdco shall complete the Second Sale Agreement by acquiring the minority shareholding in OBAR Camden Holdings from Hugh Doherty and Laurence Seymour (“ Minority Holding ”). The payment of Transaction Expenses, including the purchase of the Minority Holding by KOKO UK Holdco, shall be funded from the first US$ 300,000 of net revenue generated by OBAR Camden Holdings or the Subsidiary after the date of the First Sale Agreement, and each of RE and OB shall take all reasonable actions as necessary to make these funds available.

 

2.4           Trinad and RE hereby jointly and severally agree that OB shall only become liable as Guarantor under the Purchase Transaction in the event that Trinad in its capacity as Guarantor under the Purchase Transaction fails to fund the full amount of the $4,000,000 commitment set forth in clause 2.2 to any of the Sellers pursuant to the terms of the Purchase Transaction, Trinad and RE shall indemnify, and keep indemnified, OB against all liabilities, costs, expenses, damages and losses and other reasonable professional costs and expenses suffered or incurred by OB arising out of or in connection with any claim raised by the Sellers against OB in his capacity as Guarantor under the Purchase Transaction as a direct result of Trinad’s failure to meet its financial obligations under clause 2.2. In the event that OB is required to satisfy any liability as a Guarantor as a result of the failure of KOKO UK Holdco, Trinad or RE failing to satisfy their respective obligations pursuant to the Purchase Transaction or this Agreement, without limitation to any other rights OB may have, the amount satisfied by OB as a Guarantor as a result of the failure of KOKO UK Holdco, Trinad or RE failing to satisfy their respective obligations pursuant to the Purchase Transaction or this Agreement shall remain outstanding as a promissory note due from KOKO UK Holdco to OB (the “KOKO UK Note ”), which will be in a form substantially similar to the OB Note referred to below), which will mature eighteen months following its date of issue, bear interest at 8% per annum over the base rate of Barclays Bank PLC, payable semi-annually, have a cure period of 60 days and be secured by (i) KOKO UK’s shares in OBAR Camden Holdings; and (ii) Trinad’s on-going obligations pursuant to this clause 2.4.

 

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2.5           In the event that (i) any guarantees or security, granted to the Sellers by KOKO UK Holdco or OB; or (ii) the provisions of clause 3 of the First Sale Agreement or the Second Sale Agreement ( Consequences of Failure to Pay Deferred Consideration ) is enforced and this results in the sale of OBAR Camden Holdings or the Subsidiary or any of their assets, then the proceeds of such sale shall be split equally between KOKO UK Holdco and OB once KOKO UK Holdco has satisfied its commitment to contribute not less than US$ 4,000,000 in accordance with clause 2.2 of this agreement. If OB has satisfied any balance of the KOKO UK Holdco US$ 4,000,000 commitment on behalf of KOKO UK Holdco, then he shall be repaid such amount due to him from the proceeds of the sale prior to the distribution of any remaining balance equally between KOKO UK Holdco and OB.

 

3.            OB Share Purchase

 

3.1           OB and RE have agreed that the amount of any Transaction Expenses over and above US$ 4,000,000 shall be split equally between OB and RE. This business terms will be implemented pursuant to the OB Purchase Agreement, under which OB will purchase 2,468 ordinary shares of £0.05 each and 2,750 deferred ordinary shares of OBAR Camden Holdings for a purchase price equal to 50% of the Consideration payable under the Second Sale Agreement. The purchase price under the OB Purchase Agreement and 50% of the excess of Transaction Expenses over and above US$ 4,000,000 will be made in the form of a promissory note payable by OB to KOKO UK Holdco (“ OB Note ”). The OB Note shall be reduced by an amount equal to 50% of any payments made by OBAR Camden Holdings and/or the Subsidiary to satisfy any portion of the Transaction Expenses (including the consideration due for the Minority Holding). The OB Note will be in the form attached to the OB Purchase Agreement, will mature eighteen months following its date of issue, bear interest at 8% per annum, payable annually, have a cure period of 60 days and be secured by (i) OB’s stock in OBAR Camden Holdings and (ii) OB’s real property securing OB’s obligation as a Guarantor under the First Sale Agreement (which shall be in second position if OB’s obligation as Guarantor remains outstanding following March 31, 2014). The Shareholders agree that (i) operating revenue of OBAR Camden Holdings available for distribution will be distributed in equal parts to KOKO UK Holdco and OB to satisfy OB’s obligation on the OB Note and KOKO UK Holdco’s obligations to JJAT for Transaction Expenses and (ii) they will use their commercially reasonable efforts to obtain financing from Barclays (or any other financial institution) to permit distributions to OB and KOKO UK Holdco to satisfy the foregoing obligations and/or to use for OBAR Camden Holding’s working capital, as mutually agreed by the Shareholders.

 

3.2           The OB Purchase Agreement, OB Note and related security documentation shall be executed by the parties thereto concurrently with completion of the Second Sale Agreement, and shall close the transactions contemplated therein upon execution thereof.

 

3.3           RE agrees that OB’s shares in OBAR Camden Holdings shall not be subject to any liens or security interests securing any funding provided by RE or any third party to fund up to U.S. $4,000,000 of the Transaction Expenses.

 

5
 

 

4.             Matters Requiring Consent of the Shareholders

 

Each Shareholder shall, for as long as he holds any shares in the capital of OBAR Camden Holdings, procure (so far as is lawfully possible in the exercise of his rights and powers as a shareholder of OBAR Camden Holdings) that OBAR Camden Holdings shall not, and shall procure that the Subsidiary shall not, without the prior written consent of OB and RE:

 

(a)          cease to be a private company or change (by whatever means) the nature of its business from the type of business conducted on or prior to the date of this agreement as varied from time to time in accordance with this clause 4(a); or

 

(b)          amend its memorandum and articles of association or bylaws; or

 

(c)          change the name of OBAR Camden Holdings or the Subsidiary; or

 

(d)          sell or otherwise dispose of the whole or any part of its undertaking, property, assets, or any interest in them or contract to do so whether or not for valuable consideration; or

 

(e)          increase, reduce, sub-divide, consolidate, redenominate, cancel, purchase or redeem any of the capital of, or allot or issue any shares or other securities in the capital of, OBAR Camden Holdings or the Subsidiary; or

 

(f)          alter any rights attaching to any class of share in the capital of OBAR Camden Holdings or the Subsidiary, or create any option, warrant or any other right to acquire or subscribe for any shares or other securities in the capital of OBAR Camden Holdings or the Subsidiary; or

 

(g)         declare any dividend or other form of distribution; or

 

(h)         adopt or amend any business plan; or

 

(i)          conduct its business otherwise than in the ordinary course of business on an arm’s length basis; or

 

(j)          do, permit or allow to be done any act or thing whereby OBAR Camden Holdings or the Subsidiary may be wound-up, or enter into any compromise or arrangement under the laws of any relevant jurisdiction; or

 

(k)         merge or amalgamate with any other company or undertaking, or acquire directly or indirectly any interest in any shares or other security convertible into shares of any other company, or form or acquire any subsidiary; or

 

(l)          purchase, lease or otherwise acquire assets, or any interests in assets, which in aggregate exceed the value of £15,000 or for consideration which exceeds £15,000; or

 

(m)        enter into any other contract, transaction or arrangement of a value exceeding £15,000; or

 

6
 

 

(n)         borrow any money or create any mortgage, debenture, pledge, lien or other encumbrances over the undertaking or assets of OBAR Camden Holdings or the Subsidiary, or factor, assign, discount or otherwise dispose of any book debts or other debts of OBAR Camden Holdings or the Subsidiary; or

 

(o)         give any guarantee, make any payment or incur any obligation or act as surety otherwise than in connection with OBAR Camden Holdings’ or the Subsidiary’s ordinary business for the time being; or

 

(p)         lend or agree to lend, grant any credit or make any advance to any person otherwise than in the ordinary course of the business of OBAR Camden Holdings or the Subsidiary; or

 

(q)         remove any director appointed by a Shareholder; or

 

(r)          hold any meeting of the shareholders or purport to transact any business at such meeting, unless each Shareholder is present, whether in person or by proxy; or

 

(s)         until all Transaction Expenses shall have been paid in full, pay any compensation to RE, OB or any other Shareholder; or

 

(t)          make any payments (by check, wire transfer or otherwise) in excess of £15,000 [Note: approximately $25,000] to any person.

 

5.             Transfer of Shares

 

5.1           No Shareholder shall sell, transfer, assign, pledge, charge or otherwise dispose of any share or any interest in any share in the capital of OBAR Camden Holdings or the Subsidiary, except (i) the pledge of OB’s shares in OBAR Camden Holdings to secure the OB Note or (ii) or with the prior written consent of all other Shareholders.

 

5.2           Except for transfers to which all Shareholders give their prior written consent, no Shareholder shall transfer any shares unless he transfers all (and not some only) of the shares held by him.

 

5.3           A Shareholder (Seller) wishing to transfer shares in the capital of OBAR Camden Holdings ( Sale Shares ) shall give notice in writing ( Transfer Notice ) to the other parties ( Continuing Shareholders ) specifying the details of the proposed transfer, including the number of Sale Shares comprised within the Transfer Notice, the identity of the proposed buyer(s), the proposed price for each Sale Share ( Proposed Sale Price ) and each Continuing Shareholder’s proportionate entitlement to the Sale Shares, being the same proportion of the Sale Shares as the proportion that the number of ordinary shares held by him bears to the total number of ordinary shares held by the Continuing Shareholders (in respect of each Continuing Shareholder, his Entitlement ).

 

5.4           The Continuing Shareholders (or any of them) may, by giving notice in writing ( Price Notice ) to the Seller at any time within 30 days of receipt of a Transfer Notice, notify the Seller that the Proposed Sale Price is too high. Following service of a Price Notice, the parties shall endeavour to agree a price for each of the Sale Shares. If the parties have not agreed such a price within 30 days of the Seller’s receipt of a Price Notice, they (or any of them) shall immediately instruct the Valuers to determine the Fair Value of each Sale Share in accordance with clause 8 .

 

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5.5           If, following delivery to him of the Valuers’ written notice in accordance with clause 8 , the Seller does not agree with Valuers’ assessment of the Fair Value of the Sale Shares, he shall be entitled to revoke the Transfer Notice by giving notice in writing to the Continuing Shareholders within 30 days of delivery to him of the Valuers’ written notice. If the Seller revokes the Transfer Notice, he is not entitled to transfer the Sale Shares except in accordance with this agreement.

 

5.6           Within 30 days of receipt (or deemed receipt) of a Transfer Notice or, if later, within 30 days of receipt of the Valuers’ determination of the Fair Value (and provided the Seller has not withdrawn the Transfer Notice in accordance with clause 5.5 ), a Continuing Shareholder shall be entitled (but not obliged) to give notice in writing ( Acceptance ) to the Seller stating that he wishes to purchase the Sale Shares at the Sale Price.

 

5.7           Completion of those Sale Shares accepted by Continuing Shareholders under clause 5.6 shall take place in accordance with clause 7 .

 

5.8           In relation to any Sale Shares not accepted by Continuing Shareholders under clause 5.6 :

 

(a)          the Seller shall be entitled to transfer those Sale Shares to the third party buyer identified in the Transfer Notice at a price per Sale Share not less than the Sale Price; and

 

(b)          the Seller shall procure that any buyer of Sale Shares that is not, immediately prior to completion of the transfer in question, a party to this agreement shall, at completion, enter into a deed of adherence with the Continuing Shareholders, agreeing to be bound by the terms of this agreement, in such form as the Continuing Shareholders may reasonably require (but not so as to oblige the buyer to have any obligations or liabilities greater than those of the Seller).

 

6.             Events of Default

 

6.1           A Shareholder is deemed to have served a Transfer Notice under clause 5.3 immediately before any of the following events of default:

 

(a)          his death; or

 

(b)          a bankruptcy order being made against him, or an arrangement or composition being made with his creditors, or where he otherwise takes the benefit of any statutory provision for the time being in force for the relief of insolvent debtors; or

 

(c)          he fails to remedy a material breach by him of any obligation under this agreement within 30 days of notice to remedy the breach being served by all the other Shareholders.

 

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6.2           The deemed Transfer Notice has the same effect as a Transfer Notice, except that:

 

(a)          the deemed Transfer Notice takes effect on the basis that it does not identify a proposed buyer or state a price for the shares and the Sale Price shall be the Fair Value of those shares, determined by the Valuers in accordance with clause 8 ; and

 

(b)          the Seller does not have a right to withdraw the Transfer Notice following a valuation.

 

7.             Completion of Share Purchase

 

7.1           Completion of the sale and purchase of shares under clause 5 and clause 6 of this agreement shall take place 30 days after:

 

(a)          the date of delivery (or deemed date of delivery) of the Transfer Notice to the Continuing Shareholders, unless the Continuing Shareholders (or any of them) have served a Price Notice under clause 5.4 ; or

 

(b)          the date of delivery of determination of the Sale Price in accordance with clause 5.4 .

 

7.2           At such completion:

 

(a)          the Seller shall deliver, or procure that there is delivered to each Continuing Shareholder who is to purchase Sale Shares, a duly completed stock transfer form transferring the legal and beneficial ownership of the relevant Sale Shares to him, together with the relevant share certificate(s) (or an indemnity in lieu thereof) and such other documents as the Continuing Shareholders or OBAR Camden Holdings may reasonably require to show good title to the shares, or to enable him to be registered as the holder of the shares;

 

(b)          each relevant Continuing Shareholder shall deliver or procure that there is delivered to the Seller a bankers’ draft made payable to the Seller or to his order for the Sale Price for the Sale Shares being transferred to him (or such other method of payment agreed between a Continuing Shareholder and the Seller); and

 

(c)          if, following a sale of shares in accordance with this agreement, the Seller holds no further shares in OBAR Camden Holdings:

 

(i)          the Seller shall deliver, or procure that there are delivered to OBAR Camden Holdings, his resignation as a director of OBAR Camden Holdings and resignations from any directors appointed by him, such resignations to take effect at completion of the sale of the Sale Shares; and

 

(ii)         the Seller shall automatically cease to be a party to this agreement, but without prejudice to any rights or obligations of the Seller which accrued before such cessation (including, without limitation, his obligations under clause 15 which shall survive such cessation), including in respect of any prior breach of this agreement.

 

9
 

 

7.3           Any transfer of shares by way of a sale under this agreement shall be deemed to include a warranty that the Seller sells the shares with full title guarantee.

 

7.4           If any Continuing Shareholder fails to pay the Sale Price payable by him on the due date, without prejudice to any other remedy which the Seller may have, the outstanding balance of that Sale Price shall accrue interest at a rate equal to 2% per annum above the base rate of Barclays Bank Pic from time to time.

 

7.5           Each of the Continuing Shareholders shall procure (so far as is lawfully possible in the exercise of his rights and powers as a shareholder of OBAR Camden Holdings) the registration (subject to due stamping by the Continuing Shareholders) of the transfers of the Sale Shares under this clause 7 and each of them consents to such transfers and registrations.

 

8.             Fair Value

 

The Fair Value for any Sale Share shall be the price per share determined in writing by the Valuers on the following bases and assumptions:

 

(a)          valuing each of the Sale Shares as a proportion of the total value of all the issued shares in the capital of OBAR Camden Holdings without any premium or discount being attributable to the percentage of the issued share capital of OBAR Camden Holdings which they represent;

 

(b)          if OBAR Camden Holdings is then carrying on business as a going concern, on the assumption that it will continue to do so;

 

(c)          the sale is to be on arms’ length terms between a willing seller and a willing buyer;

 

(d)          the shares are sold free of all restrictions, liens, charges and other encumbrances; and

 

(e)          the sale is taking place on the date the Valuers were requested to determine the Fair Value.

 

9.             Issue of Further Shares

 

9.1           If OBAR Camden Holdings wishes to issue further shares, each of the Shareholders shall procure (so far as is lawfully possible in the exercise of his rights and powers as a shareholder of OBAR Camden Holdings) that OBAR Camden Holdings offers, by giving written notice to each respective Shareholder, that proportion of the shares proposed to be issued which the number of ordinary shares held by that Shareholder bears to the total number of ordinary shares in issue at the time OBAR Camden Holdings gives its notice. Such offer shall state the number of shares to be issued and the price of the shares.

 

9.2           Each Shareholder may accept the offer by giving notice to OBAR Camden Holdings, at any time within 30 days following OBAR Camden Holdings’ notice, accompanied by a banker’s draft made payable to OBAR Camden Holdings in respect of full payment for the shares to be subscribed for.

 

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9.3           Any shares referred to in OBAR Camden Holdings’ offer, for which the Shareholders do not subscribe, may be issued by OBAR Camden Holdings as it thinks fit, provided that any such issue is completed within BO days after OBAR Camden Holdings’ notice of the offer.

 

10.           The Board

 

10.1         The Board has responsibility for the supervision and management of OBAR Camden Holdings and the Subsidiary and its business shall require the consent in writing of all Directors at a duly convened and held meeting of the Board.

 

10.2         There shall be two (2) Directors on the Board of each of OBAR Camden Holdings and its Subsidiary, in each case made up of: (i) one (1) OB Director; and (ii) one (1} RE Director.

 

10.3         The Board shall appoint OB and RE as co-chairmen of the Board, each to serve in such position for so long as he is a member of the Board and OB and RE shall each be appointed to all committees of the Board, to the extent permissible by law.

 

10.4         A party may nominate a Director, and remove a Director whom it nominated, by giving notice to OBAR Camden Holdings and the other party. The appointment or removal takes effect on the date on which the notice is received by OBAR Camden Holdings or, if a later date is given in the notice, on that date. Each party will consult with the other prior to any appointment or removal of a Director.

 

10.5         The parties intend that meetings of Directors shall take place at least six times each year, at any such time and place as shall be agreed unanimously among the Directors. The dates for the minimum annual Board meetings shall be agreed at the beginning of each calendar year.

 

10.6         The quorum at any meeting of Directors (including adjourned meetings) is one OB Director (or his alternate) and one RE Director (or his alternate).

 

10.7         No business shall be conducted at any meeting of Directors unless a quorum is present at all times of the meeting and at the time when there is to be voting on any business.

 

10.8         If a quorum is not present within 30 minutes after the time specified for a Directors’ meeting in the notice of the meeting then it shall be adjourned for one Business Day at the same time and place.

 

10.9         The parties shall use their respective reasonable endeavours to ensure that each meeting of the Board and each general meeting of OBAR Camden Holdings has the requisite quorum.

 

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10.10         Any Director may participate in a Board meeting by means of a telephone or video conference by means of which all persons participating in the meeting can hear each other throughout the duration of the meeting. Participation in such meeting shall constitute attendance and presence at the meeting for the Director so participating.

 

10.11         If a Shareholder sells or disposes of all or part of his shares in OBAR Camden Holdings so that, following completion of the relevant sale or disposal he holds less than 5% in nominal value of the issued ordinary share capital for the time being of OBAR Camden Holdings, he shall immediately resign any office and employment with OBAR Camden Holdings without claim for compensation.

 

10.12         The provisions of this clause 10 shall apply mutatis mutandis to any subsidiary of OBAR Camden Holdings.

 

11.           Termination

 

11.1         This agreement terminates immediately upon the occurrence of any of the following events:

 

(a)           the passing of a resolution for the winding up of OBAR Camden Holdings; or

 

(b)           the appointment of a receiver, administrator or administrative receiver over the whole or any part of the assets of OBAR Camden Holdings or the making of any arrangement with the creditors of OBAR Camden Holdings for the affairs, business and property of OBAR Camden Holdings to be managed by a supervisor; or

 

(c)           all the shares of OBAR Camden Holdings are held by one Shareholder; or

 

(d)           admission of the shares of OBAR Camden Holdings to trading on a public market.

 

11.2         Termination of this agreement shall be without prejudice to the rights or obligations of any Shareholder accrued prior to such termination, or under any provision which is expressly stated not to be affected by such termination including in respect of any prior breach of this agreement.

 

11.3         Following the passing of a resolution for the winding-up of OBAR Camden Holdings, the Shareholders shall endeavour to agree a suitable basis for dealing with the interests and assets of OBAR Camden Holdings and shall endeavour to ensure that:

 

(a)          all existing contracts of OBAR Camden Holdings are performed so far as resources permit;

 

(b)          no new contractual obligations are entered into by OBAR Camden Holdings; and

 

(c)          OBAR Camden Holdings is wound up as soon as practicable.

 

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11.4         The following provisions of this agreement remain in full force after termination:

 

(a)          this clause 11 ;

 

(a)           Clause 14 (No partnership);

 

(b)           Clause 15 (Confidentiality};

 

(c)           Clause 16 (Notices);

 

(d)           Clause 21 (Transaction Expenses);

 

(e)           Clause 22 (Whole agreement); and

 

(f)           Clause 25 (Governing law and jurisdiction).

 

12.           Accounting

 

12.1         The parties shall procure that OBAR Camden Holdings shall at all times maintain accurate and complete accounting and other financial records including all corporation tax computations and related documents in accordance with the requirements of all applicable laws and International Financing Reporting Standards (“ IFRS ”) or U.S. Generally Accepted Accounting Principals, as applicable.

 

12.2         Each party and its authorised representatives shall be allowed access at all reasonable times to examine the books and records of OBAR Camden Holdings.

 

12.3         The parties agree that OBAR Camden Holdings shall supply each party with the financial information necessary to keep the party informed about how effectively the business is performing and in particular shall supply each party with a copy of each year’s business plan for approval in accordance with clause 3.

 

12.4         Each party shall be entitled to require that OBAR Camden Holdings shall as soon as possible ensure compliance with such a request, to provide any documents, information and correspondence necessary (at the cost of the party making the request) to enable the relevant party to comply with filing, elections, returns or any other requirements of any applicable revenue or tax authority.

 

12.5         Subject to (i) clause 3, (ii) after taking into account treasury needs of OBAR Camden Holdings with respect to budget forecasts and sufficient working capital and (iii) OB’s obligations under the OB Note, each of the Shareholders shall exercise all such rights and powers as are available to them to procure that the full amount of OBAR Camden Holdings’ profits available for distribution in respect of each financial year during the term of this agreement is distributed in pro-rata cash by OBAR Camden Holdings to the Shareholders by way of dividends within six weeks of the end of the financial year.

 

12.6         In respect of each calendar year, OBAR Camden Holdings shall deliver to each of the Shareholders the following information:

 

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(a)          annual audited accounts within 15 days of completion;

 

(b)          monthly management financial reporting on the basis of a monthly accounting close with budget reconciliation;

 

(c)          accounting close consolidation package with 15 days following the end of each of March, June, September and October.

 

13.           Status of this Agreement and the Parties’ Obligations

 

13.1         Each Shareholder shall exercise all voting rights and other powers of control lawfully available to him as a shareholder of OBAR Camden Holdings so as to procure that, at all times during the term of this agreement, the provisions of this agreement are duly and promptly observed and given full force and effect according to its spirit and intention.

 

13.2         If any provisions of the memorandum and articles of association of OBAR Camden Holdings at any time conflict with any provisions of this agreement, this agreement shall prevail as between the parties to it and each of the Shareholders shall, whenever necessary, exercise all voting and other rights and powers lawfully available to him as a shareholder of OBAR Camden Holdings so as to procure the amendment, waiver or suspension of the relevant provision of the memorandum and articles of association to the extent necessary to permit OBAR Camden Holdings and its affairs to be administered as provided in this agreement.

 

14.           No Partnership

 

The Shareholders are not in partnership with each other, nor are they agents of each other.

 

15.          Confidentiality

 

Each Shareholder undertakes that he shall not at any time after the date of this agreement (or, if later, the date he became a party to it) use, divulge or communicate to any person (except to his professional representatives or advisers or as may be required by law or any legal or regulatory authority) any confidential information concerning the terms of this agreement, the business or affairs of the other Shareholders or OBAR Camden Holdings which may have (or may in future) come to his knowledge, and each of the Shareholders shall use his reasonable endeavours to prevent the publication or disclosure of any confidential information concerning such matters.

 

16.           Notices

 

16.1         Any notice given under this agreement shall be in writing and shall be delivered by hand, transmitted by email, or sent by pre-paid first class post, recorded delivery post or international courier to the address of the party as set out in clause 14.2, or to such other address notified to the other parties (provided that, in the case of email transmission, a successful email alert is received confirming successful delivery of such email). A notice delivered by hand is deemed to have been received when delivered (or if delivery is not in business hours, 9.00 am on the first Business Day following delivery). A correctly addressed notice sent by pre-paid first class post or recorded delivery post shall be deemed to have been received 9.00 am on the second Business Day after posting or at the time recorded by the delivery service. A correctly addressed notice sent by international courier shall be deemed to have been received at the time recorded by the courier service. In the case of email, any such notice shall be deemed to have been received at the time of receipt of the email notification alerting the sender that the e mail has been successfully delivered.

 

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16.2        The addresses for service of notices are:

 

(a)          OB:

 

(i)          

 

(ii)         

 

(iii)        

 

(b)          KOKO UK Holdco:

 

(i)          

 

(ii)         

 

(iii)        

 

(c)          RE:

 

(i)          

 

(ii)         

 

(iii)        

 

(d)          Trinad:

 

(i)          

 

(ii)         

 

(iii)        

 

(e)          OBAR Camden Holdings:

 

(i)          

 

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(ii)         

 

(iii)        

 

(iv)        

 

17.           Power of Attorney [Omitted]

 

18.           Severance

 

18.1         If any provision (or part of a provision) of this agreement is found by any court or administrative body of competent jurisdiction to be invalid, unenforceable or illegal, the other provisions shall remain in force.

 

18.2         If any invalid, unenforceable or illegal provision would be valid, enforceable and legal if some part of it were deleted, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties.

 

19.           Variation and Waiver

 

19.1         Any variation of this agreement shall be in writing and signed by or on behalf of all the parties for the time being.

 

19.2         No failure or delay by a party to exercise any right or remedy provided under this agreement or by law shall constitute a waiver of that or any other right or remedy, nor shall it preclude or restrict the further exercise of that or any other right or remedy. No single or partial exercise of such right or remedy shall preclude or restrict the further exercise of that or any other right or remedy.

 

19.3         Unless specifically provided otherwise, rights and remedies arising under this agreement are cumulative and do not exclude rights and remedies provided by law.

 

20.           Assignment

 

20.1         No person may assign, or grant any encumbrance over, or deal in any way with, any of his rights under this agreement or any document referred to in it, or purport to do any of the same, without, in each case, the prior written consent of all the parties for the time being.

 

20.2         Each person that has rights under this agreement is acting on his own behalf.

 

21.           Transaction Expenses

 

21.1         Each Shareholder shall pay his own costs relating to the negotiation, preparation, execution and implementation by him of this agreement.

 

21.2         If a payment due from either party under this clause is subject to tax (whether by way of direct assessment or withholding at its source), the other party shah be entitled to receive from the party obligated to make the payment such amounts as shall ensure that the net receipt, after tax, to recipient in respect of the payment is the same as it would have been were the payment not subject to tax.

 

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22.           Entire Agreement

 

22.1         This agreement constitutes the whole agreement between the parties and supersedes any previous arrangement, understanding or agreement between them relating to the subject matter they cover.

 

22.2         Each party acknowledges that, in entering into this agreement, he does not rely on, and shall have no remedy in respect of, any statement, representation, assurance or warranty of any person other than as expressly set out in this agreement or those documents.

 

22.3         Nothing in this clause 22 operates to limit or exclude any liability for fraud.

 

23.           Third Party Rights

 

A person who is not a party to this agreement shall not have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this agreement.

 

24.          Counterparts

 

This agreement may be executed in any number of counterparts, each of which when executed and delivered shall constitute an original of that agreement, but all the counterparts shall together constitute the same agreement. No counterpart shall be effective until each party has executed at least one counterpart.

 

25.          Governing Law and Jurisdiction

 

25.1         This agreement and any disputes or claims arising out of or in connection with its subject matter or formation (including non-contractual disputes or claims} are governed by and construed in accordance with the laws of England.

 

25.2         The parties irrevocably agree that the courts of England have exclusive jurisdiction to settle any dispute or claim that arises out of or in connection with this agreement or its subject matter or formation (including non-contractual disputes or claims).

 

This document has been executed as a deed and is delivered and takes effect on the date stated at the beginning of it.

 

17

 

 

DATED February 2014

 

KOKO (CAMDEN) LIMITED

 

ALEX RUTHERFORD, OLIVER BENGOUGH, HUGH DOHERTY and LAURENCE SEYMOUR

 

OLIVER BENGOUGH

 

and

 

MINT GROUP HOLDINGS LIMITED

 

DEED OF REIMBURSEMENT 1

 

in respect of certain fees incurred in relation to the proposed sale of

 

OBAR CAMDEN HOLDINGS LIMITED

 

 

1 NTD – the allocations may need to be conformed to the figures for the first tranche

 

1
 

 

DATED     February 2014

 

PARTIES

 

(1)              KOKO (CAMDEN) LIMITED , a company incorporated in England with registered number 08763877 whose registered office is at 55 Colmore Row, Birmingham, B3 2AS (the “ Purchaser ”);

 

(2)               ALEX RUTHERFORD of HUGH DOHERTY of and LAURENCE SEYMOUR of (the “ Relevant Sellers ”);

 

(3)              OLIVER BENGOUGH of and

 

(4)               MINT GROUP HOLDINGS LIMITED, a company incorporated in England with registered number 04962275 whose registered office is at 191 Stonhouse Street, Clapham, London SW4 6BB (the “ MGHL ”)

 

RECITALS

 

(A)             The Relevant Sellers are proposing to sell to the Purchaser all of the shares (the “ Relevant Sellers Shares ”) in the Company which are registered in their respective names (the “ Acquisitions ”).

 

(B)              On 30 th July 2013 the Relevant Sellers and Oliver Bengough entered into an exclusivity agreement (the “ Exclusivity Agreement ”) with Albion Ventures Limited in connection with Albion Ventures Limited conducting due diligence in relation to the Company and negotiating the proposed sale of the Relevant Sellers Shares together with shares in the Company held by the Guarantor to Albion Ventures Limited.

 

(C)             MGHL has assumed the obligations of Mint Group Limited in relation to a letter of engagement with Stella Capital Advisors LLP in connection with the provision of corporate advisory services in connection with the development of strategy for the group including the demerger of OBAR Camden Limited from the Mint Group of companies and the sale process of OBAR Camden Limited and/or its assets following demerger and has incurred fees in connection with this process.

 

(D)             During the subsistence of the Exclusivity Period as determined under the Exclusivity Agreement, Oliver Bengough entered into negotiations with the Purchaser which negotiations may have been in breach of the obligations of the Relevant Sellers and Oliver Bengough under the Exclusivity Agreement.

 

(E)             Albion Ventures LLP has agreed to release the Relevant Sellers and Oliver Bengough (together with the Company and its subsidiaries) of all liabilities in relation to the Exclusivity Agreement in consideration of the payment to Albion Ventures LLP of the sum of £30,000 (the “ Release Sum ”).

 

(F)              In consideration of the Relevant Sellers agreeing to enter into negotiations with the Purchaser for the Acquisitions, the Purchaser agreed to reimburse the Relevant Sellers, Oliver Bengough and MGHL an amount equal to the Release Sum and to make a contribution towards certain costs incurred by the Relevant Sellers and Oliver Bengough in connection with the proposed sale of the Relevant Sellers Shares in accordance with the terms and conditions set out in this Deed.

 

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OPERATIVE PROVISIONS

 

1 Interpretation

 

1.1              In this Agreement:

 

Albion Ventures ” means Albion Ventures LLP, a limited liability partnership incorporated in England under company number OC341254 whose registered office is at 1 Kings Arms Yard, London EC2R 7AF.

 

Alex Rutherford SPA ” means a share purchase agreement of today’s date between Alex Rutherford (1) the Purchaser (2) and TRINAD Capital Master Fund Ltd, Oliver Bengough and OBAR Camden Limited (the Guarantors) (3) in relation to the sale by Alex Rutherford to the Purchaser of all the shares in OBAR Camden Holdings Limited registered in his name.

 

"Business Day" means a day (other than a Saturday or Sunday) on which the clearing banks in the City of London are open for business.

 

Company ” means OBAR Camden Holdings Limited, a company incorporated in England with registered number 08257455 and whose registered office is at 121 Stonhouse Street, Clapham, London SW4 6BB.

 

Exclusivity Liabilities ” means liabilities arising under an exclusivity agreement dated 30th July 2013 (as amended) as entered into between the Relevant Sellers, Oliver Bengough and Albion Ventures.

 

Minority Interest SPA ” means a share purchase agreement of today’s date between Hugh Doherty and Laurence Seymour (1) the Purchaser (2) TRINAD Capital Master Fund Ltd, Oliver Bengough and OBAR Camden Limited (as Guarantors) (3) in relation to the sale by Hugh Doherty and Laurence Seymour of all the shares in OBAR Camden Holdings Limited registered in their respective names.

 

Relevant Costs ” means the costs (including VAT and disbursements) incurred by the Relevant Sellers, Oliver Bengough and by MGHL with the Service Providers in connection with the proposed sale by the Relevant Sellers of their respective interests in the Company up to the amounts set opposite the names of the respective Service Providers in column 3 of Schedule 1.

 

Relevant Invoices ” means the invoices issued by the Service Providers to the Relevant Sellers, Oliver Bengough and MGHL in relation to professional advice provided to the Relevant Sellers, Oliver Bengough and MGHL in relation to the proposed sale of the Relevant Sellers’ Shares.

 

Service Providers ” means those professional advisers to the Relevant Sellers and to MGHL whose details are set out in columns (1) and (2) of Schedule 1 to this Deed.

 

Sellers’ Solicitors Client Account ” means the Seller’s Solicitors Client Account as that term is defined in the Alex Rutherford SPA.

 

1.2              In this Agreement, unless otherwise stated, reference to:

 

(a)           words and phrases defined in the Alex Rutherford SPA shall have the same meaning as if the same were set out herein;

 

3
 

 

(b)          a statute or statutory provision includes a reference to:

 

(i)          any statutory amendment, consolidation or re-enactment of it to the extent in force from time to time;

 

(ii)         all orders, regulations, instruments or other subordinate legislation (as defined in section 21(1) of the Interpretation Act 1978) made under it to the extent in force from time to time; and

 

(iii)        any statute or statutory provision of which it is an amendment, consolidation or re-enactment;

 

except to the extent that, as between the parties, any amendment, consolidation or re-enactment coming into force after the date of this Deed would impose any new or extended obligation, liability or restriction on, or otherwise adversely affect the rights of, any party under this Agreement;

 

(c)          a "person" includes a legal or natural person, partnership, association, trust, company, corporation, joint venture, government, state or agency of the state or other body; and

 

(d)          a governmental, local governmental, regulatory or administrative authority or agency includes its successors.

 

1.3              In this Agreement the interpretation of general words shall not be restricted by words indicating a particular class or particular examples.

 

1.4              The headings in this Agreement are for ease of reference only and are to be ignored when interpreting this Agreement.

 

2 REIMBURSEMENT

 

2.1              The Purchaser shall, pay to the Relevant Sellers, Oliver Bengough and MGHL (such payment to be made by electronic transmission of funds) immediately following completion of the Alex Rutherford SPA:

 

2.1.1           to the Sellers’ Solicitors Client Account the aggregate sum of £196,000 (including all VAT payable in respect of the costs incurred), being the aggregate of all of the sums referred to in the Schedule and which are payable by the Relevant Sellers, MGHL and Oliver Bengough in connection with the professional services provided to them by the Service Providers; and

 

2.1.2           to the account of Albion Ventures at Lloyds Bank PLC Sort Code 30-00-02, Account number 00932111 the Release Sum to be paid in connection with the release by Albion Ventures of the Exclusivity Liabilities.

 

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2.2             Following payment by the Purchaser of the sums to be paid in accordance with clause 2.1, the Purchaser shall be under no obligation to oversee the application of the relevant sums by the Relevant Sellers, Oliver Bengough or MGHL or, as the case may be, the payment of the sums from the Sellers’ Solicitors Client Account and the Relevant Sellers shall bear the whole of, and shall thereafter indemnify the Purchaser in respect of any claim for non-payment or other claims against the Purchaser and/or the Company or any of its subsidiaries in respect of those liabilities.

 

3 Death of a RELEVANT SELLER

 

This Agreement shall enure for the benefit of the successors in title to and any executors or personal representatives of any Relevant Seller and/or Oliver Bengough who dies prior to payment of the sums due under this Deed and such person shall be entitled to enforce the same as if he were a party to this Deed.

 

4 Provision of information to the Purchaser

 

The Purchaser shall be entitled to receive upon request from the Relevant Sellers, Oliver Bengough and MGHL:

 

(a)          a copy of the Relevant Invoices and any other invoice relating to the sums to be paid by the Relevant Sellers as referred to in Clause 2; and

 

(b)          such evidence of payment by the Relevant Sellers, Oliver Bengough or MGHL of the sums due to be paid in respect of such invoices as the Purchaser may reasonably require.

 

5 Entire agreement

 

This Agreement is the entire agreement between the parties (and replaces all previous agreements and understandings between them) in connection with the discharge of the sums referred to in clause 2.

 

6 Third party rights

 

The parties do not intend any third party to have the right to enforce any provision of this Agreement under the Contracts (Rights of Third Parties) Act 1999.

 

7 Waiver

 

A failure or delay in exercising any right or remedy under this Agreement shall not constitute a waiver of that right or remedy. A single or partial exercise of any right or remedy shall not prevent the further exercise of that right or remedy. A waiver of a breach of this Agreement shall not constitute a waiver of any other breach.

 

8 Variations

 

No variation of this Agreement shall be effective unless it is in writing and signed by or on behalf of each party.

 

9 Communications

 

Communications under this Agreement shall be in writing and delivered by hand or sent by recorded delivery to the relevant party at its address as set out in this Agreement. Without evidence of earlier receipt, communications are deemed received: if delivered by hand, at the time of delivery; if sent by recorded delivery, at 9.00am on the second Business Day after posting

 

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10 Counterparts

 

This Agreement may be executed in any number of counterparts, which shall each constitute an original and together constitute one agreement. If this Agreement is executed in counterpart, it shall not be effective unless each party has executed at least one counterpart.

 

11 Governing law and jurisdiction

 

11.1            This Agreement and any non-contractual obligations arising in connection with it (and, unless provided otherwise, any document entered into in connection with it) shall be governed by and construed in accordance with English law.

 

11.2            The English courts have exclusive jurisdiction to determine any dispute arising in connection with this Agreement (and, unless provided otherwise, any document entered into in connection with it), including disputes relating to any non-contractual obligations.

 

11.3            Each party irrevocably waives any objection which it may now or later have to proceedings being brought in the English courts (on the grounds that the English courts are not a convenient forum or otherwise).

 

11.4            Nothing in this Agreement (or, unless provided otherwise, any document entered into in connection with it) shall prevent a party from applying to the courts of any other country for injunctive or other interim relief.

 

Executed as a Deed by the parties on the date of this Agreement.

 

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EXECUTION PAGE

 

Executed as a deed by KOKO (CAMDEN)
LIMITED acting by its duly authorised
Director in the presence of:
   
    Director
     

Name of witness:

 

Signature of witness:

 

Address:

 

Occupation:

 

   
Signed as a Deed by ALEX RUTHERFORD
in the presence of:

)

)

 
     

Name of witness:

 

Signature of witness:

 

Address:

 

Occupation:

   

 

Signed as a Deed by HUGH DOHERTY in
the presence of:

)

)

 
     

Name of witness:

 

Signature of witness:

 

Address:

 

Occupation:

   

 

7
 

 

Signed as a Deed by LAURENCE
SEYMOUR
in the presence of:

)

)

 
     

Name of witness:

 

Signature of witness:

 

Address:

 

Occupation:

   

 

Signed as a Deed by OLIVER
BENGOUGH
in the presence of:

)

)

 
     

Name of witness:

 

Signature of witness:

 

Address:

 

Occupation:

   
     
Executed as a deed by MINT GROUP
HOLDINGS LIMITED
acting by its duly
authorised Director in the presence of:
   
    Director
     

Name of witness:

 

Signature of witness:

 

Address:

 

Occupation:

   

 

8

 

 

DATED FEBRUARY 2014

 

ALEX RUTHERFORD, HUGH DOHERTY and LAURENCE SEYMOUR

as Creditors

 

KOKO (CAMDEN) LIMITED

as Debtor

 

TR1NAD CAPITAL MASTER FUND, LTD.

as Subordinated Creditor and Guarantor of the Debtor

 

and

 

JJAT CORP.

as Subordinated Creditor and Guarantor of the Debtor

 

DEED OF SUBORDINATION

 

 
 

 

Contents

 

Clause  Name Page
     
1 Definitions and interpretation 4
2 Subordination 6
3 Undertakings 6
4 Turnover 8
5 Subordination on insolvency 9
6 Application of monies realised. 10
7 Preservation of Rights 10
8 Power of Attorney 11
9 Representations and warranties 11
10 Assignment and transfer 13
11 Acknowledgements 13
12 Notices 13
13 Discharge 14
14 General Provisions 14
15 Counterparts 15
16 Governing Law 15

 

2
 

 

DATED 2014

 

PARTIES

 

(1)          ALEX RUTHERFORD of HUGH DOHERTY and LAURENCE SEYMOUR of (together the “ Priority Creditors ”);

 

(2)          KOKO (CAMDEN) LIMITED a company incorporated in England under company number 08763877 and whose registered office is at 55 Colmore Row, Birmingham, West Midlands, United Kingdom, B3 2AS (the “ Debtor ”);

 

(3)          TRINAD CAPITAL MASTER FUND, LTD. a limited liability corporation incorporated under the laws of the State of Delaware in the United States of America, and whose principal executive offices are situated at 4751 Wilshire Blvd., 3rd Floor, Los Angeles, CA 90010 USA for itself and as Manager of the TRINAD Capital Fund; and

 

(4)          JJAT CORP , a limited liability corporation incorporated under the laws of the State of Delaware in the United States of America, and whose principal executive offices are situated at 3500 South Dupont Highway, Dover, Delaware 19901 in the county of Kent,

 

(TRINAD CAPITAL MASTER FUND, LTD. and JJAT CORP. are each a “ Subordinated Creditor ” and are, together, the “ Subordinated Creditors ”)

 

BACKGROUND

 

(A)         The Debtor has entered into certain obligations to the Priority Creditors pursuant to the Alex Rutherford SPA, the Minority Interest SPA and the Deed of Reimbursement pursuant to which certain sums are, or will become, due and owing to Alex Rutherford, Hugh Doherty and Laurence Seymour respectively.

 

(B)         The Subordinated Creditor has made or is anticipating in the future making loans, giving credit, or providing other financial facilities to the Debtor

 

(C)         TRINAD Capital Master Fund has agreed to guarantee, on behalf of the Debtor, the obligations of the Debtor owed to Alex Rutherford pursuant to the Alex Rutherford SPA and to guarantee, on behalf of the Debtor, the performance of certain obligations of the Debtor owed to Hugh Doherty and Laurence Seymour under the Minority Interest SPA.

 

(D)         JJAT is the current holding company of the Debtor and, in addition to entering this agreement as an existing or potential creditor of the Debtor, enters into this agreement in its capacity as the sole shareholder of the Debtor and to give the undertakings set out in clause 3.2.

 

(E)         Each of the TRINAD Capital Master Fund Ltd (for itself and for each of its subsidiaries from time to time) and JJAT have agreed with the other parties to subordinate those facilities or indebtedness and any rights and entitlements arising in relation thereto or in relation to the guarantee given to Alex Rutherford (including any rights of subrogation arising in connection with such guarantee) and to Hugh Doherty and Laurence Seymour or any other sums owed or which otherwise might become payable by the Debtor, OBAR Camden Holdings Limited or OBAR Camden Limited from time to time to it or its subsidiaries as provided below.

 

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OPERATIVE PROVISIONS

 

1.            DEFINITIONS AND INTERPRETATION

 

1.1           Definitions

 

In this Deed:

 

Alex Rutherford SPA ” means a share purchase agreement of today’s date between Alex Rutherford (1) the Debtor (2) and the Subordinated Creditor (as guarantor) (3) in relation to the sale by Alex Rutherford to the Debtor of certain shares in OBAR Camden Holdings Limited.

 

Business Day ” means a day other than a Saturday, Sunday or a public holiday in England when banks in London are open for business.

 

Deed of Reimbursement ” means a deed of today’s date between Hugh Doherty, Laurence Seymour, Alex Rutherford (1) the Debtor (2) pursuant to which the Debtor agrees to reimburse certain payments made to third parties by or on behalf of Hugh Doherty, Laurence Seymour and Alex Rutherford;

 

Minority Interest SPA ” means a share purchase agreement of today’s date between Hugh Doherty and Laurence Seymour (1) the Debtor (2) and Oliver Bengough (3) in relation to the sale by Hugh Doherty and Laurence Seymour of certain shares in OBAR Camden Holdings Limited;

 

Obar Camden Limited ” means Obar Camen Ltd, a company incorporated in England and Wales with Registered Number 04962866 having its registered office at 191 Stonhouse Street, Clapham, London SW4 6BB;

 

Obar Camden Holdings Limited ” means Obar Camden Holdings Limited, a company incorporated in England and Wales with Registered Number 08257455 having its registered office at 191 Stonhouse Street, Clapham, London SW4 6BB;

 

OBAR Companies ” means OBAR Camden Holdings Limited and OBAR Camden Limited

 

Party ” means a party to this Deed.

 

Relevant Transaction Documents ” means the Alex Rutherford SPA, the Minority Interest SPA and the Deed of Reimbursement and any one of them shall be a “ Relevant Transaction Document ”.

 

Security Interest ” means any mortgage, pledge, lien, charge, security assignment, hypothecation, security trust, encumbrance or security interest and any other agreement or arrangement entered into to create or confer security over any asset.

 

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Senior Priority Amount ” means the principal sum of £1,573,250 together with:

 

(a)          all interest and fees payable in respect of that amount to the Priority Creditors under the Relevant Transaction Documents; and

 

(b)          all costs, fees and expenses (including any applicable VAT) from time to time incurred by the Priority Creditors and any person appointed by them in enforcing any obligations of the Debtor or the Subordinated Creditor under the Relevant Transaction Documents.

 

Subordinated Debt ” means the aggregate of a!! monies and liabilities of whatever nature (whether actual or contingent, as principal or surety) which are now or may at any future time outstanding or otherwise due from the Debtor or, following completion of any of the Relevant Transaction Documents, owed by either or both of the OBAR Companies to the Subordinated Creditor or to any subsidiary or other Connected Person in relation to the Subordinated Creditor on any account or in any manner whilst the Senior Priority Amount remains outstanding.

 

Subordination Period ” means the period beginning on the date of this Deed and ending on the date upon which the whole of the sums owed to the Priority Creditors up to the Senior Priority Amount has been unconditionally and irrevocably paid and discharged in full.

 

1.2          Construction

 

1.2.1       Headings and punctuation in this Deed are for convenience only and do not affect its construction or interpretation.

 

1.2.2       Unless the contrary intention appears, references in this Deed to:

 

(a)          any party to this Deed shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

 

(b)          “ including ” or “ in particular ” shall not limit words and expressions in connection with which they are used;

 

(c)          “ in connection with ”, “ under ”, “ pursuant to ”, “ by virtue of ” or “in relation to” shall include each of the others;

 

(d)          a “ person ” includes (where the context allows) any person, company, corporation, government, state or agency of a state or any association, trust or partnership (where or not having separate legal personality);

 

(e)          “ insolvency ” includes any of the following or any steps in relation to the following:

 

5
 

 

(i)          any insolvency, bankruptcy, liquidation, reorganisation, administration, receivership or dissolution;

 

(ii)         any voluntary arrangements or assignment for the benefit of creditors; or

 

(iii)        any similar or analogous events in any jurisdiction whatsoever;

 

(f)          an obligation of a Subordinated Creditor to do something includes an obligation to procure that it is done and an obligation not to do something includes an obligation not to permit, suffer or allow it;

 

(g)          a provision of law is a reference to that provision as amended or re-enacted and includes subordinate legislation; and

 

(h)          references to this Deed or any other agreement, deed or document are references to them In force for the time being as amended, varied, supplemented or consolidated from time to time.

 

2.            SUBORDINATION

 

The Subordinated Debt Is subordinated up to the Senior Priority Amount.

 

3.            UNDERTAKINGS

 

3.1           Undertakings of the Debtor and the Subordinated Creditor

 

The Debtor covenants with the Priority Creditors that it will not (and shall procure that none of its subsidiaries from time to time or either of the OBAR Companies shall) during the Subordination Period:

 

(a)          pay, prepay or repay, redeem, purchase or make any distribution any of the Subordinated Debt in cash or In kind and whether on account of principal, interest or damages for breach of the terms of the Subordinated Debt;

 

(b)          discharge, release or reduce any of the Subordinated Debt by set-off, netting, any right of combination of accounts or in any other manner;

 

(c)          assign or transfer Its rights or obligations In respect of the Subordinated Debt;

 

(d)          create or permit to subsist any Security Interest over any of its assets for any of the Subordinated Debt;

 

(e)          amend, vary, waive or release any term of the Subordinated Debt in any manner that would materially prejudice the subordination under this Deed;

 

6
 

 

(f)          enter into any arrangement under which such Subordinated Creditor is not to enforce the Debtor’s obligations in relation to the Subordinated Debt;

 

(g)          enter into any arrangement under which the Debtor or any of its subsidiaries or any of the OBAR Companies shall not enforce an obligation owed to it by the Subordinated Creditor or any of its subsidiaries or OBAR Companies from time to time;

 

(h)          enter into an arrangement for the benefit of a Subordinated Creditor where the value provided by the Debtor, its subsidiaries or by the OBAR Companies exceeds the value received by the Debtor, any of Its subsidiaries or by the OBAR Companies;

 

(i)          provide credit to a Subordinated Creditor or any of Its subsidiaries, or provide a guarantee, or Security Interest in respect of any liability of a Subordinated Creditor or any of its subsidiaries;

 

(j)          make (i) any distribution of its assets or profits (whether by way of final or interim dividend or otherwise and whether in cash, shares or otherwise); or (ii) pay any sum by way of management charge or simiiar payment to a Subordinated Creditor or any of its or any person who is a connected person (as that term is defined in the Aiex Rutherford SPA) or shareholder, manager or investor in the Subordinated Creditor or any of its connected persons;

 

(k)          take or omit to take any action whereby the subordination of the Subordinated Debt under this Deed might be terminated, impaired or adversely affected.

 

3.2           Undertakings of the Subordinated Creditor

 

Each Subordinated Creditor (for itself and for each of its subsidiaries from time to time) covenants with the Debtor and separately with the Priority Creditors that at ali times during the Subordination Period:

 

3.2.1       it will not:

 

(a)          demand, sue, claim, prove for, accept or receive payment, prepayment or repayment of, or any distribution in respect or on account of, any of the Subordinated Debt In cash or in kind and whether on account of principal, interest or, damages for breach of the terms of the Subordinated Debt;

 

(b)          discharge, release or reduce any of the Subordinated Debt by set-off, netting, any right of combination of accounts or in any other manner;

 

(c)          assign, transfer, charge or otherwise dispose of its rights or obligations in respect of the Subordinated Debt;

 

(d)          accept or permit to subsist any Security Interest over any of the assets of the Debtor or any other party for any of the Subordinated Debt;

 

(e)          amend, vary, waive or release any term of any of the Subordinated Debt in any manner that would materially prejudice the subordination under this Deed;

 

7
 

 

(f)          enter into any arrangement under which such Subordinated Creditor is not to enforce the Debtor’s obligations in relation to the Subordinated Debt;

 

(g)          enter into any arrangement under which the Debtor or any of its subsidiaries shall not enforce an obligation owed to it by the Subordinated Creditor or any of its subsidiaries from time to time;

 

(h)          enter into an arrangement for its benefit where the value provided by the Debtor or its subsidiaries or OBAR Camden Holdings Limited or OBAR Camden Limited exceeds the value received by the Debtor or its subsidiaries or OBAR Camden Holdings Limited or OBAR Camden Limited;

 

(i)          receive credit from the Debtor, or permit the Debtor to grant any guarantee or Security Interest in respect of any of the Subordinated Creditor’s liabilities or those of the Subordinated Creditor’s subsidiaries;

 

(j)          receive any kind of distribution of the Debtor’s assets, whether in cash, shares or otherwise;

 

(k)          take or omit to take any action whereby the subordination of the Subordinated Debt under this Deed might be terminated, impaired or adversely affected; nor

 

(l)           make any application or take any step (including presentation of a petition, convening a meeting or passing a resolution) or otherwise give support for the Insolvency or re-organisation of the Debtor or any of its subsidiaries or any of the OBAR Companies.

 

3.2.2       it will at all times remain entitled to the Subordinated Debt legally and beneficially, free from any Security Interest, option, subordination or other rights (n favour of any person, and will procure that the Subordinated Debt is not subject to any set¬off, counterclaim or other defence.

 

3.3           Exceptions

 

Notwithstanding the above the Debtor and the Subordinated Creditor may do anything approved by the Priority Creditors in writing, such approval not to be unreasonably withheld or delayed.

 

4.           TURNOVER

 

4.1           Turnover trust

 

If:

 

(a)          a Subordinated Creditor or any of its subsidiaries receives any benefit, payment, distribution or security in cash or in kind in respect of, or on account of, the Subordinated Debt or otherwise in breach of the undertakings in clause 3 above;

 

8
 

 

(b)          a Subordinated Creditor or any of its subsidiaries receives the proceeds of enforcement of any Security Interest or guarantee in relation to the Subordinated Debt; or

 

(c)          any of the Subordinated Debt or any other payment which would otherwise be the subject of the covenants and undertakings set out in clause 3 is discharged by set-off, netting, counterclaim, or by exercise of any right of combination of accounts, or in any other manner,

 

that Subordinated Creditor will hold the relevant amount on trust for the Priority Creditors and will immediately pay to the Priority Creditors the amount so received by the Subordinated Creditor or its subsidiary (or discharged as contemplated by Clause 4.1(c)) for application against, or retention on account of the Senior Priority Amount.

 

4.2           Exercise of Subordinated Creditor rights

 

If a Subordinated Creditor or any of its subsidiaries fails to observe and perform its obligations in this Clause 4 ( Turnover ), the Priority Creditors are irrevocably authorised to effect the same on behalf of the Subordinated Creditor or the relevant subsidiary.

 

4.3           Failure of trust

 

If any of the trusts referred to in this Deed fails or cannot be given effect to, the relevant Subordinated Creditor will, upon demand and without deduction, pay to the Priority Creditors (for application against or retention on account of the Senior Priority Amount) an amount equal to the relevant amount.

 

4.4           Additional Subordinated Debt

 

Any such distribution paid by a Subordinated Creditor to the Priority Creditors under this Deed shall (so far as permitted by law) be treated as additional monies due from the Debtor to that Subordinated Creditor.

 

4.5           Perpetuity period

 

The perpetuity period applicable to the trusts under this Deed shall be 125 years from the date of this Deed.

 

5.            SUBORDINATION ON INSOLVENCY

 

5.1           Subordination

 

If, at any time during the Subordination Period, any event of insolvency occurs in relation to the Debtor, any of its subsidiaries or either of the OBAR Companies:

 

(a)          the Subordinated Debt will be subordinate in right of payment to the Senior Priority Amount; and

 

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(b)          the Subordinated Creditor shall not and shall procure that none of its subsidiaries shall, claim, rank, prove or vote as a creditor of the Debtor unless otherwise directed by the Priority Creditors until such time that the Senior Priority Amount has been repaid in full.

 

5.2           Direction

 

The person distributing the assets and proceeds of the Debtor is, by this Deed, directed to pay such distributions in relation to the Subordinated Debt directly to the Priority Creditors until the Senior Priority Amount has been irrevocably paid and discharged in full.

 

5.3           Further assurance

 

Each Subordinated Creditor shall and shall procure that its subsidiaries shall (at its cost) give all such notices and do all such things as the Priority Creditors may direct to give effect to this Clause 5 ( Subordination on Insolvency ).

 

6.           APPLICATION OF MONIES REALISED

 

6.1           Application of receipts

 

All monies received by the Priority Creditors in connection with this Deed shall be treated as having been received under the Relevant Transaction Documents and shall be applied in accordance with the provisions of the Refevant Transaction Document in relation to which the payment was received. If a payment comprises sums which include payments under more than one Relevant Transaction Document then, unless the relevant payments have been made expressly in relation to an obligation under the Relevant Transaction Document, the payment received will be divided between the Priority Creditors pro rata to the amount outstanding and owed to the Priority Creditors pursuant to their respective entitlements under the Relevant Transaction Documents.

 

6.2           No appropriation by a Subordinated Creditor

 

Neither the Debtor nor the Subordinated Creditor may during the Subordination Period direct the application by the Priority Creditors of any sums received in connection with this Deed.

 

7.           PRESERVATION OF RIGHTS

 

7.1           Continuing deed

 

The rights of the Priority Creditors contained in this Deed shall be in addition to and independent of all other rights which each of them may at any time hold.

 

7.2           Waiver of defences

 

The subordination constituted by this Deed and the covenants and other provisions contained in this Deed shall not be affected in any way by all or any of the following:

 

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(a)          any fluctuation in the amounts of the Subordinated Debt;

 

(b)          any legal limitation, disability, incapacity or other circumstance relating to any person;

 

(c)          any step taken with regard to the insolvency or reorganisation of any person or any change in their status, function, control or ownership;

 

(d)          the Relevant Transaction Documents being illegal, invalid, unenforceable or ineffective;

 

(e)          time or other indulgence, release, compact or compromise being granted to any person;

 

(f)          any amendment, variation, novation, replacement, waiver or release of the Relevant Transaction Documents however fundamental;

 

(g)          any failure to take any security in respect of the Senior Priority Amount or any part of it; or

 

(h)          any other act, event or omission which, but for this Clause 7.2 ( Waiver of defences ), might discharge, impair or otherwise affect the subordination created by this Deed or any of the obligations of any Subordinated Creditor under this Deed or any of the rights of any of the Priority Creditors.

 

7.3           No right of notification

 

Each Subordinated Creditor acknowledges that it has no right to receive notice from the Priority Creditors of any of the matters referred to in this Clause 7 ( Preservation of Rights ) and that its lack of consent to them shall not impair the subordination and other provisions created by this Deed.

 

8.            POWER OF ATTORNEY

 

If within 5 Business Days of a written request from the Priority Creditors (acting together) to a Subordinated Creditor to perform any action required to be taken pursuant to the terms of this Deed, that Subordinated Creditor fails to perform such action, then that Subordinated Creditor by way of security irrevocably appoints the Priority Creditors as its respective attorney in its name and on its behalf to execute any documents and do or perfect anything which the Priority Creditors shall consider appropriate for the purpose of enforcing that Subordinated Creditor’s obligations in connection with this Deed.

 

9.            REPRESENTATIONS AND WARRANTIES

 

Each Subordinated Creditor makes the representations and warranties set out in this Clause 9 ( Representations and warranties ) to the Priority Creditors on the date of this Deed.

 

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9.1           Status

 

It:

 

(a)          is a corporation, duly incorporated and validly existing under the law of the jurisdiction of its incorporation; and

 

(b)          has the power to own its assets and carry on the business which it conducts and/or proposes to conduct.

 

9.2           Binding obligations

 

The obligations expressed to be assumed by it in this Deed are legal, valid, binding and enforceable obligations.

 

9.3           Non-conflict

 

The entry into and performance by it of, and the transactions contemplated by, this Deed do not and will not conflict with:

 

(a)          any law or regulatory requirement applicable to it;

 

(b)          its constitutional documents; or

 

(c)          any agreement or instrument binding upon it or any of its assets.

 

9.4           Power and authority

 

It has the power to enter into, perform and deliver, and has taken all necessary action to authorise Its entry Into, performance and delivery of, this Deed and the transactions contemplated by this Deed,

 

9.5           Validity and admissibility in evidence

 

Each authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration required or desirable:

 

(a)          to enable it lawfully to enter into, exercise its rights and comply with Its obligations under this Deed; and

 

(b)          to make this Deed admissible in evidence in its jurisdiction of incorporation and In England and Wales,

 

(c)          has been obtained or effected and is in full force and effect.

 

9.6           Solvency

 

No step has been taken for the Insolvency of the Subordinated Creditor.

 

12
 

 

10.          ASSIGNMENT AND TRANSFER

 

10.1         Assignment by the Debtor and the Subordinated Creditor

 

Neither the Debtor nor any Subordinated Creditor may, during the Subordination Period, assign, transfer or otherwise part with its rights or obligations under this Deed without the prior written consent (such consent not to be unreasonably withheld or delayed) of the Priority Creditors which, if given, shall be subject to the assignee/transferee entering into a deed of subordination in the same form as this Deed, with the necessary changes.

 

10.2         Assignment by the Priority Creditors

 

The Priority Creditors may only transfer, assign or novate all or any part of their respective rights, benefits or obligations in relation to the Senior Priority Amount and/or under this Deed where their rights, benefits or obligations are permitted to be assigned pursuant to and under the Relevant Transaction Documents.

 

11.          ACKNOWLEDGEMENTS

 

11.1         No limitation of liability

 

The Debtor acknowledges the terms of this Deed and that nothing in this Deed shall affect its liability to the Priority Creditors in relation to the Senior Priority Amount.

 

11.2         Distribution of information

 

The Debtor acknowledges and confirms that the Priority Creditors and each Subordinated Creditor has an unrestricted right to give each other information concerning any accounts and facilities of the Debtor

 

11.3         Copies of Subordinated Debt

 

The Debtor and each Subordinated Creditor agrees to supply to the Priority Creditor on demand true copies of all documents relating to the Subordinated Debt.

 

12.          NOTICES

 

12.1         Communications in writing

 

Any communication to be made under or in connection with this Deed shall be made in writing and, unless otherwise stated, may be made by fax or letter.

 

12.2         Addresses

 

The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with this Deed is that identified with its name below or the registered office or place of business last known to the Priority Creditors or any substitute address, fax number or department or officer as the Party may notify the Priority Creditors (or the Priority Creditors may notify the Debtors and the Subordinated Creditor if the change is made by the Priority Creditors) by not less than five Business Days’ notice,

 

13
 

 

12.3        Delivery

 

12.3.1     Any communication or document made or delivered by one person to another person in connection with this Deed will only be effective:

 

(a)          if by way of fax, when received in legible form; or

 

(b)          if by way of letter, when it has been ieft at the relevant address or two Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address,

 

and, if a particular department or officer is specified as part of its address details provided under Clause 12.2 ( Addresses ), if addressed to that department or officer.

 

12.4         Notices to Priority Creditors

 

Any notice or communication to be made or delivered to the Priority Creditors shall be effective when actually received by the Priority Creditors and then only if it is expressly marked for the attention of the department or officer identified with the Priority Creditors’s signature below (or any substitute department or officer as the Priority Creditors shall specify for this purpose).

 

13.          DISCHARGE

 

13.1          At the end of the Subordination Period, the Priority Creditors will within 5 Business Days at the cost of the Subordinated Creditor discharge this Deed.

 

13.2          No discharge will be of any effect if any security or payment given or made in respect of the Senior Priority Amount is rescinded, avoided, reduced or invalidated whether in respect of any insolvency or otherwise.

 

14.          GENERAL PROVISIONS

 

14.1         Benefit

 

The provisions of this Deed are for the benefit of each of the Priority Creditors respectively until the end of the Subordinated Period and the Debtor shall not be entitled to claim the benefit of (or seek to enforce) any provision of it.

 

14.2         Continuing priority

 

The priorities created under this Deed are continuing and extend to the balance from time to time, and the continued performance, of the Senior Priority Amount until the end of the Subordination Period irrespective of any intermediate payment or performance of the Senior Priority Amount.

 

14
 

 

14.3         Overriding agreement

 

This Deed overrides any existing agreement between the Debtor and the Subordinated Creditor and Its subsidiaries (or any of them) so far as any such agreement is inconsistent with the terms of this Deed.

 

14.4         Expenses

 

Each Subordinated Creditor must pay Priority Creditors within fourteen Business Days of demand the amount of ail costs and expenses (including legal fees) incurred by it in connection with the enforcement of, or the preservation of any rights against that Subordinated Creditor, as appropriate, under this Deed.

 

14.5         Rights of third parties

 

14.5.1     Unless the right of enforcement is expressly granted, it is not intended that a third party should have the right to enforce a provision of this Deed pursuant to the Contracts (Rights of Third Parties) Act 1999.

 

14.5.2     The parties may rescind or vary this Deed without the consent of a third party to whom an express right to enforce any of its terms has been provided.

 

14.6         Partial invalidity

 

The illegality, invalidity or unenforceability for whatever reason of any provision of this Deed in any jurisdiction, shall not affect the legality, validity or enforceability of that provision in any other jurisdiction or the legality, validity or enforceability of the remaining provisions in any jurisdiction.

 

15.          COUNTERPARTS

 

This Deed may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Deed.

 

16.          GOVERNING LAW

 

16.1         Governing Law

 

This Deed and any non-contractual obligations arising out of or in relation to this Deed shall be governed by English law.

 

16.2         Jurisdiction of English courts

 

16.2.1     The courts of England have exclusive jurisdiction to settle any dispute, including, without limitation, disputes relating to any non-contractual obligations arising out of or in connection with this Deed (a “ Dispute ”).

 

16.2.2     The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no party will argue to the contrary.

 

15
 

 

16.2.3     This Clause 16.2 ( Jurisdiction of English courts ) is for the benefit of the Priority Creditors only. As a result, the Priority Creditors shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Priority Creditors may take concurrent proceedings in any number of jurisdictions.

 

16.3         Service of process

 

Without limiting any other mode of service allowed under any relevant law, each Subordinated Creditor irrevocably:

 

(a)          appoints the Debtor as its agent for service of process in relation to any proceedings before the English courts in connection with this Deed; and

 

(b)          agrees that failure by a process agent to notify the Subordinated Creditor of the process will not invalidate the proceedings concerned.

 

This Deed has been executed as a Deed and delivered on the date stated at the beginning of this Deed.

 

16
 

 

 

EXECUTION PAGE

 

Executed as a deed by )
KOKO (CAMDEN) LIMITED )
acting by a duly authorised Director in the )
presence of the Witness whose details )
appear below  
  Director
   
Witness Signature:  
   
Witness Name  
Witness Address:  
   
Witness Occupation  
   
TRINAD CAPITAL MASTER FUND LTD  
   
By:    
     
Title:    
   
   
JJAT CORP.  
   
By:    
     
Title:    

 

17
 

 

Executed as a deed by )
HUGH DOHERTY )
in the presence of the )
Witness whose details appear below )
   
Witness Signature:  
   
Witness Name  
Witness Address:  
   
Witness Occupation  
   
   
Executed as a deed by )
LAURENCE SEYMOUR )
in the presence of the )
Witness whose details appear below )
   
Witness Signature:  
   
Witness Name  
Witness Address:  
   
Witness Occupation  
   
   
Executed as a deed by )
ALEX RUTHERFORD )
in the presence of the )
Witness whose details appear below )
   
Witness Signature:  
   
Witness Name  
Witness Address:  
   
Witness Occupation  

 

18

 

Variation

 

To

 

Shareholders Agreement

 

THIS VARIATION TO SHAREHOLDERS AGREEMENT IN RELATION TO OBAR CAMDEN HOLDINGS LIMITED dated April 24, 2014 is made

 

AMONG

 

(1) Oliver Bengough ( “OB” ) of;

 

(2) Koko (Camden) Limited, a private company registered in England and Wales under company number 08763877 (the “ KOKO UK Holdco ”);

 

(3) Robert Ellin (“ RE ”) of USA;

 

(4) Trinad Capital Master Fund LTD (“ Trinad ”), a limited liability corporation incorporated under the laws of the State of Delaware, whose principal offices are situated at 4751 Wiltshire Blvd., 3rd Floor, Los Angeles, CA 90010, USA;

 

(5) Obar Camden Holdings Limited, a private company registered in England and Wales under company number 08257455 (“ Obar Camden Holdings ”);

 

(6) Obar Camden Limited a private company registered in England and Wales under company number 04962866 (the “ Subsidiary ”);

 

(7) JJAT, a Delaware corporation (“ JJAT ”) a limited liability corporation incorporated under the laws of the State of Delaware, whose principal offices are situated at 3500 South Dupont Highway, Dover, Delaware 19901; and

 

(8) Loton Corp. (“ Loton ”) a limited liability corporation incorporated under the laws of the State of Nevada, whose principal offices are situated at 4751 Wiltshire Blvd., 3rd Floor, Los Angeles, CA 90010, USA.

 

BACKGROUND

 

(A) The parties entered into that certain Shareholders Agreement in relation to Obar Camden Holdings Limited dated February 12, 2014 (the “ Shareholders Agreement ”) providing for, among other things, allocation of responsibility for Transaction Expenses, transfer of 50% of the Minority Holding to OB and governance of Obar Camden Holdings and its Subsidiary.

 

 
 

 

(B) Koko UK Holdco and OB intend to transfer their equity interests in Obar Camden Holdings to Loton Corp., (“ Loton ”) in exchange for certain common stock of Loton.

 

(C) In accordance with paragraph 19 of the Shareholders Agreement, the parties now desire to amend the Shareholders Agreement in certain respects as set forth in this Variation.

 

1. VARIATION

 

(a) The Parties hereby agree that with effect from the date of this Variation Agreement the Subsidiary, JJAT and Loton hereby agree to become parties to the Shareholders Agreement and shall be bound by the terms of the. Shareholders Agreement as amended and varied by this Variation Agreement.

 

(b) Sections 3.1 and 3.2 of the Shareholders Agreement are hereby amended and restated in their entirety as follows:

 

“3.1 OB and RE have agreed that the amount of any Transaction Expenses over and above US$ 4,000,000 (the “ Excess Transaction Expenses ”) shall be split equally between OB and RE and OB will acquire from JJAT Corp. (“ JJAT ”), as assignee of KOKO UK Holdco, 2,468 ordinary shares of £0.05 each and 2,750 deferred ordinary shares of OBAR Camden Holdings for a purchase price equal to 50% of the Consideration payable under the Second Sale Agreement (the “ Minority Interest Purchase ”).

 

The business terms will be implemented as follows: (i) in order to effect reimbursement of JJAT of expenses paid for by JJAT at the request of its beneficial owner Rob Ellin, incurred by or on behalf of Obar Camden Holdings and/or the Subsidiary, Obar Camden Holdings and the Subsidiary shall execute, and shall cause the Subsidiary to execute a Senior Promissory Note (the “ OBAR Expense Note ”) substantially in the form attached hereto as Exhibit A , in favour of JJAT. in the principal amount of the Excess Transaction Expenses; (ii) in order to effect reimbursement to Loton, who has paid or is liable for certain Transaction Expenses, Obar Camden Holdings and the Subsidiary shall execute, and shall cause the Subsidiary to execute a Promissory Note (the “ LOTON Expense Note ”) substantially in the form attached hereto as Exhibit B , in favour of Loton in the principal amount set forth in the note, (iii) JJAT and OB shall, concurrently with execution of the Excess Expense. Note, or at such other time as mutually agreed by JJAT and OB, execute and complete the Minority Share Purchase under the terms of the OB Purchase Agreement, substantially in the form attached hereto as Exhibit C , for a purchase price equal to 50% of the Consideration payable under the Second Sale Agreement payable in the form of a secured promissory note (the “ OB Purchase Note ”), substantially in the form attached hereto as Exhibit D; and (iv) concurrently with completion of the OB Purchase Agreement, OB shall execute and deliver to JJAT, a secured promissory note (the “ OB Expense Note ”), substantially in the form attached hereto as Exhibit E , in the principal amount equal to 50% of the Excess Transaction Expenses.

 

2
 

 

Each of the OB Purchase Note and OB Expense Note shall be secured by (i) OB’s stock in OBAR Camden Holdings (and any common stock that may be received by OB in exchange for sale of his stock in OBAR Camden Holdings; and (ii) at the written request of RE at any time after the expiration of 75 days from the date of issue of the OBAR Expense Note, if the aggregate Principal Amount outstanding under the OB Purchase Note and the OB Expense Note OBAR shall not have been reduced by at least US $500,000 (whether through crediting fifty percent of any payments made by Obar Camden Holdings or the Subsidiary under the OBAR Expense Note (as a result of funds made available from a debt financing, payments from net revenues or otherwise), and/or by payment by OB, OB shall grant a charge against his owned real property securing OB’s obligation as a Guarantor under the First Sale Agreement (which shall be in second position if OB’s obligation as Guarantor remains outstanding following March 31, 2014).

 

The Shareholders agree that: (i) operating revenue of OBAR Camden Holdings and the Subsidiary shall, after allowance for their respective operating expenses including appropriate reserves, and subject to compliance with any restrictive covenants required by their senior lender, be used to prepay amounts due under the OBAR Expense Note (and 50% of amounts so paid shall be credited to the OB Expense Note by JJAT); and (ii) they will use their commercially reasonable efforts to obtain financing from Barclays (or any other financial institution) to permit prepayment of the OBAR Expense Note.

 

3.2 Except as otherwise specified in this Agreement or as agreed by RE and OB, the OB Purchase Agreement, OB Purchase Note, OB Expense Note and related security documentation shall be executed by the parties thereto concurrently with completion of the Second Sale Agreement, and the parties shall close the transactions contemplated therein upon execution thereof.”

 

(b) The parties hereby consent to and approve (i) the assignment of by KOKO UK Holdco to JJAT of its right to acquire 2,468 ordinary shares of £0.05 each and 2,750 deferred ordinary shares of OBAR Camden Holdings under the Second Sale Agreement in order to facilitate the Minority Interest Purchase and otherwise waive any prohibition or right of first refusal applicable thereto under this Agreement, including, without limitation, under Sections 4, 5.1, 5.3, 5.4 through 5.8, Section 7 and any other applicable provisions and (ii) the borrowing by Obar Camden Holdings and/or the Subsidiary of funds from Barclays (or any other financial institution) for the purposes contemplated by this Agreement.

 

3
 

 

(c) The parties agree and undertake to complete the following transactions, promptly following the execution of this Agreement: (i) the transfer, by merger, of JJAT’s interest in KOKO UK Holdco to a subsidiary of Loton, thereby effecting a transfer of beneficial ownership of KOKO’s interest in OBAR Camden Holdings, in exchange for 29,000,000 shares of common stock of Loton issued in a private placement which shall constitute not less than 42.5% of the share capital of Loton on a fully diluted basis (taking into account any existing options or warrants or other rights to acquire equity but before issuing up to three million two hundred thousand shares of common stock to advisors, consultants and key employees of Loton as approved by OB and RE); and (ii) the transfer, by share exchange, OB’s s interest in OBAR Camden Holdings (including the shares acquired by OB from JJAT in the Minority Share Purchase, in exchange for 29,000,000 shares of common stock of Loton issued in a private placement, which shall constitute not less than 42.5% of the share capital of Loton on a fully diluted basis (taking into account any existing options or warrants or other rights to acquire equity but before issuing up to three million two hundred thousand shares of common stock to advisors, consultants and key employees of Loton as approved by OB and RE). It is agreed and acknowledged that completion of OB’s exchange of shares will be subject , inter alia, to OB receiving satisfactory tax clearances, including clearance under Section 138 of the UK Taxation of Chargeable Gains Act 1992 and in respect of the transactions in securities legislation in the UK Corporation Tax Act 2010 and the UK Income Tax Act 2007 that the share exchange can be done on a tax efficient basis. It is agreed and acknowledged that if such clearances are not obtained prior to the date required for closing of the OB Share Exchange, Loton shall indemnify and keep indemnified OB in relation to the amount of taxes and related costs and expenses required to be paid by OB in relation to the share exchange.

 

The foregoing is intended to be legally binding on the parties, and shall be implemented through transaction documents mutually acceptable to the relevant parties (which shall include inter alia, a share for share exchange agreement with reciprocal warranties and representations relevant to shares to be exchanged and a voting agreement between RE, JJAT, Trinad and OB in relation to their respective holdings of stock in Loton), with the intention that the closing of such transactions will occur promptly following execution of this Agreement.

 

Pending completion of these transactions:

 

(i) Loton agrees that it shall not and RE and Trinad, as shareholders of Loton, agree (so far as is lawfully possible in the exercise of their duties as directors, their voting rights (whether as directors, shareholders) or otherwise, that they shall use their respective best efforts to ensure that Loton does not: issue, or incur any obligations to issue, any equity or equity equivalents that would result in any change to the equity capitalization of Loton as of the date of this Agreement; amend its bylaws; sell or dispose of any of its undertaking or assets; lend or borrow any money or create any security or encumbrance over its assets; or enter into any material agreement otherwise than on arms length terms and in the ordinary course of its business without the prior consent of RE and OB;

 

(ii) OB undertakes to accept the position as interim Chief Executive Officer of Loton; and

 

(iii) RE will maintain control of JJAT and JJAT will retain its holding of stock in Loton.

 

(d) The parties agree that, notwithstanding any provision of the charter documents of Obar Camden Holdings or its Subsidiary, or applicable law, that permit the chairman of the board, or any other director of those companies to exercise a “casting vote” or similar right, such right shall not be effective and the provisions of this Agreement shall take precedence and govern the rights of the parties.

 

4
 

 

2. SHAREHOLDERS AGREEMENT REMAINS IN LULL FORCE AND EFFECT

 

Except as expressly amended hereby, the Shareholders Agreement remains in full force in effect in all respects.

 

IN WITNESS of which this Agreement has been executed and delivered as a deed by the parties on the date at the beginning of this Agreement.

 

Executed as a deed by

 

Oliver Bengough

 

in the presence of:

 

Witness name:

 

Signature of witness

 

Address:

 

Occupation:

 

5
 

 

Executed as a deed by KOKO (CAMDEN)

 

LIMITED acting by a director
in the presence of:

 

Witness name:

 

Signature of witness:

 

Address:

 

Occupation:

 

Executed as a deed by )
   
Robert Ellin )
   
in the presence of: )

 

Witness name:

 

Signature of witness:

 

Address:

 

Occupation

 

6
 

 

Executed as a deed by Obar Camden Holdings Limited

 

acting by a director in the presence of:

 

Witness name:

 

Signature of witness:

 

Address:

 

Occupation:

 

Executed as a deed by

 

TRINIDAD CAPITAL MASTER FUND LTD

 

acting by a director in the presence of:

 

Witness name:

 

Signature of witness:

 

Address:

 

Occupation:

 

7
 

 

Executed as a deed by

 

OBAR Camden Limited acting by a director in the presence of:

 

Witness name:

 

Signature of witness:

 

Address:

 

Occupation:

 

Executed as a deed by

 

JJAT Corporation acting by a director in the presence of:

 

Witness name:

 

Signature of witness:

 

Address:

 

Occupation:

 

8
 

 

Executed as a deed by
Loton Corporation acting by a director in the presence of:
Witness name:

 

Signature of witness:

 

Address:

 

Occupation:

 

9

 

 

Private and Confidential

 

Dated: April 24, 2014

 

_____________________________

 

THE SELLER

 

and

 

THE PURCHASER

 

_____________________________________________

 

Share Purchase Agreement

 

relating to

 

Certain Shares of OBAR Camden Holdings Limited

 

_____________________________________________

 

 
 

 

 

THIS AGREEMENT dated April 24, 2014 is made

 

BETWEEN

 

(1) JJAT , a Delaware Corporation (the " Seller "); and

 

(2) Oliver Bengough (the " Purchaser ").

 

BACKGROUND

 

(A) Koko (Camden) Limited, a private company registered in England and Wales under company number 08763877 (“ KOKO UK ”), Hugh Doherty and Laurence Seymour are parties to that certain Share Sale Agreement dated February 13, 2014 (“ Minority Sale Agreement” ), under which KOKO UK has the right to acquire 4,936 ordinary and 5,500 deferred ordinary shares (the " Minority Shares ") of OBAR Camden Holdings Limited (the “Company ”).

 

(B) KOKO UK assigned to Seller, its parent corporation, the right to acquire fifty percent of the Minority Shares (i.e. 2,468 ordinary shares and 2,750 deferred ordinary shares) under the Minority Sale Agreement (the “ Sale Shares ”).

 

(C) Pursuant to clause 3 of that certain Shareholders Agreement dated February 12, 2014, among the Seller, KOKO UK, the Purchaser and certain other parties (the “ SHA ”), the Seller is obligated to sell the Sale Shares to the Purchaser, and the Purchaser is obligated to purchase from the Seller the Sale Shares, on the terms and conditions set forth herein.

 

1. SALE OF THE SHARES

 

1.1 Sale and Purchase

 

The Seller shall sell the Sale Shares and the Purchaser shall purchase the Sale Shares on the terms of this Agreement. The Sale Shares are more particularly described as follows:

  

2,468 Ordinary Shares of £0.05 2,750 Deferred Ordinary Shares of £0.05

  

1.2 Waiver of Pre-emption Rights

 

The Seller and the Purchaser each waive any rights of pre-emption conferred upon either party by the articles of association of the Company or in any other way in respect of the sale and transfer of the Sale Shares to the Purchaser.

 

2. CONSIDERATION

 

2.1 The consideration for the sale of the Sale Shares (the “ Consideration ”) shall be the sum of the following:

 

(a) £127,500 in respect to the 2,468 Ordinary Shares comprising the Sale Shares; and

 

(b) £1 in respect to the 2,750 Deferred Ordinary Shares comprising the Sale Shares.

 

2.2 The Consideration shall be payable by the Purchaser in accordance with the terms of a promissory note in the form set out in Schedule 4 to this Agreement (the “ OB Note ”).

 

2.3 Payment of the Consideration shall be secured by a share charge over certain shares in the Company held by the Purchaser as detailed in the share charge (the “ Share Charge ”), and shall be due and payable in full eighteen months after the date of the OB Note, together with interest thereon at the rate of eight percent (8%) per annum. The Consideration may be prepaid in whole or part at any time, with payments being applied first to accrued interest and then to principal.

 

3. COMPLETION

 

3.1 Time for Completion

 

Completion shall take place immediately after the signing and exchanging of this Agreement at the offices of Winston & Strawn London LLP, City Point, One Ropemaker Street, London EC2Y 9AW (or any other location agreed upon by the Seller and the Buyer).

 

 
 

   

3.2 Seller's Completion Obligations

 

The Purchaser shall not be obliged to complete this Agreement unless at Completion the Seller shall deliver or cause to be delivered to the Purchaser:

 

(a) transfers in respect of the Sale Shares duly completed in favour of the Purchaser or as it may direct; and

 

(b) the share certificates representing the Sale Shares (or an express indemnity in a form satisfactory to the Purchaser in the case of any found to be missing).

 

3.3 Purchaser's Completion Obligations

 

The Seller shall not be obliged to complete this Agreement unless the Purchaser delivers to Seller the Share Charge, in an agreed form, executed by Purchaser.

 

4. SELLER’S WARRANTIES

 

4.1 Warranties

 

THE SELLER WARRANTS TO THE PURCHASER THAT THE SALE SHARES SHALL BE TRANSFERRED TO PURCHASER FREE OF ANY ENCUMBRANCES CREATED BY THE SELLER. EXCEPT AS SET FORTH IN THIS SECTION, PURCHASER MAKES NO WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED WITH RESPECT TO THE SHARES, THE COMPANY, ANY OF ITS SUBSIDIARIES OR OTHERWISE, AND PURCHASER ACKNOWLEDGES AND AGREES THAT HIS SOLE RECOURSE WITH RESPECT TO THE SALE SHARES SHALL BE THE RIGHT TO RECEIVE HIS 50% SHARE OF THE PROCEEDS OF ANY INDEMNITY OR WARRANTY CLAIM MADE WITH RESPECT TO THE SALE SHARES UNDER THE MINORITY PURCHASE AGREEMENT (PURSUANT TO CLAUSE 4.2(i) (n) BELOW).

 

4.2 Seller’s Covenants

 

(i) The Seller covenants that:

 

(a) the Seller has the requisite capacity and authority to enter into and perform this Agreement and any other documents that are to be executed by its pursuant to this Agreement (the " Sellers’ Completion Documents ");

 

(b) this Agreement and the Sellers’ Completion Documents will, when executed by it, constitute binding obligations on Seller enforceable in accordance with their respective terms;

 

(c) no administration order has been made, no petition for one has been presented and no notice of intention to appoint an administrator has been given in respect of the Seller;

 

(d) no administrator, receiver or administrative receiver has been appointed in respect of the Seller or any of its assets and no application for the appointment of an administrator has been made by the Seller in accordance with the out of court procedure under the Enterprise Act 2002;

 

(e) the Seller has not failed, nor is unable, to pay any of his debts as they fall due, within the meaning of section 123 of the Insolvency Act 1986;

 

(f) no voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of the Seller and the Seller has not made or proposed any arrangement or composition with its creditors or any class of them;

 

(g) no steps have been taken to obtain a moratorium under Schedule A1 of the Insolvency Act 1986 or otherwise in respect of the Seller;

 

(h) no distress, execution or other process has been levied on the Seller’s assets or action taken at the Seller’s address to repossess goods in the possession of the Seller;

 

(i) no unsatisfied judgment is outstanding against the Seller and no demand has been served on the Seller under section 123(1)(a) of the Insolvency Act 1986;

 

 
 

 

(j) no meeting to approve a compromise or scheme of arrangement under the Companies Act 2006 has been convened and no such compromise or scheme has been agreed to or sanctioned in respect of the Seller;

 

(k) the Seller has not entered into any compromise or arrangement with its creditors or any class of its creditors generally;

 

(l) the Seller is not insolvent according to any laws in any relevant jurisdiction;

 

(m) if the Seller makes a claim for breach of Warranty (as defined in the Minority Sale Agreement), indemnity or a Tax Claim (as defined in the Minority Sale Agreement) under the Minority Sale Agreement (a " MSA claim ") it shall notify the Purchaser in writing as soon as reasonably practicable; and

 

(n) if the Seller receives payment in satisfaction of a MSA claim it shall:

 

(i) notify the Purchaser immediately in writing;

 

(ii) pay to the Purchaser an amount equal to 50% of the amount received in satisfaction of the MSA claim, net of any costs (including attorneys’ fees) of enforcement, within 5 days of the date payment is received in settlement of a MSA claim in cleared funds; and

 

(iii) any payment made to the Purchaser shall be treated as an adjustment to the Consideration.

 

 
 

   

5. DEFINITIONS, INTERPRETATION AND TERMS AND CONDITIONS

 

The definitions and rules of interpretation set out in Schedule 3 ( Definitions ) and the terms and conditions set out in Schedule 2 ( Terms and Conditions ) shall apply to this Agreement.

 

6. POWER OF ATTORNEY

 

6.1 The Seller declares that until such time as the stock transfers to be delivered to the Purchaser pursuant to this Agreement have been duly stamped for stamp duty purposes, Seller shall, in respect of any of the Sale Shares after Completion:

 

(a) hold the Sale Shares and the dividends and other distributions of profits or surplus or other assets declared, paid or made in respect of them after Completion and all rights arising out of or in connection with them on trust for the Purchaser and any successors in title to the Purchaser; and

 

(b) at the Purchaser’s cost, deal with and dispose of the Sale Shares and all such dividends, distributions and rights as the Purchaser or any such successor may direct Provided that the Purchaser shall not create or require the Seller to accept any further obligations or give any warranties or representations or create any further liabilities in addition to those arising under this agreement for or on the part of or on behalf of the Seller in relation to such dealing or disposal.

 

6.2 The Seller appoints the Purchaser as Seller’s lawful attorney for the purpose of signing any written resolution (or receiving notices of and attending and voting at all meetings) of the members of the Company from Completion to the day on which the Purchaser or its nominee is entered in the register of members of the Company as the holder of the Sale Shares and for that purpose the Seller authorises:

 

I. the Company to send any written resolutions, notices or other communications in respect of Seller’s holding of Sale Shares to the Purchaser; and

 

II. the Purchaser to complete in such manner as he thinks fit and to return written resolutions, proxy forms, consents to short notice and any other document required to be signed by him in his capacity as a member,

 

and this power of attorney (which is given by way of security to secure the performance of obligations owed by the Seller to the Purchaser under this Agreement) shall be irrevocable.

 

6.3 The Purchaser agrees and undertakes to the Seller that he will, as soon as reasonably practicable following Completion and, in any event, within 30 days, submit to HMRC and pay all stamp duty due and payable in respect of the transfer of the Sale Shares pursuant to the stock transfers delivered by the Seller to the Purchaser.

 

7. Purchaser’s Warranties and Covenants

 

7.1 The Purchaser hereby warrants to the Seller as follows:

 

7.1.1 The Purchaser has the requisite capacity and authority to enter into and perform this Agreement and any other documents that are to be executed by the Purchaser pursuant to this Agreement (the " Purchaser’s Documents ").

 

7.1.2 This Agreement and the Purchaser’s Documents will, when executed by the Purchaser, constitute binding obligations of the Purchaser enforceable in accordance with their respective terms.

 

7.2 The Purchaser hereby covenants to the Seller that:

 

7.2.1 no administration order has been made, no petition for one has been presented and no notice of intention to appoint an administrator has been given in respect of the Purchaser;

 

7.2.2 no administrator, receiver or administrative receiver has been appointed in respect of the Purchaser or any of his assets and no application for the appointment of an administrator has been made by the Purchaser in accordance with the out of court procedure under the Enterprise Act 2002;

  

 
 

 

7.2.3 the Purchaser has not failed, nor is unable, to pay any of his debts as they fall due, within the meaning of section 123 of the Insolvency Act 1986;

 

7.2.4 no voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of the Purchaser and the Purchaser has not made or proposed any arrangement or composition with its creditors or any class of them;

 

7.2.5 no steps have been taken to obtain a moratorium under Schedule A1 of the Insolvency Act 1986 or otherwise in respect of the Purchaser;

 

7.2.6 no distress, execution or other process has been levied on Purchaser’s assets or action taken at the Purchaser’s address to repossess goods in the possession of the Purchaser;

 

7.2.7 no unsatisfied judgment is outstanding against the Purchaser and no demand has been served on the Purchaser under section 123(1)(a) of the Insolvency Act 1986;

 

7.2.8 no meeting to approve a compromise or scheme of arrangement under the Companies Act 2006 has been convened and no such compromise or scheme has been agreed to or sanctioned in respect of the Purchaser;

 

7.2.9 has not entered into any compromise or arrangement with its creditors or any class of its creditors generally;

 

7.2.10 the Purchaser is not insolvent according to any laws in any relevant jurisdiction;

 

and the transfer of the Sale Shares to the Purchaser and the agreement of the Seller to effect such transfer in accordance with the terms and conditions of this Agreement shall be deemed to include expressly and be made subject to all the above provisions of this clause 7.

 

IN WITNESS of which this Agreement has been executed and delivered as a deed by the parties on the date at the beginning of this Agreement.

 

 
 

 

Schedule 2
Terms and Conditions

 

1. Further Assurance

 

On or after Completion, the Seller will at his cost and expense, execute and do (or procure to be executed and done by any necessary party) all such deeds, documents, acts and things as the Purchaser may from time to time reasonably require in order to vest any of the Sale Shares in the Purchaser or its assignee.

 

2. Payments

 

2.1 Unless otherwise expressly stated all payments to be made under this Agreement shall be made in Sterling to the party to be paid by transfer in immediately available funds by telegraphic transfer for the credit of such account in the United Kingdom as the party to be paid may specify or in such other manner as the parties may agree.

 

2.2 Any payment falling to be made to the Seller under any provision of this Agreement may be made to the Seller’s Solicitors Client Account whose receipt shall be sufficient discharge.

 

2.3 Each payment to be made by the Purchaser under this Agreement shall be made free and clear of all deductions, withholdings, counterclaims or set-off of any kind except for those required by law.

 

2.4 In the event that:

 

(a) any deduction or withholding is required by law to be made from any sum payable by the Purchaser to the Seller pursuant to this Agreement, the Purchaser shall be obliged to pay such increased sum as will, after the deduction or withholding has been made, leave the Seller with the same amount as it would have been entitled to receive in the absence of such requirement to make a deduction or withholding unless such withholding or deduction is required by reason of the Seller being a US entity in which event no further sum in respect of such deduction or withholding will be payable by the Purchaser

 

3. Costs

 

3.1 Each party shall pay the costs and expenses incurred by him or it in connection with the entering into and completion of this Agreement.

 

4. Constitution of this Agreement

 

4.1 This Agreement, together with the documents referred to in it, contain the entire agreement between the parties relating to the transactions contemplated by this Agreement and replaces and extinguishes all prior drafts, previous agreements, arrangements and understandings, whether in writing or oral, between the parties relating to these transactions except to the extent that they are repeated in this Agreement.

 

4.2 The Seller acknowledges to the Purchaser, and the Purchaser acknowledges to the Seller, that in agreeing to enter into this Agreement they, he or it has not relied on any representation, warranty, undertaking, promise or other assurance (whether contractual or otherwise) given by or on behalf of the other, except the warranties and undertakings set out in this Agreement, and waives all rights and remedies, which, but for this paragraph might be available to them, him or it in respect of any such representation, warranty or other assurance, provided that nothing in this paragraph shall limit or exclude any liability for fraudulent misrepresentation or fraudulent concealment.

 

4.3 This Agreement may be executed in any number of counterparts, but shall not be effective until each party has executed at least one counterpart, all of which, taken together shall constitute one and the same Agreement and any party may enter into this Agreement by executing a counterpart.

 

4.4 No variation of this Agreement shall be effective unless made in writing and signed by each of the parties.

 

 
 

 

5. Rights

 

5.1 The rights, powers, privileges and remedies provided in this Agreement are cumulative and are not exclusive of any rights, powers, privileges or remedies provided by law or otherwise.

 

5.2 No failure to exercise nor any delay in exercising any right, power, privilege or remedy under this Agreement shall in any way impair or affect its exercise or operate as a waiver in whole or in part.

 

5.3 No single or partial exercise of any right, power, privilege or remedy under this Agreement shall prevent any further or other exercise or the exercise of any other right, power, privilege or remedy.

 

5.4 The provisions of this Agreement shall remain in full force and effect notwithstanding Completion.

 

6. Successors and Assigns

 

This Agreement shall be binding upon and benefit the successors of the parties but, subject to paragraph 6.2, none of the rights or obligations under this Agreement may be assigned, transferred, sub-licensed, charged or dealt with in any other manner without the prior written consent of all the other parties. Either party may assign any or all of its benefits under this Agreement to any member of Purchaser Group.

 

7. Third Parties

 

No termination, amendment, compromise, waiver or settlement of this Agreement or any dispute or claim arising out of or in connection with it or its subject matter or formation(including non-contractual disputes or claims) require the consent of any person who is not a party to it.

 

8. Illegality

 

If any provision of this Agreement shall be held to be illegal, void, invalid or unenforceable under the laws of any jurisdiction, the legality, validity and enforceability of the remainder of this Agreement in that jurisdiction shall not be affected, and the legality, validity and enforceability of the whole of this Agreement in any other jurisdiction shall not be affected.

 

9. Notices

 

9.1 Any notice or other document to be served under this Agreement may be delivered or sent by registered or recorded post (or equivalent in any other jurisdiction) to the party to be served at his address appearing in this Agreement or at such other address as he may have notified to the other parties in accordance with this paragraph.

 

9.2 Any notice or document shall be deemed to have been served:

 

(a) if delivered, at the time of delivery; or

 

(b) if posted inland, at 10.00 hours on the second Business Day after it was posted; or

 

(c) if posted airmail, at 10.00 hours (local time at the recipient's address) on the fifth Business Day after it was posted.

 

9.3 In proving service of a notice or document it shall be sufficient to prove that delivery was made or that the envelope containing the notice or document was properly addressed and posted (first class if UK inland) as a prepaid registered or recorded post (or equivalent in any other jurisdiction) letter.

 

9.4 The address details of the parties for the purposes of this paragraph are set out in Schedule 1 ( Addresses for Notices ).

 

10. Governing law and Jurisdiction

 

10.1 This Agreement and any dispute or claim arising out of or in connection with it or its subject matter (including any dispute or claim relating to non-contractual obligations) shall be governed by and construed in accordance with English law.

 

10.2 The courts of England have exclusive jurisdiction to settle any dispute or claim (" action ") arising out of, or in connection with, this Agreement or its subject matter or formation (including any dispute or claim relating to non-contractual obligations).

 

10.3 Each party irrevocably waives any right that it may have to object to an action being in such courts on the grounds of venue, on the grounds that an action has been brought in an inappropriate or inconvenient forum or that such courts do not have jurisdiction.

 

 
 

  

10.4 Each party agrees that without preventing any other mode of service allowed by law, any document in an action (including, but not limited to, a claim form or any other document to be served under the Civil Procedure Rules in England and Wales) may be served on any party by being delivered to or left for that party at its address for service of notices under Schedule 1 ( Addresses for Notices ).

 

Nothing in any of this Agreement or any other agreement entered into by Seller in connection with this Agreement shall affect the Seller’s right to serve process in any other manner permitted by law.

 

 
 

 

Schedule 3
Definitions and Interpretation

 

1. Definitions

 

In this Agreement, unless the context otherwise requires:

 

" Business Day " means any day other than a Saturday or a Sunday or public holiday in England;

 

" Company " has the meaning given to it in Recital (A);

 

" Completion " means completion of the sale and purchase of the Shares in accordance with Clause 3;

 

" Completion Date " means the date of this Agreement;

 

" Encumbrance " includes any claim, interest or equity of any person (including any right to acquire, option or right of pre-emption), any debenture, mortgage, charge, pledge, lien, deposit by way of security, restriction, assignment, hypothecation, security interest, option, right of pre-emption or assignment or factoring or similar agreement (including any created by law), title retention or transfer or other security or preferential agreement or arrangement, and any rental, bill of sale, hire purchase, credit sale or other agreement for payment on deferred terms or any agreement or commitment to give or create any of the foregoing;

 

" parties " means the parties to this Agreement and includes their respective successors and permitted assigns;

 

" Purchaser’s Group " means any of the following from time to time: the Purchaser, Loton Corporation and any entity controlled or under common control of any of them (including without limitation their subsidiaries and subsidiary undertakings and any holding company of the Purchaser, the Guarantor or Loton Corporation and all other subsidiaries and subsidiary undertakings of any holding company of the Purchaser, including the Companies, or Loton Corporation) and “ member of the Purchaser’s Group ” shall be construed accordingly;

 

" Sale Shares " has the meaning given to it in Recital (B);

 

subsidiary ” mean, in relation to a company (the “holding company”) any company in which the holding company (or persons acting on its behalf) controls either:

 

(a) a majority of the voting rights exercisable at shareholder meetings of that company; or

 

(b) the right to appoint or remove a majority of its board of directors,

 

and any company which is a subsidiary of another company is also a subsidiary of that company's holding company;

 

2. Interpretation

 

In, and for the purposes of, this Agreement unless the context otherwise requires:

 

2.1 Gender, Number, Persons etc .

 

(a) The masculine gender shall include the feminine and vice versa.

 

(b) References to any person shall include any individual, body corporate and unincorporated association.

 

(c) References to a company include any company and body corporate, wherever incorporated, and includes any limited liability partnership under the law of the United Kingdom.

 

(d) References to any party include a reference to the estate, legal personal representative, successor, or permitted assigns of that party.

 

2.2 Currency

 

(c) Sterling is the sole currency of account and payment for all sums payable under or in connection with this Agreement, including damages.

 

 
 

 

2.3 Parts of this Agreement

 

(a) Except where the contrary is stated, any reference to a Clause or Schedule is to a Clause or Schedule of this Agreement.

 

(b) The headings and sub-headings are inserted for convenience only and shall not affect the construction of this Agreement.

 

(c) The Schedules form part of this Agreement and shall have the same force and effect as if set out in the body of this Agreement.

 

2.4 Statute and Law

 

References to any enactment shall include (i) that enactment as respectively amended, modified, consolidated or re-enacted from time to time, and (ii) any enactment which that enactment re-enacts (with or without modification) and (iii) any subordinate legislation made under that enactment (as so amended, modified, consolidated or re-enacted) in each case before the date of this Agreement, provided always that any such amendment, modification, consolidation or enactment or re-enactment or subordinate legislation shall not result in any new liability or any increase in any liability which would not otherwise have arisen under the original legislation or statute.

 

2.5 Certain words

 

Any undertaking by a party not to do any act or thing includes an undertaking not to allow, cause or assist the doing of that act or thing and to exercise all rights of control over the affairs of any other person which that party is able to exercise (directly or indirectly) in order to secure performance of that undertaking.

 

2.6 Canons of Construction

 

The rule known as the ejusdem generis rule shall not apply and accordingly general words introduced by the word " other " shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things.

 

(c) General words shall not be given a restrictive meaning by reason of the fact that they are followed by particular examples intended to be embraced by the general terms.

 

2.7 Certain Implied Terms

 

The Law of Property (Miscellaneous Provisions) Act 1994 applies to the disposition of the Sale Shares and any other property made under or pursuant to this Agreement, save that:

 

(a) the word " reasonably " shall be deleted from the covenant set out in Section 2(1)(b) of that Act;

 

(b) the covenant set out in Section 3(1) of that Act shall not be qualified by the words "other than any charges, encumbrances or rights which that person does not and could not reasonably be expected to know about"; and

 

(c) the provisions of Section 6(2) of that Act are excluded from this Agreement.

 

3. Language

 

The English language is the language of choice of the parties in relation to this Agreement; notices, demands and other communications given in connection with this Agreement shall be in the English language and if this Agreement is translated into any language other than English, the English language text shall prevail.

 

 
 

  

Schedule 4
Form of Promissory Note

 

 
 
   

Executed as a deed by JJAT Corporation

acting by a director
in the presence of:

Witness name:

Signature of witness:

 

Address:

 

Occupation:

 

 
   

Executed as a deed by

OLIVER BENGOUGH

in the presence of:

Witness name:

 

Signature of witness:

 

Address:

 

Occupation:

)

)

)

 

 
 

 

DATED: 24 April, 2014

 

OLIVER BENGOUGH

as Chargor

 

and

 

JJAT Corp.

as Chargee

 

SHARE CHARGE

 

in respect of

Ordinary Shares of £1 in

 

OBAR Camden Holdings Limited

 

 
 

 

Contents

 

Clause Name Page
     
1 Definitions and interpretation 1
     
2 Security 4
     
3 Perfection of security 5
     
4 Documentation for Charged Assets 5
     
5 Representations and warranties 6
     
6 Covenants 8
     
7 Rights of enforcement 8
     
8 Application of receipts 10
     
9 Notices 11
     
10 Discharge 12
     
11 Assignment and transfer 12
     
12 General provisions 12
     
13 Counterparts 14
     
14 Law and jurisdiction 14

 

Schedule Name Page
     
  Chargee’s powers 15
     
Execution Page 17

 

 
 

 

DATED: 24 April, 2014

 

PARTIES

 

(1)          OLIVER BENGOUGH of Flat 3, 48 Hans Place, London SW1X 0LA (the “ Chargor ”); and

 

(2)          JJAT Corp. a Delaware corporation a limited liability corporation incorporated under the laws of the State of Delaware, whose principal offices are situated at 3500 South Dupont Highway, Dover, Delaware 19901 (the “ Chargee ”).

 

BACKGROUND

 

(A) The Chargor (i) owns 46,410 ordinary shares of 5p each and (ii) pursuant to a share sale agreement of today’s date entered into between the Chargor (as Purchaser) and the Chargee (as Seller) the (“ SPA ”), Chargor acquired an additional 2,468 ordinary shares of 5p and 2,750 deferred ordinary shares of 5p each, in each case issued as part of the capital of OBAR Camden Holdings Limited (collectively, the “ Shares ”).
(B) The Chargor has agreed to grant security over the Shares in favour of the Chargee in respect of his obligations as a Guarantor under the SPA in accordance with the terms and conditions set out in this Deed.

 

OPERATIVE PROVISIONS

 

Definitions and interpretation

 

Definitions

 

In this Deed:

 

Charged Assets ” means:

 

a.           all the Shares; and

 

b.           the Related Rights,

 

which in each case, shall extend to:

 

(i)       all beneficial interests of the Chargor in the Shares and the Related Rights;

 

(ii)      any proceeds of sale or other realisation of all or any part of such Shares or Related Rights; and

 

(iii)     any Shares (and all Related Rights thereto) which may be substituted or added to the existing Shares upon the agreement of the Chargee and Chargor.

 

Company ” means OBAR Camden Holdings Limited, a company incorporated in England under company number 08257455 and whose registered office is at 191 Stonhouse Street, Clapham, London SW4 6BB.

 

1
 

 

“Default” means a failure on the part of the Chargor to make payment to the Chargee of any Secured Liabilities following such time as those Secured Liabilities become due and payable to any of the Chargee pursuant to the terms of the Loan Note.

 

“Event of Default” means a Default unless such Default is capable of remedy and is remedied to the reasonable satisfaction of the Chargee within 20 days of the earlier of (i) the Chargee giving written notice to the Chargor of such Default and (ii) the Chargor becoming aware of such Default.

 

“Financial Collateral” shall have the same meaning as in the Financial Collateral Regulations.

 

“Financial Collateral Regulations” means the Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226).

 

“Legal Reservations” means: (a) the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, reorganisation and other laws generally affecting the rights of creditors; and (b) the time barring of claims under the Limitation Act 1980, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of UK stamp duty may be void and defences of set-off or counterclaim.

 

“Loan Notes” means the Share Loan Note and the Transaction Expenses Loan Note.

 

Party ” means a party to this Deed.

 

Related Rights ” means any (a) dividend, interest or other distribution paid or payable in relation to any of the Charged Assets; and (b) right, money, shares or property accruing, offered or issued at any time in relation to any of the Charged Assets by way of redemption, substitution, exchange, conversion, bonus, preference or otherwise, under option rights or otherwise.

 

Security Financial Collateral Arrangement ” shall have the same meaning as in the Financial Collateral Regulations.

 

Secured Liabilities ” means all present and future obligations and liabilities (whether actual or contingent) owed by the Chargor to the Chargee pursuant to the Loan Notes together with all costs, charges and expenses incurred by the Chargee in connection with the protection, preservation or enforcement of its respective rights under the Loan Notes and shall include interest on the above calculated in accordance with the Loan Notes.

 

Security Interest means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.

 

2
 

 

Security Period ” means the period starting on the date of this Deed and ending on the date on which the Secured Liabilities have been unconditionally and irrevocably paid and discharged in full to the satisfaction of the Chargee (acting reasonably).

 

“Share Loan Note” means the loan note issued by the Chargor in favour of the Chargee in relation to the consideration payable to the Chargee for the Shares pursuant to the SPA.

 

“Transaction Expenses Loan Note” means the loan note issued by the Chargor in favour of the Chargee in relation to 50% of the Transaction Expenses, as defined in the certain shareholders’ agreement dated 12 February 2014, between, amongst others, the Chargor and the Chargee.

 

Construction

 

Unless the contrary intention is expressed, defined or interpreted all defined terms in the SPA shall have the same meaning here.

 

The construction provisions set out at clause 1.2 (Construction) of the SPA shall apply equally to this Deed.

 

1.1.1           Unless the contrary intention appears, references in this Deed to “ insolvency ” includes any of the following or any steps in relation to the following:

 

any insolvency, bankruptcy, liquidation, reorganisation, administration, receivership or dissolution ;

 

any voluntary arrangement or assignment for the benefit of creditors; or

 

any similar or analogous event in any jurisdiction whatsoever.

 

If any provision of this Deed shall conflict with any term of the SPA then the relevant term of the SPA shall prevail.

 

A reference to continuing in relation to a Default or Event of Default means a Default of Event of Default which has not been remedied or waived.

 

COVENANT TO PAY

 

The Chargor covenants that he will pay and discharge the Secured Liabilities to the Chargee when due/in accordance with the terms of the Loan Notes.         

 

3
 

 

Security

 

General

 

All the security created under this Deed is created with full title guarantee in favour of the Chargee as continuing security for the payment and discharge of the Secured Liabilities the death, bankruptcy or incapacity of the Chargor, any intermediate payment or settlement of all or any part of the Secured Liabilities or other matter or thing whatsoever.

 

Any release, discharge or settlement between the Chargor and the Chargee shall be conditional upon no security, disposition or payment to the Chargee by the Chargor or any other person being void, set aside or ordered to be refunded pursuant to any enactment or law relating to bankruptcy or insolvency or for any other reason whatsoever, and if such condition shall not be fulfilled the Chargee shall be entitled to enforce this Deed subsequently as if such release, discharge or settlement had not occurred and any such payment had not been made.

 

Fixed charge

 

The Chargor charges all of his interest in the Charged Assets by way of fixed charge including all rights of enforcement of the same.

 

4
 

 

Financial Collateral

 

To the extent that (i) the Charged Assets constitute Financial Collateral; and (ii) this Deed and the obligations of the Chargee hereunder constitute a Security Financial Collateral Arrangement, the Chargee shall have the right at any time after the security constituted by this Deed has become enforceable, to appropriate all or any part of the Charged Assets in or towards the payment or discharge of the Secured Liabilities in any order that the Chargee may from time to time reasonably determine.

 

The value of any Charged Assets appropriated in accordance with this Clause shall be (a) in the case of cash, the amount standing to the credit of any account, together with accrued but unposted interest, at the time the right of appropriation is exercised, and (b) in the case of the Shares, the market price of that Charged Assets at the time the right of appropriation is exercised, as listed on any recognised market index, or as determined by such other method as the Chargee may select acting reasonably (including independent valuation).

 

The Chargor agrees that the methods of valuation provided for in this Clause are commercially reasonable for the purposes of Regulation 18 of the Financial Collateral Regulations.

 

Perfection of security

 

Further assurance

 

The Chargor shall execute and do at his own cost and in such form as may be reasonably required by the Chargee such assurances, deeds, documents, acts and things as the Chargee may reasonably require to perfect or protect the security created or intended to be created by this Deed and/or to facilitate or effect any dealing with or realisation of the Charged Assets in connection with this Deed following a Default, including the execution of any additional security over the Charged Assets or other document to perfect the security granted by the Chargor in relation to the Charged Assets (in such form as the Chargee may reasonably require), the giving of any notice and the making of any registration in relation to the Charged Assets which the Chargee, acting reasonably, may think expedient.

 

Documentation for Charged Assets

 

Charged Assets title documentation

 

Upon execution of this Deed the Chargor will deposit with the Chargee in respect of the Charged Assets:

 

5
 

 

all certificates, warrants or other documents of title;

 

duly executed undated blank stock transfer forms; and

 

forms of waiver of any pre-emption rights and any other documents, consents and monies necessary to enable such transfers to be registered by the Chargee.

 

Voting prior to a Default

 

Prior to a Default which is continuing, the Chargor may continue to:

 

receive and retain all dividends, distributions, interest, principal and other monies paid or derived from the Charged Assets; and

 

exercise all voting and other rights relating to the Charged Assets provided that such rights are not exercised in a way which (and the Chargor shall not permit anything which) jeopardises the security constituted by this Deed or which varies the rights attaching to the Charged Assets.

 

Voting after a Default

 

Following a Default which is continuing, the Chargee may (without notice to or consent from the Chargor and in the Chargor’s name or otherwise) exercise any rights (including the right to collect dividends, interest, principal or other payments of money but excluding the right to vote) in respect of the Charged Assets and may do anything necessary to complete any transfer form in favour of itself or otherwise.

 

Following a Default which is continuing and the service of notice upon the relevant Chargor, the Chargee may (without consent from the Chargor) exercise any right to vote in respect of the Charged Assets.

 

Following a Default which remains continuing, the Chargor shall procure that all dividends, distributions and other moneys paid on or derived from the Charged Assets are paid immediately to (or to the order of) the Chargee (and pending such payment shall hold such amounts on trust for the Chargee).

 

Obligations

 

The Chargor shall promptly pay all calls, costs and/or other payments in respect of the Charged Assets and shall give to the Chargee, at the time of issue, copies of all information, offers, notices or other materials supplied to the shareholders of the Company and shall advise the Chargee promptly of any material occurrence affecting the Charged Assets or any other part of the security granted to the Chargee and shall give to the Chargee such information as they may reasonably require relating to the Charged Assets.

 

Representations and warranties

 

The Chargor makes the representations and warranties set out in this Clause 6 ( Representations and warranties   ) to each Chargee.

 

6
 

 

Binding Obligations

 

Subject to Legal Reservations, the obligations expressed to be assumed by it in this Deed are legal, valid, binding and enforceable obligations.

 

Non-conflict

 

The entry into and performance by the Chargor of, and the transactions contemplated by, this Deed do not and will not conflict with any agreement or instrument binding upon the Chargor or any of the Secured Assets or constitute a default or termination event (howsoever described) under any such agreement or instrument.

 

Power and authority

 

The Chargor has the power to enter into, perform and deliver, and has taken all necessary action to authorise the entry into, performance and delivery by the Chargor of, this Deed and the transactions contemplated by this Deed.

 

No proceedings pending or threatened

 

No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might prevent the Chargor from accepting and performing any of his obligations under this Deed, have (to the best of his knowledge and belief) been started or threatened against him.

 

Restrictions on transfer

 

Save for the provisions of article 6 of the Company’s articles of association, which the Chargor hereby waives, the constitutional documents of the Company in respect of which the Charged Assets are issued do not and could not restrict or inhibit (whether absolutely, partly, under a discretionary power or otherwise) the transfer of the Charged Assets in relation to the enforcement of the security created by or under this Deed.

 

Legal and beneficial ownership

 

The Chargor is the sole legal and beneficial owner of the Charged Assets free from any encumbrance or Security Interest except as created by this Deed or as permitted by the SPA.

 

Fully paid

 

Any shares falling within the definition of Charged Assets are fully paid.

 

Centre of Main Interests

 

For the purposes of the Council of the European Union Regulation No. 1346/2000 on insolvency proceedings (the “ EU Regulation ”), the Chargor’s centre of main interests (as that expression is used in Article 3(1) of the EU Regulation, is situated in England and Wales and the Chargor has no other “establishment” (as that term is used in Article 2(h) of the EU Regulation) in any other jurisdiction.

 

7
 

 

Covenants

 

During the Security Period, the Chargor shall not do any of the following without the prior written consent of the Chargee:

 

create or permit to subsist any Security Interest over any of the Charged Assets save for the Security Interest created pursuant to this Deed; or

 

enter into a single transaction or a series of transactions (whether related or not and whether voluntary or involuntary) to sell, discount, factor, transfer, assign or otherwise dispose of any of the Charged Assets.

 

During the Security Period, the Chargor shall promptly on becoming aware of any of the same, notify the Chargee in writing of:

 

(a)          any representation or warranty set out in clause 6 which is incorrect or misleading in any respect when made; and

 

any breach of any material provision of this Deed.

 

At the written request of Chargee at any time after the expiration of 75 days from the date of issue of the Transaction Expenses Loan Note, if the aggregate Principal Amount outstanding under the Loan Notes shall not have been reduced by at least US $500,000 (whether through crediting fifty percent of any payments made by Obar Camden Holdings or the Subsidiary under that certain Senior Promosory Note of ecev date herewith executed by the Company and its subsidiary in favor of Chargee (as a result of funds made available from a debt financing, payments from net revenues or otherwise), and/or by payment by Chargor, Chargor shall grant a charge against his owned real property securing Chargor’s obligation as a Guarantor under that certain Share Purchase Agreement dated February 13, 2014 among certain parties, including Alex Rutherford and Koko (Camden) Holdings.

 

Rights of enforcement

 

Enforcement

 

The security created by this Deed shall become immediately exercisable at any time after:

 

an Event of Default which is continuing;

 

a bankruptcy petition is presented for the bankruptcy of the Chargor;

 

an official receiver or insolvency practitioner is appointed as trustee of the Chargor’s estate;

 

a creditor obtains a court judgment against the Chargor in respect of any debt in excess of US$250,000);

 

a County Court makes an administration order against the Chargor;

 

8
 

 

the Chargor enters into an individual voluntary arrangement; or

 

the Chargor enters into any informal arrangements with any of his creditors in respect to any repayment or rescheduling of any debt(s) owed to such creditor;

 

the Chargor breaches any material provision of this Deed and fails to remedy the same within 30 days of receiving written notice of such breach or, if earlier, being made actually aware that such fact or circumstance constitutes a material breach of any material provision of this Deed; or

 

the Chargor ceasing to be the beneficial owner and/or have full rights to the Shares.

 

Clause 8.1 shall not apply by reason only of a moratorium being obtained, or anything being done with a view to a moratorium being obtained, under section 1A of the Insolvency Act 1986.

 

The Chargee’s powers and rights

 

At any time after the security has become enforceable, the Chargee shall have the power (without becoming a mortgagee in possession and with no liability to account as a mortgagee in possession in respect of all or any part of the Charged Assets or be liable for any loss upon realisation or for any neglect, default, or omission for which a mortgagee in possession might otherwise be liable) to:

 

exercise all statutory and other powers and rights (including the powers conferred upon an administrative receiver by Schedule 1 to the Insolvency Act 1986) whether or not the Chargee is or become an administrative receiver;

 

to exercise those powers and rights specified in the Schedule and exercise them in the name of the Chargor and in such manner and on such terms as the person exercising them shall in their sole absolute discretion consider appropriate.

 

The power of sale conferred on the Chargee and on any receiver by this Deed shall operate as a variation and extension of the statutory power of sale under Section 101 of the Law of Property Act 1925 and such power shall arise (and the Secured Liabilities shall be deemed due and payable for that purpose) on execution of this Deed. Sections 93 and 103 of Law of Property Act 1925 shall not apply to this Deed.

 

Each of the Chargee and any receiver shall have full power to delegate (either generally or specifically) the powers, authorities and discretions conferred on it by this Deed (including the power of attorney) on such terms and conditions as it shall see fit which delegation shall not preclude either the subsequent exercise of such power, authority or discretion by the Chargee or the receiver itself or any subsequent delegation or revocation thereof.

 

If at any time the Chargor does not comply with any of his obligations under this Deed, the Chargee may (but shall not be obliged to) rectify such default and the Chargor irrevocably authorises the Chargee, its employees and agents, at the Chargor’s expense, to do all such things are as necessary or desirable to rectify such default.

 

9
 

 

Power of attorney

 

The Chargor by way of security irrevocably and severally appoints the Chargee as his attorney in his name and on his behalf to take any action which the Chargor is obliged to take under this Deed provided that such power of attorney shall not be exercised unless and until the security becomes enforceable under clause 8.1 of this Deed.

 

The Chargor ratifies and confirms to agree to ratify and confirm all things done and all documents executed by any attorney in the exercise or purported exercise of all or any of his powers.

 

Application of receipts

 

Priority of enforcement

 

In the event that the security created by this Deed becomes exercisable, the Chargee agree to firstly set off any amounts due in respect of any dividends, interest or other distribution paid or payable in relation to any of the Charged Assets in order to reduce the amount of the Secured Liabilities.

 

Priority of payment

 

All monies received by the Chargee in the enforcement of this Deed shall (subject as follows) be applied in the following order, in payment:

 

firstly , of all fees, costs, charges, taxes, liabilities and expenses in relation to any enforcement of this Deed;

 

secondly , in satisfaction of the obligations and liabilities owed to the Chargee by the Chargor pursuant to the SPA and the Loan Notes in any order that the Chargee may, in its discretion, from time to time determine, provided that, in relation to the priority of payments due under the Loan Notes, the Loan Note in relation to amounts due under the SPA shall be paid in priority to the Loan Note in relation to expenses.

 

Avoidance of Payment

 

If the Chargee reasonably considers that any amount paid or credited to it is capable of being avoided or reduced by virtue of any bankruptcy, insolvency, liquidation or similar laws, the liability of the Chargor under this Deed and the security instituted hereby shall continue and such amount shall not be considered to have been irrevocably paid.

 

10
 

 

Expenses and Indemnity

 

Expenses

 

The Chargor shall within 20 business days of demand of the Chargee, pay or reimburse the Chargee for reasonable costs and expenses (including reasonable legal fees) together with any VAT or similar taxes thereon incurred by it in connection with the preparation, execution, perfection, amendment, enforcement, discharge and/or assignment of this Deed.

 

Indemnity

 

The Chargor shall, notwithstanding any release or discharge of all or any part of the security constituted by this Deed, indemnify the Chargee, its agents, attorneys and any receiver against any action, proceeding, claim, loss, liability and cost which it may sustain:

 

(b)        in the exercise (or purported exercise) of any of the rights, powers or discretions vested in them by this Deed (or by law); and/or

 

(c)        in connection with or otherwise relating to this Deed or the Charged Assets,

 

provided always that this indemnity shall have no effect to the extent that any such action, proceeding, claim, loss, liability or cost is caused or increased in whole or in part as a result of the negligence, wilful misconduct or fraud of the Chargee.

 

Notices

 

Communications in writing

 

Any communication to be made under or in connection with this Deed shall be made in writing and, unless otherwise stated, may be made by fax or letter.

 

Addresses

 

The address of each Party for any communication or document to be made or delivered under or in connection with this Deed is the address set opposite the name of such Party at the beginning of this document or any substitute address, as the Party may notify to the other Parties by not less than five Business Days’ notice.

 

11
 

 

Delivery

 

Any communication or document made or delivered by one person to another person in connection with this Deed will only be effective when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to him at that address.

 

Any communication or document made or delivered to any Chargor in accordance with this clause Clause 0 ( Delivery   ) will be deemed to have been made or delivered to each of the Chargors.

 

Discharge

 

Upon the satisfaction and discharge in full of the Secured Liabilities the Chargee will, at the request and cost of the Chargor, discharge this Deed.

 

No discharge will be of any effect if any security or payment given or made in respect of the Secured Liabilities is rescinded, avoided, reduced or invalidated whether in respect of any insolvency or otherwise.

 

Notwithstanding any other provision of this Deed, it is expressly agreed and understood that the liability of the Chargor under this Deed shall not exceed and shall be limited to an amount equal to that received or receivable by the Chargee as a result of the realisation of the Charged Assets and the application of the proceeds thereof. The provisions of this Clause 10.3. shall survive termination of this Deed and/or the release of the security created hereunder.

 

Assignment and transfer

 

Assignment

 

The Chargee shall not assign, transfer or novate any of his rights or obligations under this Deed without the prior written consent of the Chargor.

 

General provisions

 

Rights of third parties

 

Unless the right of enforcement is expressly granted, it is not intended that a third party should have the right to enforce a provision of this Deed pursuant to the Contracts (Rights of Third Parties) Act 1999.

 

The parties may rescind or vary this Deed without the consent of a third party to whom an express right to enforce any of its terms has been provided.

 

Partial invalidity

 

The illegality, invalidity or unenforceability for whatever reason of any provision of this Deed in any jurisdiction, shall not affect the legality, validity or enforceability of that provision in any other jurisdiction or legality, validity or enforceability of the remaining provisions in any jurisdiction.

 

12
 

 

Remedies and waivers

 

No failure to exercise, nor any delay in exercising, on the part of any Secured Party, any right or remedy under this Deed shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Deed are cumulative and not exclusive of any right or remedies provided by law.

 

Chargor’s obligations

 

Neither the Security Interest in the Charged Assets created under this Deed nor the obligations of the Chargor under this Deed will be affected by any act, omission, matter or thing which, but for this Clause 0 ( Chargor’s obligations   ), would reduce, release or prejudice that Security Interest or any of its obligations under this Deed (without limitation and whether or not known to it or any Secured Party) including:

 

any time, waiver or consent granted to, or composition with, any other person;

 

the release of any other person under the terms of any composition or arrangement with any creditor of the Chargor;

 

the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or Security over assets of any other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any Security;

 

any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of any other person;

 

any amendment, novation, supplement, extension (whether of maturity or otherwise) or restatement (in each case, however fundamental and whether or not more onerous), or replacement, assignment, avoidance or termination of the SPA;

 

any unenforceability, illegality or invalidity of any obligation of any person under the SPA or any other document or security; or

 

any insolvency or similar proceedings.

 

Perpetuity Period

 

The perpetuity period under the rule against perpetuities, if applicable to this Deed, shall be the period of eighty years from the date of this Deed.

 

No Liability

 

None of the Chargee, its delegate(s) nominee(s) or any receiver shall be liable for any loss by reason of (a) taking any action permitted by this Deed or (b) any neglect or default in connection with the Charged Assets or (c) taking possession of or realising all or any part of the Charged Assets, except in the case of gross negligence or wilful default upon its part. The Chargee, its delegate(s) nominee(s) or any receiver shall not in any circumstances incur any liability whatsoever in respect of any calls, instalments or otherwise in connection with the Charged Assets.

 

13
 

 

Counterparts

 

This Deed may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of this Deed.

 

Law and jurisdiction

 

Governing Law

 

This Deed and any non-contractual obligations arising out of or in relation to this Deed shall be governed by English law.

 

The courts of England shall have exclusive jurisdiction to settle any dispute, including without limitation, disputes relating to non-contractual obligations arising out of or in connection with this Deed.

 

This Deed has been executed as a Deed and delivered on the date stated at the beginning of this Deed.

 

14
 

 

Schedule

 

Chargee’s powers

 

1 DEALING WITH CHARGOR’S ASSETS

 

(a) Possession

 

To get in, use and/or collect any Charged Assets.

 

(b) Compromise claims

 

To compromise any claim relating to the Charged Assets.

 

(c) Payments

 

To pay any outgoings and payments charged on or otherwise relating to the Charged Assets or their ownership or use.

 

(d) Receipts

 

To give receipts and releases for any sums received.

 

(e) Assumption of rights

 

To assume, exercise, cancel and/or vary all or any of the powers and rights conferred on the Chargor under any Charged Asset.

 

2 DISPOSALS

 

To sell or otherwise realise and deal with, and transfer title to, the Charged Assets, in return for such consideration as it thinks fit and whether or not:

 

(i)        for immediate or deferred consideration;

 

(ii)       in return for a single payment or instalments; and

 

(iii)      for consideration wholly or partly in cash, property or securities in whatever form,

 

and in all cases the terms of which shall bind any subsequent mortgagee.

 

3 GENERAL

 

(a) General powers

 

To do or abstain from doing all such things as it considers necessary or desirable for perfecting, maintaining preserving or enhancing the value of any of the Charged Assets or for or in connection with the enforcement of the security created by this Deed or the realisation of any of the Charged Assets including:

 

(i)          executing, delivering and completing all or any deeds or other documents;

 

15
 

 

(ii)         using the name the Chargor in connection with any of the purposes in this Schedule ( Chargee’s powers   );

 

(b)          commencing, carrying out and completing any acts, matters or proceedings in relation to any Charged Asset as if it were the sole and absolute beneficial owner of the Charged Assets;

 

(c)           General

 

All his powers and discretions under this Deed shall be:

 

(i)          exercisable on such terms and conditions and otherwise as it may think fit; and

 

(ii)         as if he was the absolute and beneficial owner.

 

16
 

 

EXECUTION PAGE

 

Executed as a deed by  
   
OLIVER BENGOUGH  
   
in the presence of:  
   
Witness name:  
   
Signature of witness:  
   
Address:  
   
Occupation:  
   
Executed as a deed by  
   
JJAT CORP.  
   
By:  
   
(Director) and  
   
By:  
   
(Director/Secretary)  

 

17

 

PROMISSORY NOTE

 

Dated: __ April 2014

 

Oliver Bengough of Flat 3, Hans Place, Kensington, London, SW1X 0LA for value received ( Promisor ) promises to pay to Koko (Camden) Limited a private company registered in England and Wales under company number 08763877 ( Payee ) the principal amount of GBP £127,501 ( Principal Amount ) on the date falling eighteen months from the date stated at the beginning of this promissory note ( Due Date ).

 

Interest shall accrue on this promissory note at the rate of 8% per annum ( Interest ). The Interest shall accrue on a daily basis and shall be payable on the first 12 month anniversary of the date of this promissory note with any remaining balance payable on the Due Date.

 

The Promisor shall have a cure period of 60 business days in respect of any payment of Interest and/or Principal Amount due under this promissory note.

 

In accordance with clause 3.1 of that certain Shareholders Agreement dated February 12, 2014, among Payee, Promisor and certain other parties, any amount outstanding under this promissory note shall be reduced by an amount equal to 50% of any payments made by OBAR Camden Holdings Limited or OBAR Camden Limited to the Payee from time to time pursuant to the Senior Promissory Note issued by OBAR Camden Holdings Limited and OBAR Camden Limited in favour of the Payee on or around the date hereof) (the Obar Expense Note). Any credits to this note under this clause shall be made without duplication to any comparable credits made to that certain promissory of even date here with executed by Promisor in favour of Payee related to certain transaction expenses (the “OB Expense Note”), and unless otherwise agreed between Promisor and Payee, all amounts so credited shall first be credited against the OB Expense Note, and the balance to this promissory note.

 

All payments shall be made in sterling in immediately cleared funds in full and without any deduction or withholding.

 

The Promisor hereby waives presentment, demand for payment, notice of dishonour, protest and any and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this promissory note.

 

This promissory note is personal to the parties and neither party shall assign, transfer, mortgage, charge, subcontract, declare a trust over or deal in any other manner with any of its rights and obligations under this promissory note.

 

This promissory note (and any non-contractual obligations arising out of or in connection with it) shall be governed by, and construed in accordance with, the law of England and Wales. The Promisor irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction over any dispute or claim arising out of or in connection with this promissory note.

 

This promissory note has been entered into as a deed on the date stated at the beginning of it.

 

1
 

Executed as a deed by OLIVER BENGOUGH

 

 

 

in the presence of:

 

 

 

Witness Name:

 

Witness Signature:

 

Address:

 

Occupation:

 

 

Executed as a deed by

 

KOKO (CAMDEN) LIMITED

 

acting by Robert Ellin, a director,

 

 

 

 

in the presence of:

 

 

Witness Name:

 

Witness Signature:

 

Address:

 

Occupation:

 

 

2

PROMISSORY NOTE

 

Dated: 24 April 2014

 

Oliver Bengough of Flat 3, Hans Place, Kensington, London, SW1X 0LA for value received ( Promisor ) promises to pay to JJAT Corp., a Delaware corporation ( Payee ) US$688,062 representing the Promisor’s 50% share of the Transaction Expenses (as defined in the certain shareholders’ agreement dated 12 February 2014, between, amongst others, the Promisor and the Payee ( SHA )) over and above US$4,000,000 in accordance with clause 3.1 of the SHA ( Principal Amount ) on the date falling eighteen months from the date stated at the beginning of this promissory note ( Due Date ).

 

Interest shall accrue on the Principal Amount outstanding from time to time under this promissory note at the rate of 8% per annum ( Interest ). The Interest shall accrue on a daily basis and shall be payable on the first 12 month anniversary of the date of this promissory note with any remaining balance payable on the Due Date.

 

The Promisor shall have a cure period of 60 business days in respect of any payment of Interest and/or Principal Amount due under this promissory note.

 

In accordance with clause 3.1 of the SHA, any amount outstanding under this promissory note shall be reduced by an amount equal to 50% of any payments made by OBAR Camden Holdings Limited or OBAR Camden Limited to the Payee from time to time pursuant to the Senior Promissory Note issued by OBAR Camden Holdings Limited and OBAR Camden Limited in favour of the Payee on or around the date hereof) (the Obar Expense Note ).

 

All payments shall be made in US dollars in immediately cleared funds in full and without any deduction or withholding.

 

The Promisor hereby waives presentment, demand for payment, notice of dishonour, protest and any and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this promissory note.

 

This promissory note is personal to the parties and neither party shall assign, transfer, mortgage, charge, subcontract, declare a trust over or deal in any other manner with any of its rights and obligations under this promissory note.

 

This promissory note (and any non-contractual obligations arising out of or in connection with it) shall be governed by, and construed in accordance with, the law of England and Wales. The Promisor irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction over any dispute or claim arising out of or in connection with this promissory note.

 

This promissory note has been entered into as a deed on the date stated at the beginning of it.

 

1
 

 

Executed as a deed by

 

OLIVER BENGOUGH

 

 

 

in the presence of:

 

 

 

Witness Name:

 

Witness Signature:

 

Address:

 

Occupation:

 

 

 

 

Executed as a deed by

 

KOKO (CAMDEN) LIMITED

 

acting by Robert Ellin, a director,

 

 

 

in the presence of:

 

 

Witness Name:

 

Witness Signature:

 

Address:

 

Occupation:

 

 

2

 

REIMBURSEMENT AGREEMENT

 

This Reimbursement Agreement (this “Agreement”) is entered into this 29th day of January, 2014, by and between Loton Corp., a Nevada corporation (“Loton”) and JJAT Corp., a Delaware corporation (“JJAT”). Each of Loton and JJAT may be referred to as a Party and collectively as the Parties.

 

RECITALS

 

WHEREAS, Loton entered into negotiations with the shareholders of OBAR Camden Holdings Limited (the “Company”) for the purposes of acquiring all of the capital stock of the Company (the “Transaction”);

 

WHEREAS, as a result of the negotiations, Loton has incurred, and is expected to incur various transaction costs and expenses, including the costs and expenses as reflected on Exhibit A, attached hereto (the costs and expenses set forth on Exhibit A and all other costs and expenses now or hereafter incurred by Loton with respect to the Transaction are referred to as the “Transaction Expenses”);

 

WHEREAS, Loton has determined that it will be unable to complete the Transaction on a timely basis due to a number of reasons, including its inability to raise enough financing to close the Transaction;

 

WHEREAS, JJAT, a company wholly owned by Robert Ellin, who is also a director and shareholder of Loton, has agreed to undertake to complete the Transaction in the place of Loton, which undertaking includes the obligation on the part of JJAT to pay for and reimburse Loton for all Transaction Expenses it has paid or incurred, or will pay or incur, with respect to the Transaction;

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

 

AGREEMENT

 

1.           Transaction . Loton hereby authorizes JJAT to pursue and close the Transaction for its own account on the terms and conditions set forth in this Agreement. Except for the obligations incurred by JJAT under this Agreement, Loton hereby waives any claim against either JJAT or Robert Ellin in connection with the Transaction, including, without limitation, under any theory relating to the “corporate opportunity doctrine” or otherwise.

 

2.           Undertaking to Reimburse Loton. In consideration of the terms and conditions of this Agreement, JJAT agrees to pay and reimburse Loton for all Transaction Expenses it has paid or incurred, or hereafter may pay or incur, in connection with the Transaction, including, without limitation, the Transaction Expenses set forth on Exhibit A. The foregoing obligation shall not require JJAT to pay Loton’s costs and expenses in connection with any future acquisition by Loton of JJAT or any acquisition of the Company from JJAT, except as provided in any written definitive agreement, if any, executed in connection therewith. JJAT shall first reimburse Loton for Transaction Expenses previously paid by Loton, and shall, at the direction of Loton, either (i) pay directly any Transaction Expenses incurred by but not yet paid by Loton or (ii) reimburse Loton if Loton subsequently pays those Transaction Expenses.

 

Page 1 of 5
 

 

3.            Representations and Warranties. Each Party represents and warrants to the other Party as follows:

 

A. Such Party is duly organized, validly existing and in good standing under the laws of the state of its jurisdiction of organization, with full power and authority to conduct its business as now conducted, own its assets and enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by such Party, has been duly authorized by all requisite entity action on the part of such Party, and this Agreement constitutes, the legal, valid and binding obligations of such Party, enforceable against such Party in accordance with its terms; and

 

B. The execution and delivery of this Agreement by such Party does not, and the performance of this Agreement will not, (a) conflict with or violate any United States federal, state, local or foreign law, statute, ordinance, rule, regulation, order, judgment or decree applicable to such Party or by or to which or to which such Party’s properties or assets is bound or subject, or (b) conflict with, violate or result in any default under such Party’s charter documents.

 

4.            Confidentiality . Unless consented to by the other Party, which consent will not be unreasonably withheld, each Party hereto will hold and will cause its agents, officers, directors, attorneys, employees, consultants and advisors to hold in strict confidence, unless compelled to be disclosed by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all documents and information concerning any other Party furnished it by such other Party or its representatives in connection with the subject matter hereof (except to the extent that such information can be shown to have been (i) previously known by the Party to which it was furnished, (ii) in the public domain through no fault of such Party, or (iii) later lawfully acquired from other sources by the Party to which it was furnished), and each Party will not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors in connection with this Agreement. JJAT acknowledges that Loton may disclose this Agreement as part of its normal material agreement disclosure obligations under applicable securities laws and under the rules of securities marketplace where its common stock trades, and in press releases and investor presentations describing the business activities of Loton.

 

Page 2 of 5
 

 

5.            Miscellaneous .

 

A.           This Agreement sets forth the entire understanding of the Parties and supersedes any prior agreement or understanding relating to the subject matter hereof. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all the Parties. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the Party making the waiver.

 

B.           Neither Party may assign, sell, transfer or otherwise convey, pledge or encumber any of its rights, obligations or interests under this Agreement without the prior written consent of the Party. In the event of any reorganization of JJAT, or JJAT shall consolidate with or merge into another person or entity or convey all or substantially all of its assets to another person or entity, then and in each such case the buyer or surviving entity in said transaction shall assume the obligation of JJAT under this Agreement.

 

C.           Except as otherwise provided herein, the provisions hereof shall insure to the benefit of, and be binding upon, the successor, assigns, heirs, executors and administrators of the Parties hereto.

 

D.           This Agreement shall be governed by and construed in accordance with the laws of the State of California. In the event that any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable or void in any jurisdiction to be unenforceable or void in any jurisdiction, the other provisions of this Agreement shall remain in full force and effect under applicable law and shall be construed in order to effectuate the purpose and intent of this Agreement. Any action brought by any Party hereto shall be brought in the courts located in Los Angeles County California.

 

E.           Except as otherwise provided herein, if a dispute should arise between the Parties including, but not limited to arbitration, the prevailing Party shall be reimbursed by the non-prevailing Party for all reasonable expenses incurred in resolving such dispute, including reasonable attorneys’ fees.

 

[remainder of page intentionally left blank; signature page to follow]

 

Page 3 of 5
 

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the date first written above.

 

“Loton”   “JJAT”
     
Loton Corp.,   JJAT Corp.
a Nevada corporation   a Delaware corporation
     
     
By:   By:
Its:   Its:  

 

Page 4 of 5

 

 

LOTON, CORP

4751 Wilshire Blvd.

Los Angeles, CA 90010

 

April 25, 2014

 

JJAT Corp.

c/o Kaller Management, Inc.

30423 Canwood Street., Suite 227

Agoura Hills, CA 91301

 

Re: Termination of Reimbursement Agreement

 

Dear Sir or Madam,

 

This letter is sent with reference to that certain Reimbursement Agreement (the “ Reimbursement Agreement ”) dated January 29, 2014, between Loton, Corp (“ Loton ”) and JJAT Corp. (“ JJAT ”).

 

Pursuant to the Reimbursement Agreement, JJAT had agreed to pay and reimburse Loton for all Transaction Expenses in connection with the Transaction (as such terms are defined in the Reimbursement Agreement). However, on or about the date of this letter, Loton has or will acquire by merger all of JJAT’s outstanding capital stock of OBAR Camden Holdings Limited, through its wholly-owned subsidiary, KoKo (Camden) Holdings (US), Inc. (the “ Loton Acquisition ”). As a result, of the Loton Acquisition, the terms of the Reimbursement Agreement are no longer applicable because Loton has received the benefit of the Transaction through the acquisition of OBAR Camden Holdings Limited, and the Reimbursement Agreement is hereby terminated as of the date hereof, and JJAT shall have no further obligations thereunder.

 

    Sincerely,
     
    LOTON, CORP
     
    By:    
    Name:  Barry Regenstein
    Title:  Chief Financial Officer

 

AGREED AND ACKNOWLEDGED:    
     
JJAT CORP.    
     
By:        
Name: Robert Ellin    
Title: Executive Chairman and President    

 

 

 

CONTRIBUTION AGREEMENT

 

THIS CONTRIBUTION AGREEMENT (this “Agreement” ) dated April 24, 2014, is entered into by and between JJAT Corp., a Delaware corporation ( “Contributor” ) and KoKo (Camden) Holdings (US), Inc., a Delaware Corporation, (the “Company” ). This contribution is made with reference to the following facts and circumstances:

 

Recitals:

 

A.            Contributor is the owner, beneficially and of record, of all of the Company’s issued and outstanding shares of capital stock.

 

B.            Contributor is the owner, beneficially and of record, of two ordinary shares of stock of KoKo (Camden) Limited, which such shares constitute all of the issued and outstanding capital stock of KoKo (Camden) Limited (the “Shares” ).

 

C.            Pursuant to this Agreement, Contributor desires to contribute the Shares to the capital of the Company in a transaction coming within the purview of Section 351 of the Internal Revenue Code of 1986, as amended (the “Code” ), and the corresponding provisions of applicable state income tax laws.

 

Agreement:

 

NOW, THEREFORE , the parties hereby agree as follows:

 

1.             Contribution of Shares.

 

(a)          Contributor hereby contributes to the capital of the Company all of its right, title and interest in and to the Shares, and the Company hereby accepts said contribution to capital. Concurrently herewith, Contributor shall deliver to the Company certificate(s) evidencing the Shares, accompanied by duly a executed stock transfer form, substantially in the form attached hereto as Exhibit A and shall cause such stock transfer to be registered (subject only to their being duly stamped (if required)) notwithstanding any provision to the contrary in the articles of association of KoKo (Camden) Limited.

 

(b)          The parties hereto hereby acknowledge and agree that immediately after the contribution to capital contemplated by this Agreement, Contributor will be in “control” of the Company within the meaning of Section 351(a) of the Code.

 

(c)          As Contributor owns all of the issued and outstanding capital shares of the Company, the Company shall not issue additional shares of its capital stock in consideration of the contribution to the Company’s capital contemplated by this Agreement.

 

(d)          It is the intent of the parties to this Agreement that the contribution to capital to the Company contemplated by this Agreement not result in the recognition of taxable income under the Code or the corresponding provisions of applicable state income tax laws.

 

 
 

 

2.              Representations and Warranties of Contributor. Contributor hereby represents and warrants to the Company that:

 

(a)          Contributor has good and marketable title to the Shares, and Contributor has not transferred, assigned or encumbered any portion thereof to any other person;

 

(b)          Contributor has all necessary power and authority to contribute to the Company the Shares described in this Agreement;

 

(c)          Contributor is not prohibited from entering into this Agreement by any contract, loan agreement or other obligation by which it is bound; and

 

(d)          The Shares being contributed are free and clear of any claims, liens, pledges, options, charges, encumbrances, security interests or other rights of third parties, whether voluntarily incurred or arising by operation of law.

 

3.             Covenants of the Parties. The parties hereby agree to take such other and further actions and to execute and deliver such other and further documents as may be necessary or advisable, in the judgment of Contributor or the Company, to carry out the transactions contemplated by this Agreement.

 

4.             Miscellaneous.

 

(a)          This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

(b)          This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

 

(c)          This Agreement constitutes the entire agreement between the parties and supersedes any and all prior negotiations or discussions, whether written or oral. This Agreement shall not be modified or amended except by an instrument in writing signed by all parties hereto, nor shall any right of any party hereunder be deemed waived, except by an instrument in writing signed by that party.

 

(d)          The various section headings in this Agreement are inserted for convenience and reference only and shall not affect the meaning or interpretation of this Agreement or any provision hereof.

 

(e)          This Agreement may be executed in one or more counterparts, each of which shall constitute evidence of one and the same agreement.

 

[The Remainder of This Page Intentionally Has Been Left Blank]

 

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In Witness Whereof , the parties hereto have executed this Agreement as of the date first set forth above.

 

“Contributor” JJAT CORP.
   
  By:  
    Name: Robert Ellin
    Title:  Executive Chairman and President

 

“Company” KOKO (CAMDEN) HOLDINGS (US), INC.
   
  By:  
    Name: Robert Ellin
    Its:  Executive Chairman and President

 

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FORM INDEMNIFICATION AGREEMENT

 

THIS AGREEMENT is entered into, effective as of April 24, 2014, by and between Loton, Corp, a Nevada corporation (the “Company”), and __________ (“Indemnitee”).

 

WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;

 

WHEREAS, Indemnitee is a director and/or officer of the Company;

 

WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims currently being asserted against directors and officers of corporations;

 

WHEREAS, the articles of incorporation and bylaws of the Company permit the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted under Nevada law, and the Indemnitee has been serving and continues to serve as a director and/or officer of the Company in part in reliance on the Company’s articles of incorporation and bylaws; and

 

WHEREAS, in recognition of Indemnitee’s need for (i) substantial protection against personal liability based on Indemnitee’s reliance on the aforesaid articles of incorporation and bylaws, (ii) specific contractual assurance that the protection promised by the articles of incorporation and bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the articles of incorporation and bylaws or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), and (iii) an inducement to provide effective services to the Company as a director and/or officer, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted under Nevada law and as set forth in this Agreement, and, to the extent insurance is maintained, to provide for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

 

NOW, THEREFORE, in consideration of the above premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties agree as follows:

 

1.            Certain Definitions :

 

(a)           Board : the Board of Directors of the Company.

 

(b)           Affiliate : any corporation or other person or entity that directly, or indirectly through one or more intermediaries, control or is controlled by, or is under common control with, the person specified.

 

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(c)           Change in Control : shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, and other than any person holding shares of the Company on the date that the Company first registers under the Act or any transferee of such individual if such transferee is a spouse or lineal descendant of the transferee or a trust for the benefit of the individual, his spouse or lineal descendants), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the total voting power represented by the Company’s then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board, or (iii) the shareholders approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that 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) a majority of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) one or more shareholders agree to directly sell Voting Securities to a “person” (as such term is used in Section 13(d) and 14(d) of the Exchange Act), who before such sale hold Voting Securities representing less than a majority of the total voting power represented by all of the outstanding Voting Securities of the Company, and who after such sale will hold Voting Securities representing a majority of the total voting power represented by all of the outstanding Voting Securities of the Company, or (v) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

 

(d)           Expenses : without limitation, any expense, liability, or loss, including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, any federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, and all other costs and obligations, paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding relating to any Indemnifiable Event.

 

(e)           Indemnifiable Event : any event or occurrence, including but not limited to events of negligence or contributory negligence, that takes place either prior to or after the execution of this Agreement related to the fact that Indemnitee is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, including, without limitation, any of the company’s Affiliates, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by Indemnitee in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company, as described above.

 

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(f)           Independent Counsel : the person or body appointed in connection with Section 3.

 

(g)           Proceeding : any threatened, pending, or completed action, suit, or proceeding (including an action by or in the right of Company), or any inquiry, hearing, or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other.

 

(h)           Voting Securities : any securities of the Company that vote generally in the election of directors.

 

2.            Agreement to Indemnify .

 

(a)           General Agreement . In the event Indemnitee was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses to the fullest extent permitted by law, as the same exists or may hereafter be amended or interpreted (but in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the Company to provide broader indemnification rights than were permitted prior thereto). The parties hereto intend that this Agreement shall provide for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Company’s articles of incorporation, its bylaws, vote of its shareholders or disinterested directors, or applicable law. The Company shall provide indemnification pursuant to this Section 2(a) as soon as practicable, but in no event later than thirty (30) days after it receives written demand from Indemnitee. By written notice to Indemnitee, the thirty (30) day period may be extended for a reasonable time, not to exceed thirty (30) days if the Independent Counsel making the determination requires additional time for obtaining or evaluating documents or information.

 

(b)           Initiation of Proceeding . Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless (i) the Company has joined in or the Board has consented to the initiation of such Proceeding; (ii) the Proceeding is one to enforce indemnification rights under Section 5; or (iii) the Proceeding is instituted after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) and Independent Counsel has approved its initiation.

 

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(c)           Expense Advances . If so requested by Indemnitee, the Company shall advance (within ten (10) business days of such request) any and all Expenses to Indemnitee (an “Expense Advance”); provided that (i) such an Expense Advance shall be made only upon delivery to the Company of an undertaking by or on behalf of the Indemnitee to repay the amount thereof if it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, and (ii) if and to the extent that the Independent Counsel (appointed in accordance with Section 3) determines in a written opinion to the Company and Indemnitee that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid. If Indemnitee has commenced or commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, as provided in Section 4, any determination made by the Independent Counsel that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding, and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have lapsed). Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon.

 

(d)           Mandatory Indemnification . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

 

(e)           Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

 

(f)           Prohibited Indemnification . No indemnification pursuant to this Agreement shall be paid by the Company on account of any Proceeding in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state, or local laws.

 

3.            Independent Counsel . With respect to all matters to be approved or determined by the Independent Counsel under Agreement, the Company shall seek legal advice only from Independent Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with indemnification matters) within the last five (5) years. The Independent Counsel shall not include any person who, under applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. Such counsel, among other things, shall render its written opinion to Company and Indemnitee as to whether and to what extent the Indemnitee should be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Counsel and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the engagement of Independent Counsel pursuant hereto.

 

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4.            Indemnification Process and Appeal .

 

(a)           Indemnification Payment . Indemnitee shall be entitled to indemnification of Expenses, and shall receive payment thereof from the Company in accordance with this Agreement as soon as practicable after Indemnitee has made written demand on the Company for indemnification, unless the Independent Counsel has given a written opinion to the Company that Indemnitee is not entitled to indemnification under applicable law.

 

(b)           Suit to Enforce Rights . Regardless of any action by the Independent Counsel, if Indemnitee has not received full indemnification within thirty days after making a demand in accordance with Section 4(a), Indemnitee shall have the right to enforce its indemnification rights under this Agreement by commencing litigation in any court in the State of Nevada having subject matter jurisdiction thereof seeking an initial determination by the court or challenging any determination by the Independent Counsel or any aspect thereof. Company hereby consents to service of process and to appear in any such proceeding. The remedy provided for in this Section 4 shall be in addition to any other remedies available to Indemnitee at law or in equity.

 

(c)           Defense to Indemnification , Burden of Proof, and Presumptions. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any determination by Independent Counsel or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense or determination shall be on the Company. Neither the failure of the Independent Counsel or the Company (including its Board, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action by Indemnitee that indemnification of the claimant is proper under the circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor an actual determination by the Independent Counsel or Company (including its Board, independent legal counsel, or its shareholders) that the Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, the termination of any claim, action, suit, or proceeding, by judgment, order, or settlement (whether with or without court approval), conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.

 

5.            Indemnification for Expenses Incurred in Enforcing Rights . The Company shall indemnify Indemnitee against any and all Expenses that are incurred by Indemnitee in connection with any action brought by Indemnitee for

 

(i)          indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under applicable law or the Company’s articles of incorporation or bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, and/or

 

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(ii)         recovery under any directors’ and officers’ liability insurance policies maintained by the Company, but only in the event that Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. In addition, Company shall, if so requested by Indemnitee, advance the foregoing Expenses to Indemnitee, subject to and in accordance with Section 2(c).

 

6.            Notification and Defense of Proceeding .

 

(a)           Notice . Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee, except as provided in Section 6(c).

 

(b)           Defense . With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof, Company will be entitled to participate in the Proceeding at its own expense and except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any Proceeding, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ legal counsel in such Proceeding, but all Expenses related thereto incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s expense unless: (i) the employment of legal counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of the Proceeding, (iii) after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the employment of counsel by Indemnitee has been approved by the Independent Counsel, or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases all Expenses of the Proceeding shall be borne by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the determination provided for in (ii), (iii) and (iv) above.

 

(c)           Settlement of Claims . The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent, such consent not to be unreasonably withheld; provided, however, that if a Change in Control has occurred (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. The Company shall not be liable to indemnify Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; the Company’s liability hereunder shall not be excused if participation in the Proceeding by the Company was barred by this Agreement.

 

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7.            Establishment of Trust . In the event of a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) the Company shall, upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in, and/or defending any Proceeding relating to an Indemnifiable Event. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Independent Counsel. The terms of the Trust shall provide that (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of the Indemnitee, (ii) the Trustee shall advance, within ten business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the same circumstances for which the Indemnitee would be required to reimburse the Company under Section 2(c) of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by the Independent Counsel or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its obligations under this Agreement. All income on the assets held in the Trust shall be reported as income by the Company for federal, state, local, and foreign tax purposes. The Company s pay all costs of establishing and maintaining the Trust and shall indemnify the Trustee against any and all expenses (including attorneys’ fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the establishment and maintenance of the Trust.

 

8.            Non-Exclusivity . The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under Company’s articles of incorporation, bylaws, applicable law, or otherwise; provided, however, that this Agreement shall supersede any prior indemnification agreement between the Company and the Indemnitee. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification than would be afforded currently under the Company’s articles of incorporation, bylaws, applicable law, or this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change.

 

9.            Liability Insurance . To the extent the Company maintains an insurance policy or policies providing general and/or directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.

 

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10.          Period of Limitations . No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any Affiliate of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors, or personal or legal representatives after the expiration of two (2) years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances. Any claim or cause of action of the Company or its Affiliate shall be extinguished and deemed released unless asserted by the timely filing and notice of a legal action within such period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, the shorter period shall govern.

 

11.          Amendment of this Agreement . No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.

 

12.          No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder.

 

13.          Binding Effect . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable Event even though he may have ceased to serve in such capacity at the time of any Proceeding.

 

14.           Severability . If any provision (or portion thereof) of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void, or otherwise unenforceable, that is not itself invalid, void, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, void, or unenforceable.

 

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15.          Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Nevada applicable to contracts made and to be performed in such State without giving effect to its principles of conflicts of laws.

 

16.          Notices . All notices, demands, and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and addressed to the Company at:

 

  Loton, Corp  
  Attention: Chief Executive Officer  
  4751 Wilshire Blvd.  
  3rd Floor  
  Los Angeles, California 90010  
     
  and to Indemnitee at:  
     
     
     

 

Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to have been received on the date of hand delivery or on the third business day after mailing.

 

17.          Counterparts; Facsimile . This Agreement may be executed in one or more counterparts and delivered by facsimile or similar electronic means, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day specified above.

 

  LOTON, CORP
     
  By:  
    Name:
    Title:
     
  INDEMNITEE
     
  By:  
    Name:
    Title:

 

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EXHIBIT 21.1

 

SUBSIDIARIES OF LOTON CORP.

 

Name   Jurisdiction   Percentage Owned  
KoKo (Camden) Holdings (US), Inc.   Delaware     100 %
KoKo (Camden) Limited   England and Wales     100 %
OBAR (Camden) Holdings Limited   England and Wales     50 %
OBAR (Camden) Limited   England and Wales     50 %

 

 

 

Obar Camden Holdings Limited

 

March 31, 2013 and 2012

 

Index to the Consolidated Financial Statements

 

Contents Page(s)
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets at March 31, 2013 and 2012 F-3
   
Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Fiscal Year Ended March 31, 2013 and 2012 F-4
   
Consolidated Statement of Stockholders’ Equity for the Fiscal Year Ended March 31, 2013 and 2012 F-5
   
Consolidated Statements of Cash Flows for the Fiscal Year Ended March 31, 2013 and 2012 F-6
   
Notes to the Consolidated Financial Statements F-7

 

F- 1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Obar Camden Holdings Limited

 

We have audited the consolidated balance sheets of Obar Camden Holdings Limited (the “Company”) as of March 31, 2013 and 2012 and the related consolidated statements of operations and other comprehensive income (loss), stockholders’ equity and cash flows for the fiscal years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/Li and Company, PC

Li and Company, PC

 

Skillman, New Jersey

April 30, 2014

 

F- 2
 

 

Obar Camden Holdings Limited

Consolidated Balance Sheets

 

    March 31, 2013     March 31, 2012  
             
ASSETS                
CURRENT ASSETS:                
Cash   $ 762,889     $ 1,023,555  
Accounts receivable     35,381       73,726  
Inventories     52,957       68,481  
Advances to related parties     72,454       -  
Prepayments and other current assets     438,011       427,007  
Deferred taxes     37,234       39,010  
                 
Total Current Assets     1,398,926       1,631,779  
                 
PROPERTY, PLANT AND EQUIPMENT                
Leasehold improvements     1,186,129       1,247,958  
Furniture and fixtures     388,412       381,938  
Production and entertainment equipment     1,271,471       1,310,528  
                 
Total property and equipment     2,846,012       2,940,424  
                 
Accumulated depreciation     (1,732,635 )     (1,616,903 )
                 
Property and equipment, net     1,113,377       1,323,521  
                 
INTANGIABLE ASSETS                
Trademarks     15,053       15,838  
Website development costs     35,050       36,877  
                 
Total intangible assets     50,103       52,715  
                 
Accumulated amortization     (38,812 )     (32,670 )
                 
Intangible assets, net     11,291       20,045  
                 
Total Assets   $ 2,523,594     $ 2,975,345  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
CURRENT LIABILITIES:                
Accounts payable   $ 642,470     $ 548,073  
Income tax payable     179,210       154,851  
Payroll liabilities     216,819       77,077  
Accrued expenses and other current liabilities     141,748       43,399  
Advances from related parties     -       351,453  
Current portion of deferred rent     82,757       87,106  
                 
Total Current Liabilities     1,263,004       1,261,959  
                 
NON-CURRENT LIABILITIES:                
Deferred rent     1,241,356       1,393,697  
                 
Total Non-Current Liabilities     1,241,356       1,393,697  
                 
Total Liabilities     2,504,360       2,655,656  
                 
COMMITMENTS AND CONTENGENCIES                
                 
STOCKHOLDERS' EQUITY:                
Common stock par value £0.05 ($0.0804): 97,756 shares authorized, 97,756 shares issued and outstanding     7,861       7,861  
Additional paid-in capital     (7,858 )     (7,858 )
Retained earnings     76,378       342,140  
Acumulated other comprehensive income:                
Foreign currency translation gain (loss)     (57,147 )     (22,454 )
                 
Total Stockholders' Equity     19,234       319,689  
                 
Total Liabilities and Stockholders' Equity   $ 2,523,594     $ 2,975,345  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 3
 

 

Obar Camden Holdings Limited

Consolidated Statements of Income and Other Comprenensive Income (Loss)

 

    For the Fiscal Year     For the Fiscal Year  
    Ended     Ended  
    March 31, 2013     March 31, 2012  
             
NET SALES   $ 6,528,657     $ 6,744,497  
                 
COST OF SALES     919,387       1,028,680  
                 
GROSS MARGIN     5,609,270       5,715,817  
                 
OPERATING EXPENSES:                
Selling expenses     187,554       210,107  
Rent     779,758       788,918  
Management fees     316,006       576,708  
Salary and wages     1,138,794       1,193,634  
General and administrative expenses     2,446,281       2,299,350  
                 
Total operating expenses     4,868,393       5,068,717  
                 
INCOME FROM OPERATIONS     740,877       647,100  
                 
OTHER (INCOME) EXPENSE:                
Demerger cost     62,918       -  
                 
Other (income) expense, net     62,918       -  
                 
INCOME BEFORE INCOME TAX PROVISION     677,959       647,100  
                 
INCOME TAX PROVISION     183,843       174,987  
                 
NET INCOME     494,116       472,113  
                 
OTHER COMPREHENSIVE INCOME (LOSS):                
Foreign currency translation gain (loss)     (34,693 )     (22,454 )
                 
COMPREHENSIVE INCOME   $ 459,423     $ 449,659  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 4
 

 

Obar Camden Holdings Limited

Consolidated Statement of Stockholders' Equity

For the Fiscal Year Ended March 31, 2013 and 2012

 

    Common stock par value £0.05 ($0.0804)     Additional           Accumulated
Other
Comprehensive
Income (Loss)
    Total  
    Number of           Paid-in     Retained     Foreign Currency     Stockholders'  
    Shares     Amount     Capital     Earnings     Translation Gain (Loss)     Equity  
                                     
Balance, March 31, 2011     97,756     $ 7,861     $ (7,858 )   $ 4,058,546     $ -     $ 4,058,549  
                                                 
Comprehensive income                                                
Net income                             472,113               472,113  
Other comprehensive income:                                                
Foreign currency translation gain (loss)                                     (22,454 )     (22,454 )
                                                 
Total comprehensive income                                             449,659  
                                                 
Dividends paid                             (4,188,519 )             (4,188,519 )
                                                 
Balance,March 31, 2012     97,756       7,861       (7,858 )     342,140       (22,454 )     319,689  
                                                 
Comprehensive income                                                
Net income                             494,116               494,116  
Other comprehensive income:                                                
Foreign currency translation gain (loss)                                     (34,693 )     (34,693 )
                                                 
Total comprehensive income                                             459,423  
                                                 
Dividends paid                             (759,878 )             (759,878 )
                                                 
Balance, March 31, 2013     97,756     $ 7,861     $ (7,858 )   $ 76,378     $ (57,147 )   $ 19,234  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 5
 

 

Obar Camden Holdings Limited

Consolidated Statements of Cash Flows

 

    For the Fiscal Year     For the Fiscal Year  
    Ended     Ended  
    March 31, 2013     March 31, 2012  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income   $ 494,116     $ 472,113  
                 
Adjustments to reconcile net income to net cash provided by operating activities                
Depreciation expense     195,840       119,018  
Amortization expense     7,760       8,168  
Changes in operating assets and liabilities:                
Accounts receivable     34,691       25,689  
Inventories     12,131       (11,989 )
Prepayments and other current assets     (32,160 )     (12,306 )
Deferred taxes     (157 )     20,472  
Accounts payable     121,550       134,149  
Income tax payable     32,030       (110,593 )
Payroll liabilities     143,561       (16,855 )
Accrued expenses and other current liabilities     100,498       (62,808 )
Deferred rent     (83,325 )     (87,678 )
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES     1,026,535       477,380  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of property, plant and equipment     (51,269 )     (195,374 )
                 
NET CASH USED IN INVESTING ACTIVITIES     (51,269 )     (195,374 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
                 
Advances from (repayments to) related parties     (406,495 )     4,530,184  
Dividends paid     (759,878 )     (4,188,519 )
                 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     (1,166,373 )     341,665  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (69,559 )     (1,403 )
                 
NET CHANGE IN CASH     (260,666 )     622,268  
                 
Cash at beginning of year     1,023,555       401,287  
                 
Cash at end of year   $ 762,889     $ 1,023,555  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Interest paid   $ -     $ -  
Income taxes paid   $ 183,843     $ 174,987  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 6
 

 

Obar Camden Holdings Limited

 

March 31, 2013 and 2012

Notes to the Consolidated Financial Statements

 

Note 1 - Organization and Operations

 

Obar Camden Holdings Limited and Subsidiary

 

Obar Camden Holdings Limited

 

Obar Camden Holdings Limited ("OCHL" or the “Company”) was incorporated on October 17, 2012 under the laws of the United Kingdom. OCHL was formed by the same stockholders of Obar Camden Ltd. for the sole purpose of acquiring all of the registered and contributed capital of Obar Camden Ltd. Upon formation, OCHL issued ten (10) shares of the newly formed corporation’s ordinary shares to a significant stockholder of Obar Camden Ltd. No value was given to the shares issued, therefore, the shares were recorded to reflect the £0.50 par value and paid in capital was recorded as a negative amount of (£0.50).

 

Prior to November 20, 2012, the date of recapitalization, OCHL was inactive and had no assets or liabilities.

 

Obar Camden Ltd.

 

Obar Camden Ltd. ("Obar Camden" or "OCL") was incorporated on November 13, 2003 under the laws of the United Kingdom. Obar Camden engages in the operations of a nightclub and live music venue trading as KOKO in Camden, London.

 

Merger of Obar Camden Ltd.

 

On November 20, 2012, OCHL acquired all of the issued and outstanding ordinary shares of Obar Camden from its then stockholders in exchange for 97,746 shares of Obar Camden’s ordinary shares. The number of shares issued represented 99.99% of the issued and outstanding ordinary shares immediately after the consummation of the Obar Camden acquisition.

 

As a result of the ownership interests of the former stockholder of Obar Camden, for financial statement reporting purposes, the merger between OCHL and Obar Camden has been treated as a reverse acquisition with Obar Camden deemed the accounting acquirer and OCHL deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse merger is deemed a capital transaction and the net assets of Obar Camden (the accounting acquirer) are carried forward to OCHL (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of OCHL and the assets and liabilities of Obar Camden which are recorded at historical cost. The equity of the combined entity is the historical equity of Obar Camden retroactively restated to reflect the number of shares issued by OCHL in the transaction.

 

Note 2 - Significant and Critical Accounting Policies and Practices

 

The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and 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. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

 

Basis of Presentation

 

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Fiscal Year End

 

The Company elected March 31st as its fiscal year end date upon its formation.

 

F- 7
 

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimate(s) and assumption(s) affecting the financial statements was (were):

 

(i) Fair value of long-lived assets : Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events .

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Principles of Consolidation

 

The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC") to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.

 

The Company's consolidated subsidiary and/or entity is as follows:

 

Name of consolidated subsidiary
or entity
  State or other jurisdiction of
incorporation or organization
  Date of incorporation or formation
(date of acquisition, if applicable)
  Attributable interest  
                 
Obar Camden Ltd   The United Kingdom   November 13, 2003     100 %

 

The consolidated financial statements include all accounts of the Company and the consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

 

All inter-company balances and transactions have been eliminated.

 

F- 8
 

 

Fair Value of Financial Instruments

 

The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, deferred taxes, accounts payable, income tax payable, payroll liabilities, accrued expenses and other current liabilities, and deferred rent approximate their fair values because of the short maturity of these instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis

 

The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, and intangible assets other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

 

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time if the Company's stock was publicly listed; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

F- 9
 

 

The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.

 

Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay.

 

Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.

 

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any.

 

There was no allowance for doubtful accounts at March 31, 2013 or 2012.

 

There was no bad debt expense for the reporting period ended March 31, 2013 or 2012.

 

The Company does not have any off-balance-sheet credit exposure to its customers at March 31, 2013 or 2012.

 

Inventories

 

Inventory Valuation

 

The Company values inventories, consisting of consumables and purchased merchandise for resale, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data, (ii) estimates of future demand, (iii) competitive pricing pressures, and (iv) product expiration dates.

 

Inventory Obsolescence and Markdowns

 

The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the statements of income as a component of cost of sales pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.

 

Obar Camden normally carries four (4) weeks’ worth of pre-packaged and fresh food, soft drinks and liquor supplies and replenishes them when the number of individual items falls below the reorder point.

 

Lower of Cost or Market Adjustments

 

There was no lower of cost or market adjustments for the reporting period ended March 31, 2013 or 2012.

 

F- 10
 

 

Slow-Moving or Obsolescence Markdowns

 

The Company recorded no inventory obsolescence adjustments for the reporting period ended March 31, 2013 or 2012.

 

Property and Equipment

 

Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

Leasehold improvements

 

Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Leases

 

Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 A lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

 

Operating leases primarily relate to the Company’s leases of nightclub and concert performance venue spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.

 

Intangible Assets Other Than Goodwill

 

The Company has adopted Subtopic 350-30 of the FASB Accounting Standards Codification for intangible assets other than goodwill. Under the requirements, the Company amortizes the acquisition costs of intangible assets other than goodwill on a straight-line basis over their estimated useful lives, the terms of the exclusive licenses and/or agreements, or the terms of legal lives of the patents, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Website Development Costs

 

The Company has adopted Subtopic 350-50 of the FASB Accounting Standards Codification for website development costs. Under the requirements of Sections 350-50-15 and 350-50-25, the Company capitalizes costs incurred to develop a website as website development costs, which are amortized on a straight-line basis over the estimated useful lives of three (3) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

F- 11
 

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the Related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitment and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

Revenue Recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies:

 

Revenue from ticket sales from events and concerts is recognized when the performance occurs. Ticket sales collected in advance of an event date are recorded as deferred revenue.

 

F- 12
 

 

The Company evaluates the criteria outlined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 605-45, "Revenue Recognition—Principal Agent Considerations," in determining whether it is appropriate to record the gross amount of revenues and related costs or the net revenues. Under the guidance of ASC Subtopic 605-45, if the Company is the primary obligor to perform the services being sold, has general inventory risk as it pertains to recruiting and compensating the talent, has the ability to control the ticket pricing, has discretion in selecting the talent, is involved in the production of the event, generally bears the majority of the credit or collection risk, or has several but not all of these indicators, revenue is recorded gross. If the Company does not have several of these indicators, it records revenues or losses on a net basis.

 

In accordance with the guidance Subtopic 605-45, for the majority of the Company's events, the Company has several of the above indicators and therefore it recognizes revenue gross as a principal. Additionally, the Company charges for and collects ticketing and credit card processing surcharges and records the amounts in revenue on a gross basis. Actual expenses paid to the ticket service provider and credit card merchant processors are reflected in expenses.

 

Net sales of products and services represent the invoiced value of goods or services, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on all of the Company’s products and services at the rate of 20% on the invoiced value of sales. Sales or Output VAT is borne by customers in addition to the invoiced value of sales and purchases and Purchase or Input VAT is borne by the Company in addition to the invoiced value of purchases.

 

Income Tax Provision

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.

 

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended March 31, 2013 or 2012.

 

Foreign Currency Translation

 

The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars.  Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.

 

F- 13
 

 

The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.  If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss).  If the Company determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).

 

Based on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiary’s local currencies to be their respective functional currencies.

 

The financial records of the Company's UK operating subsidiary are maintained in their local currency, the British Pound (“GBP”), which is the functional currency.  Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date.  Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements.  Foreign currency   translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.

 

Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation ( www.oanda.com ) contained in its consolidated financial statements.  Management believes that the difference between GBP vs. U.S. dollar exchange rate quoted by the Bank of England and GBP vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial.  Translations do not imply that the GBP amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.  Translation of amounts from GBP into U.S. dollars has been made at the following exchange rates for the respective periods:

 

    March 31, 2013     March 31, 2012  
             
Balance sheets     0.6580       0.6254  
                 
Statements of operations and comprehensive income (loss)     0.6329       0.6266  

 

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

F- 14
 

 

Recently Issued Accounting Pronouncements

 

In January 2013, the FASB issued ASU No. 2013-01, " Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities ". This ASU clarifies that the scope of ASU No. 2011-11, " Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. " applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013.

 

In February 2013, the FASB issued ASU No. 2013-02, " Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. " The ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income by component and their corresponding effect on net income. The ASU is effective for public entities for fiscal years beginning after December 15, 2013.

 

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-04, " Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date ." This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013.

 

In March 2013, the FASB issued ASU No. 2013-05, " Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.

 

In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

 

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

 

Note 3 – Property and Equipment

 

Property and equipment, stated at cost, less accumulated depreciation consisted of the following:

 

    Estimated Useful
Life (Years)
  March 31, 2013     March 31, 2012  
                 
Leasehold improvement   Remaining term of the lease   $ 1,186,129     $ 1,247,958  
                     
Furniture and fixture   5     388,412       381,938  
                     
Production and entertainment equipment   10     1,271,471       1,310,528  
                     
          2,846,012       2,940,424  
                     
Less accumulated depreciation and amortization         (1,732,635 )     (1,616,903 )
                     
        $ 1,113,377     $ 1,323,521  

 

F- 15
 

 

(i) Depreciation and Amortization Expense

 

Depreciation and amortization expense was $195,840 and $119,018 for the fiscal year ended March 31, 2013 and 2012, respectively.

 

(ii) Impairment

 

The Company completed the annual impairment test of property and equipment and determined that there was no impairment as the fair value of property and equipment, substantially exceeded their carrying values at March 31, 2013 .

 

Note 4 – Intangible Assets Other Than Goodwill

 

Intangible assets other than goodwill, stated at cost, less accumulated depreciation consisted of the following:

 

    Estimated Useful
Life (Years)
  March 31, 2013     March 31, 2012  
                 
Trade marks   20   $ 15,053     $ 15,838  
                     
Website development costs   5     35,050       36,877  
                     
          50,103       52,715  
                     
Less accumulated depreciation and amortization         (38,812 )     (32,670 )
                     
        $ 11,291     $ 20,045  

 

(i) Depreciation and Amortization Expense

 

Depreciation and amortization expense was $7,760 and $8,168 for the fiscal year ended March 31, 2013 and 2012, respectively.

 

(ii) Impairment

 

The Company completed the annual impairment test of property and equipment and determined that there was no impairment as the fair value of property and equipment, substantially exceeded their carrying values at March 31, 2013 .

 

Note 5 – Related Party Transactions

 

Related Parties

 

Related parties with whom the Company had transactions are:

 

Related Parties   Relationship
     
Mint Group Holdings, Ltd.   An entity owned and controlled by the same stockholders of the Company
     
Obar, Limited   An entity owned and controlled by the same stockholders of the Company
     
Renbar Limited   An entity owned and controlled by the same stockholders of the Company

 

Advances to/from Mint Group Holdings Ltd.

 

From time to time, the Company provides or receives funds from Mint Group Holdings Ltd. for working capital purposes. These advances are unsecured, non-interest bearing and due on demand.

 

F- 16
 

 

Cross Guarantee Arrangement

 

Obar Camden is party to a cross guarantee arrangement with Obar Limited, Renbar Limited, and Mint Group Holdings Limited in respect to any bank indebtedness of these companies. The assets of Obar Camden are subject to a charge in respect of bank borrowings.

 

Note 6 – Commitments and Contingencies

 

Operating Lease - Obar Camden

 

On February 19, 2004 Obar Camden entered into a non-cancellable lease for premises for a period of 25 years expiring February 19, 2029. On October 22, 2004 Obar Camden entered into a deed of variation to the original non-cancellable lease for the premises at £473,000 per year plus valued added taxes for the first five (5) years and at £548,337 per year plus valued added taxes for the remainder of the lease, with free rent for the first fifteen (15) months of the occupancy. In conjunction with the signing of the deed of variation the landlord (i) provided consideration of £175,000, and (ii) contributed an additional £175,000 towards improvements upon execution of the deed of variation.

 

Future minimum lease payments under the non-cancelable operating lease are as follows:

 

Year ending March 31:   £     $  
             
2014     548,337     $ 833,339  
                 
2015     548,337       833,339  
                 
2016     548,337       833,339  
                 
2017     548,337       833,339  
                 
2018     548,337       833,339  
                 
2019 and after     5,971,615       9,075,404  
                 
      8,713,000     $ 13,242,099  

 

Deferred Rent

 

To induce Obar Camden to enter into the operating lease and the deed of variation for a period of 25 years the Landlord granted free rent for the first fifteen (15) months of the occupancy and consideration/contribution of £350,000 in aggregate, which will be recognized on a straight-line basis over the duration of the initial lease term of 25 years.

 

Note 7 – Stockholders’ Equity

 

Shares Authorized and Issuance of Shares

 

Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is ten (10) ordinary shares, nominal value £0.05 per share. The Company issued ten (10) ordinary shares, nominal value £0.05 per share upon formation of the Company.

 

Special Resolution to the Certificate of Incorporation

 

On November 20, 2012, the Company passed a special resolution whereby each issued and un-issued ordinary share of £0.50 in the capital of the Company be and it is hereby sub-divided into ten (10) ordinary shares of £0.05 each in the capital of the Company.

 

All shares and per share amounts in the consolidated financial statements have been adjusted to give retroactive effect to the sub-division.

 

F- 17
 

 

Special Resolution for Authorization and Issuance of Additional Shares

 

On November 20, 2012, OCHL passed a special resolution whereby the Company was authorized and issued 97,746 ordinary shares with nominal value £0.05 per share to acquire all of the issued and outstanding ordinary shares of Obar Camden from then stockholders in exchange for 97,746 shares of the Obar Camden’s ordinary shares.

 

Note 8 – Income Tax Provision

 

United Kingdom Income Tax Provision

 

Obar Camden is registered and operates in the United Kingdom ("UK") and is subject to UK tax law.  Obar Camden’s statutory income tax rate is 24% and there were no significant differences between income reported for financial reporting purposes and income reported for income tax purposes for the fiscal year ended March 31, 2013 or 2012.

 

Income Tax Provision in the Statements of Operations

 

A reconciliation of the statutory income tax rate and the effective income tax rate as a percentage of income before income tax provision is as follows:

 

    For the fiscal
year ended
March 31,
2013
    For the fiscal
year ended
March 31,
2012
 
             
Statutory income tax rate     24.0 %     24.0 %
                 
Effective income tax rate     24.0 %     24.0 %

 

Corporation Income Tax Returns Remaining subject to Audit of UK Government

 

Generally speaking, HM Revenue & Customs (“ HMRC”) must normally send the Corporation a notice of enquiry within 12 months of receiving the said corporation tax return. Different deadlines may apply when:

· The Corporation filed your corporation tax return late
· The Corporation amend your return
· The Corporation made a claim separately from its return
· Information the Corporation gave HMRC about its corporation tax return was deliberately misleading.

 

HMRC can make a discovery assessment to correct a careless error up to six (6) years after the end of the Corporation Tax accounting period; 20 years after the accounting period if the mistake was a deliberate error; or no time limit if the fraudulent error was found.

 

Obar Camden corporation income tax return for the fiscal year ended March 31, 2012 was filed with HMRC on March 31, 2013, which remains subject to audit under the statute of limitations by HMRC for a period of 12 months from the date of filing.

 

OCHL and Obar Camden corporation income tax returns for the fiscal year ended March 31, 2013 due March 31, 2014 have not yet been filed with HMRC, which remains subject to audit under the statute of limitations by HMRC for a period of 12 months from the date when it is filed.

 

Note 9 - Concentration of Credit Risk

 

Credit Risk Arising from Financial Instruments

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents.

 

As of March 31, 2013, substantially all of the Company’s cash and cash equivalents were held by major financial institutions and the balance at certain accounts may exceed the maximum amount insured by the Financial Services Compensation Scheme (FSCS) (£85,000 per saver, per authorized institution as of December 31, 2010).  However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.

 

F- 18
 

 

Note 10 - Foreign Operations

 

Foreign Operations

 

OCHL’s operations are carried out in the United Kingdom (“UK”). Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the UK. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

 

Note 11 – Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that there were certain reportable subsequent event(s) to be disclosed as follows:

 

On April 28, 2014, Loton Corp. acquired 50% of the capital stock of OCHL.

 

F- 19

 

Obar Camden Holdings Limited

 

December 31, 2013 and 2012

 

Index to the Consolidated Financial Statements

 

Contents   Page(s)
     
Consolidated Balance Sheets at December 31, 2013 (Unaudited) and March 31, 2013   F-2
     
Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Nine Months Ended December 31, 2013 and 2012 (Unaudited)   F-3
     
Consolidated Statement of Stockholders’ Equity for the Interim Period Ended December 31, 2013 (Unaudited) and for the Fiscal Year Ended March 31, 2013   F-4
     
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2013 and 2012 (Unaudited)   F-5
     
Notes to the Consolidated Financial Statements (Unaudited)   F-6

 

F- 1
 

 

Obar Camden Holdings Limited

Consolidated Balance Sheets

 

    December 31, 2013     March 31, 2013  
    (Unaudited)        
             
ASSETS                
CURRENT ASSETS:                
Cash   $ 407,178     $ 762,889  
Accounts receivable     27,853       35,381  
Inventories     107,302       52,957  
Advances to related parties     415,401       72,454  
Prepayments and other current assets     341,657       438,011  
Deferred taxes     40,409       37,234  
                 
Total Current Assets     1,339,800       1,398,926  
                 
PROPERTY AND EQUIPMENT                
Leasehold improvements     1,287,060       1,186,129  
Furniture and fixtures     435,112       388,412  
Production and entertainment equipment     1,421,377       1,271,471  
                 
Total property and equipment     3,143,549       2,846,012  
                 
Accumulated depreciation     (2,031,296 )     (1,732,635 )
                 
Property and equipment, net     1,112,253       1,113,377  
                 
INTANGIABLE ASSETS                
Trademarks     16,334       15,053  
Website development costs     38,033       35,050  
                 
Total intangible assets     54,367       50,103  
                 
Accumulated amortization     (42,726 )     (38,812 )
                 
Intangible assets, net     11,641       11,291  
                 
Total Assets   $ 2,463,694     $ 2,523,594  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
CURRENT LIABILITIES:                
Accounts payable   $ 539,626     $ 642,470  
Income tax payable     70,574       179,210  
Payroll liabilities     154,096       216,819  
Accrued expenses and other current liabilities     74,053       141,748  
Current portion of deferred rent     90,419       82,757  
                 
Total Current Liabilities     928,768       1,263,004  
                 
NON-CURRENT LIABILITIES:                
Deferred rent     1,278,554       1,241,356  
                 
Total Non-Current Liabilities     1,278,554       1,241,356  
                 
Total Liabilities     2,207,322       2,504,360  
                 
COMMITMENTS AND CONTENGENCIES                
                 
STOCKHOLDERS' EQUITY:                
Common stock par value £0.05 ($0.0804): 97,756 shares authorized, 97,756 shares issued and outstanding     7,861       7,861  
Additional paid-in capital     (7,858 )     (7,858 )
Retained earnings     300,176       76,378  
Acumulated other comprehensive income:                
Foreign currency translation gain (loss)     (43,807 )     (57,147 )
                 
Total Stockholders' Equity     256,372       19,234  
                 
Total Liabilities and Stockholders' Equity   $ 2,463,694     $ 2,523,594  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 2
 

 

Obar Camden Holdings Limited

Consolidated Statements of Income and Other Comprenensive Income (Loss)

 

    For the Nine Months     For the Nine Months  
    Ended     Ended  
    December 31, 2013     December 31, 2012  
    (Unaudited)     (Unaudited)  
             
NET SALES   $ 5,099,857     $ 4,949,466  
                 
COST OF SALES     772,282       690,612  
                 
GROSS MARGIN     4,327,575       4,258,854  
                 
OPERATING EXPENSES:                
Selling expenses     113,086       136,435  
Rent     580,053       588,258  
Management fees     626,861       -  
Salary and wages     888,861       865,935  
General and administrative expenses     1,827,848       1,662,781  
                 
Total operating expenses     4,036,709       3,253,409  
                 
INCOME FROM OPERATIONS     290,866       1,005,445  
                 
OTHER (INCOME) EXPENSE:                
Demerger cost     -       61,699  
                 
Other (income) expense, net     -       61,699  
                 
INCOME BEFORE INCOME TAX PROVISION     290,866       943,746  
                 
INCOME TAX PROVISION     67,068       247,713  
                 
NET INCOME     223,798       696,033  
                 
OTHER COMPREHENSIVE INCOME (LOSS):                
Foreign currency translation gain (loss)     13,340       15,104  
                 
COMPREHENSIVE INCOME   $ 237,138     $ 711,137  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 3
 

 

Obar Camden Holdings Limited

Consolidated Statement of Stockholders' Equity

For the Interim Period Ended December 31, 2013 and for the Fiscal Year Ended March 31, 2013

(Unaudited)

  

                            Accumulated
Other
       
                            Comprehensive        
                            Income (Loss)        
    Common stock par value £0.05 ($0.0804)     Additional           Foreign Currency     Total  
    Number of           Paid-in     Retained     Translation Gain     Stockholders'  
    Shares     Amount     Capital     Earnings     (Loss)     Equity  
                                     
Balance,March 31, 2012     97,756     $ 7,861     $ (7,858 )   $ 342,140     $ (22,454 )   $ 319,689  
                                                 
Comprehensive income                                                
Net income                             494,116               494,116  
Other comprehensive income:                                                
Foreign currency translation gain (loss)                                     (34,693 )     (34,693 )
                                                 
Total comprehensive income                                             459,423  
                                                 
Dividends paid                             (759,878 )             (759,878 )
                                                 
Balance, March 31, 2013     97,756       7,861       (7,858 )     76,378       (57,147 )     19,234  
                                                 
Comprehensive income                                                
Net income                             223,798               223,798  
Other comprehensive income:                                                
Foreign currency translation gain (loss)                                     13,340       13,340  
                                                 
Total comprehensive income                                             237,138  
                                                 
Balance, December 31, 2013     97,756     $ 7,861     $ (7,858 )   $ 300,176     $ (43,807 )   $ 256,372  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 4
 

 

Obar Camden Holdings Limited

Consolidated Statements of Cash Flows

 

    For the Nine Months     For the Nine Months  
    Ended     Ended  
    December 31, 2013     December 31, 2012  
    (Unaudited)     (Unaudited)  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income   $ 223,798     $ 696,033  
                 
Adjustments to reconcile net income to net cash provided by (used in) operating activities        
Depreciation expense     151,227       195,057  
Amortization expense     612       6,188  
Changes in operating assets and liabilities:                
Accounts receivable     10,539       30,771  
Inventories     (49,838 )     (37,342 )
Prepayments and other current assets     133,625       15,278  
Deferred taxes     (7 )     -  
Accounts payable     (157,513 )     162,304  
Income tax payable     (123,885 )     251,894  
Payroll liabilities     (81,172 )     151,647  
Accrued expenses and other current liabilities     (79,756 )     3,508  
Deferred rent     (67,812 )     (66,453 )
                 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     (40,182 )     1,408,885  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of property, plant and equipment     (55,363 )     (147,655 )
                 
NET CASH USED IN INVESTING ACTIVITIES     (55,363 )     (147,655 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
                 
Advances from (repayments to) related parties     (336,781 )     (758,969 )
Contribution to capital     -       (3 )
                 
NET CASH USED IN FINANCING ACTIVITIES     (336,781 )     (758,972 )
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     76,615       22,615  
                 
NET CHANGE IN CASH     (355,711 )     524,873  
                 
Cash at beginning of period     762,889       1,023,555  
                 
Cash at end of period   $ 407,178     $ 1,548,428  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Interest paid   $ -     $ -  
Income taxes paid   $ 184,797     $ -  

 

See accompanying notes to the Consolidated Financial Statements.

 

F- 5
 

 

Obar Camden Holdings Limited

December 31, 2013 and 2012

Notes to the Consolidated Financial Statements

(Unaudited)

 

Note 1 - Organization and Operations

 

Obar Camden Holdings Limited and Subsidiary

 

Obar Camden Holdings Limited

 

Obar Camden Holdings Limited ("OCHL" or the “Company”) was incorporated on October 17, 2012 under the laws of the United Kingdom. OCHL was formed by the same stockholders of Obar Camden Ltd. for the sole purpose of acquiring all of the registered and contributed capital of Obar Camden Ltd. Upon formation, OCHL issued ten (10) shares of the newly formed corporation’s ordinary shares to a significant stockholder of Obar Camden Ltd. No value was given to the shares issued, therefore, the shares were recorded to reflect the £0.50 par value and paid in capital was recorded as a negative amount of (£0.50).

 

Prior to November 20, 2012, the date of recapitalization, OCHL was inactive and had no assets or liabilities.

 

Obar Camden Ltd.

 

Obar Camden Ltd. ("Obar Camden" or "OCL") was incorporated on November 13, 2003 under the laws of the United Kingdom. Obar Camden engages in the operations of a nightclub and live music venue trading as KOKO in Camden, London.

 

Merger of Obar Camden Ltd.

 

On November 20, 2012, OCHL acquired all of the issued and outstanding ordinary shares of Obar Camden from its then stockholders in exchange for 97,746 shares of Obar Camden’s ordinary shares. The number of shares issued represented 99.99% of the issued and outstanding ordinary shares immediately after the consummation of the Obar Camden acquisition.

 

As a result of the ownership interests of the former stockholder of Obar Camden, for financial statement reporting purposes, the merger between OCHL and Obar Camden has been treated as a reverse acquisition with Obar Camden deemed the accounting acquirer and OCHL deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse merger is deemed a capital transaction and the net assets of Obar Camden (the accounting acquirer) are carried forward to OCHL (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of OCHL and the assets and liabilities of Obar Camden which are recorded at historical cost. The equity of the combined entity is the historical equity of Obar Camden retroactively restated to reflect the number of shares issued by OCHL in the transaction.

 

Note 2 - Significant and Critical Accounting Policies and Practices

 

The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and 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. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

 

Basis of Presentation – Unaudited Interim Financial Information

 

The Company’s unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full year.  These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended March 31, 2013 and notes thereto contained elsewhere in the Company’s Current Report on Form 8-K, of which this is a part.

 

F- 6
 

 

Fiscal Year End

 

The Company elected March 31st as its fiscal year end date upon its formation.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimate(s) and assumption(s) affecting the financial statements was (were):

 

(i) Fair value of long-lived assets : Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events .

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Principles of Consolidation

 

The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC") to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.

 

The Company's consolidated subsidiary and/or entity is as follows:

 

Name of consolidated subsidiary
or entity
  State or other jurisdiction of
incorporation or organization
 

Date of incorporation or formation

(date of acquisition, if applicable)

  Attributable interest
             
Obar Camden Ltd   The United Kingdom   November 13, 2003   100%

 

F- 7
 

 

The consolidated financial statements include all accounts of the Company and the consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

 

All inter-company balances and transactions have been eliminated.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, deferred taxes, accounts payable, income tax payable, payroll liabilities, accrued expenses and other current liabilities, and deferred rent approximate their fair values because of the short maturity of these instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis

 

The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, and intangible assets other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

 

F- 8
 

 

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time if the Company's stock was publicly listed; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.

 

Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay.

 

Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.

 

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any.

 

There was no allowance for doubtful accounts at December 31, 2013 or March 31, 2013.

 

There was no bad debt expense for the reporting period ended December 31, 2013 or 2012.

 

The Company does not have any off-balance-sheet credit exposure to its customers at December 31, 2013 or March 31, 2013.

 

Inventories

 

Inventory Valuation

 

The Company values inventories, consisting of consumables and purchased merchandise for resale, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data, (ii) estimates of future demand, (iii) competitive pricing pressures, and (iv) product expiration dates.

 

Inventory Obsolescence and Markdowns

 

The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the statements of income as a component of cost of sales pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.

 

Obar Camden normally carries four (4) weeks’ worth of pre-packaged and fresh food, soft drinks and liquor supplies and replenishes them when the number of individual items falls below the reorder point.

 

F- 9
 

 

Lower of Cost or Market Adjustments

 

There was no lower of cost or market adjustments for the reporting period ended December 31, 2013 or 2012.

 

Slow-Moving or Obsolescence Markdowns

 

The Company recorded no inventory obsolescence adjustments for the reporting period ended December 31, 2013 or 2012.

 

Property and Equipment

 

Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:

 

            Estimated Useful
Life (Years)
 
                   
Furniture and fixture               5  
                   
Product and entertainment equipment               10  
                   
Leasehold improvement               *  

 

(*) Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.

 

Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

Leases

 

Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 A lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

 

Operating leases primarily relate to the Company’s leases of nightclub and concert performance venue spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.

 

Intangible Assets Other Than Goodwill

 

The Company has adopted Subtopic 350-30 of the FASB Accounting Standards Codification for intangible assets other than goodwill. Under the requirements, the Company amortizes the acquisition costs of intangible assets other than goodwill on a straight-line basis over their estimated useful lives, the terms of the exclusive licenses and/or agreements, or the terms of legal lives of the patents, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

F- 10
 

 

Website Development Costs

 

The Company has adopted Subtopic 350-50 of the FASB Accounting Standards Codification for website development costs. Under the requirements of Sections 350-50-15 and 350-50-25, the Company capitalizes costs incurred to develop a website as website development costs, which are amortized on a straight-line basis over the estimated useful lives of three (3) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the Related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitment and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

F- 11
 

 

Revenue Recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies:

 

Revenue from ticket sales from events and concerts is recognized when the performance occurs. Ticket sales collected in advance of an event date are recorded as deferred revenue.

 

The Company evaluates the criteria outlined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 605-45, "Revenue Recognition—Principal Agent Considerations," in determining whether it is appropriate to record the gross amount of revenues and related costs or the net revenues. Under the guidance of ASC Subtopic 605-45, if the Company is the primary obligor to perform the services being sold, has general inventory risk as it pertains to recruiting and compensating the talent, has the ability to control the ticket pricing, has discretion in selecting the talent, is involved in the production of the event, generally bears the majority of the credit or collection risk, or has several but not all of these indicators, revenue is recorded gross. If the Company does not have several of these indicators, it records revenues or losses on a net basis.

 

In accordance with the guidance Subtopic 605-45, for the majority of the Company's events, the Company has several of the above indicators and therefore it recognizes revenue gross as a principal. Additionally, the Company charges for and collects ticketing and credit card processing surcharges and records the amounts in revenue on a gross basis. Actual expenses paid to the ticket service provider and credit card merchant processors are reflected in expenses.

 

Net sales of products and services represent the invoiced value of goods or services, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on all of the Company’s products and services at the rate of 20% on the invoiced value of sales. Sales or Output VAT is borne by customers in addition to the invoiced value of sales and purchases and Purchase or Input VAT is borne by the Company in addition to the invoiced value of purchases.

 

Income Tax Provision

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.

 

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

F- 12
 

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended December 31, 2013 or 2012.

 

Foreign Currency Translation

 

The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars.  Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.

 

The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.  If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss).  If the Company determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).

 

Based on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiary’s local currencies to be their respective functional currencies.

 

The financial records of the Company's UK operating subsidiary are maintained in their local currency, the British Pound (“GBP”), which is the functional currency.  Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date.  Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements.  Foreign currency   translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.

 

Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation ( www.oanda.com ) contained in its consolidated financial statements.  Management believes that the difference between GBP vs. U.S. dollar exchange rate quoted by the Bank of England and GBP vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial.  Translations do not imply that the GBP amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.  Translation of amounts from GBP into U.S. dollars has been made at the following exchange rates for the respective periods:

 

    December 31,
2013
    March 31, 2013     December 31,
2012
    March 31, 2012  
                         
Balance sheets     0.6064       0.6580       0.6188       0.6254  
                                 
Statements of operations and comprehensive income (loss)     0.6381       0.6329       0.6292          

 

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

 

F- 13
 

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Recently Issued Accounting Pronouncements

 

 

In March 2013, the FASB issued ASU No. 2013-05, " Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.

 

In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

 

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

 

Note 3 – Property and Equipment

 

Property and equipment, stated at cost, less accumulated depreciation consisted of the following:

 

    Estimated Useful
Life (Years)
  December 31,
2013
    March 31, 2013  
                 
Leasehold improvement   Remaining term of the lease   $ 1,287,060     $ 1,186,129  
                     
Furniture and fixture   5     435,112       388,412  
                     
Production and entertainment equipment   10     1,421,377       1,271,471  
                     
          3,143,549       2,846,012  
                     
Less accumulated depreciation and amortization         (2,031,296 )     (1,732,635 )
                     
        $ 1,112,253     $ 1,113,377  

 

F- 14
 

 

(i) Depreciation Expense

 

Depreciation expense was $151,227 and $195,057 for the reporting period ended December 31, 2013 and 2012, respectively.

 

(ii) Impairment

 

The Company completed the annual impairment test of property and equipment and determined that there was no impairment as the fair value of property and equipment, substantially exceeded their carrying values at March 31, 2013 .

 

Note 4 – Intangible Assets Other Than Goodwill

 

Intangible assets other than goodwill, stated at cost, less accumulated depreciation consisted of the following:

 

    Estimated Useful
Life (Years)
  December 31,
2013
    March 31, 2013  
                 
Trade marks   20   $ 16,334     $ 15,053  
                     
Website development costs   5     38,033       35,050  
                     
          54,367       50,103  
                     
Less accumulated depreciation and amortization         (42,726 )     (38,812 )
                     
        $ 11,641     $ 11,291  

 

(i) Amortization Expense

 

Amortization expense was $612 and $6,188 for the reporting period ended December 31, 2013 and 2012, respectively.

 

(ii) Impairment

 

The Company completed the annual impairment test of property and equipment and determined that there was no impairment as the fair value of property and equipment, substantially exceeded their carrying values at March 31, 2013 .

 

Note 5 – Related Party Transactions

 

Related Parties

 

Related parties with whom the Company had transactions are:

 

Related Parties   Relationship
     
Mint Group Holdings, Ltd.   An entity owned and controlled by the same stockholders of the Company
     
Obar, Limited   An entity owned and controlled by the same stockholders of the Company
     
Renbar Limited   An entity owned and controlled by the same stockholders of the Company

 

Advances to/from Mint Group Holdings Ltd.

 

From time to time, the Company provides or receives funds from Mint Group Holdings Ltd. for working capital purposes. These advances are unsecured, non-interest bearing and due on demand.

 

F- 15
 

 

Cross Guarantee Arrangement

 

Obar Camden is party to a cross guarantee arrangement with Obar Limited, Renbar Limited, and Mint Group Holdings Limited in respect to any bank indebtedness of these companies. The assets of Obar Camden are subject to a charge in respect of bank borrowings.

 

Note 6 – Commitments and Contingencies

 

Operating Lease - Obar Camden

 

On February 19, 2004 Obar Camden entered into a non-cancellable lease for premises for a period of 25 years expiring February 19, 2029. On October 22, 2004 Obar Camden entered into a deed of variation to the original non-cancellable lease for the premises at £473,000 per year plus valued added taxes for the first five (5) years and at £548,337 per year plus valued added taxes for the remainder of the lease, with free rent for the first fifteen (15) months of the occupancy. In conjunction with the signing of the deed of variation the landlord (i) provided consideration of £175,000, and (ii) contributed an additional £175,000 towards improvements upon execution of the deed of variation.

 

Future minimum lease payments under the non-cancelable operating lease are as follows:

 

Year ending March 31:   £     $  
             
2014 (remainder of the fiscal year)     137,085     $ 226,064  
                 
2015     548,337       904,250  
                 
2016     548,337       904,250  
                 
2017     548,337       904,250  
                 
2018     548,337       904,250  
                 
2019 and after     5,971,615       9,847,650  
                 
      8,302,048     $ 13,690,714  

 

Deferred Rent

 

To induce Obar Camden to enter into the operating lease and the deed of variation for a period of 25 years the Landlord granted free rent for the first fifteen (15) months of the occupancy and consideration/contribution of £350,000 in aggregate, which will be recognized on a straight-line basis over the duration of the initial lease term of 25 years.

 

Note 7 – Stockholders’ Equity

 

Shares Authorized and Issuance of Shares

 

Special Resolution for Authorization and Issuance of Additional Shares

 

On November 20, 2012, OCHL passed a special resolution whereby the Company was authorized and issued 97,746 ordinary shares with nominal value £0.05 per share to acquire all of the issued and outstanding ordinary shares of Obar Camden from then stockholders in exchange for 97,746 shares of the Obar Camden’s ordinary shares.

 

Note 8 - Concentration of Credit Risk

 

Credit Risk Arising from Financial Instruments

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents.

 

As of December 31, 2013, substantially all of the Company’s cash and cash equivalents were held by major financial institutions and the balance at certain accounts may exceed the maximum amount insured by the Financial Services Compensation Scheme (FSCS) (£85,000 per saver, per authorized institution as of December 31, 2010).  However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.

 

F- 16
 

 

Note 9 - Foreign Operations

 

Foreign Operations

 

OCHL’s operations are carried out in the United Kingdom (“UK”). Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the UK. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

 

Note 10 – Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that there were certain reportable subsequent event(s) to be disclosed as follows:

 

On April 28, 2014, Loton Corp. acquired 50% of the capital stock of OCHL.

 

F- 17

 

 

Loton, Corp.

and

Obar Camden Holdings Limited

Index to the Pro Forma Combined Financial Statements

 

(Unaudited)

 

Contents   Page(s)
     
Pro Forma Combined Balance Sheet at January 31, 2014   P-2
     
Pro Forma Combined Statement of Operations for the Nine Months Ended January 31, 2014   P-3
     
Pro Forma Combined Statement of Operations for the Fiscal Year Ended April 30, 2013   P-4
     
Notes to the Pro Forma Combined Financial Statements   P-5

 

 
 

 

Loton Corp.

 

Pro Forma Combined Balance Sheet

January 31, 2014

(Unaudited)

 

    Historical     Pro Forma  
    Loton Corp.     Obar Camden
Holdings, LLC
    Adjustments     Combined  
                         
ASSETS                                
CURRENT ASSETS:                                
Cash   $ 350,158     $ -     $ -     $ 350,158  
Prepaid acquisition cost     154,878       - (2)     (154,878 )     -  
Prepaid management service - related party     150,000       -       -       150,000  
                                 
Total current assets     655,036       -       (154,878 )     500,158  
                                 
OFFICE EQUIPMENT                                
Office equipment     8,018       -               8,018  
Accumulated depreciation     (2,476 )     -               (2,476 )
                                 
Office equipment, net     5,542       -       -       5,542  
                                 
INVESTMENT - EQUITY METHOD                                
Investment - equity method     -       4,235,762 (2)     154,878       4,502,539  
                   (4)     111,899          
                                 
Investment - equity method     -       4,235,762       266,777       4,502,539  
                                 
Total Assets   $ 660,578     $ 4,235,762     $ 111,899     $ 5,008,239  
                                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                
                                 
CURRENT LIABILITIES:                                
Accounts payable and accured expenses   $ 285,868     $ -     $ -     $ 285,868  
Accrued interest on notes payable - related party     38,675       -       -       38,675  
Notes payable - related party     500,000       -       -       500,000  
Payroll liabilities     42       -       -       42  
Advances from related party     11,776       -       -       11,776  
                                 
Total current liabilities     836,361       -       -       836,361  
                                 
LONG-TERM LIABILITIES                                
Non-current management service obligation - related party     777,784       -       -       777,784  
                                 
Total long-term liabilities     777,784       -       -       777,784  
                                 
Total liabilities     1,614,145       -       -       1,614,145  
                                 
COMMITMENTS AND CONTENGENCIES                                
                                 
STOCKHOLDERS' EQUITY (DEFICIT):                                
Preferred stock par value $0.001: 1,000,000 shares authorized, none issued or outstanding     -               -       -  
Common stock par value $0.001: 75,000,000 shares authorized, 7,847,083 and 6,265,000 shares issued and outstanding, respectively 36,847,083 shares issued and outstanding - Pro Forma     7,847       29,000 (1)             36,847  
                                 
Additional paid-in capital     3,186,568       4,206,762 (1)             3,245,348  
                  (3)     (4,147,982 )        
Accumulated deficit     (4,147,982 )     - (3)     4,147,982       111,899  
                   (4)     111,899          
                                 
Total Stockholders' Equity (Deficit)     (953,567 )     4,235,762       111,899       3,394,094  
                                 
Total Liabilities and Stockholders' Equity (Deficit)   $ 660,578     $ 4,235,762     $ 111,899     $ 5,008,239  

 

(1) To reflect issuance of 29,000,000 shares of the Company's common stock to the members of JJAT for the acquisition of 50% of the issued and outstanding limited liability company interest of Obar Camden Holdings Limited without control upon acquisition
(2) To reclassify prepaid acquisition cost to investment - equity method
(3) To reclassify Loton Corp. accumulated deficit to additional paid-in capital
(4) To record Loton Corp. share of net income from a non-controlled entity

 

See accompanying notes to the pro forma combined financial statements.

 

P- 2
 

 

Loton Corp.

 

Pro Forma Combined Statement of Operations

For the Nine Months Ended January 31, 2014

(Unaudited)

 

    Historical     Pro Forma  
    Loton Corp.     Obar Camden
Holdings, LLC
    Adjustments     Combined  
    For the Nine Months     For the Nine Months              
    Ended     Ended              
    January 31, 2014     December 31, 2013              
                         
Net revenue   $ -     $ -     $ -     $ -  
                                 
Operating expenses                                
Consulting fees     627,003                       627,003  
Management services - related party     540,648                       540,648  
Professional fees     326,522                       326,522  
Payroll expenses     68,010                       68,010  
Travel expenses     108,601                       108,601  
General and administrative expenses     132,237                       132,237  
                                 
Total operating expenses     1,803,021       -       -       1,803,021  
                                 
Loss from operations     (1,803,021 )     -       -       (1,803,021 )
                                 
Other (income) expense                                
Impairment of notes receivable     50,000               -       50,000  
Interest expense     21,267               -       21,267  
Loton Corp. share of net income from a non-consolidated entity     -       (111,899 )(4)     -       (111,899 )
                                 
Other (income) expense, net     71,267       (111,899 )     -       (40,632 )
                                 
(Loss) income before income tax provision     (1,874,288 )     111,899       -       (1,762,389 )
                                 
Income tax provision     -       -       -       -  
                                 
Net (loss) income   $ (1,874,288 )   $ 111,899     $ -     $ (1,762,389 )
                                 
Ner loss per common share - basic and diluted   $ (0.26 )           $ -     $ (0.05 )
                                 
Weighted average common shares outstanding - basic and diluted     7,292,737            (1)     29,000,000       36,292,737  
      7,292,737               29,000,000       36,292,737  

 

(1) To reflect issuance of 29,000,000 shares of the Company's common stock to the members of JJAT for the acquisition of 50% of the issued and outstanding limited liability company interest of Obar Camden Holdings Limited without control upon acquisition

 

(4) To record Loton Corp. share of net income from a non-controlled entity

 

See accompanying notes to the pro forma combined financial statements.

 

P- 3
 

 

Loton Corp.

 

Pro Forma Combined Statement of Operations

For the Fiscal Year Ended April 30, 2013

(Unaudited)

 

    Historical     Pro Forma  
    Loton Corp.     Obar Camden
Holdings, LLC
    Adjustments     Combined  
    For the Fiscal Year     For the Fiscal Year              
    Ended     Ended              
    April 30, 2013     March 31, 2013              
                         
Net revenue   $ -     $ -     $ -     $ -  
                                 
Operating expenses                                
Consulting fees     401,700                       401,700  
Management services - related party     720,864                       720,864  
Professional fees     112,743                       112,743  
Payroll expenses     -                       -  
Travel expenses     103,772                       103,772  
General and administrative expenses     68,077                       68,077  
                                 
Total operating expenses     1,407,156       -       -       1,407,156  
                                 
Loss from operations     (1,407,156 )     -       -       (1,407,156 )
                                 
Other (income) expense                                
Impairment of notes receivable     100,000               -       100,000  
Interest expense     17,403               -       17,403  
Loton Corp. share of net income from a non-consolidated entity     -       (247,058 )(4)     -       (247,058 )
                                 
Other (income) expense, net     117,403       (247,058 )     -       (129,655 )
                                 
(Loss) income before income tax provision     (1,524,559 )     247,058       -       (1,277,501 )
                                 
Income tax provision     -       -       -       -  
                                 
Net (loss) income   $ (1,524,559 )   $ 247,058     $ -     $ (1,277,501 )
                                 
Ner loss per common share - basic and diluted   $ (0.26 )           $ -     $ (0.04 )
                                 
Weighted average common shares outstanding - basic and diluted     5,842,611         (1)     29,000,000       34,842,611  
      5,842,611               29,000,000       34,842,611  

 

(1) To reflect issuance of 29,000,000 shares of the Company's common stock to the members of JJAT for the acquisition of 50% of the issued and outstanding limited liability company interest of Obar Camden Holdings Limited without control upon acquisition

 

(4) To record Loton Corp. share of net income from a non-controlled entity

 

See accompanying notes to the pro forma combined financial statements.

 

P- 4
 

 

Loton, Corp

and

Obar Camden Holdings Limited

 

As of and for the nine months ended January 31, 2014

and

As of and for the fiscal year ended April 30, 2013

 

Notes to the Pro Forma Combined Financial Statements

 

(Unaudited)

 

Note 1 - Organization and Operations

 

Loton, Corp

 

Loton, Corp (“Loton”) was incorporated under the laws of the State of Nevada on December 28, 2009. Loton intended to provide 3D rendering, animation and architectural visualization services to architects, builders, advertising agencies, interior designers, home renovators, home owners and various sectors which have need of 3D visualization in North America.

 

Change in Control

 

On September 9, 2011, Trinad Capital Master Fund, a Cayman Island exempted company (“Trinad”), entered into and consummated (the “Closing”) a Securities Purchase Agreement (the “Purchase Agreement”) with Alex Kuznetsov, a shareholder and the sole director and executive officer of Loton, a Nevada corporation.  Pursuant to the terms of the Purchase Agreement, Mr. Kuznetsov sold Trinad an aggregate of 4,000,000 shares (the “Shares”) of Loton’s common stock (“Common Stock”), which represented approximately 80% of the then issued and outstanding Common Stock of Loton.  In consideration for the purchase of the Shares, Trinad paid an aggregate amount of $311,615.

 

Acquisition of Obar Camden Holdings Limited

 

On April 28, 2014, Loton entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Loton, Loton Acquisition Sub I, Inc., a Delaware corporation (“Acquisition Sub”) and KoKo (Camden) Holdings (US), Inc. (“KoKo Parent”), a Delaware corporation and wholly-owned subsidiary of JJAT Corp. (“JJAT”), a Delaware corporation wholly-owned by Robert Ellin, the Company’s Chief Executive Officer, Director and controlling shareholder (“Mr. Ellin”), and his affiliates (the “Merger”). As a result of the Merger, KoKo Parent became a wholly-owned subsidiary of Loton, and Loton’s primary business became that of KoKo Parent and its subsidiaries, KoKo (Camden) Limited, a private limited company registered in England and Wales (“KoKo UK”) which owns 50% of OBAR Camden Holdings Limited, a private limited company registered in England and Wales (“OCHL”) which in turn wholly-owns its operating subsidiary OBAR Camden Limited, a private limited company registered in England and Wales (“OCL”). Upon the closing of the Merger, pursuant to the terms of the Merger Agreement, KoKo Parent’s former sole shareholder, JJAT, received 29,000,000 shares of Loton’s common stock, or approximately 73.9% of the shares of Loton outstanding post-merger.

 

Obar Camden Holdings Limited

 

Obar Camden Holdings Limited ("OCHL") was incorporated on October 17, 2012 under the laws of the United Kingdom. OCHL was formed by the same stockholders of Obar Camden Ltd. for the sole purpose of acquiring all of the registered and contributed capital of Obar Camden Ltd. Upon formation, OCHL issued ten (10) shares of the newly formed corporation’s ordinary shares to a significant stockholder of Obar Camden Ltd. No value was given to the shares issued, therefore, the shares were recorded to reflect the £0.50 par value and paid in capital was recorded as a negative amount of (£0.50).

 

Prior to November 20, 2012, the date of recapitalization, OCHL was inactive and had no assets or liabilities.

 

Obar Camden Ltd.

 

Obar Camden Ltd. ("Obar Camden" or "OCL") was incorporated on November 13, 2003 under the laws of the United Kingdom. Obar Camden engages in the operations of a nightclub and live music venue trading as KOKO in Camden, London.

 

P- 5
 

 

Merger of Obar Camden Ltd.

 

On November 20, 2012, OCHL acquired all of the issued and outstanding ordinary shares of Obar Camden from its then stockholders in exchange for 97,746 shares of Obar Camden’s ordinary shares. The number of shares issued represented 99.99% of the issued and outstanding ordinary shares immediately after the consummation of the Obar Camden acquisition.

 

As a result of the ownership interests of the former stockholder of Obar Camden, for financial statement reporting purposes, the merger between OCHL and Obar Camden has been treated as a reverse acquisition with Obar Camden deemed the accounting acquirer and OCHL deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse merger is deemed a capital transaction and the net assets of Obar Camden (the accounting acquirer) are carried forward to OCHL (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of OCHL and the assets and liabilities of Obar Camden which are recorded at historical cost. The equity of the combined entity is the historical equity of Obar Camden retroactively restated to reflect the number of shares issued by OCHL in the transaction.

 

NOTE 2 - Basis of Pro Forma Presentation

 

Assumptions of Pro Forma Combined Financial Statements

 

The accompanying pro forma combined balance sheet as of January 31, 2014 and the pro forma combined statements of operations for the nine months then ended and for the fiscal year ended April 30, 2013 are based on the historical financial statements of Loton and OCHL after giving effect to Loton’s acquisition of 50% of the issued and outstanding capital stock of OCHL using the acquisition method of accounting and applying the assumptions and adjustments described in the accompanying notes to the pro forma combined financial statements as if such acquisition had occurred as of May 1, 2013 for the balance sheet and statements of operations for pro forma financial statements purposes.

 

The pro forma combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the combined financial position or combined results of operations in future periods or the results that actually would have been realized had Loton and OCHL been a combined company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document and assumptions that management believes are reasonable. The pro forma combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with Loton’s historical financial statements included in its Annual Report on Form 10-K for the fiscal year ended April 30, 2013 as filed with United States Securities and Exchange Commission (“SEC”) on July 29, 2013 and in its Quarterly Report on Form 10-Q for the interim period ended January 31, 2014 as filed with SEC on March 12, 2014.

 

The pro forma combined financial statements do not purport to represent what the results of operations or financial position of Loton would actually have been if the merger had in fact occurred on, nor do they purport to project the results of operations or financial position of Loton for any future period or as of any date, respectively.

 

These pro forma combined financial statements do not give effect to any restructuring costs or to any potential cost savings or other operating efficiencies that could result from the merger between Loton and OCHL since such amounts, if any, are not presently determinable.

 

P- 6
 

 

NOTE 3 - Pro Forma Adjustments

 

Acquisition of 50% of the capital stock of Obar Camden Holdings Limited.

 

The accompanying pro forma combined financial statements have been prepared as if the acquisition was completed on May 1, 2013 for balance sheet purposes and for statements of operations purposes and reflects the following pro forma adjustments:

 

1) To reflect issuance of 29,000,000 shares of the Company's common stock to the members of JJAT for the acquisition of 50% of the issued and outstanding limited liability company interest of Obar Camden Holdings Limited without control upon acquisition        
         
Common stock: $0.001 par value     (29,000 )
         
Additional paid-in capital     (4,206,762 )
         
Investment –Equity method     4,235,762  
         
2) To reclassify prepaid acquisition cost to investment - equity method        
         
Prepaid acquisition cost     (154,878 )
         
Investment - equity method     154,878  
         
3) To reclassify Loton, Corp accumulated deficit to additional paid-in capital        
         
Additional Paid in Capital     4,147,982  
         
Accumulated deficit     (4,147,982 )
         
4) To record Loton, Corp share of net income from a non-controlled entity        
         
(i) For the nine months ended January 31, 2014        
         
Loton Corp. share of net income from a non-consolidated entity     (111,899 )
         
Accumulated deficit     118,899  
         
(ii) For the fiscal year ended April 30, 2013        
         
Loton Corp. share of net income from a non-consolidated entity     (247,058 )
         
Accumulated deficit     247,058  

 

P- 7