As filed with the Securities and Exchange Commission on February 14, 2022

Registration No. 333-__________

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM S-3

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Cuentas Inc.

(Exact name of registrant as specified in its charter)

 

Florida   5140   20-3537265
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification Number)

 

235 Lincoln Rd., Suite 210

Miami Beach, Florida 33139

(800) 611-3622

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Jeffery D. Johnson

Chief Executive Officer

235 Lincoln Rd., Suite 210

Miami Beach, Florida 33139

(800) 611-3622 (Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Please send a copy of all communications to:

Barry I. Grossman, Esq.

David Selengut, Esq.

Matthew Bernstein, Esq.

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas

New York, New York 10105-0302

(212) 370-1300

 

Approximate date of commencement proposed sale to the public: From time to time after the effective date of this Registration Statement. 

 

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ☐

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.  ☒

 

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

 

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

 

If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ☐

 

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ☐

 

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

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☒   Smaller reporting company ☒  
    Emerging growth company ☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. ☐  

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.  

 

 

 

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell the securities until the Registration Statement filed with the Securities and Exchange Commission, of which this prospectus is a part, is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2022

 

Prospectus 

 

 

 

 

$75,000,000

 

COMMON STOCK

PREFERRED STOCK

PURCHASE CONTRACTS

WARRANTS

SUBSCRIPTION RIGHTS

DEPOSITARY SHARES

DEBT SECURITIES

UNITS

 

● common stock;

 

● preferred stock;

 

● purchase contracts;

 

● warrants to purchase our securities;

 

● subscription rights to purchase any of the foregoing securities;

 

● depositary shares;

 

● secured or unsecured debt securities consisting of notes, debentures or other evidences of indebtedness which may be senior debt securities, senior subordinated debt securities or subordinated debt securities, each of which may be convertible into equity securities; or

 

● units comprised of, or other combinations of, the foregoing securities.

 

We may offer and sell these securities separately or together, in one or more series or classes and in amounts, at prices and on terms described in one or more offerings.  We may offer securities through underwriting syndicates managed or co-managed by one or more underwriters or dealers, through agents or directly to purchasers.  The prospectus supplement for each offering of securities will describe in detail the plan of distribution for that offering.  For general information about the distribution of securities offered, please see “Plan of Distribution” in this prospectus.  

 

Each time our securities are offered, we will provide a prospectus supplement containing more specific information about the particular offering and attach it to this prospectus. The prospectus supplements may also add, update or change information contained in this prospectus. This prospectus may not be used to offer or sell securities without a prospectus supplement which includes a description of the method and terms of this offering.

 

Our common stock is listed on The NASDAQ Capital Market under the symbol “CUEN.” We also have a class of warrants that are listed on The NASDAQ Capital Market under the symbol “CUENW.” The last reported sale price of our common stock and listed warrants on The NASDAQ Capital Market on February 10, 2022 was $1.20 per share and $0.4474 per warrant. The aggregate market value of our outstanding common stock held by non-affiliates is $8,502,371 based on 14,965,690 shares of outstanding common stock, of which 7,085,310 shares are held by non-affiliates, and a per share price of $1.2 which was the closing sale price of our common stock as quoted on The NASDAQ Capital Market on February 10, 2022. During the 12 calendar month period that ends on, and includes, the date of this prospectus, we have not offered and sold any of our securities pursuant to General Instruction I.B.6 of Form S-3.

 

If we decide to seek a listing of any preferred stock, purchase contracts, warrants, subscriptions rights, depositary shares, debt securities or units offered by this prospectus, the related prospectus supplement will disclose the exchange or market on which the securities will be listed, if any, or where we have made an application for listing, if any.

 

Investing in our securities involves certain risks. See “Risk Factors” beginning on page 35 and the risk factors in our most recent Annual Report on Form 10-K, which is incorporated by reference herein, as well as in any other recently filed quarterly or current reports and, if any, in the relevant prospectus supplement.  We urge you to carefully read this prospectus and the accompanying prospectus supplement, together with the documents we incorporate by reference, describing the terms of these securities before investing.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus is ___________

 

 

 

 

TABLE OF CONTENTS

  

  Page
About This Prospectus ii
Cautionary Statement Regarding Forward-Looking Statements   iii
Prospectus Summary 1
Risk Factors 35
Use of Proceeds 36
Plan of Distribution 37
Description of Securities We May Offer 39
Forms of Securities 50
Legal Matters 51
Experts 51
Where You Can Find Additional Information 51
Incorporation of Documents by Reference 52

 

i

 

 

ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, or SEC, utilizing a “shelf” registration process. Under this shelf registration process, we may offer and sell, either individually or in combination, in one or more offerings, any of the securities described in this prospectus, for total gross proceeds of up to $75,000,000. This prospectus provides you with a general description of the securities we may offer. Each time we offer securities under this prospectus, we will provide a prospectus supplement to this prospectus that will contain more specific information about the terms of that offering. We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these offerings. The prospectus supplement and any related free writing prospectus that we may authorize to be provided to you may also add, update or change any of the information contained in this prospectus or in the documents that we have incorporated by reference into this prospectus.

 

We urge you to read carefully this prospectus, any applicable prospectus supplement and any free writing prospectuses we have authorized for use in connection with a specific offering, together with the information incorporated herein by reference as described under the heading “Incorporation of Documents by Reference,” before investing in any of the securities being offered. You should rely only on the information contained in, or incorporated by reference into, this prospectus and any applicable prospectus supplement, along with the information contained in any free writing prospectuses we have authorized for use in connection with a specific offering. We have not authorized anyone to provide you with different or additional information. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so.

 

The information appearing in this prospectus, any applicable prospectus supplement or any related free writing prospectus is accurate only as of the date on the front of the document and any information we have incorporated by reference is accurate only as of the date of the document incorporated by reference, regardless of the time of delivery of this prospectus, any applicable prospectus supplement or any related free writing prospectus, or any sale of a security.

 

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under the section entitled “Where You Can Find Additional Information.”

 

This prospectus contains, or incorporates by reference, trademarks, tradenames, service marks and service names of Cuentas Inc.

 

ii

 

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This prospectus and any accompanying prospectus supplement and the documents incorporated by reference herein may contain forward looking statements that involve risks and uncertainties.  All statements other than statements of historical fact contained in this prospectus and any accompanying prospectus supplement and the documents incorporated by reference herein, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These forward-looking statements include, but are not limited to, statements about:

 

● our ability to implement our business plan;

 

● our ability to attract key personnel;

 

● our ability to operate profitably;

 

● our ability to efficiently and effectively finance our operations;

 

● our ability to raise additional financing for working capital;

 

● our ability to efficiently manage our operations;

 

● that our accounting policies and methods may require management to make estimates about matters that are inherently uncertain;

 

● changes in the legal, regulatory and legislative environments in the markets in which we operate; and

 

● adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations.

 

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this prospectus and the documents incorporated by reference herein, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

 

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this prospectus, and in particular, the risks discussed below and under the heading “Risk Factors” and those discussed in other documents we file with the SEC. The following discussion should be read in conjunction with the consolidated financial statements for the fiscal years ended December 31, 2020 and 2019 and notes incorporated by reference herein. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statement.

 

    You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations. Any forward-looking statement you read in this prospectus, any prospectus supplement or any document incorporated by reference reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, operating results, growth strategy and liquidity. You should not place undue reliance on these forward-looking statements because such statements speak only as to the date when made. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future, except as otherwise required by applicable law. You are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K filed with the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

 

iii

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus.  This summary does not contain all the information that you should consider before investing in our Company.  You should carefully read the entire prospectus, including all documents incorporated by reference herein. In particular, attention should be directed to our “Risk Factors,” “Information With Respect to the Company,”  “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes thereto contained herein or otherwise incorporated by reference hereto, before making an investment decision.

 

As used herein, and any amendment or supplement hereto, unless otherwise indicated, “we,” “us,” “our,” the “Company,” “Cuentas,” “CUEN” or similar terminology means Cuentas Inc.

 

The Company

 

The Company is a corporation incorporated under the laws of Florida on September 21, 2005, which focuses on the business of using proprietary fintech technology to provide e-banking and e-commerce services delivering mobile banking, prepaid debit and digital content services to the unbanked, underbanked and underserved Latino, Hispanic and immigrant communities. The Company’s proprietary software platform enables Cuentas to offer comprehensive financial services and additional robust functionality that is absent from other Mobile Apps with Prepaid Debit Mastercard®/General-Purpose Reloadable cards (“GPR”).

 

Properties. The Company’s headquarters are located in Miami, Florida.

 

Our Business

 

The Company’s Mobile App & GPR card are integrated into a proprietary fintech ecosystem that protects customers by depositing their funds in an FDIC insured bank account at the Issuing Bank, Sutton Bank.

 

The comprehensive financial services currently available include:

 

● Direct ACH Deposits to receive funds

 

● ATM access – US and most foreign countries

 

● Retail and Online purchases

 

● Peer to Peer Payments at no cost between Cuentas Account holders

 

● Cash Reloads at major retailers (Walmart, CVS, Walgreens, Dollar General, etc.)

 

● Discounted Gift Cards for major brands (Amazon Cash, Xbox, Playstation, Burger King, etc.)

 

● Transit Authority Fares – Los Angeles TAP, Connecticut GoCT, coming soon NY-OMNY

 

● Prepaid Long Distance Telecom Minutes – call land lines or mobile phones worldwide

 

● US Mobile Phone Recharges (TopUps)

 

● Int’l. Mobile Phone Recharges (TopUps)

 

The Company is currently finalizing testing of its “Western Union – Powered by Cuentas” services for the Mobile App to allow each user to make International Remittances to over 200 countries via Western Union, which we expect to go live in the first quarter of 2022. Specifically, in December 2020, Cuentas signed a 5 year agreement with Western Union (WU) and has interconnected its fintech ecosystem with WU’s back office, financial rails and distribution network to provide ultimately seamless International Remittances through hundreds of thousands of Western Union Agents, to over 200 countries worldwide. Upon launch, we expect that each Cuentas Account Holder should be able to send Remittances worldwide, directly from their Cuentas Mobile App. This relationship with WU has been approved by Sutton Bank and Interactive Communications International, Inc. (InComm) and we expect to receive such approval in the first quarter of 2022.

 

Cuentas expects to provide Domestic and International BillPay service to Cuentas Account Holders using the Mobile App during 2022.

 

A major factor that provides technical strength and reliability to Cuentas’ project is the fintech ecosystem that it has developed. The foundation of Cuentas’ ecosystem is the fintech-exclusive, royalty-free, perpetual platform license and source code from CIMA Telecom, Inc. (CIMA) that Cuentas acquired for $9 Million. We believe that this platform has been proven to be a robust, reliable transactional, marketing, financial and predictive, Tier-1 transactional platform as it managed the back office for Tracfone, a major telecom company that was acquired by Verizon for $6+ Billion. Cuentas’ ecosystem integrates the proprietary CIMA platform via dedicated APIs with Sutton Bank (Issuing Bank), IDology (AML & KYC) and InComm (Processor, Load Network & 3rd Party Digital Products).

 

1

 

 

Cuentas’ Mobile App includes a Mobile Wallet (Wallet), Digital Store (Store) and is linked with a Prepaid Mastercard® which can be used for ATM withdrawals, online purchases and in-person purchases.

 

Account holders may deposit funds to their account via a) no-cost Direct Deposit, b) no-cost fund transfers from other Cuentas account holders, or c) for a small charge, using InComm’s VanillaLoad network in over 200,000 locations at major retailers like Walmart, CVS, Walgreens, Dollar General, and more.

 

Once account holders have available funds, they can use their Cuentas Prepaid Mastercard® wherever prepaid Mastercards are accepted worldwide and at most ATMs in the U.S. and many international ATMs.

 

Account holders may use the funds in their wallet to purchase discounted gift cards in the Cuentas Digital Store. Product categories in the Digital Store including Digital Gift Cards, Transit Cards, Mobile Phone Recharges (TopUps) and we expect will also soon include International Remittances. Digital gift cards include Amazon Cash, Sony Playstation, Xbox, Karma Koin, Burger King, Bass Pro Shops and more. Transit products include or will include OMNY in New York, TAP in Los Angeles, GoCT in Connecticut and The Rapid from Grand Rapids, Michigan. Additional transit products will be available as InComm rolls them out. Cuentas account holders may purchase Mobile Phone Recharges (TopUps) which allow them to recharge their own or someone else’s Verizon, AT&T or other mobile phone in the U.S. or in many foreign countries – in real time. Account holders may make real phone calls using the Cuentas ILD Rewards balance (Loyalty Program) or funds in their wallet - actual phone calls that are made directly from their phone to any mobile phone or land line worldwide.  

 

The Latino Market 

 

The name “Cuentas” is a Spanish word that has multiple meanings and was chosen for strategic reasons, to develop a close relationship with the Spanish speaking population. It means “Accounts” as in “bank accounts” and it can also mean “You can count on me” as in “Cuentas conmigo”. Additionally, it can be used to “Pay or settle accounts” (saldar cuentas), “accountability” (rendición de cuentas), “to be accountable” (rendir cuentas) and other significant meanings.

  

The 2020 U.S. Census shows the Hispanic Latino population at over 62 million and at 18.7% of the total US population. The FDIC defines the “unbanked” ” as those adults without an account at a bank or other financial institution and are considered to be outside the mainstream for one reason or another. The Company believes that the Hispanic and Latino demographic generally have had more identification, credit, and former bank account issues more so than any other U. S. minority group leading to more difficulty in obtaining a traditional bank acccount

  

Cuentas Mobile App and Wallet: The Cuentas Mobile App and Wallet are positioned to service the Hispanic, Latino and immigrant demographics with comprehensive financial products. Additionally, we are able to use various forms of U.S. and some foreign government issued identification to confirm qualification. We are able to accept SSN or ITIN with U.S. identification, Matricula Consular or other qualified government issued forms of identification.

 

The Cuentas Prepaid Mastercard® - General-Purpose Reloadable (GPR) Card

 

The Cuentas Prepaid GPR Card qualifies each account holder to have a personalized Cuentas Mastercard® and an associated Cuentas Account with the Mobile App, Digital Wallet, Digital Store and Long Distance Telecom services included. It acts as a comprehensive banking solution which enables access to the U.S. financial system to those who are unbanked or underbanked while enabling greater functionality than a traditional bank account. The cardholders’ deposited funds are protected in an FDIC-insured bank account at Sutton Bank, the Issuing Bank. 

 

2

 

 

The Cuentas Business Model

 

The Cuentas business model provides or, we expect will provide, for multiple revenue sources, many of which are synergistic market segments and provide unified financial and social functionality to forgotten segments of society.

 

The Cuentas Mobile Wallet has several potential revenue streams. We expect that the Company will receive monthly maintenance fees, reload fees, ATM fees, commissions for products sold as well as interchange and network fees from Mastercard & Pulse. Cuentas’ strategy is to provide excellent value to consumers while charging reasonable fees and commissions to produce profitability. We believe that monthly fees of $4.50 which we will charge per user will generate reasonable revenue. Cuentas provides account recharge capabilities to account holders via the nationwide VanillaLoad network owned by InComm as it is available in many big box retailer chains such as Walmart, Walgreens, CVS, Dollar Store and others.

 

We expect that The Cuentas Digital Store will produce revenue each time that consumers purchase third party gift cards, digital access, mass transit tickets and mobile phone top-ups (U.S. and international). Additionally, International remittances provided by the industry-leader Western Union “by Cuentas” are in final testing and should be available in Q1 of 2022 and International Bill Pay should be available in 2022. Both services should be major revenue driving factors for Cuentas as they provide reliable, low-cost solutions to our target audience.

 

Cuentas expects to offer rewards for free long distance calling to its account holders (“Cuentas Rewards”) who are given credits upon activation to be able to make real international calls to land lines or mobile phone worldwide, not like internet calling which can be unreliable and poor quality. If successful, we can expand the Rewards program in the future. Our target demographic uses both internet and prepaid calling services to communicate with family members around the U.S. and in their country. This added benefit is designed, at a very low cost, to provide extra benefits to our accountholders, which should help to maintain and solidify valuable relationships with them.

  

Prepaid Debit Card Market Overview

 

The Research and Markets report titled “Prepaid Card Market: Payment Trends, Market Dynamics, and Forecasts 2020 - 2025” released in January 2020 states that, “[i]n the United States, prepaid cards remain the preferred choice for the unbanked market segment....” It also states that “[t]he move towards a cashless society is substantial, further driving the prepaid card market.”

  

Cuentas is strategically positioned in the prepaid marketplace with a focus on the Hispanic, Latino and immigrant demographics.

 

Cuentas has identified Activation Fees as an important issue to our target demographic, so we offer “no-cost” registration and activation with a personalized Prepaid Mastercard® sent directly to the consumer, and we charge a monthly fee of $4.50. As previously mentioned, we also model our offering with empathy and consideration for our target demographic, keeping fees and costs reasonably low so they will be able to justify and appreciate the benefits provided by the Cuentas Mobile App, Wallet & Prepaid Mastercard®.

 

The Cuentas Technology platform

 

The Cuentas technology platform is comprised of CIMA Group’s Knetik and Auris software platforms (the “CIMA Licensed Technology”). The platform is built on a powerful integrated component framework delivering a variety of capabilities accessible by a set of industry standard REST-based API endpoints. In addition to handling electronic transactions such as deposits and purchasing, the platform has the capability of organizing virtual currencies into wallets, essentially future proofing it in today’s evolving financial environment. It enables the organizing of the user’s monetary deposits into a tree-based set of wallets, through strictly enforced user permissions, to delineate proper controls in a tiered monetary asset organizational structure, thus providing a sound basis for family and/or corporate control and distribution of funds across individuals.

 

3

 

 

The platform also contains a sound and proven gamification engine, capable of driving user behaviors in a manner that entices and rewards using incentivization based on proven behavioral science patterns. At the heart of this gamification engine lies a proven and robust rules engine that can easily integrate and modify process flows and orchestrations between disparate platforms, allowing for a quick and easy integration of complex, orchestrated integrations between internal process automation and invocations of external systems. The platform will provide Android and iOS software for users to execute a wide variety of transactions including, but not limited to, account balances, account transfers and in-app purchases. User messaging are also integrated and are achieved via SMS, email, in-app messaging, and voice.

 

The user management application uses rich metadata CRM and single sign-on (“SSO”) to track user behavior and personalize the user experience. It is fully integrated with our Strategic Partners, scalable and manages the digital ecosystem entitlements. The platform can process both physical and virtual goods, digital assets, real time currency value exchange, virtual currency support with current exchange rates and support nontraditional assets, in addition to credit card, POS, debits, and digital wallet management.

 

The unique rules engine is capable of all aspects of gamification: badging, questing, leveling, points consumption, leader boards, loyalty and reward points and personalization with tracking and messaging to support behavior management. Business intelligence is used for reporting and communication of product management via Rate Deck Management, Pinless ANI Recognition, IV and Call Flows and Access Number Management. The platform has redundant reporting for enhanced billing and fraud control and integrates customer service with Business Intelligence and platform integrity. 

  

Strategic Partners

 

Sutton Bank (“Sutton”)

  

Cuentas has a 5 year Prepaid Card Program Management Agreement with Sutton Bank as the issuer of the Cuentas Prepaid Mastercard® - Debit/GPR card which is effective through October 2026 with automatic 1 year renewals.. Sutton insures account holders’ funds through the FDIC and provides direct deposit capabilities, early pay functionality and account balance functionality for the Cuentas Mobile App and Mobile Wallet. Sutton coordinates Know Your Client (“KYC”), Office of Foreign Asset Control (“OFAC”), Politically Exposed Persons (“PEP”) and Anti-Money Laundering (“AML”) compliance with Cuentas and IDology. Each applicant must have either a Social Security number or an ITIN. During the registration process, IDology compares each applicant’s personal information with known KYC, OFAC and PEP databases, and if required, can request certain forms of identification to confirm thier identity. These forms of identification may include but are not limited to: Passport, Driver’s License, Matricula Consular and U.S. residency documentation. Only applicants that reach a certain score that is coordinated between Sutton and IDology, are approved to receive aCuentas Prepaid Mastercard® associated with their Cuentas Mobile App & Wallet account.

 

Interactive Communications International, Inc. (“InComm”)

 

Cuentas has multiple agreements with InComm including: a) Processing services, b) Resale of 3rd party Digital gift cards c) Resale of InComm Digital Solutions and d) Reload Commission Agreement. The agreements are effective through July 2024 and then renew automatically for 1 year periods. InComm is an instrumental partner of Cuentas as it provides the operational core of Cuentas’ transaction processing platform, the cash reload component and access to many third party products and services.

 

On July 23, 2019, the Company entered into a 5 year Prepaid Services Agreement with InComm (the “InComm PSA”) to power and expand the Company’s Mobile App, Mobile Wallet and GPR card. InComm is a major supplier of 3rd party gift and digital content cards and Cuentas currently resells a variety of these products through its Mobile App, Digital Store and Cuentas-SDI distribution network, with possible expansion up to several hundred products in the future.

 

Under the InComm PSA, InComm is the prepaid card processor and through its VanillaLoad network, allows the Company’s cardholders to reload their Cuentas Mobile Wallet through a nationwide network of retailers including Walmart, 7-Eleven, Walgreens, CVS Pharmacy, Rite Aid, Dollar General and many more. In addition, the Company plans to extend the cash reload component of the Wallet through a select number of “bodegas” in the Cuentas-SDI network to increase its market penetration and profitability.

 

4

 

 

Under the InComm PSA, InComm provides processing services, telephone support, data storage services, account servicing, reporting, output and hot carding services to the Company. Processing services consist mainly of authorization and transaction processing services. InComm also processes authorizations for transactions made with or on prepaid products, along with any payments or adjustments made to prepaid products. InComm also processes the Company’s data and post entries in accordance with the specifications. Data storage services consist mainly of storage of the Company’s data in a format that is accessible online by the Company through APIs designated by InComm, subject to additional API and data sharing terms and conditions. InComm also provides Web/API services for prepaid Cuentas GPR applications and transactions.

 

Current In-App brands that can be bought with varying discounts are:

 

● Amazon Cash

 

● CTDOT Go

 

● AT&T Mobile

 

● Burger King

 

● Sony PS4

 

● Verizon Mobile

 

● Karma Koin

 

● XBOX

 

● Bass Pro Shops

 

● PlayStation

 

● Los Angeles Transit tap

 

The  Cuentas Ecosystem

 

Cuentas’ goal is to offer the consumer a one-stop shop, easy to use, Mobile App & Mobile wallet with Mastercard® rails that can provide new, important financial services and solve many of their daily needs and desires while saving the users time and money.

 

Approved Cuentas accountholders will have a Prepaid Mastercard® acceptable wherever Mastercard® debit cards are accepted and can have their paychecks or certain government benefits checks directly deposited to their account associated with the card, with funds available for use on the card up to 2 days earlier than standard direct deposits. Furthermore, the Cuentas card will have ATM access through the nationwide Pulse Network which provides access to over 500,000 ATMs in the US and many more worldwide. (source: pulsenetwork.com)

 

Cuentas accountholders will be able to bridge the financial divide by having access, physically and digitally, to purchasing items & services and paying their accounts in stores, online and in certain cases, through their Cuentas Moble App.

 

The Cuentas Digital Store in the Mobile App allows accountholders to purchase certain mainstream gift cards for use in a variety of stores, online portals and transit agencies – many at discounted prices. Accountholders can also “Top Up” or prepay their mobile phone accounts and also do the same for friends & family living in the US or overseas.

 

Cuentas is working diligently to integrate Western Union Remittances and US & International Bill Pay capabilities into the app as well. It is expected that Western Union services will be available in the first quarter of 2022 and Bill Pay services later in the same year.

 

5

 

 

The Western Union Company (“Western Union”)

 

On December 8, 2020, the Company entered into an Agency Agreement with Western Union whereby the Company is appointed as an Agent of Western Union and is authorized to offer Western Union Money Transfer Services. Services between Western Union and the Cuentas Mobile App have been integrated via dedicated API and are currently in final stages of testing. This cooperation is expected to allow Cuentas cardholders to transfer money internationally via the Western Union network directly from the Cuentas Mobile App in the first quarter of 2022. Western Union has been providing money transfer services around the world for more than a century and currently has more than 550,000 agent locations worldwide.

   

Cuentas Mobile

 

Cuentas Mobile is our Mobile Virtual Network Operator (“MVNO”), which provided Cuentas Mobile branded mobile phones along with attractively priced prepaid voice, text, and data mobile phone services to a customer base currently consisting of approximately 1,000 subscribers. Cuentas Mobile operates this business pursuant to a contract with T-Mobile (formerly Sprint Corporation), which allow Cuentas Mobile to use T-Mobile’s network infrastructure to operate a virtual telecommunications network providing mobile voice, text, and data services with essentially the same quality as those T-Mobile provides to its own retail subscribers. MVNOs such as Cricket, Boost, Simple and Lyca Mobile have been successful at creating brands, without owning the towers, hardware or network. Cuentas is currently reactivating distribution projects through grass roots retailers that normally interact with Cuentas’ target audience, specifically offering low-cost mobile phone service with the ability to make international calls to specific Spanish speaking countries in Central and South America.

 

We believe that our potential customers will migrate away from legacy telephone and banking systems to enhanced mobility solutions, the Company’s technological advantage and the synergies created by its unique combination of reloadable debit card and mobile virtual network operator rights will make its products increasingly useful to unbanked, under-banked, under-served and other emerging niche markets.

 

Meimoun  & Mammon LLC

 

Meimoun & Mammon LLC (“M&M”) is a retail provider of domestic and international long-distance voice, text, and data telephony services to consumers in the United States and throughout the world. M&M holds International and Domestic Section 214 authority issued by the FCC. M&M operates the retail Tel3 business as a separate division. Tel3 has been a prepaid long distance provider for many years and provides direct and indirect access to Latino and immigrant communities across the US as it provides them with quality international communications services. The majority of revenue generated by the company so far has come from this division.

  

Regulatory Compliance

 

We operate in an ever-evolving and complex legal and regulatory environment. We, the products and services that we offer and market, and those for which we provide processing services, are subject to a variety of federal, state and foreign laws and regulations, including, but not limited to: federal communications laws and regulations; foreign jurisdiction communications laws and regulations; federal anti-money laundering laws and regulations, including the Patriot Act, the BSA, anti-terrorist financing laws and anti-bribery and corrupt practice laws and regulations in the U.S., and similar international laws and regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in Canada; state unclaimed property laws and money transmitter or similar licensing requirements; federal and state consumer protection laws, including the CARD Act, and the Dodd-Frank Act, and regulations relating to privacy and data security; and foreign jurisdiction payment services industry regulations.

 

Our subsidiaries Cuentas Mobile and M&M are subject to regulation by the FCC and other government agencies and task forces. M&M holds International and Domestic Section 214 licenses issued by the FCC, which may be suspended or revoked by the FCC if M&M does not strictly comply with all applicable regulations and the terms and conditions under which the International and Domestic Section 214 licenses were issued. Cuentas Mobile and M&M are also subject to foreign jurisdiction communications laws and regulations. We believe that we, including our subsidiaries, are currently operating in compliance with all applicable laws and regulations, but there is no certainty that laws and regulations affecting our business will not change. Any such change of laws and regulations applicable to our business might adversely affect our ability to execute our business plan and achieve profitable operating results.

 

6

 

 

At the federal level, Congress and federal regulatory agencies have enacted and implemented new laws and regulations that affect the prepaid industry, such the CARD Act and FinCEN’s Prepaid Access Rule. Moreover, there are currently proposals before Congress that could further substantially change the way banks, including prepaid card issuing banks and other financial services companies, are regulated and are permitted to offer their products to consumers. Non-bank financial services companies, including money transmitters and prepaid access providers, are now regulated at the federal level by the Consumer Financial Protection Bureau (the “CFPB”), which began operations in July 2011, bringing additional uncertainty to the regulatory system and its impact on our business. We are increasingly facing more stringent anti-money laundering rules and regulations, compliance with which may increase our costs of operation, decrease our operating revenues and disrupt our business. Sutton bank performs routine AML, KYC, OFAC in consultation with Cuentas and IDology and other compliance review and searches throughout Cuentas’ registration and operational processes. Abuse of our prepaid products for purposes of financing sanctioned countries, terrorist funding, bribery or corruption could cause reputational or other harm that could have a material adverse effect on our business, results of operations and financial condition. Failure to comply with, or further expansion of, consumer protection regulations could have a material adverse effect on our business, results of operations and financial condition. Failure by us to comply with federal banking regulation may subject us to fines and penalties and our relationships with our issuing banks may be harmed.

 

Most states regulate the business of sellers of traveler’s checks, money orders, drafts and other monetary instruments, which we refer to collectively as money transmitters. While many states expressly exempt banks and their agents from regulation as money transmitters, others purport to regulate the money transmittal businesses of bank agents or do not extend exemptions to non-branch bank agents. In those states where we are required to be licensed, we are subject to direct supervision and regulation by the relevant state banking departments or similar agencies charged with enforcement of the money transmitter statutes and must comply with various restrictions and requirements, such as those related to the maintenance of certain levels of net worth, surety bonding, selection and oversight of our authorized delegates, permissible investments in an amount equal to our outstanding payment obligations with respect to some of the products subject to licensure, recordkeeping and reporting, and disclosures to consumers. We are also subject to periodic examinations by the relevant licensing authorities, which may include reviews of our compliance practices, policies and procedures, financial position and related records, various agreements that we have with our issuing banks, retail distribution partners and other third parties, privacy and data security policies and procedures, and other matters related to our business. As a regulated entity, Cuentas may incur significant costs associated with regulatory compliance. We anticipate that compliance costs and requirements will increase in the future for our regulated subsidiaries and that additional subsidiaries will need to become subject to these or new regulations. If we fail to maintain our existing money transmitter licenses or permits, or fail to obtain new licenses or permits in a timely manner, our business, results of operations and financial condition could be materially and adversely affected.

 

Employees

 

As of February 9, 2022, our management team consisted of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. We have an additional five full-time employees: our Compliance Officer, IT Director, VP of Product Development, Executive Assistant and VP Retail Operations for the United States market. For more information relating to the employment agreements, please see the section below entitled “Item 11. Executive Compensation.” Mr Arik Maimon, Founder and current Executive Chairman of the Board along with Mr Michael De Prado, Founder and Executive Vice Chairman of the Board developed the infrastructure and business relationships that brought Cuentas to its current status and are extremely knowledgeable about many aspects of Cuentas’ operations and financial situation.

 

Marketing

 

The Cuentas Mobile App, Mobile Wallet and Prepaid Mastercard® are predominantly marketed via digital and traditional media channels. Cuentas uses a combination of internal resources as well as third parties for our marketing efforts.

 

The digital marketing placements include social media, SEO (Search Engine Optimization), internet, geo fencing, online streaming providers, influencers, and other digital providers. Traditional marketing efforts include media such as radio, TV, print, billboards, bus wraps, bus benches, TV, radio, etc.

 

Media spends will be distributed amongst these marketing vehicles and adjusted as acquisition data is received. An initial 3 month program will be designed to test creatives, geo targeting and formats. Once feedback is analyzed, spending will be optimized to enhance efficiency and cost of acquisition. Vertical market integration and Partnerships will also be developed to augment growth and stability.

 

Marketing strategies for Customer Acquisition will focus on Key Markets, Targeted Audiences, Lifestyle Fit, Brand Awareness, Key Metrics and Go-to-Market Plans. The proposed acquisition of the SDI companies will expand the current target demographic of unbanked, underbanked and underserved Hispanic and Latino groups to also include the Asian, African, Middle East and European immigrant populations in the U.S.

 

Marketing to Hispanic & Latino groups will initially concentrate on those populations that have settled in Southern California, Texas, New York, Florida, Arizona and New Mexico.

 

The goal for the current marketing plan is to reach 250,000 active accounts by the end of 2022.

 

7

 

 

Competition Section

 

Cuentas has strategically established its Fee structure to be attractive to the unbanked, underbanked and undeserved population with No Activation Fee, No -cost direct deposit, No-cost Cuentas card to Cuentas card transfers, low cost for reloads, reasonable ATM fees and No dormancy fee.

 

This pricing strategy places Cuentas in an attractive, reasonably priced category which coupled with the products & services it offers to its competitiveness.

 

FEES CUENTAS Net Spend Chime Green Dot Amex Serve Amex Bluebird My Bambu
Card Issuance/ Activation $0.00 $0.00 $0 $1.95 $0 Online Up to $3.95 in retail $0 Online / Up to $5 in retail $0
Monthly Fee $4.50 Pay-As-You-Go Plan $0 Monthly Plan $9.95 per mo. $0 $7.95 $6.95 ($0 with $500+ Direct Deposit) $0 $0
Reload Fee $3.95 Netspend Reload Network Location Up to $3.95 N/A $5.95 Up to $3.95 (fee varies by retailer) $0 (Walmart) other Retailers $3.95 $3.95
Domestic ATM Withdrawal $1.50 Pay-As-You-Go Plan $2.95 / Monthly Plan $2.95 $2.50; free through MoneyPass $3.00 $0 at MoneyPass® ATMs $2.50 at non-MoneyPass ATMs. $0 MoneyPass® ATMs, $2.50 non-MoneyPass ATMs $2.00
Over the Counter Cash Withdraw $1.50 $2.95 Withdrawal Fee at a Financial Institution/ 1% w/ $9.95 min $2.50 per transaction $3.00 N/A N/A N/A
ATM Inquiry Fee $0.75 $0.50   $0.50 N/A   $0.50
ATM Decline Fee $0.50 $1.00 N/A N/A $0.75 $0.00 N/A
Card to Card Transfer $0.00 Website $0 / CS  Agent $4.95 / Me-to-Me Transfer – $3.00 N/A N/A N/A N/A N/A
Balance Inquiry Live Agent $0.00 $0.00 N/A N/A $0 $0.00 $0.00 per call
Replacement Card (Standard Delivery) $5.00 $9.95 N/A $5.00 $5.00 $0.00 $5
Inactivity Fee / Dormancy Fee $0.00 $5.95 per mo. (after 90 days w/no trans.) N/A $9.95 After 90 days $0 $0.00 $3 / Month, After 12 mo. No transactions
Remote Deposit Capture N/A Greater of 2% of total check amount or $5.00   Funds in minutes - 1% or 5% of check ($5 min) Funds in minutes - 1% or 5% of check ($5 min fee) Funds in minutes - 1% or 5% of check ($5 min fee)  
Remittance Fee N/A       UP to $16.99 (fee depends on the transfer amount)   $5.50
Fee Schedule

https://
cuentas.com/
cuen/cuentas_
cha.php?lang=en

https://
www.netspend.com/
account/terms/SFLF_
730318418_EN.html

https://
help.chime.com/hc/
en-us/articles/
221405228-
What-are-the-fees-

https://
www.greendot.com/
personal-
banking/
our-products/debit-cards/
prepaid-card/
prepaid-mastercard-
or-visa-
card#:~:text=
The%20fees%
20for%20the
%20Green,in%
20the%20
previous%
20monthly
%20period.

https://
www.serve.com/
faqs/
fees-and-limits

https://
www.bluebird.com
/faqs/
fees-limits
/fees

https://
mybambu.com/
cardholder-
agreement/

Website

https://
cuentas.com/
cuen/
home.php?lang=en

www.netspend.com www,chime.com

https://
www.greendot.com/

www.serve.com www.bluebird.com

https://
mybambu.com
/us/

 

8

 

 

Risks Associated with Our Business

 

Our business is subject to many significant risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read and carefully consider these risks, together with the risks set forth under the section entitled “Risk Factors” and all of the other information in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in our common stock. If any of the risks discussed in this prospectus actually occur, our business, financial condition or operating results could be materially and adversely affected. In particular, our risks include, but are not limited to, the following:

 

● our ability to implement our business plan;

 

● our ability to attract key personnel;
     
● our ability to operate profitably;
     
● our ability to efficiently and effectively finance our operations;
     
● our ability to raise additional financing for working capital;
     
● our ability to efficiently manage our operations;
     
● that our accounting policies and methods may require management to make estimates about matters that are inherently uncertain;
     
● our ability to consummate future acquisitions or strategic transactions, including the transaction with SDI Black 011, LLC (“SDI Black”;
     
● changes in the legal, regulatory and legislative environments in the markets in which we operate; and
     
● adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations.

 

Recent Developments

 

Summary Compensation

 

Summary Compensation Table - The following table sets forth certain information concerning the annual compensation of our Chief Executive Officer and our other executive officers during the last two fiscal years.

 

(a)
Name and
Principal Position 		  (b)
Year 		    (c)
Salary 		    (d)
Bonus 		    (f)
Option Awards 		    (g)
Non-equity
incentive plan
compensation 		    (h)
Nonqualified
deferred
compensation
earnings 		    (i)
All Other
Compensation 		    (j)
Total
Compensation 		 
***Arik Maimon     2021     $ 295,000     $ -     $ 326,667     $             -     $             -     $ -     $ 621,667  
Executive Chairman     2020       295,000     $ 500,000     $ 253,333     $ -     $ -     $ 5,000     $ 1,053,333  
                                                                 
Michael De Prado     2021     $ 268,400     $ -     $ 245,000     $ -     $ -     $ -     $ 513,400  
Executive Vice Chairman     2020       265,000     $ 500,000     $ 202,667     $ -     $ -     $ 4,000     $ 971,667  
                                                                 
Jeffery Johnson     2021     $ 102,823     $ 100,000     $ 456,944     $ -     $ -     $ 10,000     $ 669,767  
CEO     2020     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                 
Ran Daniel     2021     $ 274,196     $ -     $ 163,333     $ -     $ -     $ 77,400     $ 514,929  
CFO     2020     $ 162,000     $ 100,000     $ -     $ -     $ -     $ -     $ 278,941  
                                                                 
Anthony Hugh Meadows     2021     $ 45,000     $ -     $ -     $ -     $ -     $ -     $ 45,000  
COO     2020     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

9

 

 

Appointment of Jeffery D. Johnson as Chief Executive Office

 

On August 25, 2021, the Company and Jeffery D. Johnson entered into an employment agreement (the “Employment Agreement”), pursuant to which Mr. Johnson agreed to serve as the Company’s new Chief Executive Officer. The Employment Agreement commenced and became effective as of August 25, 2021, and shall continue for an initial term of three (3) years, ending on August 24, 2024. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Employment Agreement; however, the Employment Agreement will not renew automatically if either the Company or Mr. Johnson provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of the Employment Agreement, Mr. Johnson will receive an annual base salary of three hundred thousand dollars ($300,000) per year, and will be eligible for an annual incentive payment of up to one hundred percent (100%) of his base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with Mr. Johnson. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with Mr. Johnson’s entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Pursuant to the terms of the Employment Agreement, Mr. Johnson has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In consideration of Mr. Johnson’s agreement to enter into the Employment Agreement and remain with the Company, Mr. Johnson will receive a one-time signing bonus in the amount of two hundred thousand dollars ($200,000), which is to be paid in two (2) installments: the first installment of one hundred thousand dollars ($100,000) to be paid on the Company’s next regular payday following the hire date of August 25, 2021, and the second installment of one hundred thousand dollars ($100,000) to be paid on Company’s next regular payday following the first (1st) anniversary of the hire date of August 25, 2021, provided that Mr. Johnson is employed by the Company on such relevant payment date. Pursuant to the terms of the Employment Agreement, subject to the shareholder approval of the Company’s 2021 Share Incentive Plan, the Company shall issue to Mr. Johnson an option to purchase up to an aggregate of five hundred thousand (500,000) shares of Common Stock; furthermore, if the Company’s shareholders do not approve the Company’s 2021 Share Incentive Plan, Mr. Johnson will have the right to immediately terminate the Employment Agreement. These options shall vest on the following schedule: (1) options to purchase one hundred twenty-five thousand (125,000) shares of Common Stock shall vest on the date of the grant; and, (2) one hundred eighty seven thousand and five hundred (87,500) shares of Common Stock shall vest on each of the first and second year anniversary of the date of grant, provided that Mr. Johnson remains continuously employed with the Company through such vesting date. In case of a change in control event, as defined under the terms of the Employment Agreement, any outstanding unvested portion of the options shall become fully vested and exercisable, as long as Mr. Johnson remained continuously employed with the Company through such date. Additionally, Mr. Johnson shall be entitled to a bonus payment in connection with a change in control of the Company, which bonus shall be based upon a percentage of the cash consideration received by shareholders of the Company in the change in control transaction, as determined in the sole discretion of the Board of Directors of the Company. Under the Employment Agreement, Mr. Johnson is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and non-disparagement, among others. The Employment Agreement is governed by the laws of the State of Florida. The Employment Agreement may be terminated by the Company for cause or without cause, and by Mr. Johnson for good reason or without good reason, as such terms are defined under the Employment Agreement.

 

10

 

 

 Appointment of Anthony H. Meadows as Chief Operating Officer

Pursuant to the terms of the Employment Agreement, Mr. Meadows will receive an annual base salary of two hundred forty thousand dollars ($240,000)per year, and will be eligible for an annual incentive payment of up to one hundred percent (100%) of his base salary, which annual incentive payment shall bebased on the Company’s performance as compared to the goals established by the Company’s CEO. This annual incentive shall have a twelve (12) monthperformance period and will be based on a January 1 through December 31 calendar year, with Mr. Meadows’s entitlement to the annual incentive and the amountof such award, if any, remaining subject to the good faith discretion of the CEO. Pursuant to the terms of the Employment Agreement, if earned, Mr. Meadowsshall be paid in full during the first quarter following the relevant performance calendar year period.

Pursuant to the terms of the Employment Agreement, the Company shall issue to Mr. Meadows an option to purchase up to an aggregate of two hundredthousand (200,000) shares of Common Stock; in accordance with the following terms: i. Exercise Price: the closing price of the Company’s common stock as ofthe last Board of Directors meeting on November 3rd, 2021 ($2.80) and approved at the Annual Shareholder Meeting on December 15th, 2021. ii. Vesting: theoption to purchase up to Fifty Thousand (50,000) shares of common stock shall vest on the date this Agreement is fully executed. The option to purchase anadditional Fifty (50,000) shares of common stock shall vest on the first, second and third anniversary of grant date, so long as Employee is employed by theCompany on that date. iii. Tax Treatment: this stock option inducement shall be treated as an incentive stock option up to IRS limits and any remaining portionshall be treated as a non-qualified option.

Under the Employment Agreement, Mr. Meadows is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality,non-competition, non-solicitation, and non-disparagement, among others. The Employment Agreement is governed by the laws of the State of Florida. TheEmployment Agreement may be terminated by the Company for cause or without cause, and by Mr. Meadows for good reason or without good reason, as suchterms are defined under the Employment Agreement.

 

Founder/Executive Chairman Compensation Agreement with Arik Maimon, and Founder/Executive Vice-Chairman Compensation Agreement with Michael De Prado

 

On August 26, 2021, the Company and Arik Maimon entered into a Founder/Executive Chairman Compensation Agreement (the “Chairman Compensation Agreement”). Additionally, on August 26, 2021, the Company and Michael De Prado entered into a Founder/Executive Vice-Chairman Compensation Agreement (the “Vice-Chairman Compensation Agreement” and collectively with the Chairman Compensation Agreement, the “Chairman Compensation Agreements”). The term of each of these Chairman Compensation Agreements became effective as of August 26, 2021 and replaces any prior arrangements or employment agreements between the Company and each of Mr. Maimon and Mr. De Prado (each such individual, an “Executive” and together, the “Executives”). Under the terms of the Chairman Compensation Agreements, the Executives agreed to be employed by the Company for an initial continuous twelve-month term beginning on the effective date of August 26, 2021, and ending on August 25, 2022. The initial term would be automatically extended for additional one (1) year periods on the same terms and conditions as set out in the Chairman Compensation Agreements; however, the Chairman Compensation Agreements, respectively, will not renew automatically if either the Company or the respective Executive provide a written notice to the other of a decision not to renew, which notice must be given at least ninety (90) days prior to the end of the initial term or any subsequently renewed one (1) year term. Pursuant to the terms of the Chairman Compensation Agreement, Mr. Maimon will receive an annual base salary of two hundred ninety-five thousand dollars ($295,000) per year, and pursuant to the terms of the Vice-Chairman Compensation Agreement, Mr. De Prado will receive an annual base salary of two hundred seventy-five thousand dollars ($275,000) per year, and each will be eligible for an annual incentive payment of up to one hundred percent (100%) of their respective base salary, which annual incentive payment shall be based on the Company’s performance as compared to the goals established by the Company’s Board of Directors in consultation with each Executive, respectively. This annual incentive shall have a twelve (12) month performance period and will be based on a January 1 through December 31 calendar year, with the Executives’ entitlement to the annual incentive and the amount of such award, if any, remaining subject to the good faith discretion of the Board of Directors. Any such annual incentive shall be paid by the end of the second quarter following the calendar year to which each respective Executive’s performance relates. Pursuant to the terms of the Chairman Compensation Agreements, each Executive has the option to have any such earned annual incentive be paid in fully vested shares of the Company’s Common Stock, but must elect such option by the end of the first quarter following the relevant performance calendar year period. In the event of a change in control of the Company, as defined under the terms of the Chairman Compensation Agreements, that takes place (i) during the term of the Chairman Compensation Agreement or (ii) prior to the date which is twenty-four (24) months from the effective date of the Chairman Compensation Agreements, if the Executive’s employment otherwise terminates prior to such date (other than if the Executive’s employment was terminated for cause or the Executive resigned his employment without good reason, as such terms are defined under the Chairman Compensation Agreements), each respective Executive shall be entitled to a bonus payment equal to two and one-half percent (2.5%) of the cash consideration received by the shareholders of the Company in the change in control transaction. Under the Chairman Compensation Agreements, each Executive is subject to certain obligations and restrictive covenants, including, but not limited to: confidentiality, non-competition, non-solicitation, and non-disparagement, among others. The Chairman Compensation Agreements are each governed by the laws of the State of Florida. The Chairman Compensation Agreements may be terminated by the Company for cause or without cause, and by each respective Executive for good reason or without good reason, as such terms are defined under the Chairman Compensation Agreements.

 

11

 

 

Amendment to the Employment Agreement with Ran Daniel

 

As of November 28, 2018, the Company and Ran Daniel entered into an employment agreement (the “Employment Agreement”) pursuant to which Mr. Daniel serves as the Company’s Chief Financial Officer. On August 5, 2021, the Company and Mr. Daniel entered into an amendment to the Employment Agreement (the “Amendment”). Pursuant to the Amendment, Mr. Daniel’s annual base salary will be $245,000 and Mr. Daniel will not be entitled to a cash payment of his accrued vacation and sick days.

 

Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth information concerning the outstanding equity awards of each of the Named Executive Officers as of December 31, 2021:

 

Name
(a) 		  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b) 		    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c) 		    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d) 		    Option
Exercise
Price ($)
(e) 		    Option
Expiration
Date
(f) 		  Number of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
(g)
(9) 		    Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
(h) 		    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
(i) 		    Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
(j) 		 
                                                     
Jeffery D Johnson     500,000                -                 -       2.80     November 2, 2031              -                  -       375,000     $ 943,056  
                                                                     
Ran Daniel     120,000       -       -       3.20     20,000 options at April 6, 2024 and 100,000 at November 2, 2031     -       -       50,000     $ 116,667  
                                                                     
Arik Maimon     268,000       -       -     $ 5.12     44,000 options at March 29,2025 ,24,000 at September 12, 2023 and 200,000 at November 2, 2031     -       -       100,000     $ 233,333  
                                                                     
Michael De Prado     185,200       -       -     $ 5.00     $35,200 at March 29,2025 and 150,000 at November 2, 2031                     75,000     $ 175,000  

  

12

 

 

Director Compensation

 

In 2021, the Board approved cash and equity compensation of directors. Each non-employee director shall receive cash compensation of $50,000 paid in four quarterly installments. In addition, the chair of the audit committee will receive an additional compensation of $10,000, the chair of the Compensation committee will receive an additional compensation of $7,500 and the chair of the Corporate and Governance committee will receive an additional compensation of $5,000 Additionally, on November 3,2021, each non-employee director received a grant of a 10 year nonqualified stock option to purchase 100,000 shares of common stock exercisable at $2.80 per share, such option vesting over a one year period. Our executive chairman and executive vice chairman, did not receive any additional compensation for services provided as a director during fiscal year 2021.

 

The following table sets forth compensation of our non-employee directors during fiscal year 2021:

 

DIRECTORS’ COMPENSATION

 

Name   Cash
($) 		    Option Awards
($) (1)(2) 		    Total
Compensation
($) 		 
Yochanon Bruk (3)   $ -     $ 163,333     $ 163,333  
Adiv Baruch   $ 56,750     $ 163,333     $ 220,083  
Carol Pepper (3)   $ 8,333     $ 163,333     $ 171,666  
Jeffrey Lewis   $ 49,167     $ 163,333     $ 212,500  
Edward Maldonado (3)   $ 8,333     $ -     $ 8,333  
David Schottenstein (4)   $ 53,238     $ 163,333     $ 216,571  
Richard Berman (4)   $ 73,533     $ 163,333     $ 236,866  

 

  (1) These amounts have been calculated in accordance with ASC 718. These amounts reflect our accounting expense for these stock options and do not correspond to the actual value that may be recognized by our directors.
     
  (2) At December 31, 2021, Mr. Bruk, Mr. Baruch, Ms. Pepper, Mr. Lewis, and Mr. Maldonado held unexercised stock options to purchase 100,000, 100,000, 100,000, 100,000 and 0 shares respectively, of our common stock.
     
  (3) The Company, Arik Maimon, Michael De Prado, Dinar Zuz, LLC (which is controlled by Yochanon Bruk) and CIMA Telecom Inc. (“CIMA”). are party to a Voting Agreement and Proxy, dated December 31, 2019, pursuant to which (i) Mr. Maimon has the right to appoint two directors, which are Mr. Maimon and Carol Pepper, (ii) Mr. De Prado has the right to appoint one director, which is Mr. De Prado, (iii) Dinar Zuz LLC has the right to appoint one director, which is Mr. Bruk and (iv) CIMA has the right to appoint one director, which is Mr. Maldonado.
     
  (4) Effective December 21, 2021, Mr. Schottenstein and Mr. Berman resigned as directors of the Company

 

Proposed Acquisition

 

On January 5, 2022, we signed a Binding Letter of Intent (the “Original LOI”) with Mango Tel LLC (“Mango Tel”), SDI Black, and Sohel Kapadia and Saheda Kapadia (collectively the “Owners”), for the potential acquisition of 100% of the assets of Mango Tel LLC and SDI Black 011 for a purchase price of $3.2 million. On February 10, 2022, we signed an amended Binding Letter of Intent amending the Original LOI (collectively, the “LOI”) to reflect that we would only purchase SDI Black (and not purchase Mango Tel which determination was made following our initial due diligence review of Mango Tel) for a purchase price of $2.976 million. The LOI provides that we will deposit $2 million into an escrow account while a definitive purchase and sale agreement is drafted and negotiated. The parties agree that the LOI is binding on each of them and that they will use their best efforts and good faith to enter into an agreement with terms and conditions consistent with the LOI. Pursuant to the agreement, we will acquire substantially all of the assets of SDI Black, which also include Black Wireless MVNO, Black 011 Long distance platform and operations and the SDI Black distribution platform and network of over 31,000 bodegas and convenience stores (the “Purchased Assets”). We expect to consummate the acquisition of the Purchased Assets by forming a company (“Newco”) into which all of the Purchased Assets shall be transferred and, following the closing of the purchase and sale, all of the interests in Newco will be transferred to the Company. As part of the LOI, SDI Black and the Owners have agreed to apply the purchase price paid by us to amounts due to the repay U.S. Small Business Administration (“SBA”) loans taken by SDI Black and the Owners shall pay an additional $1,000,000 towards repayment of additional SBA loans. We have also agreed to offer employment agreements to certain Fisk/SDI key employees.

 

SDI Black and the Owners have agreed to indemnify and hold us harmless from and against any liability for any amount owing to SDI Black’s creditors with respect to the Purchased Assets or the business operation of SDI Black being transferred to us pursuant to the LOI, which liability arose prior to the transfer of the Purchased Assets and business operations from SDI Black to us. We have agreed to indemnify and hold SDI Black harmless from and against any liability for any amount owing with respect to the Purchased Assets and business operations of SDI Black transferred by SDI Black to us pursuant to the LOI, which liability arises subsequent to the transfer of the Purchased Assets and business operations from SDI Black to use under the LOI.

 

We are currently completing our due diligence review of SDI and have not yet began negotiating the terms of a definitive purchase and sale agreement. Accordingly, we cannot provide any assurance that we will effect a transaction with SDI Black or, if we are able to consummate such a transaction, that the terms of any such transaction will be favorable to our stockholders. See “Risk Factors” beginning on page 35 of this prospectus, including the risk factors incorporated by reference herein, for further discussion surrounding the LOI and the transactions contemplated thereby.

 

13

 

 

SDI Black Financial Statements

 

December 31, 2020 and December 31, 2019 Audited Financial Statements

 

LEONARD FRIEDMAN

CERTIFIED PUBLIC ACCOUNTANT LeonardFriedmanCPA@gmail.com

 

INDEPENDENT AUDITOR’S REPORT

To the Members SDI

 

Black 011, LLC

 

We have audited the accompanying combined balance sheets of SDI Black 011, LLC, (the “Company”) as of December 31, 2020 and 2019 and related statements of operations and members’ equity and cash flows for the years then ended and related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statement is free of material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined financial statement, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the combined financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statement.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the combined financial statements referred to above presents fairly, in all material respects, the financial position of SDI Black 011, LLC as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America

 

Supplementary Information

 

The accompanying supplementary information included in the schedules I on page 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from, and relates directly to, the underlying accounting and other records used to prepare the financial statements.

 

The supplementary information for the years ended December 31, 2020 and 2019 has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

 

 

 

 

Certified Public Accountant East

Meadow, New York December

23, 2021

 

 

385 Old Westbury Road, East Meadow, New York 11554 Tel: (516) 735-0824 Fax: (516) 735-6301

 

14

 

 

SDI BLACK 011, LLC

BALANCE SHEETS

 

DECEMBER 31,   2020     2019  
             
ASSETS            
Current Assets                
Cash   $ 2,035,456     $ 80,880  
Accounts receivable     45,739       47,573  
Inventory     50,031       -  
                 
Total Current Assets     2,131,226       128,453  
                 
Property and Equipment     221,876       236,145  
                 
Other Assets                
      1,077,771       1,347,213  
Goodwill paid, net     382,224       -  
Deferred financing costs                
      1,459,995       1,347,213  
TOTAL ASSETS   $ 3,813,097     $ 1,711,811  

 

See independent auditor’s report.

 

15

 

 

SDI BLACK 011, LLC

BALANCE SHEETS

 

DECEMBER 31,   2020     2019  
             
LIABILITIES AND MEMBERS’ EQUITY  
             
Current Liabilities            
             
Accounts payable   $ 392,560   $ 747,083  
Accrued expenses     46,581       46,697  
Advances from customers     158,884       218,551  
Bank term-loan payable, current maturities     275,304       -  
SBA loan payable, current maturities     4,730       -  
Loans payable, affiliate     -       1,047,000  
                 
Total Current Liabilities     878,059       2,059,331  
             
Long-Term Liabilities     3,724,696       -  
Bank term-loan payable, long-term     148,072       -  
SBA loan payable, long-term                
      3,872,768       -  
                 
Total Liabilities     4,750,827       2,059,331  
                 
Commitments and contingencies (Note 5)                
                 
Members’ Equity                
Accumulated deficit     (937,730 )     (347,520 )
Total Members’ Equity     (937,730 )     (347,520 )
Total Liabilities and Members’ Equity   $ 3,813,097     $ 1,711,811  

 

See independent auditor’s report.

 

16

 

 

SDI BLACK 011, LLC

STATEMENTS OF OPERATIONS & ACCUMULATED DEFICIT

 

FOR THE YEARS ENDED DECEMBER 31,   2020     2019  
             
Revenue   $ 10,937,561     $ 14,592,359  
Cost of Revenues     8,971,102       12,004,605  
Gross Profit     1,966,459       2,587,754  
General and Administrative Expenses     1,845,145       1,885,639  
Net income from Operations     121,314       702,115  
Other Income/(Expenses)                
PPP/SBA Grant forgiveness income     59,872       -  
Taxes, other     (3,000 )     (4,500 )
Interest expenses     (118,705 )     (14,906 )
Depreciation and amortization     (283,711 )     (283,711 )
                 
      (345,544 )     (303,117 )
Net Income/(Loss)     (224,230 )     398,998  
Accumulated Deficit - Beginning     (347,520 )     (1,420,755 )
Members’ contributions/(distributions)     (365,980 )     674,237  
Accumulated Deficit - Ending   $ (937,730 )   $ (347,520 )

 

See independent auditor’s report.

 

17

 

 

SDI BLACK 011, LLC

STATEMENTS OF CASH FLOWS

 

FOR THE YEARS ENDED DECEMBER 31,   2020     2019  
             
Cash Flows from Operating Activities            
             
Net income/(loss)   $ (224,230 )   $ 398,998  
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities                
Depreciation and amortization     283,711       283,711  
Accrued interest payable     2,802       -  
Changes in current assets and liabilities:                
Accounts receivable     1,834       390,891  
Inventory     (50,031 )     -  
Accounts payable and accrued expenses     (354,639 )     (982,354 )
Advances from customers     (59,667 )     (411,516 )
                 
Net Cash Used in Operating Activities     (400,220       (320,270 )
                 
Cash flows from Financing Activities                
                 
Proceeds/(repayment) of Loans payable - Bank     4,000,000       (500,000 )
Proceeds from SBA/PPP Loan     150,000          
Payment for Loan acquisition costs     (382,224          
Proceeds/(repayment) of advances from affiliates     (1,047,000 )        
Contributions/(Distributions) to members     (365,980 )     674,237  
                 
Net Cash Provided by Financing Activities     2,354,796       174,237  
                 
Net Increase/(Decrease) in Cash     1,954,576       (146,033 )
                 
Cash - Beginning of the Year     80,880       226,913  
                 
Cash - End of the Year   $ 2,035,456     $ 80,880  
Supplemental disclosure of cash flow information                
Cash - Paid for interest   $ 115,761     $ 14,906  

 

See independent auditor’s report. 

 

18

 

 

SDI BLACK 011, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

SDI BLACK 011, LLC

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2020 AND 2019

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

SDI Black 01, LLC (the “Company”) was incorporated in the State of New York in January 2013 and is engaged in the business of electronic distribution and sales of virtual products via its Black 011 portal located at Yonkers, NY. Its electronic products range from prepaid wireless SIM activation, International mobile recharge services and international long distance phone services. During 2020, the company also started sales of general merchandise to its retail reseller customers.

 

A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:

 

1. Cash and Cash Equivalents

 

Cash and cash equivalents include all cash and highly liquid investments with an original maturity of three months or less.

 

2. Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company reduces credit risk by placing its temporary cash and investments with major financial institutions with high credit ratings. At times, such amounts may exceed federally insured limits. The Company reduces credit risk related to accounts receivable by routinely assessing the financial strength and performing evaluations of the credit risk related to specific customers and maintaining an appropriate allowance for doubtful accounts based on its history of write-offs and current economic conditions of its customers.

 

3. Accounts Receivable

 

Accounts receivables are generally due within 15-30 days and are stated at amounts due from customers net of allowance for doubtful accounts. Accounts outstanding, longer than the contractual payment terms are considered as past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible. Accordingly, the allowance for doubtful accounts was $0 at December 31, 2020 and 2019.

 

4. Property and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization are provided for using straight-line and accelerated methods, in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leased property under capital leases is amortized over the shorter of the service lives of the assets or the term of the lease. Repairs and maintenance are charged to operations as incurred.

 

5. Goodwill and Impairment of Long-Lived Assets

 

In February 2014, the FASB issued ASU 2014-02, Intangibles - Goodwill and Other (FASB ASC Topic 350). Under the amendments in this update, an entity that elects the accounting alternative within GAAP should amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate. An entity that elects this accounting alternative is required to make an accounting policy decision to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill must be tested for impairment when a triggering event occurs that indicates that the fair value of an entity (or a reporting unit) may be below its carrying amount. If it is determined that the fair value of the reporting unit is less than the book value, the recorded goodwill is impaired to its implied fair value with a charge to operating expenses.

 

19

 

 

SDI BLACK 011, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

Effective January 1, 2015, the Company elected to adopt this accounting alternative. No triggering events have been identified by the Company that would indicate that the fair value of the entity may be below its carrying amount; therefore, management has determined that no impairment has been sustained for the year ended December 31, 2020 and 2019.

 

The company amortizes goodwill paid on a straight-line basis over 10 years and accordingly amortization expense for the years ended December 31, 2020 and 2019 was $269,422 and $269,442 respectively.

 

6. Revenue Recognition

 

The Company accounts for its revenues under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments thereto (collectively referred to as Accounting Standards Codification, or “ASC” 606). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. The five-step process is as follows: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation.

 

7. Inventory

 

Inventory consists of general merchandise that the company sells to its retail reseller customers. It is stated at the lower of cost or market, with cost determined by the first-in, first-out method.

 

8. Deferred Financing Costs

 

Deferred financing costs consists of amounts paid for the acquisition of bank loan on December 30, 2020. These costs are being amortized using the straight-line method over the period of the loan. Total amount paid was $382,224 and amortization for year ended December 31, 2020 was $0.

 

9. Cost of Revenue

 

Direct cost of revenues consists primarily of termination and origination costs, toll-free costs, and network costs—including customer/carrier interconnect charges and fiber circuit charges. These costs include an estimate of charges for which invoices have not yet been received, and estimated amounts for pending disputes with other carriers. Direct cost of revenues also includes the cost of airtime top-up minutes. Direct cost of revenues excludes depreciation and amortization expense.

 

10. Income Taxes

 

As a limited liability company, the Company is treated as a partnership for Federal and state income tax purposes. Accordingly, no provision has been made for income taxes in the accompanying financial statements, since all items of income or loss are required to be reported on the income tax returns of the members who are responsible for any taxes thereon.

 

The Company recognizes and measures its unrecognized tax benefits in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes. Under that guidance, management assesses the likelihood that tax positions will be sustained upon examination based on the facts, circumstances and information, including the technical merits of those positions, available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available or when an event occurs that requires a change.

 

Management has evaluated the Company’s tax positions and has concluded that the Company has taken no uncertain tax positions that require any adjustments to the financial statements.

 

20

 

 

SDI BLACK 011, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

11. Uses of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

12. Recently implemented accounting pronouncements

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Topic 606, with several clarifying updates issued subsequently. In conjunction with Topic 606, a new subtopic, ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, was also issued. The updated standard replaces most existing revenue recognition and certain cost guidance under accounting principles generally accepted in the United States of America (“U.S. GAAP”). Collectively, we refer to Topic 606 and Subtopic 340-40 as “ASC 606.” ASC 606 amends existing accounting standards for revenue recognition and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers based on the expected consideration to be received in exchange for those goods and services.

 

The Company adopted ASC 606 effective January 1, 2019 using the modified retrospective transition method. The adoption of ASU 2014-09 did not have an impact on the Company’s financial statements but required enhanced footnote disclosures.

 

13. Subsequent Events Evaluation Date

 

The Company evaluated the events and transactions subsequent to its December 31, 2020 balance sheet date and, in accordance with FASB ASC 855-10-50, “Subsequent Events”, determined there were no significant events to report through December 23, 2021, which is the date the financial statements were available to be issued.

 

NOTE 2 - PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following on December 31, 2020, and 2019:

 

    Estimated useful
life (years) 		  2020     2019  
                 
Computer Software   5   $ 442,957     $ 442,957  
Leasehold Improvements   39     24,800       24,800  
          467,757       467,757  
Less: Accumulated depreciation         (245,881 )     (231,612 )
        $ 221,876     $ 236,145  

 

Depreciation on property and equipment for the year ended December 31, 2020, and 2019 was $14,269 and $14,269 respectively.

 

21

 

 

SDI BLACK 011, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

NOTE 3 – NOTES PAYABLE

 

Bank Term Loan

 

On December 30, 2020, the company entered into a loan agreement with Newtek Small Business Finance LLC for a ten-year (10 years) term loan facility in the amount of $4,000,000 to fund its working capital requirements and repay outstanding loans from affiliates. The facility is guaranteed by the SBA (Small Business Administration) and secured by all current and future assets of the Company. The loan is also personally guaranteed by all members of the company and has security interest in certain assets owned by the members.

 

The term-loan provides for a variable interest rate of the bank’s prime rate plus two and three- quarters (2.75%) percentage points. Initial interest rate is 6% per annum and monthly installment is $44,408.21 which includes principal and interest. The first payment is due two (2) months after the date of disbursement of loan.

 

Amount paid to the bank and other closing costs paid on acquisition of the loan have been capitalized as Deferred financing costs and are being amortized over the period of the loan.

 

SBA Economic Injury Disaster Loan (“EIDL”)

 

As a part of COVID-19 relief efforts, US government’s Small Business Administration department granted long-term loans to businesses under Economic Injury Disaster Loan Advance Program (“the EIDL loan”). On May 15, 2020, the company received EIDL loan in the amount of $150,000, payable over thirty (30) years at an interest rate of three and three-quarter percentage points (3.75%) The loan is secured by all assets of the company and first installment is due twenty-four (24) months after the receipt of the loan.

 

Monthly payments payable is $731 which includes principal and interest. Interest accrued to December 31, 2020 was $2,802 and total balance due was $152,802.

 

As of December 31, 2020, loan maturities for the subsequent years are summarized as follows:

 

Year ending December 31:   Bank Term Loan     SBA EIDL Loan  
2021   $ 275,304     $ 4,730  
2022     318,069       2,985  
2023     337,687       3,099  
2024     358,515       3,217  
2025     380,627       3,264  
Thereafter     2,329,798       135,507  
    $ 4,000,000     $ 152,802  

 

Loans Payable – Affiliate

 

i. On July 1, 2018, the company signed a promissory note with Pradip Patel, a person known to the member of the company in the amount of $537,000 payable on demand. The loan was unsecured and carried an interest rate of 6% per annum.

 

The company paid the balance due including interest in full on December 30, 2020. Balance due including interest at December 31, 2020 and 2019 was $0 and $569,220 respectively.

 

ii. On July 1, 2018, the company signed two promissory notes with Hanif Bhagat, a person related to the member of the company for a total amount of $510,000 payable on demand. The loan was unsecured and carried an interest rate of 4% per annum.

 

The company paid an amount of $466,440 which included principal and interest. Balance due to date of $83,470 was assumed by the member of the company.

 

22

 

 

SDI BLACK 011, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

NOTE 4 - PAYCHECK PROTECTION PROGRAM (“PPP”)

 

On May 7, 2020, the Company received loan proceeds of $55,872 under the Paycheck Protection Program (the “PPP”). The PPP, which was established as part of the Coronavirus Aid, Relief, and Economic Security Act provides for loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business. The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks (“applicable covered period”) so long as the borrower uses the loan proceeds for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels. Not more than 40% of the amount forgiven can be attributable to non-payroll costs.

 

The PPP loan, net of any loan forgiveness, matures on April 15, 2022, and accrues interest at a fixed rate of 1%. Payment is deferred until (a) the date that the Small Business Administration remits the loan forgiveness amount to the lender, provided that loan forgiveness application was submitted to the lender within 10 months following the last day of the applicable covered period, or (b) the date that is 10 months following the last day of the applicable covered period if the loan forgiveness application was not timely submitted. Interest accrual begins as of the date of disbursement.

 

The Company had timely applied for the forgiveness of the loan and on June 10, 2021, received notification from the SBA that the entire amount and accrued interest thereon was forgiven, and the loan satisfied. Accordingly, the PPP loan amount was recorded as other income.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

The Company purchases services and inventory from vendors that are related to the member of the Company. Total purchases from these vendors, for the year ended December 31, 2020 and 2019, amounted to $1,412,745 and $2,202,182. Balance due to these vendors at December 31, 2020 and 2019 amounted to $50,245 and $239,305 respectively.

 

The company also rents its office space from a company owned by its member. Rent expense paid under this lease for the year December 31, 2020, and 2019 amounted to $96,000 and $96,000 respectively. Balance due to this vendor at December 31, 2020 and 2019 amounted to $0 and $108,000 respectively.

 

NOTE 6 – UNCERTAINTY DUE TO COVID-19

 

During the calendar year 2020, the World Health Organization declared COVID-19 to constitute a “Public Health Emergency of International Concern.” The Company’s business operations were disrupted through mandated and voluntary temporary. Given the uncertainty of the situation, including, among other things, additional outbreaks of the virus or other strains of the virus or additional mandated shutdowns or quarantines, future related financial impact cannot be reasonably estimated at this time.

 

23

 

 

SDI BLACK 011, LLC

SUPPLEMENTAL SCHEDULES OF OPERATING EXPENSES

 

FOR THE YEARS ENDED DECEMBER 31,   2020     2019  
             
Salaries and related costs   $ 357,787     $ 289,102  
Advertising and promotion     28,555       2,346  
Automobile expenses     19,598       23,821  
Bad debts     95,807       -  
Bank service charges     21,387       10,976  
Commission expenses     586,273       873,916  
Computer and internet expenses     23,452       45,960  
Consulting expenses     9,761       11,125  
Customer service fees     77,672       150,189  
Credit card processing fees     181,495       184,141  
Dues & Subscriptions     937       912  
Equipment rental     1,298       -  
Health Insurance     47,024       16,253  
Insurance expenses     10,592       7,041  
Legal and professional fees     114,622       44,872  
Meals and entertainment     9,680       15,992  
Office supplies and expenses     10,752       4,058  
Payroll Taxes     27,704       23,209  
Payroll processing fees     2,564       2,929  
Postage and delivery     10,859       3,991  
Printing and reproduction     1,450       -  
Rent expense     96,000       96,000  
Repairs and maintenance     25,287       -  
Software maintenance costs     72,000       72,000  
Telephone expenses     7,404       301  
Travel expenses     -       6,505  
Utilities     5,185       -  
    $ 1,845,145     $ 1,885,639  

 

24

 

 

September 30, 2021 and September 30, 2020 Unaudited Financial Statements

 

LEONARD FRIEDMAN

 

 

 

CERTIFIED PUBLIC ACCOUNTANT Leonardr1iedt11anCPA@gt11ai!.com

 

INDEPENDENT ACCOUNTANT’S REVIEW REPORT

 

To the Members of

 

SDI Black 011, LLC

 

We have reviewed the accompanying combined financial statements of SDI Black 011, LLC (the “Company”) which comprises of Balance Sheet as of September 30, 2021 and the related Statement of Operations and Accumulated Deficit and Statement of Cash Flows and related Notes to the Financial Statements for the nine months then ended. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of Company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.

 

Accountant’s Responsibility

 

Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.

 

Accountant’s Conclusion

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying combined financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

 

Supplementary Information

 

The supplementary information included on page 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from, and relates directly to, the underlying accounting and other records used to prepare the financial statements. The supplementary information has been subjected to the review procedures applied in our reviews of the basic financial statements. We are not aware of any material modifications that should be made to the supplementary information. We have not audited the supplementary information, and do not express an opinion on such information.

 

Adoption of New Accounting Pronouncements

 

As discussed in Note 1 to the financial statements, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), as of January 1, 2019, using the modified retrospective transition method. Our conclusion and opinion is not modified with respect to this matter.

 

 

 

Certified Public Accountant East

Meadow, New York

December 23, 2021

 

 

385 Old Westbury Road, East Meadow, New York 11554 Tel: (516) 735-0824 Fax: (516) 735-6301

 

25

 

 

SDI BLACK 011 LLC

BALANCE SHEETS

SEPTEMBER 30, 2021

 

 

ASSETS

 

Current Assets            
             
Cash   $ 241,005      
Accounts receivable     344,164          
Due from affiliates     110,000          
                 
Total Current Assets             695,169  
                 
Property and Equipment             211,174  
                 
Other Assets                
                 
Goodwill paid, net     875,772          
Deferred financing costs     353,557          
              1,229,329  
                 
TOTAL ASSETS           $ 2,135,672  

 

26

 

 

SDI BLACK 011 LLC

BALANCE SHEETS

SEPTEMBER 30, 2021

 

 

LIABILITIES AND MEMBERS’ EQUITY

 

Current Liabilities            
Accounts payable   $ 262,157          
Accrued expenses     4,507          
Advances from customers     447,424          
Bank term-loan payable, current maturities     313,345          
SBA loan payable, current maturities     25,98 4          
                 
Total Current Liabilities             1,053,417  
                 
Long-Term Liabilities                
                 
Bank loan payable     3,487,938          
SBA loan payable     486,709          
            3,974,647   
Total Liabilities              
              5,028,064  
Commitments and contingencies (Nates 4 and 5)              
                 
Members’ Equity                
                 
Accumulated deficit     (2,892,392 )        
                 
Total Members’ Equity             (2,892,392 )
                 
TOTAL LIABILITIES & MEMBERS’ EQUITY           $ 2,135,672  

 

27

 

 

SDI BLACK 011 LLC

STATEMENTS OF OPERATIONS & ACCUMULATED DEFICIT

FOR THE NINE MONTHS ENDED SEPTMBER 30, 2021

 

 

Revenue   $ 6,450,005      
                 
Cost of Revenues     5,364,079          
                 
Gross Profit             1,085,926  
                 
Operating Expenses             1,010,358  
                 
Net income from Operations             75,568  
                 
Other Income/ (Expenses)                
                 
PPP forgiveness income     70,463          
Interest expenses     (167,028 )        
taxes, other     (4,773 )        
Depreciation and amortization     (241,368 )        
                 
Total Other Income/(Expenses)             (342,706 )
                 
Net Loss             (267,138 )
                 
Accumulated Deficit - Beginning             (937,730 )
                 
Members’ distributions             (1,687,524 )
                 
Accumulated Deficit - Ending           $ (2,892,392 )

 

28

 

 

SDI BLACK 011 LLC

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTMBER 30, 2021

 

 

Cash Flows from Operating Activities            
             
Net loss
  $ (267,138 )  
Adjustments to reconcile net loss to net cash provided by/ (used in) operating activities                
Depreciation and amortization     241,368          
Accrued interest payable     9,891          
Changes in current assets and liabilities:                
Accounts receivable     (298,425 )        
Inventory     50,031          
Accounts payable and accrued expenses     (172,477 )        
Advances from customers     288,540          
                 
Net Cash Used In Operating Activities             (148,210 )
                 
Cash flows from Financing Activities                
                 
Loans payable - Bank     (198,717 )        
Proceeds from SBA Loan payable     350,000          
Advances to affiliates     (110,000 )        
Distributions to members     (1,687,524 )        
                 
Net Cash Used in Financing Activities             (1,646,241 )
                 
Net Decrease in Cash             (1,794,451 )
                 
Cash - Beginning of the Year             2,035,456  
                 
Cash - End of the Year           $ 41,005  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
                 
Cash paid during the year for:                
                 
Interest           $  

 

29

 

 

SDI BLACK 011, LLC

NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2021

 

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

SDI Black 01, LLC (the “Company”) was incorporated in the State of New York in January 2013 and is engaged in the business of electronic distribution and sales of virtual products via its Black 011 portal located at Yonkers, NY. Its electronic products range from prepaid wireless SIM activation, International mobile recharge services and international long distance phone services. During 2020, the company also started sales of general merchandise to its retail reseller customers.

 

A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:

 

1. Cash and Cash Equivalents

 

Cash and cash equivalents include all cash and highly liquid investments with an original maturity of three months or less.

 

2. Con«ntrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company reduces credit risk by placing its temporary cash and investments with major financial institutions with high credit ratings. At times, such amounts may exceed federally insured limits. The Company reduces credit risk related to accounts receivable by routinely assessing the financial strength and performing evaluations of the credit risk related to specific customers and maintaining an appropriate allowance for doubtful accounts based on its history of write-offs and current economic conditions of its customers.

 

3. Accounts Receivable

 

Accounts receivables are generally due within 15-30 days and are stated at amounts due from customers net of allowance for doubtful accounts. Accounts outstanding, longer than the contractual payment terms are considered as past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy .and the industry as a whole. The Company writes off accounts receivable when they become uncollectible. Accordingly, the allowance for doubtful accounts was $0 at September 30, 2021.

 

4. Property and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization are provided for using straight-line and accelerated methods, in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leased property under capital leases is amortized over the shorter of the service lives of the assets or the term of the lease. Repairs and maintenance are charged to operations as incurred.

 

5. Goodwill and Impairment of Long-Lived Assets

 

In February 2014, the FASB issued ASU 2014-02, Intangibles - Goodwill and Other (FASB ASC Topic 350). Under the amendments in this update, an entity that elects the accounting alternative within GAAP should amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate. An entity that elects this accounting alternative is required to make an accounting policy decision to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill must be tested for impairment when a triggering event occurs that indicates that the fair value of an entity (or a reporting unit) may be below its carrying amount. If it is determined that the fair value of the reporting unit is less than the book value, the recorded goodwill is impaired to its implied fair value with a charge to operating expenses.

 

Effective January 1, 2015, the Company elected to adopt this accounting alternative. No triggering events have been identified by the Company that would indicate that the fair value of the entity may be below its carrying amount; therefore, management has determined that no impairment has been sustained for the period ended September 30, 2021.

 

The company amortizes goodwill paid on a straight-line basis over 10 years and accordingly amortization expense for the nine months ended September 30, 2021 was $202,067.

 

30

 

 

6. Revenue Recognition

 

The Company accounts for its revenues under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments thereto (collectively referred to as Accounting Standards Codification, or “ASC” 606). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. The five-step process is as follows:

 

(i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation.

 

7. Deferred Financing Costs

 

Deferred financing costs consists of amounts paid for the acqws1t1on of bank loan on December 30, 2020. These costs are being amortized using the straight-line method over the period of the loan. Amortization for the nine months ended September 30, 2021 was $28,667.

 

8. Cost of Revenue

 

Direct cost of revenues consists primarily of termination and origination costs, toll-free costs, and network costs-including customer/carrier interconnect charges and fiber circuit charges. These costs include an estimate of charges for which invoices have not yet been received, and estimated amounts for pending disputes with other carriers. Direct cost of revenues also includes the cost of airtime top-up minutes. Direct cost of revenues excludes depreciation and amortization expense.

 

9. Income Taxes

 

As a limited liability company, the Company is treated as a partnership for Federal and state income tax purposes. Accordingly, no provision has been made for income taxes in the accompanying financial statements, since all items of income or loss are required to be reported on the income tax returns of the members who are responsible for any taxes thereon.

 

The Company recognizes and measures its unrecognized tax benefits in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes. Under that guidance, management assesses the likelihood that tax positions will be sustained upon examination based on the facts, circumstances and information, including the technical merits of those positions, available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available or when an event occurs that requires a change.

 

Management has evaluated the Company’s tax positions and has concluded that the Company has taken no uncertain tax positions that require any adjustments to the financial statements.

 

10. Uses of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

11. Subsequent Events Evaluation Date

 

The Company evaluated the events and transactions subsequent to its September 30, 2021 balance sheet date and, in accordance with FASB ASC 855-10-50, “St1bseq11ent Events’, determined there were no significant events to report through December 23, 2021, which is the date the financial statements were available to be issued.

 

31

 

 

NOTE 2 - PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following on September 30, 2021:

 

    Estimated useful life (years)   Amount  
Computer Software   5   $ 442,957  
Leasehold Improvements   39     24,800  
          467,757  
Less: Accumulated depreciation         (256,583 )
        $ 211,174  

 

Depreciation on property and equipment for the period ended September 30, 2021

 

NOTE 3 - NOTES PAYABLE

 

Bank Term Loan

 

On December 30, 2020, the company entered into a loan agreement with Newtek Small Business Finance LLC for a ten-year (10 years) term loan facility in the amount of $4,000,000 to fund its working capital requirements and repay outstanding loans from affiliates. The facility is guaranteed by the SBA (Small Business Administration) and secured by all current and future assets of the Company. The loan is also personally guaranteed by all members of the company and has security interest in certain assets owned by the members.

 

The term-loan provides for a variable interest rate of the bank’s prime rate plus two and three quarters (2.75%) percentage points. Initial interest rate is 6% per annum and monthly installment is $44,408.21 which includes principal and interest. The first payment is due two (2) months after the date of disbursement of loan.

 

As at September 30, 2021, balance due was $3,801,283 and interest paid was $156,548.

 

SBA Economic Injury Disaster Loan (“EIDL”.)

 

As a part of COVID-19 relief efforts, US government’s Small Business Administration department granted long-term loans to businesses under Economic Injury Disaster Loan Advance Program (“the EIDL loan”). On May 15, 2020, the company received EIDL loan in the amount of $150,000, payable over thirty (30) years at an interest rate of 3.75%. The loan is secured by all assets of the company and first installment is due twenty-four (24) months after the receipt of the loan.

 

On July 27, 2021, pursuant to an application filed by the company with the SBA under the EIDL program, the company received an additional amount of $350,000 in EIDL loans bringing the combined total to $500,000. Monthly payments payable on the total loan is $2,517 which includes principal and interest. Interest accrued through September 30, 2021 was $12,693 and the balance due at September 30, 2021 was $512,693.

 

As of September 30, 2021 loan maturities for the subsequent years are summarized as follows:

 

Year ending September 30:   Bank Term Loan     SBA EIDL Loan  
2022   $ 332,672     $ 25,984  
2023     353,190       9,687  
2024     374,975       10,057  
2025     358,515       10,440  
2026     398,102       10,856  
      1,983,829       445,669  
Thereafter   $ 3,801,283     $ 512,693  

 

32

 

 

NOTE 4 - PAYCHECK PROTECTION PROGRAM (“PPP”)

 

On March 17, 2021, the Company received loan proceeds of $70,463 under the Paycheck Protection Program (the “PPP”). The PPP, which was established as part of the Coronavirus Aid, Relief, and Economic Security Act provides for loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business. The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks (“applicable covered period”) so long as the borrower uses the loan proceeds for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels. Not more than 40% of the amount forgiven can be attributable to non-payroll costs.

 

The PPP loan, net of any loan forgiveness, matures on April 15, 2022, and accrues interest at a fixed rate of 1%. Payment is deferred until (a) the date that the Small Business Administration remits the loan forgiveness amount to the lender, provided that loan forgiveness application was submitted to the lender within 10 months following the last day of the applicable covered period, or (b) the date that is 10 months following the last day of the applicable covered period if the loan forgiveness application was not timely submitted. Interest accrual begins as of the date of disbursement.

 

The Company had timely applied for the forgiveness of the loan and on September 15, 2021, received notification from the SBA that the entire amount and accrued interest thereon was forgiven, and the loan satisfied. Accordingly, the PPP loan amount was recorded as other income.

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

The Company purchases services and inventory from vendors that are related to the member of the Company. Total purchases from these vendors, for the nine months ended September 30, 2021, amounted to $173,679. Balance due to these vendors at September 30, 2021 amounted to $25,532.

 

NOTE 6 - COMMITMENTS AND CONTINGENCIES

 

Lease Commitments - Related Party

 

The Company leases its main office on a month-to-month operating lease from an entity related to a member of the company. Rent expense for the nine months ended September 30, 2021 under this operating lease was $36,000.

 

NOTE 7 - UNCERTAINTY DUE TO COVID-19

 

During the calendar year 2020, the World Hea1th Organization declared COVID-19 to constitute a “Public Health Emergency of International Concern.” The Company’s business operations were disrupted through mandated and voluntary temporary. Given the uncertainty of the situation, including, among other things, additiona1 outbreaks of the virus or other strains of the virus or additional mandated shutdowns or quarantines, future related financial impact cannot be reasonably estimated at this time.

 

33

 

 

SDI BLACK 011 LLC

SUPPLEMENTAL SCHEDULES OF OPERATING EXPENSES

 

FOR THE NINE MONTHS ENDED SEPTMBER 30, 2021

 

 

Salaries and related costs   $ 256,894  
Advertising & Promotion     38,577  
Automobile expenses     10,068  
Bank service charges     10,139  
Commission expenses     300,804  
Computer & Internet Expenses     10,297  
Consulting expenses     3,900  
Customer service fees     38,196  
Credit card processing fees     122,983  
Dues & Subscriptions     1,091  
Equipment rental     6,140  
Health Insurance     35,129  
Insurance expenses     669  
Legal and professional fees     7,608  
Meals and entertainment     1,469  
Office supplies and expenses     6,518  
Payroll Taxes     25,624  
Payroll processing fees     2,452  
Postage and delivery     7,946  
Printing and reproduction     4,348  
Rent expense     36,000  
Repairs and maintenance     5,265  
Software maintenance costs     54,000  
Telephone expenses     6,202  
Travel Expenses     1,604  
Utilities     16,435  
Total Operating Expenses   $ 1,010,358  

 

Corporate Information

 

We were incorporated in Florida on September 21, 2005. Our principal executive offices are located at 235 Lincoln Rd., Suite 210, Miami Beach, Florida 33139, and our telephone number is (800) 611-3622. Our corporate website address is www.cuentas.com. The information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

34

 

 

RISK FACTORS

 

Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider the risk factors we describe below, in any prospectus supplement and in any related free writing prospectus for a specific offering of securities, as well as those incorporated by reference into this prospectus or such prospectus supplement.  You should also carefully consider other information contained and incorporated by reference in this prospectus and any applicable prospectus supplement, including our financial statements and the related notes thereto incorporated by reference in this prospectus. The risks and uncertainties described herein and in the applicable prospectus supplement and our other filings with the SEC incorporated by reference herein are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also adversely affect us. If any of the described risks occur, our business, financial condition or results of operations could be materially harmed. In such case, the value of our securities could decline and you may lose all or part of your investment.

 

While we have entered into a binding letter of intent with SDI Black, we have not entered into negotiations for a purchase and sale agreement therewith and we cannot assure you that the transactions contemplated by our letter of intent will be consummated or, that if such transactions are consummated, they will be accretive to stockholder value.

 

We entered into the LOI with SDI Black pursuant to which we agreed to explore an acquisition of the Purchased Assets from SDI Black. However, the LOI did not include many of the material terms to any potential transaction with SDI Black and there is no guarantee that we will agree to terms or definitive documentation with SDI Black in order to effect the proposed transaction. Further, even if we are able to agree to terms with SDI Black for a transaction, there is no guarantee that the terms will be favorable to our stockholders, that the transaction will be completed in the time frame or in the manner currently anticipated, or that we will recognize the anticipated benefits of the transaction.

 

We may engage in future acquisitions or strategic transactions, including the transaction with SDI Black, which may require us to seek additional financing or financial commitments, increase our expenses and/or present significant distractions to our management.

 

As described herein, we have recently entered into a LOI to acquire the Purchased Assets from SDI Black which enables us to conduct due diligence and negotiate the terms of a definitive purchase and sale agreement. In the event we engage in an acquisition or strategic transaction, we may need to acquire additional financing (particularly, if the acquired entity is not cash flow positive or does not have significant cash on hand). Obtaining financing through the issuance or sale of additional equity and/or debt securities, if possible, may not be at favorable terms and may result in additional dilution to our current stockholders. Additionally, any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, an acquisition or strategic transaction may entail numerous operational and financial risks, including the risks outlined above and additionally:

 

● exposure to unknown liabilities;
     
● disruption of our business and diversion of our management’s time and attention in order to develop acquired products or technologies;
     
● higher than expected acquisition and integration costs;
     
● write-downs of assets or goodwill or impairment charges;
     
● increased amortization expenses;
     
● difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
     
● impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
     
● inability to retain key employees of any acquired businesses.

 

Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

35

 

 

USE OF PROCEEDS

 

Unless otherwise indicated in a prospectus supplement, we intend to use the net proceeds from these sales for general corporate purposes and working capital. The amounts and timing of these expenditures will depend on numerous factors, including the development of our current business initiatives.

 

36

 

 

PLAN OF DISTRIBUTION

 

We may sell the securities from time to time to or through underwriters or dealers, through agents, or directly to one or more purchasers.  A distribution of the securities offered by this prospectus may also be effected through the issuance of derivative securities, including without limitation, warrants, rights to purchase and subscriptions.  In addition, the manner in which we may sell some or all of the securities covered by this prospectus includes, without limitation, through:

 

● a block trade in which a broker-dealer will attempt to sell as agent, but may position or resell a portion of the block, as principal, in order to facilitate the transaction;
     
● purchases by a broker-dealer, as principal, and resale by the broker-dealer for its account; or
     
● ordinary brokerage transactions and transactions in which a broker solicits purchasers.

 

A prospectus supplement or supplements with respect to each series of securities will describe the terms of the offering, including, to the extent applicable:

 

● the terms of the offering;
     
● the name or names of the underwriters or agents and the amounts of securities underwritten or purchased by each of them, if any;
     
● the public offering price or purchase price of the securities or other consideration therefor, and the proceeds to be received by us from the sale;
     
● any delayed delivery requirements;
     
● any over-allotment options under which underwriters may purchase additional securities from us;
     
● any underwriting discounts or agency fees and other items constituting underwriters’ or agents’ compensation;
     
● any discounts or concessions allowed or re-allowed or paid to dealers; and
     
● any securities exchange or market on which the securities may be listed.

 

The offer and sale of the securities described in this prospectus by us, the underwriters or the third parties described above may be effected from time to time in one or more transactions, including privately negotiated transactions, either:

 

● at a fixed price or prices, which may be changed;
     
● in an “at the market” offering within the meaning of Rule 415(a)(4) of the Securities Act;
     
● at prices related to such prevailing market prices; or
     
● at negotiated prices.

 

Only underwriters named in the prospectus supplement will be underwriters of the securities offered by the prospectus supplement.

 

Underwriters and Agents; Direct Sales

 

If underwriters are used in a sale, they will acquire the offered securities for their own account and may resell the offered securities from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale.  We may offer the securities to the public through underwriting syndicates represented by managing underwriters or by underwriters without a syndicate.

 

Unless the prospectus supplement states otherwise, the obligations of the underwriters to purchase the securities will be subject to the conditions set forth in the applicable underwriting agreement.  Subject to certain conditions, the underwriters will be obligated to purchase all of the securities offered by the prospectus supplement, other than securities covered by any over-allotment option. Any public offering price and any discounts or concessions allowed or re-allowed or paid to dealers may change from time to time. We may use underwriters with whom we have a material relationship. We will describe in the prospectus supplement, naming the underwriter, the nature of any such relationship.

 

We may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale of securities, and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.

 

We may authorize agents or underwriters to solicit offers by certain types of institutional investors to purchase securities from us at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future.  We will describe the conditions to these contracts and the commissions we must pay for solicitation of these contracts in the prospectus supplement.

 

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Dealers

 

We may sell the offered securities to dealers as principals. The dealer may then resell such securities to the public either at varying prices to be determined by the dealer or at a fixed offering price agreed to with us at the time of resale.

 

Institutional Purchasers

 

We may authorize agents, dealers or underwriters to solicit certain institutional investors to purchase offered securities on a delayed delivery basis pursuant to delayed delivery contracts providing for payment and delivery on a specified future date. The applicable prospectus supplement or other offering materials, as the case may be, will provide the details of any such arrangement, including the offering price and commissions payable on the solicitations.

 

We will enter into such delayed contracts only with institutional purchasers that we approve. These institutions may include commercial and savings banks, insurance companies, pension funds, investment companies and educational and charitable institutions.

 

Indemnification; Other Relationships

 

We may provide agents, underwriters, dealers and remarketing firms with indemnification against certain civil liabilities, including liabilities under the Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to these liabilities. Agents, underwriters, dealers and remarketing firms, and their affiliates, may engage in transactions with, or perform services for, us in the ordinary course of business.  This includes commercial banking and investment banking transactions.

 

Market-Making; Stabilization and Other Transactions

 

There is currently no market for any of the offered securities, other than our common stock, which is quoted on The NASDAQ Capital Market.  If the offered securities are traded after their initial issuance, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities and other factors. While it is possible that an underwriter could inform us that it intends to make a market in the offered securities, such underwriter would not be obligated to do so, and any such market-making could be discontinued at any time without notice. Therefore, no assurance can be given as to whether an active trading market will develop for the offered securities.  We have no current plans for listing of the debt securities, preferred stock, warrants or subscription rights on any securities exchange or quotation system; any such listing with respect to any particular debt securities, preferred stock, warrants or subscription rights will be described in the applicable prospectus supplement or other offering materials, as the case may be.

 

Any underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering or other short-covering transactions involve purchases of the securities, either through exercise of the over-allotment option or in the open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased in a stabilizing or covering transaction to cover short positions. Those activities may cause the price of the securities to be higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.

 

Any underwriters or agents that are qualified market makers on The NASDAQ Capital Market may engage in passive market making transactions in our common stock on The NASDAQ Capital Market in accordance with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before the commencement of offers or sales of our common stock. Passive market makers must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker’s bid, however, the passive market maker’s bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.

 

Fees and Commissions

 

If 5% or more of the net proceeds of any offering of securities made under this prospectus will be received by a FINRA member participating in the offering or affiliates or associated persons of such FINRA member, the offering will be conducted in accordance with FINRA Rule 5121.

 

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DESCRIPTION OF SECURITIES WE MAY OFFER

 

General

 

This prospectus describes the general terms of our capital stock. The following description is not complete and may not contain all the information you should consider before investing in our capital stock. For a more detailed description of these securities, you should read the applicable provisions of Florida law and our certificate of incorporation and our bylaws. When we offer to sell a particular series of these securities, we will describe the specific terms of the series in a supplement to this prospectus. Accordingly, for a description of the terms of any series of securities, you must refer to both the prospectus supplement relating to that series and the description of the securities described in this prospectus. To the extent the information contained in the prospectus supplement differs from this summary description, you should rely on the information in the prospectus supplement.

 

The total number of shares of capital stock we are authorized to issue is 410,000,000 shares, of which (a) 360,000,000 are common stock and (b) 50,000,000 are preferred stock.

 

We, directly or through agents, dealers or underwriters designated from time to time, may offer, issue and sell, together or separately, up to $75,000,000 in the aggregate of:

 

● common stock;
     
● preferred stock;
     
● purchase contracts;
     
● warrants to purchase our securities;
     
● subscription rights to purchase our securities;
     
● depositary shares;
     
● secured or unsecured debt securities consisting of notes, debentures or other evidences of indebtedness which may be senior debt securities, senior subordinated debt securities or subordinated debt securities, each of which may be convertible into equity securities; or
     
● units comprised of, or other combinations of, the foregoing securities.

 

We may issue the debt securities as exchangeable for or convertible into shares of common stock, preferred stock or other securities that may be sold by us pursuant to this prospectus or any combination of the foregoing. The preferred stock may also be exchangeable for and/or convertible into shares of common stock, another series of preferred stock or other securities that may be sold by us pursuant to this prospectus or any combination of the foregoing.  When a particular series of securities is offered, a supplement to this prospectus will be delivered with this prospectus, which will set forth the terms of the offering and sale of the offered securities.

 

Common Stock

 

As of February 10, 2022, there were 14,965,690 shares of common stock issued and outstanding, held of record by approximately 128 stockholders. Subject to preferential rights with respect to any outstanding preferred stock, all outstanding shares of common stock are of the same class and have equal rights and attributes. Under the terms of certificate of incorporation, holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as our board of directors from time to time may determine. Our common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of our common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

 

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Preferred Stock

 

Our certificate of incorporation empowers our board of directors, without action by our shareholders, to issue up to 50,00,000 shares of preferred stock from time to time in one or more series, which preferred stock may be offered by this prospectus and supplements thereto. As of February 10, 2022, there were no shares of preferred stock designated, issued or outstanding. Our board may fix the rights, preferences, privileges, and restrictions of our authorized but undesignated preferred shares, including:

 

We will fix the rights, preferences, privileges and restrictions of the preferred stock of each series in the certificate of designation relating to that series. We will file as an exhibit to the registration statement of which this prospectus is a part, or will incorporate by reference from a current report on Form 8-K that we file with the SEC, the form of any certificate of designation that describes the terms of the series of preferred stock we are offering before the issuance of the related series of preferred stock. This description will include any or all of the following, as required:

 

● the title and stated value;
     
● the number of shares we are offering;
     
● the liquidation preference per share;
     
● the purchase price;
     
● the dividend rate, period and payment date and method of calculation for dividends;
     
● whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate;
     
● any contractual limitations on our ability to declare, set aside or pay any dividends;
     
● the procedures for any auction and remarketing, if any;
     
● the provisions for a sinking fund, if any;
     
● the provisions for redemption or repurchase, if applicable, and any restrictions on our ability to exercise those redemption and repurchase rights;
     
● any listing of the preferred stock on any securities exchange or market;
     
● whether the preferred stock will be convertible into our common stock, and, if applicable, the conversion price, or how it will be calculated, and the conversion period;
     
● whether the preferred stock will be exchangeable into debt securities, and, if applicable, the exchange price, or how it will be calculated, and the exchange period;
     
● voting rights, if any, of the preferred stock;
     
● preemptive rights, if any;
     
● restrictions on transfer, sale or other assignment, if any;
     
● a discussion of any material or special United States federal income tax considerations applicable to the preferred stock;
     
● the relative ranking and preferences of the preferred stock as to dividend rights and rights if we liquidate, dissolve or wind up our affairs;
     
● any limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights if we liquidate, dissolve or wind up our affairs; and
     
● any other specific terms, preferences, rights or limitations of, or restrictions on, the preferred stock.

 

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If we issue shares of preferred stock under this prospectus, after receipt of payment therefor, the shares will be fully paid and non-assessable.

 

The Florida corporate statutes provide that the holders of preferred stock will have the right to vote separately as a class on any proposal involving fundamental changes in the rights of holders of that preferred stock. This right is in addition to any voting rights provided for in the applicable certificate of designation.

 

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. Preferred stock could be issued quickly with terms designed to delay or prevent a change in control of our Company or make removal of management more difficult. Additionally, the issuance of preferred stock could have the effect of decreasing the market price of our common stock.

 

Purchase Contracts

 

We may issue purchase contracts, representing contracts obligating holders to purchase from us, and us to sell to the holders, a specific or varying number of common stock, preferred stock, warrants, depositary shares, debt securities, warrants or any combination of the above, at a future date or dates. Alternatively, the purchase contracts may obligate us to purchase from holders, and obligate holders to sell to us, a specific or varying number of common stock, preferred stock, warrants, depositary shares, debt securities, or any combination of the above. The price of the securities and other property subject to the purchase contracts may be fixed at the time the purchase contracts are issued or may be determined by reference to a specific formula set forth in the purchase contracts.

 

The purchase contracts may be issued separately or as a part of a unit that consists of (a) a purchase contract and (b) one or more of the other securities that may be sold by us pursuant to this prospectus or any combination of the foregoing, which may secure the holders’ obligations to purchase the securities under the purchase contract. The purchase contracts may require us to make periodic payments to the holders or require the holders to make periodic payments to us. These payments may be unsecured or prefunded and may be paid on a current or on a deferred basis. The purchase contracts may require holders to secure their obligations under the contracts in a manner specified in the applicable prospectus supplement.

 

We will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current report on Form 8-K that we file with the SEC, forms of the purchase contracts and purchase contract agreement, if any. The applicable prospectus supplement will describe the terms of any purchase contracts in respect of which this prospectus is being delivered, including, to the extent applicable, the following:

 

● whether the purchase contracts obligate the holder or us to purchase or sell, or both purchase and sell, the securities subject to purchase under the purchase contract, and the nature and amount of each of those securities, or the method of determining those amounts;
     
● whether the purchase contracts are to be prepaid or not;
     
● whether the purchase contracts are to be settled by delivery, or by reference or linkage to the value, performance or level of the securities subject to purchase under the purchase contract;
     
● any acceleration, cancellation, termination or other provisions relating to the settlement of the purchase contracts; and
     
● whether the purchase contracts will be issued in fully registered or global form.

 

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Warrants

 

We may issue warrants to purchase our securities or other rights, including rights to receive payment in cash or securities based on the value, rate or price of one or more specified commodities, currencies, securities or indices, or any combination of the foregoing. Warrants may be issued independently or together with any other securities that may be sold by us pursuant to this prospectus or any combination of the foregoing and may be attached to, or separate from, such securities. To the extent warrants that we issue are to be publicly-traded, each series of such warrants will be issued under a separate warrant agreement to be entered into between us and a warrant agent.

 

We will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current report on Form 8-K that we file with the SEC, forms of the warrant and warrant agreement, if any. The prospectus supplement relating to any warrants that we may offer will contain the specific terms of the warrants and a description of the material provisions of the applicable warrant agreement, if any. These terms may include the following:

 

● the title of the warrants;
     
● the price or prices at which the warrants will be issued;
     
● the designation, amount and terms of the securities or other rights for which the warrants are exercisable;
     
● the designation and terms of the other securities, if any, with which the warrants are to be issued and the number of warrants issued with each other security;
     
● the aggregate number of warrants;
     
● any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of the warrants;
     
● the price or prices at which the securities or other rights purchasable upon exercise of the warrants may be purchased;
     
● if applicable, the date on and after which the warrants and the securities or other rights purchasable upon exercise of the warrants will be separately transferable;
     
● a discussion of any material U.S. federal income tax considerations applicable to the exercise of the warrants;
     
● the date on which the right to exercise the warrants will commence, and the date on which the right will expire;
     
● the maximum or minimum number of warrants that may be exercised at any time;
     
● information with respect to book-entry procedures, if any; and
     
● any other terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants. 

 

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Exercise of Warrants. Each warrant will entitle the holder of warrants to purchase the amount of securities or other rights, at the exercise price stated or determinable in the prospectus supplement for the warrants. Warrants may be exercised at any time up to the close of business on the expiration date shown in the applicable prospectus supplement, unless otherwise specified in such prospectus supplement. After the close of business on the expiration date, if applicable, unexercised warrants will become void. Warrants may be exercised in the manner described in the applicable prospectus supplement. When the warrant holder makes the payment and properly completes and signs the warrant certificate at the corporate trust office of the warrant agent, if any, or any other office indicated in the prospectus supplement, we will, as soon as possible, forward the securities or other rights that the warrant holder has purchased. If the warrant holder exercises less than all of the warrants represented by the warrant certificate, we will issue a new warrant certificate for the remaining warrants.

 

Subscription Rights

 

We may issue rights to purchase our securities. The rights may or may not be transferable by the persons purchasing or receiving the rights. In connection with any rights offering, we may enter into a standby underwriting or other arrangement with one or more underwriters or other persons pursuant to which such underwriters or other persons would purchase any offered securities remaining unsubscribed for after such rights offering. In connection with a rights offering to holders of our capital stock a prospectus supplement will be distributed to such holders on the record date for receiving rights in the rights offering set by us.

 

We will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current report on Form 8-K that we file with the SEC, forms of the subscription rights, standby underwriting agreement or other agreements, if any. The prospectus supplement relating to any rights that we offer will include specific terms relating to the offering, including, among other matters:

 

● the date of determining the security holders entitled to the rights distribution;
     
● the aggregate number of rights issued and the aggregate amount of securities purchasable upon exercise of the rights;
     
● the exercise price;
     
● the conditions to completion of the rights offering;
     
● the date on which the right to exercise the rights will commence and the date on which the rights will expire; and
     
● any applicable federal income tax considerations.

 

Each right would entitle the holder of the rights to purchase the principal amount of securities at the exercise price set forth in the applicable prospectus supplement. Rights may be exercised at any time up to the close of business on the expiration date for the rights provided in the applicable prospectus supplement. After the close of business on the expiration date, all unexercised rights will become void.

 

Holders may exercise rights as described in the applicable prospectus supplement. Upon receipt of payment and the rights certificate properly completed and duly executed at the corporate trust office of the rights agent, if any, or any other office indicated in the prospectus supplement, we will, as soon as practicable, forward the securities purchasable upon exercise of the rights. If less than all of the rights issued in any rights offering are exercised, we may offer any unsubscribed securities directly to persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, including pursuant to standby underwriting arrangements, as described in the applicable prospectus supplement.

 

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Depositary Shares

 

General. We may offer fractional shares of preferred stock, rather than full shares of preferred stock. If we decide to offer fractional shares of our preferred stock, we will issue receipts for depositary shares. Each depositary share will represent a fraction of a share of a particular series of our preferred stock, and the applicable prospectus supplement will indicate that fraction. The shares of preferred stock represented by depositary shares will be deposited under a deposit agreement between us and a depositary that is a bank or trust company that meets certain requirements and is selected by us. The depositary will be specified in the applicable prospectus supplement. Each owner of a depositary share will be entitled to all of the rights and preferences of the preferred stock represented by the depositary share.

 

The depositary shares will be evidenced by depositary receipts issued pursuant to the deposit agreement. Depositary receipts will be distributed to those persons purchasing the fractional shares of our preferred stock in accordance with the terms of the offering. We will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current report on Form 8-K that we file with the SEC, forms of the deposit agreement, form of certificate of designation of underlying preferred stock, form of depositary receipts and any other related agreements.

 

Dividends and Other Distributions. The depositary will distribute all cash dividends or other cash distributions received by it in respect of the preferred stock to the record holders of depositary shares relating to such preferred shares in proportion to the numbers of depositary shares held on the relevant record date.

 

In the event of a distribution other than in cash, the depositary will distribute securities or property received by it to the record holders of depositary shares in proportion to the numbers of depositary shares held on the relevant record date, unless the depositary determines that it is not feasible to make such distribution. In that case, the depositary may make the distribution by such method as it deems equitable and practicable. One such possible method is for the depositary to sell the securities or property and then distribute the net proceeds from the sale as provided in the case of a cash distribution.

 

Redemption of Depositary Shares. Whenever we redeem the preferred stock, the depositary will redeem a number of depositary shares representing the same number of shares of preferred stock so redeemed. If fewer than all of the depositary shares are to be redeemed, the depositary shares to be redeemed will be selected by lot, pro rata or by any other equitable method as the depositary may determine.

 

Voting of Underlying Shares. Upon receipt of notice of any meeting at which the holders of our preferred stock of any series are entitled to vote, the depositary will mail the information contained in the notice of the meeting to the record holders of the depositary shares relating to that series of preferred stock. Each record holder of the depositary shares on the record date will be entitled to instruct the depositary as to the exercise of the voting rights represented by the number of shares of preferred stock underlying the holder’s depositary shares. The depositary will endeavor, to the extent it is practical to do so, to vote the number of whole shares of preferred stock underlying such depositary shares in accordance with such instructions. We will agree to take all action that the depositary may deem reasonably necessary in order to enable the depositary to do so. To the extent the depositary does not receive specific instructions from the holders of depositary shares relating to such preferred shares, it will abstain from voting such shares of preferred stock.

 

Withdrawal of Shares. Upon surrender of depositary receipts representing any number of whole shares at the depositary’s office, unless the related depositary shares previously have been called for redemption, the holder of the depositary shares evidenced by the depositary receipts will be entitled to delivery of the number of whole shares of the related series of preferred stock and all money and other property, if any, underlying such depositary shares. However, once such an exchange is made, the preferred stock cannot thereafter be re-deposited in exchange for depositary shares. Holders of depositary shares will be entitled to receive whole shares of the related series of preferred stock on the basis set forth in the applicable prospectus supplement. If the depositary receipts delivered by the holder evidence a number of depositary shares representing more than the number of whole shares of preferred stock of the related series to be withdrawn, the depositary will deliver to the holder at the same time a new depositary receipt evidencing the excess number of depositary shares.

 

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Amendment and Termination of Depositary Agreement. The form of depositary receipt evidencing the depositary shares and any provision of the applicable depositary agreement may at any time be amended by agreement between us and the depositary. We may, with the consent of the depositary, amend the depositary agreement from time to time in any manner that we desire. However, if the amendment would materially and adversely alter the rights of the existing holders of depositary shares, the amendment would need to be approved by the holders of at least a majority of the depositary shares then outstanding.

 

The depositary agreement may be terminated by us or the depositary if:

 

● all outstanding depositary shares have been redeemed; or

 

● there has been a final distribution in respect of the shares of preferred stock of the applicable series in connection with our liquidation, dissolution or winding up and such distribution has been made to the holders of depositary receipts.

 

Resignation and Removal of Depositary. The depositary may resign at any time by delivering to us notice of its election to do so. We may remove a depositary at any time. Any resignation or removal will take effect upon the appointment of a successor depositary and its acceptance of appointment.

 

Charges of Depositary. We will pay all transfer and other taxes and governmental charges arising solely from the existence of any depositary arrangements. We will pay all charges of each depositary in connection with the initial deposit of the preferred shares of any series, the initial issuance of the depositary shares, any redemption of such preferred shares and any withdrawals of such preferred shares by holders of depositary shares. Holders of depositary shares will be required to pay any other transfer taxes.

 

Notices. Each depositary will forward to the holders of the applicable depositary shares all notices, reports and communications from us which are delivered to such depositary and which we are required to furnish the holders of the preferred stock represented by such depositary shares.

 

Miscellaneous. The depositary agreement may contain provisions that limit our liability and the liability of the depositary to the holders of depositary shares. Both the depositary and we are also entitled to an indemnity from the holders of the depositary shares prior to bringing, or defending against, any legal proceeding. We or any depositary may rely upon written advice of counsel or accountants, or information provided by persons presenting preferred shares for deposit, holders of depositary shares or other persons believed by us to be competent and on documents believed by us or them to be genuine.

 

Debt Securities

 

As used in this prospectus, the term “debt securities” means the debentures, notes, bonds and other evidences of indebtedness that we may issue from time to time. The debt securities will either be senior debt securities, senior subordinated debt or subordinated debt securities. We may also issue convertible debt securities. Debt securities may be issued under an indenture (which we refer to herein as an Indenture), which are contracts entered into between us and a trustee to be named therein. The Indenture has been filed as an exhibit to the registration statement of which this prospectus forms a part. We may issue debt securities and incur additional indebtedness other than through the offering of debt securities pursuant to this prospectus. It is likely that convertible debt securities will not be issued under an Indenture.

 

The debt securities may be fully and unconditionally guaranteed on a secured or unsecured senior or subordinated basis by one or more guarantors, if any. The obligations of any guarantor under its guarantee will be limited as necessary to prevent that guarantee from constituting a fraudulent conveyance under applicable law. In the event that any series of debt securities will be subordinated to other indebtedness that we have outstanding or may incur, the terms of the subordination will be set forth in the prospectus supplement relating to the subordinated debt securities.

 

We may issue debt securities from time to time in one or more series, in each case with the same or various maturities, at par or at a discount. Unless indicated in a prospectus supplement, we may issue additional debt securities of a particular series without the consent of the holders of the debt securities of such series outstanding at the time of the issuance. Any such additional debt securities, together with all other outstanding debt securities of that series, will constitute a single series of debt securities under the applicable Indenture and will be equal in ranking.

 

Should an Indenture relate to unsecured indebtedness, in the event of a bankruptcy or other liquidation event involving a distribution of assets to satisfy our outstanding indebtedness or an event of default under a loan agreement relating to secured indebtedness of our company or its subsidiaries, the holders of such secured indebtedness, if any, would be entitled to receive payment of principal and interest prior to payments on the unsecured indebtedness issued under an Indenture.

 

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Each prospectus supplement will describe the terms relating to the specific series of debt securities. These terms will include some or all of the following:

 

● the title of debt securities and whether the debt securities are senior or subordinated;
     
● any limit on the aggregate principal amount of debt securities of such series;
     
● the percentage of the principal amount at which the debt securities of any series will be issued;
     
● the ability to issue additional debt securities of the same series;
     
● the purchase price for the debt securities and the denominations of the debt securities;
     
● the specific designation of the series of debt securities being offered;
     
● the maturity date or dates of the debt securities and the date or dates upon which the debt securities are payable and the rate or rates at which the debt securities of the series shall bear interest, if any, which may be fixed or variable, or the method by which such rate shall be determined;
     
● the basis for calculating interest;
     
● the date or dates from which any interest will accrue or the method by which such date or dates will be determined;
     
● the duration of any deferral period, including the period during which interest payment periods may be extended;
     
● whether the amount of payments of principal of (and premium, if any) or interest on the debt securities may be determined with reference to any index, formula or other method, such as one or more currencies, commodities, equity indices or other indices, and the manner of determining the amount of such payments;
     
● the dates on which we will pay interest on the debt securities and the regular record date for determining who is entitled to the interest payable on any interest payment date;
     
● the place or places where the principal of (and premium, if any) and interest on the debt securities will be payable, where any securities may be surrendered for registration of transfer, exchange or conversion, as applicable, and notices and demands may be delivered to or upon us pursuant to the applicable Indenture;
     
● the rate or rates of amortization of the debt securities;
     
● any terms for the attachment to the debt securities of warrants, options or other rights to purchase or sell our securities;
     
● if the debt securities will be secured by any collateral and, if so, a general description of the collateral and the terms and provisions of such collateral security, pledge or other agreements;
     
● if we possess the option to do so, the periods within which and the prices at which we may redeem the debt securities, in whole or in part, pursuant to optional redemption provisions, and the other terms and conditions of any such provisions;
     
● our obligation or discretion, if any, to redeem, repay or purchase debt securities by making periodic payments to a sinking fund or through an analogous provision or at the option of holders of the debt securities, and the period or periods within which and the price or prices at which we will redeem, repay or purchase the debt securities, in whole or in part, pursuant to such obligation, and the other terms and conditions of such obligation;
     
● the terms and conditions, if any, regarding the option or mandatory conversion or exchange of debt securities;
     
● the period or periods within which, the price or prices at which and the terms and conditions upon which any debt securities of the series may be redeemed, in whole or in part at our option and, if other than by a board resolution, the manner in which any election by us to redeem the debt securities shall be evidenced;
     
● any restriction or condition on the transferability of the debt securities of a particular series;
     
● the portion, or methods of determining the portion, of the principal amount of the debt securities which we must pay upon the acceleration of the maturity of the debt securities in connection with any event of default;
     
● the currency or currencies in which the debt securities will be denominated and in which principal, any premium and any interest will or may be payable or a description of any units based on or relating to a currency or currencies in which the debt securities will be denominated;
     
● provisions, if any, granting special rights to holders of the debt securities upon the occurrence of specified events;
     

 

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● any deletions from, modifications of or additions to the events of default or our covenants with respect to the applicable series of debt securities, and whether or not such events of default or covenants are consistent with those contained in the applicable Indenture;

● any limitation on our ability to incur debt, redeem stock, sell our assets or other restrictions;
     
● the application, if any, of the terms of the applicable Indenture relating to defeasance and covenant defeasance (which terms are described below) to the debt securities;
     
● what subordination provisions will apply to the debt securities
     
● the terms, if any, upon which the holders may convert or exchange the debt securities into or for our securities or property;
     
● whether we are issuing the debt securities in whole or in part in global form;
     
● any change in the right of the trustee or the requisite holders of debt securities to declare the principal amount thereof due and payable because of an event of default;
     
● the depositary for global or certificated debt securities, if any;
     
● any material federal income tax consequences applicable to the debt securities, including any debt securities denominated and made payable, as described in the prospectus supplements, in foreign currencies, or units based on or related to foreign currencies;
     
● any right we may have to satisfy, discharge and defease our obligations under the debt securities, or terminate or eliminate restrictive covenants or events of default in the Indentures, by depositing money or U.S. government obligations with the trustee of the Indentures;

 

● the names of any trustees, depositories, authenticating or paying agents, transfer agents or registrars or other agents with respect to the debt securities;
     
● to whom any interest on any debt security shall be payable, if other than the person in whose name the security is registered, on the record date for such interest, the extent to which, or the manner in which, any interest payable on a temporary global debt security will be paid;
     
● if the principal of or any premium or interest on any debt securities is to be payable in one or more currencies or currency units other than as stated, the currency, currencies or currency units in which it shall be paid and the periods within and terms and conditions upon which such election is to be made and the amounts payable (or the manner in which such amount shall be determined);
     
● the portion of the principal amount of any debt securities which shall be payable upon declaration of acceleration of the maturity of the debt securities pursuant to the applicable Indenture;
     
● if the principal amount payable at the stated maturity of any debt security of the series will not be determinable as of any one or more dates prior to the stated maturity, the amount which shall be deemed to be the principal amount of such debt securities as of any such date for any purpose, including the principal amount thereof which shall be due and payable upon any maturity other than the stated maturity or which shall be deemed to be outstanding as of any date prior to the stated maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); and
     
● any other specific terms of the debt securities, including any modifications to the events of default under the debt securities and any other terms which may be required by or advisable under applicable laws or regulations. 

 

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Unless otherwise specified in the applicable prospectus supplement, we do not anticipate the debt securities will be listed on any securities exchange. Holders of the debt securities may present registered debt securities for exchange or transfer in the manner described in the applicable prospectus supplement. Except as limited by the applicable Indenture, we will provide these services without charge, other than any tax or other governmental charge payable in connection with the exchange or transfer.

 

Debt securities may bear interest at a fixed rate or a variable rate as specified in the prospectus supplement. In addition, if specified in the prospectus supplement, we may sell debt securities bearing no interest or interest a t a rate that at the time of issuance is below the prevailing market rate, or at a discount below their stated principal amount. We will describe in the applicable prospectus supplement any special federal income tax considerations applicable to these discounted debt securities.

 

We may issue debt securities with the principal amount payable on any principal payment date, or the amount of interest payable on any interest payment date, to be determined by referring to one or more currency exchange rates, commodity prices, equity indices or other factors. Holders of such debt securities may receive a principal amount on any principal payment date, or interest payments on any interest payment date, that are greater or less than the amount of principal or interest otherwise payable on such dates, depending upon the value on such dates of applicable currency, commodity, equity index or other factors. The applicable prospectus supplement will contain information as to how we will determine the amount of principal or interest payable on any date, as well as the currencies, commodities, equity indices or other factors to which the amount payable on that date relates and certain additional tax considerations.

 

Units

 

We may issue units consisting of any combination of the other types of securities offered under this prospectus in one or more series. We may evidence each series of units by unit certificates that we may issue under a separate agreement. We may enter into unit agreements with a unit agent. Each unit agent, if any, may be a bank or trust company that we select. We will indicate the name and address of the unit agent, if any, in the applicable prospectus supplement relating to a particular series of units. Specific unit agreements, if any, will contain additional important terms and provisions. We will file as an exhibit to the registration statement of which this prospectus is a part, or will incorporate by reference from a current report that we file with the SEC, the form of unit and the form of each unit agreement, if any, relating to units offered under this prospectus.

 

If we offer any units, certain terms of that series of units will be described in the applicable prospectus supplement, including, without limitation, the following, as applicable:

 

● the title of the series of units;
     
● identification and description of the separate constituent securities comprising the units;
     
● the price or prices at which the units will be issued;
     
● the date, if any, on and after which the constituent securities comprising the units will be separately transferable;
     
● a discussion of certain United States federal income tax considerations applicable to the units; and
     
● any other material terms of the units and their constituent securities.

 

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Florida Anti-Takeover Law and Provisions of our Amended and Restated Articles of Incorporation and Bylaws

 

Florida Anti-Takeover Law

 

As a Florida corporation, we are subject to certain anti-takeover provisions that apply to public corporations under Florida law. Pursuant to Section 607.0901 of the Florida Business Corporation Act, or the FBCA, a publicly held Florida corporation may not engage in a broad range of business combinations or other extraordinary corporate transactions with an interested shareholder without the approval of the holders of two-thirds of the voting shares of the corporation (excluding shares held by the interested shareholder), unless:

 

● The transaction is approved by a majority of disinterested directors before the shareholder becomes an interested shareholder;
     
● The interested shareholder has owned at least 80% of the corporation’s outstanding voting shares for at least five years preceding the announcement date of any such business combination;
     
● The interested shareholder is the beneficial owner of at least 90% of the outstanding voting shares of the corporation, exclusive of shares acquired directly from the corporation in a transaction not approved by a majority of the disinterested directors; or
     
● The consideration paid to the holders of the corporation’s voting stock is at least equal to certain fair price criteria.

 

An interested shareholder is defined as a person who, together with affiliates and associates, beneficially owns more than 10% of a corporation’s outstanding voting shares. We have not made an election in our Amended and Restated Articles to opt out of Section 607.0901.

 

In addition, we are subject to Section 607.0902 of the FBCA which prohibits the voting of shares in a publicly held Florida corporation that are acquired in a control share acquisition unless (i) the Board of Directors approved such acquisition prior to its consummation or (ii) after such acquisition, in lieu of prior approval by the Board of Directors, the holders of a majority of the corporation’s voting shares, exclusive of shares owned by officers of the corporation, employee directors or the acquiring party, approve the granting of voting rights as to the shares acquired in the control share acquisition. A control share acquisition is defined as an acquisition that immediately thereafter entitles the acquiring party to 20% or more of the total voting power in an election of directors.

 

Amended and Restated Articles and Bylaws

 

Our Amended and Restated Articles and Amended and Restated Bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or tender offers or delaying or preventing a change of control of our company. These provisions are as follows:

 

● they provide that special meetings of shareholders may be called by the Board, on the call of its Board or the person or persons authorized to do so by the Amended and Restated Bylaws, or at the request in writing by shareholders of record owning at least 25% of the issued and outstanding voting shares of Common Stock; and
     
● they do not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority shareholder holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative voting may have the effect of limiting the ability of minority shareholders to effect changes in the Board.

 

Limitations of Liability for Officers and Directors

 

Pursuant to the Florida Statutes, our Amended and Restated Articles exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a director if he acted in good faith and in a manner he believed to be in our best interests.

 

Indemnification of Officers and Directors

 

Our certificate of incorporation also contains provisions to indemnify the directors, officers, employees or other agents to the fullest extent permitted by the Florida corporate law. These provisions may have the practical effect in certain cases of eliminating the ability of shareholders to collect monetary damages from directors. We are also a party to indemnification agreements with each of our directors. We believe that these provisions will assist us in attracting or retaining qualified individuals to serve as our directors.

 

Disclosure of Commission Position on Indemnification for Securities Act Liabilities

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

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FORMS OF SECURITIES

 

Each security may be represented either by a certificate issued in definitive form to a particular investor or by one or more global securities representing the entire issuance of securities. Certificated securities in definitive form and global securities will be issued in registered form. Definitive securities name you or your nominee as the owner of the security, and in order to transfer or exchange these securities or to receive payments other than interest or other interim payments, you or your nominee must physically deliver the securities to the trustee, registrar, paying agent or other agent, as applicable. Global securities name a depositary or its nominee as the owner of the debt securities, warrants or units represented by these global securities. The depositary maintains a computerized system that will reflect each investor’s beneficial ownership of the securities through an account maintained by the investor with its broker/dealer, bank, trust company or other representative, as we explain more fully below.

 

Registered Global Securities

 

We may issue the securities in the form of one or more fully registered global securities that will be deposited with a depositary or its nominee identified in the applicable prospectus supplement and registered in the name of that depositary or nominee. In those cases, one or more registered global securities will be issued in a denomination or aggregate denominations equal to the portion of the aggregate principal or face amount of the securities to be represented by registered global securities. Unless and until it is exchanged in whole for securities in definitive registered form, a registered global security may not be transferred except as a whole by and among the depositary for the registered global security, the nominees of the depositary or any successors of the depositary or those nominees.

 

The specific terms of the depositary arrangement with respect to any securities to be represented by a registered global security will be described in the prospectus supplement relating to those securities. We anticipate that the following provisions will apply to all depositary arrangements.

 

Ownership of beneficial interests in a registered global security will be limited to persons, called participants, that have accounts with the depositary or persons that may hold interests through participants. Upon the issuance of a registered global security, the depositary will credit, on its book-entry registration and transfer system, the participants’ accounts with the respective principal or face amounts of the securities beneficially owned by the participants. Any dealers, underwriters or agents participating in the distribution of the securities will designate the accounts to be credited. Ownership of beneficial interests in a registered global security will be shown on, and the transfer of ownership interests will be effected only through, records maintained by the depositary, with respect to interests of participants, and on the records of participants, with respect to interests of persons holding through participants. The laws of some states may require that some purchasers of securities take physical delivery of these securities in definitive form. These laws may impair your ability to own, transfer or pledge beneficial interests in registered global securities.

 

So long as the depositary, or its nominee, is the registered owner of a registered global security, that depositary or its nominee, as the case may be, will be considered the sole owner or holder of the securities represented by the registered global security for all purposes under the applicable indenture, warrant agreement or unit agreement.

 

Except as described below, owners of beneficial interests in a registered global security will not be entitled to have the securities represented by the registered global security registered in their names, will not receive or be entitled to receive physical delivery of the securities in definitive form and will not be considered the owners or holders of the securities under the applicable indenture, warrant agreement or unit agreement. Accordingly, each person owning a beneficial interest in a registered global security must rely on the procedures of the depositary for that registered global security and, if that person is not a participant, on the procedures of the participant through which the person owns its interest, to exercise any rights of a holder under the applicable indenture, warrant agreement or unit agreement. We understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or take any action that a holder is entitled to give or take under the applicable indenture, warrant agreement or unit agreement, the depositary for the registered global security would authorize the participants holding the relevant beneficial interests to give or take that action, and the participants would authorize beneficial owners owning through them to give or take that action or would otherwise act upon the instructions of beneficial owners holding through them.

 

Payments to holders with respect to securities represented by a registered global security registered in the name of a depositary or its nominee will be made to the depositary or its nominee, as the case may be, as the registered owner of the registered global security. None of the Company, the trustees, the warrant agents, the unit agents or any other agent of the Company, agent of the trustees, the warrant agents or unit agents will have any responsibility or liability for any aspect of the records relating to payments made on account of beneficial ownership interests in the registered global security or for maintaining, supervising or reviewing any records relating to those beneficial ownership interests.

 

We expect that the depositary for any of the securities represented by a registered global security, upon receipt of any payment of principal, premium, interest or other payment or distribution to holders of that registered global security, will immediately credit participants’ accounts in amounts proportionate to their respective beneficial interests in that registered global security as shown on the records of the depositary. We also expect that payments by participants to owners of beneficial interests in a registered global security held through participants will be governed by standing customer instructions and customary practices, as is now the case with the securities held for the accounts of customers or registered in “street name,” and will be the responsibility of those participants.

 

If the depositary for any of these securities represented by a registered global security is at any time unwilling or unable to continue as depositary or ceases to be a clearing agency registered under the Exchange Act and a successor depositary registered as a clearing agency under the Exchange Act is not appointed by us within 90 days, we will issue securities in definitive form in exchange for the registered global security that had been held by the depositary. Any securities issued in definitive form in exchange for a registered global security will be registered in the name or names that the depositary gives to the relevant trustee, warrant agent, unit agent or other relevant agent of ours or theirs. It is expected that the depositary’s instructions will be based upon directions received by the depositary from participants with respect to ownership of beneficial interests in the registered global security that had been held by the depositary.

 

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LEGAL MATTERS

 

Unless otherwise indicated in the applicable prospectus supplement, the validity of the securities offered by this prospectus will be passed upon for us by Ellenoff Grossman & Schole LLP, New York, New York.  If legal matters in connection with offerings made by this prospectus are passed on by counsel for the underwriters, dealers or agents, if any, that counsel will be named in the applicable prospectus supplement.

 

EXPERTS

 

The December 31, 2020 and 2019 financial statements of our company appearing in this prospectus have been included herein in reliance upon the report (which report includes an explanatory paragraph relating to our ability to continue as a going concern) of Halperin Ilanit, CPA, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of Halperin Ilanit, CPA as experts in accounting and auditing. 

 

The December 31, 2020 and 2019 financial statements of SDI Black 011, LLC appearing in this prospectus have been included herein in reliance upon the report of Leonard Friedman CPA, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of Leonard Friedman CPA as experts in accounting and auditing.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We file annual, quarter and periodic reports, proxy statements and other information with the Securities and Exchange Commission using the Commission’s EDGAR system. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http//www.sec.gov.

 

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INCORPORATION OF DOCUMENTS BY REFERENCE

 

We are “incorporating by reference” in this prospectus certain documents we file with the SEC, which means that we can disclose important information to you by referring you to those documents.  The information in the documents incorporated by reference is considered to be part of this prospectus. Statements contained in documents that we file with the SEC and that are incorporated by reference in this prospectus will automatically update and supersede information contained in this prospectus, including information in previously filed documents or reports that have been incorporated by reference in this prospectus, to the extent the new information differs from or is inconsistent with the old information.  We have filed or may file the following documents with the SEC and they are incorporated herein by reference as of their respective dates of filing.

 

1. Our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 25, 2021;
     
2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021, as filed with the SEC on May 5, 2021, August 23, 2021 and November 15, 2021, respectively;
     
3. Our definitive proxy statement filed on November 18, 2021;
     
4. Our Current Reports on Form 8-K filed with the SEC on February 5, 2021, February 10, 2021, March 2, 2021, July 27, 2021, August 5, 2021, August 31, 2021, November 5, 2021, November 9, 2021, December 21, 2021, January 11, 2022 and February 8, 2022; and
     
5. The description of our common stock contained in our Registration Statement on Form 8-A, filed on February 1, 2021 pursuant to Section 12(b) of the Exchange Act, which incorporates by reference the description of the shares of our common stock contained in the section entitled “Description of Securities” in our Registration Statement on Form S-1 (File No. 333-249690), as initially filed with the SEC on October 28, 2020, as amended, and any amendment or report filed with the SEC for purposes of updating such description.

 

All documents that we filed with the SEC pursuant to Sections 13(a), 13(c), 14, and 15(d) of the Exchange Act subsequent to the date of this registration statement and prior to the filing of a post-effective amendment to this registration statement that indicates that all securities offered under this prospectus have been sold, or that deregisters all securities then remaining unsold, will be deemed to be incorporated in this registration statement by reference and to be a part hereof from the date of filing of such documents.

 

Any statement contained in a document incorporated or deemed to be incorporated by reference in this prospectus shall be deemed modified, superseded or replaced for purposes of this prospectus to the extent that a statement contained in this prospectus, or in any subsequently filed document that also is deemed to be incorporated by reference in this prospectus, modifies, supersedes or replaces such statement. Any statement so modified, superseded or replaced shall not be deemed, except as so modified, superseded or replaced, to constitute a part of this prospectus. None of the information that we disclose under Items 2.02 or 7.01 of any Current Report on Form 8-K or any corresponding information, either furnished under Item 9.01 or included as an exhibit therein, that we may from time to time furnish to the SEC will be incorporated by reference into, or otherwise included in, this prospectus, except as otherwise expressly set forth in the relevant document. Subject to the foregoing, all information appearing in this prospectus is qualified in its entirety by the information appearing in the documents incorporated by reference.

 

You may requests, orally or in writing, a copy of these documents, which will be provided to you at no cost (other than exhibits, unless such exhibits are specifically incorporate by reference), by contacting the Company at Cuentas Inc., at 19 W. Flagler Street, Suite 902, Miami, FL 33130, attention: Secretary. Our telephone number is (800) 611-3622. Information about us is also available at our website at http://www.cuentas.com/. However, the information in our website is not a part of this prospectus and is not incorporated by reference. 

 

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PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 14. Other Expenses of Issuance and Distribution.

 

The Company is paying all expenses of the offering. The following table sets forth all expenses to be paid by the registrant. All amounts shown are estimates except for the registration fee. 

 

SEC registration fee   $ 6,952.50  
Legal fees and expenses   $ 40,000  
Accounting fees and expenses   $ 10,000  
Trustees’ Fees and Expenses     *  
Warrant Agent Fees and Expenses     *  
Miscellaneous     *  
Total   $ 56,952.50  

 

* These fees are calculated based on the securities offered and the number of issuances and accordingly cannot be estimated at this time. The applicable prospectus supplement will set forth the estimated amount of expenses of any offering of securities.

 

Item 15. Indemnification of Directors and Officers.

 

Our Articles of Incorporation and Bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by the Florida Business Corporation Act (the “FBCA”). The FBCA provides that a corporation may indemnify a director or officer against liability if the director or officer acted in good faith, the director or officer acted in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and in the case of any criminal proceeding, the director or officer had no reasonable cause to believe his or her conduct was unlawful. A corporation may not indemnify a director or an officer except for expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, where such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation.

 

The FBCA provides that a corporation must indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the individual was a party because he or she is or was a director or officer of the corporation against expenses incurred by the individual in connection with the proceeding.

 

A corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse expenses incurred in connection with the proceeding by a director or an officer if the director or officer delivers to the corporation a signed written undertaking of the director or officer to repay any funds advanced if such director or officer is not entitled to indemnification.

 

These indemnification provisions may be sufficiently broad to permit indemnification of our officers, directors and other corporate agents for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of our company pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

We have the power to purchase and maintain insurance on behalf of any person who is or was one of our directors or officers, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other business against any liability asserted against the person or incurred by the person in any of these capacities, or arising out of the person’s fulfilling one of these capacities, and related expenses, whether or not we would have the power to indemnify the person against the claim under the provisions of the FBCA.

 

If the FBCA Law is amended to expand further the indemnification permitted to indemnitees, then we shall indemnify such persons to the fullest extent permitted by the FBCA, as so amended.

 

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Item 16. Exhibits.

 

The following exhibits are filed with this Registration Statement.

 

The agreements included or incorporated by reference as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

 

The undersigned registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this registration statement not misleading.

 

Exhibit     
Number   Description of Document
     
1.1   Form of Underwriting Agreement** 
4.1   Form of Certificate of Designation of Preferred Stock**
4.2   Form of Warrant Agreement and Form of Warrant Certificate** 
4.3   Form of Subscription Rights Agreement and Form Subscription Rights Certificate**
4.4   Form of Indenture*
4.5   Form of Note**
4.6   Form of Debt Securities**
5.1   Opinion of Ellenoff Grossman & Schole LLP*
12.1   Computation of Ratio of Earnings to Fixed Charges**
23.1   Consent of Halperin Ilanit*
23.2   Consent of Leonard Friedman CPA*
23.3   Consent of Ellenoff Grossman & Schole LLP (included in Exhibit 5.1)*
24.1   Power of Attorney (included in Part II of this Registration Statement)*
25.1   Statement of Eligibility of trustee on Form T-1**+
107   Filing Fee Table*

 

* Filed herewith.
** If applicable, to be filed by an amendment or as an exhibit to a report pursuant to section 13(a) or section 15(d) of the Exchange Act and incorporated by reference
+ To be filed pursuant to Rule 305(b)(2) of the Trust Indenture Act.

 

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Item 17. Undertakings.

 

(a) The undersigned Registrant hereby undertakes:

 

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

 

(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

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

 

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

 

provided , however , that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

  

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

 

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

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(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability of the registrant under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(c) The undersigned registrant hereby undertakes to supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions by the underwriters during the subscription period, the amount of unsubscribed securities to be purchased by the underwriters, and the terms of any subsequent reoffering thereof. If any public offering by the underwriters is to be made on terms differing from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such offering.

 

(d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

 

(e) The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Trust Indenture Act.

 

56

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on this 14th day of February, 2022.

 

  CUENTAS INC.
   
  By: /s/ Jeffery D. Johnson 
    Jeffery D. Johnson
    Chief Executive Officer

 

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below hereby constitutes and appoints Jeffery D. Johnson as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933 increasing the number of shares for which registration is sought, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, making such changes in this registration statement as such attorney-in-fact and agent so acting deem appropriate, with the SEC, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done with respect to the offering of securities contemplated by this registration statement, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Jeffery D. Johnson   Chief Executive Officer   February 14, 2022
Jeffery D. Johnson   (Principal Executive Officer)    
         
/s/ Ran Daniel   Chief Financial Officer   February 14, 2022
Ran Daniel   (Principal Financial Officer and Principal Accounting Officer)    
         
/s/ Arik Maimon   Executive Chairman of the Board of Directors   February 14, 2022
Arik Maimon        
         
/s/ Michael De Prado   Executive Vice Chairman of the Board of Directors   February 14, 2022
Michael De Prado        
         
/s/ Adiv Baruch   Director   February 14, 2022
Adiv Baruch        
         
/s/ Yochanon Bruk   Director   February 14, 2022
Yochanon Bruk        
         
/s/ Carol Pepper   Director   February 14, 2022
Carol Pepper        
         
/s/ Jeff Lewis   Director   February 14, 2022
Jeff Lewis        
         
/s/ Edward Maldonado   Director   February 14, 2022
Edward Maldonado        

 

 

57

 

 

Exhibit 4.4

 

CUENTAS INC., as

ISSUER

 

 

and

[                                    ], as

INDENTURE TRUSTEE

 

 

INDENTURE

Dated as of [                  ]

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE 1
     
Section 1.01 Definitions 1
Section 1.02 Other Definitions 4
Section 1.03 Incorporation by Reference of Trust Indenture Act 4
Section 1.04 Rules of Construction 5
   
ARTICLE II THE SECURITIES 5
     
Section 2.01 Issuable in Series 5
Section 2.02 Establishment of Terms of Series of Securities 5
Section 2.03 Execution and Authentication 7
Section 2.04 Registrar and Paying Agent 8
Section 2.05 Paying Agent to Hold Money in Trust 8
Section 2.06 Holder Lists 8
Section 2.07 Transfer and Exchange 8
Section 2.08 Mutilated, Destroyed, Lost and Stolen Securities 9
Section 2.09 Outstanding Securities 9
Section 2.10 Treasury Securities 9
Section 2.11 Temporary Securities 10
Section 2.12 Cancellation 10
Section 2.13 Defaulted Interest 10
Section 2.14 Global Securities 10
Section 2.15 CUSIP Numbers 11
   
ARTICLE III REDEMPTION 12
     
Section 3.01 Notice to Trustee 12
Section 3.02 Selection of Securities to be Redeemed 12
Section 3.03 Notice of Redemption 12
Section 3.04 Effect of Notice of Redemption 13
Section 3.05 Deposit of Redemption Price 13
Section 3.06 Securities Redeemed in Part 13
   
ARTICLE IV COVENANTS 13
     
Section 4.01 Payment of Principal and Interest 13
Section 4.02 SEC Reports 13
Section 4.03 Compliance Certificate 13
Section 4.04 Stay, Extension and Usury Laws 13
   
ARTICLE V SUCCESSORS 14
     
Section 5.01 When Company May Merge, Etc 14
Section 5.02 Successor Corporation Substituted 14

 

i

 

 

ARTICLE VI DEFAULTS AND REMEDIES 14
     
Section 6.01 Events of Default 14
Section 6.02 Acceleration of Maturity; Rescission and Annulment 15
Section 6.03 Collection of Indebtedness and Suits for Enforcement by Trustee 16
Section 6.04 Trustee May File Proofs of Claim 16
Section 6.05 Trustee May Enforce Claims Without Possession of Securities 17
Section 6.06 Application of Money Collected 17
Section 6.07 Limitation on Suits 17
Section 6.08 Unconditional Right of Holders to Receive Principal and Interest 18
Section 6.09 Restoration of Rights and Remedies 18
Section 6.10 Rights and Remedies Cumulative 18
Section 6.11 Delay or Omission Not Waiver 18
Section 6.12 Control by Holders 18
Section 6.13 Waiver of Past Defaults 18
Section 6.14 Undertaking for Costs 19
   
ARTICLE VII TRUSTEE 19
     
Section 7.01 Duties of Trustee 19
Section 7.02 Rights of Trustee 20
Section 7.03 Individual Rights of Trustee 21
Section 7.04 Trustee’s Disclaimer 21
Section 7.05 Notice of Defaults 21
Section 7.06 Reports by Trustee to Holders 22
Section 7.07 Compensation and Indemnity 22
Section 7.08 Replacement of Trustee 22
Section 7.09 Successor Trustee by Merger, etc 23
Section 7.10 Eligibility; Disqualification 23
Section 7.11 Preferential Collection of Claims Against Company 23
   
ARTICLE VIII SATISFACTION AND DISCHARGE; DEFEASANCE 23
     
Section 8.01 Satisfaction and Discharge of Indenture 23
Section 8.02 Application of Trust Funds; Indemnification 24
Section 8.03 Legal Defeasance of Securities of any Series 24
Section 8.04 Covenant Defeasance 26
Section 8.05 Repayment to Company 26
Section 8.06 Reinstatement 27

 

ARTICLE IX AMENDMENTS AND WAIVERS 27
     
Section 9.01 Without Consent of Holders 27
Section 9.02 With Consent of Holders 28
     
Section 9.03 Limitations 28
Section 9.04 Compliance with Trust Indenture Act 29
Section 9.05 Revocation and Effect of Consents 29
Section 9.06 Notation on or Exchange of Securities 29
Section 9.07 Trustee Protected 29

 

ii

 

   
ARTICLE X MISCELLANEOUS 29
     
Section 10.01 Trust Indenture Act Controls 29
Section 10.02 Notices 30
Section 10.03 Communication by Holders with Other Holders 30
Section 10.04 Certificate and Opinion as to Conditions Precedent 30
Section 10.05 Statements Required in Certificate or Opinion 30
Section 10.06 Rules by Trustee and Agents 31
Section 10.07 Legal Holidays 31
Section 10.08 No Recourse Against Others 31
Section 10.09 Counterparts 31
Section 10.10 Governing Laws 31
Section 10.11 No Adverse Interpretation of Other Agreements 31
Section 10.12 Successors 31
Section 10.13 Severability 31
Section 10.14 Table of Contents, Headings, Etc 31
Section 10.15 Securities in a Foreign Currency 32
Section 10.16 U.S.A. Patriot Act 32
Section 10.17 Waiver of Jury Trial 32
   
ARTICLE XI SINKING FUNDS 32
     
Section 11.01 Applicability of Article 32
Section 11.02 Satisfaction of Sinking Fund Payments with Securities 33
Section 11.03 Redemption of Securities for Sinking Fund 33

 

iii

 

 

CUENTAS INC.

Reconciliation and tie between Trust Indenture Act of 1939 and

Indenture, dated as of                 .

 

Section 310 (a)(1)      7.10   
(a)(2)      7.10   
(a)(3)      NOT APPLICABLE   
(a)(4)      NOT APPLICABLE   
(a)(5)      7.10   
(b)      7.10   
Section 311 (a)      7.11   
(b)      7.11   
(c)      NOT APPLICABLE   
Section 312 (a)      2.06   
(b)      10.03   
(c)      10.03   
Section 313 (a)      7.06   
(b)(1)      7.06   
(b)(2)      7.06   
(c)(1)      7.06   
(d)      7.06   
Section 314 (a)      4.02, 10.05   
(b)      NOT APPLICABLE   
(c)(1)      10.04   
(c)(2)      10.04   
(c)(3)      NOT APPLICABLE   
(d)      NOT APPLICABLE   
(e)      10.05   
(f)      NOT APPLICABLE   
Section 315 (a)      7.01   
(b)      7.05   
(c)      7.01   
(d)      7.01   
(e)      6.14   
Section 316 (a)      2.10   
(a)(1)(a)      6.12   
(a)(1)(b)      6.13   
(b)      6.08   
Section 317 (a)(1)      6.03   
(a)(2)      6.04   
(b)      2.05   
Section 318 (a)      10.01   

 

iv

 

 

INDENTURE, dated as of [            ], between Cuentas Inc., a Florida corporation (“Company”), and [                ], as trustee (“Trustee”).

 

Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities issued under this Indenture.

 

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

 

Section 1.01 Definitions.

 

“Additional Amounts” means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid by the Company in respect of certain taxes imposed on Holders specified herein or therein and which are owing to such Holders, as calculated by the Company.

 

“Affiliate” of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities or by agreement or otherwise.

 

“Agent” means any Registrar or Paying Agent.

 

“Applicable Procedures” means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of DTC or any successor Depositary, in each case to the extent applicable to such transaction and as in effect from time to time.

 

“Board of Directors” means the Board of Directors of the Company or any duly authorized committee thereof.

 

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been adopted by the Board of Directors or pursuant to authorization by the Board of Directors and to be in full force and effect on the date of the certificate and delivered to the Trustee.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which banking institutions are authorized or required by law, regulation or executive order to close or be closed in the State of New York.

 

“Capital Interests” means any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, including, without limitation, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership.

 

“Company” means the party named as such above until a successor replaces it and thereafter means the successor.

 

1

 

 

“Company Order” means a written order signed in the name of the Company by two Officers, one of whom must be the Company’s principal executive officer, principal financial officer or principal accounting officer.

 

“Company Request” means a written request signed in the name of the Company by its Chief Executive Officer or Chief Financial Officer and delivered to the Trustee.

 

“Corporate Trust Office” means the address of the Trustee specified in Section 10.02, or such other address as to which the Trustee may give notice to the Holders and the Company.

 

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

 

“Depositary” means, with respect to the Securities of any Series issuable or issued in whole or part in the form of one or more Global Securities, the person designated as Depositary for such Series by the Company, which Depositary shall be a clearing agency registered under the Exchange Act; and if at any time there is more than one such person, “Depositary” as used with respect to the Securities of any Series shall mean the Depositary with respect to the Securities of such Series.

 

“Discount Security” means any Security that provides for an amount less than the stated principal amount thereof to be due and payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.02.

 

“Dollars” and “$” means the currency of The United States of America.

 

“DTC” means the Depository Trust Company, a New York corporation.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Foreign Currency” means any currency or currency unit issued by a government other than the government of The United States of America.

 

“Foreign Government Obligations” means, with respect to Securities of any Series that are denominated in a Foreign Currency, (i) direct obligations of the government that issued or caused to be issued such currency for the payment of which obligations its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by or acting as an agency or instrumentality of such government the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by such government, which, in either case under clauses (i) or (ii), are not callable or redeemable at the option of the issuer thereof.

 

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession.

 

“Global Security” or “Global Securities” means a Security or Securities, as the case may be, in the form established pursuant to Section 2.02 evidencing all or part of a Series of Securities, issued to the Depositary for such Series or its nominee, and registered in the name of such Depositary or nominee.

 

“Holder” means a person in whose name a Security is registered.

 

2

 

 

“Indenture” means this Indenture as amended or supplemented from time to time and shall include the form and terms of particular Series of Securities established as contemplated hereunder.

 

“interest” with respect to any Discount Security which by its terms bears interest only after Maturity means interest payable after Maturity.

 

“Maturity,” when used with respect to any Security or installment of principal thereof, means the date on which the principal of such Security or such installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.

 

“Officer” means the Chief Executive Officer, Chief Financial Officer, any Vice-President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of the Company.

 

“Officers’ Certificate” means a certificate signed by two Officers, one of whom must be the Company’s principal executive officer, principal financial officer or principal accounting officer.

 

“Opinion of Counsel” means a written opinion of legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company.

 

“person” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

 

“principal” of a Security means the principal of the Security plus, when appropriate, the premium, if any, on, and any Additional Amounts in respect of, the Security.

 

“Responsible Officer” means any officer of the Trustee in its Corporate Trust Office with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with a particular subject.

 

“SEC” means the Securities and Exchange Commission.

 

“Securities” means the debentures, notes or other debt instruments of the Company of any Series authenticated and delivered under this Indenture.

 

“Series” or “Series of Securities” means each series of debentures, notes or other debt instruments of the Company created pursuant to Sections 2.01 and 2.02 hereof.

 

“Stated Maturity” means when used with respect to any Security or any installment of principal thereof or interest thereon, the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.

 

“Subsidiary” means, with respect to any person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof or, in the case of a partnership, more than 50% of the partners’ Capital Interests (considering all partners’ Capital Interests as a single class), is at the time owned or controlled, directly or indirectly, by such person or one or more of the other Subsidiaries of such person or combination thereof.

 

3

 

 

“TIA” means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of this Indenture and the rules and regulations promulgated thereunder; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “TIA” means, to the extent required by any such amendment, the Trust Indenture Act as so amended.

 

“Trustee” means the person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean each person who is then a Trustee hereunder, and if at any time there is more than one such person, “Trustee” as used with respect to the Securities of any Series shall mean the Trustee with respect to Securities of that Series.

 

“U.S. Government Obligations” means securities which are (i) direct obligations of The United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of The United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by The United States of America, and which are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation evidenced by such depository receipt.

 

Section 1.02 Other Definitions.

       

TERM

  Defined in Section
Bankruptcy Law     6.01
Custodian     6.01
Event of Default     6.01
Legal Holiday     10.07
mandatory sinking fund payment     11.01
Market Exchange Rate     10.15
optional sinking fund payment     11.01
Paying Agent     2.04
Registrar     2.04
Successor Person     5.01

 

Section 1.03 Incorporation by Reference of Trust Indenture Act.

 

Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings:

 

“Commission” means the SEC.

 

“indenture securities” means the Securities.

 

“indenture security holder” means a Holder.

 

“indenture to be qualified” means this Indenture.

 

“indenture trustee” or “institutional trustee” means the Trustee.

 

“obligor” on the indenture securities means the Company and any successor obligor upon the Securities.

 

All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise defined herein are used herein as so defined.

 

4

 

 

Section 1.04 Rules of Construction.

 

Unless the context otherwise requires:

 

(a) a term has the meaning assigned to it;

 

(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles;

 

(c) references to “generally accepted accounting principles” and “GAAP” shall mean generally accepted accounting principles in effect as of the time when and for the period as to which such accounting principles are to be applied;

 

(d) “or” is not exclusive;

 

(e) words in the singular include the plural, and in the plural include the singular; and

 

(f) provisions apply to successive events and transactions.

 

 

ARTICLE II

THE SECURITIES

 

Section 2.01 Issuable in Series. The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more Series. All Securities of a Series shall be identical except as may be set forth or determined in the manner provided in a Board Resolution, supplemental indenture or Officers’ Certificate detailing the adoption of the terms thereof pursuant to authority granted under a Board Resolution. In the case of Securities of a Series to be issued from time to time, the Board Resolution, Officers’ Certificate or supplemental indenture detailing the adoption of the terms thereof pursuant to authority granted under a Board Resolution may provide for the method by which specified terms (such as interest rate, maturity date, record date or date from which interest shall accrue) are to be determined. Securities may differ between Series in respect of any matters, provided that all Series of Securities shall be equally and ratably entitled to the benefits of the Indenture.

 

Section 2.02 Establishment of Terms of Series of Securities. At or prior to the issuance of any Securities within a Series, the following shall be established (as to the Series generally, in the case of Subsection 2.02(a) and either as to such Securities within the Series or as to the Series generally in the case of Subsections 2.02(b) through 2.02(s)) by or pursuant to a Board Resolution, and set forth or determined in the manner provided in a Board Resolution, supplemental indenture or an Officers’ Certificate:

 

(a) the form and title of the Series (which shall distinguish the Securities of that particular Series from the Securities of any other Series);

 

5

 

 

(b) the price or prices (expressed as a percentage of the principal amount thereof) at which the Securities of the Series will be issued;

 

(c) any limit upon the aggregate principal amount of the Securities of the Series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the Series pursuant to Sections 2.07, 2.08, 2.11, 3.06 or 9.06);

 

(d) the date or dates on which the principal of the Securities of the Series is payable;

 

(e) the rate or rates (which may be fixed or variable) per annum or, if applicable, the method used to determine such rate or rates (including, but not limited to, any commodity, commodity index, stock exchange index or financial index) at which the Securities of the Series shall bear interest, if any, the date or dates from which such interest, if any, shall accrue, the date or dates on which such interest, if any, shall commence and be payable and any regular record date for the interest payable on any interest payment date;

 

(f) the place or places where the principal of and interest, if any, on the Securities of the Series shall be payable, where the Securities of such Series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of such Series and this Indenture may be served, and the method of such payment, if by wire transfer, mail or other means;

 

(g) if applicable, the period or periods within which, the price or prices at which and the terms and conditions upon which the Securities of the Series may be redeemed, in whole or in part, at the option of the Company;

 

(h) the obligation, if any, of the Company to redeem or purchase the Securities of the Series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the Series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;

 

(i) the dates, if any, on which and the price or prices at which the Securities of the Series will be repurchased by the Company at the option of the Holders thereof and other detailed terms and provisions of such repurchase obligations;

 

(j) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which the Securities of the Series shall be issuable;

 

(k) if other than the principal amount thereof, the portion of the principal amount of the Securities of the Series that shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.02;

 

(l) the currency of denomination of the Securities of the Series, which may be Dollars or any Foreign Currency, and the agency or organization, if any, responsible for overseeing such composite currency;

 

(m) the provisions, if any, relating to any security provided for the Securities of the Series;

 

6

 

 

(n) any addition to or change in the Events of Default which applies to any Securities of the Series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 6.02;

 

(o) any addition to or change in the covenants set forth in Articles IV or V which applies to Securities of the Series;

 

(p) the provisions, if any, relating to conversion of any Securities of such Series, including, if applicable, the securities into which the Securities are convertible, the conversion price, the conversion period, provisions as to whether conversion will be mandatory, at the option of the Holders or at the option of the Company, the events requiring an adjustment of the conversion price and provisions affecting conversion if such Series of Securities are redeemed;

 

(q) whether the Securities of such Series will be senior debt securities or subordinated debt securities and, if applicable, a description of the subordination terms thereof;

 

(r) any depositaries, interest rate calculation agents, exchange rate calculation agents or other agents with respect to Securities of such Series if other than those appointed herein; and

 

(s) any other terms of the Securities of the Series (which may modify or delete any provision of this Indenture insofar as it applies to such Series).

 

All Securities of any one Series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided by or pursuant to the Board Resolution, supplemental indenture hereto or Officers’ Certificate referred to above, and, unless otherwise provided in such Board Resolution, a Series may be reopened, without the consent of the Holders, for increases in the aggregate principal amount of such Series and issuances of additional Securities of such Series.

 

Section 2.03 Execution and Authentication. At least one Officer shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall at any time, and from time to time, authenticate Securities for original issue in the principal amount provided in the Board Resolution, supplemental indenture hereto or Officers’ Certificate, upon receipt by the Trustee of a Company Order. Such Company Order may authorize authentication and delivery pursuant to electronic instructions in PDF from the Company or its duly authorized agent or agents. Each Security shall be dated the date of its authentication unless otherwise provided by a Board Resolution, a supplemental indenture hereto or an Officers’ Certificate. The aggregate principal amount of Securities of any Series outstanding at any time may not exceed any limit upon the maximum principal amount for such Series set forth in the Board Resolution, supplemental indenture hereto or Officers’ Certificate delivered pursuant to Section 2.02, except as provided in Section 2.02 or 2.08. Prior to the issuance of Securities of any Series, the Trustee shall have received and (subject to Section 7.02) shall be fully protected in relying on: (a) the Board Resolution, supplemental indenture hereto or Officers’ Certificate establishing the form of the Securities of that Series or of Securities within that Series and the terms of the Securities of that Series or of Securities within that Series, (b) an Officers’ Certificate complying with Section 10.04 and (c)(1) an Opinion of Counsel complying with Section 10.04 or (2) an Opinion of Counsel (or reliance letter with respect to an Opinion of Counsel) that the Securities have been duly authorized, executed and delivered by the Company and such Securities will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with its terms. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company.

 

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Section 2.04 Registrar and Paying Agent. The Company shall maintain, with respect to each Series of Securities, at the place or places specified with respect to such Series pursuant to Section 2.02, an office or agency where Securities of such Series may be presented or surrendered for payment (“Paying Agent”), and where Securities of such Series may be surrendered for registration of transfer or exchange (“Registrar”). The Registrar shall keep a register with respect to each Series of Securities and of their transfer and exchange. The Company hereby appoints the Trustee as Paying Agent and Registrar. The Company will give prompt written notice to the Trustee of the name and address, and any change in the name or address, of each Registrar or Paying Agent. The Company may also from time to time designate one or more co-registrars or additional paying agents and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain a Registrar and a Paying Agent in each place so specified pursuant to Section 2.02 for Securities of any Series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the name or address of any such co-registrar or additional paying agent. The term “Registrar” includes any co-registrar; and the term “Paying Agent” includes any additional paying agent. The Company hereby appoints the Trustee as the initial Registrar and Paying Agent for each Series unless another Registrar or Paying Agent, as the case may be, is appointed prior to the time Securities of that Series are first issued.

 

Section 2.05 Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust, for the benefit of Holders of any Series of Securities, or the Trustee, all money held by the Paying Agent for the payment of principal of or interest on the Series of Securities, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary of the Company) shall have no further liability for the money. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of Holders of any Series of Securities all money held by it as Paying Agent. Upon an Event of Default under Section 6.01(d) or (e), the Trustee shall be the Paying Agent.

 

Section 2.06 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders of each Series of Securities and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least ten (10) days before each interest payment date and at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Holders of each Series of Securities.

 

Section 2.07 Transfer and Exchange. Where Securities of a Series are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount of Securities of the same Series, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Trustee shall authenticate Securities at the Registrar’s request. No service charge shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.11, 3.06 or 9.06). Neither the Company nor the Registrar shall be required (a) to issue, register the transfer of, or exchange Securities of any Series for the period beginning at the opening of business fifteen days immediately preceding the delivery of a notice of redemption of Securities of that Series selected for redemption and ending at the close of business on the day of such delivery, or (b) to register the transfer of or exchange Securities of any Series selected, called or being called for redemption as a whole or the portion being redeemed of any such Securities selected, called or being called for redemption in part.

 

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Section 2.08 Mutilated, Destroyed, Lost and Stolen Securities.

 

(a) If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a protected purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.

 

(b) Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any Series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that Series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

 

Section 2.09 Outstanding Securities. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest on a Global Security effected by the Trustee in accordance with the provisions hereof and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.08, it ceases to be outstanding until the Trustee receives proof satisfactory to it that the replaced Security is held by a protected purchaser. If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of the Company) holds on the Maturity of Securities of a Series money sufficient to pay such Securities payable on that date, then on and after that date such Securities of the Series cease to be outstanding and interest on them ceases to accrue. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. In determining whether the Holders of the requisite principal amount of outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of a Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the Maturity thereof pursuant to Section 6.02.

 

Section 2.10 Treasury Securities. In determining whether the Holders of the required principal amount of Securities of a Series have concurred in any request, demand, authorization, direction, notice, consent or waiver, Securities of a Series owned by the Company shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such request, demand, authorization, direction, notice, consent or waiver, only Securities of a Series that a Responsible Officer of the Trustee knows are so owned shall be so disregarded.

 

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Section 2.11 Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities upon a Company Order. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee upon request shall authenticate definitive Securities of the same Series and date of maturity in exchange for temporary Securities. Until so exchanged, temporary securities shall have the same rights under this Indenture as the definitive Securities.

 

Section 2.12 Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation in accordance with its customary procedures. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation.

 

Section 2.13 Defaulted Interest. If the Company defaults in a payment of interest on a Series of Securities, it shall pay the defaulted interest at the rate established for the particular Series, if any, plus, to the extent permitted by law, any interest payable on the defaulted interest, to the persons who are Holders of the Series on a subsequent special record date. The Company shall fix the special record date and payment date; provided that if no rate for defaulted interest is specified for any Series of Securities, then the defaulted interest rate shall be the interest rate specified for such Series of Securities. At least ten (10) days before the special record date, the Company shall deliver to the Trustee and to each Holder of the Series a notice that states the record date, the related payment date and the amount of interest to be paid. The Company may also pay defaulted interest in any other lawful manner.

 

Section 2.14 Global Securities

 

(a) Terms of Securities. A Board Resolution, a supplemental indenture hereto or an Officers’ Certificate shall establish whether the Securities of a Series shall be issued in whole or in part in the form of one or more Global Securities and the Depositary for such Global Security or Securities.

 

(b) Transfer and Exchange. Notwithstanding any provisions to the contrary contained in Section 2.07 of the Indenture and in addition thereto, any Global Security shall be exchangeable pursuant to Section 2.07 of the Indenture for Securities registered in the names of Holders other than the Depositary for such Security or its nominee only if (i) such Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a clearing agency registered under the Exchange Act, and, in either case, the Company fails to appoint a successor Depositary registered as a clearing agency under the Exchange Act within 90 days of such event, (ii) the Company executes and delivers to the Trustee an Officers’ Certificate to the effect that such Global Security shall be so exchangeable or (iii) an Event of Default with respect to the Securities represented by such Global Security shall have happened and be continuing. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as the Depositary shall direct in writing in an aggregate principal amount equal to the principal amount of the Global Security with like tenor and terms.

 

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(c) Except as provided in this Section 2.14(c), a Global Security may not be transferred except as a whole by the Depositary with respect to such Global Security to a nominee of such Depositary, by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such a successor Depositary.

 

(d) Legend. Any Global Security issued hereunder shall bear a legend in substantially the following form:

 

“This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of the Depositary or a nominee of the Depositary. This Security is exchangeable for Securities registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture, and may not be transferred except as a whole by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such a successor Depositary.”

 

(e) Acts of Holders. The Depositary, as a Holder, may appoint agents and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under the Indenture.

 

(f) Payments. Notwithstanding the other provisions of this Indenture, unless otherwise specified as contemplated by Section 2.02, payment of the principal of and interest, if any, on any Global Security shall be made to the Holder thereof.

 

(g) Consents, Declaration and Directions. Except as provided in Section 2.14(g), the Company, the Trustee and any Agent shall treat a person as the Holder of such principal amount of outstanding Securities of such Series represented by a Global Security as shall be specified in a written statement of the Depositary with respect to such Global Security, for purposes of obtaining any consents, declarations, waivers or directions required to be given by the Holders pursuant to this Indenture.

 

(h) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner’s beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee and such owners of beneficial interests in a Global Security will not be considered the owners or holders thereof. Notwithstanding any other provision of this Indenture or any Security, where this Indenture or any Global Security provides for notice of any event (including any notice of redemption or repurchase) to a Holder of a Global Security (whether by mail or otherwise), such notice shall be sufficiently given if given to the Depositary (or its designee) pursuant to the standing instructions from the Depositary or its designee, including by electronic mail in accordance with applicable Depositary procedures.

 

Section 2.15 CUSIP Numbers. The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other elements of identification printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee of any change in “CUSIP” numbers of which the Company becomes aware.

 

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ARTICLE III

REDEMPTION

 

Section 3.01 Notice to Trustee. The Company may, with respect to any Series of Securities, reserve the right to redeem and pay the Series of Securities or may covenant to redeem and pay the Series of Securities or any part thereof prior to the Stated Maturity thereof at such time and on such terms as provided for in such Securities. If a Series of Securities is redeemable and the Company wants or is obligated to redeem prior to the Stated Maturity thereof all or part of the Series of Securities pursuant to the terms of such Securities, it shall notify the Trustee of the redemption date and the principal amount of the Series of Securities to be redeemed.

 

Section 3.02 Selection of Securities to be Redeemed. Unless otherwise indicated for a particular Series by a Board Resolution, a supplemental indenture or an Officers’ Certificate, if less than all the Securities of a Series are to be redeemed, the Trustee shall select the Securities of the Series to be redeemed in any manner that the Trustee deems fair and appropriate. The Trustee shall make the selection from Securities of the Series outstanding not previously called for redemption. Securities of a Series and portions selected for redemption shall be in amounts of $1,000 or whole multiples of $1,000 or, with respect to Securities of any Series issuable in other denominations pursuant to Section 2.02(j), the minimum principal denomination for each Series and integral multiples thereof. Provisions of this Indenture that apply to Securities of a Series called for redemption also apply to portions of Securities of that Series called for redemption. The Trustee shall not be liable for the selection made in accordance with this Section 3.02.

 

Section 3.03 Notice of Redemption.

 

(a) Unless otherwise specified for a particular Series by a Board Resolution, a supplemental indenture or an Officers’ Certificate, at least 30 days but not more than 60 days before a redemption date, the Company shall deliver notice of redemption to each Holder whose Securities are to be redeemed. The notice shall identify the Securities of the Series to be redeemed and shall state:

 

(i) the redemption date;

 

(ii) the redemption price or the manner of the calculation of the redemption price;

 

(iii) the name and address of the Paying Agent;

 

(iv) that Securities of the Series called for redemption must be surrendered to the Paying Agent to collect the redemption price;

 

(v) that interest on Securities of the Series called for redemption ceases to accrue on and after the redemption date;

 

(vi) the CUSIP number, if any; and

 

(vii) any other information as may be required by the terms of the particular Series or the Securities of a Series being redeemed.

 

At the Company’s request, the Trustee shall give the notice of redemption in the Company’s name and at its expense; provided that the Company shall have delivered to the Trustee, at least five Business Days (or such shorter period as the Trustee may consent to in writing) before notice of redemption is required to be delivered or caused to be delivered to Holders pursuant to this Section 3.03, an Officers’ Certificate of the Company requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.

 

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Section 3.04 Effect of Notice of Redemption. Once notice of redemption is delivered as provided in Section 3.03, Securities of a Series called for redemption become due and payable on the redemption date and at the redemption price. A notice of redemption may not be conditional. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest to the redemption date; provided that installments of interest whose Stated Maturity is on or prior to the redemption date shall be payable to the Holders of such Securities (or one or more predecessor Securities) registered at the close of business on the relevant record date therefor according to their terms and the terms of this Indenture.

 

Section 3.05 Deposit of Redemption Price. Unless otherwise indicated for a particular Series by a Board Resolution, a supplemental indenture or an Officers’ Certificate, on or before 11:00 a.m., New York City time, on the redemption date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest, if any, on all Securities to be redeemed on that date.

 

Section 3.06 Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder a new Security of the same Series and the same maturity equal in principal amount to the unredeemed portion of the Security surrendered.

 

ARTICLE IV

COVENANTS

 

Section 4.01 Payment of Principal and Interest. The Company covenants and agrees for the benefit of the Holders of each Series of Securities that it will duly and punctually pay the principal of and interest, if any, on the Securities of that Series in accordance with the terms of such Securities and this Indenture.

 

Section 4.02 SEC Reports. Any information, documents or other reports that the Company shall file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is filed with the Commission; provided that any such information, documents or reports filed or furnished with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval (or EDGAR) system shall be deemed filed with the Trustee as of the time such information, documents or reports are filed or furnished via EDGAR.

 

Section 4.03 Compliance Certificate. The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, an Officers’ Certificate stating whether or not to the knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions hereof (without regard to any period of grace or requirement of notice provided hereunder), and if a Default or Event of Default shall have occurred, specifying all such Defaults or Events of Default and the nature and status thereof of which they may have knowledge.

 

Section 4.04 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture or the Securities or any other law that would prohibit or forgive the Company from paying all or any portion of the principal of, or interest on, the Securities as contemplated in the Indenture, any indenture supplemental thereto relating to the Securities or the Securities and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.

 

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ARTICLE V

SUCCESSORS

 

Section 5.01 When Company May Merge, Etc. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its properties and assets to, another person (a “Successor Person”) unless:

 

(a) the Company is the surviving corporation or the Successor Person (if other than the Company) is organized and validly existing under the laws of any U.S. domestic jurisdiction and expressly assumes the Company’s obligations on the Securities and under this Indenture; and

 

(b) immediately after giving effect to the transaction, no Default or Event of Default shall have occurred and be continuing.

 

The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers’ Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and any supplemental indenture comply with this Indenture.

 

Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, lease, conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Successor Person has been named as the Company herein; provided, however, that the predecessor Company in the case of a sale, conveyance or other disposition (other than a lease) shall be released from all obligations and covenants under this Indenture and the Securities.

 

ARTICLE VI

DEFAULTS AND REMEDIES

 

Section 6.01 Events of Default.

 

“Event of Default,” wherever used herein with respect to Securities of any Series, means any one of the following events, unless in the establishing Board Resolution, supplemental indenture or Officers’ Certificate, it is provided that such Series shall not have the benefit of said Event of Default or the terms of such Event of Default have been modified or superceded as set forth in the Board Resolution, supplemental indenture or Officers’ Certificate for such Securities of any Series:

 

(a) default in the payment of any interest on any Security of that Series when it becomes due and payable, and continuance of such default for a period of 30 days (unless the entire amount of such payment is deposited by the Company with the Trustee or with a Paying Agent prior to the expiration of such period of 30 days); or

 

(b) default in the payment of principal of any Security of that Series at its Maturity; or

 

(c) default in the performance or breach of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty for which the consequences of nonperformance or breach are addressed elsewhere in this Section 6.01 and other than a covenant or warranty that has been included in this Indenture solely for the benefit of a Series of Securities other than that Series), which default continues uncured for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of not less than a majority in principal amount of the outstanding Securities of that Series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

 

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(d) the Company pursuant to or within the meaning of any Bankruptcy Law:

 

(i) commences a voluntary case or proceeding;

 

(ii) consents to the entry of an order for relief against it in an involuntary case,

 

(iii) consents to the appointment of a Custodian of it or for all or substantially all of its property,

 

(iv) makes a general assignment for the benefit of its creditors, or

 

(v) makes an admission in writing that it is generally unable to pay its debts as the same become due; or

 

(e) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

 

(i) is for relief against the Company in an involuntary case,

 

(ii) appoints a Custodian of the Company or for all or substantially all of its property, or

 

(iii) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days; or

 

(f) any other Event of Default provided with respect to Securities of that Series, which is specified in a Board Resolution, a supplemental indenture hereto or an Officers’ Certificate, in accordance with Section 2.02(n).

 

The term “Bankruptcy Law” means Title 11 of the U.S. Code or any similar federal or state law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

 

Section 6.02 Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any Series at the time outstanding occurs and is continuing (other than an Event of Default referred to in Section 6.01(d) or (e)), then in every such case the Trustee or the Holders of not less than a majority in principal amount of the outstanding Securities of that Series may declare the principal amount (or, if any Securities of that Series are Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) of and accrued and unpaid interest, if any, on all of the Securities of that Series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) and accrued and unpaid interest, if any, shall become immediately due and payable. If an Event of Default specified in Section 6.01(d) or (e) shall occur, the principal amount (or specified amount) of and accrued and unpaid interest, if any, on all outstanding Securities shall be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration with respect to any Series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article; provided that the Holders of a majority in principal amount of the outstanding Securities of that Series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if all Events of Default with respect to Securities of that Series, other than the non-payment of the principal and interest, if any, of Securities of that Series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.13. No such rescission shall affect any subsequent Default or impair any right consequent thereon.

 

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Section 6.03 Collection of Indebtedness and Suits for Enforcement by Trustee.

 

The Company covenants that if:

 

(a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or

 

(b) default is made in the payment of principal of any Security at the Maturity thereof,

 

then the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and any overdue interest at the rate or rates prescribed therefor in such Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

 

If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or deemed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.

 

If an Event of Default with respect to any Securities of any Series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such Series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

 

Section 6.04 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

 

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Section 6.05 Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

 

Section 6.06 Application of Money Collected.

 

Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

 

First: To the payment of all amounts due the Trustee under Section 7.07; and

 

Second: To the payment of the amounts then due and unpaid for principal of and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest, respectively; and

 

Third: To the Company.

 

Section 6.07 Limitation on Suits. No Holder of any Security of any Series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

 

(a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that Series;

 

(b) the Holders of at least a majority in principal amount of the outstanding Securities of that Series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

 

(c) such Holder or Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;

 

(d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

 

(e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Securities of that Series;

 

it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders.

 

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Section 6.08 Unconditional Right of Holders to Receive Principal and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest, if any, on such Security on the Stated Maturity or Stated Maturities expressed in such Security (or, in the case of redemption, on the redemption date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

 

Section 6.09 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

 

Section 6.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 2.08, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not, to the extent permitted by law, prevent the concurrent assertion or employment of any other appropriate right or remedy.

 

Section 6.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

 

Section 6.12 Control by Holders. Subject to Section 7.02(f), the Holders of a majority in principal amount of the outstanding Securities of any Series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such Series, provided that:

 

(a) such direction shall not be in conflict with any rule of law or with this Indenture,

 

(b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and

 

(c) subject to the provisions of Section 7.01, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability.

 

Section 6.13 Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the outstanding Securities of any Series may on behalf of the Holders of all the Securities of such Series waive any past Default hereunder with respect to such Series and its consequences, except a Default (i) in the payment of the principal of or interest on any Security of such Series (provided, however, that the Holders of a majority in principal amount of the outstanding Securities of any Series may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration) or (ii) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each outstanding Security of such Series affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

 

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Section 6.14 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the outstanding Securities of any Series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security on or after the Stated Maturity or Stated Maturities expressed in such Security (or, in the case of redemption, on the redemption date).

 

ARTICLE VII

TRUSTEE

 

Section 7.01 Duties of Trustee.

 

(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

 

(b) Except during the continuance of an Event of Default:

 

(i) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee.

 

(ii) In the absence of bad faith on its part, the Trustee may conclusively rely and is fully protected, as to the truth of the statements and the correctness of the opinions expressed therein, upon Officers’ Certificates or Opinions of Counsel furnished to the Trustee and conforming to the requirements of this Indenture; however, in the case of any such Officers’ Certificates or Opinions of Counsel which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such Officers’ Certificates and Opinions of Counsel to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein) .

 

(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

 

(i) This paragraph does not limit the effect of paragraph (b) of this Section.

 

(ii) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.

 

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(iii) The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it with respect to Securities of any Series in good faith in accordance with the direction of the Holders of a majority in principal amount of the outstanding Securities of such Series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such Series.

 

(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraph (a), (b) and (c) of this Section.

 

(e) The Trustee may refuse to perform any duty or exercise any right or power at the request or direction of any Holder unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense.

 

(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

 

(g) No provision of this Indenture shall require the Trustee to risk its own funds or otherwise incur any financial liability in the performance of any of its duties, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk is not reasonably assured to it.

 

(h) The rights, privileges, protections, immunities and benefits given to the Trustee, including the right to be indemnified, are extended to, and shall be enforceable by the Trustee in each of its capacities hereunder and to its agents. The provisions set forth in paragraphs (a), (b) and (c) of this Section shall apply to the Trustee in each of its capacities hereunder and its agents.

 

Section 7.02 Rights of Trustee.

 

(a) The Trustee may conclusively rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

 

(b) Before the Trustee acts or refrains from acting at the direction of the Company, it may require an Officers’ Certificate. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate.

 

(c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. No Depositary shall be deemed an agent of the Trustee, and the Trustee shall not be responsible for any act or omission by any Depositary.

 

(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers, provided that the Trustee’s conduct does not constitute negligence or willful misconduct.

 

(e) The Trustee may consult with counsel, and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder without negligence and in good faith and in reliance thereon.

 

(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

 

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(g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by the Trustee to be genuine and to have been signed or delivered by the proper person.

 

(h) The Trustee shall not be deemed to have notice of any Default or Event of Default, other than a failure by the Company to make any payment hereunder when due if the Trustee is the Paying Agent, unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities generally or the Securities of a particular Series and this Indenture and states that it is a “notice of default.”

 

(i) The permissive rights of the Trustee enumerated herein shall not be construed as duties.

 

(j) In no event shall the Trustee be responsible or liable for any special, indirect, punitive, incidental or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

 

(k) Neither the Trustee nor any Agent shall be responsible or liable for any failure or delay in the performance of its obligation under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fire; flood; wars; acts of terrorism; civil or military disturbances; sabotage; epidemic; riots; interruptions, loss or malfunctions of utilities, computer (hardware or software) or communications services; accidents; labor disputes; acts of civil or military authority or governmental action; it being understood that each of the Trustee and Agents shall use commercially reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as reasonably practicable under the circumstances.

 

(l) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.

 

Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee is also subject to Sections 7.10 and 7.11.

 

Section 7.04 Trustee’s Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company’s use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its authentication.

 

Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing with respect to the Securities of any Series and if it is known to a Responsible Officer of the Trustee, the Trustee shall deliver to each Holder of the Securities of that Series notice of a Default or Event of Default within 90 days after it occurs or, if later, after a Responsible Officer of the Trustee has knowledge of such Default or Event of Default. Except in the case of a Default or Event of Default in payment of principal of or interest on any Security of any Series, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of Holders of that Series.

 

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Section 7.06 Reports by Trustee to Holders. Within 60 days after March 15 in each year, the Trustee shall transmit by deliver to all Holders, as their names and addresses appear on the register kept by the Registrar a brief report dated as of such March 15, in accordance with, and to the extent required under, TIA Section 313. A copy of each report at the time of its delivery to Holders of any Series shall be filed with the SEC and each stock exchange on which the Securities of that Series are listed. The Company shall promptly notify the Trustee when Securities of any Series are listed on any stock exchange.

 

Section 7.07 Compensation and Indemnity. The Company shall pay to the Trustee from time to time compensation for its services as the Company and the Trustee shall from time to time agree upon in writing. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and expenses of the Trustee’s agents and counsel. The Company shall indemnify each of the Trustee and any predecessor Trustee (including the cost of defending itself) against any loss, liability or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) incurred by it except as set forth in this Section 7.07 in the performance of its duties under this Indenture as Trustee or Agent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure or delay by the Trustee to so notify the Company of any claim for which it may seek indemnity shall not relieve the Company of its obligations hereunder except to the extent such failure or delay shall have materially prejudiced the Company. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have one separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. This indemnification shall apply to officers, directors, employees, shareholders and agents of the Trustee. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee or by any officer, director, employee, shareholder or agent of the Trustee through the gross negligence or willful misconduct of any such persons as determined by a final order of a court of competent jurisdiction. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(d) or (e) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any insolvency, bankruptcy or similar law. The provisions of this Section shall survive the resignation or removal of the Trustee and the termination or discharge of this Indenture.

 

Section 7.08 Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section. The Trustee may resign with respect to the Securities of one or more Series by so notifying the Company at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the Securities of any Series may remove the Trustee with respect to that Series by so notifying the Trustee and the Company. The Company may remove the Trustee with respect to Securities of one or more Series if:

 

(a) the Trustee fails to comply with Section 7.10;

 

(b) the Trustee is adjudged bankrupt or insolvent or an order for relief is entered with respect to the Trustee under any insolvency, bankruptcy or similar law;

 

(c) a custodian or public officer takes charge of the Trustee or its property; or

 

(d) the Trustee becomes incapable of acting.

 

If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee.

 

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If a successor Trustee with respect to the Securities of any one or more Series does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least a majority in principal amount of the Securities of the applicable Series may petition any court of competent jurisdiction for the appointment of a successor Trustee.

 

A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee subject to the lien provided for in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee with respect to each Series of Securities for which it is acting as Trustee under this Indenture. A successor Trustee shall deliver a notice of its succession to each Holder of each such Series. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company’s obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee with respect to expenses and liabilities incurred by it prior to the date of such replacement.

 

Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business (including administration of this Indenture) to, another corporation, the successor corporation without any further act shall be the successor Trustee.

 

Section 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5) and has a combined capital and surplus of at least $50,000,000. The Trustee shall comply with TIA Section 310(b).

 

Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated.


ARTICLE VIII

SATISFACTION AND DISCHARGE; DEFEASANCE

 

Section 8.01 Satisfaction and Discharge of Indenture.

 

This Indenture shall upon Company Order cease to be of further effect (except as hereinafter provided in this Section 8.01), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when

 

(a) any of the following shall have occurred:

 

(i) no Securities have been issued hereunder;

 

(ii) all Securities theretofore authenticated and delivered (other than Securities that have been destroyed, lost or stolen and that have been replaced or paid) have been delivered to the Trustee for cancellation; or

 

(iii) all such Securities not theretofore delivered to the Trustee for cancellation (1) have become due and payable, or (2) will become due and payable at their Stated Maturity within one year, or (3) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust an amount sufficient for the purpose of paying and discharging the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Securities which have become due and payable on or prior to the date of such deposit) or to the Stated Maturity or redemption date, as the case may be;

 

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(b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and

 

(c) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.

 

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.07 and, if money shall have been deposited with the Trustee pursuant to clause (a) of this Section, the provisions of Sections 2.04, 2.05, 2.07, 2.08, 8.01, 8.02 and 8.05 shall survive.

 

Section 8.02 Application of Trust Funds; Indemnification.

 

(a) Subject to the provisions of Section 8.05, all money deposited with the Trustee pursuant to Section 8.01, all money and U.S. Government Obligations or Foreign Government Obligations deposited with the Trustee pursuant to Section 8.03 or 8.04 and all money received by the Trustee in respect of U.S. Government Obligations or Foreign Government Obligations deposited with the Trustee pursuant to Section 8.03 or 8.04, shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company acting as its own Paying Agent) as the Trustee may determine, to the persons entitled thereto, of the principal and interest for whose payment such money has been deposited with or received by the Trustee or analogous payments as contemplated by Sections 8.03 or 8.04.

 

(b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against U.S. Government Obligations or Foreign Government Obligations deposited pursuant to Sections 8.03 or 8.04 or the interest and principal received in respect of such obligations other than any payable by or on behalf of Holders.

 

(c) The Trustee shall deliver or pay to the Company from time to time upon Company Request any U.S. Government Obligations or Foreign Government Obligations or money held by it as provided in Sections 8.03 or 8.04 which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such U.S. Government Obligations or Foreign Government Obligations or money were deposited or received. This provision shall not authorize the sale by the Trustee of any U.S. Government Obligations or Foreign Government Obligations held under this Indenture.

 

Section 8.03 Legal Defeasance of Securities of any Series. Unless this Section 8.03 is otherwise specified, pursuant to Section 2.02(s), to be inapplicable to Securities of any Series, the Company shall be deemed to have paid and discharged the entire indebtedness on all the outstanding Securities of any Series on the 91st day after the date of the deposit referred to in subparagraph (d) hereof, and the provisions of this Indenture, as it relates to such outstanding Securities of such Series, shall no longer be in effect (and the Trustee, at the expense of the Company, shall, at Company Request, execute such instruments reasonably requested by the Company acknowledging the same), except as to:

 

(a) the rights of Holders of Securities of such Series to receive, from the trust funds described in subparagraph (d) hereof, (i) payment of the principal of and each installment of principal of and interest on the outstanding Securities of such Series on the Stated Maturity of such principal or installment of principal or interest, and (ii) the benefit of any mandatory sinking fund payments applicable to the Securities of such Series on the day on which such payments are due and payable in accordance with the terms of this Indenture and the Securities of such Series; and

 

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(b) the provisions of Sections 2.04, 2.05, 2.07, 2.08, 8.02, 8.03 and 8.05; and

 

(c) the rights, powers, trust and immunities of the Trustee hereunder; provided that, the following conditions shall have been satisfied:

 

(d) with reference to this Section 8.03, the Company shall have deposited or caused to be irrevocably deposited (except as provided in Section 8.02(c)) with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for and dedicated solely to the benefit of the Holders of such Securities (i) in the case of Securities of such Series denominated in Dollars, cash in Dollars and/or U.S. Government Obligations, or (ii) in the case of Securities of such Series denominated in a Foreign Currency (other than a composite currency), money and/or Foreign Government Obligations, which through the payment of interest and principal in respect thereof in accordance with their terms, will provide (and without reinvestment and assuming no tax liability will be imposed on such Trustee), not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal of and interest, if any, on and any mandatory sinking fund payments in respect of all the Securities of such Series on the dates such installments of interest or principal and such sinking fund payments are due;

 

(e) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;

 

(f) no Default or Event of Default with respect to the Securities of such Series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;

 

(g) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel to the effect that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Securities of such Series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred;

 

(h) the Company shall have delivered to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities of such Series over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company;

 

(i) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this Section have been complied with; and

 

(j) such defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust shall be registered under such Act or exempt from registration thereunder.

 

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Section 8.04 Covenant Defeasance. Unless this Section 8.04 is otherwise specified, pursuant to Section 2.02(s), to be inapplicable to Securities of any Series, on and after the 91st day after the date of the deposit referred to in subparagraph (a) hereof, the Company may omit to comply with respect to the Securities of any Series with any term, provision or condition set forth under Sections 4.02, 4.03, and 5.01 as well as any additional covenants specified in a supplemental indenture for such Series of Securities or a Board Resolution or an Officers’ Certificate delivered pursuant to Section 2.02 (and the failure to comply with any such covenants shall not constitute a Default or Event of Default with respect to such Series under Section 6.01) and the occurrence of any event specified in a supplemental indenture for such Series of Securities or a Board Resolution or an Officers’ Certificate delivered pursuant to Section 2.02 and designated as an Event of Default shall not constitute a Default or Event of Default hereunder, with respect to the Securities of such Series, provided that the following conditions shall have been satisfied:

 

(a) with reference to this Section 8.04, the Company has deposited or caused to be irrevocably deposited (except as provided in Section 8.02(c)) with the Trustee as trust funds in trust for the purpose of making the following payments specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities (i) in the case of Securities of such Series denominated in Dollars, cash in Dollars and/or U.S. Government Obligations, or (ii) in the case of Securities of such Series denominated in a Foreign Currency (other than a composite currency), money and/or Foreign Government Obligations, which through the payment of interest and principal in respect thereof in accordance with their terms, will provide (and without reinvestment and assuming no tax liability will be imposed on such Trustee), not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal of and interest, if any, on and any mandatory sinking fund payments in respect of the Securities of such Series on the dates such installments of interest or principal and such sinking fund payments are due;

 

(b) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;

 

(c) no Default or Event of Default with respect to the Securities of such Series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;

 

(d) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that Holders of the Securities of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred;

 

(e) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the covenant defeasance contemplated by this Section have been complied with; and

 

(f) Such defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust shall be registered under such Act or exempt from registration thereunder.

 

Section 8.05 Repayment to Company. The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal and interest that remains unclaimed for two years, and after such time, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

 

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Section 8.06 Reinstatement. If the Trustee or the Paying Agent is unable to apply any money deposited with respect to Securities of any series in accordance with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company under this Indenture with respect to the Securities of such series and under the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or the Paying Agent is permitted to apply all such money in accordance with Section 8.01; provided, however, that if the Company has made any payment of principal of, premium (if any) or interest on any Additional Amounts with respect to any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent.

 

ARTICLE IX

AMENDMENTS AND WAIVERS

 

Section 9.01 Without Consent of Holders. Unless otherwise specified for a particular Series by a Board Resolution, a supplemental indenture or an Officers’ Certificate, the Company and the Trustee may amend or supplement this Indenture or the Securities of one or more Series without the consent of any Holder:

 

(a) to evidence the succession of another person to the Company under this Indenture and the Securities and the assumption by any such Successor Person of the obligations of the Company hereunder and under the Securities;

 

(b) to add covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included for the benefit of such series) or to surrender any right or power herein conferred upon the Company provided such action does not adversely affect the interests of the Holders;

 

(c) to add any additional Events of Default;

 

(d) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form;

 

(e) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding;

 

(f) to establish the forms or terms of the Securities of any series issued pursuant to the terms hereof;

 

(g) to cure any ambiguity or correct any inconsistency in this Indenture;

 

(h) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee;

 

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(i) to qualify this Indenture under the Trust Indenture Act;

 

(ii)

 

(j) to provide for uncertificated securities in addition to certificated securities;

 

(k) to supplement any provisions of this Indenture necessary to permit or facilitate the defeasance and discharge of any series of Securities, provided that such action does not adversely affect the interests of the Holders of Securities of such series or any other series;

 

(l) to conform the Indenture to any Description of Securities for a particular Series of Securities; and

 

(m) to comply with the rules or regulations of any securities exchange or automated quotation system on which any of the Securities may be listed or traded.

 

Section 9.02 With Consent of Holders. The Company and the Trustee may enter into a supplemental indenture with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities of each Series affected by such supplemental indenture (including consents obtained in connection with a tender offer or exchange offer for the Securities of such Series), for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of each such Series. Except as provided in Section 6.13, the Holders of at least a majority in principal amount of the outstanding Securities of any Series by notice to the Trustee (including consents obtained in connection with a tender offer or exchange offer for the Securities of such Series) may waive compliance by the Company with any provision of this Indenture or the Securities with respect to such Series. It shall not be necessary for the consent of the Holders of Securities under this Section 9.02 to approve the particular form of any proposed supplemental indenture or waiver, but it shall be sufficient if such consent approves the substance thereof. After a supplemental indenture or waiver under this section becomes effective, the Company shall deliver to the Holders of Securities affected thereby a notice briefly describing the supplemental indenture or waiver. Any failure by the Company to deliver such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver.

 

Section 9.03 Limitations. Unless otherwise specified for a particular Series by a Board Resolution, a supplemental indenture or an Officers’ Certificate, without the consent of each Holder affected, an amendment or waiver may not:

 

(a) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver;

 

(b) reduce the rate of or extend the time for payment of interest (including default interest) on any Security;

 

(c) reduce the principal or change the Stated Maturity of any Security or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation;

 

(d) reduce the principal amount of Discount Securities payable upon acceleration of the maturity thereof;

 

(e) waive a Default or Event of Default in the payment of the principal of or interest, if any, on any Security (except a rescission of acceleration of the Securities of any Series by the Holders of at least a majority in principal amount of the outstanding Securities of such Series and a waiver of the payment default that resulted from such acceleration);

 

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(f) make the principal of or interest, if any, on any Security payable in any currency other than that stated in the Security;

 

(g) make any change in Sections 6.08, 6.13, or 9.03; or

 

(h) waive a redemption payment with respect to any Security.

 

Section 9.04 Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities of one or more Series shall be set forth in a supplemental indenture hereto that complies with the TIA as then in effect.

 

Section 9.05 Revocation and Effect of Consents. Until an amendment is set forth in a supplemental indenture or a waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date of the supplemental indenture or the date the waiver becomes effective. Any amendment or waiver once effective shall bind every Holder of each Series affected by such amendment or waiver unless it is of the type described in any of clauses (a) through (h) of Section 9.03. In that case, the amendment or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security.

 

Section 9.06 Notation on or Exchange of Securities. The Trustee may place an appropriate notation about an amendment or waiver on any Security of any Series thereafter authenticated. The Company in exchange for Securities of that Series may issue and the Trustee shall authenticate upon request new Securities of that Series that reflect the amendment or waiver.

 

Section 9.07 Trustee Protected. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall receive, in addition to the documents required by Section 10.04, and (subject to Section 7.01) shall be fully protected in relying upon, an Opinion of Counsel stating that all conditions precedent in this Indenture to the execution of such supplemental indenture, if any, have been complied with, such supplemental indenture is authorized hereunder, and, that such supplemental indenture is the valid and legally binding obligation of the Company. The Trustee shall sign all supplemental indentures, except that the Trustee need not sign any supplemental indenture that adversely affects its rights.

 

ARTICLE X

MISCELLANEOUS

 

Section 10.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required or deemed to be included in this Indenture by the TIA, such required or deemed provision shall control.

 

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Section 10.02 Notices.

 

(a) Any notice or communication by the Company or the Trustee to the other, or by a Holder to the Company or the Trustee, is duly given if in writing and delivered in person or mailed by first-class mail or sent by telecopier transmission or electronic transmission in PDF addressed as follows:

 

if to the Company:

 

Cuentas Inc.

235 Lincoln Rd., Suite 210

Miami Beach, FL 33139

Attention: Jeffery D. Johnson

Telephone: (800) 611-3622

 

if to the Trustee:

 

[                                ]

 

(b) The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Holder shall be delivered to his address shown on the register kept by the Registrar. Failure to deliver a notice or communication to a Holder of any Series or any defect in it shall not affect its sufficiency with respect to other Holders of that or any other Series. If a notice or communication is delivered in the manner provided above, within the time prescribed, it is duly given, whether or not the Holder receives it. If the Company delivers a notice or communication to Holders, it shall deliver a copy to the Trustee and each Agent at the same time.

 

(c) Any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Company may, at the Company’s written request received by the Trustee not fewer than five (5) Business Days prior (or such shorter period of time as may be acceptable to the Trustee) to the date on which such notice must be given or served, be given or served by the Trustee in the name of and at the expense of the Company.

 

Section 10.03 Communication by Holders with Other Holders. Holders of any Series may communicate pursuant to TIA Section 312(b) with other Holders of that Series or any other Series with respect to their rights under this Indenture or the Securities of that Series or all Series. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).

 

Section 10.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

 

(a) an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

 

(b) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

 

Section 10.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include:

 

(a) a statement that the person making such certificate or opinion has read such covenant or condition;

 

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(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

 

(c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

 

(d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.

 

Section 10.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or a meeting of Holders of one or more Series. Any Agent may make reasonable rules and set reasonable requirements for its functions.

 

Section 10.07 Legal Holidays. Unless otherwise provided by Board Resolution, Officers’ Certificate or supplemental indenture hereto for a particular Series, a “Legal Holiday” is any day that is not a Business Day. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period.

 

Section 10.08 No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.

 

Section 10.09 Counterparts. This Indenture may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. The exchange of copies of this Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

 

Section 10.10 Governing Laws. This Indenture and the Securities will be governed by, and construed in accordance with, the internal laws of the State of New York.

 

Section 10.11 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

 

Section 10.12 Successors. All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.

 

Section 10.13 Severability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

Section 10.14 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.

 

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Section 10.15 Securities in a Foreign Currency. Unless otherwise specified in a Board Resolution, a supplemental indenture hereto or an Officers’ Certificate delivered pursuant to Section 2.02 of this Indenture with respect to a particular Series of Securities, whenever for purposes of this Indenture any action may be taken by the Holders of a specified percentage in aggregate principal amount of Securities of all Series or all Series affected by a particular action at the time outstanding and, at such time, there are outstanding Securities of any Series which are denominated in a coin or currency other than Dollars, then the principal amount of Securities of such Series which shall be deemed to be outstanding for the purpose of taking such action shall be that amount of Dollars that could be obtained for such amount at the Market Exchange Rate at such time. For purposes of this Section 10.15, “Market Exchange Rate” shall mean the noon Dollar buying rate in New York City for cable transfers of that currency as published by the Federal Reserve Bank of New York. If such Market Exchange Rate is not available for any reason with respect to such currency, the Company shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York as of the most recent available date, or quotations from one or more major banks in The City of New York or in the country of issue of the currency in question or such other quotations as the Company, shall deem appropriate. The provisions of this paragraph shall apply in determining the equivalent principal amount in respect of Securities of a Series denominated in currency other than Dollars in connection with any action taken by Holders of Securities pursuant to the terms of this Indenture. All decisions and determinations of the Company regarding the Market Exchange Rate or any alternative determination provided for in the preceding paragraph shall be in its sole discretion and shall, in the absence of manifest error, to the extent permitted by law, be conclusive for all purposes and irrevocably binding upon the Company, the Trustee and all Holders. The Trustee shall have no duty to calculate or verify the calculations made pursuant to this Section 10.15.

 

Section 10.16 U.S.A. Patriot Act. The Company acknowledges that in accordance with Section 326 of the U.S.A. Patriot Act, the Trustee, like all financial institutions, and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The Company agrees that it will provide the Trustee with such information as it may reasonably request as required in order for the Trustee to satisfy the requirements of the U.S.A. Patriot Act.

 

Section 10.17 Waiver of Jury Trial. EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING AS BETWEEN THE COMPANY AND THE TRUSTEE ONLY ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SECURITIES.

 

ARTICLE XI

SINKING FUNDS

 

Section 11.01 Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of the Securities of a Series, except as otherwise permitted or required by any form of Security of such Series issued pursuant to this Indenture. The minimum amount of any sinking fund payment provided for by the terms of the Securities of any Series is herein referred to as a “mandatory sinking fund payment” and any other amount provided for by the terms of Securities of such Series is herein referred to as an “optional sinking fund payment.” If provided for by the terms of Securities of any Series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 11.02. Each sinking fund payment shall be applied to the redemption of Securities of any Series as provided for by the terms of the Securities of such Series.

 

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Section 11.02 Satisfaction of Sinking Fund Payments with Securities. The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any Series to be made pursuant to the terms of such Securities (1) deliver outstanding Securities of such Series to which such sinking fund payment is applicable (other than any of such Securities previously called for mandatory sinking fund redemption) and (2) apply as credit Securities of such Series to which such sinking fund payment is applicable and which have been repurchased by the Company or redeemed either at the election of the Company pursuant to the terms of such Series of Securities (except pursuant to any mandatory sinking fund) or through the application of permitted optional sinking fund payments or other optional redemptions pursuant to the terms of such Securities, provided that such Securities have not been previously so credited. Such Securities shall be received by the Trustee, together with an Officers’ Certificate with respect thereto, not later than 15 days prior to the date on which the Trustee begins the process of selecting Securities for redemption, and shall be credited for such purpose by the Trustee at the price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities in lieu of cash payments pursuant to this Section 11.02, the principal amount of Securities of such Series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Securities of such Series for redemption, except upon receipt of a Company Order that such action be taken, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall from time to time upon receipt of a Company Order pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that Series purchased by the Company having an unpaid principal amount equal to the cash payment required to be released to the Company.

 

Section 11.03 Redemption of Securities for Sinking Fund. Not less than 45 days (unless otherwise indicated in the Board Resolution, supplemental indenture or Officers’ Certificate in respect of a particular Series of Securities) prior to each sinking fund payment date for any Series of Securities, the Company will deliver to the Trustee an Officers’ Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that Series pursuant to the terms of that Series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that Series pursuant to Section 11.02, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days (unless otherwise indicated in the Board Resolution, Officers’ Certificate or supplemental indenture in respect of a particular Series of Securities) before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 3.02 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.03. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 3.04, 3.05 and 3.06.

 

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and attested, all as of the day and year first above written.

 

  CUENTAS INC.
     
  By:  
  Name:  Jeffery D. Johnson
  Title: Chief Executive Officer
   
 

[                     ].

as Trustee

 

  By:  
  Name:   
  Title:  

 

[Signature Page to Indenture]

 

 

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Exhibit 5.1

 

ELLENOFF GROSSMAN & SCHOLE LLP

1345 AVENUE OF THE AMERICAS

NEW YORK, NEW YORK 10105

TELEPHONE: (212) 370-1300

FACSIMILE: (212) 370-7889

www.egsllp.com

 

February 14, 2022

 

Cuentas Inc.

235 Lincoln Rd., Suite 210

Miami Beach, FL 33139

 

 

Re: Registration Statement on Form S-3

 

Ladies and Gentlemen:

 

We have acted as counsel to Cuentas Inc., a Florida corporation (the “Company”), in connection with the preparation of a registration statement on Form S-3 (the “Registration Statement”) filed by the Company with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), relating to the offer and sale from time to time by the Company of up to a maximum of $75,000,000 aggregate initial offering price of a presently indeterminate amount of the following securities (each a “Company Security” and collectively, or in any combination, the “Company Securities”):

 

(i) shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”);

 

(ii) one or more classes or series of shares of the Company’s preferred stock, $0.001 par value per share (the “Preferred Stock”);

 

(iii) purchase contracts entitling or obligating holders to purchase from or sell to the Company, and for the Company to sell to or purchase from such holders, a specific or varying number of debt or equity securities issued by the Company or by an entity other than the Company at a future date or dates;

 

(iv) warrants to purchase Common Stock, Preferred Stock, debt securities, other securities or any combination of those securities;

 

(v) subscription rights to purchase Common Stock, Preferred Stock, debt securities, other securities or any combination of those securities;

 

(vi) depositary receipts;

 

(vii) secured or unsecured debt securities consisting of notes, debentures or other evidences of indebtedness which may be senior debt securities, senior subordinated debt securities or subordinated debt securities, each of which may be convertible into equity securities; and

 

(viii) units consisting of any combination of the foregoing securities.

 

 

 

 

The Company Securities may be issued and sold by the Company pursuant to applicable provisions of Rule 415 under the Securities Act, in amounts, at prices and on terms to be determined in light of market conditions at the time of sale, and as set forth in the Registration Statement, any amendment thereto, the prospectus contained therein (the “Prospectus”) and any supplements to the Prospectus (each, a “Prospectus Supplement”). The Company Securities may be issued from time to time on a delayed or continuous basis, and this opinion is limited to the laws, including the rules and regulations, as in effect on the date hereof, which laws are subject to change with possible retroactive effect.

 

You have requested our opinion as to the matters set forth below in connection with the Registration Statement. For purposes of rendering the opinions set forth below, we have examined such documents and reviewed such questions of law as we have considered necessary and appropriate for the purposes of our opinion including (i) the Registration Statement, including the exhibits filed therewith, (ii) the Prospectus, (iii) the Company’s certificate of incorporation, as amended (the “Certificate of Incorporation”), (iv) the Company’s amended and restated bylaws, as amended (the “Bylaws”), (v) the corporate resolutions and other actions of the Company that authorize and provide for the filing of the Registration Statement, and we have made such other investigation as we have deemed appropriate. We have not independently established any of the facts so relied on.

 

For purposes of this opinion letter, we have assumed the accuracy and completeness of each document submitted to us, the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as facsimile, electronic, certified, conformed or photostatic copies thereof, and the due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness thereof. We have further assumed the legal capacity of natural persons, that persons identified to us as officers of the Company are actually serving in such capacity, that the representations of officers and employees of the Company are correct as to questions of fact, that the board of directors will have taken all action necessary to set the issuance price of the Company Securities to be offered and sold and that each party to the documents we have examined or relied on (other than the Company) has the power, corporate or other, to enter into and perform all obligations thereunder and also have assumed the due authorization by all requisite action, corporate or other, the execution and delivery by such parties of such documents, and the validity and binding effect thereof on such parties. We have not independently verified any of these assumptions.

 

The opinions expressed in this opinion letter are limited to the Florida Business Corporation Act (the “FBCA”) and the applicable statutory provisions of the Florida Statutes and the reported judicial decisions interpreting such statute and provisions and, solely in connection with the opinions given in numbered paragraphs 1 and 2 below. We are not opining on, and we assume no responsibility for, the applicability to or effect on any of the matters covered herein of (a) any other laws; (b) the laws of any other jurisdiction; or (c) the laws of any county, municipality or other political subdivision or local governmental agency or authority.

 

Based on the foregoing and in reliance thereon, and subject to the assumptions, qualifications, limitations and exceptions set forth below, we are of the opinion that:

 

1.       With respect to shares of Common Stock, when (a) the board of directors of the Company (which, for purposes of this opinion, shall include any committee of the board of directors constituted for such purpose) has taken all necessary corporate action to approve the issuance and terms of the offering thereof and related matters, including without limitation the due reservation of any Common Stock for issuance, and (b) certificates representing the shares of Common Stock have been duly executed, countersigned, registered and delivered, in each case in accordance with the Certificate of Incorporation and Bylaws, either (i) in accordance with the applicable definitive purchase, underwriting or similar agreement approved by the board of directors of the Company upon payment of the consideration therefor (which consideration shall not be less than the par value of the Common Stock) provided for in such definitive purchase, underwriting or similar agreement, as applicable, or (ii) upon conversion, exchange or exercise of any other Company Security in accordance with the terms of such Company Security or the instrument governing such Company Security providing for the conversion, exchange or exercise as approved by the board of directors of the Company, for the consideration therefor set forth in the applicable agreement and approved by the board of directors of the Company, which consideration shall not be less than the par value of the Common Stock, such shares of Common Stock will be validly issued, fully paid, and non-assessable.

 

2

 

 

2.       With respect to shares of any series of Preferred Stock, when (a) the board of directors of the Company has taken all necessary corporate action to approve the issuance and terms of the shares of such series, the terms of the offering thereof and related matters, including the adoption of a certificate of designation or amendment to the Certificate of Incorporation fixing and determining the terms of such Preferred Stock conforming to the FBCA, the filing of a certificate or amendment, as applicable, with the Secretary of State of Florida, the payment in full of any filing fees attendant thereto, and the due reservation of any Common Stock and Preferred Stock for issuance, and (b) certificates representing the shares of such series of Preferred Stock have been duly executed, countersigned, registered and delivered, in each case in accordance with the Certificate of Incorporation and Bylaws, either (i) in accordance with the applicable definitive purchase, underwriting or similar agreement approved by the board of directors of the Company upon payment of the consideration therefor (which consideration shall not be less than the par value of the Preferred Stock) provided for in such definitive purchase, underwriting or similar agreement, as applicable, or (ii) upon conversion, exchange or exercise of any other Company Security in accordance with the terms of such Company Security or the instrument governing such Company Security providing for the conversion, exchange or exercise as approved by the board of directors of the Company, for the consideration therefor set forth in the applicable agreement and approved by the board of directors of the Company, which consideration shall not be less than the par value of the Preferred Stock, the shares of such series of Preferred Stock will be validly issued, fully paid, and non-assessable.

 

3.       With respect to the issuance of any purchase contracts, when (a) the board of directors of the Company has taken all necessary corporate action to approve the purchase contract agreement to be entered into in connection with the issuance of any purchase contracts and such purchase contract agreement has been validly executed and delivered by the purchase contract agent and Company, (b) the board of directors of the Company has taken all necessary corporate action to approve the specific issuance and terms of any purchase contracts duly established in accordance with the applicable purchase contract agreement and (c) such purchase contracts have been duly executed, countersigned, registered, issued and delivered in accordance with the purchase contract agreement and the applicable definitive purchase, underwriting or similar agreement, as applicable, for the consideration therefor set forth in the applicable agreement and approved by the board of directors of the Company, such purchase contracts will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability.

 

4.       With respect to the issuance of any warrants, when (a) the board of directors of the Company has taken all necessary corporate action to approve the warrant agreement to be entered into in connection with the issuance of any warrants and such warrant agreement has been validly executed and delivered by the warrant agent and Company, (b) the board of directors of the Company has taken all necessary corporate action to approve the specific issuance and terms of any warrants duly established in accordance with the applicable warrant agreement and (c) such warrants have been duly executed, countersigned, registered, issued and delivered in accordance with the warrant agreement and the applicable definitive purchase, underwriting or similar agreement, as applicable, for the consideration therefor set forth in the applicable agreement and approved by the board of directors of the Company (assuming the securities issuable upon exercise of the warrants have been duly authorized and reserved for issuance by all necessary corporate action and in accordance with applicable law), such warrants will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability.

 

5.       With respect to the subscription rights, when (a) the board of directors of the Company has taken all necessary corporate action to authorize the issuance and the specific terms of such subscription rights, the terms of the offering thereof, and related matters and (b) such subscription rights and agreements relating to the subscription rights have been duly executed and delivered in accordance with the terms thereof, then such subscription rights will be valid and binding obligations of the Company, enforceable against the Company in accordance with their terms.

 

3

 

 

6.       With respect to the depositary shares, when (i) the board of directors of the Company has taken all necessary corporate action to approve the issuance and terms of the depositary shares, the terms of the offering thereof and related matters, including the adoption of a certificate of designation relating to the preferred stock underlying the depositary shares as required by applicable law and the filing of the certificate of designation with the Secretary of State of the State of Florida as required by applicable law; (ii) the depositary agreement or agreements relating to the depositary shares and the related depositary receipts have been duly authorized and validly executed and delivered by the board of directors of the Company and the depositary appointed by the Company; (iii) the shares of preferred stock underlying the depositary shares have been duly authorized, validly issued and deposited with the depositary under the applicable depositary agreement; and (iv) the depositary receipts representing the depositary shares have been duly executed, countersigned, registered and delivered in accordance with the appropriate depositary agreement approved by the Company, upon payment of the consideration therefor provided for in the applicable definitive purchase, underwriting or similar agreement, the depositary shares will be legally issued and will entitle their holders to the rights specified in the deposit agreement and the depositary receipt.

 

7.       With respect to any debt securities, when (a) the board of directors of the Company has taken all necessary corporate action to approve an applicable indenture, if any, or any amendment or supplement thereto or other agreement in respect thereof, if any, and such indenture, if any, or any amendment or supplement thereto or other agreement in respect thereof, if any, has been validly executed and delivered by the Company, (b) any applicable indenture, if required, has been duly qualified under the Trust Indenture Act of 1939, as amended, if qualification is required thereunder, (c) the board of directors of the Company has taken all necessary corporate action to approve the specific issuance and terms of any series of debt security duly established in accordance with the applicable indenture, if any, and (d) such debt security have been duly executed, countersigned, registered, issued and delivered either (i) in accordance with the indenture, if any, or any amendment or supplement thereto or other agreement in respect thereof, if any, the applicable definitive purchase, underwriting or similar agreement, as applicable, or (ii) upon conversion, exchange or exercise of any other Company Security in accordance with the terms of such Company Security or the instrument governing such Company Security providing for the conversion, exchange or exercise as approved by the board of directors of the Company, for the consideration therefor set forth in the applicable agreement and approved by the board of directors of the Company, such debt securities will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability, provided that we express no opinion as to (x) the enforceability of any waiver of rights under any usury or state law, (y) the validity, legally binding effect or enforceability of any provision of the indenture that requires or relates to adjustments to the conversion rate at a rate or in an amount that a court would determine in the circumstances under applicable law to be commercially unreasonable or a penalty or forfeiture or (z) the validity, legally binding effect or enforceability of any provision that permits holders to collect any portion of stated principle amount upon acceleration of the debt securities to the extent determined to constitute unearned interest.

 

8.       With respect to the issuance of any units, when (a) the board of directors of the Company has taken all necessary corporate action to approve the unit agreement, if any, to be entered into in connection with the issuance of any units and such unit agreement, if any, has been validly executed and delivered by the unit agent, if any, and Company, (b) the board of directors of the Company has taken all necessary corporate action to approve the specific issuance and terms of any units duly established in accordance with the applicable unit agreement, if any, and (c) such units have been duly executed, countersigned, registered, issued and delivered in accordance with the unit agreement, if any, and the applicable definitive purchase, underwriting or similar agreement, as applicable, for the consideration therefor set forth in the applicable agreement and approved by the board of directors of the Company, such units will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability.

 

4

 

 

The opinions set forth above are subject to the following additional assumptions:

 

(i)        the Registration Statement, any amendments thereto (including post-effective amendments), will have been declared effective under the Securities Act and such effectiveness shall not have been terminated, suspended or rescinded;

 

(ii)        all Company Securities will be issued and sold in compliance with applicable federal and state securities laws, rules and regulations and solely in the manner provided in the Registration Statement and the appropriate Prospectus Supplement and there will not have occurred any change in law or fact affecting the validity of any of the opinions rendered herein;

 

(iii)        a definitive purchase, underwriting or similar agreement and any other necessary agreements with respect to any Company Securities offered or issued will have been duly authorized and duly executed and delivered by the Company and the other parties thereto;

 

(iv)        the final terms of any of the Company Securities (including any Company Securities comprising the same or subject thereto), and when issued, the issuance, sale and delivery thereof by the Company, and the incurrence and performance of the Company’s obligations thereunder or respect thereof in accordance with the terms thereof, and any consideration received by the Company for any such issuance, sale and delivery, will comply with, and will not violate, the Certificate of Incorporation or Bylaws or any applicable law, rule or regulation, or result in a default under or breach of any agreement or instrument binding upon the Company and will comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company or to which the issuance, sale and delivery of such Company Securities or the incurrence and performance of such obligations may be subject or violate any applicable public policy, or be subject to any defense in law or equity;

 

(v)        the Company shall have taken any action required to be taken by the Company, based on the type of Company Security being offered, to authorize the offer and issuance thereof, and such authorization shall remain in effect and unchanged at all times during which the Company Securities are offered and issued and shall not have been modified or rescinded (subject to the further assumption that the sale of any Company Security takes place in accordance with such authorization), the board of directors of the Company shall have duly established the terms of such Company Security and duly authorized and taken any other necessary corporate action to approve the issuance and sale of such Company Security in conformity with the Certificate of Incorporation and Bylaws (subject to the further assumption that neither the Certificate of Incorporation nor Bylaws have been amended from the date hereof in a manner that would affect the validity of any of the opinions rendered herein), and such authorization shall remain in effect and unchanged at all times during which the Company Securities are offered and issued and shall not have been modified or rescinded (subject to the further assumption that the sale of any Company Security takes place in accordance with such authorization);

 

(vi)        there will exist, under the Certificate of Incorporation, the requisite number of authorized but unissued shares of Common Stock or Preferred Stock (and securities of any class into which any of the Preferred Stock may be convertible), as the case may be; and

 

(vii)        to the extent they purport to relate to liabilities resulting from or based upon gross negligence, recklessness or other conduct committed or omitted willfully or in bad faith or any violation of federal or state securities or blue sky laws, we express no opinions concerning the enforceability of indemnification provisions.

 

The opinions above are subject to the effects of (i) bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, receivership, moratorium and other similar laws relating to or affecting enforcement of creditors’ rights or remedies generally, (ii) general principles of equity, whether such principles are considered in a proceeding of law or at equity, and (iii) an implied covenant of good faith, reasonableness and fair dealing and standards of materiality.

 

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption “Legal Matters” in the Prospectus. In giving our consent, we do not thereby admit that we are experts with respect to any part of the Registration Statement, the Prospectus, or any Prospectus Supplement within the meaning of the term “expert,” as used in Section 11 of the Securities Act or the rules and regulations promulgated thereunder by the Commission, nor do we admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations thereunder.

 

    Yours truly,
     
    /s/ Ellenoff Grossman & Schole LLP
     
    Ellenoff Grossman & Schole LLP

 

5

Exhibit 10 A

 

Unanimous Written Consent of the

Board of Directors in Lieu of a Meeting of the

Board of Directors of

 

CUENTAS INC.

 

February 14, 2022

 

The undersigned, being all of the members of the Board of Directors (the “Board”) of Cuentas, Inc., a Florida corporation (the “Corporation”), and acting in accordance with the Florida Business Corporation Act, as amended, and the bylaws of the Corporation, hereby consent to the adoption of the following resolutions, effective as of the date set forth above, in lieu of holding a special meeting of the Board:

 

 

WHEREAS, the Board has determined that it is in the best interests of the Corporation to be in a position to issue securities if market conditions are favorable or as and when the Board determines that the Corporation should do so;

 

WHEREAS, to be ready to respond to such favorable market conditions and so that the Corporation will be in a position to issue and sell securities at such times as the Board determines, the Board believes it is in the best interests of the Corporation to file with the Securities and Exchange Commission (“SEC”) an unallocated universal shelf registration statement on Form S-3 for the registration under the Securities Act of 1933, as amended (“Securities Act”), on a delayed or continuous basis up to an aggregate of $75,000,000 of securities (the “Shelf Registration Statement”) consisting of indeterminate amounts of those types of securities referenced in the Shelf Registration Statement (collectively, the “Securities”), all at prices and on terms to be determined and authorized for issuance by the Board at the time of the offering of any of such Securities; and

 

WHEREAS, the Board wishes to authorize the filing by the Corporation of such Shelf Registration Statement and approve all related transactions and to authorize the officers of the Corporation to execute and deliver any and all documents used or required in connection therewith.

 

NOW, THEREFORE, BE IT

 

RESOLVED, that each of the Corporation’s officers (each an “Authorized Officer” and collectively, the “Authorized Officers”) be, and each hereby is, authorized and directed to take, or cause to be taken, all actions necessary or advisable to effect the registration of the Securities under the Securities Act, including, but not limited to,

 

● the execution by and in the name of the Corporation and public filing with the SEC of the Shelf Registration Statement in substantially the form as previously presented to the Board, with such changes, amendments and modifications as the Authorized Officers (acting jointly or individually), in consultation with outside Corporation counsel, shall approve,
     
● the preparation, execution by and in the name of the Corporation and filing of any amendments to the Shelf Registration Statement (including post-effective amendments and a Rule 462(b) registration statement) and any supplements to the prospectus or prospectuses contained therein,
     
● the preparation execution by and in the name of the Corporation and filing of all certificates, letters, applications any and other documents connected therewith that may be required to be filed with the SEC with respect to the registration, offering, issuance and sale from time to time of the Securities and with respect to any withdrawal of the Shelf Registration Statement,

 

 

 

 

● the taking of any and all action in the name and on behalf of the Corporation that outside counsel to the Corporation shall advise or that any of the Authorized Officers taking such action shall determine to be necessary, advisable or appropriate in connection with the registration, offering, issuance and sale from time to time of the Securities, such determination to be evidenced conclusively by the taking of such action; and be it further

  

RESOLVED, that the execution of the Shelf Registration Statement and any of the amendments and supplements thereto by the Authorized Officers and directors of the Corporation either personally or by any of the Authorized Officers acting as attorney-in-fact and duly authorized agent for such directors pursuant to a power or powers of attorney executed by the directors, is specifically authorized; and be it further

 

RESOLVED, that the Securities are being offered (up to the amounts permitted by SEC rules and subject to Board approval) pursuant to a prospectus and one or more prospectus supplements (including amendments thereto or other similar documents, and term sheets in the form permitted under the Securities Act), which shall be prepared and filed with the SEC (to the extent required) and used in connection with the Shelf Registration Statement and approved by any Authorized Officer, such approval to be evidenced conclusively by such preparation or filing; and be it further

 

RESOLVED, that each of the Authorized Officers, or such counsel as the Authorized Officers shall choose to represent the Corporation, with full authority to act without the other, be, and each hereby is, authorized to appear in the name and on behalf of the Corporation before the SEC in connection with any matter relating to the Shelf Registration Statement or any amendments thereto; and be it further

 

RESOLVED, that Jeffery D. Johnson be, and he hereby is, appointed the agent of the Corporation to accept service of notices, orders, legal process and any other documents and certificates in connection with the Shelf Registration Statement; and be it further

 

RESOLVED, that each of the Authorized Officers be, and each hereby is, authorized and directed to prepare or cause to be prepared, with the advice and assistance of counsel to the Corporation, and to file with the Financial Industry Regulatory Authority, Inc., an application for approval of the Shelf Registration Statement pursuant to FINRA Rule 5110; and be it further

 

RESOLVED, that the officers of the Corporation be, and each of them hereby is, authorized to do and perform, or cause to be done or performed, in the name and on behalf of the Corporation or otherwise, such other acts, and to execute and deliver, or cause to be executed and delivered, any and all other notices, certificates, or other instruments or documents, under the corporate seal or otherwise in the name and on behalf of the Corporation, or otherwise, and to pay all such fees, expenses and taxes, as they, or any of them, may deem necessary or proper in order to carry into effect the intent of the foregoing resolutions or to comply with any requirement of the instruments or agreements approved or authorized by the foregoing resolutions; and be it further

 

RESOLVED, that all actions previously taken by any officer, director, representative, attorney or agent of the Corporation, in the name or on behalf of the Corporation, in connection with the transactions contemplated by the foregoing resolutions be, and each of the same hereby is, adopted, ratified, confirmed and approved in all respects as the act and deed of the Corporation; and be it further

 

RESOLVED, that this Consent may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. A facsimile or other reproduction of this Consent may be executed by one or more parties hereto, and an executed copy of this Consent may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes.

 

[Signature Page Follows]

 

1

 

 

IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent of the Board as of the date and year first set forth above by signature below or electronic transmission, as the case may be.

 

   
  Arik Maimon
  Executive Chairman of the Board
   
   
  Michael De Prado
  Vice Chairman of the Board
   
   
  Yochanon Bruk
  Board Member
   
   
  Adiv Baruch
  Board Member
   
   
  Carol Pepper
  Board Member
   
   
  Jeffrey Lewis
  Board Member
   
   
  Edward Maldonado
  Board Member

 

 

2

 

 

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of Cuentas Inc. of our report dated March 24, 2021 relating to the financial statements, which appears in Cuentas, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

/s/ Halperin Ilanit  

Certified Public Accountants (Isr.)

 

Tel Aviv, Israel

February 14, 2022

 

 

 

Exhibit 23.2

 

Leonard Friedman

Certified Public Accountant   LeonardFriedmanCPA@gmail.com

 

 

CONSENT OF INDEPENDENT ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of Cuentas Inc. of our reports dated December 23, 2021 relating to the financial statements, for the years ended December 31, 2020 and 2019 and for the nine months ended September 30, 2021.

 

We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

Leonard Friedman

Certified Public Accountant

 

February 14, 2022

 

 

 

 

 

385 Old Westbury Road, East Meadow, New York 11554 Tel: (516) 735-0824 Fax: (516) 735-6301

 

Exhibit 107

 

Calculation of Filing Fee Tables

 

Form S-3

(Form Type)

 

Cuentas Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Table 1: Newly Registered and Carry Forward Securities

 

Security Type   Security Class Type(1)   Fee Calculation or Carry Forward Rule   Amount Registered     Proposed Maximum Offering Price Per Unit     Maximum Aggregate Offering Price     Fee Rate     Amount of Registration Fee     Carry Forward Form Type     Carry Forward File Number     Carry Forward Initial Effective Date     Filing Fee Previously Paid in Connection with Unsold Securities to be Carried Forward  
Newly Registered Securities
Fees to be paid   Equity   Common Stock                                                                        
    Equity   Preferred Stock                                                                        
    Other   Purchase Contract                                                                        
    Other   Warrants(4)                                                                        
    Other   Subscription Rights (5)                                                                        
    Other   Depositary Shares                                                                        
    Debt   Debt Securities(3)                                                                        
    Other   Units (6)                                                                        
    Unallocated (Universal) Shelf   -     457(o)       (1 )     (2 )   $ 75,000,000     $ 6,952.50                                  
Carry Forward Securities
Carry Forward Securities   -   -     -       -               -                          -       -       -  
    Total Offering Amounts                                                          
    Total Fees Previously Paid                                                          
    Total Fees Offsets                                                          
    Net Fee Due                                                                                               

 

  (1) There are being registered hereunder such indeterminate amount of the securities of each identified class as may from time to time be offered hereunder by the Registrant at indeterminate prices which shall have an aggregate initial offering price not to exceed $75,000,000. The securities being registered hereunder also include such indeterminate amount of securities as may be issued upon exercise, settlement, exchange or conversion securities offered or sold hereunder, or pursuant to the anti-dilution provisions of any such securities. If any debt securities are issued at an original issue discount, then the principal amount of such debt securities shall be in such greater amount as shall result in an aggregate initial offering price not to exceed $75,000,000, less the aggregate dollar amount of all securities previously issued hereunder.
  (2) The proposed maximum offering price per security for the primary offering will be determined, from time to time, by the Registrant in connection with the issuance by the Registrant of the securities registered hereunder and is not specified as to each class of security pursuant to General Instruction II.D. of Form S-3 under the Securities Act.
  (3) Debt securities may be senior or subordinated, convertible or non-convertible and secured or unsecured.
  (4) Warrants may represent rights to purchase debt securities, common stock, preferred stock or other securities registered hereunder.
  (5) Subscription rights evidence rights to purchase any securities of the Registrant registered under this registration statement.
  (6) Any securities registered under this registration statement may be sold separately or as units with other securities registered under this registration statement.