Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from

 

to

 

 

Commission File No.

0-55108

 

BLACKBOXSTOCKS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

45-3598066

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

5430 LBJ Freeway, Suite 1485, Dallas, Texas

75240

(Address of principal executive offices)

(Zip Code)

 

(972) 726-9203

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

N/A

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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 13(a) of the Exchange Act.                                    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s Common Stock as of November 12, 2020 was 8,341,130.

 

 

 

 

TABLE OF CONTENTS

 

     

 

 

Page

INTRODUCTORY COMMENT

1

CAUTION REGARDING FORWARD LOOKING STATEMENTS

1

   

PART I –FINANCIAL INFORMATION

2

Item 1.

Financial Statements 

2

 

Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019

2

 

Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)

3

 

Statement of Stockholders’ Deficit for the the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

4

 

Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

5

 

Notes to Financial Statements

6

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 4.

Controls and Procedures

16

 

 

 

PART II – OTHER INFORMATION

17

Item 1.

Legal Proceedings

17

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 3.

Defaults Upon Senior Securities

18

Item 4.

Mine Safety Disclosures

19

Item 5.

Other Information

19

Item 6.

Exhibits

19

 

 

 

Signatures

 

20

 

 

 

INTRODUCTORY COMMENT

 

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Blackboxstocks,” or the “Company” refers to Blackboxstocks Inc., a Nevada corporation.

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

 

Our prospects are subject to uncertainties and risks. In this Quarterly Report on Form 10-Q (the “Report”), we make forward-looking statements that involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations, estimates and projections about our business, and reflect our beliefs and assumptions based upon information available to us at the date of this Report. In some cases, you can identify these statements by words such as “if,” “may,” “might,” “will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar terms. These forward-looking statements include, among other things, plans for proposed operations, descriptions of our strategies, our service and market development plans, and other objectives, expectations and intentions, the trends we anticipate in our business and the markets in which we operate, and the competitive nature and anticipated growth of those markets.

 

We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors including, but not limited to, the risks and uncertainties discussed in our other filings with the Securities Exchange Commission (“SEC”). We undertake no obligation to revise or update any forward-looking statement for any reason.

 

1

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

 

Blackboxstocks Inc.

Balance Sheets

As of September 30, 2020 (Unaudited) and December 31, 2019

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 

Assets

               

Current assets:

               

Cash

  $ 165,477     $ 21,172  

Accounts receivable, net of allowance for doubtful accounts of $68,589 at September 30, 2020 and December 31, 2019, respectively

    20,234       5,745  

Inventory

    14,757       -  

Total current assets

    200,468       26,917  
                 

Property and equipment:

               

Office, computer and related equipment, net of depreciation of $45,200 and $39,526 at September 30, 2020 and December 31, 2019, respectively

    3,952       9,626  

Domain name, net of amortization of $13,849 and $9,551 at September 30, 2020 and December 31, 2019, respectively

    3,343       7,641  

Right of use lease, net of amortization of $86,958 and $51,009 at September 30, 2020 and December 31, 2019, respectively

    73,115       109,064  

Total property and equipment

    80,410       126,331  
                 

Long term assets:

               

Advances receivable, related parties (Note 5)

    -       9,823  

Prepaid expenses

    80,868       80,868  

Prepaid expenses, related party (Note 5)

    36,700       36,700  

Total long term assets

    117,568       127,391  
                 

Total Assets

  $ 398,446     $ 280,639  
                 

Liabilities and Stockholders' Deficit

               

Current liabilities:

               

Accounts payable

  $ 581,523     $ 632,287  

Accrued interest

    30,665       42,566  

Accrued interest, related party

    27,640       16,680  

Unearned subscriptions

    416,741       189,007  

Lease liability right of use, current

    42,177       46,124  

Other liabilities

    180,000       180,000  

Convertible notes payable, net of discount of $335,512 and $13,859 at September 30, 2020 and December 31, 2019, respectively (Note 6)

    383,699       593,891  

Notes payable, net of note discount of $7,049 and $38,294 at September 30, 2020 and December 31, 2019, respectively (Note 6)

    250,641       218,138  

Notes payable, related party (Note 6)

    121,509       228,000  

Derivative liability

    34,999       1,405,530  

Total current liabilities

    2,069,594       3,552,223  
                 

Lease liability right of use, long term

    35,798       66,715  
                 

Commitments and contingencies (Note 8)

               
                 

Stockholders' Deficit:

               

Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

    -       -  

Series A Convertible Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 5,000,000 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

    5,000       5,000  

Common stock, $0.001 par value, 100,000,000 shares authorized: 8,171,187 and 7,908,231 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

    8,171       7,908  

Common stock, subscribed

    35,060       35,060  

Additional paid in capital

    4,910,784       3,443,640  

Accumulated deficit

    (6,665,961 )     (6,829,907 )

Total Stockholders' Deficit

    (1,706,946 )     (3,338,299 )
                 

Total Liabilities and Stockholders' Deficit

  $ 398,446     $ 280,639  

 

 

Blackboxstocks Inc.

Statements of Operations 

 

For the Three and Nine Months Ended September 30, 2020 and 2019

(Unaudited)

 

   

For the three months

   

For the nine months

 
   

ended September 30,

   

ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenue:

                               

Subscriptions

  $ 1,093,245     $ 289,632     $ 2,306,094     $ 755,244  

Other revenues

    7,050       6,700       18,300       21,245  

Merchandise sales

    34       -       34       -  

Total revenues

    1,100,329       296,332       2,324,428       776,489  
                                 

Cost of operations

    288,213       159,216       700,723       438,168  
                                 

Gross margin

    812,116       137,116       1,623,705       338,321  
                                 

Expenses:

                               

Software development costs

    83,705       27,140       175,950       102,489  

Selling, general and administrative

    466,224       290,713       1,131,661       789,088  

Advertising and marketing

    173,559       62,549       404,635       201,299  

Depreciation and amortization

    3,144       4,196       9,972       14,128  

Total operating expenses

    726,632       384,598       1,722,218       1,107,004  
                                 

Operating income (loss)

    85,484       (247,482 )     (98,513 )     (768,683 )
                                 

Interest expense

    33,469       37,373       128,229       94,078  

Convertible note financing

    -       -       500,469       -  

Gain on derivative liability

    (10,757 )     -       (1,166,242 )     -  

Default expense

    -       -       24,750       -  

Amortization of debt discount

    135,482       223,004       250,335       293,379  
                                 

Income (loss) before income taxes

    (72,710 )     (507,859 )     163,946       (1,156,140 )
                                 

Income taxes

    -       -       -       -  
                                 

Net income (loss)

  $ (72,710 )   $ (507,859 )   $ 163,946     $ (1,156,140 )
                                 

Weighted average number of common shares outstanding - basic

    8,116,112       7,788,008       8,006,006       7,701,581  
                                 

Net income (loss) per share - basic

  $ (0.01 )   $ (0.07 )   $ 0.02     $ (0.15 )

 

 

 

Blackboxstocks Inc.

Statement of Stockholders’ Deficit

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

 

                      Common     Additional                
   

Series A Preferred Stock

   

Preferred Stock

   

Common Stock

   

Stock

   

Paid-in

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Subscribed

   

Capital

   

Deficit

   

Total

 
                                                                                 

Balance at December 31, 2018

    5,000,000     $ 5,000       -     $ -       7,678,047     $ 7,678     $ 144,060     $ 2,543,264     $ (3,846,469 )   $ (1,146,467 )
                                                                                 

Issuance of shares for cash

    -       -       -       -       191,354       191       (109,000 )     381,356       -       272,547  
                                                                                 

Issuance of shares in settlement of accrued expenses

    -       -       -       -       13,830       14       -       127,986       -       128,000  
                                                                                 

Imputed discount on convertible notes payable (Note 6)

    -       -       -       -       -       -       -       423,726       -       423,726  
                                                                                 

Net loss

    -       -       -       -       -       -       -       -       (1,156,140 )     (1,156,140 )
                                                                                 

Balance at September 30, 2019

    5,000,000     $ 5,000       -     $ -       7,883,231     $ 7,883     $ 35,060     $ 3,476,332     $ (5,002,609 )   $ (1,478,334 )
                                                                                 
                                                                                 

Balance at December 31, 2019

    5,000,000     $ 5,000       -     $ -       7,908,231     $ 7,908     $ 35,060     $ 3,443,640     $ (6,829,907 )   $ (3,338,299 )
                                                                                 

Issuance of shares for cash

    -       -       -       -       184,617       185       -       135,971       -       136,156  
                                                                                 

Issuance of shares in settlement of expenses

    -       -       -       -       53,339       53       -       106,447       -       106,500  
                                                                                 

Issuance of shares in exchange for services

    -       -       -       -       25,000       25       -       48,725       -       48,750  
                                                                                 

Convertible note forbearance extinguishment of derivative liability

    -       -       -       -       -       -       -       522,065       -       522,065  
                                                                                 

Warrants issued for amendment of convertible notes payable

    -       -       -       -       -       -       -       653,936       -       653,936  
                                                                                 

Net loss

    -       -       -       -       -       -       -       -       163,946       163,946  
                                                                                 

Balance at September 30, 2020

    5,000,000     $ 5,000       -     $ -       8,171,187     $ 8,171     $ 35,060     $ 4,910,784     $ (6,665,961 )   $ (1,706,946 )

 

 

 

Blackboxstocks Inc.

Statements of Cash Flows

For the Nine Months Ended September 30, 2020 and 2019

(Unaudited)

 

           

2020

   

2019

 

Cash flows from operating activities

                   

Net income (loss)

  $ 163,946     $ (1,156,140 )

Adjustments to reconcile net loss to net cash provided by operating activities:

                   

Depreciation and amortization expense

    9,972       14,128  

Amortization of note discount

    250,335       346,088  

Shares issued in settlement of financing costs

    100,000       -  

Shares issued in settlement of services

    55,250       -  

Expenses paid by lender

    6,030       24,984  

Convertible note financing

    500,469       -  

Change in fair value of derivative liability

    (1,166,242 )     -  

Convertible note default expense

    24,750       -  

Financing cost

    -       26,275  

Lease expense

    1,086       -  

Changes in operating assets and liabilities:

                   

Investments, market testing

    -       (12 )

Accounts receivable

    (14,489 )     (40 )

Inventory

    (14,757 )     -  

Accounts payable

    (50,764 )     34,387  

Accrued interest

    (11,901 )     23,143  

Accrued interest, related party

    10,960       10,920  

Unearned subscriptions

    227,734       18,343  

Net cash provided by (used in) operating activities

    92,379       (657,924 )
                         

Cash flows from investing activities

                   

Cash advances to related parties

    -       (134,673 )

Cash repayments from related parties

    6,890       93,442  

Purchases of property and equipment

    -       (1,587 )

Net cash used in investing activities

    6,890       (42,818 )
                         

Cash flows from financing activities

                   

Common stock issued for cash

    136,156       272,547  

Common stock subscribed

    -       -  

Proceeds from notes payable

    127,100       175,684  

Proceeds from convertible notes payable

    100,000       473,725  

Proceeds from Payroll Protection Program Loan

    130,200       -  

Repayment of notes payable

    (331,573 )     (225,214 )

Repayment of convertible notes payable

    (13,289 )     -  

Advances from others

    -       11,100  

Repayment of notes payable, related parties

    (103,558 )     -  

Net cash provided by financing activities

    45,036       707,842  
                         

Net increase in cash

    144,305       7,100  
                         

Cash - beginning of period

    21,172       28,001  

Cash - end of period

  $ 165,477     $ 35,101  
                         

Supplemental disclosures

                   

Interest paid

  $ -     $ -  

Income taxes paid

  $ -     $ -  

Non-cash investing and financing activities:

                   

Repayment of note in exchange for note payable

  $ (39,370 )   $ -  

Common stock issued in settlement of accrued expenses

  $ -     $ 128,000  

Lease, right of use and liability

  $ -     $ 160,073  

Discount on notes payable

  $ 69,500     $ 52,845  

Discount on convertible notes payable

  $ -     $ 473,725  

Repayment of note payable, related party in exchange for advances

  $ 2,933     $ -  

Issuance of warrants for forbearance agreements

  $ 371,243     $ -  

 

 

Blackboxstocks Inc.

Notes to Financial Statements

For the Three and Nine Months Ended September 30, 2020 and 2019

 

 

1. Organization

 

Blackboxstocks Inc. (the “Company”) was incorporated on October 4, 2011 under the laws of the State of Nevada under the name SMSA Ballinger Acquisition Corp. to effect the reincorporation of Senior Management Services of Heritage Oaks at Ballinger, Inc., a Texas corporation, mandated by a Plan of Reorganization confirmed by the United States Bankruptcy Court for the Northern District of Texas for reorganization under Chapter 11 of the United States Bankruptcy Code.

 

The Company changed its name to Blackboxstocks, Inc. and began operating as a financial technology and social media platform in March 2016. The platform offers real-time proprietary analytics and news for stock and options traders of all levels. The Company’s web-based software employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the price of a stock or option. The software continuously scans the NASDAQ, New York Stock Exchange, CBOE, and other options markets, analyzing over 8,000 stocks and up to 900,000 options contracts multiple times per second. The Company also provides users with a fully interactive social media platform that is integrated into our dashboard, enabling users to exchange information and ideas quickly and efficiently through a common network. Recently the Company also introduced a live audio/video feature that allows members to broadcast on their own channels to share trade strategies and market insight within the community. The platform was initially made available to subscribers in September 2016. Subscriptions for the use of the platform are sold on a monthly and/or annual subscription basis to individual consumers through the Company website at http://www.blackboxstocks.com.

 

 

2. Summary of Significant Accounting Policies

 

The accompanying interim unaudited financial statements and footnotes of Blackboxstocks Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2020. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

The accompanying financial statements have been prepared in assumption of the continuation of the Company as a going concern, which is dependent upon the Company's ability to obtain sufficient financing or establish itself as a profitable business. At September 30, 2020, the Company had an accumulated deficit of $6,665,961 and for the nine months ended September 30, 2020 and 2019 the Company incurred net income of $163,946 and a net loss of $1,156,140, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. As discussed in Note 9, subsequent events, on November 12, 2020 the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company repaid an existing secured note payable in the amount of $100,000 along with accrued interest and certain outstanding trade payables in the amount of $133,880. In addition, the Company granted the Lender a security interest in substantially all of its assets. Excluding transaction costs, the Company will receive net proceeds of approximately $766,000 after repayment of the notes and payables described above. Management believes that this will be sufficient to fund its operations and service its debt for the next twelve months. In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development. There can be no assurance that the Company will be able to raise additional capital or on what terms. The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

 

 

Use of Estimates - The Company’s financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP.  Actual results could differ from those estimates.

 

Cash - Cash includes all highly liquid investments that are readily convertible to known amounts of cash and have original maturities at the date of purchase of three months or less.

 

Recently Issued Accounting Pronouncements - During the nine months ended September 30, 2020 there were several new accounting pronouncements issued by the FASB. Each of the new pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

 

Earnings or (Loss) Per Share - Basic earnings per share (or loss per share), is computed by dividing the earnings (loss) for the period by the weighted average number of common stock shares outstanding for the period.  Diluted earnings per share reflects the potential dilution of securities by including other potentially issuable shares of common stock, including shares issuable upon conversion of convertible securities or exercise of outstanding stock options and warrants, in the weighted average number of common shares outstanding for the period.  Therefore, because including shares issuable upon conversion of convertible securities and/or exercise of outstanding options and warrants would have an anti-dilutive effect on the loss per share, only the basic earnings (loss) per share is reported in the accompanying financial statements for period of loss.

 

Revenue Recognition - Revenue is recognized from the sale of subscriptions for the use of the Blackbox System web application, on a monthly or annual basis. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The performance obligation by the Company is in exchange for the monthly subscription fee, the subscriber is allowed access to the Blackbox System on the website for the calendar month. Revenue related to annual subscriptions is recognized each month with unearned subscriptions reflected as a current liability.

 

Reclassification - Affiliate referral expenses totaling $173,999 as of September 30, 2020 have been reclassed from cost of operations to selling, general and administrative expenses on the statement of operations.

 

 

3.   Stockholders’ Deficit

 

The Company has authorized 10,000,000 shares of preferred stock at $0.001 par value, 5,000,000 of which are designated as “Series A Convertible Preferred Stock” at $0.001 par value and 100,000,000 authorized shares of common stock at $0.001 par value (“Common Stock”).

 

Shares of Series A Convertible Preferred Stock do not accumulate dividends, have no liquidation preferences and are convertible into shares of Common Stock on a one-for-one basis. Additionally, each share entitles the holder to 100 votes and, with respect to dividend and liquidation rights, the shares rank pari passu with the Company’s Common Stock. All shares are held by Gust C. Kepler, Director, Chief Executive Officer, and President and Chief Financial Officers (“Mr. Kepler”).

 

On January 28, 2020 the Company issued 50,000 shares of its Common Stock at a value of $2.00 to a third party in conjunction with the financing arrangement executed on January 27, 2020 (Note 6).

 

On July 6, 2020, warrants to purchase 115,385 shares of Common Stock, issued in conjunction with Amended Convertible Promissory Notes, as described in Note 6, were exercised at $0.01 per share for aggregate cash consideration of $1,154.

 

 

On August 27, 2020 the Company sold 5,129 shares of Common Stock to a third party for $10,001.

 

On August 28, 2020 the Company issued 3,334 shares of its Common Stock at a value of $1.95 to a third party in settlement of services provided for marketing and advertising.

 

On September 25, 2020 the Company issued 25,000 shares of its Common Stock at a value of $1.95 to a third party in conjunction with a consulting services agreement (Note 8).

 

During the quarter ended September 30, 2020 the Company sold 64,103 shares of Common Stock and Warrants, exercisable for a period of 5 years, to purchase 32,053 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $125,000.

 

 

4. Stock Options and Warrants

 

Costs attributable to the issuance of stock options and share purchase warrants are measured at fair value at the date of issuance and offset with a corresponding increase in ‘Additional Paid in Capital’ at the time of issuance. The fair value cost is computed utilizing the Black-Scholes model and assuming volatility based on U.S. Treasury yield rates for a similar period. The cost of these warrants was not recognized in the financial statements because they were granted in connection with raising capital for the Company. When the options or warrants are exercised, the receipt of consideration will be reported as an increase in stockholders’ equity.

 

Concurrently with certain securities purchase agreements entered into, warrants to purchase the Company’s Common Stock were issued to the subscribers. Each warrant is exercisable for a period of five years from the date of the securities purchase agreement at an exercise price of $1.95 per share (Note 3). The fair value cost at the date of issuance of these warrants was $614,805.

 

In conjunction with the issuance of convertible notes payable as described in Note 6, a warrant for the purchase of up to 115,385 shares of Common Stock exercisable for a one-year period was issued at an exercise price of $0.01 per share and another warrant for the purchase of up to 360,000 shares of Common Stock exercisable for a five-year period was issued at an exercise price of $1.00 per share. During the quarter ended September 30, 2020, the warrants for the purchase of 115,385 shares of Common Stock were exercised at $0.01 and as of September 30, 2020, there are warrants fo the purchase of up to 476,348 shares of Common Stock outstanding.

 

   

Number of Shares

   

Exercise Price

   

Weighted Average

Remaining Life (in years)

 

Warrants as of December 31, 2018

    -       -          

Issued during 2019

    84,295     $ 1.95          

Warrants as of December 31, 2019

    84,295     $ 1.95       4.53  

Issued during 2020

    115,385     $ 0.01          
Issued during 2020     32,053     $ 1.95          
Issued during 2020     360,000     $ 1.00          
Exercised during 2020     (115,385 )   $ 0.01          
Warrants as of September 30, 2020     476,348     $ 0.97       8.57  

 

 

5.  Related Party Transactions

 

As of January 1, 2020 the Company was owed $9,823 from Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company. During the nine months ended September 30, 2020 Mr. Kepler repaid $6,890 and agreed to offset $2,933 of the advances as partial settlement of the note payable to him (Note 6).

 

 

During the year ended December 31, 2019 the Company advanced $1,500 to its VP/Director of Operations and the balance remains outstanding, is unsecured and bears no interest.

 

G2 International, Inc. (“G2”), which does business as IPA Tech Group (“IPA”), is a company wholly owned by Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder. As of both September 30, 2020 and 2019 the Company has a prepaid balance of $36,700 for public relations and marketing services with G2/IPA. These funds are reserved in anticipation of a future campaign to move the Company’s stock to listing on a national exchange.

 

 

6. Debt

 

A summary of the Company’s debt at September 30, 2020 and December 31, 2019, by counterparty, is as follows:

 

       

Shares if

   

Interest

     

Balance

 

Origination

Maturity

Convertible

 

Converted

   

Rate

     

9/30/2020

   

12/31/2019

 
                                       

Noteholder 1

                                 

08/08/2018

11/20/2018

No

    -       12 %

a

  $ 100,000     $ 100,000  
                                       

Noteholder 2

                                   

09/13/2019

08/12/2020

No

    -          

b

    -       79,270  

10/04/2019

06/03/2020

No

    -          

b

    (1,624 )     45,053  

10/30/2019

06/03/2020

No

    -          

b

    -       27,690  

03/13/2020

08/13/2020

No

    -          

b

    -       -  

01/27/2020

11/03/2020

No

    -          

b

    26,910       -  
                                       

Noteholder 3

                                   

05/01/2020

05/01/2022

No

    -       1 %

c

    130,200       -  
                                       

Noteholder 4

                                   

06/21/2018

05/22/2021

No

    -       18 %

d

    2,204       4,419  
                                       

Noteholder 5, related party

                                 

11/09/2018

05/01/2024

No

    -       12 %

e

    120,000       120,000  

12/06/2018

11/30/2020

No

    -       -  

f

    1,509       108,000  
                                     

Noteholder 6

                                   
05/21/2019 11/21/2019 Yes     285,585       18 % g     436,231       442,750  
                                       

Noteholder 7

                                   
07/17/2019 01/17/2020 Yes     119,791       18 % h     182,981       165,000  
                                       

Noteholder 8

                                   

03/23/2020

03/25/2021

Yes

    38,462       52 %

I

    75,000       -  
                                       

Noteholder 9

                                   

03/23/2020

03/25/2021

Yes

    12,821       52 %

j

    25,000       -  
                                       
          456,659                 1,098,411       1,092,182  

Less unamortized discount

                      (342,561 )     (52,153 )
                          $ 755,850     $ 1,040,029  

 

 

Notes Payable

 

a – On August 8, 2018 a third party advanced $200,000 to the Company in exchange for a secured promissory note, bearing interest at the rate of 12% per annum with a maturity date of November 20, 2018. The note is secured by a Security Agreement providing for a continuing lien and first priority security interest in the assets of the Company and by a personal Guaranty Agreement with Gust Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder. On December 6, 2018, Mr. Kepler made a payment on the note in the amount of $100,000 plus accrued interest of $8,000 for an aggregate of $108,000. The principal balance of $100,000 remains outstanding and was in default as of September 30, 2020. This note was repaid on Novermber 12, 2020. See Note 9.

 

b – On September 13, 2019 a third party advanced $90,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $490, through August 18, 2020. The related note discount of $27,000 was amortized as interest expense over the term of the agreement.

 

In October 2019 third parties advanced $80,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $761 through June 2020. Approximately $39,000 of this funding was settled with proceeds of the January 27, 2020 financing described in a later paragraph. The related note discount of $31,600 was amortized as interest expense over the term of the agreement.

 

On March 13, 2020 a third party advanced $35,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $291.67, through August 31, 2020. The related note discount of $12,500 was amortized as interest expense over the term of the agreement

 

On January 27, 2020 a third party advanced $207,000 to the Company in exchange for quasi-factoring financing arrangements to be repaid in daily installments of $1,035, and the debt was fully paid on November 5, 2020. The related note discount of $57,000 is being amortized over the term of the agreement for a total of $49,951 in interest expense as of September 30, 2020. A portion of the proceeds of this financing settled the balance of approximately $39,000 of previous funding from the third party with an original due date of June 3, 2020.

 

c – On May 1, 2020, pursuant to the Paycheck Protection Program under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) the Company was awarded a loan of $130,200. The loan carries an interest rate of 1% and matures on May 1, 2022. By December 31, 2020, the Company may apply for loan forgiveness following SBA guidelines and a portion or all of the loan may be forgiven.

 

Notes Payable, related party

 

e- On November 9, 2018, Mr. Kepler, advanced $120,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety-day period, maturing on January 28, 2019. On November 12, 2020 Mr. Kepler and the Company agreed to waive the deault and extend the maturity to the earlier of May 1, 2024 or such time as the senior secured note issued contemporaneously with the waiver is repaid (see Note 9). Accrued interest due on the note is $27,640 as of September 30, 2020.

 

f- On December 6, 2018, Mr.Kepler, advanced $108,000 to the Company for payment to a third party note holder (Note 6) in exchange for an unsecured promissory note. During the nine months ended September 30, 2020 the Company repaid $103,558 in principal and Mr. Kepler agreed to offset previous cash advances of $2,933 to him as additional repayment of the note, reducing the balance due as of September 30, 2020 to $1,509.

 

 

Convertible Notes Payable

 

g- On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a $350,000, which included an original issue discount of 10% on the investment amount. The note specified that the note holder retain an original issue discount of 10% of any consideration, bore interest of 8%, and matured 180 days from the effective date. The note provided a redemption premium of 115% if retired after the 91st day. As the note was not retired on or before the maturity date, the note-holder was entitled to convert a portion or all the outstanding principal into shares of the Company’s Common Stock at a variable conversion price which equals the lower of the fixed conversion price of $1.95 per share or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the note holder’s election to convert. The note was in default and the Company recorded a default fee of $57,750 which was added to the principal balance. The note included a conversion feature recorded at inception of $207,308.

 

h - On July 17, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a total face value of $165,000, which included an original issue discount of 10% on the investment amount of $150,000. The note specified that the note holder shall retain an original issue discount of 10% of any consideration, bore interest of 8%, and matured 180 days from the effective date. The note provided for a redemption premium of 115% if retired after the 91st day. As the note was not retired on or before the maturity date, the note holder was entitled to convert a portion or all the outstanding principal into shares of the Company’s Common Stock at a variable conversion price which equals the lower of the fixed conversion price of $1.95per share or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the note holder’s election to convert. The note was in default and the Company recorded a default fee of $24,750 which was added to the principal balance. The note included a conversion feature recorded at inception of $135,000.

 

On July 10, 2020, the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the third parties agreeing to take no further action to avail themselves of the remedies of default defined in the Notes. The Agreements stipulate the Company will remit payment of all accrued interest and principal outstanding beginning on July 20, 2020 for thirteen agreed upon payments and until the note is repaid in full. Upon execution of these Agreements, effectively extinguishing the above described notes, the Company recognized a cancellation of the derivative liability previously related to the conversion feature of $522,065. As additional consideration for the Agreements, the Holders were issued warrants to purchase up to 360,000 shares of the Company’s Common Stock at a price of $1.00 per share, exercisable beginning January 10, 2021 and expiring on July 10, 2025. The fair value cost at the date of issuance of the warrants was $371,243, reflected in paid in capital and the related debt discount is being amortized over the term of the Agreements.

 

i - On March 23, 2020 third parties advanced $75,000 and $25,000 to the Company in exchange for Convertible Promissory Notes, bearing interest at 52% per annum to be paid monthly in arrears beginning April 30, 2020, secured by the Company’s assets, with rights to convert into the Company’s Common Stock at $0.60, and maturing on March 25, 2021. On June 23, 2020 the Company amended the notes changing the provision for conversion into the Company’s Common Stock from $0.60 to $1.95. Additional consideration for the amended and restated notes included the issuance of warrants for the purchase of up to 115,385 shares of Common Stock at a price of $0.01. On July 6, 2020 the holders exercised their warrants. In the event the notes are not converted prior to the maturity date, the Company has the right to repurchase one warrant share for each $0.8666 of unconverted principal. The Company recognized a derivative liability in the amount of $34,999 as of September 30, 2020. As discussed in Note 9, the holders of these notes elected to convert the notes into common stock.

 

 

 

7. Derivative Liabilities

 

On March 23, 2020 notes payable in the principal amount of $100,000 were issued as convertible debt and qualified as derivative liabilities. As of September 30, 2020 the aggregate fair value of the outstanding derivative liability for these notes using the Black-Scholes option pricing model used the following key assumptions:

 

Volatility

    76 %

Risk-free interest rate

    0.11 %

Expected dividends

    -  

Expected term (in years)

    .5  

 

The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:

 

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

 

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly and include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

 

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

 

The following table presents the Company’s liabilities that were measured and recognized at fair value as of September 30, 2020:

 

    Level 1     Level 2     Level 3  
Balance January 1, 2019     -       -       -  
Additions     -       -     $ 1,321,764  
Change in Fair Value     -       -       83,766  
Balance at December 31, 2019   $ -     $ -     $ 1,405,530  
Additions     -       -       317,776  
Amendments                     (224,066 )
Retirements                     (522,065 )
Change in Fair Value                     (942,176 )
Balance at June 30, 2020   $       $       $ 34,999  

 

 

8. Commitments and Contingencies

 

On August 11, 2020 the Company entered into a letter agreement with Winspear Investments, LLC (“Winspear”), pursuant to which the Company retained Winspear to provide strategic advisory services for financial and business matters. The agreement provides for a minimum three-month term and that Winspear would be compensated with the grant of 20,000 shares of the Company’s Common Stock at inception and an additional 5,000 shares per month for the initial term. In the event Winspear continues to provide services, Winspear shall be compensated an additional grant of 3,000 shares per month for a total of twelve-months and such grants shall not exceed an aggregate issuance of 71,000 shares. The agreement also provides that Winspear shall be granted 80,000 shares if the Company achieves a listing with NASDAQ. The total shares issuable under the agreement shall not be less than a minimum of 35,000 and not exceed a maximum of 151,000 shares.

 

The Company is not currently a defendant in any material litigation or any threatened litigation that could have a material effect on the Company’s financial statements.

 

 

 

9. Subsequent Events

 

On October 7, 2020 the Company repaid $35,060 to a third party to cancel a previous unexecuted subscription for 35,200 shares of Common Stock dated May 24, 2018, which shares were not issued.

 

On October 14, 2020 the Company entered into a subscription agreement to sell 12,820 shares of Common Stock at $1.95 per share, to a third party, for aggregate consideration of $24,999.

 

On October 15, 2020 the Company entered into subscription agreements to sell 77,300 shares of Common Stock at $1.95 per share, to a third party, for aggregate consideration of $150,735.

 

On November 3, 2020 the Company entered into subscription agreements to sell 25,641 shares of Common Stock at $1.95 per share, to a third party, for aggregate consideration of $49,996.

 

On November 12, 2020, the Company executed a Loan Agreement with certain Lenders and FVP Servicing LLC, as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company also entered into an agreement with an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations. Mr. Kepler executed a guaranty in favor of FVP in connection with the loan. Proceeds from the loan will be to repay an existing secured note payable in the amount of $100,000 along with accrued interest, certain outstanding trade payables in the amount of $133,880 and for general working capital purposes. In addition, the Company granted the Lender a security interest in substantially all of its assets.

 

On November 12, 2020 the holders of certain amended and restated convertible promissory notes dated June 23, 2020 elected to convert obligations under such notes in the aggregate principal amotun of $100,000 into Common Stock.

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

We urge you to read the following discussion in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2019, as well as with our condensed financial statements and the notes thereto included elsewhere herein.

 

Overview

 

Blackboxstocks, Inc. is a financial technology and social media hybrid platform offering real-time proprietary analytics and news for stock and options traders of all levels. Our web-based software employs “predictive technology” enhanced by artificial intelligence to find volatility and unusual market activity that may result in the rapid change in the trading price of a stock or option. Blackbox continuously scans the NASDAQ, New York Stock Exchange, CBOE, and other options markets, analyzing over 8,000 stocks and up to 900,000 options contracts multiple times per second. We also provide our users with a fully interactive social media platform that is integrated into our dashboard, enabling our users to exchange information and ideas quickly and efficiently through a common network. We recently introduced a live audio/video feature that allows our members to broadcast on their own channels to share trade strategies and market insight within the Blackbox community.

 

We launched our platform for domestic use and made it available to subscribers in September 2016. Subscriptions for the use of the platform are sold on a monthly and/or annual subscription basis to individual consumers through our website at http://www.blackboxstocks.com.

 

Our principal office is located at 5430 LBJ Freeway, Suite 1485, Dallas, Texas 75240 and our telephone number is (972) 726-9203. Our Common Stock is quoted on the OTC Pink tier of the OTC Markets Group, Inc. (the “OTC Pink”) under the symbol “BLBX.” Our corporate website is located at http://www.blackboxstocks.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this Report on Form 10-Q.

 

Basis of Presentation of Financial Information

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern, which is dependent upon the Company's ability to establish itself as a profitable business. At September 30, 2020, the Company had an accumulated deficit of $6,665,961 and for the three and nine months ended September 30, 2020, reported a net loss of $72,710 and net income of $163,946, respectively. By contrast, at September 30, 2019, the Company had an accumulated deficit of $5,002,609 and for the three and nine months ended September 30, 2019, incurred net losses of $507,859 and $1,156,140, respectively. Management expects that the Company may need to raise additional capital to sustain operations until such time as the Company can achieve consistent profitability. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations on a consistent basis.

 

The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

 

Significant Accounting Policies

 

There have been no changes from the Summary of Significant Accounting Policies described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 16, 2020.

 

 

Liquidity and Capital Resources

 

At September 30, 2020, the Company had a cash balance of $165,477 and a working capital deficit of $1,869,126. Although the Company experienced substantial increases in revenues during 2020 as compared to 2019 and significantly lower losses from operations and net losses, there can be no assurance that such trends will continue. The company has current debt outstanding in the amount of $1,098,411. As a result of its financial position, the Company may not be able to generate sufficient cash flows from operations to sustain its operations and service its debt. These factors raise substantial doubt about our ability to continue as a going concern and the accompanying financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.

 

On November 12, 2020, the Company executed a Loan Agreement with certain lenders (the “Lenders”) and FVP Servicing LLC, (“FVP”), as agent for the Lenders in connection with the issuance of a Note (the “FPV Note”) in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company repaid an existing secured note payable in the amount of $100,000 along with accrued interest and certain outstanding trade payables in the amount of $133,880. In addition, the Company granted the Lender a security interest in substantially all of its assets. Excluding transaction costs, the Company will receive net proceeds of approximately $666,000 after repayment of the notes and payables described above. Management believes that this will be sufficient to fund its operations and service its debt for the next twelve months. In addition, management may continue to raise additional debt or equity capital in order to improve liquidity or finance more aggressive growth or development. There can be no assurance that the Company will be able to raise additional capital or on what terms.

 

Sale of Common Stock and Warrants

 

During the nine months ended Sepember 30, 2020, the Company received subscriptions for the purchase of 69,232 shares of Common Stock at a cash price of $1.95 per share for an aggregate of $135,001. In connection with certain of the sales, warrants to purchase up to 32,053 shares of the Company’s Common Stock at a cash price of $1.95 per share were issued to certain of the subscribers.

 

Results of Operations

 

Comparison of Three Months Ended September 30, 2020 and 2019

 

For the three months ended September 30, 2020 and 2019, the Company’s revenue totaled $1,100,329 and $296,332, respectively, for which our respective costs of operations totaled $288,213 and $159,216. The $803,997 increase in revenue resulted from growth in our user base which is primarily attributable to a consistent daily advertising spend during the period. The majority of the costs of operations are data feed expenses for exchange information totaling approximately $121,650 for the three months ended September 30, 2020 and customer retention expenditures of $92,547. Other costs of operations include $46,497 for website maintenance.

 

For the three months ended September 30, 2020 the Company had operating expenses totaling $726,632 compared to $384,598 for the same period in 2019, an increase of $342,034. This change is primarily a result of an increase in selling, general and administrative expenses of $175,511, from $290,713 for the three months ended September 30, 2019 compared to $466,224 for the three months ended September 30, 2020, as a result of increases of $44,928 for referral expenses, salary and related employee expenses of $37,122, consulting and business development expense of $92,439 and $1,022 in aggregate other general and administrative expenses. We also incurred increased advertising and marketing expenses by $111,010 to $173,559 from $62,549 for the three months ended September 30, 2020 as compared to the three months ended September 30, 2020. Software development costs also increased by $56,565 as a result of platform enhancement and related data feed expense.

 

 

Comparison of Nine Months Ended September 30, 2020 and 2019

 

For the nine months ended September 30, 2020 and 2019, the Company’s revenue totaled $2,324,428 and $776,489, respectively, for which our respective costs of operations totaled $700,723 and $438,168. The $1,547,939 increase in revenue resulted from growth in our user base which is primarily attributable to a consistent daily advertising spend during the period. The majority of the costs of operations are data feed expenses for exchange information totaling approximately $307,564 for the nine months ended September 30, 2020 and customer retention expenditures of $241,403. Other costs of operations included $92,314 for website maintenance and other costs of $59,442.

 

For the nine months ended September 30, 2020 the Company had operating expenses totaling $1,722,218 compared to $1,107,004 for the same period in 2019, an increase of $615,214. This change is primarily a result of an increase in selling, general and administrative expenses of $342,573, from $789,088 for the nine months ended September 30, 2019 compared to $1,131,661 for the nine months ended September 30, 2020, as a result of increases of $86,497 for referral expenses, salary and related of $70,389, consulting and business development expense of $156,125, investment and financing expense of $20,037, internet and computer expense of $46,235 and other general and administrative expense of $18,429 netted with a decrease in professional fees of $55,140. We also incurred increased advertising and marketing expenses of $203,336, from $201,299 for the three months ended September 30, 2019 compared to $404,635 for the nine months ended September 30, 2020. Software development costs also increased by $73,461 as a result of the enhancements to the platform and the related increased data feed expense.

 

Off Balance Sheet Arrangements

 

As of September 30, 2020, we did not have any material off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Gust Kepler, our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of September 30, 2020, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures as of September 30, 2020 were not effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2020 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

 

Limitations on the Effectiveness of Controls

 

Our disclosure controls and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

 

Management is aware that there is a lack of segregation of duties at the Company due to the fact that the Company only has one director and executive officer dealing with general administrative and financial matters. This constitutes a material weakness in the internal controls. Management has decided that considering the officer/director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management periodically reevaluates this situation. In light of the Company’s current cash flow situation, the Company does not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

None.

 

Item 1A.  Risk Factors

 

Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On July 6, 2020, warrants to purchase 115,385 shares of Common Stock, issued in conjunction with Amended Convertible Promissory Notes were exercised at $0.01 per share for aggregate cash consideration of $1,154.

 

On July 10, 2020 the Company sold 25,641 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,821 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $49,995. A sales commission of $6,000 is payable in connection with the sale.

 

On July 31, 2020 the Company sold 25,641 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 12,821 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $49,995. A sales commission of $6,000 is payable in connection with the sale.

 

On August 14, 2020 the Company sold 12,821 shares of Common Stock and a Warrant, exercisable for a period of 5 years, to purchase 6,411 shares of Common Stock at an exercise price of $1.95 per share, to third parties for aggregate consideration of $25,001. A sales commission of $1,750 is payable in connection with the sale..

 

 

On August 27, 2020 the Company sold 5,129 shares of Common Stock to a third party for $10,001.

 

On August 28, 2020 the Company issued 3,334 shares of its Common Stock at a value of $1.95 to a third party in settlement of services provided for marketing and advertising.

 

On September 25, 2020 the Company issued 25,000 shares of its Common Stock at a value of $1.95 to a third party in conjunction with a consulting services agreement.

 

The securities described above were privately offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act. The Company reasonably believed that each of the purchasers of such securities had access to information concerning its operations and financial condition, were acquiring the securities for their own account and not with a view to the distribution thereof, and each investor qualified as an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. Furthermore, no "general solicitation" was made by the Company with respect to sale of any of the securities. At the time of their issuance, the securities described above were deemed to be restricted securities for purposes of the Securities Act and the documentation representing the securities bear legends and/or non-transfer provisions to that effect.

 

All of the Company’s other sales of unregistered securities during the period covered by the Report have been previously reported as required in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and/or current reports on Form 8-K.

 

Item 3. Defaults Upon Senior Securities

 

On August 8, 2018 a third party advanced $200,000 to the Company in exchange for a secured promissory note, bearing interest at the rate of 12% per annum with a maturity date of November 20, 2018. The note is secured by a Security Agreement providing for a continuing lien and first priority security interest in the assets of the Company and by a personal Guaranty Agreement with Gust Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company, and the Company’s controlling stockholder. On December 6, 2018, Mr. Kepler made a payment on the note in the amount of $100,000 plus accrued interest of $8,000 for an aggregate of $108,000. This note was in default on Spetember 30, 2020 but was subsequently repaid on November 12, 2020.

 

On November 9, 2018, Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company advanced $120,000 to the Company in exchange for a promissory note bearing interest at 12% per annum for a ninety-day period, maturing on January 28, 2019. The note remains unpaid as of September 30, 2020. On November 12, 2020 Mr. Kepler and the Company agreed to waive the deault and extend the maturity to the earlier of May 1, 2024 or such time as the FPV Note issued contemporaneously with the waiver is repaid.

 

On May 21, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a total face value up to $550,000, which included an original issue discount of 10% on the investment amount of up to $500,000. The note specifies that the note holder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matured 180 days from the effective date. The note provides for a redemption premium of 115% if retired after the 91st day. The noteholder paid the first consideration of $350,000 and no further consideration was remitted within the allowed thirty days. As the note was not retired on or before the maturity date, the noteholder is entitled to convert a portion or all the outstanding principle into shares of the Company’s Common Stock at a variable conversion price which equals the lower of the fixed conversion price of $1.95 per share or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the noteholder’s election to convert. As of September 30, 2020 the note is in default.

 

 

On July 17, 2019, the Company issued an 8% Fixed Convertible Promissory Note payable to a third party for a total face value of $165,000, which included an original issue discount of 10% on the investment amount of $150,000. The note specifies that the noteholder shall retain an original issue discount of 10% of any consideration, bears interest of 8%, and matures 180 days from the effective date. The note provides for a redemption premium of 115% if retired after the 91st day. Until maturity, the noteholder may convert all or a portion of the outstanding principal into shares of Common Stock of the Company at a fixed conversion price equal to $1.95 per share. If the note is not retired on or before the maturity date, the note holder is entitled to convert a portion or all the outstanding principle into shares of the Company’s common stock at a variable conversion price which equals the lower of the fixed conversion price or 65% of the lowest closing bid price during the 15 consecutive trading days prior to the date of the noteholder’s election to convert. As of September 30, 2020 the note is in default.

 

On July 10, 2020, the Company entered into Forbearance and Note Settlement Agreements (“Agreements”) with the third parties agreeing to take no further action to avail themselves of the remedies of default defined in the Notes. The Agreements stipulate the Company will remit payment of all accrued interest and principal outstanding beginning on July 20, 2020 for thirteen agreed upon payments and until the note is repaid in full. Upon execution of these Agreements, effectively extinguishing the above described notes, the Company recognized a cancellation of the derivative liability previously related to the conversion feature of $522,065. As additional consideration for the Agreements, the Holders were issued warrants to purchase up to 360,000 shares of the Company’s Common Stock at a price of $1.00 per share, exercisable beginning January 10, 2021 and expiring on July 10, 2025.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation

 

On November 12, 2020, the Company executed a Loan Agreement with certain Lenders and FVP Servicing LLC (“FPV”), as agent for the Lenders in connection with the issuance of a Note in the amount of $1,000,000 bearing interest at 12% per annum with an initial maturity of November 12, 2022. Simultaneously, with the execution of the Loan Agreement, the Company also entered into an Exclusivity Agreement with Feenix Payment Systems, LLC, an affiliate of FVP to provide certain credit and debit card processing services for the Company, which services will continue for a period of one year after the loan is repaid and contains a right of first refusal to continue to provide such services in the future subject to certain limitations. Gust C. Kepler, a Director, President, Chief Executive Officer, Chief Financial Officer and Secretary of the Company executed a Guaranty in favor of FVP in connection with the Loan Agreement. Proceeds from the loan will be to repay an existing secured note payable in the amount of $100,000 along with accrued interest, certain outstanding trade payables in the amount of $133,880 and for general working capital purposes. In addition, the Company entered into a Security Agreement pursuant to which it granted the Lender a security interest in substantially all of its assets as collateral for the loan obligations.

 

Item 6. Exhibits

 

The following exhibits are filed with this Quarterly Report on Form 10-Q or are incorporated by reference as described below.

 

Exhibit

Description

10.1

Loan Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc.*

10.2

Note dated November 12, 2020 payable to Feenix Venture Partners Opportunity Fund II LP*

10.3

Security Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc.*

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350**

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350**

101.1

Interactive data files pursuant to Rule 405 of Regulation S-T*

*            Filed herewith.

**          Furnished herewith

 

 

SIGNATURES

 

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

     

November 16, 2020

BLACKBOXSTOCKS INC.

     

 

By:

/s/ Gust Kepler

 

Gust Kepler

 

President, Chief Executive Officer and Secretary (Principal Executive Officer and Principal Financial and Accounting Officer)

 

 

EXHIBIT INDEX

 

Exhibit

Description

10.1

Loan Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc.*

10.2

Note dated November 12, 2020 payable to Feenix Venture Partners Opportunity Fund II LP*

10.3

Security Agreement dated November 12, 2020 between FPV Servicing LLC and Blackboxstocks, Inc.*

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350**

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350**

101.1

Interactive data files pursuant to Rule 405 of Regulation S-T*

*            Filed herewith.

**          Furnished herewith

 

21

 

 

Exhibit 10.1

 

LOAN AGREEMENT

 

 

This LOAN AGREEMENT (this “Agreement”) dated as of November 12, 2020, is made by and among blackboxstocks Inc., a Nevada corporation (“Borrower”); each financial institution that from time to time is a Lender (as defined below) hereunder; and FVP SERVICING, LLC, a Delaware limited liability company (in its capacity as administrative agent for the Lenders, the “Administrative Agent” and together with Borrower and the Lenders, the “Parties”, and each, a “Party”).

 

W I T N E S S E T H:

 

WHEREAS, Borrower has requested that the Lenders extend credit to Borrower in the form of a term loan more particularly described herein, and the Lenders are each willing to do so on the terms, conditions and provisions set forth herein.

 

NOW, THEREFORE, upon the terms and conditions hereinafter stated, and in consideration of the mutual premises set forth above and other adequate consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:

 

1.

DEFINITIONS AND RULES OF CONSTRUCTION

 

1.1     As used in this Agreement, the following terms shall have the meanings set forth below (terms defined in the singular to have the same meaning when used in the plural and vice versa):

 

Administrative Agent” shall have the meaning given to such term in the introductory paragraph of this Agreement.

 

Advance” means an advance of funds by Lenders under this Agreement.

 

Affiliate” of any Person means any other Person that directly or indirectly controls, is controlled by or is under direct or indirect common control with such Person. A Person shall be deemed to “control” another Person if such first Person directly or indirectly possesses the power to direct (or to cause the direction of) the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise. Notwithstanding the foregoing, neither Administrative Agent nor any Lender shall be deemed to be an Affiliate of Borrower.

 

Agreement” means this Loan Agreement and all exhibits, riders and schedules at any time executed by the Parties and made a part hereof by reference, either as originally executed or as hereafter amended, restated, modified or supplemented from time to time.

 

Applicable Law” means all laws, rules and regulations applicable to the Person, conduct, transaction, covenant or Loan Documents in question, including, without limitation, all Applicable Law and equitable principles; all provisions of all applicable state and federal constitutions, statutes, rules, regulations and orders of governmental bodies; and all Orders.

 

Borrower” shall have the meaning given to such term in the introductory paragraph of this Agreement.

 

Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by Applicable Law to close.

 

1

 

Cash Flow Available for Debt Service” means, with respect to Borrower and its Subsidiaries for each period of twelve (12) consecutive calendar months ending as of the last day of each fiscal quarter of Borrower, the sum of (a) net income for such period of determination, (b) interest expense for such period of determination and (c) depreciation, amortization and other non-cash charges for such period of determination, in each case, as determined on a consolidated basis in accordance with GAAP.

 

Change of Control” means an event or series of events by which (a) Gust Kepler shall fail to own, directly or indirectly, at least 50.1% of the aggregate ordinary voting power or economic interests represented by the issued and outstanding Equity Interests of Borrower on a fully diluted basis; (b) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as such term is used in Sections 13(d)(3) of the Exchange Act), becomes the “beneficial owner” (as defined in Rules 13(d)-3 under the Exchange Act), directly or indirectly, of more than 50% of the aggregate ordinary voting power or economic interests represented by the issued and outstanding Equity Interests of Borrower on a fully diluted basis; (c) a majority of the seats (other than vacant seats) on the board of directors (or equivalent governing body) of Borrower shall at any time be occupied by Persons who were neither (i) nominated, approved or appointed by the board of directors (or equivalent governing body) of Borrower nor (ii) nominated, approved or appointed by individuals so nominated, approved, or appointed, or (d) Guarantor shall cease to be the chief executive officer of Borrower subject to waiver by the Required Lenders.

 

Closing Date” means November 12, 2020.

 

Collateral” means all Property in which Administrative Agent is at any time granted a Lien for purposes of securing the Obligations.

 

Commitment” means, collectively, each Lender’s commitment to Advance a portion of the Loan on the Closing Date in the applicable amount specified on Schedule A attached hereto.

 

Debt” of a Person, means all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of Property or services; (c) obligations evidenced by notes, bonds, debentures or other similar instruments; (d) obligations as lessee under capital leases; (e) obligations in respect of any interest rate swaps, currency exchange agreements, commodity swaps, caps, collar agreements or similar arrangements entered into by such Person providing for protection against fluctuations in interest rates, currency exchange rates or commodity prices or the exchange of nominal interest obligations, either generally or under specific contingencies; (f) obligations under acceptance facilities and letters of credit; (g) guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss, in each case, in respect of indebtedness set out in clauses (a) through (f) of a Person other than such Person; (h) obligations under factoring, receivables sale or financing arrangements, merchant cash advances or similar transactions and (i) indebtedness set out in clauses (a) through (h) of any Person other than such Person secured by any lien on any asset of such Person, whether or not such indebtedness has been assumed by such Person.

 

Debt Service” means, with respect to Borrower and its Subsidiaries for each period of twelve (12) consecutive calendar months ending as of the last day of each fiscal quarter of Borrower, the sum of (a) cash interest expense for such period of determination, (b) all installments of principal on Debt that are due on demand or during the period of determination, (c) all installments of rent under capitalized lease obligations (to the extent not already accounted for in computation of net income or Debt) that are due on demand or during the period of determination and (d) distributions and dividends to stockholders and advances to Affiliates during the period of determination, in each case, as determined on a consolidated basis in accordance with GAAP.

 

2

 

Debt Service Coverage Ratio” means, with respect to Borrower and its Subsidiaries for the period of twelve (12) consecutive calendar months ending as of the last day of each fiscal quarter of Borrower, the ratio of (a) Cash Flow Available for Debt Service for such period to (b) Debt Service for such period.

 

Default” means the occurrence of any event which, after satisfaction of any requirement for the giving of notice or the lapse of time, or both, would become an Event of Default.

 

Default Rate” means the annual percentage interest rate applied to the principal of the Loan not paid when due under the terms of the applicable Loan Documents, which rate shall equal fifteen percent (15%).

 

Developer Payables” means the amounts payable by Borrower to Cyfeon Solutions in the amount of $98,580 and to Switchback, Inc. in the amount of $35,300.

 

Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

 

Event of Default” shall have the meaning given to such term in Section 7.1 hereof.

 

Exclusivity Agreement” means the Exclusivity Agreement dated as of the date hereof, by and among FPS and Borrower, together with each of the other agreements entered into by Borrower in connection therewith.

 

Forbearance Agreements” shall have the meaning set forth on Schedule B hereof.

 

FPS” means Feenix Payment Systems, LLC, a Delaware limited liability company (an Affiliate of Administrative Agent).

 

GAAP” means generally accepted accounting principles in the United States, consistently applied.

 

Governmental Authority” means the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.

 

Guarantor” means Gust Kepler.

 

Guaranty” means the Guaranty dated as of the date hereof by Guarantor in favor of Administrative Agent, on behalf of itself and the Lenders.

 

Indemnitee” shall have the meaning given to such term in Section 11.2 hereof.

 

Initial Maturity Date” means November 12, 2022.

 

3

 

Interest Only Period” means the period commencing on the Closing Date and continuing through and including the November, 2021 Payment Date.

 

Law” as to any Person, means any law (including common law), statute, ordinance, treaty, rule, regulation, policy or requirement of any Governmental Authority and authoritative interpretations thereon, whether now or hereafter in effect, in each case, applicable to or binding on such Person or any of its properties or to which such Person or any of its properties is subject.

 

Lender” means each of the Persons listed on Schedule A hereto as “Lender”, together with any successor, assignee or other transferee of such Lender hereunder, and any other entity subsequently added hereto as a Lender hereunder, or any successor, assignee or other transferee thereof.

 

Lien” means any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing).

 

Loan” means the loan in the original principal amount of $1,000,000.00 made by the Lenders to the Borrower on the Closing Date pursuant to Section 2.1(a).

 

Loan Documents” means this Agreement, the Security Agreement, the Exclusivity Agreement, each Note, each other Security Document, the Guaranty and all other instruments, agreements, documents and writings now or hereafter evidencing, securing or delivered to Administrative Agent and Lender in connection with the Obligations, as each of the foregoing may be amended, restated, replaced, supplemented or otherwise modified from time to time.

 

Material Contracts” means the Subordinated Debt, the Debt described on Schedule B and any agreement or contract the loss or breach of which could reasonably be expected to have or cause a material adverse effect on the financial condition of Borrower, the ability of Borrower to perform its obligations under each of the Loan Documents.

 

Maturity Date” means the earlier of (a) the Initial Maturity Date, as the same may be extended in accordance with Section 2.2, and (b) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise).

 

Net Proceeds” means, in respect of (a) any incurrence of Debt (other than the Loan or Permitted Debt) by Borrower, (b) any casualty or condemnation event involving Property of Borrower, or (c) any sale or assignment involving Property of Borrower, other than from sales occurring in the ordinary course of business and in each case, in an amount in excess of $50,000, all cash proceeds (including cash proceeds as and when received in respect of non-cash proceeds received or receivable in connection with such occurrence), net of reasonable and customary out-of-pocket costs and expenses paid or incurred in connection therewith in favor of any Person not an Affiliate of Borrower.

 

Note” has the meaning set forth in Section 2.1(b).

 

Obligations” means all loans (including the Loan), Advances, debts, liabilities and obligations (including reimbursement obligations) for monetary amounts owing by Borrower and by Guarantor to the Administrative Agent and the Lenders, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, of any kind or nature, present or future, arising under or in respect of this Agreement or any of the Loan Documents. This term includes all principal, interest (including interest that accrues after the commencement against Borrower or Guarantor of any action under the Federal Bankruptcy Code), premium, reasonable fees and expenses, including any and all arrangement fees, delivery fees, loan fees, commitment fees, agent fees, merchant processing fees and any and all other fees, expenses, costs or other sums (including reasonable attorney’s fees) chargeable to Borrower or Guarantor under any of the Loan Documents.

 

4

 

Order” as to any Person, means any order, decree, judgment, writ, injunction, settlement agreement, requirement or determination of an arbitrator or a court or other Governmental Authority, in each case, applicable to or binding on such Person or any of its properties or to which such Person or any of its properties is subject.

 

Payment Date” means the fifteenth (15th) day of each calendar month during the term of this Agreement commencing with the first Payment Date after the Closing Date; provided, however, if such day is not a Business Day, the next succeeding Business Day.

 

Permitted Debt” means (a) Debt existing or arising under this Agreement and any refinancing, extension or modification thereof; (b) unsecured trade payables incurred in the ordinary course of business consistent with past practice, which are not overdue for a period of more than thirty 30 days; (c) unsecured Debt owed in respect of any netting services, overdrafts and related liabilities arising from treasury, depository and cash management services in connection with any automated clearinghouse transfers of funds; and (d) the Debt existing as of the closing date set forth on Schedule B.

 

Permitted Liens” means (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, (b) non-exclusive licenses in Intellectual Property granted pursuant to the Co-License Agreement, (c) non-consensual Liens arising by operation of law, arising in the ordinary course of business, and for amounts which are not overdue for a period of more than thirty 30 days or that are being contested in good faith by appropriate proceedings, and (d) Liens pursuant to the Loan Documents.

 

Person” means a corporation, an association, partnership, an organization, a business, a business trust, a limited liability company, an individual, a government or political subdivision thereof or a governmental agency.

 

Property” means the real property and personal property of a Person, and any interest of a Person in any real or personal property.

 

Refinanced Debt” means the obligations under (a) the Senior Secured Promissory Note dated July 23, 2018 by Borrower in favor of Trammell S. Crow in the original principal amount of $200,000, (b) the Amended and Restated Secured Convertible Note dated June 23, 2020 by Borrower in favor of Brian and Suzanne Swift in the original principal amount of $25,000, and (c) the Amended and Restated Secured Convertible Note dated June 23, 2020 by Borrower in favor of Rogers Family Trust UTA 01/21/1981 in the original principal amount of $75,000, including, without limitation, all guaranties and other indebtedness related to or created thereunder or any related document. Refinanced Debt shall not include any debt referred to above that has been converted into common stock of Borrower on or prior to the Closing Date.

 

Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates

 

Restricted Payment” means (a) any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity Interests of Borrower, (b) any purchase, redemption, retirement or acquisition by Borrower for value of any Equity Interests or any distribution of any kind in cash or other Property or assets in respect thereof; and (c) any payment (whether in cash, securities or other Property or assets), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests or on account of any return of capital to Borrower’s equity holders, partners or members (or the equivalent Person thereof).

 

5

 

Revenues” means gross revenues of Borrower as determined in accordance with GAAP.

 

Security Agreement” means that certain Security Agreement made by Borrower (and any other Person who from time to time executes the Security Agreement as a Grantor to secure the Obligations in favor of Administrative Agent and the Lenders) in favor of Administrative Agent and the Lenders which covers all of the assets of Borrower.

 

Security Documents” means, collectively, (i) the Security Agreement, (ii) all UCC financing statements required by this Agreement to be filed with respect to the security interests created pursuant to the Security Documents, (iii) any other document, instrument or agreement pursuant to which any Lien is granted in favor of Administrative Agent or any Lender to secure the payment or performance of the Obligations and (iv) all other documents and agreements executed or delivered to Administrative Agent by Borrower in connection with any of the foregoing documents

 

Settlement Date” means, with respect to any Advance hereunder, the date on which funds are advanced by a Lender.

 

Subordinated Debt” means the Debt described on Schedule B as “Subordinate Debt”, which shall be subject to subordination provisions or a subordination agreement, in form and substance reasonably acceptable to Administrative Agent.

 

Subsidiary” means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by Borrower.

 

Uniform Commercial Code” means the Uniform Commercial Code of the State of New York or such other applicable jurisdiction.

 

Unrestricted Cash” means the unrestricted cash of Borrower.

 

1.2     Accounting Terms and Determination. Accounting terms used in this Agreement such as “net income,” “amortization,” “depreciation,” and “interest expense” shall be calculated (both as to amounts and classification of items) in accordance with GAAP.

 

1.3     Other Interpretive Provisions. Any pronoun used herein shall be deemed to cover all genders. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations, and all references to any instruments or agreements, including, without limitation, references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof. Unless otherwise expressly stated or the context clearly indicates a different intention, then (as may be appropriate in the particular context) a singular reference to Lender used in any Loan Document includes the plural, and a plural reference to Lenders includes the singular.

 

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2.

LOAN; USE OF PROCEEDS.

 

 

2.1

Establishment of Credit Facility.

 

(a)     Subject to the terms and conditions of this Agreement, the Lenders shall Advance to Borrower the proceeds of the Loan on the Closing Date, in the aggregate original principal amount of $1,000,000.00. The amount of each Lender’s Advance in respect of the Loan shall be such Lender’s Commitment amount, as specified on Schedule A attached hereto. The proceeds of such Advance shall be disbursed by Administrative Agent, for the benefit of and at the direction of Borrower, in accordance with the Flow of Funds Memorandum attached hereto as Exhibit C. Upon the funding of such Advance, the Commitment of each Lender hereunder shall be terminated, and no further Advances in respect of the Loan shall be permitted. Principal amounts repaid or prepaid in respect of the Loan will not be available for reborrowing hereunder. The Loan shall bear interest at the applicable rate provided in the provisions of Section 2.5 hereof.

 

(b)    The portion of the Loan held by each Lender shall be evidenced by a promissory note in the form of Exhibit A hereto (each, as amended, restated, replaced, supplemented, extended or renewed from time to time, a “Note”), in each case payable to the order of such Lender. Each Note will be due and payable in full on the Maturity Date. Each Lender is authorized to note or endorse the date and amount of each Advance and each payment of the applicable Loan on a schedule annexed to and constituting a part of the Note. Such notations or endorsements, if made, will constitute prima facie evidence of the information noted or endorsed on such schedule, but the absence of any such notation or endorsement will not limit or otherwise affect the obligations or liabilities of Borrower thereunder and hereunder.

 

(c)     The obligations of the Lenders under this Section 2.1 shall be several and not joint. The Commitments of each Lender with respect to the Loan is as set forth on Schedule A hereto.

 

2.2         Maturity Date Extension. On the twenty-second (22nd) Payment Date, Borrower, at its sole option, may elect to extend the Initial Maturity Date by twelve (12) months to November 12, 2023, if the following conditions are satisfied: (i) as the last day of the fiscal quarter most recently ended, Borrower’s gross revenues for the trailing 12-month period ending on such date shall not be less than $6,500,000; (ii) as of the Initial Maturity Date, no Default or Event of Default shall exist; (iii) all representations and warranties contained herein and in the other Loan Documents shall be true and correct as of such Initial Maturity Date; (iv) Borrower shall have paid to Administrative Agent, on behalf of the Lenders, an extension fee equal to 0.25% of the outstanding principal amount of the Loan; and (v) on or before such Initial Maturity Date, Borrower shall have delivered to the Administrative Agent, all documents Administrative Agent requests in connection with such extension.

 

2.3          Repayment.

 

(a)     Payment of Principal and Interest. On each Payment Date during the Interest Only Period, Borrower shall make monthly payments with respect to the Loan equal to all accrued unpaid interest on the outstanding principal amount thereof. Commencing with the first Payment Date following the Interest Only Period and continuing thereafter until the Maturity Date, Borrower shall make monthly payments with respect to the Loan equal to all accrued unpaid interest on the outstanding principal amount thereof plus principal in an amount equal to 1.0% of the initial principal amount of the Loan. On the Maturity Date, Borrower shall pay to Administrative Agent, for the account of the Lenders, the outstanding principal balance of the Loan, all accrued unpaid interest thereon and all other fees, costs, expenses and other Obligations then outstanding.

 

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(b)     Payment Mechanics. Except as provided below, all payments of principal of, or interest on, the Loan and all other sums due under the terms of the Loan Documents shall be made in either (i) immediately available funds by wire or (ii) checks or money orders made payable to the Administrative Agent at the address and pursuant to the instructions provided by the Administrative Agent to Borrower from time to time.

 

2.4         Use of Proceeds. The funds advanced under the Loan may be used exclusively (a) to repay the Refinanced Debt, (b) to pay the Developer Payables as provided in Section 5.1(o) to pay costs and expenses associated with the closing of the transactions contemplated by the Loan Documents and (c) to fund general working capital requirements of Borrower.

 

2.5          Interest.

 

(a)     The unpaid principal amount of each Loan shall, subject to this Section 2.5, bear interest at twelve percent (12.0%) per annum (the “Interest Rate”). Interest shall be computed on the basis of a 365-day year for the actual number of days in the interest period. Upon any Default, the Interest Rate shall increase from the date of such Default on the unpaid principal amount at a rate equal to the Default Rate. For the avoidance of doubt, all payments of interest on the Loan outstanding under this Agreement on each Payment Date shall be made in accordance with Section 2.3 hereof.

 

(b)     In no contingency or event whatsoever shall the amount paid or agreed to be paid to the Administrative Agent or Lenders for the use, forbearance or detention of money advanced under this Agreement exceed the highest lawful rate permissible under Applicable Law. It is the intent hereof that Borrower will not pay or contract to pay, and that neither Administrative Agent nor any Lender receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be charged to and paid by Borrower under Applicable Law. All interest (and charges deemed interest) paid or agreed to be paid to Administrative Agent or the Lenders shall, to the extent permitted by Applicable Law, be amortized, pro-rated, allocated and spread in equal parts throughout the full term hereof until payment in full of the principal amount of the Obligations owing hereunder (including the period of any renewal or extension hereof) so that interest on the principal amount of the Obligations outstanding hereunder for such full period will not exceed the maximum amount permitted by Applicable Law. Each determination by Administrative Agent of an interest amount hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes.

 

(c)      If any interest or other sum due under any Loan Document is not paid by Borrower within ten (10) days after the date on which it is due (except for the payment due on the Maturity Date), Borrower shall pay to Administrative Agent upon demand an amount equal to five percent (5%) of such unpaid sum or the maximum amount permitted by Applicable Law, in order to defray the expense incurred by Administrative Agent and the Lenders in handling and processing such delinquent payment and to compensate Administrative Agent and the Lenders for the loss of the use of such delinquent payment. Such amount shall be secured by the Collateral.

 

2.6          Prepayment.

 

(a)      Voluntary Prepayment. Borrower shall have the right to prepay the Loan in whole or in part at any time without premium or penalty, but subject to Borrower having provided at least five (5) Business Days prior written notice to Administrative Agent.

 

(b)     Mandatory Prepayment. Immediately upon the receipt by any Loan Party or Restricted Entity of any Net Proceeds, Borrowers shall deliver, or cause to be delivered, to Administrative Agent an amount equal to such Net Proceeds for application to the Obligations in accordance with Section 2.7(c).

 

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(c)       Application. All prepayments will be applied to reduce future scheduled payments in the inverse order of maturity.

 

2.7          Fees.

 

(a)      On the Closing Date, Borrower will pay to Administrative Agent, for the account of the Lenders, a non-refundable commitment fee in an amount equal to $10,000.00 (the “Commitment Fee”). The Commitment Fee shall be fully earned upon becoming due and payable on the Closing Date in accordance with the terms hereof, shall be nonrefundable for any reason whatsoever and shall be in addition to any other fees, costs and expenses payable pursuant to the Loan Documents. Borrower’s obligation to pay the Commitment Fee will not be subject to counterclaim or setoff or be otherwise affected by any claim or dispute Borrower may have.

 

(b)     Commencing on the first Payment Date occurring after the Closing Date and continuing thereafter through and including the Maturity Date, Borrower will pay to Administrative Agent a monthly administration fee calculated at the rate of 0.50% per annum on the outstanding principal balance of the Loan for the calendar month immediately preceding the calendar month in which such Payment Date occurs. Such fee shall be nonrefundable for any reason whatsoever and shall be in addition to any other fees, costs and expenses payable pursuant to the Loan Documents. Borrower’s obligation to pay such fee will not be subject to counterclaim or setoff or be otherwise affected by any claim or dispute Borrower may have.

 

2.8         Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or otherwise, obtain payment in respect of any principal of or interest on its portion of the Loan or prepayment premium in connection therewith resulting in such Lender’s receiving payment of a proportion of the aggregate amount of the Loan and accrued interest thereon and prepayment premium in connection therewith greater than its pro rata share thereof as provided herein, then such Lender shall (a) notify the Administrative Agent of such fact and (b) purchase (for cash at face value) participations in the portions of the Loan of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of, accrued interest on and prepayment premium in connection with their respective portions of the Loan and other amounts owing them; provided, that: (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and (ii) the provisions of this Section 2.8 shall not be construed to apply to (x) any payment made by or on behalf of Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its portion of the Loan to any assignee or participant. Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation.

 

3.             CONDITIONS PRECEDENT.   

 

3.1         The entering into of this Agreement and the other Loan Documents by the Lenders and Administrative Agent and Lenders making the Advances of the Loan on the Closing Date are subject to the following conditions precedent:

 

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(a)      Borrower shall have delivered to Administrative Agent and each Lender the following documents, each in form and substance satisfactory to Administrative Agent and duly executed on behalf of each of the Persons party thereto:

 

(i)      this Agreement;

 

(ii)     the Security Agreement;

 

(iii)     each Note;

 

(iv)     the Exclusivity Agreement;

 

(v)      the Guaranty;

 

(vi)     the information contained in Exhibit C; and

 

(vii)    each of the other Loan Documents and Security Documents, each in form and substance satisfactory to Administrative Agent and each Lender;

 

(viii)    a validly executed officer’s certificate in the form of Exhibit B attached hereto (i) attaching a fully executed copy of Borrower’s certificate of formation, certificate or article of incorporation, articles of organization or certificate of partnership (as applicable) bylaws, operating agreements or partnership agreements (as applicable) and all amendments thereto, (ii) resolutions evidencing Borrower’s authorization of the Loan; (iii) evidence of Borrower’s good standing; and (iv) incumbency certificate;

 

(ix)     such financial information as reasonably requested by Administrative Agent, including, without limitation, a consolidated pro forma balance sheet of Borrower, after giving pro forma effect to the transactions contemplated by the Loan Documents; and evidence satisfactory to Administrative Agent that after giving effect to the Loan, Borrower shall be in pro forma compliance with Section 5.1(l);

 

(x)     evidence that Borrower has either (A) converted the notes described in the definition of “Refinanced Debt” to common stock in Borrower or (B) that proceeds of the Loan has repaid such debt in full; and

 

(xi)     such other documents and information as Administrative Agent may request.

 

(b)     All filings, recordations and searches necessary or reasonably required by Administrative Agent in connection with the liens and security interests in the Collateral shall have been duly made on or prior to the Closing Date.

 

(c)     There shall not exist any action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental authority that challenges the transactions contemplated by the Loan Documents or that could reasonably be expected to have a material adverse effect on, or cause a material adverse change in, the financial condition, business, operations, creditworthiness, properties, prospects or affairs of Borrower.

 

(d)     Completion of the credit evaluation by Administrative Agent and each Lender, including all current legal, tax and regulatory searches of the Borrower as required by Administrative Agent or any Lender, and other due diligence investigation (including background checks) of Borrower and the chief executive officer of Borrower, in each case in scope, and with results, satisfactory to Administrative Agent and Lender.

 

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(e)      The capital, corporate, tax, organizational and legal structure of Borrower shall be reasonably acceptable to Administrative Agent and Lenders.

 

(f)     Any fees required to be paid on or before the Closing Date and all costs and expenses (including reasonable attorneys’ fees) incurred by Administrative Agent shall have been paid.

 

(g)     The representations, warranties and covenants of Borrower set forth in this Agreement and the other Loan Documents are true and correct.

 

(h)     The holder of the Subordinated Debt shall have waived the existing default thereunder and term of such note shall be extended to a date that is not earlier than six (6) months after the Maturity Date.

 

(i)      No event has occurred and is continuing, or would result from the making of the Loan, which constitutes a Default or an Event of Default.

 

Borrower’s acceptance of the proceeds of the Loan shall be deemed to be a representation and warranty that the conditions specified in this Section have been satisfied on and as of the Closing Date.

 

4.

BORROWER’s REPRESENTATIONS AND WARRANTIES.

 

4.1         To induce Administrative Agent and each Lender to enter into this Agreement, Borrower represents and warrants to Administrative Agent and each Lender as follows:

 

(a)     Existence; Compliance with Laws. Borrower is duly formed, validly existing and in good standing under the laws of the state of its jurisdiction of organization and has the requisite power and authority, and the legal right, to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. Borrower is in compliance with all Laws and Orders except to the extent that the failure to comply therewith could not be expected to have a material adverse effect on Borrower’s financial condition or the ability of Borrower to perform its obligations under each of the Loan Documents.

 

(b)     Power and Authority. Borrower has the power and authority, and the legal right, to execute and deliver each of the Loan Documents to which it is a party and to perform its obligations hereunder.

 

(c)     Authorization; Execution and Delivery. The execution and delivery of each of the Loan Documents by Borrower and the performance of its obligations hereunder have been duly authorized by all necessary corporate action in accordance with all Applicable Laws. Borrower has duly executed and delivered each of the Loan Documents to which it is a party.

 

(d)     No Approvals. No consent or authorization of, filing with, notice to or other act by, or in respect of, any Governmental Authority or any other Person is required in order for Borrower to execute, deliver, or perform any of its obligations under the Loan Documents.

 

(e)     No Violations. The execution and delivery of each of the Loan Documents and the consummation by Borrower of the transactions contemplated hereby and thereby do not and will not (i) violate any provision of Borrower’s organizational documents; (ii) violate any material Law or Order applicable to Borrower or by which any of its properties or assets may be bound; or (iii) constitute a material default under any material agreement or contract by which Borrower may be bound.

 

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(f)       Enforceability. Each of the Loan Documents to which Borrower is a party is a valid, legal and binding obligation of Borrower, enforceable against Borrower, in accordance with its terms.

 

(g)     No Litigation. No action, suit, litigation, investigation or proceeding of, or before, any arbitrator or Governmental Authority is pending or threatened by or against Borrower or any principal, general partner, manager, sole member, managing member or majority shareholder of Borrower or any of its Property or assets (i) with respect to the Loan Documents or any of the transactions contemplated hereby or (ii) that could reasonably be expected to materially adversely affect Borrower’s financial condition or the ability of Borrower to perform its obligations under any of the Loan Documents.

 

(h)     Limited Offering of Notes. The offer and sale of the Notes are not required to be registered pursuant to the provisions of Section 5 of the Securities Act of 1933, as amended or the registration or qualification provisions of the blue-sky laws of any state. Neither Borrower nor any agent on Borrower’s behalf, has solicited or will solicit any offers to sell all or any part of the Notes, to any Person so as to bring the sale of the Notes, by Borrower within the registration provisions of the Securities Act of 1933, as amended or any state securities laws. All prior offerings and sales of securities of Borrower were in compliance with all applicable federal and state securities laws. Borrower is under no requirement to register under the Securities Act of 1933, as amended, or the Trust Indenture Act of 1939, as amended, any of its presently outstanding securities or any of its securities that may subsequently be issued. All taxes imposed on Borrower in connection with the issuance, sale and delivery of the Notes have been or will be fully paid, and all laws imposing such taxes have been or will be fully satisfied by Borrower.

 

(i)     No Bankruptcy Filing. No bankruptcy or insolvency proceedings are pending or contemplated by Borrower. No petition in bankruptcy has been filed against Borrower, nor has Borrower ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors.

 

(j)     Title. Borrower has good and indefeasible title to the Collateral, free and clear of all Liens except the Permitted Liens. The Security Agreement, together with any UCC Financing Statements required to be filed in connection therewith, will create a valid, perfected first priority lien on Borrower’s interest in the Collateral.

 

(k)     Full and Accurate Disclosure. No statement of fact made by Borrower in any Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein not misleading. There is no material fact presently known to Borrower that has not been disclosed to the Administrative Agent or the Lenders which adversely affects, or, as far as Borrower can foresee, could reasonably be expected to materially adversely affect the Collateral or the business, operations or condition (financial or otherwise) of Borrower. All financial statements, including the balance sheets, statements of operations and statements of cash flow that have been delivered to Lender in respect of Borrower (i) are true, complete and correct in all material respects, (ii) accurately represent the financial condition, results of operations and cash flows of Borrower as of the date of such reports, and (iii) have been prepared in accordance with GAAP. The pro forma balance sheet of Borrower delivered to Administrative Agent in connection with the closing of the Loan was prepared in good faith. Borrower represents that it does not have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, unrealized or anticipated losses from any unfavorable commitments or any liabilities or obligations not expressly permitted by this Agreement. Since June 30, 2020, there has been no materially adverse change in the financial condition, operations or business of Borrower from that set forth in said financial statements.

 

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(l)      Fraudulent Transfer. Borrower has not entered into Loan Document with the actual intent to hinder, delay, or defraud any creditor, and Borrower has received reasonably equivalent value in exchange for their respective obligations under the Loan Documents. After giving effect to the transactions contemplated by the Loan Documents, the fair saleable value of Borrower’s assets including but not limited to intangible assets and goodwill whether or not recorded on its balance sheet exceeds and will, immediately following the execution and delivery of the Loan Documents, exceed Borrower’s probable total liabilities, including subordinated, unliquidated, disputed or contingent liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Borrower’s assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower). Lender acknowledges that Borrower has a stockholders’ deficit of $1,706,946 as of September 30, 2020.

 

(m)     ERISA. Borrower does not have an employee pension benefit plan.

 

(n)     No Broker. Except for Boustead Securities, LLC and R.F. Lafferty & Co., Inc., whose fees are payable solely by Borrower, no broker or finder is entitled to any commission in connection herewith and Borrower agrees to indemnify and hold Administrative Agent and Lenders harmless from and against any and all claims, demands, liabilities or expenses from brokers or other claims for commissions or fees including but not limited to reasonable attorneys’ fees and expenses on account of the making of the loan secured hereby. Borrower’s indemnity hereunder shall survive any discharge of the Collateral, if any, and payment in full of the Obligations.

 

(o)     Name, Principal Place of Business. Borrower does not and will not use any trade name and has not done and will not do business under any name (i) other than its actual name set forth herein, (ii) its prior name “SMSA Ballinger Acquisition Corp.” and (iii) the name “Tiger Trade Technologies, Inc.”, which was merged into Borrower. The principal place of business of Borrower is its primary address for notices as set forth in Section 10.1, and Borrower has no other place of business.

 

(p)     Material Contracts. Borrower has delivered or made available to Administrative Agent complete and correct copies of each Material Contract, and such documents have not been amended except as provided to Administrative Agent prior to the Closing Date.

 

(q)     Other Debt; Liens. Upon payment or conversion of the Refinanced Debt on the Closing Date, Borrower has no Debt, other than Permitted Debt. Schedule B contains a complete and accurate list of all outstanding Debt and all documents executed or delivered in connection therewith. No Property of Borrower is subject to any Lien, other than Permitted Liens.

 

(r)     Collateral. The Security Documents create a valid security interest in the Collateral, securing the payment of the Obligations, and upon the filing of a UCC financing statement in the appropriate jurisdiction, to the extent such security interest can be perfected by filing under the UCC, or other appropriate method, Administrative Agent shall have a first priority perfected security interest in the Collateral securing the payment of the Obligations.

 

4.2         Survival of Representations and Warranties. All representations and warranties contained in this Agreement or in any of the other Loan Documents shall survive the execution, delivery and acceptance hereof by Administrative Agent and each Lender and the closing of the transactions described herein.

 

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5.

AFFIRMATIVE COVENANTS.

 

5.1         Affirmative Covenants. During the term of this Agreement, and thereafter for so long as there is any outstanding Obligations to the Administrative Agent or any Lender, Borrower covenants that, unless otherwise consented to by Administrative Agent and each Lender in writing, it shall:

 

(a)     Maintenance of Existence. (i) Preserve, renew and maintain in full force and effect its corporate or organizational existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, with respect to clause (ii), where the failure to do so could not be expected to materially adversely affect Borrower’s financial condition or the ability of Borrower to perform its obligations under the Loan Documents.

 

(b)     Compliance. Comply with (i) all of the terms and provisions of its organizational documents; (ii) its obligations under its material contracts and agreements; and (iii) all Laws and Orders applicable to it and its business, except, with respect to clauses (ii) and (iii), where the failure to do so could not be expected to materially adversely affect Borrower’s financial condition or the ability of Borrower to perform its obligations under the Loan Documents.

 

(c)     Payment Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its taxes, claims and other obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings, and reserves in conformity with GAAP with respect thereto have been provided on its books.

 

(d)     Notices. Notify Administrative Agent and each Lender in writing of: (i) promptly and in any event within two (2) Business Days after Borrower becomes aware that a Default or an Event of Default has occurred, the nature and extent of such Default or Event of Default and the action, if any, it has taken or proposes to take with respect to such Default or Event of Default; (ii) promptly, any material litigation, proceeding, investigation, action or claim against, or liability of, Borrower, or any tax event or liability, and provide Administrative Agent copies of the pleadings with respect to any material litigation filed by or against Borrower; (iii) promptly, any event that has had or could reasonably be expected to have a material adverse effect on the business, prospects, properties, operations or condition (financial or otherwise) of Borrower; and (iv) promptly upon receipt by Borrower of notice thereof, any default on any loan or under any other Material Contract, and provide Administrative Agent a copy of such notice.

 

(e)     Further Assurances. On the request of Administrative Agent and at the expense of Borrower: (a) promptly correct any defect, error or omission which may be discovered in the contents of this Agreement or in the contents of any of the other Loan Documents; (b) promptly execute, acknowledge, deliver and record or file such further instruments (including, without limitation, further security agreements, financing statements and continuation statements) and promptly do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Agreement and the other Loan Documents and to subject to the liens and security interests hereof and thereof any property intended by the terms hereof and thereof to be covered hereby and thereby, including specifically, but without limitation, any renewals, additions, substitutions, replacements or appurtenances to the Collateral; and (c) promptly execute, acknowledge, deliver, procure and record or file any document or instrument (including specifically, without limitation, any financing statement) reasonably deemed advisable by Administrative Agent to protect, continue or perfect the liens or the security interests hereunder against the rights or interests of third persons.

 

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(f)     Quarterly Documents. As soon as practicable or available after the end of each fiscal quarter of each year, but no later than 45 calendar days after the end of each respective fiscal quarter of Borrower, Borrower must prepare and deliver to the Administrative Agent (i) a profit and loss statement for such quarter, (ii) balance sheet, (iii) cashflow and income statement, (iv) a current capitalization table of the Borrower and (v) a forecast of its operations for the following twelve (12) months, each in form and substance reasonably acceptable to the Administrative Agent.

 

(g)     Annual Financial Statements. As soon as practicable or available after the end of each fiscal year of Borrower, and in any event within 120 calendar days after the close of each fiscal year, Borrower must prepare and deliver to Administrative Agent, Borrower’s annual report on Form 10-K and a forecast of its operations for the following twelve (12) months. Upon request, Borrower shall promptly provide any other documentation or information reasonably requested by Administrative Agent and in form and substance reasonable acceptable to Administrative Agent, including but not limited to a current capitalization table of the Borrower.

 

(h)     Tax Returns. Within 14 days after the date that Borrower files its annual tax return with the IRS, Borrower must deliver a complete copy thereof to the Administrative Agent and each Lender.

 

(i)     Exclusivity Agreement. Contemporaneously with the execution and delivery of this Agreement, Borrower shall execute and deliver to Administrative Agent the Exclusivity Agreement.

 

(j)     Insurance. Borrower shall maintain insurance on the Collateral and Borrower’s business in such amounts and in such types as are reasonable and customary for similar businesses. The Collateral insurance shall include a lender’s loss payee endorsement in favor of the Administrative Agent. Borrower shall deliver to Administrative Agent copies of such insurance certificates, on the Closing Date and as requested by Administrative Agent thereafter.

 

(k)     Access to Records and Collateral. Borrower will grant representatives of Administrative Agent and/or Lenders, upon at least two (2) Business Days advance written notice (unless there is a Default or Event of Default, in which case no notice is required), reasonable access during normal business hours to its personnel, and permit such representatives to examine books, records and documents in the possession of Borrower or any Subsidiary or any independent contractor relating to any of Borrower’s affairs and the Collateral, and to inspect any Borrower facilities.

 

(l)     Financial Covenants.

 

(i)     Debt Service Coverage Ratio. Commencing with the fiscal quarter of Borrower ending December 31, 2021 and continuing thereafter, Borrower shall maintain its Debt Service Coverage Ratio, as measured on the last day of each fiscal quarter of Borrower for the period of twelve (12) consecutive calendar months then ended, at not less the 1.50:1.00.

 

(ii)    Minimum Unrestricted Cash. Borrower shall maintain, at all times, Unrestricted Cash of not less than $50,000.

 

(m)   Board Observer. For so long as all or any portion of the Loan or any other Obligation remains outstanding Administrative Agent shall have the right, at its sole option, to attend all meetings of the Board of Directors (and all committees thereof) of Borrower as a non-voting observer. Borrower shall (i) give Administrative Agent notice, at the same time as furnished to the members of the Board of Directors, of all meetings of the Board of Directors (or any committee thereof), (ii) provide to Administrative Agent all notices, documents and information furnished to the Board of Directors whether at or in anticipation of a meeting, an action by written consents or otherwise, at the same time as furnished to the members of the Board of Directors, (iii) notify Administrative Agent by telephone of, and permit Administrative Agent to attend by telephone, emergency meetings of the Board of Directors (and all committees thereof), and (iv) reimburse Administrative Agent for its reasonable out-of-pocket expenses incurred in connection with their rights under this subsection (m).

 

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(n)     Post-Closing Obligations. No later than the applicable date set forth below (as may be extended by Administrative Agent in its sole discretion), Borrower shall (a) within seven (7) Business Days after the Closing Date, pay the Developer Payables in full and provide evidence thereof, as requested by Administrative Agent, and (b) within 15 days after Administrative Agent’s receipt of certified Uniform Commercial Code searches from the Nevada Secretary of State (as confirmed by Administrative Agent by electronic mail), obtain Uniform Commercial Code termination statements and such other documents as determined by Administrative Agent in order to release any Liens on the Collateral.

 

6.

NEGATIVE COVENANTS.

 

6.1           Negative Covenants. During the term of this Agreement, and thereafter for so long as there is Obligations outstanding, Borrower covenants that unless Administrative Agent and each Lender has first consented thereto in writing, it will not (directly or indirectly), and will not permit any Subsidiary to:

 

(a)     Indebtedness. Incur, create or assume any Debt, other than Permitted Debt.

 

(b)     Liens. Incur, create, assume or suffer to exist any Lien on any of its Property or assets, whether now owned or hereinafter acquired other than Permitted Liens.

 

(c)     Line of Business. Enter into any business, directly or indirectly, except for (i) those businesses in which Borrower is engaged on the date of each of the Loan Documents or that are reasonably related thereto, and (ii) other businesses, the entering into of which by Borrower, could not be reasonably expected to cause a material adverse effect on Borrower’s financial condition, the ability of Borrower to perform its obligations under any of the Loan Documents or the ability of Borrower to utilize credit card processing and other related services provided by any Lender or any of its Affiliates.

 

(d)     Transactions With Affiliates. Enter into, or permit to exist, any transaction or agreement with any Affiliate except transactions and agreements in the ordinary course and on terms and conditions not less favorable to them than could be obtained on an arm’s-length basis from unrelated third parties.

 

(e)     Restricted Payments. Make any Restricted Payment or payment on any Subordinated Debt, or incur any obligation (contingent or otherwise) to do so, except Borrower may make scheduled principal payments on the Subordinated Debt not to exceed the cash proceeds from (i) the sale of capital stock offering made after September 1, 2020 or (ii) the refinancing of such Subordinated Debt on terms reasonably acceptable to Administrative Agent, including the execution of a subordination agreement, in form and substance acceptable to Administrative Agent.

 

(f)     No New Affiliates or Subsidiaries. Form any new Affiliate or Subsidiary without the approval of the Administrative Agent which shall not be unreasonably withheld.

 

(g)    Transfer of Assets. Without the Administrative Agent’s prior written consent, Borrower agrees not to (i) transfer, sell, assign or otherwise dispose of its assets or Property to any Person, other than in the ordinary course of its business and (ii) allow any of its Subsidiaries to transfer, sell, assign or otherwise dispose of any of their respective assets or Property to any Person, other than in the ordinary course of its business.

 

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(h)     Loan; Investments. Make, or permit any Subsidiary, if any, to make any loan or advance to any Person, guaranty the indebtedness or obligations of any Person or purchase or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any Equity Interests, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person.

 

(i)     Subsidiaries. Borrower shall not sell or otherwise dispose of any Subsidiary (except in connection with a merger or consolidation of a Subsidiary into Borrower or another Subsidiary).

 

(j)     Dissolution, Transfer or Other Changes. Engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, or sale of all or substantially all of the assets of Borrower.

 

(k)    Preferences. Change the rights, preferences or privileges of any Equity Interests of Borrower, in any manner that could be adverse to the interests of Administrative Agent or any Lender, or the Loan.

 

(l)     Modifications. Modify or supplement (i) its organizational documents, including its Bylaws, its Certificate of Incorporation and any shareholder agreement or (ii) any Material Contract, in each case, in any manner that could be adverse to the interests of Administrative Agent or any Lender.

 

7.

EVENTS OF DEFAULT.

 

7.1           List of Events of Default. The occurrence of any one or more of the following conditions or events shall constitute an “Event of Default”:

 

(a)     Failure to Pay. Borrower fails to pay (i) any principal amount of the Loan when due or (ii) interest on the Loan or any other amount when due under the Loan Documents and such failure continues for five calendar days.

 

(b)     Breach of Representations and Warranties. Any representation or warranty made or deemed made by Borrower in any Loan Document is incorrect on the date as of which such representation or warranty was made or deemed made.

 

(c)     Breach of Covenants. Borrower fails to perform or observe any other covenant, condition or agreement in (i) Section 5.1(a), (d)(i), (k), (l), (m) or (n) or Section 6.1; (ii) to the extent not otherwise covered in this Section 7.1, this Agreement and such event or circumstance, if capable of being cured, is not cured within 30 days following the occurrence thereof; or (ii) any other Loan Document and such event or circumstance, if capable of being cured, is not cured within (x) 30 days following the occurrence thereof or (y) if shorter, the applicable grace period, if any, specified in such other Loan Document.

 

(d)     Cross-Defaults. Borrower fails to pay when due any of its Debt in excess of $25,000 in the aggregate or any interest or premium thereon when due (whether by scheduled maturity, acceleration, demand or otherwise) and such failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt (except for Debt arising under the Loan Documents), or the occurrence of any other default under such Debt beyond the applicable grace period provided therein; provided, however, the existing defaults under the convertible promissory notes described on Schedule B shall not result in an Event of Default unless the forbearance period under either Forbearance Agreement ends or Borrower otherwise violates the terms thereof.

 

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(e)      Bankruptcy. (i) Borrower, Guarantor or any of its Subsidiaries commences any case, proceeding or other action (A) under any existing or future Law relating to bankruptcy, insolvency, reorganization, or other relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Borrower, Guarantor or any of its Subsidiaries makes a general assignment for the benefit of its creditors; (ii) there is commenced against Borrower, Guarantor or any of its Subsidiaries any case, proceeding or other action of a nature referred to in Section 7.1(e)(i) above which (x) results in the entry of an order for relief or any such adjudication or appointment or (y) remains undismissed, undischarged or unbonded for a period of thirty (30) days; (iii) there is commenced against Borrower, Guarantor or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which has not been vacated, discharged, or stayed or bonded pending appeal within thirty (30) days from the entry thereof; (iv) Borrower, Guarantor or any of its Subsidiaries takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in Section 7.1(e)(i), Section 7.1(e)(ii) or Section 7.1(e)(iii) above; (v) Borrower, Guarantor or any of its Subsidiaries is generally not, or shall be unable to, or admits in writing its inability to, pay its debts as they become due; or (vi) the death or disability of Guarantor.

 

(f)      Judgments. One or more judgments or decrees aggregating at least $25,000 shall be entered against Borrower, Guarantor or any of its Subsidiaries and all of such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within sixty (60) days from the entry thereof.

 

(g)     Invalidity. Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or Borrower, Guarantor or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or purports to revoke, terminate or rescind any provision of any Loan Document.

 

(h)     Exclusivity Agreement. Any material breach of (or default under) (subject to applicable cure periods), or any early termination or non-renewal of the Exclusivity Agreement.

 

(i)     Change of Control. A Change of Control shall occur.

 

(j)    Subordinated Debt. The principal or interest on the Loan or other Obligations shall fail to constitute “designated senior debt” (or any other similar term) under any document, instrument or agreement evidencing any Subordinated Debt subject thereto; or Borrower or any holder of Subordinated Debt (or any representative thereof) shall, directly or indirectly, repudiate, challenge or contest in any manner the subordination of such Subordinated Debt to the Obligations.

 

8.

REMEDIES.

 

8.1        Upon the occurrence of any Event of Default and at any time thereafter during the continuance of such Event of Default, the Administrative Agent may at its option (a) take any action that it deems advisable to protect and enforce all available rights and remedies of Administrative Agent and the Lenders hereunder, under each of the other Loan Documents or which may otherwise be available at law or in equity and (b) without notice or demand (i) declare all outstanding Obligations owing or payable hereunder or under any other Loan Document to be immediately due and payable, and when any Event of Default described in subsection (e) of Section 7.1 exists, then all outstanding Obligations shall immediately and automatically become due and payable together with all other amounts payable under the Loan Documents without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; (ii) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents; and (iii) exercise any or all of its rights, powers or remedies under Applicable Law. Notwithstanding the foregoing, if any Event of Default shall occur under Section 7.1(e), the principal of and accrued interest on the Loan shall become immediately due and payable, without any notice, declaration or other act on the part of the Administrative Agent or any Lender.

 

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8.2         If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of Borrower against any and all of the obligations of Borrower or such Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender or its Affiliates, irrespective of whether or not such Lender or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of Borrower or such Borrower may be contingent or unmatured or are owed to a branch office or Affiliate of such Lender different from the branch office or Affiliate holding such deposit or obligated on such Debt. The rights of each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or their respective Affiliates may have. Each Lender agrees to notify Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

 

8.3         Standards for Exercising Remedies. To the extent that applicable law imposes duties on the Administrative Agent and/or Lender to exercise remedies in a commercially reasonable manner, the Borrower acknowledges and agrees that it is not commercially unreasonable for the Administrative Agent and/or Lender (a) to fail to incur expenses deemed significant by the Administrative Agent and/or Lender to prepare Collateral for disposition (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not in the same business as the Borrower, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure the Administrative Agent and/or Lender against risks of loss, collection or disposition of Collateral or to provide to the Administrative Agent and/or Lender a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by the Administrative Agent and/or Lender, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Lender in the collection or disposition of any of the Collateral. The Borrower acknowledges that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by the Administrative Agent and/or Lender would not be commercially unreasonable in the Administrative Agent’s and/or Lender’s exercise of remedies against the Collateral and that other actions or omissions by the Administrative Agent and/or Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section. Without limitation upon the foregoing, nothing contained in this Section shall be construed to grant any rights to the Borrower or to impose any duties on the Administrative Agent and/or Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section.

 

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9.

WAIVERS.

 

Failure by Administrative Agent or any Lender to exercise any right, remedy or option under this Agreement, any other Loan Document, any other documents relating to the Obligations, or as provided by Applicable Law, or any delay by Administrative Agent or any Lender in exercising the same, shall not operate as a waiver of any such right, remedy or option. No waiver hereunder shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated, which in the case of the Administrative Agent or any Lender shall only be granted as provided herein. To the extent permitted by Applicable Law, neither the Administrative Agent nor any Lender, nor any party acting as attorney for the Administrative Agent or any Lender, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct hereunder. The rights and remedies of the Administrative Agent and the Lenders under this Agreement shall be cumulative and not exclusive of any other right or remedy that the Administrative Agent or the Lenders may have.

 

10.

NOTICES.

 

10.1       Written Notices.

 

(a)     All notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

 

If to Borrower:

                                               

BlackBoxStocks Inc.

5430 LBJ Freeway

Suite 1485

Dallas, TX 75240   

Attn: Gust Kepler           

Telephone: 972-726-9203

Email: Gust@blackboxstocks.com

 

 

If to Administrative Agent and/or Lenders:

 

c/o FVP Servicing, LLC

325 Hudson Street, 4th Floor

New York, NY 10013

Attn: Keith Lee / Tom Betts

Telephone: 646.902.6645

E-mail:klee@feenixpartners.com / tbetts@feenixpartners.com

 

(b)     Notices if (i) mailed by certified or registered mail or sent by hand or overnight courier service shall be deemed to have been given when received; and (ii) sent by e-mail shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by a return e-mail or other written acknowledgment).

 

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(c)     Any party hereto may change its address for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, be effective when delivered for overnight (next-day) delivery, or if mailed, upon the third Business Day after the date deposited into the mails or if delivered, upon delivery; provided, that notices delivered to Lenders shall not be effective until actually received by such Person at its address specified in this Section 10.

 

(d)     Any agreement of Administrative Agent or any Lender herein to receive certain notices by telephone or e-mail is solely for the convenience and at the request of Borrower. Administrative Agent and each Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by Borrower to give such notice and neither Administrative Agent nor any Lender shall have any liability to Borrower or other Person on account of any action taken or not taken by Administrative Agent or any Lender in reliance upon such telephonic or e-mail notice. The obligation of Borrower to repay the Loan and all other obligations and hereunder shall not be affected in any way or to any extent by any failure of Administrative Agent or any Lender to receive written confirmation of any telephonic or e-mail notice or the receipt by Administrative Agent or any Lender of a confirmation which is at variance with the terms understood by Administrative Agent or any Lender to be contained in any such telephonic or e-mail notice.

 

10.2       Electronic Communications.

 

(a)     Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and internet or intranet websites) pursuant to procedures approved by Administrative Agent; provided that the foregoing shall not apply to notices to Administrative Agent or any Lender pursuant to Section 2 hereof unless Administrative Agent or such Lender has agreed to receive notices under such Section by electronic communication and have agreed to the procedures governing such communications. Any Party may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

 

(b)     Unless Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by a return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

 

11.

EXPENSES AND INDEMNIFICATION.

 

11.1       Costs and Expenses. Borrower will pay or reimburse Administrative Agent for all reasonable fees and costs (including all reasonable attorneys’ fees and disbursements of counsel to Administrative Agent) that Administrative Agent may pay or incur in connection with (a) the preparation, negotiation and review of the Loan Documents, and (b) the funding of the Loan hereunder on the Closing Date or any syndication of the Loan; provided, however, the aggregate amount payable by Borrower under clauses (a) and (b) shall not exceed $15,000. Further, Borrower will pay or reimburse Administrative Agent and each Lender for all actual fees and costs (including all reasonable attorneys’ fees and disbursements) that Administrative Agent or such Lender may pay or incur in connection with (i) Borrower’s ongoing performance under and compliance with the Loan Documents, including confirming compliance with environmental and insurance requirements; (ii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications of or under any Loan Document and any other documents or matters requested by Administrative Agent; (iii) filing and recording of any Loan Documents; (iv) the creation, perfection or protection of Administrative Agent’s Liens in the Collateral (including fees and expenses for title and lien searches, intangibles taxes, personal property taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports, surveys and engineering reports); (v) enforcing, preserving, maintaining or defending any rights in response to third party claims or the prosecuting or defending of any action or proceeding (including any insolvency or bankruptcy proceeding) or other litigation, in each case against, under or affecting Borrower, the Loan Documents, the Collateral, or any other security given for the Obligations; and (vi) enforcing any obligations of or collecting any payments due from Borrower under any Loan Document or in connection with any refinancing or restructuring of the Loan in the nature of a “work-out”, or any insolvency or bankruptcy proceedings. All obligations provided for in this Section 11.1 shall survive the termination of this Agreement and/or the repayment of the Obligations.

 

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11.2      Indemnity. Borrower shall indemnify Administrative Agent and each Lender, each Affiliate and Subsidiary of Administrative Agent and each Lender, and each investment manager, servicer, partner, member, officer, director, employee, agent and advisor of Administrative Agent and each Lender (each, an “Indemnitee”) against, and hold each of them harmless from, any and all Specified Losses (defined below) unless such Specified Losses incurred by any such Indemnitee are determined by a court of competent jurisdiction in a final and non-appealable judgment to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnitee. For purposes of this Section, the term “Specified Losses” means all costs, losses, liabilities, claims, damages and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, which may be incurred by any Indemnitee, or asserted against any Indemnitee, arising out of, in connection with or as a result of (a) the execution or delivery of this Agreement or any other agreement or instrument contemplated hereby and the performance by Administrative Agent or any Lender of its respective obligations hereunder or the consummation of any of the transactions contemplated hereby, (b) any Loan or any actual use of the proceeds therefrom, (c) any actual claim, litigation, investigation or proceeding relating to any of the foregoing, or (d) any actual claim, litigation or proceeding by any third party. Borrower shall pay, and hold each Indemnitee harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save such Indemnitee harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.

 

11.3       Taxes. Borrower shall pay, and hold Lender harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.

 

11.4       Reimbursement by Lenders. To the extent that Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section 11 to be paid by them to the Administrative Agent (or any sub-agent thereof) or any Related Party thereof, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s pro rata share of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender), such payment to be made severally among them (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought), provided, further that, the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), or against any Related Party thereof acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.1(d).

 

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11.5       Waiver of Damages. To the fullest extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, and acknowledges that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) of Section 11.1 above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

 

11.6        Payment. All amounts due under this Section shall be payable promptly after written demand therefor.

 

11.7       Survival. The agreements and indemnity provisions of this Section 11.1 shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Obligations.

 

11.8      Payments Set Aside. To the extent that any payment by or on behalf of any Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the federal funds rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

 

 

12.

Administrative Agent.

 

12.1      Appointment and Authority. Each of the Lenders hereby irrevocably appoints the Administrative Agent to act on its behalf as the administrative agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are incidental thereto. The provisions of this Section are solely for the benefit of the Administrative Agent and the Lenders, and Borrower shall have no rights as a third-party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.

 

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12.2      Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with Borrower or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

 

12.3       Exculpatory Provisions.

 

(a)     The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract. Without limiting the generality of the foregoing, the Administrative Agent (a) shall not be subject to any fiduciary or other implied duties except as expressly set forth in this Agreement, regardless of whether a Default has occurred and is continuing; (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Lenders, provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law; and (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

 

(b)     The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Lenders or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and non-appealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given in writing to the Administrative Agent by Borrower, or a Lender.

 

(c)     The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

 

12.4     Reliance by Administrative Agent. The Administrative Agent shall be entitled to reasonably rely upon, and shall not incur any liability for reasonably relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may reasonably rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is reasonably satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of Borrower.

 

24

 

12.5      Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Section shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.

 

12.6      Resignation of Administrative Agent. The Administrative Agent may resign as Administrative Agent at any time by giving thirty (30) days advance notice thereof to the Lenders and Borrower and, thereafter, the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. Upon any such resignation, the Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Lenders, or have accepted such appointment within thirty (30) days after the Administrative Agent’s giving of notice of resignation, then the Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Section 12.6 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. If no successor has accepted appointment as Administrative Agent by the date which is thirty (30) days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Lenders appoint a successor agent as provided for above.

 

12.7      Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

 

25

 

12.8     Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

 

12.9     Administrative Agent 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 Borrower, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

 

(a)     to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loan and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent allowed in such judicial proceeding; and

 

(b)     to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

 

(c)    and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent hereunder.

 

13.

[Reserved].

 

14.

Miscellaneous.

 

14.1       Entire Agreement; Amendment. This Agreement and the other Loan Documents embody the entire understanding and agreement between the parties hereto with respect to the subject matter hereof, and any prior agreements, whether written or oral, with respect thereof, are expressly superseded hereby. This Agreement, or any term contained herein, may not be modified, waived or amended except by an agreement in writing signed by Borrower and the Administrative Agent.

 

14.2       Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that Borrower may not assign this Agreement, any other Loan Document, or any right or benefit hereunder to any Person. Any Lender may assign any or all of its rights and obligations hereunder at any time and to any Person, with Administrative Agent’s prior written consent and the execution and delivery of any assignment and assumption agreement by such assigning Lender and the proposed assignee, in form and substance acceptable to Administrative Agent. From and after the effective date of any such assignment, the assignee shall be a party to this Agreement and, to the extent of the interest assigned, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Lender, be released from its obligations under this Agreement. Upon request, Borrower shall execute and deliver a Note to the assignee Lender. Subject to the foregoing, any Lender shall have the right to enter into one or more participations with respect to the Obligations without prior notice or consent of Borrower.

 

26

 

14.3       Governing Law. This Agreement and the other Loan Documents and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any of the other Loan Documents and the transactions contemplated hereby shall be governed by the laws of the State of New York.

 

14.4        Submission to Jurisdiction.

 

(a)     Borrower hereby irrevocably and unconditionally (i) agrees that any legal action, suit or proceeding arising out of or relating to this Agreement and the other Loan Documents may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York and (ii) submits to the exclusive jurisdiction of any such court in any such action, suit or proceeding. Final judgment against Borrower in any action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment. Nothing in this Section 14.4 shall affect the right of Administrative Agent and each Lender to (i) commence legal proceedings or otherwise sue Borrower in any other court having jurisdiction over Borrower or (ii) serve process upon Borrower in any manner authorized by the laws of any such jurisdiction.

 

(b)     In accordance with Rule 9, Accelerated Adjudication Actions, as set forth in Section 202.70(g) of the Rules of the Commercial Division of the Supreme Court, subject to the requirements for a case to be heard in the Commercial Division of the Supreme Court of the State of New York, Borrower hereby agrees to submit to the exclusive jurisdiction of the Commercial Division, New York State Supreme Court, and to the application of the such Court’s accelerated procedures, in connection with any dispute, claim or controversy arising out of or relating to this Agreement or any other Loan Document, or the breach, termination, enforcement or validity thereof.

 

14.5      Venue. Borrower irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement and the other Loan Documents in any court referred to in Section 14.4 and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

14.6      Advertising. After Borrower has filed a Current Report on Form 8-K with the SEC with respect to the execution of Loan Agreement, Administrative Agent and each Lender, and their affiliates, in their sole and absolute discretion, may disclose publicly (including on its website) for marketing and promotional purposes that the Borrower is in such Administrative Agent’s and Lender’s portfolio, including but not limited to a royalty-free, non-exclusive, worldwide, irrevocable license in any intellectual property for use solely in marketing and promotional materials.

 

14.7      Waiver of Jury Trial. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY.

 

27

 

14.8       Counterparts; Effectiveness. This Agreement and the other Loan Documents and any amendments, waivers, consents or supplements hereto may be executed in counterparts, each of which shall constitute an original, but all taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.

 

14.9       Waiver of Notice. Borrower hereby waives demand for payment, presentment for payment, protest, notice of payment, notice of dishonor, notice of nonpayment, notice of acceleration of maturity and diligence in taking any action to collect sums owing hereunder.

 

14.10      USA PATRIOT Act. Administrative Agent and each Lender hereby notifies Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify, and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Administrative Agent and each Lender to identify Borrower in accordance with the US PATRIOT Act, and Borrower agrees to provide such information from time to time to the Administrative Agent.

 

14.11     Interpretation. For purposes of this Agreement (i) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (ii) the word “or” is not exclusive; and (iii) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. The definitions given for any defined terms in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. Unless the context otherwise requires, references herein: (x) to Schedules, Exhibits and Sections mean the Schedules, Exhibits and Sections of this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof; and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement and the other Loan Documents shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting an instrument or causing any instrument to be drafted.

 

14.12     Amendments and Waivers. No term of this Agreement may be waived, modified or amended except by an instrument in writing signed by the Parties hereto. Any waiver of the terms hereof shall be effective only in the specific instance and for the specific purpose given.

 

14.13     Headings. The headings of the various Sections and subsections herein are for reference only and shall not define, modify, expand or limit any of the terms or provisions hereof.

 

14.14     No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising on the part of the Administrative Agent or any Lender, of any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by Applicable Law.

 

14.15    Electronic Execution. The words “execution,” “signed,” “signature,” and words of similar import in this Agreement shall be deemed to include electronic or digital signatures or the keeping of records in electronic form, each of which shall be of the same effect, validity and enforceability as manually executed signatures or a paper-based recordkeeping system, as the case may be, to the extent and as provided for under Applicable Law, including the Electronic Signatures in Global and National Commerce Act of 2000 (15 USC § 7001 et seq.), the Electronic Signatures and Records Act of 1999 (N.Y. State Tech. Law §§ 301-309), or any other similar state laws based on the Uniform Electronic Transactions Act.

 

28

 

14.16     Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

29

 

IN WITNESS WHEREOF, the undersigned, by their duly authorized officers, have executed this Agreement and it is effective as of the day and year first above written.

 

 

BORROWER: 

 

     
 

BLACKBOXSTOCKS INC., a Nevada

corporation

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: 

Gust Kepler 

 

 

Title: 

Chief Executive Officer 

 

 

30

 

ADMINISTRATIVE AGENT: 

 

 

     
FVP SERVICING, LLC    

 

 

 

 

 

 

 

 

By: ______________________________ 

 

 

 

Name:    Keith Lee 

 

 

 

Title:      Manager 

 

 

 

 

 

 

LENDER: 

 

 

     

FEENIX VENTURE PARTNERS

OPPORTUNITY FUND II, LP

   

 

 

 

 

 

 

 

 

By: _____________________________ 

 

 

 

Name:    Keith Lee 

 

 

 

Title:      Managing Partner 

 

 

 

 

31

 

SCHEDULE A TO LOAN AGREEMENT

 

LENDER COMMITMENT SCHEDULE

 

LENDER

COMMITMENT

Feenix Venture Partners Opportunity Fund II, LP

$1,000,000.00

 

32

 

SCHEDULE B TO LOAN AGREEMENT

 

INDEBTEDNESS

 

 

1.     8% Fixed Convertible Promissory Note dated May 21, 2019 by Borrower in favor of Harbor Gates Capital, LLC in an original principal of $550,000, with an outstanding balance of $406,427, so long as such note is subject to that certain Forbearance and Note Settlement Agreement dated as of July 10, 2020 (the “Harbor Gates Forbearance Agreement”) between Borrower and Harbor Gates Capital, LLC.

 

2.     8% Fixed Convertible Promissory Note dated July 17, 2019 by Borrower in favor of Vista Capital Investments, LLC in an original principal of $165,000, with an outstanding balance of $152,170, so long as such note is subject to that certain Forbearance and Note Settlement Agreement dated as of July 10, 2020 (together with the Harbor Gates Forbearance Agreement, the “Forbearance Agreements”) between Borrower and Vista Capital Investments, LLC.

 

3.     90 Day Negotiable Promissory Note dated November 9, 2018 by Borrower in favor of Gust Kepler in the original principal amount and outstanding principal amount of $120,000 (the “Subordinated Debt”).

 

33

 

EXHIBIT A TO LOAN AGREEMENT

 

 

FORM OF NOTE

 

$[________________] [_______], 2020

     

FOR VALUE RECEIVED, BLACKBOXSTOCKS INC., a Nevada corporation (“Borrower”) hereby promises to pay to the order of [___________] (the “Noteholder”), the principal amount of [___________________] ($[______]) (or, the aggregate outstanding principal amount of the Loan held by the Noteholder) in accordance with the provisions of that certain Loan Agreement dated as of November 12, 2020 (as amended, modified or supplemented, the “Loan Agreement”), by and among Borrower, the Noteholder, the other Lenders party thereto and FVP SERVICING, LLC, a Delaware limited liability company, as administrative agent (“Administrative Agent”). Capitalized terms used herein shall have the meanings set forth in the Loan Agreement.

 

Borrower promises to pay interest on the unpaid principal amount of this Note (this “Note”) at such interest rates and at such times as provided in the Loan Agreement. All payments of principal and interest shall be made to Administrative Agent, for the benefit Noteholder, in immediately available funds by wire, checks or money orders made payable to Administrative Agent in accordance with Section 2.3 of the Loan Agreement. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest at a rate, to be paid as set forth in the Loan Agreement.

 

This Note is entitled to the benefits of the Loan Agreement and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Loan Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as and to the extent provided in the Loan Agreement. The Noteholder may attach schedules to this Note and endorse thereon the date, amount and maturity of its Advances under the Loan Agreement and payments with respect thereto.

 

Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

 

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be executed and delivered and it is effective as of the date first written above.

 

 

BORROWER: 

 

     
 

BLACKBOXSTOCKS INC., a Nevada

corporation

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: 

 

 

 

Title: 

 

 

 

34

 

EXHIBIT B TO LOAN AGREEMENT

 

OFFICER’S CERTIFICATE

 

This Officer’s Certificate is delivered in connection with that certain Loan Agreement (the “Loan Agreement”) dated as of November 12, 2020, by and among BlackBoxStocks Inc., a Nevada corporation (the “Company”), FVP Servicing, LLC, a Delaware limited liability company, as administrative agent for the “Lenders” party thereto from time to time (the “Administrative Agent”) and the other parties thereto from time to time. Capitalized terms used herein shall have the meanings set forth in the Loan Agreement.

 

I, _____________________, hereby certify that I am an authorized signatory of the Borrower, and that as such, I am authorized to execute and deliver this Officer’s Certificate on behalf of the Company, and further certify, in my capacity as an authorized signatory of the Company, as follows:

 

 

1.

Formation Documents -- Attached hereto as Exhibit A is a true, correct and complete set of the Articles of Incorporation and all other organizational documents of the Company, including all amendments and modifications thereto, as certified to by the Secretary of State of the State of Nevada. Such Articles of Incorporation is in full force and effect on the date hereof and has not been otherwise amended, modified or rescinded.

 

 

2.

Governance -- Attached hereto as Exhibit B is a true, correct, and complete copy of the Bylaws, or similar governing agreement of the Company, including all amendments and modifications thereto. Such agreements are all in full force and effect on the date hereof and have not been otherwise amended, modified or rescinded.

 

 

3.

Good Standing -- Attached hereto as Exhibit C is the good standing certificate from the Secretary of State of the State of Nevada with respect to the Company required by the Loan Agreement as a condition precedent.

 

 

4.

Incumbency Certificate and Borrowing Resolution -- Attached hereto as Exhibit D is an incumbency certificate and borrowing resolution required by the Loan Agreement as a condition precedent.

 

IN WITNESS WHEREOF, I have hereunto signed my name as of the date first set forth above.

 

 

BLACKBOXSTOCKS INC., 

 

  a Nevada corporation  

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: 

 

 

 

Title: 

 

 

 

35

 

EXHIBIT A TO OFFICER’S CERTIFICATE

Articles of Incorporation

[attached]

 

36

 

EXHIBIT B TO OFFICER’S CERTIFICATE

 

Governance Agreements

 

[attached]

 

37

 

EXHIBIT C TO OFFICER’S CERTIFICATE

 

Certificate of Good Standing
[attached]

 

38

 

EXHIBIT D TO OFFICER’S CERTIFICATE

Certificate of Incumbency and Borrowing Resolution

[attached]

 

39

 

EXHIBIT C TO LOAN AGREEMENT

 

FLOW OF FUNDS MEMORANDUM

 

 

Source of Funds:

Amount

 

Loan Proceeds

 

$1,000,000.00

Use of Funds

Amount

Payee/Wire Transfer Instructions

Commitment Fee to Lenders

$10,000.00

To be withheld by Administrative Agent from Loan proceeds and applied to payment.

Attorneys’ Fees of Administrative Agent and Lenders

$10,000.00

Kutak Rock

Bank Name: First National Bank of Omaha

Bank Address: 1620 Dodge Street, Omaha, Nebraska

Account Name: Kutak Rock LLP

ABA Routing #: 104000016

Account #: 24-690470

Reference: Invoice No. 2787484

To Borrower for application in accordance with the terms of the Loan Agreement

$980,000.00

Borrower

Bank Name:

Bank Address:

Account Name:

ABA Routing #:

Account #:

Reference:

 

40

Exhibit 10.2

 

NOTE

 

$1,000,000.00 November 12, 2020

     

FOR VALUE RECEIVED, BLACKBOXSTOCKS INC., a Nevada corporation (“Borrower”) hereby promises to pay to the order of Feenix Venture Partners Opportunity Fund II LP (the “Noteholder”), the principal amount of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) (or, the aggregate outstanding principal amount of the Loan held by the Noteholder) in accordance with the provisions of that certain Loan Agreement dated as of November 12, 2020 (as amended, modified or supplemented, the “Loan Agreement”), by and among Borrower, the Noteholder, the other Lenders party thereto and FVP SERVICING, LLC, a Delaware limited liability company, as administrative agent (“Administrative Agent”). Capitalized terms used herein shall have the meanings set forth in the Loan Agreement.

 

Borrower promises to pay interest on the unpaid principal amount of this Note (this “Note”) at such interest rates and at such times as provided in the Loan Agreement. All payments of principal and interest shall be made to Administrative Agent, for the benefit Noteholder, in immediately available funds by wire, checks or money orders made payable to Administrative Agent in accordance with Section 2.3 of the Loan Agreement. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest at a rate, to be paid as set forth in the Loan Agreement.

 

This Note is entitled to the benefits of the Loan Agreement and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Loan Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as and to the extent provided in the Loan Agreement. The Noteholder may attach schedules to this Note and endorse thereon the date, amount and maturity of its Advances under the Loan Agreement and payments with respect thereto.

 

Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

 

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

 

[REMAINDER OF PAGE INTENTIONALLY BLANK]

 

 

 

IN WITNESS WHEREOF, Borrower has caused this Note to be executed and delivered and it is effective as of the date first written above.

 

 

BORROWER: 

 

     
 

BLACKBOXSTOCKS INC., a Nevada corporation

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: 

Gust Kepler 

 

 

Title: 

Chief Executive Officer 

 

 

 

[SIGNATURE PAGE TO NOTE]

 

 

Exhibit 10.3

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT is made and effective as of November 12, 2020 by and between BLACKBOXSTOCKS INC., a Nevada corporation (“Borrower”), and each other direct or indirect Subsidiary of Borrower added as a “Grantor” hereunder (each, a “Grantor”; collectively, the “Grantors”), in favor of FVP SERVICING, LLC, a Delaware limited liability company, as administrative agent (including any successor, participant, assignee or transferee thereof, “Administrative Agent”) for itself and the Lenders (as defined in the Loan Agreement referred to below).

 

R E C I T A L S

 

WHEREAS, pursuant to that certain Loan Agreement (as amended, restated, supplemented, extended or otherwise modified from time to time, the “Loan Agreement”) dated as of the date hereof by Borrower, Administrative Agent and the Lenders from time to time party thereto, each Grantor is required to have executed and delivered this Security Agreement encumbering substantially all of each Grantor’s tangible and intangible personal property assets in favor of Administrative Agent for the ratable benefit of itself and the Lenders; and

 

WHEREAS, each Grantor has determined that it is in its best interest to execute this Security Agreement.

 

NOW, THEREFORE, for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) and intending to be legally bound hereby, each Grantor and Administrative Agent hereby agree as follows:

 

Article 1     

SECURITY INTEREST, COLLATERAL ASSIGNMENT AND PLEDGE

 

1.1     Grant of Security.

 

To secure the prompt payment and performance in full when due of the Secured Obligations, each Grantor (as of the effective date of becoming a signatory hereto) hereby grants to Administrative Agent, for the ratable benefit of itself and the Lenders, a continuing security interest in such Grantor’s right, title and interest in and to all of the following (collectively, the “Collateral”): (a) all Accounts; (b) all cash and currency; (c) all Chattel Paper; (d) those certain Commercial Tort Claims set forth on Schedule 2.10 hereto; (e) all Copyrights; (f) all Copyright Licenses; (g) all Deposit Accounts; (h) all Documents; (i) all Domain Names; (j) all Equipment; (k) all Fixtures; (l) all General Intangibles; (m) all Instruments; (n) all Inventory; (o) all Investment Property; (p) all Letter-of-Credit Rights; (q) all Other Intellectual Property; (r) all Patents; (s) all Patent Licenses; (t) all Pledged Equity and dividends and distributions thereon; (u) all Software; (v) all Supporting Obligations; (w) all Trademarks; (x) all Trademark Licenses; (y) all Goods and other personal property of any kind; and (z) all Accessions and all Proceeds of any and all of the foregoing, in each instance (whether or not expressly specified above), wherever located, and whether now existing, owned, leased or licensed or hereafter acquired, leased, licensed, arising, developed, generated, adopted or created for or by any Grantor, and howsoever any Grantor’s interest therein may arise or appear (whether by ownership, security interest, claim or otherwise); provided, however, “Collateral” shall not include, and in no event shall any Lien in favor of Administrative Agent attach to, any asset to the extent and for so long as such asset is Excluded Property (it being understood that a Lien in favor of Administrative Agent shall immediately attach to, and the Collateral shall immediately include, any such asset (or any portion thereof) upon such asset (or such portion thereof) ceasing to be Excluded Property); provided, further, that Proceeds, substitutions or replacements of Excluded Property shall not be subject to the preceding proviso unless such Proceeds, substitutions or replacements would themselves constitute Excluded Property.

 

 

 

1.2      Security for Secured Obligations. This security interest created hereby in the Collateral secures the payment and performance in full when due of (a) all Obligations and (b) all costs and expenses incurred by Administrative Agent or any Lender in enforcing and collecting the Obligations (collectively, the “Secured Obligations”).

 

1.3      Continuing Security Interest; Assignment; Termination. This Security Agreement creates a continuing security interest in the Collateral and will remain in full force and effect until terminated in accordance with the Loan Agreement. This Security Agreement is binding upon each Grantor and its successors, transferees and assignees, and (together with the rights and remedies of Administrative Agent hereunder) inures to the benefit of Administrative Agent and its permitted successors, transferees, participants and assignees. Upon any such termination, (a) all security interests arising under this Security Agreement automatically shall be released, discharged and terminated (without representation, warranty, recourse or liability of any kind by Administrative Agent) and (b) Administrative Agent (at Grantors’ request and sole expense) (i) will execute and deliver such UCC termination statements and other documentation and instruments (all in form and substance reasonably acceptable to Administrative Agent) as may be reasonably requested and provided to Administrative Agent to effect such releases and terminations, and (ii) will deliver to a Grantor or to another Person designated by a Grantor or, if required by applicable law, to another Person that Administrative Agent reasonably believes may be entitled thereto (without any representation, warranty or recourse of any kind whatsoever) all stock certificates, and instruments representing or evidencing Collateral being physically held by Administrative Agent hereunder.

 

1.4      Security Interest Absolute. All rights of Administrative Agent and the Lenders and the security interests granted to Administrative Agent hereunder, and all obligations of each Grantor hereunder, are absolute and unconditional, irrespective of the occurrence of any one or more of the following:

 

(a)      Any lack of validity or enforceability of any Loan Document; or

 

(b)      The failure of Administrative Agent or any Lender or any holder of any Note:

 

(i)     To assert any claim or demand or to enforce any right or remedy under the provisions of any Loan Document or otherwise, or

 

(ii)     To exercise any right or remedy against any other Grantor of, or any collateral securing, any obligations of any Borrower or any other Grantor owing to any Lender; or any change in the time, manner or place of payment of, or in any other term of, any Secured Obligation; or

 

(c)      Any other extension, increase, refinancing, restructuring, compromise or renewal of any Secured Obligation; or

 

(d)      Any reduction, limitation, impairment or termination of any Secured Obligation for any reason, including any waiver, release, surrender, alteration or compromise; or

 

(e)      Any amendment to, rescission, waiver, or other modification of, or any consent to departure from, the terms of any Loan Document; or

 

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(f)      Any addition, exchange, release, surrender or nonperfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any Secured Obligation; or

 

(g)     Any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Grantor or its obligations hereunder, including, without limitation, any and all suretyship defenses.

 

Each Grantor hereby waives any right to or any claim of any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of any invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligation.

 

1.5     Collateral Assignment of Contracts.

 

(a)     Grant of Security Interest. Subject to Section 1.1, without limiting the generality thereof, each Grantor grants a security interest in and collaterally assigns to Administrative Agent all of such Grantor’s right, title and interest in and to all of such Grantor’s contracts, licenses, leases and other agreements and all rights, interests, powers, privileges and other benefits thereunder (including the rights to receive all proceeds and payments under each such contract, license, lease and other agreement), other than any such agreements which constitute Excluded Property. This collateral assignment of each contract, license, lease and other agreement constitutes a fully perfected security interest and collateral assignment; provided, however, that so long as no Event of Default has occurred and is continuing, each Grantor may exercise all rights and powers under and may receive all payments and enjoy all other benefits of each such contract, license, lease and other agreement, subject to the other terms and provisions of this Security Agreement and the other Loan Documents.

 

(b)     Administrative Agent’s Right to Cure. Administrative Agent shall have the right (but not the obligation) to cure or remedy any breach or default on the part of any Grantor under any contract, license, lease or other agreement included in the Collateral. The exercise by Administrative Agent of any of its rights hereunder will not release any Grantor from any of its duties or obligations under any such contracts, licenses, leases or other agreements included in the Collateral. Neither Administrative Agent nor any Lender has any obligation or liability under any such contracts, licenses, leases or other agreements included in the Collateral by reason of this Security Agreement, nor is Administrative Agent or any Lender obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

 

1.6     Collateral Interest. Notwithstanding anything to the contrary herein, Administrative Agent’s interest in the Collateral is as a security interest and not as an absolute assignment.

 

Article 2     

REPRESENTATIONS AND WARRANTIES

 

Each Grantor hereby represents and warrants to Administrative Agent, as of the Closing Date and as of the Settlement Date for each Advance, as set forth in this Article 2.

 

2.1     Location of Collateral. Schedule 2.1 identifies (a) all of the locations at which the Collateral is located (other than (i) Inventory or Equipment in transit to any location of a Grantor or (ii) in the possession of employees of a Grantor and used on a remote basis in the ordinary course of business) and (b) the location of the chief executive office of each Grantor.

 

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2.2      Ownership. Grantors own or have the right to possess and use the Collateral and full corporate, partnership or limited liability company authority, as applicable, to grant a security interest in the Collateral. There exists no “adverse claim” within the meaning of Section 8-102 of the UCC with respect to the Pledged Equity of any Grantor.

 

2.3      Government Contracts. Except as identified on Schedule 2.3, no Grantor is a party to any federal, state or local government contract (either domestic or foreign).

 

2.4      Negotiable Documents, Instruments, Certificated Securities and Chattel Paper. Contemporaneously with the execution hereof, each Grantor has delivered to Administrative Agent possession of all originals of all certificated Pledged Equity, Instruments, Documents or Tangible Chattel Paper (other than checks received in the ordinary course of business) owned or held by such Grantor on the date hereof (duly endorsed in blank, if requested by Administrative Agent).

 

2.5       Intellectual Property Collateral. With respect to each item of Intellectual Property Collateral:

 

(a)     Schedule 2.5(a) sets forth a complete and accurate list of all (i) applications and registrations for Intellectual Property Collateral owned by any Grantor, (ii), all Copyright Licenses (including customized applications and systems integration software licenses, but excluding “off-the-shelf” mass market, non-customized software licenses), Patent Licenses, and Trademark Licenses and (iii) all Software (including customized applications and systems integration software licenses, but excluding “off-the-shelf” mass market, non-customized software licenses).

 

(b)     To each Grantor’s knowledge, the Intellectual Property Collateral is subsisting, valid and enforceable; and the Intellectual Property Collateral owned by such Grantor has not been adjudged invalid or unenforceable, in whole or in part.

 

(c)     To each Grantor’s knowledge, no claim has been made that the use of any Intellectual Property Collateral does or may violate the rights of any Person.

 

(d)     Each Grantor has performed all acts and has paid all required fees and taxes to maintain the Intellectual Property Collateral owned by any grantor in full force and effect in the jurisdictions in which it engages in commerce and it deems it reasonably necessary, as applicable, except where such fees and taxes are being contested in good faith with diligent prosecution.

 

(e)     Each Grantor owns, or is entitled to use by license or otherwise, all Intellectual Property Collateral necessary for or used in the conduct of its business. To the extent any such Intellectual Property Collateral was developed, authored, conceived or created, in whole or in part, for or on behalf of any Grantor by any Person (except in the case of a Copyright, by an employee of any Grantor acting within the scope of such employee’s employment), then such Grantor has entered into a written agreement with such Person in which such Person has assigned all right, title and interest in and to such Intellectual Property Collateral to such Grantor.

 

(f)     To each Grantor’s knowledge, neither the operation of its business nor any slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Grantor violates, infringes or misappropriates any rights held by any other Person. To each Grantor’s knowledge, no claim or litigation regarding any of the foregoing is pending or threatened.

 

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(g)     Each Grantor shall execute and deliver to Administrative Agent in form and substance reasonably acceptable to Administrative Agent and suitable for (i) filing in the Applicable IP Office the short form intellectual property security agreements in the form attached hereto as Exhibit A for all Copyrights, Copyright Licenses, Trademarks, Trademark Licenses, Patents and Patent Licenses of such Grantor and (ii) recording with the appropriate Internet domain name registrar, a duly executed form of assignment for all Domain Names of such Grantor (together with appropriate supporting documentation as may be requested by Administrative Agent).

 

2.6     Pledged Equity. With respect to any Pledged Equity constituting Collateral, which is set forth on Schedule 2.6, all of such Pledged Equity is validly issued, fully paid, and non-assessable and, except as set forth on Schedule 2.6, constitutes all of the issued and outstanding shares or interests (and other rights) of equity ownership of each Subsidiary owned by any Grantor.

 

2.7     Valid and Perfected Security Interest. This Security Agreement creates a valid security interest in the Collateral and proceeds thereof securing the payment and performance in full of the Secured Obligations. Upon (a) the filing of UCC financing statements (i) naming each Grantor as “debtor”, (ii) naming Administrative Agent as “secured party” and (iii) describing the Collateral, in the state of formation of such Grantor, (b) in the case of the Pledged Equity consisting of certificated Securities or evidenced by Instruments, in addition to filing of such UCC financing statements, delivery of the certificates representing such certificated Securities and delivery of such Instruments to Administrative Agent (and in the case of Pledged Equity issued by a foreign issuer, any actions required under foreign law to perfect a security interest in such Pledged Equity), in each case duly endorsed or accompanied by duly executed instruments of assignment or transfer in blank, (c) in the case of Collateral consisting of the Intellectual Property Collateral, in addition to the filing of such UCC financing statements, the recordation of a grant of security interest with the PTO, the United States Copyright Office or any other Official Body, as applicable, and (d) in the case of Equipment that is covered by a certificate of title, the filing with the registrar of motor vehicles or other appropriate authority in the applicable jurisdiction of an application requesting the notation of the security interest created hereunder on such certificate of title. In the case of Collateral consisting of a Deposit Account or Securities Account or held in a Securities Account, no agreement granting control to Administrative Agent over such Collateral shall be required.

 

2.8     Authorization and Approval. No authorization, approval or other action by (and no notice to or filing with) any Official Body or other Person is required either (a) for the grant by any Grantor of the security interest granted hereby, or (b) for the execution, delivery and performance of this Security Agreement by any Grantor, or (c) for the perfection by Administrative Agent of its rights and interests hereunder (other than as set forth in Section 2.7 hereof), or (d) for the exercise by Administrative Agent of its rights and remedies hereunder.

 

2.9     Type of Collateral. None of the Collateral consists of, or is the Proceeds of, As-Extracted Collateral, Consumer Goods, Farm Products, Manufactured Homes or standing timber.

 

2.10   Commercial Tort Claims. As of the date hereof, no Grantor has any Commercial Tort Claims other than as set forth on Schedule 2.10 hereto.

 

2.11   Partnership and Limited Liability Company Interests. Except as set forth on Schedule 2.11 hereto, none of the Collateral (i) is dealt in or traded on a securities exchange or in a securities market, (ii) by its terms expressly provides that it is a Security governed by Article 8 of the UCC, (iii) is an investment company security, (iv) is held in a Securities Account or (v) constitutes a Security or a Financial Asset.

 

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2.12   Title. The Collateral is free and clear of all Liens except (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings; (b) non-consensual Liens arising by operation of law, arising in the ordinary course of business, and for amounts which are not overdue for a period of more than thirty 30 days or that are being contested in good faith by appropriate proceedings; and (c) those Liens listed on Schedule 2.12 (collectively, the “Permitted Liens”).

 

2.13   Litigation. Except for the litigation disclosed on Schedule 2.13, no action, suit, litigation, investigation or proceeding of, or before, any arbitrator or Governmental Authority is pending or, to the knowledge of any Grantor, threatened by or against any Grantor. Each Grantor represents and warrants that none of the actions disclosed on Schedule 2.13 are reasonably likely to result in a material adverse effect on its financial condition or the ability of such Grantor to perform its obligations under this Agreement or any of the other Loan Documents.

 

Article 3     

 

COVENANTS

 

Each Grantor covenants and agrees that, so long as this Security Agreement remains effective, each Grantor will comply with the covenants set forth in this Article 3, unless Administrative Agent otherwise consents in writing.

 

3.1     Pledged Equity.

 

(a)     Powers and Appointments. Each Grantor will promptly deliver to Administrative Agent all such certificates, powers, appointments, instruments and similar documents (satisfactory in form and substance to Administrative Agent) constituting Pledged Equity. Prior to delivery to Administrative Agent, all such certificates constituting Pledged Equity shall be held in trust by such Grantor for the benefit of Administrative Agent pursuant hereto. From time to time at Administrative Agent’s request after the occurrence and during the continuance of any Event of Default, each Grantor will promptly transfer any Pledged Equity or other shares of capital stock or ownership interests constituting Collateral into the name of any nominee designated by Administrative Agent.

 

(b)      Pledged Equity. Each Grantor will warrant and defend the right and title herein granted to Administrative Agent in and to the Pledged Equity (and all right, title, and interest represented by the Pledged Equity) against the claims and demands of all Persons.

 

(c)      Voting Rights.

 

(i)     So long as no Event of Default shall have occurred and be continuing, (A) each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Equity or any part thereof for any purpose not prohibited by the terms of this Security Agreement or the Loan Agreement; provided, no Grantor shall exercise or refrain from exercising any such right if Administrative Agent shall have notified such Grantor that, in Administrative Agent’s reasonable judgment, such action would infringe on the interests of the Administrative Agent in the Collateral in a material manner and such Grantor shall promptly notify Administrative Agent in writing of material infringements detected, and (B) each Grantor shall be entitled to receive and retain any and all dividends, other distributions, principal and interest paid in respect of the Pledged Equity.

 

(ii)     Upon the occurrence and during the continuation of an Event of Default, (A) upon written notice from Administrative Agent to any Grantor, all rights of such Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease, and all such rights shall thereupon become vested in Administrative Agent who shall thereupon have the sole right to exercise such voting and other consensual rights; (B) all rights of such Grantor to receive the dividends and other distributions which it would otherwise be authorized to receive and retain pursuant hereto shall cease, and all such rights shall thereupon become vested in Administrative Agent who shall thereupon have the sole right to receive and hold as Collateral such dividends and other distributions; and (C) all dividends and other distributions which are received by such Grantor contrary to the provisions of clause (B) above shall be received in trust for the benefit of Administrative Agent, shall be segregated from other funds of such Grantor and shall forthwith be paid over to Administrative Agent as Collateral in the same form as so received (with any necessary endorsements as determined by Administrative Agent). Upon the cure or waiver by the Administrative Agent of any such Event of Default, the provisions of clause (c)(i) above shall apply.

 

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(iii)     In order to permit Administrative Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder, (A) each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to Administrative Agent all such proxies, dividend payment orders and other instruments as Administrative Agent may from time to time reasonably request, and (B) without limiting the effect of clause (A) above, each Grantor hereby grants to Administrative Agent an irrevocable proxy to vote the Pledged Equity and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Equity would be entitled (including giving or withholding written consents of holders of equity interests, calling special meetings of holders of equity interests and voting at such meetings), which proxy shall be effective automatically and without the necessity of any action (including any transfer of any Pledged Equity on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Equity or any officer or agent thereof), upon the occurrence of an Event of Default and which proxy shall only terminate upon the payment in full of the Secured Obligations, the cure of such Event of Default or waiver thereof as evidenced by a writing executed by Administrative Agent.

 

3.2       As to Intellectual Property Collateral. With respect to each item of Intellectual Property Collateral:

 

(a)     No Grantor (i) will fail to use a commercially appropriate standard of quality (which may be consistent with such Grantor’s past practices) in the manufacture, sale and delivery of products and services sold or delivered under or in connection with Trademarks owned by or licensed to such Grantor, or (ii) will fail to employ with all Trademarks (whether or not registered with any Official Body) an appropriate notice of such Trademark, or (iii) will fail to employ with all Copyrights an appropriate notice of such Copyright, or (iv) will fail to employ with all Patents registered with the PTO, or with an Official Body in a foreign country, an appropriate notice of such registration.

 

(b)     No Grantor will do or permit any act (or omit to do any act) whereby any Intellectual Property Collateral owned by Grantor may lapse or become abandoned, forfeited, invalid, dedicated to the public or unenforceable (except upon expiration of the end of an unrenewable term of a registration thereof) without the prior written consent of Administrative Agent; provided that so long as no Default or Event of Default has occurred or is continuing, no Grantor shall be obligated to protect, defend or maintain any such Intellectual Property Collateral that such Grantor determines, in the good faith and reasonable exercise of its business judgment, is no longer material to such Grantor, to Grantors taken as a whole, or to the business or operations of such Grantor or Grantors taken as a whole (but provided further, that after the occurrence and during the continuance of a Default or Event of Default, Administrative Agent may require a Grantor to protect, defend or maintain such Intellectual Property Collateral and thereafter protect, defend or maintain such Intellectual Property Collateral in such jurisdictions as Administrative Agent deems necessary or desirable).

 

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(c)     Each Grantor will promptly notify Administrative Agent if such Grantor believes (or has reason to believe) that (i) any application to register or registration relating to any Intellectual Property Collateral may become abandoned, dedicated to the public, placed in the public domain, invalid or unenforceable, or (ii) there has been or will be an adverse determination or development (including the institution of, or any determination or development in, any proceeding in the PTO, the United States Copyright Office or any other Official Body) regarding such Grantor’s ownership of any Intellectual Property Collateral, its right to register the same, or its right to use, keep, maintain and enforce the same.

 

(d)     If any Grantor files an application for the registration of any Intellectual Property Collateral with the PTO, the United States Copyright Office or any other Official Body, then such Grantor must notify Administrative Agent thereof within 90 calendar days thereafter (or 30 calendar days thereafter, for any Copyright), and upon request of Administrative Agent, must promptly execute and deliver any and all agreements, instruments, documents and papers that Administrative Agent may request to evidence Administrative Agent’s security interest in such Intellectual Property Collateral.

 

(e)     Each Grantor will perform all acts and will pay all required fees and taxes (including in any proceeding before the PTO, the United States Copyright Office or any other Official Body) to maintain all Intellectual Property Collateral owned by such Grantor (including Domain Names registered by or on behalf of Grantor) in full force and effect in such jurisdictions as is necessary (in such Grantor’s reasonable business judgment, unless otherwise provided in Section 3.2(b)) for the proper conduct of such Grantor’s business and to pursue any application for registration filed with respect to such Intellectual Property Collateral, including the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, and interference and cancellation proceedings.

 

(f)     Upon any Grantor’s acquisition of any Intellectual Property Collateral, the acquisition of which must be recorded in order to perfect such Grantor’s interest therein, then such Grantor will promptly record its interest therein.

 

(g)     Each Grantor (i) will protect, defend and maintain the validity and enforceability of all the Intellectual Property Collateral and (ii) will use commercially reasonable efforts to detect violations, infringements and misappropriations of such Intellectual Property Collateral and promptly notify Administrative Agent in writing of material violations, infringements and/or misappropriations detected.

 

(h)     Each Grantor, on a continuing basis, will apply to register such Grantor’s Trademarks, pursue patent protection for such Grantor’s inventions, and register the most recent versions of any of such Grantor’s Copyrights and Other Intellectual Property to the extent that any such registration would be consistent with customary industry practice or such Grantor’s historical business practices or the failure to register could reasonably be expected to be materially adverse to Grantor’s business.

 

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(i)     No Grantor will enter into any agreement that would impair or conflict with such Grantor’s obligations hereunder with respect to the Intellectual Property Collateral, except as otherwise permitted hereby or under the Loan Agreement.

 

(j)     Each Grantor, on a continuing basis, will make, execute, acknowledge and deliver, and will file and record in the proper filing and recording places in the United States, any state thereof and any other country or any political subdivision thereof, all such instruments, collateral agreements and filings (including all appropriate financing and continuation statements) with the PTO, the United States Copyright Office or any other Official Body, as applicable, and will take all such action as Administrative Agent may reasonably deem to be necessary to perfect Administrative Agent’s security interest in all Intellectual Property Collateral and otherwise to carry out the intent and purpose of this Security Agreement, or for assuring and confirming to Administrative Agent the grant or perfection of a security interest in all Intellectual Property Collateral.

 

(k)     Each Grantor, on a continuing basis, will ensure that it has appropriate measures in place to ensure that all material that may constitute Intellectual Property Collateral created by or on behalf of such Grantor has been appropriately assigned by any developer to such Grantor.

 

3.3      As to Customer and Material Business Records and Computer Software, and Trade Secrets. Each Grantor will utilize standard industry precautions to safeguard the utility, value and confidentiality of all such records, materials and information covered by this Section.

 

3.4      As to Receivables, Revenues and Cash. All cash, Receivables and other Revenue received by, or on behalf of, any Grantor shall be promptly (and, in any event, within two Business Days) deposited by such Grantor in a Deposit Account owned by Grantor. At any time during the continuance of an Event of Default:

 

(a)     each Grantor shall, upon Administrative Agent’s request, deliver to Administrative Agent all original and other documents evidencing, and relating to any Receivable, including all original orders, invoices and shipping receipts and notify the obligors thereunder that the Receivables have been collaterally assigned to Administrative Agent and that payments in respect thereof shall be made directly to Administrative Agent; and

 

(b)     Administrative Agent may, without notice, at any time during the continuance of an Event of Default, limit or terminate the authority of a Grantor to collect any amounts due under any Receivable and, in its own name or in the name of others, communicate with the obligors thereunder and enforce such Grantor’s rights against such obligors. Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each Receivable to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither Administrative Agent nor any Lender shall have any obligation or liability, or be obligated in any manner to perform any obligation of any Grantor, under or pursuant to any agreement giving rise to any Receivable.

 

3.5    Issuance or Acquisition of Equity Interests. No Grantor shall, without executing and delivering, or causing to be executed and delivered, to Administrative Agent such agreements, documents and instruments as Administrative Agent may reasonably require, issue or acquire any Pledged Equity consisting of an interest in a partnership or a limited liability company that (i) is dealt in or traded on a securities exchange or in a securities market, (ii) by its terms expressly provides that it is a Security governed by Article 8 of the UCC, (iii) is an investment company security, (iv) is held in a Securities Account or (v) constitutes a Security or a Financial Asset.

 

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3.6      Further Assurances. Each Grantor (from time to time at its own expense) will promptly execute and deliver all further instruments and documents, and will take all further action, that may be necessary (or that Administrative Agent may reasonably request) in order to perfect any security interest, collateral assignment or pledge granted or purported to be granted hereby or to enable Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor shall:

 

(a)     If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Tangible Chattel Paper, or if any Property constituting Collateral shall be stored or shipped subject to a Document, ensure that such Instrument, Tangible Chattel Paper or Document is either in the possession of such Grantor at all times or, if requested by Administrative Agent to perfect its security interest in such Collateral, is delivered to Administrative Agent duly endorsed in a manner satisfactory to Administrative Agent. Such Grantor shall ensure that any Collateral consisting of Tangible Chattel Paper is marked with a legend acceptable to Administrative Agent indicating Administrative Agent’s security interest in such Tangible Chattel Paper.

 

(b)     Execute and deliver all agreements, assignments, instruments or other documents as reasonably requested by Administrative Agent for the purpose of obtaining and maintaining control with respect to any Collateral consisting of (i) Investment Property, (ii) Letter-of-Credit Rights and (iii) Electronic Chattel Paper.

 

(c)     If any Collateral is at any time in the possession or control of a warehouseman, bailee or any agent or processor of such Grantor and Administrative Agent so requests (i) notify such Person in writing of Administrative Agent’s security interest therein, (ii) instruct such Person to hold all such Collateral for Administrative Agent’s account and subject to Administrative Agent’s instructions and (iii) use reasonable best efforts to obtain a written acknowledgment from such Person that it is holding such Collateral for the benefit of Administrative Agent.

 

(d)     To the extent that any Grantor shall, now or at any time hereafter, hold or acquire a Commercial Tort Claim, such Grantor shall immediately notify Administrative Agent in a writing signed by such Grantor of the particulars thereof and grant to Administrative Agent, for the benefit of the Lenders and Administrative Agent, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Security Agreement, with such writing to be in form and substance reasonably satisfactory to Administrative Agent.

 

(e)    Will execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as may be necessary (or as Administrative Agent may reasonably request) in order to perfect the security interests, collateral assignments, pledges and other rights granted or purported to be granted to Administrative Agent hereby.

 

(f)     Will furnish to Administrative Agent (from time to time at Administrative Agent’s request) statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Administrative Agent may reasonably request, all in reasonable detail.

 

(g)     Will notify Administrative Agent in writing immediately upon such Grantor becoming a party to any federal, state or local government contract (either domestic or foreign), and, upon the request of Administrative Agent, promptly take all actions required under the Federal Assignment of Claims Act or any similar state, local or foreign laws as Administrative Agent may reasonably request.

 

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3.7     Joinder. Each Grantor added after the date hereof shall execute the joinder in the form attached hereto as Schedule 3.6, whereupon such party shall be deemed to be a party to, and shall be subject to all of the terms and conditions of, this Agreement as if it were a Grantor on the date of this Agreement.

 

3.8     Liens. Each grantor covenants and agrees not to create, assume or suffer to exist any Lien on any of its Property or assets, whether now owned or hereinafter acquired other than Permitted Liens.

 

3.9     Litigation. Each Grantor covenants and agrees to provide Administrative Agent written evidence of the payment in full for any judgment entered against such Grantor or settlement entered into by such Grantor that relates to the actions disclosed on Schedule 2.13, within the earlier of thirty (30) days of such judgment being entered or the period set forth in such settlement.

 

With respect to the foregoing and the grant of the security interest hereunder, each Grantor hereby authorizes Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Grantor where permitted by law. A carbon, photographic or other reproduction of this Security Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

 

Article 4     

ADMINISTRATIVE AGENT

 

4.1      Administrative Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints Administrative Agent as such Grantor’s attorney-in-fact, with full authority in the name, place and stead of such Grantor or otherwise, from time to time in Administrative Agent’s reasonable discretion, to take any action and to execute any instrument which Administrative Agent may deem reasonably necessary to accomplish the purposes of this Security Agreement. This authority includes the power, upon the occurrence of and during the continuance of an Event of Default:

 

(a)     To ask, demand, collect, sue for, recover, compromise, restructure, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral including proceeding against any of the Collateral; and/or

 

(b)     To notify the parties obligated on any of the Collateral to make payment to Administrative Agent of any amount due or to become due in connection therewith; and/or

 

(c)     To receive, endorse, and collect any drafts, checks or other instruments, documents and chattel paper in connection with clause (a) of this Section 4.1; and/or

 

(d)     To file any claims or take any action or institute any proceedings which Administrative Agent may deem reasonably necessary for the collection of any of the Collateral or otherwise to enforce the rights of Administrative Agent, any Lender or any Grantor with respect to any of the Collateral; and/or

 

(e)     To execute (in the name, place and stead of any Grantor) endorsements, assignments, powers and other instruments of conveyance or transfer with respect to all or any of the Collateral; and/or

 

(f)     To exercise all rights with respect to any Pledged Collateral of such Grantor hereunder; and/or

 

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(g)     To perform any and all of the affirmative obligations and covenants of such Grantor hereunder (with notice thereof to be provided to such Grantor by Administrative Agent within a reasonable time thereafter).

 

Each Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section 4.1 is irrevocable and coupled with an interest, but that it will terminate upon the termination of this Security Agreement pursuant to Section 1.3.

 

4.2     Administrative Agent May Perform. From time to time, Administrative Agent (at its option) may perform (or may cause the performance of) any act which any Grantor agrees hereunder to perform and which such Grantor fails to perform after being requested in writing so to perform (it being understood that no such request need be given during the continuance of an Event of Default), and Administrative Agent from time to time (at its option) may also take any other action (or may cause the performance of any action) which Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein or collateral assignments or pledges thereof. The costs and expenses of Administrative Agent incurred in connection with any such performance will be payable by Grantors (jointly and severally) and shall be Secured Obligations.

 

4.3     Administrative Agent Has No Duty. The rights and powers conferred upon Administrative Agent hereunder are solely to protect Administrative Agent’s and each Lender’s interest in the Collateral and do not impose any duty on Administrative Agent to exercise any such rights or powers. Except for reasonable care of any Collateral in Administrative Agent’s possession in accordance with Section 4.4 and the accounting for moneys actually received by it hereunder, Administrative Agent has no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

 

4.4     Reasonable Care. Administrative Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, Administrative Agent will be deemed to have exercised such reasonable care in the custody and preservation of any of the Collateral if Administrative Agent takes such action for that purpose as any Grantor reasonably requests in writing at times other than after the occurrence or during the continuance of a Default. Notwithstanding the foregoing, any failure or refusal by Administrative Agent at any time to comply with any such request by any Grantor will not in itself be deemed a failure to exercise reasonable care.

 

Article 5     

DEFAULTS AND REMEDIES

 

5.1       Certain Remedies. If any Event of Default occurs and is continuing:

 

(a)     In addition to other rights and remedies provided for herein (including under Article 4) or otherwise available to Administrative Agent or any Lender (including under the other Loan Documents and/or applicable law), Administrative Agent may also exercise in respect of the Collateral all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral). Upon the occurrence of any Event of Default, Administrative Agent will have the immediate right to enforce and realize upon any and all collateral security granted under the Loan Documents (including the Collateral hereunder) in any manner or order that Administrative Agent deems expedient without regard to any equitable principles of marshalling or otherwise. All rights and remedies available to Administrative Agent or any Lender are to be considered cumulative in nature.

 

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(b)     Without notice, except as expressly specified herein or required by applicable law, Administrative Agent may also sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Administrative Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Administrative Agent may deem commercially reasonable. To the extent notice of sale is required by law, each Grantor agrees that prior notice to a Grantor of at least ten (10) calendar days indicating the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale (without further notice) may be made at the time and place to which it was so adjourned.

 

(c)     Administrative Agent may require Grantors to, and each Grantor hereby agrees (at its expense) that it will, forthwith assemble all or part of the Collateral as directed by Administrative Agent and make such Collateral available to Administrative Agent at a place designated by Administrative Agent that is reasonably convenient to both Administrative Agent and Grantors.

 

(d)     Unless Administrative Agent otherwise consents, each Grantor will remit to Administrative Agent all cash proceeds received in respect of any sale of, or collection from, or other realization upon all or any part of the Collateral. All cash proceeds received by Administrative Agent from any Grantor or otherwise in respect of any sale of, collection from, or other realization upon all or any part of the Collateral (in the discretion of Administrative Agent) may be held by Administrative Agent as additional Collateral for the Secured Obligations, and/or then or at any time thereafter may be applied in whole or in part by Administrative Agent against all or any part of the Secured Obligations in an order consistent with the designated application of payments provided for in the Loan Agreement. Any surplus of such cash or cash proceeds held by Administrative Agent and remaining after payment in full of all the Secured Obligations will be paid over to a Grantor or to whomsoever Administrative Agent reasonably believes may be lawfully entitled to receive such surplus.

 

(e)     To the extent any of the Collateral represents an interest in a partnership, a limited liability company or other unincorporated enterprise, in addition to any other rights and remedies available to Administrative Agent or any Lender under the Loan Documents or applicable law, Administrative Agent (at its option but with notice to the relevant Grantor) may also exercise all rights and privileges of the holder of such interest under the agreements governing such Collateral and the Organizational Documents for the related organization or may instruct such Grantor how to exercise such rights and privileges (with which instructions each Grantor hereby agrees to comply). Each Grantor, in addition, covenants and agrees (at Administrative Agent’s request) to amend (and to use commercially reasonable efforts to cause others to amend) any of the Organizational Documents for such organization in order to authorize Administrative Agent to so exercise any such rights and privileges associated with such Collateral (including voting rights and the rights to participate in management decisions). The rights of Administrative Agent under this Section 5.1(e) may be transferred to and exercised by any subsequent acquiror or transferee of the Collateral pursuant to any sale of or foreclosure on such Collateral. Each Grantor hereby agrees that the rights of Administrative Agent and each Lender (or any subsequent acquiror or transferee of the Collateral) under this Section 5.1(e) may be enforced by specific performance or otherwise.

 

5.2    Special Securities-Related Remedies--Compliance with Restrictions. Each Grantor agrees that, in any sale of any of the Pledged Equity, Administrative Agent is authorized to comply with any limitation or restriction in connection with the type of such sale pursued as Administrative Agent may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Official Body. Each Grantor further agrees that such compliance will not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor will Administrative Agent or any Lender be liable or accountable to any Grantor for any discount allowed by reason of the fact that such Collateral is sold at foreclosure or otherwise in compliance with any such limitation or restriction or by reason of the fact that such Pledged Equity may represent a minority interest in any Grantor.

 

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5.3     Special IP-Related Remedies (License of Intellectual Property Collateral). Each Grantor hereby grants Administrative Agent a royalty-free, non-exclusive, worldwide, irrevocable license (the “Remedies License”) under all present and future Intellectual Property Collateral of such Grantor to make, have made, use, sell, offer for sale, import, rent, lease, reproduce, display, distribute, perform, prepare derivative works (including the right to sub-license such rights to another Person), in any and all media now known or hereafter developed and in all channels of distribution, without restriction, from time to time after the occurrence and during the continuance of any Event of Default and delivery of notice thereof by Administrative Agent (unless such Event of Default is under Section 7.1(e) of the Loan Agreement, in which case no such notification shall be required) in connection with the maintenance, preservation, preparation, sale, disposition, collection, foreclosure, or other realization of, upon, or with respect to the Collateral or payment of the Secured Obligations in accordance with the Loan Documents, with the use of registered Trademarks subject to a commercially appropriate standard of quality. The Remedies License shall remain in full force and effect until this Security Agreement is terminated in accordance with Section 1.3 (but any sub-license or transfer of the Remedies License prior to the termination of the Remedies License shall survive such termination of the Remedies License unless otherwise provided on such sub-license or transfer document). The rights of Administrative Agent under the Remedies License are assignable by Administrative Agent (without the consent of such Grantor) in connection with (a) any sale or other disposition of Collateral in accordance with the Loan Documents to the extent necessary to permit the purchaser of such Collateral to have continuing and royalty free, worldwide rights with respect to the items of Collateral sold to such purchaser or (b) any assignment or other transfer by Administrative Agent of all or any part of its rights under and in accordance with the Loan Documents. Upon or at any time after the occurrence of any Event of Default, each Grantor will deliver (or cause to be delivered) to Administrative Agent (at Administrative Agent’s request but at such Grantor’s expense) a copy of all such Intellectual Property Collateral and all related other Collateral in a form requested by Administrative Agent. Administrative Agent’s rights, as a licensee under this Section 5.3, constitute a separately enforceable contract from the balance of this Security Agreement.

 

5.4    Retention of Collateral. In addition to the rights and remedies hereunder, Administrative Agent may, in compliance with Sections 9-620 and 9-621 of the UCC or otherwise complying with the requirements of applicable law of the relevant jurisdiction, accept or retain the Collateral in satisfaction of the Secured Obligations. Unless and until Administrative Agent shall have provided such notices, however, Administrative Agent shall not be deemed to have retained any Collateral in satisfaction of any Secured Obligations for any reason.

 

5.5    Deficiency. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which Administrative Agent or the Lenders are legally entitled, the Grantors shall be jointly and severally liable for the deficiency, together with interest thereon as provided in the Loan Agreement, together with the costs of collection and the fees, charges and disbursements of counsel. Any surplus remaining after the full payment and satisfaction of the Secured Obligations shall be returned to the Grantors or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto.

 

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5.6       Administrative Agent’s Rights Upon Occurrence of a Liquidation Event.

 

(a)     Right to Certain Payments and Distributions. Upon the occurrence of any Liquidation Event, any payment or distribution of any kind or character (whether in cash, securities or other property) that but for this Security Agreement would be payable or deliverable to a Grantor must instead be paid or delivered directly to Administrative Agent for application to the Secured Obligations.

 

(b)     Non-Cash Payments and Distributions. Notwithstanding the provisions of clause (a) of this Section 5.6, if Administrative Agent receives delivery of any such payment or distribution in connection with a Liquidation Event in a form other than cash, then Administrative Agent may hold such Property as additional Collateral for the Secured Obligations, and no Grantor of the Secured Obligations will be entitled to a credit with respect to the Secured Obligations, nor will the Secured Obligations otherwise be adjusted in any respect, until such time as Administrative Agent (in its sole and absolute discretion) has sold, discounted or otherwise liquidated such distribution and then (subject to the terms of Section 7.6), such credit or adjustment to the Secured Obligations will be limited only to the net cash proceeds realized therefrom after the payment of all costs and expenses associated with such sale or liquidation.

 

(c)     Collection of Payments and Distributions. In addition to any rights otherwise permitted under the Loan Documents or applicable law, each Grantor hereby irrevocably authorizes and empowers Administrative Agent, upon the occurrence of any Liquidation Event, to file and/or vote claims and take such other proceedings, in each instance in Administrative Agent’s own name or in the name of a Grantor, or otherwise, all as Administrative Agent may reasonably deem necessary for the enforcement of this Security Agreement. Each Grantor further agrees duly and promptly to (i) take such action as may be requested by Administrative Agent to assist in the collection and/or compromise of any amounts owed to any Grantor in respect of a Liquidation Event, (ii) file appropriate proofs of claim in respect of such amounts, (iii) execute and deliver to Administrative Agent on demand such powers of attorney, proofs of claim, assignments of claim or other instruments as may be requested by Administrative Agent to enable Administrative Agent to enforce any and all claims upon or with respect to such amounts, and (iv) collect, compromise and receive any and all payments or distributions which may be payable or deliverable at any time upon or with respect to such amounts.

 

5.7     Delivery of Payments and Distributions. If any Grantor receives any payment, distribution or any other funds or property in contravention of the provisions hereof or any other Loan Document, then such Grantor must immediately deliver such payment, distribution or other funds or property (or proceeds thereof) to Administrative Agent in precisely the form received (except for the endorsement or assignment without recourse of such Grantor where necessary) for application to the Secured Obligations (or, at Administrative Agent’s option, held as additional Collateral therefor), whether or not then due or mature in accordance with the provisions of the Loan Agreement. Until such funds or property are delivered to Administrative Agent, such Grantor must hold such payment, distribution or other funds or property (or proceeds thereof) (a) in trust for the benefit of and as property of Administrative Agent and (b) separate from (i.e., not commingled with) its other assets. If a Grantor fails or refuses to make any such endorsement or assignment, then Administrative Agent (or any of its officers or employees) is hereby irrevocably authorized by such Grantor to make the endorsement and/or assignment.

 

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5.8     Cooperation and Assistance. Each Grantor agrees (during the existence of a Default or an Event of Default) to take any actions that Administrative Agent may reasonably request in order to enable Administrative Agent and each Lender to receive the full rights and benefits granted to Administrative Agent and each Lender by the Loan Documents. Each Grantor further agrees that each Grantor will assist and cooperate with Administrative Agent (and will use its best efforts to cause others to assist and cooperate with Administrative Agent) to ensure that each Grantor continues (a) to operate in the normal course of business, (b) to fulfill all of its legal, regulatory and contractual obligations and (c) to otherwise be properly and professionally managed. At Administrative Agent’s request and the expense of Grantors (jointly and severally), at any time during the existence of an Event of Default, such assistance and cooperation may include the employment of (and, to the maximum extent not prohibited by the rules, regulations and orders of any Official Body with jurisdiction, the delegation of appropriate management authority to) one or more qualified and independent consultants and professional managers acceptable to Administrative Agent to assist in the interim operations of Grantors; all of which each Grantor hereby agrees not to challenge.

 

5.9     Standards for Exercising Remedies. To the extent that applicable law imposes duties on the Administrative Agent and/or Lender to exercise remedies in a commercially reasonable manner, the Borrower acknowledges and agrees that it is not commercially unreasonable for the Administrative Agent and/or Lender (a) to fail to incur expenses deemed significant by the Administrative Agent and/or Lender to prepare the Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not in the same business as such Grantor, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure the Administrative Agent and/or Lender against risks of loss, collection or disposition of Collateral or to provide to the Administrative Agent and/or Lender a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by the Administrative Agent and/or Lender, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Lender in the collection or disposition of any of the Collateral. Each Grantor acknowledges that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by the Administrative Agent and/or Lender would not be commercially unreasonable in the Administrative Agent’s and/or Lender’s exercise of remedies against the Collateral and that other actions or omissions by the Administrative Agent and/or Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section. Without limitation upon the foregoing, nothing contained in this Section shall be construed to grant any rights to the Grantors or to impose any duties on the Administrative Agent and/or Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section.

 

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Article 6

DEFINITIONS

 

6.1    Loan Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, capitalized terms used in this Security Agreement (including the preamble and recitals hereof) have the meanings provided in the Loan Agreement.

 

6.2     Rules of Construction. The rules of interpretation and construction set forth in the Loan Agreement apply to the interpretation and construction of this Security Agreement.

 

6.3     Certain Terms. The following terms (whether or not underscored) when used in this Security Agreement (including the preamble and recitals hereof) have the following meanings:

 

Administrative Agent” is defined in the introductory paragraph hereof.

 

Borrower” is defined in the introductory paragraph hereof.

 

Collateral” is defined in Section 1.1.

 

Copyright License” means any agreement, whether written or oral, providing for the grant by or to a Grantor of any right under any Copyright.

 

Copyrights” means all copyright and similar rights under the laws of the United States (including all proprietary rights afforded pursuant to Title 17 of the United States Code, including, without limitation, all rights in copyrights, works of authorship, original designs and mask works) and all other countries for the full term thereof (and including all rights accruing by virtue of bilateral or international copyright treaties and conventions), whether registered or unregistered, including, but not limited to, all registrations, applications for registration, renewals, extensions, reversions or restorations thereof now or hereafter provided for by law, all rights to make applications for registrations and recordations, and all adaptations, derivations, and versions thereof, regardless of the medium of fixation or means of expression, now existing or hereafter applied for, registered, created, or acquired.

 

Domain Names” means all internet domain names and applications therefor and all URLs.

 

Excluded Property” means any “intent to use” Trademark applications for which a statement of use has not been filed (but only until such statement is filed).

 

Grantor” is defined in the introductory paragraph hereof.

 

Intellectual Property Collateral” means, collectively, all Copyrights, all Domain Names, all Patents, all Software, all Trademarks, all Trade Secrets, and all Other Intellectual Property owned and/or used by a Grantor, and all Copyright Licenses, all Patent Licenses, and all Trademark Licenses granted by or to a Grantor.

 

Liquidation Event” means any foreclosure on or any sale of all or any material part of the assets of any Grantor, or any liquidation, dissolution or other winding up (partial or complete) of any Grantor or any Grantor’s business, or any sale, receivership, insolvency or bankruptcy proceeding, any assignment for the benefit of creditors, or any other proceeding by or against any Grantor or its assets for any relief under any bankruptcy or insolvency law relating to the relief of debtors, readjustment of indebtedness, arrangements, reorganizations, compositions or extensions.

 

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Loan Agreement” is defined in the recitals hereof.

 

Other Intellectual Property” means all worldwide intellectual property rights, industrial property rights, proprietary rights and common-law rights, whether registered or unregistered, not otherwise included in Copyrights, Copyright Licenses, Domain Names, Patents, Patent Licenses, Trademarks, Trademark Licenses and Trade Secrets, including, without limitation, all rights to and under all new and useful inventions, discoveries, technology, confidential information, methods, processes, designs, technology, art, brands, formulas, algorithms, software, concepts, protocols, electronic or other databases, tangible embodiments (in whatever form or medium), and all improvements thereof and all know-how related thereto, together with the rights to all related past, present and future causes of action and any and all interests, claims, and rights for damages, profits, and other awards or remedies by reason of any infringement, unauthorized use, dilution, misappropriation, or other violation of intellectual property rights, now existing or hereafter created or acquired.

 

Patent License” means any agreement, whether written or oral, providing for the grant by or to a Grantor of any right under any Patent.

 

Patents” means all letters patent and patent applications in the United States and all other countries (and all letters patent that issue therefrom), including all industrial designs, industrial models, utility models, certificates of invention and other indices of invention ownership, and all reissues, reexaminations, extensions, renewals, substitutes, divisions and continuations (including continuations-in-part and continuing prosecution applications) thereof, all rights to make applications for issuance and recordations, for the full term thereof, now existing or hereafter applied for, issued, or acquired.

 

Pledged Equity” means, with respect to each Grantor, (a) 100% of the issued and outstanding equity interests of each Subsidiary that is directly owned by Grantor and (b) 66% (or such greater percentage that, due to a change in an applicable law after the date hereof, (i) could not reasonably be expected to cause the undistributed earnings of such foreign Subsidiary as determined for United States federal income tax purposes to be treated as a deemed dividend to such foreign Subsidiary’s United States parent and (ii) could not reasonably be expected to cause any material adverse tax consequences) of the issued and outstanding equity interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and 100% of the issued and outstanding equity interests not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) in each foreign Subsidiary that is directly owned by such Grantor, including the equity interests of the Subsidiaries owned by such Grantor as set forth on Schedule 2.6 hereto, in each case together with the certificates (or other agreements or instruments), if any, representing such equity interests, and all options and other rights, contractual or otherwise, with respect thereto, including, but not limited to, (A) all equity interests representing a dividend thereon, or representing a distribution or return of capital upon or in respect thereof, or resulting from a stock split, revision, reclassification or other exchange therefor, and any subscriptions, warrants, rights or options issued to the holder thereof, or otherwise in respect thereof; and (B) in the event of any consolidation or merger involving the issuer thereof and in which such issuer is not the surviving Person, all shares of each class of the equity interests of the successor Person formed by or resulting from such consolidation or merger, to the extent that such successor Person is a direct Subsidiary of such Grantor.

 

Receivables” means all Accounts, rights to payment evidenced by Chattel Paper or Instruments, Payment Intangibles and other rights to payments under General Intangibles.

 

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Secured Obligations” is defined in Section 1.2.

 

Security Agreement” means this Security Agreement and all exhibits, schedules and supplemental addenda hereto, all as may be amended and otherwise modified from time to time hereafter.

 

Software” means computer software (including source code and object code), data, databases and all documentation related thereto.

 

Trade Secrets” means any data or information of any Grantor that is not commonly known by or available to the public, and which (a) derives economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

 

Trademark License” means any agreement, written or oral, providing for the grant by or to Grantor of any right to use any Trademark.

 

Trademarks” means all trademark and service mark rights, statutory and common-law trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, trade dress, logos and other source or business identifiers and indicia of commercial source or origin, together with all translations, adaptations, derivations and combinations thereof, and the goodwill associated therewith, all registrations and applications for registration thereof, and all rights to make applications for registrations and recordations, under the laws of the United States, any state thereof or any other country or any political subdivision thereof, or otherwise, for the full term and all renewals thereof, now existing or hereafter applied for, registered, adopted, or acquired.

 

6.4    UCC Definitions. The following terms shall have the meanings ascribed to such terms as defined in the Uniform Commercial Code in effect from time to time in the State of New York except as such terms may be used in connection with the perfection of the Collateral and then the applicable jurisdiction with respect to such affected Collateral shall apply (the “UCC”): Accession, Account, As-Extracted Collateral, Bank, Chattel Paper, Commercial Tort Claim, Consumer Goods, Deposit Account, Document, Electronic Chattel Paper, Equipment, Farm Products, Financial Asset, Fixtures, General Intangible, Goods, Instrument, Inventory, Investment Property, Letter-of-Credit Right, Manufactured Home, Proceeds, Securities Entitlement, Securities Account, Securities Intermediary, Security, Software, Supporting Obligation and Tangible Chattel Paper.

 

Article 7

MISCELLANEOUS PROVISIONS

 

7.1     Loan Document. This Security Agreement and each separate assignment executed in connection herewith are Loan Documents executed pursuant to the Loan Agreement and (unless otherwise expressly indicated herein) are to be construed, administered and applied in accordance with the terms and provisions thereof.

 

7.2     Amendments. No amendment to or waiver of any provision of this Security Agreement, nor consent to any departure by any Grantor herefrom, shall in any event be effective unless such amendment, waiver or consent is in writing and signed by Administrative Agent and Grantor. Any such waiver or consent will be effective only in the specific instance and for the specific purpose for which given.

 

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7.3      Notices.

 

(a)     Written Notices.

 

(i)     All notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail, as follows:

 

If to Grantor:

 

BlackBoxStocks Inc.

5430 LBJ Freeway

Suite 1485

Dallas, TX 75240   

Attn: Gust Kepler           

Telephone: 972-726-9203

Email: Gust@blackboxstocks.com

 

 

If to Administrative Agent:

 

FVP Servicing, LLC

325 Hudson Street, 4th Floor

New York, NY 10013

Attn: Keith Lee / Tom Betts

Telephone: 646.902.6645

E-mail:klee@feenixpartners.com / tbetts@feenixpartners.com

 

(ii)     Notices if (a) mailed by certified or registered mail or sent by hand or overnight courier service shall be deemed to have been given when received; and (b) sent by e-mail shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgment).

 

(iii)     Any party hereto may change its address for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, be effective when delivered for overnight (next-day) delivery, or if mailed, upon the third Business Day after the date deposited into the mails or if delivered, upon delivery; provided, that notices delivered to Lenders shall not be effective until actually received by such Person at its address specified in this Section 10.

 

(iv)     Any agreement of Administrative Agent or any Lender herein to receive certain notices by telephone or e-mail is solely for the convenience and at the request of Borrower. Administrative Agent and each Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by Borrower to give such notice and neither Administrative Agent nor any Lender shall have any liability to Borrower or other Person on account of any action taken or not taken by Administrative Agent or any Lender in reliance upon such telephonic or e-mail notice. The obligation of Borrower to repay the Loans and all other obligations and hereunder shall not be affected in any way or to any extent by any failure of Administrative Agent or any Lender to receive written confirmation of any telephonic or e-mail notice or the receipt by Administrative Agent or any Lender of a confirmation which is at variance with the terms understood by Administrative Agent or any Lender to be contained in any such telephonic or e-mail notice.

 

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(b)     Electronic Communications.

 

(i)     Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and internet or intranet websites) pursuant to procedures approved by Administrative Agent; provided that the foregoing shall not apply to notices to Administrative Agent or any Lender pursuant to Section 2 hereof unless Administrative Agent or such Lender has agreed to receive notices under such Section by electronic communication and have agreed to the procedures governing such communications. Any Party may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

 

(ii)     Unless Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

 

 

7.4    Severability. Wherever possible, each provision of this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law. If any provision of this Security Agreement shall be prohibited by or invalid under such law, then such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement.

 

7.5     Entire Agreement. This Security Agreement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements (written or oral) with respect thereto.

 

7.6     Reinstatement. To the maximum extent not prohibited by applicable law, this Security Agreement shall continue to be effective or be reinstated if at any time any amount received by Administrative Agent or any Lender in respect of the Loan Agreement or any other Loan Document is rescinded or must otherwise be restored or returned by Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Grantor or upon the appointment of any receiver, intervenor, conservator, trustee or similar official for any Grantor or any substantial part of any Grantor’s assets, or otherwise, all as though such payments had not been made.

 

21

 

7.7     Conflict Provision. In the event of any irreconcilable conflict between the terms and conditions of this Security Agreement and the terms and conditions of the Loan Agreement, the terms and conditions of the Loan Agreement shall govern.

 

7.8    Administrative Agent. References in this Security Agreement to Administrative Agent shall mean either to Administrative Agent in such capacity or (where appropriate) to Administrative Agent for the benefit of itself and other Lenders. Unless otherwise indicated in this Security Agreement or the other Loan Documents, all Collateral held and all payments received by Administrative Agent are deemed to be held and received, respectively, for the benefit of itself and the other Lenders.

 

7.9     Waiver of Suretyship Defenses. Each Grantor hereby waives any and all defenses and rights of discharge based on suretyship or impairment of collateral (including any lack of attachment or perfection with respect thereto) that it may now have or may hereafter acquire with respect to Administrative Agent or any Lender or any of such Grantor’s obligations hereunder or under any other agreement that it may have or hereafter enter into with Administrative Agent or any Lender.

 

7.10   Waiver of Subrogation. Until this Security Agreement is terminated in accordance with Section 1.3, each Grantor hereby irrevocably waives any claim or other rights which it may now have or may hereafter acquire against any other Grantor that arise from the existence, payment, performance or enforcement of any Grantor’s obligations under this Security Agreement or any other Loan Document, including any right of subrogation, reimbursement, contribution, exoneration, or indemnification, any right to participate in any claim or remedy of Administrative Agent or any Lender against any other Grantor or any collateral which Administrative Agent or any Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law.

 

7.11   Waiver of Notice; Waiver of Bond. Each Grantor waives all rights of notice and hearing of any kind prior to the exercise by Administrative Agent or any Lender of its rights during the continuance of any Event of Default to repossess the Collateral with judicial process or to replevy, attach or levy upon the Collateral. Each Grantor waives the posting of any bond otherwise required of Administrative Agent or any Lender in connection with any judicial process or proceeding to obtain possession of, replevy, attach or levy upon Collateral or other security for the Secured Obligations, to enforce any judgment or other court order entered in favor of Administrative Agent or any Lender, or to enforce by specific performance, temporary restraining order or preliminary or permanent injunction this Security Agreement or any other Loan Document.

 

7.12  Waiver of Liability. Each Grantor (a) agrees that neither Administrative Agent nor any Lender (nor any director, officer, employee or agent of Administrative Agent or any Lender) shall have any liability to any Grantor (whether sounding in tort, contract or otherwise) for losses or costs suffered or incurred by any Grantor in any way related to the transactions contemplated or the relationship established by any Loan Document, or any act, omission or event occurring in connection therewith, except for actual losses resulting directly from Administrative Agent’s or such Lender’s own gross negligence, willful misconduct or fraud, and (b) waives, releases and agrees not to sue upon any claim against Administrative Agent or any Lender (or their directors, officers, employees or agents) whether sounding in tort, contract or otherwise, except for claims for actual losses resulting directly from Administrative Agent’s or such Lender’s own gross negligence, willful misconduct or fraud. Moreover, whether or not such damages are related to a claim that is subject to the waiver effected above and whether or not such waiver is effective, neither Administrative Agent nor any Lender (nor any director, officer, employee or agent of Administrative Agent or any Lender) shall have any liability with respect to (and each Grantor hereby waives, releases and agrees not to sue upon any claim for) any special, indirect, consequential, punitive or non-foreseeable damages suffered by any Grantor in any way related to the transactions contemplated or the relationship established by any Loan Document, or any act, omission or event occurring in connection therewith.

 

22

 

7.13   Counterparts. This Security Agreement may be executed in any number of counterparts with the same effect as if all the signatures on such counterparts appeared on one document. Each counterpart will be deemed to be an original, but all counterparts together will constitute one and the same instrument. A signature page hereto sent or delivered by facsimile or other electronic transmission shall be as legally binding and enforceable as a signed original for all purposes.

 

7.14   Governing Law; Submission to Jurisdiction; Venue; WAIVER OF JURY TRIAL. The terms of Sections 14.3, 14.4, 14.5 and 14.7 of the Loan Agreement with respect to governing law, submission to jurisdiction, venue and waiver of jury trial are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.

 

 

[SIGNATURE PAGES FOLLOW]

 

23

 

IN WITNESS WHEREOF, the undersigned, by their duly authorized officers, have executed this Security Agreement, and it is effective as of the day and year first above written.

 

 

GRANTOR: 

BLACKBOXSTOCKS INC., 

 

  a Nevada corporation  

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: 

Gust Kepler 

 

 

Title: 

Chief Executive Officer 

 

                    

 

 

ADMINISTRATIVE 

 

 

AGENT: FVP SERVICING, LLC,  
  a Delaware limited liability company,  
  as Administrative Agent  

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: 

Keith Lee 

 

 

Title: 

Manager 

 

     

 

 

Schedule 2.1

 

Location of Collateral

 

BlackBoxStocks Inc.

5430 LBJ Freeway

Suite 1485

Dallas, TX 75240

 

 

 

Schedule 2.3

 

Government Contracts

 

 

NONE

 

 

 

Schedule 2.5A

 

Intellectual Property Collateral

 

 

 

NONE

 

 

 

Schedule 2.6

 

Pledged Collateral

 

100% of the issued and outstanding equity interests in each of the following Subsidiaries of Grantor:

 

None

 

 

 

Schedule 2.10

 

Commercial Tort Claims

 

NONE

 

 

 

Schedule 2.11

 

Pledged Interests – Securities

 

NONE

 

 

 

Schedule 2.13

 

Litigation

 

 

NONE

 

 

 

Schedule 3.6

 

Form Joinder

 

JOINDER BY __________________

TO SECURITY AGREEMENT

 

The undersigned, _________________, a _____________________ (“New Grantor”) hereby joins in the Security Agreement dated as of ____________, 2020 (the “Security Agreement”) by and among the Grantors thereto (collectively, the “Grantor”) and FVP SERVICING, LLC, as administrative agent (including any successor, participant, assignee or transferee thereof, “Administrative Agent”) for itself and the Lenders (as defined in the Loan Agreement). All terms not defined herein shall have the meanings ascribed to them in the Security Agreement. New Grantor has received and reviewed a copy of the Security Agreement and hereby acknowledges and affirms:

 

1.     the continuing validity of the Security Agreement and the other Loan Documents to which New Grantor is a party;

 

2.     all of the terms, conditions and obligations contained in the Security Agreement and other Loan Documents to which New Grantor is a party, which terms, conditions and obligations are and shall remain in full force and effect;

 

3.     that the Security Agreement and other Loan Documents to which New Grantor is a party are the legal, valid and binding obligations of New Grantor as a party thereto, and the obligations and liabilities thereunder shall not be diminished by the execution hereof; and

 

4.     that this instrument is executed by New Grantor as an inducement to the Administrative Agent and each Lender to continue the Loan, and with the knowledge that the Administrative Agent and each Lender shall rely on the statements made herein.

 

 

Dated: ________________, 202__ ____________________
   
   
Address for Notice: By: ___________________________
__________________ Print Name:
__________________ Print Title:
__________________  

               

 

 

EXHIBIT A
TO
SECURITY AGREEMENT

 

FORM OF [COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT1

 

THIS [COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT, dated as of                                 , 20      , (this “Agreement”) is made by each of the entities listed on the signature pages hereof (each a “Grantor” and, collectively, the “Grantors”), in favor of FVP SERVICING, LLC, a Delaware limited liability company, as administrative agent (including any successor, participant, assignee or transferee thereof, “Administrative Agent”) for the Lenders (as defined in the Loan Agreement referred to below).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to the Loan Agreement, dated as of the date hereof (as amended, restated or supplemented from time to time, the “Loan Agreement”), by and among Borrower, Lenders party thereto and Administrative Agent, Lenders have severally agreed to make extensions of credit to Borrower upon the terms and subject to the conditions set forth therein;

 

WHEREAS, each Grantor has agreed, pursuant to a , to guarantee the Obligations (as defined in the Loan Agreement) of each Borrower; and

 

WHEREAS, all of Grantors are party to the Security Agreement of even date herewith in favor of Administrative Agent (as amended, restated or supplemented from time to time, the “Security Agreement”) pursuant to which Grantors are required to execute and deliver this Agreement;

 

NOW, THEREFORE, in consideration of the premises and to induce Lenders and Administrative Agent to enter into the Loan Agreement and to induce Lenders to make their respective extensions of credit to Borrower thereunder, each Grantor hereby agrees with Agent as follows:

 

Section 1.        Defined Terms. Capitalized terms used herein without definition are used as defined in the Security Agreement.

 

Section 2.      Grant of Security Interest in [Copyright] [Trademark] [Patent] Collateral. Each Grantor, as collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, hereby mortgages, pledges and hypothecates to Administrative Agent for the benefit of the Secured Parties, and grants to Administrative Agent for the benefit of the Lenders a Lien on and security interest in, all of its right, title and interest in, to and under the following Collateral of such Grantor (the “[Copyright] [Patent] [Trademark] Collateral”):

 

(a)     [all of its Copyrights and all Copyright Licenses providing for the grant by or to such Grantor of any right under any Copyright, including, without limitation, those referred to on Schedule 1 hereto;

 

(b)     all renewals, reversions and extensions of the foregoing; and

 

(c)     all income, royalties, proceeds and liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including, without limitation, all rights to sue and recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.]

 

or

 


Separate agreements should be executed relating to each Grantor’s respective Copyrights, Patents, and Trademarks.

 

A3-1

 

(a)    [all of its Patents and all Patent Licenses providing for the grant by or to such Grantor of any right under any Patent, including, without limitation, those referred to on Schedule 1 hereto;

 

(b)     all reissues, reexaminations, continuations, continuations-in-part, divisionals, renewals and extensions of the foregoing; and

 

(c)     all income, royalties, proceeds and liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including, without limitation, all rights to sue and recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.]

 

or

 

(a)     [all of its Trademarks and all Trademark Licenses providing for the grant by or to such Grantor of any right under any Trademark, including, without limitation, those referred to on Schedule 1 hereto;

 

(b)     all renewals and extensions of the foregoing;

 

(c)     all goodwill of the business connected with the use of, and symbolized by, each such Trademark; and

 

(d)     all income, royalties, proceeds and liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including, without limitation, all rights to sue and recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.]

 

Section 3.      Security Agreement. The security interest granted pursuant to this Agreement is granted in conjunction with the security interest granted to Administrative Agent pursuant to the Security Agreement and each Grantor hereby acknowledges and agrees that the rights and remedies of Administrative Agent with respect to the security interest in the [Copyright] [Patent] [Trademark] Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

 

Section 4.      Grantor Remains Liable. Each Grantor hereby agrees that, anything herein to the contrary notwithstanding, such Grantor shall assume full and complete responsibility for the prosecution, defense, enforcement or any other necessary or desirable actions in connection with their [Copyright] [Patent] [Trademark] Collateral subject to a security interest hereunder.

 

Section 5.      Counterparts. This Agreement may be executed in any number of counterparts and by different parties 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. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart.

 

Section 6.      Governing Law. This Agreement and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.

 

A3-2

 

[Signature pages follow]

 

A3-3

 

IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

 

 

[GRANTOR], as Grantor 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name 

 

 

 

Title 

 

 

 

 

ACCEPTED AND AGREED

 

as of the date first above written:  
     
FVP SERVICING, LLC, as Administrative Agent  
     
 

 

 

By

 

 

Name

 

 

Title

 

 

 

 

ACKNOWLEDGMENT OF GRANTOR

 

STATE OF                                                                             )  
                                                                                               )     ss.  
COUNTY OF                                                                        )  

 

On this        day of                          , 20       before me personally appeared                                         , proved to me on the basis of satisfactory evidence to be the person who executed the foregoing instrument on behalf of                                         , who being by me duly sworn did depose and say that he is an authorized officer of said corporation, that the said instrument was signed on behalf of said corporation as authorized by its Board of Directors and that he acknowledged said instrument to be the free act and deed of said corporation.

 

     
  Notary Public  

 

 

[SIGNATURE PAGE TO [COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT]

 

A3-4

 

SCHEDULE I
TO
[COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT

 

[Copyright] [Patent] [Trademark] Registrations

 

1.     REGISTERED [COPYRIGHTS] [PATENTS] [TRADEMARKS]

 

[Include Registration Number and Date]

 

2.     [COPYRIGHT] [PATENT] [TRADEMARK] APPLICATIONS

 

[Include Application Number and Date]

 

3.     [COPYRIGHT] [PATENT] [TRADEMARK] LICENSES

 

[Include complete legal description of agreement (name of agreement, parties and date)]

 

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Gust Kepler, certify that:

 

(1)

I have reviewed this quarterly report on Form 10-Q of Blackboxstocks Inc.;

 

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4)

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5)

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 16, 2020

 

/s/ Gust Kepler

 

 

Gust Kepler

 

 

Principal Executive Officer

 

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Gust Kepler, certify that:

 

(1)

I have reviewed this quarterly report on Form 10-Q of Blackboxstocks Inc.;

 

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4)

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5)

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 16, 2020

 

/s/ Gust Kepler

 

 

Gust Kepler

 

 

Principal Financial Officer

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of Blackboxstocks Inc. (the “Company”) on Form 10-Q for the period ended Setpember 30, 2020 (the “Report”), I, Gust Kepler, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/ Gust Kepler

Gust Kepler

Principal Executive Officer

November 16, 2020

 

This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company or purposes of §18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of Blackboxstocks Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020 (the “Report”), I, Gust Kepler, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/ Gust Kepler

Gust Kepler 

Principal Financial Officer

November 16, 2020

 

This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company or purposes of §18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.