On June 29, 2018, Edison Nation, Inc. (the “Company”) entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Edison Nation Holdings, LLC (“Edison Nation”) and all of the members of Edison Nation (the “Members”), pursuant to which the Company intended to acquire all of the voting membership interests of Edison Nation. On August 19, 2020, the Company issued 990,000 shares of common stock to the Members, including Louis Foreman a member of the Company’s Board of Directors, in exchange for the redemption of all non-voting preferred membership interests of Edison Nation. 

Brief Description of the Purchase Agreement and Related Agreements

The Purchase Agreement contained customary representations, warranties, covenants and indemnities by the parties to the agreement, and was subject to the fulfillment of certain customary closing conditions. Upon closing of the Purchase Agreement, the Company became the 100% owner of the voting membership interests of Edison Nation (subject to the limited approval rights held by the Members as holders of preferred membership interests of Edison Nation (the “Preferred Members”)) and its wholly-owned subsidiaries, Edison Nation, LLC, SafeTV Shop, LLC and Everyday Edisons, LLC (collectively, the “Acquired Subsidiaries”), including all of the rights and interests in Edison Nation’s inventor platform and marketplace, any related intellectual property and the other properties and assets of Edison Nation and the Acquired Subsidiaries.

Pursuant to the Purchase Agreement, the Company paid aggregate consideration consisting of: (i) $700,000 in cash to Edison Nation ($550,000 of which was used to purchase the membership interests of Access Innovation, LLC, which membership interests were then subsequently distributed to the Preferred Members), (ii) $250,000 in cash used to pay off indebtedness of Edison Nation owed to holders of certain senior convertible debt and the assumption of the remaining balance of the senior convertible debt through the issuance to the holders of 4%, 5-year senior convertible notes (the “New Convertible Notes”), in the aggregate principal amount of the sum of $1,406,352 plus accrued but unpaid interest arising on the senior convertible debt through the closing date, which as of the date of the Purchase Agreement was convertible into approximately 281,270 shares of the Company’s common stock, par value $0.001 (the “Common Stock”), at the option of the holder of such New Convertible Notes (subject to certain adjustments as provided in the Purchase Agreement and the terms of the New Convertible Notes), (iii) the reservation of the Put Shares to be issued in exchange for the redemption of certain non-voting membership interests of Edison Nation that will be created specifically in connection with the transaction contemplated by the Purchase Agreement, and (iv) the issuance of approximately 550,346 shares of the Company’s Common Stock in satisfaction of the indebtedness represented by promissory notes payable by Edison Nation to Venture Six, LLC and Wesley Jones with a total principal balance of $4,127,601.94 as of the date of the Purchase Agreement. In addition, the Company agreed to use its best efforts to cause Louis Foreman, a Member, manager, and principal of Edison Nation, to be nominated for election to the Company’s board of directors at the Company’s next annual meeting.

Upon closing of the Purchase Agreement, the Fifth Amended and Restated Operating Agreement (the “LLC Agreement”) of Edison Nation was entered into by and among the Company, Edison Nation and the Preferred Members. Pursuant to the LLC Agreement and the corresponding terms of the Purchase Agreement, the Company owns all of the voting membership interests in Edison Nation, while the Preferred Members will retain non-voting, preferred membership interests in Edison Nation, which will entitle them to (i) certain limited approval rights, and (ii) a right to cause the Company to redeem all of the preferred membership interests from the Preferred Members in exchange for the aggregate issuance of 990,000 shares (the “Put Shares”) of the Company’s Common Stock, subject to certain rights of the Company to reduce the number of Put Shares to satisfy certain of the indemnification obligations of the Preferred Members pursuant to the Purchase Agreement.

Also upon closing of the Purchase Agreement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with certain Members, that provided those Members with demand and piggyback registration rights in respect of any registrable shares of the Company’s Common Stock received pursuant to the terms of the Purchase Agreement.

The Members that received the New Convertible Notes and shares of the Company’s Common Stock pursuant to the terms of the Purchase Agreement are accredited investors within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and the issuance of the shares will be made without registration in reliance on Rule 506(b) of Regulation D under the Securities Act, as well as corresponding provisions of state securities laws.

The foregoing descriptions of the New Convertible Notes, the Purchase Agreement, and the Registration Rights Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the form of New Convertible Note, the Purchase Agreement, the form of the LLC Agreement and the form of Registration Rights Agreement, which were filed, respectively, as Exhibit 2.1, 10.1, 10.2 and 10.3 to the Company’s Current Report on Form 8-K dated July 6, 2018.