UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): January 20, 2021

 

CLUBHOUSE MEDIA GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   333-140645   99-0364697

(State or other jurisdiction of

incorporation or organization)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

3651 Lindell Road, D517

Las Vegas, Nevada 89103

(Address of principal executive offices) (Zip code)

 

(702) 479-3016

(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
   
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
   
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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. [  ]

 

 

 

 

 

 

Item 1.01 Entry Into A Material Definitive Agreement.

 

Share Exchange Agreement

 

On February 3, 2021, Clubhouse Media Group, Inc. (the “Company”) entered into an Amended and Restated Share Exchange Agreement (the “A&R Share Exchange Agreement”) by and between the Company, Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”), each of the shareholders of Magiclytics (collectively, “Magiclytics Shareholders”) and Christian Young, as the representative of the Magiclytics Shareholders (the “Shareholders’ Representative”). Mr. Young is the President, Secretary, and a Director of the Company, as well as a greater than 5% stockholder of the Company. Mr. Young is also an officer, director, and significant shareholder of Magiclytics.

 

The A&R Share Exchange Agreement amended and restated in its entirety the previous Share Exchange Agreement between the same parties, which was executed on December 3, 2020, and was filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on December 9, 2020. The A&R Share Exchange Agreement replaces the Share Exchange Agreement in its entirety.

 

The Exchange

 

Pursuant to the terms of the A&R Share Exchange Agreement, the Company agreed to acquire from the Magiclytics Shareholders, who hold an aggregate of 5,000 shares of Magiclytics’ common stock, par value $0.01 per share (the “Magiclytics Shares”), all 5,000 Magiclytics Shares, representing 100% of Magiclytics’ issued and outstanding capital stock, in exchange for the issuance by the Company to the Magiclytics Shareholders of 734,689 shares of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”), based on a $3,500,000 valuation of Magiclytics, to be apportioned between the Magiclytics Shareholders pro rata based on their respective ownership of Magiclytics Shares (the “Exchange”).

 

On February 3, 2021 (the “Closing Date”), the parties closed on the transactions contemplated in the A&R Share Exchange Agreement, and the Company issued an aggregate of 734,689 shares of Company Common Stock to the Magiclytics Shareholders in exchange for all 5,000 Magiclytics Shares (the “Closing”). On February 3, 2021, pursuant to the Closing, the Company acquired Magiclytics, and Magiclytics thereafter became the Company’s wholly owned subsidiary.

 

At the Closing, Mr. Young and Wilfred Man each received 330,610 shares of Company Common Stock, representing 45% each, or 90% in total, of the Company Common Stock issued to the Magiclytics Shareholders at the Closing.

 

The number of shares of the Company Common Stock issued at the Closing was based on the fair market value of the Company Common Stock as initially agreed to by the parties to the A&R Share Exchange Agreement, which was $4.76 per share (the “Base Value”). The fair market value was determined based on the volume weighted average closing price of the Company Common Stock for the twenty (20) trading day period immediately prior to the Closing. The Company is currently in the process of preparing for an offering (the “Regulation A Offering”) of the Company Common Stock to be undertaken pursuant to Regulation A under the Securities Act of 1933, as amended (the “Securities Act”). In the event that the initial public offering price of the Company Common Stock in the Regulation A Offering (the “Regulation A Offering Price”) is less than the Base Value, then within three (3) business days of the qualification of the Company’s Offering Statement to be filed with the SEC in connection with the Regulation A Offering, the Company will issue to the Magiclytics Shareholders a number of additional shares of Company Common Stock equal, in the aggregate, to:

 

(1) $3,500,000 divided by the Regulation A Offering Price, minus;
(2) 734,689.

 

 

 

 

The resulting number of shares of the Company Common Stock pursuant to the above calculation will be referred to as the “Additional Shares”, and such Additional Shares will also be issued to the Magiclytics Shareholders pro rata based on their respective ownership of Magiclytics Shares.

 

Additional Actions at Closing

 

In addition to the Exchange, on the Closing Date, the parties took a number of other actions in connection with the Closing pursuant to the terms of the A&R Share Exchange Agreement, including:

 

  (i) The Board of Directors of Magiclytics (the “Magiclytics Board”) expanded the size of the Magiclytics Board to 3 persons and named Simon Yu, a current officer and director of the Company, as a director of the Magiclytics Board; and
     
  (ii) The Magiclytics Board named Wilfred Man as the Chief Executive Officer of Magiclytics, Christian Young as the President and Secretary of Magiclytics and Simon Yu as the Chief Operating Officer of Magiclytics.

 

Further, immediately following the Closing, the Company assumed responsibility for all outstanding accounts payables and operating costs to continue operations of Magiclytics, including but not limited to, payment to any of its vendors, lenders, or other parties in which Magiclytics engages with in the regular course of its business.

 

The description of the A&R Share Exchange Agreement herein is qualified in its entirety by the terms of the A&R Share Exchange Agreement filed as Exhibit 2.1 to this Current Report on Form 8-K, which is incorporated by reference herein.

 

Convertible Promissory Note – Amir Ben-Yohanan

 

As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on November 12, 2020, on January 2, 2020, the Company issued a promissory note (the “Prior Note”) to Amir Ben-Yohanan, the Company’s Chief Executive Officer, principal financial officer, principal accounting officer, member of the Company’s Board of Directors and the Company’s majority stockholder. Pursuant to the terms of the Prior Note, the Company was entitled to borrow up to $5,000,000. As of February 2, 2021, the balance of the Prior Note was $2,400,000. On February 2, 2021, the Company and Mr. Ben-Yohanan entered into a new promissory note in the total principal amount of $2,400,000 (the “New Note”). The New Note replaces the Prior Note in its entirety. Accordingly, effective as of February 2, 2021, the Prior Note was terminated and is of no further force or effect.

 

The New Note bears simple interest at a rate of eight percent (8%) per annum, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest of the New Note at any time without penalty.

 

At the time the SEC qualifies the Company’s offering statement related to the Regulation A Offering, $1,000,000 of the principal amount and accrued interest under the New Note will automatically convert into a number of shares of Company Common Stock equal to (i) $1,000,000 divided by (ii) the Regulation A Offering Price. These shares will be restricted shares of Company Common Stock, and not the shares of Company Common Stock offered in the Company’s Regulation A Offering. In the event that at such time the Company has repaid an amount of the principal amount and accrued interest under the New Note such that the remaining indebtedness pursuant to the New Note is less than $1,000,000, then such amount of remaining indebtedness will be substituted for the $1,000,000 figure above.

 

Any portion of the principal amount and interest under the New Note which is not converted to Company Common Stock as set forth above will be payable by the Company commencing on February 2, 2022 as required to amortize the New Note and the outstanding indebtedness over the following 24 months. The final maturity date of the New Note is February 2, 2024.

 

 

 

 

The foregoing description of the New Note does not purport to be complete and is qualified in its entirety by reference to the full text of the New Note, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Convertible Promissory Note – Tiger Trout Capital Puerto Rico

 

On January 29, 2021, the Company entered into a securities purchase agreement (the “Tiger Trout SPA”) with Tiger Trout Capital Puerto Rico, LLC, a Puerto Rico limited liability company (“Tiger Trout”), pursuant to which, on same date, the Company (i) issued a convertible promissory note in the aggregate principal amount of $1,540,000 for a purchase price of $1,100,000, reflecting a $440,000 original issue discount (the “Tiger Trout Note”), and (ii) sold to Tiger Trout 220,000 shares Company Common Stock for a purchase price of $220.00.

 

The Tiger Trout Note has a maturity date of January 29, 2022, and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the Tiger Trout Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty, provided however, that if the Company has not paid the principal amount and any accrued and unpaid interest by July 2, 2021, an additional $50,000 is required to be paid to Tiger Trout at the time the Tiger Trout Note is repaid, if the Company repays the Tiger Trout Note prior to its maturity date.

 

If the principal amount and any accrued and unpaid interest under the Tiger Trout Note has not been repaid on or before the maturity date, that will be an event of default under the Tiger Trout Note. If an event of default has occurred and is continuing, Tiger Trout may declare all or any portion of the then-outstanding principal amount and any accrued and unpaid interest under the Tiger Trout Note (the “Indebtedness”) due and payable, and the Indebtedness will become immediately due and payable in cash by the Company. Further, Tiger Trout will have the right, until the Indebtedness is paid in full, to convert all, but only all, of the then-outstanding Indebtedness into shares of Company Common Stock at a conversion price of $0.50 per share, subject to customary adjustments for stock splits, etc. occurring after the issuance date of the Tiger Trout Note. The Tiger Trout Note contains a customary beneficial ownership limitation of 9.99%, which may be waived by Tiger Trout on 61 days’ notice to the Company.

 

The foregoing description of the Tiger Trout SPA and Tiger Trout Note does not purport to be complete and is qualified in its entirety by reference to the full texts of the Tiger Trout SPA and Tiger Trout Note, copies of which are filed as Exhibit 10.2 and Exhibit 10.3, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

 

Convertible Promissory Note – GS Capital Partners

 

On January 25, 2021, the Company entered into a securities purchase agreement (the “GS Capital SPA”) with GS Capital Partners, LLC (“GS Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note to GS Capital the aggregate principal amount of $288,889 for a purchase price of $260,000, reflecting a $28,889 original issue discount (the “GS Capital Note”), and in connection therewith, sold to GS Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed GS Capital the sum of $10,000 for GS Capital’s costs in completing the transaction, which amount GS Capital withheld from the total purchase price paid to the Company.

 

 

 

 

The GS Capital Note has a maturity date of January 25, 2022, and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the GS Capital Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.

 

The GS Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at GS Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by GS Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.

 

The GS Capital Note contains customary events of default, including, but not limited to:

 

if the Company fails to pay the then-outstanding principal amount and accrued interest on the GS Capital Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital;
the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC;

any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or

  the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets.

 

If an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount of the GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the GS Capital Note shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital may have under applicable law. In the event that any amount due under the GS Capital Note is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.

 

The foregoing description of the GS Capital SPA and GS Capital Note does not purport to be complete and is qualified in its entirety by reference to the full texts of the GS Capital SPA and GS Capital Note, copies of which are filed as Exhibit 10.4 and Exhibit 10.5, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

 

Convertible Promissory Note – ProActive Capital SPV I, LLC

 

On January 20, 2021, the Company entered into a securities purchase agreement (the “ProActive Capital SPA”) with ProActive Capital SPV I, LLC, a Delaware limited liability company (“ProActive Capital”), pursuant to which, on same date, the Company (i) issued a convertible promissory note to ProActive Capital the aggregate principal amount of $250,000 for a purchase price of $225,000, reflecting a $25,000 original issue discount (the “ProActive Capital Note”), and in connection therewith, sold to ProActive Capital 50,000 shares of Company Common Stock at a purchase price of $0.001 per share. In addition, at the closing of this sale, the Company reimbursed ProActive Capital the sum of $10,000 for ProActive Capital’s costs in completing the transaction, which amount ProActive Capital withheld from the total purchase price paid to the Company.

 

The ProActive Capital Note has a maturity date of January 20, 2022, and bears interest at 10% per year. No payments of the principal amount or interest are due prior to the maturity date other than as specifically set forth in the ProActive Capital Note, and the Company may prepay all or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.

 

The ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at ProActive Capital’s election at any time following the time that the SEC qualifies the Company’s offering statement related to the Regulation A Offering, at a conversion price equal to 70% of the Regulation A Offering Price of the Company Common Stock in the Regulation A Offering, and is subject to a customary beneficial ownership limitation of 9.99%, which may be waived by ProActive Capital on 61 days’ notice to the Company. The conversion price is subject to customary adjustments for any stock splits, etc. which occur following the determination of the conversion price.

 

 

 

 

The ProActive Capital Note contains customary events of default, including, but not limited to:

 

if the Company fails to pay the then-outstanding principal amount and accrued interest on the ProActive Capital Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by ProActive Capital;
the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC;

any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or

  the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets.

 

If an event of default has occurred and is continuing, ProActive Capital may declare all or any portion of the then-outstanding principal amount of the ProActive Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the ProActive Capital Note shall thereupon become, immediately due and payable in cash and ProActive Capital will also have the right to pursue any other remedies that ProActive Capital may have under applicable law. In the event that any amount due under the ProActive Capital Note is not paid as and when due, such amounts shall accrue interest at the rate of 18% per year, simple interest, non-compounding, until paid.

 

The foregoing description of the ProActive Capital SPA and ProActive Capital Note does not purport to be complete and is qualified in its entirety by reference to the full texts of the ProActive Capital SPA and ProActive Capital Note, copies of which are filed as Exhibit 10.6 and Exhibit 10.7, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

 

Item 1.02 Termination of a Material Definitive Agreement.

 

As disclosed in Item 1.01 of this Current Report on Form 8-K, the Prior Note was terminated effective February 2, 2021. The disclosure in Item 1.01 hereof concerning the termination and replacement of the Prior Note is incorporated by reference into this Item 1.02.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

As disclosed in Item 1.01 of this Current Report on Form 8-K, the Company issued the New Note, the Tiger Trout Note, the GS Capital Note, and the ProActive Capital Note. The disclosure in Item 1.01 hereof concerning each of these notes is incorporated by reference into this Item 2.03.

 

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

 

Consulting Agreement

 

On February 3, 2021 (the “Effective Date”), in connection with (but not pursuant to) the Closing, the Company entered in a consulting agreement with Chris Young, the President, Secretary, and a Director of the Company, as well as a greater than 5% stockholder (the “Consulting Agreement”).

 

Pursuant to the Consulting Agreement, Mr. Young agreed to provide the Company with certain services, including, but not limited to:

 

Obtaining and structuring “Campaigns” (specific marketing efforts for brands) for the benefit of the Company and its subsidiaries, including Magiclytics, by utilizing certain data technology capabilities of Magiclytics to help improve the success of such Campaigns;
Overseeing software development and continued software innovation;
Leading sales efforts for Magiclytics by managing a sales team that procures customers and provide customer support; and
Being responsible for day-to-day operations of Magiclytics, subject to the direction of the Magiclytics Board.

 

Mr. Young is engaged as an independent contractor pursuant to the Consulting Agreement. Pursuant to the Consulting Agreement, the Company agreed to customary provisions relating to ownership of intellectual property created by Mr. Young on behalf of the Company in his capacity as a consultant. The Consulting Agreement also contains customary confidentiality provisions, as well as non-solicitation provisions, whereby Mr. Young agrees not to solicit any of the Company’s employees during the term of the Consulting Agreement and for two years thereafter.

 

Compensation

 

As compensation for Mr. Young’s services pursuant to the Consulting Agreement, the Company agreed to issue to Mr. Young shares of Company Common Stock upon the completion of certain milestones, as follows:

 

(i) Upon the first to occur of (i) Magiclytics actually receiving $500,000 in gross revenue following the Effective Date; and (ii) Magiclytics having conducted 1,250 Campaigns (subject to certain conditions) following the Effective Date, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) $393,750, divided by (ii) the VWAP (as defined below) as of the date that the earlier of this clause (i) and clause (ii) below have occurred (the “Tranche 1 Satisfaction Date”).

 

 

 

 

(ii) Upon the first to occur of (i) Magiclytics actually receiving an additional $500,000 in gross revenue following the Tranche 1 Satisfaction Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 1 Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) $393,750, divided by (ii) the VWAP as of the date that the earlier of clause (i) above and this clause (ii) of have occurred (the “Tranche 2 Satisfaction Date”).

 

(iii) Upon the first to occur of (i) Magiclytics actually receiving an additional $500,000 in gross revenue following the Tranche 2 Satisfaction Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 2 Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) $393,750, divided by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) above have occurred (the “Tranche 3 Satisfaction Date”).

 

(iv) Upon the first to occur of (i) Magiclytics actually receiving an additional $500,000 in gross revenue following the Tranche 3 Satisfaction Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns (subject to certain conditions) following the Tranche 3 Satisfaction Date, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) $393,750, divided by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) above have occurred (the “Tranche 4 Satisfaction Date”).

 

For purposes of the Consulting Agreement, the term “VWAP” will mean for any date, the price determined by the first of the following clauses that applies:

 

(i) If the Company Common Stock is then listed for trading on the OTC Markets or a United States or Canadian national securities exchange (as applicable, the “Trading Market”), then the volume-weighted average (rounded to the nearest $0.0001) of the closing price of Company Common Stock on such Trading Market during the 20 trading day period immediately prior to the applicable measurement date, as reported by such Trading Market or other reputable source;

 

(ii) if the Company Common Stock is not then listed or quoted for trading on a Trading Market, and if prices for the Company Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Company Common Stock so reported; and
     
(iii) if the VWAP cannot be calculated the Company Common Stock pursuant to (i) or (ii) above, the VWAP of such security on such date shall be the fair market value of such security as mutually determined in good faith by the Company’s Board of Directors and Mr. Young.

 

Following the Tranche 4 Satisfaction Date, at the end of each 12 month period following such date while the Consulting Agreement is still in effect, the Company will issue to Mr. Young a number of shares of Company Common Stock equal to (i) 4.5% of the Net Income (as defined below) of Magiclytics during such 12 month period divided by (ii) the VWAP as of the last date of such 12 month period. (For purposes of the Consulting Agreement, “Net Income” means the net income of Magiclytics for the applicable period, as determined in accordance with generally accepted accounting principles in the United States, consistently applied, as determined by the Company’s accountants).

 

The description of the Consulting Agreement herein is qualified in its entirety by the terms of the Consulting Agreement filed as Exhibit 10.8 to this Current Report on Form 8-K, which is incorporated by reference herein.

 

 

 

 

Term and Termination

 

The term of the Consulting Agreement commences on the Effective Date and continues for a period of five (5) years thereafter, unless sooner terminated by either the Company or Mr. Young. The Company may terminate the Consulting Agreement at any time, with or without “cause”, as defined in the Consulting Agreement, and Mr. Young may terminate the Consulting Agreement at any time, with or without “good reason”, as defined in the Consulting Agreement. If the Company terminates the Consulting Agreement for cause or Mr. Young terminates the Consulting Agreement without good reason, Mr. Young will be entitled to receive any shares of Company Common Stock owed or accrued as of that time under the Consulting Agreement, and to be paid any unreimbursed expenses owed to Mr. Young as of that date. However, if the Company terminates the Consulting Agreement without cause, or Mr. Young terminates the Consulting Agreement with good reason, then the Company must, in addition to issuing accrued shares and paying unreimbursed expenses, continue to issue to Mr. Young any shares of Company Common Stock required pursuant to the terms of the Consulting Agreement until the end of the initial term of the Consulting Agreement (i.e. five (5) years after the Effective Date).

 

Item 7.01. Regulation FD Disclosure.

 

On February 8, 2021, the Company issued a press release announcing the Closing of the Exchange. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information included in this Item 7.01, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. The information set forth under this Item 7.01 shall not be deemed an admission as to the materiality of any information in this Current Report on Form 8-K that is required to be disclosed solely to satisfy the requirements of Regulation FD.

 

Item 9.01 Financial Statement and Exhibits.

 

(d) Exhibits

 

The following exhibits are filed or furnished with this Current Report on Form 8-K:

 

Exhibit No.   Description
     
2.1   Amended and Restated Share Exchange Agreement dated February 3, 2021.
10.1   Promissory Note issued by the Company to Amir Ben-Yohanan dated February 2, 2021.
10.2   Securities Purchase Agreement between the Company and Tiger Trout Capital Puerto Rico, LLC dated January 29, 2021.
10.3   Convertible Promissory Note issued by the Company to Tiger Trout Capital Puerto Rico, LLC dated January 29, 2021.
10.4   Securities Purchase Agreement between the Company and GS Capital Partners, LLC dated January 25, 2021.
10.5   Convertible Promissory Note issued by the Company to GS Capital Partners, LLC dated January 25, 2021.
10.6  

Securities Purchase Agreement between the Company and ProActive Capital SPV I, LLC dated January 20, 2021.

10.7  

Convertible Promissory Note issued by the Company to ProActive Capital SPV I, LLC dated January 20, 2021.

10.8   Consulting Agreement between the Company and Chris Young dated February 3, 2021.
99.1   Press release of the registrant dated February 8, 2021.

 

 

 

 

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.

 

Date: February 8, 2021 CLUBHOUSE MEDIA GROUP, INC.
     
  By: /s/ Amir Ben-Yohanan
    Amir Ben-Yohanan
    Chief Executive Officer

 

 

 

 

 

Exhibit 2.1

 

 

 

AMENDED AND RESTATED SHARE EXCHANGE AGREEMENT

 

by and among

 

Clubhouse Media Group, Inc.;

 

Digital Influence Inc.;

 

The Shareholders of Digital Influence Inc.;

 

And

 

Christian Young as the Shareholders’ Representative.

 

 

 

 
 

 

TABLE OF CONTENTS

 

    PAGE
     
Article I. DEFINITIONS 1
Section 1.01 Definitions. 1
Section 1.02 Interpretive Provisions. 5
     
Article II. SHARE EXCHANGE 6
Section 2.01 The Exchange. 6
Section 2.02 Closing. 6
Section 2.03 Payment. 6
Section 2.04 Additional Actions at the Closing. 7
Section 2.05 Magiclytics Deliverables at the Closing. 7
Section 2.06 Company Deliverables at the Closing. 8
Section 2.07 Tax Consequences. 8
Section 2.08 Additional Documents; Financial Statements. 8
     
Article III. REPRESENTATIONS AND WARRANTIES OF THE MAGICLYTICS PARTIES 9
Section 3.01 Corporate Existence and Power. 9
Section 3.02 Due Authorization. 9
Section 3.03 Valid Obligation 9
Section 3.04 Governmental Authorization. 9
Section 3.05 Authorized Shares and Capital. 9
Section 3.06 Validity of Shares. 10
Section 3.07 Title to and Issuance of the Magiclytics Shares. 10
Section 3.08 No Subsidiaries 10
Section 3.09 Compliance With Laws and Regulations 10
Section 3.10 No Conflict With Other Instruments 10
Section 3.11 Taxes. 10
Section 3.12 Investment Representations 11
     
Article IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 13
Section 4.01 Corporate Existence and Power 13
Section 4.02 Due Authorization. 13
Section 4.03 Valid Obligation 13
Section 4.04 Governmental Authorization. 13
Section 4.05 Authorized Shares 13
Section 4.06 Information 13
Section 4.07 Litigation and Proceedings 14
Section 4.08 No Conflict With Other Instruments 14
Section 4.09 Compliance With Laws and Regulations 14
Section 4.10 Approval of Agreement 14
     
Article V. ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES 14
Section 5.01 Delivery of Books and Records 14
Section 5.02 Conveyance Taxes. 14
Section 5.03 Assistance. 14
Section 5.04 Additional Payments. 14

 

i
 

 

Article VI. REGISTRATION RIGHTS 17
Section 6.01 General. 17
Section 6.02 Limitations. 17
Section 6.03 Withdrawal. 18
Section 6.04 Notification; Blackout Period. 18
Section 6.05 Information. 19
Section 6.06 Fees and Expenses. 19
Section 6.07 Indemnification. 20
     
Article VII. INDEMNIFICATION 21
Section 7.01 Indemnification of Company. 21
Section 7.02 Indemnification of the Magiclytics Parties. 21
Section 7.03 Procedure. 22
Section 7.04 Periodic Payments. 23
Section 7.05 Insurance. 23
Section 7.06 Time Limit. 24
Section 7.07 Certain Limitations. 24
Section 7.08 Effect of Investigation. 24
Section 7.09 Exclusive Remedy. 24
     
Article VIII. MISCELLANEOUS 25
Section 8.01 Arbitration. 25
Section 8.02 Governing Law 26
Section 8.03 Waiver of Jury Trial. 26
Section 8.04 Limitation on Damages. 26
Section 8.05 Brokers 27
Section 8.06 Notices 27
Section 8.07 Attorneys’ Fees 27
Section 8.08 Confidentiality 28
Section 8.09 Public Announcements and Filings 28
Section 8.10 Third Party Beneficiaries 28
Section 8.11 Expenses 28
Section 8.12 Entire Agreement 28
Section 8.13 Survival 28
Section 8.14 Amendment; Waiver 28
Section 8.15 Magiclytics Shareholders’ Representative. 29
Section 8.16 Arm’s Length Bargaining; No Presumption Against Drafter. 30
Section 8.17 Headings. 30
Section 8.18 No Assignment or Delegation. 30
Section 8.19 Commercially Reasonable Efforts 30
Section 8.20 Further Assurances. 30
Section 8.21 Specific Performance. 31
Section 8.22 Counsel. 31
Section 8.23 Counterparts 31

 

Exhibit A Magiclytics Shareholders’ Magiclytics Shares; Ownership Percentage  

 

ii
 

 

AMENDED AND RESTATED SHARE EXCHANGE AGREEMENT

 

Dated as of February 3, 2021

 

This Amended and Restated Share Exchange Agreement (this “Agreement”) is entered into as of the date first set forth above (the “Closing Date”) by and between (i) Clubhouse Media Group, Inc., a Nevada corporation formerly named Tongji Healthcare Group, Inc. (the “Company”); (ii) Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”), (iii) each of the shareholders of Magiclytics as set forth on the signature pages hereto (the “Magiclytics Shareholders”) and (iv) Christian Young as the representative of the Magiclytics Shareholders (the “Shareholders’ Representative”). Each of Magiclytics and the Magiclytics Shareholders may be referred to collectively herein as the “Magiclytics Parties” and separately as an “Magiclytics Party.” Each of the Company, each Magiclytics Party and the Shareholders’ Representative may be referred to herein collectively as the “Parties” and separately as a “Party.”

 

WHEREAS, the Parties are all of the Parties to that certain Share Exchange Agreement, dated as of December 3, 2020 (the “Original Agreement”), and now desire to amend and restate the Original Agreement in its entirety;

 

WHEREAS, pursuant to the provisions of Section 10.14(a) of the Original Agreement, the Parties may amend the Original Agreement in writing;

 

WHEREAS, the Company agrees to acquire from the Magiclytics Shareholders all of the shares of common stock of Magiclytics held by the Magiclytics Shareholders in exchange for the issuance by the Company to Magiclytics Shareholders of shares of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”); and

 

WHEREAS, for Federal income tax purposes, it is intended that the Exchange (as defined below) qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”);

 

NOW THEREFORE, on the stated premises and for and in consideration of the mutual covenants and agreements hereinafter set forth and the mutual benefits to the Parties to be derived herefrom, and intending to be legally bound hereby, it is hereby agreed as follows:

 

The Original Agreement is hereby amended and restated in its entirety to provide as set forth in this Agreement.

 

Article I. DEFINITIONS

 

Section 1.01 Definitions. The following terms, as used herein, have the following meanings

 

  (a) “Accredited Investor” has the meaning set forth in Section 3.12(b).
     
  (b) “Action” means any legal action, suit, claim, investigation, hearing or proceeding, including any audit, claim or assessment for Taxes or otherwise.
     
  (c) “Additional Shares” has the meaning set forth in Section 2.03(b).

 

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  (d) “Affiliate” means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person.
     
  (e) “Agreement” has the meaning set forth in the introductory paragraph hereto.
     
  (f) “Arbitrator” has the meaning set forth in Section 8.01(a).
     
  (g) “Articles” means the Articles of Incorporation of the Company as in effect from time to time.
     
  (h) “Authority” means any governmental, regulatory or administrative body, agency or authority, any court or judicial authority, any arbitrator, or any public, private or industry regulatory authority, whether international, national, Federal, state, or local.
     
  (i) “Base Value” has the meaning set forth in Section 2.03(b).
     
  (j) “Blackout Period” has the meaning set forth in Section 6.04(c).
     
  (k) “Business Day” means any day that is not a Saturday, Sunday or other day on which banking institutions in Nevada are authorized or required by law or executive order to close.
     
  (l) “Cap” has the meaning set forth in Section 7.07(a).
     
  (m) “Change of Control” has the meaning set forth in Section 5.04(b).
     
  (n) “Closing Date” has the meaning set forth in the introductory paragraph hereto.
     
  (o) “Closing” has the meaning set forth in Section 2.02.
     
  (p) “Code” has the meanings set forth in the recitals.
     
  (q) “Company Common Stock” has the meaning set forth in the recitals hereto.
     
  (r) “Company Indemnified Party” has the meaning set forth in Section 7.01.
     
  (s) “Company Organizational Documents” has the meaning set forth in Section 4.01.
     
  (t) “Company Shares” has the meaning set forth in the introductory paragraph to Article III.
     
  (u) “Company” has the meaning set forth in the introductory paragraph hereto.
     
  (v) “Control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.” Controlled”, “Controlling” and “under common Control with” have correlative meanings. Without limiting the foregoing a Person (the “Controlled Person”) shall be deemed Controlled by (a) any other Person (the “10% Owner”) (i) owning beneficially, as meant in Rule 13d-3 under the Exchange Act, securities entitling such Person to cast 10% or more of the votes for election of directors or equivalent governing authority of the Controlled Person or (ii) entitled to be allocated or receive 10% or more of the profits, losses, or distributions of the Controlled Person; (b) an officer, director, general partner, partner (other than a limited partner), manager, or member (other than a member having no management authority that is not a 10% Owner ) of the Controlled Person; or (c) a spouse, parent, lineal descendant, sibling, aunt, uncle, niece, nephew, mother-in-law, father-in-law, sister-in-law, or brother-in-law of an Affiliate of the Controlled Person or a trust for the benefit of an Affiliate of the Controlled Person or of which an Affiliate of the Controlled Person is a trustee.

 

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  (w) “Counsel” has the meaning set forth in Section 8.22.
     
  (x) “Direct Claim” has the meaning set forth in Section 7.03(c).
     
  (y) “Equity Security” means, in respect of any Person, (a) any capital stock or similar security, (b) any security convertible into or exchangeable for any security described in clause (a), (c) any option, warrant, or other right to purchase or otherwise acquire any security described in clauses (a), (b), or (c), and, (d) any “equity security” within the meaning of the Exchange Act.
     
  (z) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
     
  (aa) “Exchange Shares” has the meaning set forth in Section 2.03(a).
     
  (bb) “Exchange” has the meaning set forth in Section 2.01(b).
     
  (cc) “Form 8-K” has the meaning set forth in Section 8.09.
     
  (dd) “Gain Amount” has the meaning set forth in Section 5.04(c).
     
  (ee) “Indemnified Party” has the meaning set forth Section 7.03.
     
  (ff) “Indemnifying Party” has the meaning set forth Section 7.03.
     
  (gg) “Law” means any domestic or foreign, federal, state, municipality or local law, statute, ordinance, code, rule, or regulation.
     
  (hh) “Lien” means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, and any conditional sale or voting agreement or proxy, including any agreement to give any of the foregoing.
     
  (ii) “Losses” and “Loss” has the meaning set forth in Section 7.01.
     
  (jj) “Magiclytics Board” have the meaning set forth in Section 2.05(c)(i).
     
  (kk) “Magiclytics Indemnified Party” has the meaning set forth in Section 7.02.
     
  (ll)  “Magiclytics Organizational Documents” has the meaning set forth in Section 3.01.
     
  (mm) “Magiclytics Party” and “Magiclytics Parties” have the meanings set forth in the introductory paragraph hereto.
     
  (nn) “Magiclytics Shareholder Indemnified Party” has the meaning set forth in Section 6.07(a).

 

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  (oo) “Magiclytics Shareholders” has the meaning set forth in the introductory paragraph hereto.
     
  (pp) “Magiclytics Shares” has the meaning set forth in Section 2.01(a).
     
  (qq) “Magiclytics” has the meaning set forth in the introductory paragraph hereto.
     
  (rr) “Material Adverse Effect” or “Material Adverse Change” means a material and adverse change or a material and adverse effect, individually or in the aggregate, on the condition (financial or otherwise), net worth, management, earnings, cash flows, business, operations or properties of a Party taken as a whole, whether or not arising from transactions in the ordinary course of business.
     
  (ss) “Order” means any decree, order, judgment, writ, award, injunction, rule, injunction, stay, decree, judgment or restraining order or consent of or by an Authority.
     
  (tt) “Party” and “Parties” have the meanings set forth in the introductory paragraph hereto.
     
  (uu) “Person” means an individual, corporation, partnership (including a general partnership, limited partnership or limited liability partnership), limited liability company, association, trust or other entity or organization, including a government, domestic or foreign, or political subdivision thereof, or an agency or instrumentality thereof.
     
  (vv)  “Piggyback Registration” has the meaning set forth in Section 6.01.
     
  (ww) “Registration Indemnified Party” has the meaning set forth in Section 6.07(b).
     
  (xx) “Registration Indemnifying Party” has the meaning set forth in Section 6.07(c).
     
  (yy) “Registration Statement” has the meaning set forth in Section 6.01.
     
  (zz) “Regulation A Offering Price” has the meaning set forth in Section 2.03(b).
     
  (aaa) “Regulation A Offering” has the meaning set forth in Section 2.03(b).
     
  (bbb) “Regulation S” has the meaning set forth in Section 3.12(f).
     
  (ccc) “Rule 144” has the meaning set forth in Section 3.12(f).
     
  (ddd) “Sale Shares” has the meaning set forth in Section 5.04(c).
     
  (eee) “SEC” means the United States Securities and Exchange Commission.
     
  (fff) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
     
  (ggg) “Shareholders’ Representative” has the meaning set forth in the introductory paragraph hereto.
     
  (hhh) “Tax(es)” means any federal, state, local or foreign tax, charge, fee, levy, custom, duty, deficiency, or other assessment of any kind or nature imposed by any Taxing Authority (including any income (net or gross), gross receipts, profits, windfall profit, sales, use, goods and services, ad valorem, franchise, license, withholding, employment, social security, workers compensation, unemployment compensation, employment, payroll, transfer, excise, import, real property, personal property, intangible property, occupancy, recording, minimum, alternative minimum, environmental or estimated tax), including any liability therefor as a transferee (including under Section 6901 of the Code or similar provision of applicable Law) or successor, as a result of Treasury Regulation Section 1.1502-6 or similar provision of applicable Law or as a result of any Tax sharing, indemnification or similar agreement, together with any interest, penalty, additions to tax or additional amount imposed with respect thereto.

 

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  (iii) “Taxing Authority” means the Internal Revenue Service and any other Authority responsible for the collection, assessment or imposition of any Tax or the administration of any Law relating to any Tax.
     
  (jjj) “Third-Party Claim” has the meaning set forth in Section 7.03(a).
     
  (kkk) “Trading Market” has the meaning set forth in Section 5.04(d)(i).
     
  (lll) “Transaction Documents” means this Agreement and any other document entered into in connection with the transactions contemplated herein.
     
  (mmm) “Transactions” means the transactions contemplated by the Transaction Documents.

 

Section 1.02 Interpretive Provisions. Unless the express context otherwise requires:

 

  (a) the words “hereof,” “herein,” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;
     
  (b) terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
     
  (c) the terms “Dollars” and “$” mean United States Dollars;
     
  (d) references herein to a specific Section, Subsection, Recital or Exhibit shall refer, respectively, to Sections, Subsections, Recitals or Exhibits of this Agreement;
     
  (e) wherever the word “include,” “includes,” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation”;
     
  (f) references herein to any gender shall include each other gender;
     
  (g) references herein to any Person shall include such Person’s heirs, executors, personal representatives, administrators, successors and assigns; provided, however, that nothing contained in this Section 1.03(g) is intended to authorize any assignment or transfer not otherwise permitted by this Agreement;
     
  (h) references herein to a Person in a particular capacity or capacities shall exclude such Person in any other capacity;

 

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  (i) references herein to any contract or agreement (including this Agreement) mean such contract or agreement as amended, supplemented or modified from time to time in accordance with the terms thereof;
     
  (j) with respect to the determination of any period of time, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”;
     
  (k) references herein to any Law or any license mean such Law or license as amended, modified, codified, reenacted, supplemented or superseded in whole or in part, and in effect from time to time; and
     
  (l) references herein to any Law shall be deemed also to refer to all rules and regulations promulgated thereunder.

 

Article II. SHARE EXCHANGE

 

Section 2.01 The Exchange.

 

(a) On the terms and subject to the conditions set forth in this Agreement, the Magiclytics Shareholders, who hold an aggregate of 5,000 shares of Magiclytics’ common stock, par value $0.01 per share, (the “Magiclytics Shares”) representing 100% of Magiclytics’ issued and outstanding capital stock, shall sell, assign, transfer and deliver to the Company, free and clear of all liens, pledges, encumbrances, charges, restrictions or known claims of any kind, nature, or description, all of the Magiclytics Shares held by them, as set forth herein. The number of Magiclytics Shares held by each of the Magiclytics Shareholders as of the Closing Date is as set forth in on Exhibit A attached hereto, in the column entitled “Magiclytics Shares Owned”.

 

(b) The exchange as set forth in this Article II, subject to the other terms and conditions herein, is referred to collectively herein as the “Exchange.”

 

Section 2.02 Closing. The closing of the transactions as set forth herein shall occur on the Closing Date, immediately following the execution of this Agreement. On the Closing Date the Company shall acquire from each Magiclytics Shareholder the number of Magiclytics Shares owned by each such Magiclytics Shareholder as set forth on Exhibit A in accordance with the provisions herein (the “Closing”). At the Closing the Magiclytics Shareholders shall, on transfer of their respective Magiclytics Shares to the Company, be recorded in the stock ledger of the Company as the owners of the applicable portion of the total Exchange Shares (as defined below).

 

Section 2.03 Payment.

 

  (a) In exchange for the Magiclytics Shares, the Company shall issue to the Magiclytics Shareholders a total of 734,689 shares of Company Common Stock, which the Parties acknowledge is based on a $3,500,000 valuation of Magiclytics, to be apportioned between the Magiclytics Shareholders pro rata based on respective ownership of Magiclytics Shares as set forth on Exhibit A in the column entitled “Ownership Percentage”. The shares of Company Common Stock to be issued to the Magiclytics Shareholders at the Closing, and any additional shares of Common Stock issued pursuant to the provisions of Section 2.03(b), are referred to as the “Exchange Shares”.

 

6
 

 

  (b) The Parties acknowledge and agree that the number of Exchange Shares to be issued at the Closing has been based on the fair market value of the Company Common Stock as initially agreed to by the Parties, which is $4.76 per share (the “Base Value”) but that such fair market value has been determined based on the volume weighted average closing price of the Company Common Stock for the twenty (20) trading day period immediately prior to the Closing. The Parties further acknowledge and agree that the Company is currently in the process of preparing for an offering of the Company Common Stock to be undertaken pursuant to Regulation A under the Securities Act (the “Regulation A Offering”). In the event that the offering price to the public of the Company Common Stock in the Regulation A Offering (the “Regulation A Offering Price”) is less than the Base Value, then within three (3) Business Days of the effectiveness of the Company’s Offering Circular to be filed in connection with the Regulation A Offering, the Company shall issue to the Magiclytics Shareholders a number of additional shares of Company Common Stock equal to (1) (i) $3,500,000 divided by (ii) the Regulation A Offering Price, minus (2) 734,689 (the “Additional Shares”). The Additional Shares, shall constitute a part of the Exchange Shares for all purposes hereunder, and shall also be apportioned between the Magiclytics Shareholders pro rata based on respective ownership of Magiclytics Shares as set forth on Exhibit A in the column entitled “Ownership Percentage”.

 

Section 2.04 Additional Actions at the Closing. In addition to the other provisions herein, the Parties shall undertake the following actions in connection with the Closing:

 

  (a) The directors of Magiclytics shall undertake such actions as required to expand the size of the Magiclytics Board to a number of persons as required such that the persons selected by the Company shall be named to the Magiclytics Board, and shall constitute a majority of the Magiclytics Board thereafter, and to name such persons as selected by the Company as directors on the Magiclytics Board, in each case effective as of the Closing.
     
  (b) The Magiclytics Board shall undertake such actions as required to name Wilfred Man as the Chief Executive Officer of Magiclytics, Christian Young as the President and Secretary of the Magiclytics and Simon Yu as the Chief Operating Officer of Magiclytics, and to remove any other officers of the Company, in each case effective as of the Closing.
     
  (c) Immediately following the Closing, unless otherwise agreed in writing by the Company, all other officers of Magiclytics other than those named in Section 2.04(b) shall immediately resign from all positions that such officers hold as an officer of Magiclytics, and all directors of Magiclytics other than those selected by the Company pursuant to Section 2.04(a) shall resign as directors of Magiclytics.
     
  (d) Immediately following the Closing, the Company shall be responsible for all outstanding accounts payables and operating costs to continue operations of Magiclytics including but not limited to payment to any of its vendors, lenders, or other parties in which Magiclytics engages with in the regular course of its business.

 

Section 2.05 Magiclytics Deliverables at the Closing. At the Closing, Magiclytics or the Magiclytics Shareholders, as applicable, shall deliver to the Company:

 

  (a) Stock powers or such other instruments of transfer duly executed in blank and with all required stock transfer stamps affixed, in form and substance satisfactory to the Company as required for the ownership of the Magiclytics Shares to be transferred to the Company, free and clear of all liens, pledges, encumbrances, charges, restrictions or known claims of any kind, nature, or description, with all necessary transfer Tax and other revenue stamps, acquired at each Magiclytics Shareholder’s expense, affixed;

 

7
 

 

  (b) Reasonable evidence of the completion of the actions as set forth in Section 2.04; and
     
  (c) A certificate of the Secretary of Magiclytics and the Shareholders Representative on behalf of the Magiclytics Shareholders, dated as of the Closing Date, and:

 

  (i) attaching and certifying (i) copies of the resolutions of the Board of Directors of Magiclytics (the “Magiclytics Board”) authorizing the execution, delivery and performance of this Agreement and the other documents referenced herein and the completion of the transactions contemplated herein; and (ii) the Magiclytics Organizational Documents; and
     
  (ii) attaching a certificate of status issued by the Wyoming Secretary of State for Magiclytics, dated as of a date within 5 days of the Closing Date.

 

Section 2.06 Company Deliverables at the Closing. At the Closing, the Company shall deliver:

 

  (a) Shall record each Magiclytics Shareholder as the owner of the applicable portion of the Exchange Shares delivered at the Closing, in accordance with Section 2.03(a), in the books and records of the Company (with the Parties acknowledging that the Exchange Shares shall not be certificated); and
     
  (b) Shall deliver to the Shareholders’ Representative a certificate of status issued by the Nevada Secretary of State for the Company, dated as of a date within 5 days of the Closing Date.

 

Section 2.07 Tax Consequences. For U.S. federal income tax purposes, the Exchange is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code and the Treasury Regulations promulgated thereunder. For the avoidance of doubt, the Parties intent to treat this Exchange as a “Type-B” reorganization under Section 368(a)(1)(B) of the Code. The Parties adopt this Agreement as a “plan of reorganization” within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).

 

Section 2.08 Additional Documents; Financial Statements. At and following the Closing, the Company, Magiclytics, the Shareholders’ Representative and the Magiclytics Shareholders shall execute, acknowledge, and deliver (or shall ensure to be executed, acknowledged, and delivered), any and all certificates, opinions, financial statements, schedules, agreements, resolutions, rulings or other instruments required by this Agreement to be so delivered at or prior to the Closing, together with such other items as may be reasonably requested by the Parties and their respective legal counsel in order to effectuate or evidence the transactions contemplated hereby. In furtherance of the above, if determined to be required by the Company, the Magiclytics Shareholders shall reasonably cooperate with the Company following the Closing to provide to the Company audited financial statements for Magiclytics and related auditor reports thereon from a Public Company Accounting Oversight Board-registered auditor which consents to the inclusion of its statements in SEC public filings, for each of the two most recently ended fiscal years of Magiclytics, and any other period audited or unaudited but reviewed financials, as required to be included in the reports filed by the Company with the SEC at or following the Closing.

 

8
 

 

Article III. REPRESENTATIONS AND WARRANTIES OF

THE MAGICLYTICS PARTIES

 

As an inducement to, and to obtain the reliance of the Company, the Magiclytics Parties, jointly and severally (other than with respect to the representations and warranties as set forth in Section 3.07 and Section 3.12 which are given by each Magiclytics Shareholder individually, severally and not jointly and severally, and solely with respect to the Magiclytics Shares held by such Magiclytics Shareholder and with respect to the Exchange Shares to be received in connection therewith) and with respect to the Sale Shares (as defined below) that may be received following the Closing (collectively, the “Company Shares”, provided that such definition shall be deemed to refer to Exchange Shares and Sale Share, if any, which are held by a Magiclytics Shareholder as of a particular time) represent and warrant to the Company, as of the Closing Date, as follows:

 

Section 3.01 Corporate Existence and Power. Magiclytics is a corporation duly organized, validly existing, and in good standing under the Laws of the state of Wyoming, and has the corporate power and is duly authorized under all applicable Laws, regulations, ordinances, and orders of public authorities to carry on its business in all material respects as it is now being conducted. Magiclytics has delivered to the Company complete and correct copies of the organizational documents and the corporate minute books of Magiclytics as in effect on the Closing Date (the “Magiclytics Organizational Documents”). Magiclytics has full corporate power and authority to carry on its businesses as it is now being conducted and as now proposed to be conducted and to own or lease its properties and assets.

 

Section 3.02 Due Authorization. The execution, delivery and performance of this Agreement does not, and the consummation of the transactions contemplated hereby will not, violate any provision of the Magiclytics Organizational Documents. Magiclytics has taken all actions required by Law, the Magiclytics Organizational Documents or otherwise to authorize the execution, delivery and performance of this Agreement and to consummate the transactions herein contemplated.

 

Section 3.03 Valid Obligation. This Agreement and all agreements and other documents executed by Magiclytics and the Magiclytics Shareholders in connection herewith constitute the valid and binding obligations of Magiclytics and the Magiclytics Shareholders, as applicable, enforceable in accordance with its or their terms, except as may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally and subject to the qualification that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefore may be brought.

 

Section 3.04 Governmental Authorization. Neither the execution, delivery nor performance of this Agreement by any Magiclytics Party requires any consent, approval, license or other action by or in respect of, or registration, declaration or filing with any Authority.

 

Section 3.05 Authorized Shares and Capital.

 

  (a) The authorized capital stock of Magiclytics consists of (i) 5,000 shares of common stock, par value $0.01 per share, of which 5,000 shares are issued and outstanding and (ii) no shares of preferred stock. All of the issued and outstanding Magiclytics Shares are held, collectively, by the Magiclytics Shareholders.

 

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  (b) The Magiclytics Shareholders’ ownership of Magiclytics Shares is as set forth on Exhibit A attached hereto, which Exhibit A is true, correct and complete in all respects.
     
  (c) Magiclytics has no outstanding options, rights or commitments to issue shares of Magiclytics Shares or any other equity security of Magiclytics, and there are no outstanding securities convertible or exercisable into or exchangeable for shares of Magiclytics Shares or any other equity security of Magiclytics.
     
  (d) There is no voting trust, agreement or arrangement among any of the beneficial holders of Magiclytics Shares affecting the nomination or election of directors or the exercise of the voting rights of Magiclytics Shares.
     
  (e) The offer, issuance and sale of such shares of Magiclytics Shares were (a) exempt from the registration and prospectus delivery requirements of the Securities Act, (b) registered or qualified (or were exempt from registration or qualification) under the registration or qualification requirements of all applicable state securities Laws and (c) accomplished in conformity with all other applicable securities Laws. None of such shares of Magiclytics Shares are subject to a right of withdrawal or a right of rescission under any federal or state securities or “Blue Sky” Law.

 

Section 3.06 Validity of Shares. The shares of Magiclytics Shares to be delivered at the Closing and at each Call Closing shall be duly and validly issued, fully paid and non-assessable and free and clear of any Liens.

 

Section 3.07 Title to and Issuance of the Magiclytics Shares. Each of the Magiclytics Shareholders is the record and beneficial owner and holder of the Magiclytics Shares to be delivered at the Closing, free and clear of all Liens. None of the Magiclytics Shares is subject to pre-emptive or similar rights, either pursuant to any Magiclytics Organizational Document, requirement of Law or any contract, and no Person has any pre-emptive rights or similar rights to purchase or receive any Magiclytics Shares or other interests in the Company from the Magiclytics Shareholders.

 

Section 3.08 No Subsidiaries. Magiclytics does not have any subsidiaries, and does not own, beneficially or of record, any equity interests of any other Person.

 

Section 3.09 Compliance With Laws and Regulations. Magiclytics has complied with all applicable statutes and regulations of any provincial, federal, state, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of Magiclytics or except to the extent that noncompliance would not result in the occurrence of any material liability for Magiclytics.

 

Section 3.10 No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, constitute a default under, or terminate, accelerate or modify the terms of, any indenture, mortgage, deed of trust, or other material agreement or instrument to which Magiclytics is a party or to which any of its assets, properties or operations are subject, which would result in a Material Adverse Effect on Magiclytics.

 

Section 3.11 Taxes. Magiclytics has duly and punctually paid all governmental fees and taxes which it has become liable to pay and has duly allowed for all taxes reasonably foreseeable and is under no liability to pay any penalty or interest in connection with any claim for governmental fees or taxes and Magiclytics has made any and all proper declarations and returns for tax purposes and all information contained in such declarations and returns is true and complete.

 

10
 

 

Section 3.12 Investment Representations . For purposes of this Section 3.12, any reference to the “Company Shares” shall be deemed solely to be a reference to the portion of the Company Shares being delivered to such applicable Magiclytics Shareholder.

 

  (a) Investment Purpose. Such Magiclytics Shareholder understands and agrees that the consummation of this Agreement including the delivery of the Exchange Shares to such Magiclytics Shareholder in exchange for the Magiclytics Shares held by such Magiclytics Shareholder as contemplated hereby, and any later issuance of the Sale Shares, if and when applicable, constitutes the offer and sale of securities under the Securities Act and applicable state statutes and that the Company Shares being acquired by such Magiclytics Shareholder are being acquired by such Magiclytics Shareholder for such Magiclytics Shareholder’s own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act.
     
  (b) Investor Status. Such Magiclytics Shareholder is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”). Such Magiclytics Shareholder has been furnished with all documents and materials relating to the business, finances and operations of the Company and its subsidiaries and information that such Magiclytics Shareholder requested and deemed material to making an informed decision regarding this Agreement and the underlying transactions.
     
  (c) Reliance on Exemptions. Such Magiclytics Shareholder understands that the Company Shares are being offered and sold to such Magiclytics Shareholder in reliance upon specific exemptions from the registration requirements of United States federal and state securities Laws and that the Company is relying upon the truth and accuracy of, and such Magiclytics Shareholder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Magiclytics Shareholder set forth herein in order to determine the availability of such exemptions and the eligibility of such Magiclytics Shareholder to acquire the Company Shares.
     
  (d) Information. Such Magiclytics Shareholder and his advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Company Shares which have been requested by such Magiclytics Shareholder or his advisors. Such Magiclytics Shareholder and his advisors, if any, have been afforded the opportunity to ask questions of the Company. Such Magiclytics Shareholder understands that his investment in the Company Shares involves a significant degree of risk. Such Magiclytics Shareholder is not aware of any facts that may constitute a breach of any of the Company’s representations and warranties made herein.
     
  (e) Governmental Review. Such Magiclytics Shareholder understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Company Shares.

 

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  (f) Transfer or Resale. Such Magiclytics Shareholder understands that (i) the sale or re-sale of the Company Shares has not been and is not being registered under the Securities Act or any applicable state securities Laws, and the Company Shares may not be transferred unless (a) the Company Shares are sold pursuant to an effective registration statement under the Securities Act, (b) such Magiclytics Shareholder shall have delivered to the Company, at the cost of such Magiclytics Shareholder, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Company Shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Company Shares are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the Securities Act (or a successor rule) (“Rule 144”)) of such Magiclytics Shareholder who agree to sell or otherwise transfer the Company Shares only in accordance with this Section 3.12 and who is an Accredited Investor, (d) the Company Shares are sold pursuant to Rule 144, or (e) the Company Shares are sold pursuant to Regulation S under the Securities Act (or a successor rule) (“Regulation S”), and such Magiclytics Shareholder shall have delivered to the Company, at the cost of such Magiclytics Shareholder, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Company Shares made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Company Shares under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) other than as set forth in Article VI, neither the Company nor any other person is under any obligation to register such Company Shares under the Securities Act or any state securities Laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Company Shares may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
     
  (g) Legends. Such Magiclytics Shareholder understands that the Company Shares, until such time as the Company Shares have been registered under the Securities Act, or may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Company Shares may bear a standard Rule 144 legend and a stop-transfer order may be placed against transfer of the certificates for such Company Shares.
     
  (h) Removal. The legend(s) referenced in Section 3.12(g) shall be removed and the Company shall issue a certificate without such legend to the holder of any Company Shares upon which it is stamped, if, unless otherwise required by applicable state securities Laws, (a) the Company Shares are registered for sale under an effective registration statement filed under the Securities Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Company Shares may be made without registration under the Securities Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. Such Magiclytics Shareholder agrees to sell all Company Shares, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any.

 

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Article IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

As an inducement to, and to obtain the reliance of Magiclytics and the Magiclytics Shareholders, the Company represents and warrants to Magiclytics and the Magiclytics Shareholders, as of the Closing Date, as follows:

 

Section 4.01 Corporate Existence and Power . The Company is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Nevada and has the corporate power and is duly authorized under all applicable Laws, regulations, ordinances, and orders of public authorities to carry on its business in all material respects as it is now being conducted. The Company has delivered to the Shareholders’ Representative complete and correct copies of the articles of incorporation and bylaws of the Company as in effect on the Closing Date (the “Company Organizational Documents”). The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, violate any provision of the Company Organizational Documents. The Company has taken all action required by Law, the Company Organizational Documents, or otherwise to authorize the execution and delivery of this Agreement, and the Company has full power, authority, and legal right and has taken all action required by Law, the Company Organizational Documents or otherwise to consummate the transactions herein contemplated.

 

Section 4.02 Due Authorization. The execution, delivery and performance of this Agreement does not, and the consummation of the transactions contemplated hereby will not, violate any provision of the Company Organizational Documents. The Company has taken all actions required by Law, the Company Organizational Documents or otherwise to authorize the execution, delivery and performance of this Agreement and to consummate the transactions herein contemplated.

 

Section 4.03 Valid Obligation . This Agreement and all agreements and other documents executed by the Company in connection herewith constitute the valid and binding obligations of the Company, enforceable in accordance with its or their terms, except as may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally and subject to the qualification that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefore may be brought.

 

Section 4.04 Governmental Authorization. Neither the execution, delivery nor performance of this Agreement by the Company requires any consent, approval, license or other action by or in respect of, or registration, declaration or filing with any Authority.

 

Section 4.05 Authorized Shares. As of the Closing Date, the authorized capital stock of the Company consists of (i) 500,000,000 shares of common stock, par value $0.001 per share, and (ii) 50,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”). All issued and outstanding shares are legally issued, fully paid, and non-assessable and not issued in violation of the preemptive or other rights of any person.

 

Section 4.06 Information. The information concerning the Company set forth in this Agreement is complete and accurate in all material respects and does not contain any untrue statements of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading.

 

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Section 4.07 Litigation and Proceedings. There are no actions, suits, proceedings or investigations pending or, to the knowledge of the Company after reasonable investigation, threatened by or against the Company or affecting the Company or its properties, at Law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind. The Company has no knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator, or governmental agency or instrumentality or any circumstance which after reasonable investigation would result in the discovery of such default.

 

Section 4.08 No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, constitute a default under, or terminate, accelerate or modify the terms of, any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or to which any of its assets, properties or operations are subject, which would result in a Material Adverse Effect on the Company.

 

Section 4.09 Compliance With Laws and Regulations. The Company has complied with all United States federal, state or local or any applicable foreign Laws applicable to the Company and the operation of its business, except where the failure to so comply would reasonably be expected to result in a Material Adverse Effect on the Company.

 

Section 4.10 Approval of Agreement. The Board of Directors of the Company has authorized the execution and delivery of this Agreement by the Company and has approved this Agreement and the transactions contemplated hereby.

 

Article V. ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES

 

Section 5.01 Delivery of Books and Records. At the Closing, Magiclytics shall deliver to the Company the originals of the corporate minute books, books of account, contracts, records, and all other books or documents of Magiclytics in the possession of Magiclytics or its representatives.

 

Section 5.02 Conveyance Taxes. The Magiclytics Shareholders will pay all sales, use, value added, transfer, stamp, registration, documentary, excise, real property transfer or gains, or similar Taxes incurred as a result of the transactions contemplated by this Agreement.

 

Section 5.03 Assistance. Upon request of a Magiclytics Shareholder, the Company shall provide reasonable assistance to the applicable Magiclytics Shareholder, at the cost of the applicable Magiclytics Shareholder, with respect to any filings required to be made by such applicable Magiclytics Shareholder pursuant to the Securities Act or the Exchange Act.

 

Section 5.04 Additional Payments.

 

  (a) In the event that following the Closing, there occurs a Change of Control (as defined below) of Magiclytics, in each case other than any Change of Control of Magiclytics which results from any actions in the definition of “Change of Control” occurring with respect to the Company as a whole instead of just to Magiclytics (each, a “Magiclytics Sale”), then the Company shall pay the Magiclytics Shareholders the additional compensation as set forth in this Section 5.04.

 

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  (b) For purposes herein, a “Change of Control” of the Magiclytics shall be deemed to have occurred if, after the Closing Date and prior to the fifth anniversary of the Closing Date, (i) the beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 50% of the combined voting power of Magiclytics is acquired by any “person” as defined in sections 13(d) and 14(d) of the Exchange Act (other than the Company, any Affiliate of the Company, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company), (ii) the merger or consolidation of Magiclytics with or into another corporation, other than any Affiliate of the Company, where the shareholder(s) of Magiclytics, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of Magiclytics immediately prior to such merger or consolidation, or (iii) the sale or other disposition of all or substantially all of Magiclytics’ assets to an entity, other than a sale or disposition by Magiclytics of all or substantially all of Magiclytics’ assets to any Affiliate of the Company.
     
  (c) In the event of a Magiclytics Sale, the Company shall issue to the Magiclytics Shareholders a number of shares of Common Stock equal to (i) fifteen percent (15%) of the total value of the consideration actually received by the Company in excess of $7,000,000 with respect to the Magiclytics Sale (the “Gain Amount”), divided by (ii) the Share Price (as defined below) as of the date of the consummation of the Magiclytics Sale (the “Sale Shares”). The Sale Shares shall be apportioned between the Magiclytics Shareholders pro rata based on respective ownership of Magiclytics Shares as of the Closing Date, as set forth on Exhibit A in the column entitled “Ownership Percentage”. By way of example, in the event that a Magiclytics Sale occurs and the Company receives total consideration of $8,000,000 with respect thereto, the “Gain Amount” will be $1,000,000, and, assuming the Share Price was $2.00 as of the time of the consummation of such Magiclytics Sale, 500,000 Sale Shares in total would be apportioned between the Magiclytics Shareholders as set forth herein. The Sale Shares shall be issued within five (5) Business Days of the date that the Company actually receives the consideration which is the Gain Amount, and in the event that such consideration is not cash or other asset(s) with a readily determinable value (such as, for example, shares of stock of a publicly traded entity), the value of such consideration shall be determined in good faith by the Board of Directors of the Company and the Shareholders’ Representative after taking into consideration factors they may each deem appropriate, and provided that if the Company and the Shareholders’ Representative cannot so agree then such dispute shall be settled in accordance with the provisions for resolutions of disputes as set forth in the Agreement.
     
  (d) For purposes herein, the term “Share Price” shall mean for any date, the price determined by the first of the following clauses that applies:

 

  (i) If the Company Common Stock is then listed for trading on the OTC Markets or a United States or Canadian national securities exchange (as applicable, the “Trading Market”), then the volume-weighted average (rounded to the nearest $0.0001) of the closing price of Common Stock on such Trading Market during the 20 Trading Day (as defined below) period immediately prior to the applicable measurement date, as reported by such Trading Market or other reputable source;

 

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  (ii) if the Company Common Stock is not then listed or quoted for trading on a Trading Market, and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Company Common Stock so reported; and
     
  (iii) if the Share Price cannot be calculated for such security on such date on bases as set forth in Section 5.04(d)(i) or Section 5.04(d)(ii), the Share Price of such security on such date shall be the fair market value of such security as mutually determined in good faith by the Board of Directors of the Company and the Shareholders’ Representative after taking into consideration factors they may each deem appropriate, and provided that if the Company and the Shareholders’ Representative cannot so agree then such dispute shall be settled in accordance with the provisions for resolutions of disputes as set forth in the Agreement.

 

  (e) All such determinations of the Share Price as set forth in Section 5.04(d)(i) or Section 5.04(d)(ii) shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.
     
  (f) For purposes herein, “Trading Day” means any day on which the Company Common Stock (or any replacement security pursuant to Section 5.04(g)) is traded on the Trading Market or is otherwise reported on “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) or a similar organization or agency succeeding to its functions of reporting prices.
     
  (g) If, at any time prior to the determination of the Share Price, there shall be any merger, consolidation, or an exchange of shares, recapitalization or reorganization pursuant to a merger or consolidation, or other similar event, as a result of which shares of Company Common Stock shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity, or in case of any sale or conveyance of all or substantially all of the assets or more than 50% of the total outstanding shares of the Company other than in connection with a plan of complete liquidation of the Company, then the Magiclytics Shareholders shall thereafter have the right to receive, and shall receive, upon any Magiclytics Sale, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Company Common Stock, such replacement stock, securities or assets, with equitable adjustments being made thereto with respect to the Share Price, as determined by the Company and the Shareholders’ Representative, and in the event that the shares of Company Common Stock shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity any references herein to the Company Common Stock, whether standing alone or as a part of another defined term, shall be deemed a reference to such replacement stock or securities.
     
  (h) For the avoidance of doubt, the intent of the Parties is that the provisions of this Section 5.04 shall apply, and a “Magiclytics Sale” shall be deemed to occur, only if there occurs a Change of Control of Magiclytics standing alone. By way of example and not limitation, in the event that the Company merges with another entity, or all or substantially all of the Equity Securities of the Company are acquired by a Person, or all or substantially all of the Assets of the Company are acquired by a Person, in one transaction or a series of related transactions, such transaction or transactions shall not constitute a “Magiclytics Sale”; with the intent of this Section 5.04 being that the Additional Consideration shall be payable to the Magiclytics Shareholders only with respect to a transaction meeting the definition of a “Magiclytics Sale” which separates the operations of Magiclytics from the operations of the Company.
     
  (i) The obligations of the Company as set forth in this Section 5.04 shall expire on the fifth anniversary of the Closing Date.

 

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Article VI. REGISTRATION RIGHTS

 

Section 6.01 General. Subject to the remaining terms and conditions herein, provided that the Closing occurs, if at any time on or after such date the Company proposes to file any registration statement under the Securities Act with respect to the Company Common Stock (a “Registration Statement”) for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan, (ii) for a dividend reinvestment plan; (iii) filed pursuant to Regulation A pursuant to the Securities Act; or (iv) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to each Magiclytics Shareholder as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to each Magiclytics Shareholder in such notice the opportunity to register the sale of such number of Company Shares as each Magiclytics Shareholder may request in writing within five (5) days following receipt of such notice (a “Piggyback Registration”). The Company shall cause such Company Shares to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Company Shares requested to be included in a Piggyback Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Company Shares in accordance with the intended method(s) of distribution thereof. If a Magiclytics Shareholder proposes to distribute its Company Shares through a Piggyback Registration that involves an underwriter or underwriters, then it shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggyback Registration.

 

Section 6.02 Limitations. If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriter advises the Company and the Magiclytics Shareholders and the holders of any other shares of Company Common Stock which are also registrable pursuant to an agreement similar to this Article VI (if any holders of Company Shares have elected to include their Company Common Stock in such Piggyback Registration) in writing that in its reasonable and good faith opinion the number of shares of Company Common Stock proposed to be included in such registration, including all Company Shares and all other shares of Company Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Company Common Stock which can be sold in such offering and/or that the number of shares of Company Common Stock proposed to be included in any such registration or takedown would adversely affect the price per share of the Company Common Stock to be sold in such offering, the Company shall include in such registration (i) first, the shares of Company Common Stock that the Company proposes to sell; and (ii) the shares of Company Common Stock requested to be included therein by the Magiclytics Shareholders and shares of Company Common Stock held by the other holders of Company Common Stock, allocated among the Magiclytics Shareholders and such other holders pro rata based on the number of Company Shares and Company Common Stock, as applicable, held by each of the Magiclytics Shareholder and such other holders. If the Piggyback Registration was initiated by the exercise of demand registration rights by a shareholder or shareholders of the Company, then the number of shares of Company Common stock that may be included in the registration and underwriting shall be allocated first to such selling stockholders who exercised such demand to the extent of their demand registration rights, and then, subject to obligations and commitments existing as of the Closing Date, to the Company and then, subject to obligations and commitments existing as of the date hereof, to all persons exercising piggyback registration rights (including the Magiclytics Shareholders) who have requested to sell in the registration on a pro rata basis according to the number of shares requested to be included therein.

 

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Section 6.03 Withdrawal. Each Magiclytics Shareholder may elect to withdraw such Magiclytics Shareholder’s request for inclusion of Company Shares in any Piggyback Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by each Magiclytics Shareholder of Company Shares in connection with such Piggyback Registration as provided in Section 6.06.

 

Section 6.04 Notification; Blackout Period.

 

  (a) The Company shall notify each Magiclytics Shareholder at any time when a prospectus relating to such Magiclytics Shareholder’s Company Shares is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of any Magiclytics Shareholder, the Company shall also prepare, file and furnish to each Magiclytics Shareholder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to each Magiclytics Shareholder, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, unless suspension of the use of such prospectus otherwise is authorized herein or in the event of a Blackout Period (as defined below), in which case no supplement or amendment need be furnished (or Exchange Act filing made) until the termination of such suspension or Blackout Period.
     
  (b) Each Magiclytics Shareholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6.04(a) or of the commencement of a Blackout Period, such Magiclytics Shareholder shall discontinue the disposition of Company Shares included in the Registration Statement until such Magiclytics Shareholder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 6.04(a) hereof or notice of the end of the Blackout Period, and, if so directed by the Company, such Magiclytics Shareholder shall deliver to the Company (at the Company’s expense) all copies (including, without limitation, any and all drafts), other than permanent file copies, then in such Magiclytics Shareholder’s possession, of the prospectus covering such Company Shares current at the time of receipt of such notice.

 

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  (c) For purposes herein, “Blackout Period” means, with respect to a registration, a period during which the Company, in the good faith judgment of the Board of Directors of the Company, determines (because of the existence of, or in anticipation of, any acquisition, financing activity, or other transaction involving the Company, or the unavailability for reasons beyond the Company’s control of any required financial statements, disclosure of information which is in its best interest not to publicly disclose, or any other event or condition of similar significance to the Company) that the registration and distribution of the Company Common Stoc to be covered by any Registration Statement, if any, would be seriously detrimental to the Company and its stockholders, in each case commencing on the day the Company notifies the Magiclytics Shareholders that they are required, because of the determination described above, to suspend offers and sales of the Company Shares and ending on the earlier of (1) the date upon which the material non-public information resulting in the Blackout Period is disclosed to the public or ceases to be material and (2) such time as the Company notifies the Magiclytics Shareholders that sales pursuant to such Registration Statement or a new or amended Registration Statement may resume.

 

Section 6.05 Information. The Company may request that each Magiclytics Shareholder furnish the Company such information with respect to such Magiclytics Shareholder and such Magiclytics Shareholder’s proposed distribution of the Company Shares pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the SEC in connection therewith, and each Magiclytics Shareholder shall furnish the Company with such information.

 

Section 6.06 Fees and Expenses. All fees and expenses incident to the performance of or compliance with this Article VI by the Company shall be borne by the Company whether or not any Company Shares are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the SEC, (B) with respect to filings required to be made with any trading market on which the Company Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Company Shares) and (D) with respect to any filing that may be required to be made by any broker through which each Magiclytics Shareholder of Company Shares intends to make sales of Company Shares with the Financial Industry Regulatory Authority, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Article VI. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Article VI (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Company Shares on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Magiclytics Shareholder.

 

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Section 6.07 Indemnification.

 

(a) Indemnification by the Company. The Company and its successors and assigns shall indemnify and hold harmless each Magiclytics Shareholder, the partners, agents and employees of each Magiclytics Shareholder (each, a “Magiclytics Shareholder Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all Losses (as defined below), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Article VI, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding any Magiclytics Shareholder furnished to the Company by such Magiclytics Shareholder for use therein. The Company shall notify each Magiclytics Shareholder promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Article VI of which the Company is aware.

 

(b) Indemnification by Each Magiclytics Shareholder. Each Magiclytics Shareholder and its successors and assigns shall indemnify and hold harmless each Company Indemnified Party (as defined below) (with each Magiclytics Shareholder Indemnified Party and Company Indemnified Party being referred to as a “Registration Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all Losses, as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, but only to the extent that such untrue statements or omissions are based upon information regarding such Magiclytics Shareholder furnished to the Company by such Magiclytics Shareholder for use therein. Each Magiclytics Shareholder shall notify the Company promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Agreement of which each Magiclytics Shareholder is aware.

 

(c) Contribution. If the indemnification under Section 6.07(a) or Section 6.07(b), as applicable, is unavailable to a Registration Indemnified Party or insufficient to hold a Registration Indemnified Party harmless for any Losses, then the Party responsible for indemnifying the Registration Indemnified Party (the “Registration Indemnifying Party”) shall contribute to the amount paid or payable by such Registration Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Registration Indemnifying Party and Registration Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Registration Indemnifying Party and Registration Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Registration Indemnifying Party or the Registration Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 6.07(a) or Section 6.07(b), as applicable, was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 6.07(c) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence.

 

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(d) Application. The Parties acknowledge and agree that the indemnification rights and obligations as set forth in this Section 6.07 shall apply solely to indemnification applicable to the actions and events as contemplated in this Article VI and shall apply independently of the rights and obligations as set forth in Article VII. In the event that the provisions of Section 6.07 and of Article VII could both be deemed to apply to any indemnification rights and/or obligations, the provisions of this Section 6.07 shall control.

 

Article VII. INDEMNIFICATION

 

Section 7.01 Indemnification of Company. The Magiclytics Shareholders, jointly and severally, hereby agree to indemnify and hold harmless to the fullest extent permitted by applicable law the Company, each of its Affiliates and each of its and their respective members, managers, partners, directors, officers, employees, stockholders, attorneys and agents and permitted assignees and the Shareholders’ Representative (each a “Company Indemnified Party”), against and in respect of any and all out-of-pocket loss, cost, payments, demand, penalty, forfeiture, expense, liability, judgment, deficiency or damage, and diminution in value or claim (including actual costs of investigation and attorneys’ fees and other costs and expenses) (all of the foregoing collectively, “Losses” and each individually a “Loss”) incurred or sustained by any Company Indemnified Party as a result of or in connection with (a) any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties, covenants and agreements of the Magiclytics Parties contained herein or in any of the additional agreements or any certificate or other writing delivered pursuant hereto, and (b) any Actions by any third parties with respect to the business or operations of Magiclytics for any period on or prior to the Closing Date. Notwithstanding the forgoing, with respect to any indemnification obligations of the Magiclytics Shareholders arising from any Losses as a result of or in connection with any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties, covenants and agreements of any Magiclytics Shareholder as set forth in Section 3.07 or Section 3.12, such indemnification obligations shall be solely the obligations of the Magiclytics Shareholder giving such representations, warranties, covenants and agreements from which such claim arose, severally and not jointly and severally.

 

Section 7.02 Indemnification of the Magiclytics Parties. The Company hereby agrees to indemnify and hold harmless to the fullest extent permitted by applicable law the Shareholders’ Representative, the Magiclytics Shareholders, Magiclytics and each of its officers, directors, employees, stockholders, attorneys and agents and permitted assignees (each a “Magiclytics Indemnified Party”), against and in respect of any and all Losses incurred or sustained by any Magiclytics Indemnified Party as a result of or in connection with any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties, covenants and agreements of the Company contained herein or in any of the additional agreements or any certificate or other writing delivered pursuant hereto.

 

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Section 7.03 Procedure. The following shall apply with respect to all claims by any Magiclytics Indemnified Party or Company Indemnified Party for indemnification with respect to actions by third-parties (with any references herein to an “Indemnified Party” being a reference to a Magiclytics Indemnified Party or a Company Indemnified Party, as applicable, and any references herein to an “Indemnifying Party” being a reference to the Company or the Magiclytics Shareholders, as applicable):

 

  (a) Third-Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “Third-Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third-Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third-Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third-Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense. In the event that the Indemnifying Party assumes the defense of any Third-Party Claim, subject to Section 7.03(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third-Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third-Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof, provided that the fees and disbursements of such counsel shall be at the expense of the Indemnified Party.
     
  (b) Settlement of Third-Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third-Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 7.03(b). If a firm offer is made to settle a Third-Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third-Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third-Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third-Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third-Party Claim, the Indemnifying Party may settle the Third-Party Claim upon the terms set forth in such firm offer to settle such Third-Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 7.03(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).

 

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  (c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third-Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) calendar days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such thirty (30) calendar day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.
     
  (d) Cooperation. Upon a reasonable request made by the Indemnifying Party, each Indemnified Party seeking indemnification hereunder in respect of any Direct Claim, hereby agrees to consult with the Indemnifying Party and act reasonably to take actions reasonably requested by the Indemnifying Party in order to attempt to reduce the amount of Losses in respect of such Direct Claim. Any costs or expenses associated with taking such actions shall be included as Losses hereunder.

 

Section 7.04 Periodic Payments. Any indemnification required by this Article VII for costs, disbursements or expenses of any Indemnified Party in connection with investigating, preparing to defend or defending any Action shall be made by periodic payments by the Indemnifying Party to each Indemnified Party during the course of the investigation or defense, as and when bills are received or costs, disbursements or expenses are incurred.

 

Section 7.05 Insurance. Any indemnification payments hereunder shall take into account any insurance proceeds or other third-party reimbursement actually received.

 

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Section 7.06 Time Limit. The obligations of the Magiclytics Shareholders and the Company under Section 7.01 and Section 7.02 shall expire two (2) years from the Closing Date, except with respect to (i) an indemnification claim asserted in accordance with the provisions of this Article VII which remains unresolved, for which the obligation to indemnify shall continue until such claim is resolved; and (ii) resolved claims for which payment has not yet been paid to the Indemnified Party.

 

Section 7.07 Certain Limitations. The indemnification provided for in Section 7.01 and Section 7.02shall be subject to the following limitations:

 

  (a) The Magiclytics Shareholders shall not be liable to the Company Indemnified Parties for indemnification under Section 7.01 until the aggregate amount of all Losses in respect of indemnification under Section 7.01 exceeds $10,000 (the “Basket”), in which event the Magiclytics Shareholders shall be required to pay or be liable for all such Losses in excess of the Basket up to a maximum amount equal to the value of the Exchange Shares as received by the Magiclytics Shareholders, with such value to be as determined by reference to closing price of the Company Common Stock on the last Business Day prior to the Closing Date (the “Cap”), and provided that, in the event that the indemnification obligations are those of less than all of the Magiclytics Shareholders pursuant to the last sentence of Section 7.01, then the Basket and the Cap shall be applied to such indemnifying Magiclytics Shareholder(s) pro rata based on the number of shares of Magiclytics Shares held by such Magiclytics Shareholder(s) as of the Closing Date, such that, by way of example and not limitation. if a Magiclytics Shareholder is so obligated to indemnify the Company Indemnified Parties pursuant to such section and held 50% of the total shares of Magiclytics Shares as of the Closing Date, the Basket would be $5,000 and the Cap would be 50% of the total value of the Exchange Shares as determined as set forth above. Any such utilization or satisfaction of the Basket and the Cap by one or more of the Magiclytics Shareholders as a result of the preceding sentence shall apply to any later determinations of the utilization or satisfaction of the Basket and the Cap.
     
  (b) The Company shall not be liable to the Magiclytics Indemnified Parties for indemnification under Section 7.02 until the aggregate amount of all Losses in respect of indemnification under Section 7.02 exceeds the Basket, in which event the Company shall be required to pay or be liable for all such Losses in excess of the Basket up to a maximum amount equal to the Cap, which shall in such case be applied to all of the Magiclytics Shareholders as a group.

 

Section 7.08 Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and any indemnified party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the any indemnified party’s or by reason of the fact that such indemnified party knew or should have known that any such representation or warranty is, was or might be inaccurate.

 

Section 7.09 Exclusive Remedy. The indemnification provisions contained in this Article VII shall be the sole and exclusive remedy of the Parties with respect to the transactions contemplated herein for any and all breaches or alleged breaches of any representations, warranties, covenants or agreements of the Parties hereto or any other provision of this Agreement or arising out of the transactions contemplated herein, except (i) with respect to any equitable remedy to which such Party may be entitled to with respect to any claims or causes of action arising from the breach of any covenants or agreement of a Party that is to be performed subsequent to the Closing Date, or (ii) with respect to a Party, an actual and intentional fraud with respect to this Agreement and the transactions contemplated herein.

 

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Article VIII. MISCELLANEOUS

 

Section 8.01 Arbitration.

 

  (a) The Parties shall promptly submit any dispute, claim, or controversy arising out of or relating to this Agreement (including with respect to the meaning, effect, validity, termination, interpretation, performance, or enforcement of this Agreement) or any alleged breach thereof (including any action in tort, contract, equity, or otherwise), to binding arbitration before one arbitrator (the “Arbitrator”). Binding arbitration shall be the sole means of resolving any dispute, claim, or controversy arising out of or relating to this Agreement (including with respect to the meaning, effect, validity, termination, interpretation, performance or enforcement of this Agreement) or any alleged breach thereof (including any claim in tort, contract, equity, or otherwise).
     
  (b) If the Parties cannot agree upon the Arbitrator within ten (10) Business Days of the commencement of the efforts to so agree on an Arbitrator, each of the Parties shall select one arbitrator and the two arbitrators so selected shall select the Arbitrator.
     
  (c) The laws of the State of Nevada shall apply to any arbitration hereunder. In any arbitration hereunder, this Agreement and any agreement contemplated hereby shall be governed by the laws of the State of Nevada applicable to a contract negotiated, signed, and wholly to be performed in the State of Nevada, which laws the Arbitrator shall apply in rendering his decision. The Arbitrator shall issue a written decision, setting forth findings of fact and conclusions of law, within sixty (60) days after he shall have been selected. The Arbitrator shall have no authority to award punitive or other exemplary damages.
     
  (d) The arbitration shall be held in Santa Monica, California in accordance with and under the then-current provisions of the rules of the American Arbitration Association, except as otherwise provided herein.
     
  (e) On application to the Arbitrator, any Party shall have rights to discovery to the same extent as would be provided under the Federal Rules of Civil Procedure, and the Federal Rules of Evidence shall apply to any arbitration under this Agreement; provided, however, that the Arbitrator shall limit any discovery or evidence such that his decision shall be rendered within the period referred to in Section 8.01(c).
     
  (f) The Arbitrator may, at his discretion and at the expense of the Party who will bear the cost of the arbitration, employ experts to assist him in his determinations.
     
  (g) The costs of the arbitration proceeding and any proceeding in court to confirm any arbitration award or to obtain relief, as applicable (including actual attorneys’ fees and costs), shall be borne by the unsuccessful Party and shall be awarded as part of the Arbitrator’s decision, unless the Arbitrator shall otherwise allocate such costs in such decision. The determination of the Arbitrator shall be final and binding upon the Parties and not subject to appeal.

 

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  (h) Any judgment upon any award rendered by the Arbitrator may be entered in and enforced by any court of competent jurisdiction. The Parties expressly consent to the non-exclusive jurisdiction of the courts (Federal and state) in Los Angeles County, California to enforce any award of the Arbitrator or to render any provisional, temporary, or injunctive relief in connection with or in aid of the Arbitration. The Parties expressly consent to the personal and subject matter jurisdiction of the Arbitrator to arbitrate any and all matters to be submitted to arbitration hereunder. None of the Parties hereto shall challenge any arbitration hereunder on the grounds that any party necessary to such arbitration (including the Parties) shall have been absent from such arbitration for any reason, including that such Party shall have been the subject of any bankruptcy, reorganization, or insolvency proceeding.

 

Section 8.02 Governing Law. This Agreement shall be governed by, enforced, and construed under and in accordance with the Laws of the State of Nevada, without giving effect to the principles of conflicts of law thereunder. Each of the Parties (a) irrevocably consents and agrees that any legal or equitable action or proceedings arising under or in connection with this Agreement shall be brought exclusively in the state or federal courts of the United States with jurisdiction in Los Angeles County, California. By execution and delivery of this Agreement, each Party hereto irrevocably submits to and accepts, with respect to any such action or proceeding, generally and unconditionally, the jurisdiction of the aforesaid courts, and irrevocably waives any and all rights such Party may now or hereafter have to object to such jurisdiction.

 

Section 8.03 Waiver of Jury Trial.

 

  (a) EACH PARTY HERETO HEREBY 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 ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 8.03(a).
     
  (b) Each of the Parties acknowledge that each has been represented in connection with the signing of this waiver by independent legal counsel selected by the respective Party and that such Party has discussed the legal consequences and import of this waiver with legal counsel. Each of the Parties further acknowledge that each has read and understands the meaning of this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this waiver with legal counsel.

 

Section 8.04 Limitation on Damages. In no event will any Party be liable to any other Party under or in connection with this Agreement or in connection with the Transactions for special, general, indirect or consequential damages, including damages for lost profits or lost opportunity, even if the Party sought to be held liable has been advised of the possibility of such damage.

 

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Section 8.05 Brokers. The Company and Magiclytics Parties agree that there were no finders or brokers involved in bringing the Parties together or who were instrumental in the negotiation, execution or consummation of this Agreement. The Company and the Magiclytics Parties each agree to indemnify the other against any claim by any third person other than those described above for any commission, brokerage, or finder’s fee arising from the transactions contemplated hereby based on any alleged agreement or understanding between the Indemnifying Party and such third person, whether express or implied from the actions of the Indemnifying Party.

 

Section 8.06 Notices.

 

  (a) Any notice or other communications required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered to it or sent by email, overnight courier or registered mail or certified mail, postage prepaid, addressed as follows:

 

  If to the Company, to:

 

Tongji Healthcare Group, Inc.

Attn: Amir Ben-Yohanan

201 Santa Monica Blvd., Suite 30

Santa Monica, California 90401

Email: amir_yoh@yahoo.com

 

  With a copy, which shall not constitute notice, to:

 

Anthony L.G., PLLC

Attn: John Cacomanolis

625 N. Flagler Drive, Suite 600

West Palm Beach, FL 33401

Email: jcacomanolis@anthonypllc.com

 

  If to Magiclytics, or the Magiclytics Shareholders, to:

 

Digital Influence Inc.

Attn: Christian Young

800 Wilshire Blvd., Floor 2

Los Angeles, CA 90017

Email: chrisyoungjd@gmail.com

 

  (b) Any Party may change its address for notices hereunder upon notice to each other Party in the manner for giving notices hereunder.
     
  (c) Any notice hereunder shall be deemed to have been given (i) upon receipt, if personally delivered, (ii) on the day after dispatch, if sent by overnight courier, (iii) upon dispatch, if transmitted by email with return receipt requested and received and (iv) three (3) days after mailing, if sent by registered or certified mail.

 

Section 8.07 Attorneys’ Fees. In the event that any Party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the prevailing Party shall be reimbursed by the losing Party for all costs, including reasonable attorney’s fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.

 

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Section 8.08 Confidentiality. Each Party agrees that, unless and until the transactions contemplated by this Agreement have been consummated, it and its representatives will hold in strict confidence all data and information obtained with respect to another Party or any subsidiary thereof from any representative, officer, director or employee, or from any books or records or from personal inspection, of such other Party, and shall not use such data or information or disclose the same to others, except (i) to the extent such data or information is published, is a matter of public knowledge, or is required by Law to be published; or (ii) to the extent that such data or information must be used or disclosed in order to consummate the transactions contemplated by this Agreement. In the event of the termination of this Agreement, each Party shall return to the applicable other Party all documents and other materials obtained by it or on its behalf and shall destroy all copies, digests, work papers, abstracts or other materials relating thereto, and each Party will continue to comply with the confidentiality provisions set forth herein.

 

Section 8.09 Public Announcements and Filings. Unless required by applicable Law or regulatory authority, none of the Parties will issue any report, statement or press release to the general public, to the trade, to the general trade or trade press, or to any third party (other than its advisors and representatives in connection with the transactions contemplated hereby) or file any document, relating to this Agreement and the transactions contemplated hereby, except as may be mutually agreed by the Parties. The Parties acknowledge and agree that the Company is obligated to file a Form 8-K pursuant to the Exchange Act relating to this Agreement and the transactions contemplated herein (the “Form 8-K”). Other than the Form 8-K or the disclosures referenced in the immediately preceding sentence, copies of any such filings, public announcements or disclosures, including any announcements or disclosures mandated by Law or regulatory authorities, shall be delivered to each Party at least one (1) business day prior to the release thereof.

 

Section 8.10 Third Party Beneficiaries. This contract is strictly between the Company, Magiclytics, the Magiclytics Shareholders and the Shareholders’ Representative, and except as specifically provided herein, no other Person and no director, officer, stockholder (other than the Magiclytics Shareholders), employee, agent, independent contractor or any other Person shall be deemed to be a third-party beneficiary of this Agreement.

 

Section 8.11 Expenses. Subject to Article VII and Section 8.07, whether or not the Exchange is consummated, each of the Company and the Magiclytics Parties will bear their own respective expenses, including legal, accounting and professional fees, incurred in connection with the Exchange or any of the other transactions contemplated hereby.

 

Section 8.12 Entire Agreement. This Agreement represents the entire agreement between the Parties relating to the subject matter thereof and supersedes all prior agreements, understandings and negotiations, written or oral, with respect to such subject matter.

 

Section 8.13 Survival. The representations, warranties, and covenants of the respective Parties shall survive the Closing Date and the consummation of the Transactions for a period of one year from the latest date thereof, provided that the covenants of the Parties as set forth in Section 5.04 shall survive the Closing Date for the period as set forth in Section 5.04(i), and the representations, warranties, and covenants of the respective Parties as set forth in Article VI shall survive the Closing Date for the maximum period permitted by applicable Law.

 

Section 8.14 Amendment; Waiver; Remedies; Agent.

 

  (a) Other than as specifically set forth herein, this Agreement may be amended, modified, superseded, terminated or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the Company, Magiclytics and the Shareholders’ Representative.

 

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  (b) Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any Party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing.
     
  (c) Neither any failure or delay in exercising any right or remedy hereunder or in requiring satisfaction of any condition herein nor any course of dealing shall constitute a waiver of or prevent any Party from enforcing any right or remedy or from requiring satisfaction of any condition. No notice to or demand on a Party waives or otherwise affects any obligation of that Party or impairs any right of the Party giving such notice or making such demand, including any right to take any action without notice or demand not otherwise required by this Agreement. No exercise of any right or remedy with respect to a breach of this Agreement shall preclude exercise of any other right or remedy, as appropriate to make the aggrieved Party whole with respect to such breach, or subsequent exercise of any right or remedy with respect to any other breach.
     
  (d) Notwithstanding anything else contained herein, no Party shall seek, nor shall any Party be liable for, consequential, punitive or exemplary damages, under any tort, contract, equity, or other legal theory, with respect to any breach (or alleged breach) of this Agreement or any provision hereof or any matter otherwise relating hereto or arising in connection herewith.

 

Section 8.15 Magiclytics Shareholders’ Representative.

 

  (a) Each Magiclytics Shareholder constitutes and appoints the Shareholders’ Representative as its representative and its true and lawful attorney in fact, with full power and authority in its name and on its behalf:

 

  (i) to act on such Magiclytics Shareholders’ behalf in the absolute discretion of Shareholders’ Representative with respect to all matters relating to this Agreement, including execution and delivery of any amendment, supplement, or modification of this Agreement and any waiver of any claim or right arising out of this Agreement or the provision of any consent or agreement hereunder; and
     
  (ii) in general, to do all things and to perform all acts, including executing and delivering all agreements, certificates, receipts, instructions, and other instruments contemplated by or deemed advisable to effectuate the provisions of this Section 8.15.

 

  (b) This appointment and grant of power and authority is coupled with an interest and is in consideration of the mutual covenants made in this Agreement and is irrevocable and will not be terminated by any act of any Magiclytics Shareholder or by operation of law, whether by the death or incapacity of any Magiclytics Shareholder or by the occurrence of any other event. Each Magiclytics Shareholder hereby consents to the taking of any and all actions and the making of any decisions required or permitted to be taken or made by Shareholders’ Representative pursuant to this Section 8.15. Each Magiclytics Shareholder agrees that Shareholders’ Representative shall have no obligation or liability to any Person for any action taken or omitted by Shareholders’ Representative in good faith, even if taken or omitted negligently, and each Magiclytics Shareholder shall indemnify and hold harmless Shareholders’ Representative from, and shall pay to Shareholders’ Representative the amount of, or reimburse Shareholders’ Representative for, any Loss that Shareholders’ Representative may suffer, sustain, or become subject to as a result of any claim made or threatened against Shareholders’ Representative in his capacity as such.

 

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  (c) The Company shall be entitled to rely upon any document or other paper delivered by Shareholders’ Representative as being authorized by Magiclytics Shareholders, and the Company shall not be liable to any Magiclytics Shareholder for any action taken or omitted to be taken by the Company based on such reliance.

 

Section 8.16 Arm’s Length Bargaining; No Presumption Against Drafter. This Agreement has been negotiated at arm’s-length by parties of equal bargaining strength, each represented by counsel or having had but declined the opportunity to be represented by counsel and having participated in the drafting of this Agreement. This Agreement creates no fiduciary or other special relationship between the Parties, and no such relationship otherwise exists. No presumption in favor of or against any Party in the construction or interpretation of this Agreement or any provision hereof shall be made based upon which Person might have drafted this Agreement or such provision.

 

Section 8.17 Headings. The headings contained in this Agreement are intended solely for convenience and shall not affect the rights of the Parties.

 

Section 8.18 No Assignment or Delegation. No Party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation of law, or otherwise, without the written consent of all of the other Parties and any purported assignment or delegation without such consent shall be null and void and of no force or effect, in addition to constituting a material breach of this Agreement. This Agreement shall be binding on the permitted successors and assigns of the Parties.

 

Section 8.19 Commercially Reasonable Efforts. Subject to the terms and conditions herein provided, each Magiclytics Party and the Company shall use their respective commercially reasonable efforts to perform or fulfill all conditions and obligations to be performed or fulfilled by it under this Agreement so that the transactions contemplated hereby shall be consummated as soon as practicable, and to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective this Agreement and the transactions contemplated herein.

 

Section 8.20 Further Assurances. From and after the Closing Date, each Party shall execute and deliver such documents and take such action, as may reasonably be considered within the scope of such Party’s obligations hereunder, necessary to effectuate the transactions contemplated by this Agreement.

 

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Section 8.21 Specific Performance. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by them in accordance with the terms hereof or were otherwise breached and that each Party hereto shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches of the provisions hereof and to enforce specifically the terms and provisions hereof, without the proof of actual damages, in addition to any other remedy to which they are entitled at law or in equity. Each Party agrees to waive any requirement for the security or posting of any bond in connection with any such equitable remedy, and agrees that it will not oppose the granting of an injunction, specific performance or other equitable relief on the basis that (a) the other Party has an adequate remedy at law, or (b) an award of specific performance is not an appropriate remedy for any reason at law or equity.

 

Section 8.22 Counsel. The Parties acknowledge and agree that Anthony L.G., PLLC (“Counsel”) has acted as legal counsel to the Company, that Christian Young is an officer and director of the Company, and that Counsel is not legal counsel to Mr. Young personally, either in connection with this Agreement and the Transactions, or otherwise. Each of the Parties acknowledges and agrees that they are aware of, and have consented to, the Counsel acting as legal counsel to the Company notwithstanding the relationship between the Company and Mr. Young, and that Counsel has advised each of the Parties to retain separate counsel to review the terms and conditions of this Agreement and the other documents to be delivered in connection herewith, and each applicable Party has either waived such right freely or has otherwise sought such additional counsel as it has deemed necessary. Each of the Parties hereby waives any conflict of interest that may arise as a result of the relationship between the Company and Mr. Young, and confirms that the Parties have previously negotiated the material terms of the agreements as set forth herein.

 

Section 8.23 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument. The execution and delivery of a facsimile or other electronic transmission of a signature to this Agreement shall constitute delivery of an executed original and shall be binding upon the person whose signature appears on the transmitted copy.

 

[Signatures Appear on Following Page]

 

31
 

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Closing Date.

 

  Tongji Healthcare Group, Inc.
   
  By: /s/ Amir Ben-Yohanan
  Name:  Amir Ben-Yohanan
  Title: Chief Executive Officer

 

  Digital Influence Inc.
   
  By: /s/ Wilfred Man
  Name:  Wilfred Man
  Title: Chief Executive Officer

 

Shareholders’ Representative:
                                                
  By: /s/ Christian Young
  Name:  Christian Young

 

  Shareholders:
   
  Christian Young
     
  By: /s/ Christian Young
  Name:  Christian Young

 

  Robert Cohen
   
  By: /s/ Robert Cohen
  Name:  Robert Cohen

 

  Wilfred Man
   
  By: /s/ Wilfred Man
  Name:  Wilfred Man

 

  Sultan Alsuwaidi
   
  By: /s/ Sultan Alsuwaidi
  Name:  Sultan Alsuwaidi

 

32

 

 

Exhibit 10.1

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION ARE NOT REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS NOTE IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH HEREIN.

 

Principal Amount: $2,400,000 Issue Date: February 2, 2021

 

Clubhouse Media Group, Inc.

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, pursuant to the terms and conditions of this Convertible Promissory Note (this “Note”), Clubhouse Media Group, Inc., a Nevada corporation (the “Company”), hereby promises to pay to the order of Amir Ben-Yohanan, or registered assigns (the “Holder”), as set forth herein the sum of $2,400,000 (the “Principal Amount”), and to pay interest on the outstanding Principal Amount at the rate of eight percent (8%) per annum, simple interest, in each case to the extent that this Note and the Principal Amount and any accrued interest hereunder (the “Indebtedness”) has not been converted into Conversion Shares (as defined below) prior to the Maturity Date (as defined below). Interest shall commence accruing on the date hereof (the “Issue Date”), computed on the basis of a 365-day year and the actual number of days elapsed, and shall be payable as set forth herein.

 

The Company and the Holder acknowledge and agree that this Note is a replacement note for the promissory note between the Holder and WHP Entertainment, LLC, a California limited liability company which has since changed its name to Doiyen, LLC, dated as of January 2, 2020 (the “Prior Note”), which Prior Note erroneously named West of Hudson Group, Inc., a Delaware corporation and a wholly owned subsidiary of the Company as the borrower due to a scrivener’s error, pursuant to which the Holder has previously advanced to such entity the Principal Amount and which has accrued to the benefit of the Company. Effective as of the Issue Date, the Prior Note is hereby terminated and is of no further force or effect.

 

This Note is not a certificate of deposit or similar obligation of, and is not guaranteed or insured by, any depository institution, the Federal Deposit Insurance Corporation, the Securities Holder Protection Corporation or any other governmental or private fund or entity.

 

The following terms shall apply to this Note:

 

Section 1. Interest; Payment; Prepayments.

 

(a) No payments of Indebtedness shall be due or payable prior to the one year anniversary of the Issue Date.

 

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(b) Commencing on the one year anniversary of the Issue Date, the Company shall commence making monthly payments of Principal and accrued interest as required to amortize this Note and the outstanding Indebtedness over the following 24 months.

 

(c) To the extent not converted to Conversion Shares (as defined below) prior to the Maturity Date, the outstanding Indebtedness shall be due and payable in full on the third anniversary of the Issue Date (the “Maturity Date”).

 

(d) The Company may prepay all or any portion of the Principal Amount and any accrued and unpaid interest at any time without penalty.

 

(e) Interest on this Note shall accrue on a simple interest, non-compounded basis, and shall be added to the Principal Amount on the Maturity Date or such earlier date as the Indebtedness may be paid hereunder or may be due hereunder pursuant to the terms herein, at which time all Indebtedness shall be due and payable, unless earlier converted into Conversion Shares. In the event that any amount due hereunder is not paid as and when due, such amounts shall accrue interest at the rate of 10% per year, simple interest, non-compounding, until paid.

 

(f) Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day (as defined below), such payment shall be made on the next succeeding Business Day. For purposes herein, a “Business Day” shall be any day on which commercial banks in Nevada are generally required to be open for business.

 

Section 2. Conversion.

 

(a) Automatic Conversion. At the time of the qualification by the United States Securities and Exchange Commission (the “SEC”) of the Company’s Offering Circular (expected to be filed shortly after the Issue Date), pursuant to Regulation A under the Securities Act of 1933, as amended (the “Offering Circular”), $1,000,000 of the Indebtedness shall, automatically and without any further action of the Company or the Holder, be converted into a number of restricted fully paid and non-assessable shares of shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”) equal to (i) $1,000,000 divided by (ii) the price per share of the Common Stock as offered in the Offering Circular, rounded to the nearest whole share (the “Conversion Shares”), provided, however, that in the event that the Company has repaid an amount of the Indebtedness as of such time such that the remaining Indebtedness is less than $1,000,000, then such amount of remaining Indebtedness shall be substituted for the $1,000,000 figure in clause (i) of this sentence. For the avoidance of doubt, the Conversion Shares shall be unregistered shares of Common Stock and shall not be the shares of Common Stock which are offered for sale pursuant to the Offering Circular. For the avoidance of doubt, in the event that the Offering Circular is not declared effective prior to the Maturity Date, none of the Indebtedness shall convert or be convertible into shares of Common Stock.

 

(b) Mechanics of Conversion. No notice of conversion shall be required to effect the conversion as set forth in Section 2(a), and such conversion shall be automatic as of the date of the SEC’s qualification of the Offering Circular (the “Conversion Date”).

 

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(c) Adjustment of Indebtedness and Surrender of Note. On the Conversion Date, the Indebtedness hereunder be automatically reduced by the amount of the Indebtedness converted to Conversion Shares pursuant to Section 2(a). Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless the entire unpaid amount of Indebtedness is so converted or has been repaid. The Holder and the Company shall maintain records showing the amount of Indebtedness so converted and the date of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon the conversion. In the event of any dispute or discrepancy, such records of the Company shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid Indebtedness of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

(d) Payment of Taxes. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Conversion Shares or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Company shall not be required to issue or deliver any such Conversion Shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid.

 

(e) Delivery of Common Stock Upon Conversion. Upon conversion of the amount of the Indebtedness as set forth above, the Company shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates or a book entry statement (at the option of the Holder) from the Company’s transfer agent for the Conversion Shares issuable upon such conversion within three (3) Business Days after the Conversion Date (and, solely in the case of conversion of the entire unpaid Indebtedness, surrender of this Note) in accordance with the terms hereof. Upon the Conversion Date, the Holder shall be deemed to be the holder of record of the Conversion Shares issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Company defaults on its obligations under this Section 2, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Conversion Shares or other securities, cash or other assets, as herein provided, on such conversion. The Company’s obligation to issue and deliver the certificates (subject to the provisions of Section 2(f)) for Conversion Shares shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such conversion.

 

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(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates or a book entry statement representing the Conversion Shares issuable upon conversion, provided the Company is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, upon request of the Holder and its compliance with the provisions contained in this Section 2, the Company shall use its reasonable efforts to cause its transfer agent to electronically transmit the Conversion Shares issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.

 

(g) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to full conversion of this Note, there shall be any merger, consolidation, or an exchange of shares, recapitalization or reorganization pursuant to a merger or consolidation, or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity, or in case of any sale or conveyance of all or substantially all of the assets or more than 50% of the total outstanding shares of the Company other than in connection with a plan of complete liquidation of the Company, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the Conversion Shares immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.

 

(h) Status as Shareholder. Subject to the terms and conditions herein, upon submission of a Notice of Conversion by the Holder, (i) this Note shall be deemed converted into Conversion Shares and (ii) the Holder’s rights as the holder of this Note shall cease and terminate, excepting only the right to receive the Conversion Shares as set out herein and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Company to comply with the terms of this Note.

 

Section 3. Notices.

 

(a) Any notice or other communications required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered to it or sent by email, overnight courier or registered mail or certified mail, postage prepaid, addressed as follows:

 

if to the Company, to:

 

Clubhouse Media Group, Inc.

Attn: Chris Young

201 Santa Monica Blvd., Suite 30

Santa Monica, California 90401

Email: chrisyoungjd@gmail.com

 

If to Holder, to:

 

Amir Ben-Yohanan

 

[______________]

[______________]

Email: : amir_yoh@yahoo.com

 

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(b) Any Party may change its address for notices hereunder upon notice to each other Party in the manner for giving notices hereunder.

 

(c) Any notice hereunder shall be deemed to have been given (i) upon receipt, if personally delivered, (ii) on the day after dispatch, if sent by overnight courier, (iii) upon dispatch, if transmitted by email with return receipt requested and received and (iv) three (3) days after mailing, if sent by registered or certified mail

 

Section 4. Miscellaneous.

 

(a) Governing Law; Etc.

 

  (i) This Note, and all matters based upon, arising out of or relating in any way to this Note or the transactions contemplated herein, including all disputes, claims or causes of action arising out of or relating to the this Note or the transactions contemplated herein, as well as the interpretation, construction, performance and enforcement of this Note, shall be governed by the laws of the United States and the State of Nevada, without regard to any jurisdiction’s conflict-of-laws principles.
     
  (ii) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREIN SHALL BE INSTITUTED SOLELY IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF CALIFORNIA, IN EACH CASE LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
     
  (iii) EACH PARTY HERETO HEREBY 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 ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREIN, THE PERFORMANCE THEREOF OR THE FINANCINGS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 4(a)(iii).

 

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  (iv) Each of the Parties acknowledge that each has been represented in connection with the signing of this waiver by independent legal counsel selected by the respective Party and that such Party has discussed the legal consequences and import of this waiver with legal counsel. Each of the Parties further acknowledge that each has read and understands the meaning of this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this waiver with legal counsel.

 

(b) Attorneys’ Fees. In the event that any Party institutes any action or suit to enforce this Note or to secure relief from any default hereunder or breach hereof, the prevailing Party shall be reimbursed by the losing Party for all costs, including reasonable attorney’s fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.

 

(c) Amendments; No Waivers; No Third-Party Beneficiaries; No Consequential Damages.

 

  (i) This Note may be amended, modified, superseded, terminated or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by both of the Parties.
     
  (ii) Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any Party of the performance of any obligation by another Party shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. Neither any failure or delay in exercising any right or remedy hereunder or in requiring satisfaction of any condition herein nor any course of dealing shall constitute a waiver of or prevent any Party from enforcing any right or remedy or from requiring satisfaction of any condition. No notice to or demand on a Party waives or otherwise affects any obligation of that Party or impairs any right of the Party giving such notice or making such demand, including any right to take any action without notice or demand not otherwise required by this Note. No exercise of any right or remedy with respect to a breach of this Note shall preclude exercise of any other right or remedy, as appropriate to make the aggrieved Party whole with respect to such breach, or subsequent exercise of any right or remedy with respect to any other breach.

 

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  (iii) This contract is strictly between the Parties and, except as specifically provided herein, no other Person and no director, officer, stockholder, employee, agent, independent contractor or any other Person shall be deemed to be a third-party beneficiary of this Note.
     
  (iv) Notwithstanding anything else contained herein, no Party shall seek, nor shall any Party be liable for, consequential, punitive or exemplary damages, under any tort, contract, equity, or other legal theory, with respect to any breach (or alleged breach) of this Note or any provision hereof or any matter otherwise relating hereto or arising in connection herewith.

 

(d) Expenses. Other than as specifically set forth herein, all costs and expenses incurred in connection with this Note shall be paid by the Party incurring such cost or expense.

 

(e) Further Assurances. Each Party shall execute and deliver such documents and other papers and take such further action as may be reasonably required to carry out the provisions of this Note.

 

(f) Successors and Assigns; Benefit. The provisions of this Note shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. No Party may assign, delegate or otherwise transfer any of its rights or obligations under this Note without the written consent of the other Party.

 

(g) Severability. If any provision of this Note is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Note shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner adverse to any Party. Upon such determination that any provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Note so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the Transactions are fulfilled to the extent possible.

 

(h) Entire Agreement. This Note constitutes the entire agreement between the Parties with respect to the subject matter hereof and thereof and supersedes all prior agreements and understandings, both oral and written, between the Parties with respect to the subject matter hereof and thereof.

 

(i) Specific Performance. Each Party agrees that irreparable damage would occur if any provision of this Note were not performed in accordance with the terms hereof and that each Party shall be entitled to seek specific performance of the terms hereof in addition to any other remedy at law or in equity.

 

(j) Construction. The headings contained in this Note are for reference purposes only and will not affect in any way the meaning or interpretation of this Note.

 

(k) Counterparts. This Note may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that each Party need not sign the same counterpart. A facsimile copy or electronic transmission of a signature page shall be deemed to be an original signature page.

 

[Signature page follows]

 

7

 

 

IN WITNESS WHEREOF, the Parties have caused this Note to be duly executed as of the Issue Date.

 

  Clubhouse Media Group, Inc.
 
  By: /s/ Chris Young
  Name:  Chris Young
  Title: President

 

Agreed and accepted:  
     
Amir-Ben Yohanan  
     
By: /s/ Amir-Ben Yohanan  
Name:  Amir-Ben Yohanan  
     
Acknowledged and Agreed as to the Prior Note  
     
Doiyen, LLC  
     
By: West of Hudson Group, Inc.  
Its: Sole Member  
     
By: /s/ Chris Young  
Name: Chris Young  
Title: President  

 

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Exhibit 10.2

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

Exhibit 10.3

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

Exhibit 10.4

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

Exhibit 10.5

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

Exhibit 10.6

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

Exhibit 10.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.8

 

CONSULTING AGREEMENT

 

Dated as of February 3, 2021

 

This Consulting Agreement (“Agreement”) is made and entered into as of the date first set forth above (the “Effective Date”), by and between (i) Clubhouse Media Group, Inc., a Nevada corporation (the “Company”) and (ii) Chris Young (“Consultant”). Each of the Company and Consultant may be referred to herein individually as a “Party” and collectively as the “Parties.”

 

WHEREAS, Consultant is in the business of providing services as described herein; and

 

WHEREAS, the Company deems it to be in its best interest to retain Consultant to render to the Company such services as may be needed; and

 

WHEREAS, the Parties agree, after having a complete understanding of the services desired and the services to be provided, that the Company desires to retain Consultant to provide such assistance through its services for the Company, and Consultant is willing to provide such services to the Company;

 

NOW, THEREFORE, in consideration of the mutual promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

1. Engagement. In exchange for the compensation as set forth herein and subject to the other terms and conditions hereinafter set forth, the Company hereby engages Consultant during the Term (as defined below), on a non-exclusive basis, to render the Services set forth in Section 2 as an independent contractor of the Company, and Consultant hereby accepts such engagement.

 

2. Services.

 

(a) Subject to the terms and conditions and for the Term, Consultant shall provide the Company with the following services and such additional services as agreed to by the Company and Consultant in writing following the Effective Date (collectively, the “Services”), in each case subject to the other limitations below:

 

(i) Obtaining and structuring “Campaigns” for the benefit of the Company and its subsidiaries, including Digital Influence Inc., a Wyoming corporation doing business as Magiclytics (“Magiclytics”), which shall be comprised of (1) providing a specific brand with a list of recommended influencers using Magiclytics’ power scoring system; and (2) tunning a predictive analysis for a brand’s influencer campaign (brands may run multiple ad campaigns at the same time or several throughout the year); and

 

(ii) Overseeing software development and continued software innovation;

 

(iii) Leading sales efforts for Magiclytics by managing a sales team that procures customers and provide customer support; and

 

(iv) Being responsible for day-to-day operations of Magiclytics, subject to the direction of the Board of Directors of Magiclytics.

 

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(b) Notwithstanding the definition of the “Services” as set forth above, it is acknowledged and agreed by the Company that Consultant carries no professional licenses, and is not rendering legal advice or performing accounting services, nor acting as an investment advisor or broker/dealer within the meaning of the applicable state and federal securities laws. The Services of Consultant shall not be exclusive nor shall Consultant be required to render any specific number of hours or assign specific personnel to the Company or its projects, however it is anticipated and agreed upon by both Parties that considerable time and resources will be required to fulfill the obligations to the Company under this agreement.

 

(c) Notwithstanding the definition of the “Services” as set forth above, the Consultant shall specifically not provide any of the following services to the Company: (i) negotiation for the sale of any the Company’s securities or participation in discussions between the Company and the potential investors; (ii) assisting in structuring any transactions involving the sale of the Company’s securities; (iii) engage in any pre-screening of potential investors to determine their eligibility to purchase any securities or engaging in any pre-selling efforts for the Company’s securities; (iv) discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; (v) engage in due diligence activities; (vi) provide advice relating to the valuation of or the financial advisability of any investments in the Company; or (vii) handle any funds or securities on behalf of the Company.

 

(d) Consultant will use his commercially reasonable efforts to provide the Services using the best of its professional skills and in a manner consistent with generally accepted standards for the performance of such work.

 

(e) Consultant shall devote such of Consultant’s time and effort necessary to the discharge of Consultant’s duties hereunder. The Company acknowledges that Consultant is engaged in other business activities, and that it will continue such activities during the term of this Agreement. Consultant shall not be restricted from engaging in other business activities during the term of this Agreement.

 

3. Compensation and Expenses.

 

(a) As full and complete compensation for Consultant’s agreement to perform the Services, the Company shall issue to Consultant certain shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”) as follows:

 

(i) Upon the first to occur of (i) Magiclytics actually receiving $500,000 in Gross Revenue following the Effective Date; and (ii) Magiclytics having conducted 1,250 Campaigns following the Effective Date which have attained the Milestone (as defined below) and which group of Campaigns have an average amount of Revenue actually paid to the Company of at least $400; the Company shall issue to Consultant a number of shares of Common Stock equal to (i) $393,750, divided by (ii) the VWAP (as defined below) as of the date that the earlier of clause (i) and clause (ii) of this Section 3(a)(i) have occurred (the “Tranche 1 Satisfaction Date”).

 

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(ii) Upon the first to occur of (i) Magiclytics actually receiving an additional $500,000 in Gross Revenue following the Tranche 1 Satisfaction Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns following the Tranche 1 Satisfaction Date which have attained the Milestone and which group of Campaigns have an average amount of Revenue actually paid to the Company of at least $400, the Company shall issue to Consultant a number of shares of Common Stock equal to (i) $393,750, divided by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) of this Section 3(a)(ii) have occurred (the “Tranche 2 Satisfaction Date”).

 

(iii)

Upon the first to occur of (i) Magiclytics actually receiving an additional $500,000 in Gross Revenue following the Tranche 2 Satisfaction Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns following the Tranche 2 Satisfaction Date which have attained the Milestone and which group of Campaigns have an average amount of Revenue actually paid to the Company of at least $400, the Company shall issue to Consultant a number of shares of Common Stock equal to (i) $393,750, divided by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) of this Section 3(a)(iii) have occurred (the “Tranche 3 Satisfaction Date”).

 

(iv)

Upon the first to occur of (i) Magiclytics actually receiving an additional $500,000 in Gross Revenue following the Tranche 3 Satisfaction Date; and (ii) Magiclytics having conducted an additional 1,250 Campaigns following the Tranche 3 Satisfaction Date which have attained the Milestone and which group of Campaigns have an average amount of Revenue actually paid to the Company of at least $400, the Company shall issue to Consultant a number of shares of Common Stock equal to (i) $393,750, divided by (ii) the VWAP as of the date that the earlier of clause (i) and clause (ii) of this Section 3(a)(iv) have occurred (the “Tranche 4 Satisfaction Date”).

 

(b) Following the Tranche 4 Satisfaction Date, at the end of each 12 month period following such date during the Term, the Company shall issue to Consultant a number of shares of Common Stock equal to (i) 4.5% of the Net Income (as defined below) of Magiclytics during such 12 month period divided by (ii) the VWAP as of the last date of such 12 month period. By way of example, and not limitation, in the event that the Tranche 4 Satisfaction Date is 3/31/2022, the applicable measurement period thereafter shall be from 4/1/22 to 3/30/23. For purposes herein, “Net Income” shall mean the net income of Magiclytics for the applicable period, as determined in accordance with Generally Accepted Accounting Principles in the United States, consistently applied, as determined by the Company’s accountants.

 

(c) The shares of Common Stock to be issued pursuant to Section 3(a) and Section 3(b) (the “Shares”) shall be issued within five (5) Business Days as of the Tranche 1 Satisfaction Date, the Tranche 2 Satisfaction Date, the Tranche 3 Satisfaction Date, the Tranche 4 Satisfaction Date or the end of the applicable period in Section 3(b), as applicable.

 

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(d) With respect to each Campaign, the “Milestone” shall be deemed achieved when (i) a definitive agreement or invoice related thereto (the “Campaign Document”) has been signed by the Company or Magiclytics on the one hand, and the applicable counterparty on the other hand; (ii) such Campaign Document has been provided to the Company or Magiclytics; (iii) the requirements on the part of the Company or Magiclytics for such Campaign as set forth in the Campaign Document have fulfilled; (iv) the applicable counterparty has actually paid the Company or Magiclytics such amount as required pursuant to the Campaign Document; and (iv) the Revenue received by the Company with respect to the Campaigns in the applicable measurement group of Campaigns average of the Revenue campaigns.

 

(e) For purposes herein, “Revenue” shall mean cash or other items of value (with the determination of the monetary value thereof being determined by the Board of Directors of the Company (the “Board”) with respect to any amounts not paid in cash) actually received by the Company during any applicable period.

 

(f) For purposes herein, the term “VWAP” shall mean for any date, the price determined by the first of the following clauses that applies:

 

(i) If the Common Stock is then listed for trading on the OTC Markets or a United States or Canadian national securities exchange (as applicable, the “Trading Market”), then the volume-weighted average (rounded to the nearest $0.0001) of the closing price of Common Stock on such Trading Market during the 20 Trading Day (as defined below) period immediately prior to the applicable measurement date, as reported by such Trading Market or other reputable source;

 

(ii) if the Common Stock is not then listed or quoted for trading on a Trading Market, and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; and

 

(iii) if the VWAP cannot be calculated for such security on such date on bases as set forth in Section 3(f)(i) or Section 3(f)(ii), the VWAP of such security on such date shall be the fair market value of such security as mutually determined in good faith by the Board and the Consultant after taking into consideration factors they may each deem appropriate, and provided that if the Company and the Shareholders’ Representative cannot so agree then such dispute shall be settled in accordance with the provisions for resolutions of disputes as set forth in the Agreement.

 

(g) All such determinations of the VWAP as set forth in Section 3(f)(i) or Section 3(f)(ii) shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.

 

(h) For purposes herein, “Trading Day” means any day on which the Common Stock (or any replacement security pursuant to Section 3(i)) is traded on the Trading Market or is otherwise reported on “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) or a similar organization or agency succeeding to its functions of reporting prices.

 

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(i) If, at any time prior to the determination of the VWAP, there shall be any merger, consolidation, or an exchange of shares, recapitalization or reorganization pursuant to a merger or consolidation, or other similar event, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity, or in case of any sale or conveyance of all or substantially all of the assets or more than 50% of the total outstanding shares of the Company other than in connection with a plan of complete liquidation of the Company, then the Consultant shall thereafter have the right to receive, if otherwise applicable hereunder, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock, such replacement stock, securities or assets, with equitable adjustments being made thereto with respect to the VWAP, as determined by the Company and the Consultant, and in the event that the shares of Common Stock shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity any references herein to the Common Stock, whether standing alone or as a part of another defined term, shall be deemed a reference to such replacement stock or securities.

 

(j) During the Term the Company will reimburse the Consultant’s travel and other reasonable expenses related to Consultant’s performance under this Agreement, on a monthly basis, within 30 days of Consultant’s submission to Company of invoices and receipts related to said expenses in form as reasonably acceptable to the Company. All expenses must be approved in writing by the Company in advance of Consultant incurring said expenses, and any expenses not pre-approved in writing by Company shall not be reimbursed and shall be Consultant’s sole responsibility.

 

(k) The issuance of the Shares, and the Company’s obligation to issue the Shares at any time, shall be subject to the pre-condition, if elected by the Company, that Consultant shall have delivered to the Company as of the applicable date of issuance a certificate of the Consultant executed by an authorized officer of Consultant, in form and substance as reasonably acceptable to the Company, certifying and confirming that the representations and warranties of the Consultant as set forth in Section 8(c) are true and correct in all respects as of the date of such issuance.

 

(l) The Shares shall be issued in book-entry format and shall not be certificated.

 

(m) Consultant shall be responsible for any and all taxes incurred by or payable by Consultant with respect to all compensation or reimbursement of expenses or any other payments made to Consultant hereunder. In furtherance thereof, Consultant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, all federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld by the Company with respect to such amount. Consultant shall be responsible for the payment of all taxes required to be paid in connection with the issuance or vesting of the Shares.

 

4. Term. The term of this Agreement shall commence on the Effective Date and shall continue for a period of five years thereafter (“Term”), unless sooner terminated in accordance with the terms herein. The Term may be renewed upon the mutual written agreement of the Parties via an amendment of this Agreement.

 

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5. Termination. This Agreement and the Term may be terminated by the Company with or without Cause (as defined below) or by the Consultant with or without Good Reason (as defined below), and shall automatically be terminated in the situations as set forth below.

 

(a) Definition of Cause. For purposes hereof, “Cause” shall mean:

 

(i) a material violation of any material written rule or policy of the Company applicable to Consultant and which the Consultant fails to correct within 10 days after the Consultant receives written notice from the Company;

 

(ii) misconduct by the Consultant to the material and demonstrable detriment of the Company;

 

(iii) the Consultant’s conviction (by a court of competent jurisdiction, not subject to further appeal) of, or pleading guilty to, a felony;

 

(iv) the Consultant’s continued and ongoing gross negligence in the performance of Consultant’s duties and responsibilities to the Company as described in this Agreement; or

 

(v) the Consultant’s material failure to perform Consultant’s duties and responsibilities to the Company as described in this Agreement, after written notice from the Company to the Consultant of the specific nature of such material failure and the Consultant’s failure to cure such material failure within 10 days following receipt of such notice.

 

(b) Definition of Good Reason. For purposes hereof, “Good Reason” shall mean any material breach by the Company of any of the terms and conditions of this Agreement which the Company fails to correct within 10 days after the Company receives written notice from Consultant of such violation.

 

(c) Termination by the Company. The Company may terminate the Term and this Agreement (and therefore Consultant’s engagement hereunder) at any time, with or without Cause.

 

(i) For Cause. In the event that the Company terminates the Term and this Agreement (and therefore Consultant’s engagement hereunder) with Cause, then in such event, (A) the Company shall issue to Consultant any Shares then owed or accrued, to be issued within the time period as set forth in Section 3(c), and shall pay any unreimbursed expenses incurred by the Consultant in each case through the termination date, to be paid within 10 days following the termination date; and (B) all of the Parties’ rights and obligations hereunder shall thereafter cease, other than such rights or obligations which arose prior to the termination date or in connection with such termination, and subject to Section 14(d).

 

(ii) Without Cause. In the event that the Company terminates the Term and this Agreement (and therefore Consultant’s engagement hereunder) without Cause, then in such event, (A) the Company shall issue to Consultant any Shares then owed or accrued, to be issued within the time period as set forth in Section 3(c), and shall pay any unreimbursed expenses incurred by the Consultant in each case through the termination date, to be paid within 10 days following the termination date; (B) the Company shall continue to issue to Consultant any Shares as would otherwise be issuable to Consultant for the remainder of the then-current Term, which shall be issued as and when such Shares would otherwise be issuable hereunder had the Term and Consultant’s engagement not been terminated; and (C) all of the Parties’ rights and obligations hereunder shall thereafter cease, other than such rights or obligations which arose prior to the termination date or in connection with such termination, and subject to Section 14(d).

 

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(d) Termination by the Consultant. The Consultant may terminate the Term and this Agreement (and therefore Consultant’s engagement hereunder) at any time at any time, with or without Good Reason.

 

(i) With Good Reason. In the event that Consultant terminates the Term and this Agreement (and therefore Consultant’s engagement hereunder) with Good Reason, the Company shall issue to Consultant the Shares, and Consultant shall be entitled to such benefits that would have been payable to Consultant or which Consultant would have received, had the Term and this Agreement (and therefore Consultant’s engagement hereunder) been terminated by the Company without Cause pursuant to Section 5(c)(ii).

 

(ii) Without Good Reason. In the event that Consultant terminates the Term and this Agreement (and therefore Consultant’s engagement hereunder) without Good Reason, the Company shall issue to Consultant the Shares, and Consultant shall be entitled to such benefits that would have been payable to Consultant or which Consultant would have received, had the Term and this Agreement (and therefore Consultant’s engagement hereunder) been terminated by the Company with Cause pursuant to Section 5(c)(i).

 

(e) Termination by Death or Disability. In the event of the Consultant’s death or total disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) during the Term, the Term and this Agreement (and therefore Consultant’s engagement hereunder) shall terminate on the date of death or total disability. In the event of such termination, the Company’s sole obligations hereunder to the Consultant (or the Consultant’s estate) shall be for issuance of Shares then owed or accrued, to be issued within the time period as set forth in Section 3(c), and payment of any unreimbursed expenses incurred by the Consultant in each case through the termination date, to be paid within 10 days following the termination date, and all of the Parties’ rights and obligations hereunder shall thereafter cease, other than such rights or obligations which arose prior to the termination date or in connection with such termination, and subject to Section 14(d).

 

(f) Post-Termination Assistance. Upon the termination of the Term and this Agreement (and therefore Consultant’s engagement hereunder), the Consultant agrees to fully cooperate in all matters relating to the winding up or pending work on behalf of the Company and the orderly transfer of work to other employees or independent contractors of the Company. The Consultant further agrees that Consultant will provide, upon reasonable notice, such information and assistance to the Company as may reasonably be requested by the Company in connection with any audit, governmental investigation, litigation, or other dispute in which the Company is or may become a party and as to which the Consultant has knowledge; provided, however, that (i) the Company agrees to reimburse the Consultant for any related out-of-pocket expenses, including travel expenses, and (ii) any such assistance may not unreasonably interfere with Consultant’s then current employment.

 

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6. No Employee Status. The Parties also acknowledge and agree that Consultant is an independent contractor and is not an employee or agent of Company in Consultant’s position as a consultant and advisor. As such, Company shall not be liable for any employment tax, withholding tax, social security tax, worker’s compensation or any other tax, insurance, expense or liability with respect to any or all compensation, reimbursements and remuneration Consultant may receive hereunder, all of which shall be the sole responsibility of Consultant. Consultant is solely responsible for the reporting and payment of, all pertinent federal, state, or local self-employment or income taxes, licensing fees, or any other taxes or assessments levied by governmental authorities, as well as for all other liabilities or payments related to those services. The Parties also acknowledge and agree that Consultant is not a licensed securities broker or salesperson, and that Consultant will not be participating in, nor compensated for, any unlicensed securities sales activities other than those permitted under any of the exemptions set forth in applicable securities laws.

 

7. Relationship of the Parties.

 

(a) Consultant is retained by the Company only for the purposes of and to the extent set forth in this Agreement, and Consultant’s relation to the Company during the period of Consultant’s engagement hereunder shall be that of an independent contractor. Consultant shall not, nor, as applicable, shall any of Consultant’s agents, have employee status with the Company or be entitled to participate in any plans, arrangements or distributions by the Company pertaining to or in connection with any pension, stock, bonus, profit-sharing or similar benefits as may be available to the Company’s employees. Consultant shall be responsible for the reporting and payment of all income and self-employment taxes for all compensation paid to Consultant hereunder.

 

(b) This Agreement does not create a relationship of principal and agent, joint venture, partnership or employment between the Company and Consultant. Consultant’ engagement hereunder is not a franchise or business opportunity. Neither Party shall be liable for any obligations incurred by the other except as expressly provided herein.

 

(c) Consultant shall not have authority to enter into contracts binding the Company or to create any obligations or incur liabilities on behalf of the Company. Consultant shall not act or represent himself, directly or by implication, as an agent of the Company with any authority other than as set forth expressly in this Agreement.

 

(d) Any person hired by Consultant shall be the employee of Consultant and not of the Company, and all compensation, payroll taxes, facilities and related expenses for any such employee shall be the sole responsibility of Consultant.

 

(e) Consultant acknowledges that it is not an officer, director or agent of Company, it is not, and will not, be responsible for any management decisions on behalf of Company, and may not commit Company to any action. Company represents that Consultant does not have, through stock ownership or otherwise, the power neither to control Company, nor to exercise any dominating influences over its management.

 

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8. Representations and Warranties.

 

(a) Representations and Warranties of the Company. Company represents and warrants hereunder that this Agreement and the transactions contemplated hereunder have been duly and validly authorized by all requisite corporate action; that Company has the full right, power and capacity to execute, deliver and perform its obligations hereunder; and that this Agreement, upon execution and delivery of the same by Company, will represent the valid and binding obligation of Company enforceable in accordance with its terms, subject to the application of bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and general principles of equity, regardless of whether enforceability is considered in a proceeding at law or in equity (the “Enforceability Exceptions”). The representations and warranties set forth herein shall survive the termination or expiration of this Agreement.

 

(b) General Representations and Warranties of Consultant. Consultant represents and warrants hereunder that this Agreement and the transactions contemplated hereunder have been duly and validly authorized by all requisite action; that Consultant has the full right, power and capacity to execute, deliver and perform Consultant’s obligations hereunder; and that this Agreement, upon execution and delivery of the same by Consultant, will represent the valid and binding obligation of Consultant enforceable in accordance with its terms, subject to the Enforceability Exceptions. Consultant represents and warrants that all personnel or agents of Consultant who perform any activities on behalf of the Company hereunder or otherwise are legally authorized and permitted to work in the United States and for the benefit of the Company hereunder. The representations and warranties set forth herein shall survive the termination or expiration of this Agreement The representations and warranties set forth herein shall survive the termination or expiration of this Agreement.

 

(c) Representation and Warranties of Consultant Related to the Shares. The representations and warranties set forth in this Section 8(c) are made on the Effective Date and thereafter shall be deemed re-made and re-given by Consultant to the Company on and as of each date that any Shares are issued to Consultant hereunder.

 

(i) Consultant is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated pursuant to the Securities Act of 1933, as amended (the “Securities Act”).

 

(ii) Consultant hereby represents that the Shares awarded pursuant to this Agreement are being acquired for Consultant’s own account and not for sale or with a view to distribution thereof. Consultant acknowledges and agrees that any sale or distribution of shares of Shares may be made only pursuant to either (a) a registration statement on an appropriate form under the Securities Act, which registration statement has become effective and is current with regard to the shares being sold, or (b) a specific exemption from the registration requirements of the Securities Act that is confirmed in a favorable written opinion of counsel, in form and substance satisfactory to counsel for the Company, prior to any such sale or distribution.

 

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(iii) Consultant understands that the Shares are being offered and sold to Consultant in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and Consultant’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Consultant set forth herein in order to determine the availability of such exemptions and the eligibility of the Consultant to acquire the Shares.

 

(iv) Consultant has been furnished with all documents and materials relating to the business, finances and operations of the Company and information that Consultant requested and deemed material to making an informed investment decision regarding Consultant’s acquisition of the Shares. Consultant has been afforded the opportunity to review such documents and materials and the information contained therein. Consultant has been afforded the opportunity to ask questions of the Company and its management. Consultant understands that such discussions, as well as any written information provided by the Company, were intended to describe the aspects of the Company’s business and prospects which the Company believes to be material, but were not necessarily a thorough or exhaustive description and the Company makes no representation or warranty with respect to the completeness of such information and makes no representation or warranty of any kind with respect to any information provided by any entity other than the Company. Some of such information may include projections as to the future performance of the Company, which projections may not be realized, may be based on assumptions which may not be correct and may be subject to numerous factors beyond the Company’s control. Additionally, Consultant understands and represents that Consultant is acquiring the Shares notwithstanding the fact that the Company may disclose in the future certain material information that the Consultant has not received. Consultant has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to Consultant’s investment in the Shares. Consultant has full power and authority to make the representations referred to herein, to acquire the Shares and to execute and deliver this Agreement. Consultant, either personally, or together with Consultant’s advisors has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Shares, is able to bear the risks of an investment in the Shares and understands the risks of, and other considerations relating to, a purchase of the Shares. Consultant and Consultant’s advisors have had a reasonable opportunity to ask questions of and receive answers from the Company concerning the Shares. Consultant’s financial condition is such that Consultant is able to bear the risk of holding the Shares that Consultant may acquire pursuant to this Agreement for an indefinite period of time, and the risk of loss of Consultant’s entire investment in the Company. Consultant has investigated the acquisition of the Shares to the extent Consultant deemed necessary or desirable and the Company has provided Consultant with any reasonable assistance Consultant has requested in connection therewith. No representations or warranties have been made to Consultant by the Company, or any representative of the Company, or any securities broker/dealer, other than as set forth in this Agreement.

 

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(v) Consultant acknowledges and agrees that an investment in the Shares is highly speculative and involves a high degree of risk of loss of the entire investment in the Company and there is no assurance that a public market for the Shares will ever develop and that, as a result, Consultant may not be able to liquidate Consultant’s investment in the Shares should a need arise to do so. Consultant is not dependent for liquidity on any of the amounts Consultant is investing in the Shares. Consultant has full power and authority to make the representations referred to herein, to acquire the Shares and to execute and deliver this Agreement. Consultant understands that the representations and warranties herein are to be relied upon by the Company as a basis for the exemptions from registration and qualification of the issuance and sale of the Shares under the federal and state securities laws and for other purposes.

 

(vi) Consultant understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Shares.

 

(vii) Consultant understands that until such time as the Shares has been registered under the Securities Act or may be sold pursuant to Rule 144, Rule 144A under the Securities Act or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Shares):

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

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9. Non-Solicitation. In recognition and consideration of Company’s existing business and other legitimate business interests, Consultant agrees that, for the Term and for a period of 2 years thereafter, Consultant shall not, directly or indirectly solicit or discuss with any employee of Company the employment of such Company employee by any other commercial enterprise other than Company, nor recruit, attempt to recruit, hire or attempt to hire any such Company employee on behalf of any commercial enterprise other than Company. Nothing in this Section 9 shall prohibit Consultant for undertaking a general recruitment advertisement provided that the foregoing is not targeted towards any person identified above, or from hiring, employing or engaging any such person who responds to such general recruitment advertisement. Consultant admits and agrees that Consultant’s breach of the provisions of this Section 9 would result in irreparable harm to Company. Accordingly, in the event of Consultant’s breach or threatened breach of this Section 9, Consultant agrees that Company shall be entitled to an injunction restraining such breach or threatened breach without the necessity of posting a bond or other security. Further, in the event of Consultant’s breach, the duration of the restrictions contained in this Section 9 shall be extended for the entire time that the breach existed so that Company is provided with the full time period provided herein. In addition to injunctive relief, Company shall be entitled to any other remedy available in law or equity by reason of Consultant’s breach or threatened breach of the restrictions contained in this Section 9. If the Company retains an attorney to enforce the provisions of this Section 9, the Company shall be entitled to recover its reasonable attorneys’ fees and costs so incurred from the applicable Investor, both prior to filing a lawsuit, during the lawsuit and on appeal. Consultant represents and warrants that it has carefully read and considered the provisions of this Section 9 and, having done so, agrees that the restrictions set forth in this Section 9 are fair and reasonable and are reasonably required for the protection of the legitimate business interests of the Company. In the event that a court of competent jurisdiction shall determine that any of the foregoing restrictions are unenforceable, the Parties hereto agree that it is their desire that such court substitute an enforceable restriction in place of any restriction deemed unenforceable, and that the substitute restriction be deemed incorporated herein and enforceable against Consultant. It is the intent of the Parties that the court, in so determining any such enforceable substitute restriction, recognize that it is their intent that the foregoing restrictions be imposed and maintained to the greatest extent possible.

 

10. Trade Names and Trademarks. Consultant agrees that it will use only such trade names, trademarks or other designations of the Company or any simulations thereof as may be authorized in writing by the Company. All such use shall be in accordance with the Company’s instructions and any such authorization may be withdrawn or modified at any time. Consultant will, in the event this Agreement is terminated, cease all use of any of the Company’s trade names, trademarks or other designations or other simulations thereof. Consultant will not register or attempt to register or assert any right of ownership in any of the Company’s trade names, trademarks or other designations or any simulations thereof. Consultant shall immediately notify the Company in writing upon learning of any potential or actual infringement of any trademark, patent, copyright or other proprietary right owned by or licensed to the Company, or of any actual or potential infringement by the Company of the rights of any third party.

 

11. Confidential Information.

 

(a) For purposes of this Agreement, and except as provided below, “Confidential Information” of the Company shall mean any confidential, proprietary or trade secret information, data or know-how which relates to the business, research, services, products, customers, suppliers, employees, or financial information of the Company or any of its subsidiaries or parent entities, including, but not limited to, product or service specifications, designs, drawings, prototypes, computer programs, models, business plans, marketing plans, financial data, financial statements, financial forecasts and statistical information, in each case that is marked as confidential, proprietary or secret, or with an alternate legend or marking indicating the confidentiality thereof or which, from the nature thereof should reasonably be expected to be confidential or proprietary, and any other Material Non-Public Information (as defined below), in each case which is disclosed by the Company or on its behalf, before or after the date hereof, to Consultant either in writing, orally, by inspection or in any other form or medium. Any technical or business information of a third person furnished or disclosed shall be deemed “Confidential Information” of the Company unless otherwise specifically indicated in writing to the contrary.

 

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(b) For purposes of this Agreement, and except as provided below, “Material Non-Public Information” shall mean any information obtained by Consultant hereunder, whether otherwise constituting Confidential Information or not, with respect to which there is a substantial likelihood that a reasonable investor would consider such information important or valuable in making any of his, her or its investment decisions or recommendations to others with respect to the Company or any of its equity securities or debt, or any derivatives thereof, or information that is reasonably certain to have a substantial effect on the price of the Company’s securities or debt, or any derivatives thereof, whether positive or negative.

 

(c) For a period of five (5) years from the date of its receipt, Consultant agrees to use the Confidential Information only for the purpose of performing the Services (the “Purpose”) and shall use reasonable care not to disclose Confidential Information to any non-affiliated third party, such care to be at least equal to the care exercised by Consultant as to Consultant’s own Confidential Information, which standard of care shall not be less than the current industry standard in effect as of the date of such receipt. Consultant agrees that it shall make disclosure of any such Confidential Information only to employees (including temporary and leased employees subject to a confidentiality obligation), officers, directors, attorneys and wholly owned subsidiaries (collectively, “Representatives”), to whom disclosure is reasonably necessary for the Purpose. Consultant shall appropriately notify such Representatives that the disclosure is made in confidence and shall be kept in confidence in accordance with this Agreement. Consultant shall be responsible for the failure of Consultant’s Representatives to comply with the terms of this Agreement.

 

(d) In addition, Consultant agrees that, for as long as any information, including Confidential Information, continues to meet the definition of Confidential Information as set forth herein, Consultant shall not (1) buy or sell any securities or derivative securities of or related to the Company or any of its subsidiaries or parent entities, or any interest therein or (2) undertake any actions or activities that would reasonably be expected to result in a violation of the Securities Act or the rules and regulations thereunder, or of the Securities Exchange Act of 1934, as amended, including, without limitation, Section 10(b) thereunder, or the rules and regulations thereunder, including, without limitation, Rule 10b-5 promulgated thereunder.

 

(e) Without the prior consent of the Company, Consultant shall not remove any proprietary, copyright, trade secret or other protective legend from the Confidential Information.

 

(f) Consultant acknowledges that the Confidential Information disclosed hereunder may constitute “Technical Data” and may be subject to the export laws and regulations of the United States. Consultant agrees it will not knowingly export, directly or indirectly, any Confidential Information or any direct product incorporating any Confidential Information, whether or not otherwise permitted under this Agreement, to any countries, agencies, groups or companies prohibited by the United States Government unless proper authorization is obtained.

 

(g) Nothing herein shall be construed as granting to Consultant or Consultant’s affiliates any right or license to use or practice any of the information defined herein as Confidential Information and which is subject to this Agreement as well as any trade secrets, know-how, copyrights, inventions, patents or other intellectual property rights now or hereafter owned or controlled by the of the Company. Except as allowed by applicable law, Consultant shall not use any tradename, service mark or trademark of the of the Company or refer to the of the Company in any promotional or sales activity or materials without first obtaining the prior written consent of the Company.

 

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(h) The obligations imposed in this Agreement shall not apply to any information that:

 

(i) was already in the possession of Consultant at the time of disclosure without restrictions on its use or is independently developed by Consultant after the effective date of this Agreement, provided that the person or persons developing same have not used any information received from the Company in such development, or is rightfully obtained from a source other than from the Company;

 

(ii) is in the public domain at the time of disclosure or subsequently becomes available to the general public through no fault of Consultant;

 

(iii) is obtained by Consultant from a third person who is under no obligation of confidence to the Company; or

 

(iv) is disclosed without restriction by the Company.

 

(i) Consultant may disclose such Confidential Information as required to be disclosed pursuant to the order of a court or administrative body of competent jurisdiction or a government agency, provided that Consultant shall notify the Company prior to such disclosure and shall cooperate with the Company in the event the Company elects to legally contest, request confidential treatment, or otherwise avoid such disclosure and shall thereafter only disclose such portion of the Confidential Information as legally required to disclose.

 

(j) Upon termination of this Agreement for any reason or upon request by the Company made at any time, all Confidential Information, together with any copies of same as may be authorized herein, shall be returned to the Company, or destroyed and certified as such by an officer of Consultant. Consultant may retain one copy of all written Confidential Information for Consultant’s files for reference in the event of a dispute hereunder.

 

(k) As between the Company and Consultant, the Confidential Information and any Derivative thereof (as defined below), whether created by the Company or Consultant, will remain the property of the Company. For purposes of this Agreement, “Derivative” shall mean: (i) for copyrightable or copyrighted material, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted, and which constitutes a derivative work under the Copyright laws of the United States; (ii) for patentable or patented material, any improvement thereon; and (iii) for material which is protected by trade secret, any new material derived from such existing trade secret material, including new material which may be protected by copyright, patent and/or trade secret.

 

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12. Intellectual Property Rights.

 

(a) Disclosure of Work Product. As used in this Agreement, the term “Work Product” means any invention, whether or not patentable, know-how, designs, mask works, trademarks, formulae, processes, manufacturing techniques, trade secrets, ideas, artwork, software or any copyrightable or patentable works. Consultant agrees to disclose promptly in writing to Company, or any person designated by the Company, all Work Product that is solely or jointly conceived, made, reduced to practice, or learned by Consultant in the course of the provision of the Services or any work performed for the Company (“Company Work Product”). Consultant agrees (a) to use Consultant’s best efforts to maintain such Company Work Product in trust and strict confidence; (b) not to use Company Work Product in any manner or for any purpose not expressly set forth in this Agreement; and (c) not to disclose any such Company Work Product to any third party without first obtaining the Company’s express written consent on a case-by-case basis.

 

(b) Ownership of Company Work Product. Consultant agrees that any and all Company Work Product conceived, written, created or first reduced to practice in the performance of work under this Agreement shall be deemed “work for hire” under applicable law and shall be the sole and exclusive property of the Company.

 

(c) Assignment of Company Work Product. Consultant irrevocably assigns to the Company all right, title and interest worldwide in and to the Company Work Product and all applicable intellectual property rights related to the Company Work Product, including without limitation, copyrights, trademarks, trade secrets, patents, moral rights, contract and licensing rights (the “Proprietary Rights”). Except as set forth below, Consultant retains no rights to use the Company Work Product and agrees not to challenge the validity of the Company’s ownership in the Company Work Product. Consultant hereby grants to the Company a perpetual, non-exclusive, fully paid-up, royalty-free, irrevocable and world-wide right, with rights to sublicense through multiple tiers of sublicensees, to reproduce, make derivative works of, publicly perform, and display in any form or medium whether now known or later developed, distribute, make, use and sell any and all Consultant owned or controlled Work Product or technology that Consultant uses to complete the services and which is necessary for the Company to use or exploit the Company Work Product.

 

(d) Assistance. Consultant agrees to cooperate with the Company or its designee(s), both during and after the Term, in the procurement and maintenance of Company’s rights in Company Work Product and to execute, when requested, any other documents deemed necessary by Company to carry out the purpose of this Agreement. Consultant will assist the Company in every proper way to obtain, and from time to time enforce, United States and foreign Proprietary Rights relating to Company Work Product in any and all countries. Consultant’s obligation to assist Company with respect to Proprietary Rights relating to such Company Work Product in any and all countries shall continue beyond the termination of this Agreement, but the Company shall compensate Consultant at a reasonable rate to be mutually agreed upon after such termination for the time actually spent by Consultant at the Company’s request on such assistance.

 

(e) Execution of Documents. In the event the Company is unable for any reason, after reasonable effort, to secure Consultant’s signature on any document requested by the Company pursuant to this Section 12 within seven (7) days of the Company’s initial request to Consultant, Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as its agent and attorney in fact, which appointment is coupled with an interest, to act for and on Consultant’s behalf solely to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Section with the same legal force and effect as if executed by Consultant. Consultant hereby waives and quitclaims to the Company any and all claims, of any nature whatsoever, which Consultant now or may hereafter have for infringement of any Proprietary Rights assignable hereunder to the Company.

 

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(f) Consultant Representations and Warranties. Consultant hereby represents and warrants that: (i) Company Work Product will be an original work of Consultant or all applicable third parties will have executed assignments of rights reasonably acceptable to the Company; (ii) neither the Company Work Product nor any element thereof will infringe the intellectual property rights of any third party; (iii) neither the Company Work Product nor any element thereof will be subject to any restrictions or to any mortgages, liens, pledges, security interests, encumbrances or encroachments; and (iv) Consultant will not grant, directly or indirectly, any rights or interest whatsoever in the Company Work Product to any third party.

 

13. Indemnification. In the event either Party is subject to any action, claim or proceeding resulting from the other’s gross negligence or intentional breach of this Agreement, the Party at fault agrees to indemnify and hold harmless the other from any such action, claim or proceeding. Indemnification shall include all fees, costs and reasonable attorneys’ fees that the indemnified Party may incur. In claiming indemnification hereunder, the indemnified Party shall promptly provide the indemnifying Party written notice of any claim that the indemnified Party reasonably believes falls within the scope of this Agreement. The indemnified Party may, at its expense, assist in the defense if it so chooses, provided that the indemnifying Party shall control such defense, and all negotiations relative to the settlement of any such claim. Any settlement intended to bind the indemnified Party shall not be final without the indemnified Party’s written consent. Any liability of a Party and its officers, directors, controlling persons, employees or agents shall not exceed the amount of fees actually paid to Consultant by the Company pursuant this Agreement.

 

14. Miscellaneous.

 

(a) Notices. All notices under this Agreement shall be in writing. Notices may be served by certified or registered mail, postage paid with return receipt requested; by private courier, prepaid; by other reliable form of electronic communication; or personally. Mailed notices shall be deemed delivered five (5) days after mailing, properly addressed. Couriered notices shall be deemed delivered on the date that the courier warrants that delivery will occur. Electronic communication notices shall be deemed delivered when receipt is either confirmed by confirming transmission equipment or acknowledged by the addressee or its office. Personal delivery shall be effective when accomplished. Any Party may change its address by giving notice, in writing, stating its new address, to the other Party. Subject to the forgoing, notices shall be sent as follows:

 

If to the Company:

 

Clubhouse Media Group, Inc.

Attn: Amir Ben-Yohanan

201 Santa Monica Blvd., Suite 30

Santa Monica, California 90401

Email: amir_yoh@yahoo.com

 

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If to Consultant, to:

 

Chris Young

________________________

________________________

Email: chrisyoungjd@gmail.com

 

(b) Accuracy of Statements. Each Party represents and warrants that no representation or warranty contained in this Agreement, and no statement delivered or information supplied to the other Party pursuant hereto, contains an untrue statement of material fact or omits to state a material fact necessary in order to make the statements or information contained herein or therein not misleading. The representations and warranties made in this Agreement will be continued and will remain true and complete in all material respects and will survive the execution of the transactions contemplated hereby.

 

(c) Entire Agreement. This Agreement sets forth all the promises, covenants, agreements, conditions and understandings between the Parties, and supersedes all prior and contemporaneous agreements, understandings, inducements or conditions, expressed or implied, oral or written, except as herein or therein contained.

 

(d) Survival. The provisions of Section 5, Section 8(c), Section 9, Section 10, Section 11, Section 12, Section 13 and Section 14 of this Agreement, and any additional provisions as required to effect any of such Sections, shall survive any termination or expiration hereof. Upon any termination of the Term and this Agreement, , and provided that no expiration or termination of this Agreement shall excuse a Party for any liability for obligations arising prior to such expiration or termination.

 

(e) Binding Effect; Assignment. This Agreement shall be binding upon the Parties, their heirs, administrators, successors and assigns. Neither Party may otherwise assign or transfer its interests herein, or delegate its duties hereunder, without the written consent of the other Party. Any assignment or delegation of duties in violation of this provision shall be null and void.

 

(f) Amendment. The Parties hereby irrevocably agree that no attempted amendment, modification, termination, discharge or change (collectively, “Amendment”) of this Agreement shall be valid and effective, unless the Parties shall unanimously agree in writing to such Amendment.

 

(g) No Waiver. No waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the Party against whom it is asserted, and any such written waiver shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver. No failure to exercise and no delay in exercising on the part of either of the Parties any right, power or privilege under this Agreement shall operate as a waiver of it, nor shall any single or partial exercise of any other right, power or privilege preclude any other or further exercise of its exercise of any other right, power or privilege

 

(h) Gender and Use of Singular and Plural. All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the Party or Parties, or their personal representatives, successors and assigns may require.

 

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(i) Headings. The article and section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Agreement.

 

(j) Governing Law; Etc.

 

(i) This Agreement, and all matters based upon, arising out of or relating in any way to the transactions contemplated herein, including all disputes, claims or causes of action arising out of or relating to this Agreement or the transactions contemplated herein as well as the interpretation, construction, performance and enforcement of this Agreement, shall be governed by the laws of the United States and the State of Nevada, without regard to any jurisdiction’s conflict-of-laws principles.

 

(ii) SUBJECT TO SECTION 14(k), ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE CONTEMPLATED TRANSACTIONS SHALL BE INSTITUTED SOLELY IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF CALIFORNIA, IN EACH CASE LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(iii) EACH PARTY HERETO HEREBY 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 ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS, THE PERFORMANCE THEREOF OR THE FINANCINGS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 14(j)(iii).

 

(iv) Each of the Parties acknowledge that each has been represented in connection with the signing of this waiver by independent legal counsel selected by the respective Party and that such Party has discussed the legal consequences and import of this waiver with legal counsel. Each of the Parties further acknowledge that each has read and understands the meaning of this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this waiver with legal counsel.

 

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(k) Resolution of Disputes. Except as otherwise provided herein, all controversies, disputes or actions between the Parties arising out of this Agreement, including their respective Affiliates, owners, officers, directors, agents and employees, arising from or relating to this Agreement shall on demand of either Party be submitted for arbitration to in accordance with the rules and regulations of the American Arbitration Association. The arbitration shall be conducted by one arbitrator jointly selected by each Party who is a party to the Dispute, provided, however, that if such Parties are unable to agree on the identity of the arbitrator within 10 Business Days of commencement of efforts to do so, each Party who is a party to the Dispute shall select one arbitrator and the arbitrators so selected shall select a final arbitrator, and the final arbitrator shall conduct the arbitration alone. The Parties agree that, in connection with any such arbitration proceeding, each shall submit or file any claim which would constitute a compulsory counterclaim (as defined by Rule 13 of the Federal Rules of Civil Procedures) within the same proceeding as the claim to which it relates. Any such claim which is not submitted or filed in such proceeding shall be barred. The arbitrator shall be instructed to use every reasonable effort to perform its services within seven days of request, and, in any case, as soon as practicable. The Parties agree to be bound by the provisions of any limitation on the period of time by which claims must be brought under Nevada law or any applicable federal law. The arbitrator(s) shall have the right to award the relief which he or she deems proper, consistent with the terms of this Agreement, including compensatory damages (with interest on unpaid amounts from due date), injunctive relief, specific performance, legal damages and costs. The award and decision of the arbitrator(s) shall be conclusive and binding on all Parties, and judgment upon the award may be entered in any court of competent jurisdiction. Any right to contest the validity or enforceability of this award shall be governed exclusively by the United States Arbitration Act. The arbitration shall be conducted in Los Angeles, California. The provisions of this Section 14(k) shall continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement.

 

(l) Severability; Expenses; Further Assurances. If any term, condition or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties 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 by this Agreement be consummated as originally contemplated to the fullest extent possible. Except as otherwise specifically provided in this Agreement, each Party shall be responsible for the expenses it may incur in connection with the negotiation, preparation, execution, delivery, performance and enforcement of this Agreement. The Parties shall from time to time do and perform any additional acts and execute and deliver any additional documents and instruments that may be required by Law or reasonably requested by any Party to establish, maintain or protect its rights and remedies under, or to effect the intents and purposes of, this Agreement.

 

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(m) Specific Performance. Each Party agrees that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that each Party shall be entitled to seek specific performance of the terms hereof in addition to any other remedy at law or in equity.

 

(n) Consequential Damages. EACH PARTY HERETO WAIVES ANY AND ALL CLAIMS AGAINST THE OTHER FOR ANY LOSS, COST, DAMAGE, EXPENSE, INJURY OR OTHER LIABILITY WHICH IS IN THE NATURE OF INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES WHICH ARE SUFFERED OR INCURRED AS THE RESULT OF, ARISE OUT OF, OR ARE IN ANY WAY CONNECTED TO THE PERFORMANCE OF THE OBLIGATIONS UNDER THIS AGREEMENT.

 

(o) Attorneys’ Fees. If any Party hereto is required to engage in litigation against any other Party, either as plaintiff or as defendant, in order to enforce or defend any rights under this Agreement, and such litigation results in a final judgment in favor of such Party (“Prevailing Party”), then the party or parties against whom said final judgment is obtained shall reimburse the Prevailing Party for all direct, indirect or incidental expenses incurred, including, but not limited to, all attorneys’ fees, court costs and other expenses incurred throughout all negotiations, trials or appeals undertaken in order to enforce the Prevailing Party’s rights hereunder.

 

(p) Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each Party, and nothing in this Agreement, express or implied, is intended to confer upon any other person or entity any rights or remedies of any nature whatsoever under or by reason of this Agreement other than as specifically set forth herein.

 

(q) Execution in Counterparts, Electronic Transmission. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. The signature of any Party which is transmitted by any reliable electronic means such as, but not limited to, a photocopy, electronically scanned or facsimile machine, for purposes hereof, is to be considered as an original signature, and the document transmitted is to be considered to have the same binding effect as an original signature or an original document.

 

[Signatures appear on following page]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

 

  Clubhouse Media Group, Inc.
     
  By: /s/ Amir Ben-Yohanan
  Name:  Amir Ben-Yohanan
  Title: Chief Executive Officer
     
  Chris Young
     
  By: /s/ Chris Young
  Name:  Chris Young

 

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Exhibit 99.1

 

Clubhouse Media Group Closes Acquisition of Magiclytics

 

LOS ANGELES, CA, February 8, 2021 – Clubhouse Media Group, Inc. (OTCMKTS:CMGR) (“Clubhouse Media” or the “Company”), an influencer-based marketing and media firm with a global aggregate social media reach of over 100 million followers, is pleased to announce the closing of the Company’s acquisition of Magiclytics, the world’s first Revenue Prediction Software platform for influencer-based marketing.

 

Wilfred Man, Founder and CEO of Magiclytics, remarked, “Integrating our platform and team into the flourishing influencer model at Clubhouse Media creates enormous complementarity, and we are thrilled to come on board. Our AI engine has processed billions of social, demographic, and financial data points in order to optimize virtually any influencer campaign. Simply put, we give brands meaningful insight into the ROI they can expect from an influencer before they part with a single penny.”

 

Historically, brands have turned to superficial and often misleading metrics – impressions, “likes”, sharing – as proxies for estimating returns on prospective influencer-based marketing across social media platforms. This process is rarely better than random guesswork because it incorrectly assumes a direct relationship between visibility and efficacy.

 

Magiclytics leverages its massive database and leading-edge proprietary AI-driven predictive analytics technology to project the actual return, in sales, from the pairing of a specific product with a specific influencer or group of influencers. Historical data maintained by Magiclytics demonstrates the accuracy of its technology.

 

Clubhouse Media believes that proprietary predictive analytics represents a potentially critical edge in an industry that is already large and growing rapidly. According to Magiclytics’ internal market research, the Company believes the total spend on influencer-based marketing grew 104% on a year-over-year basis in 2020 to reach $4.86 billion. The outlook for the space continues to be strong over coming years according to third-party research. For example, ResearchAndMarkets.com recently released its outlook, which shows the world’s influencer marketing platform industry set to grow from $6 billion in 2020 to $24 billion by 2025, at a rapid CAGR of 32%.

 

“This is the killer app in our marketplace,” commented Amir Ben Yohanan, CEO of Clubhouse Media. “We believe reliable predictive analytics can help Clubhouse Media attract bigger and better deals with top global brands. In addition, Magiclytics represents another income stream as a service to outside brands and influencers on a fee basis. It will also give us an analytic foundation to evaluate brand development projects and determine how we can best leverage and monetize our top in-house influencer talent.”

 

 
 

 

About Clubhouse Media

 

We believe Clubhouse Media represents the future of influencer media and marketing, with a global network of professionally run content houses, each of which has its own brand, influencer cohort and production capabilities. Clubhouse Media offers management, production and deal-making services to its handpicked influencers, a management division for individual influencer clients, and an investment arm for joint ventures and acquisitions for companies in the social media influencer space. Clubhouse Media’s management team consists of successful entrepreneurs with financial, legal, marketing, and digital content creation expertise.

 

Please follow us on Twitter: twitter.com/ClubhouseCMGR?s=20

 

FORWARD-LOOKING STATEMENTS: This release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management’s current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “would,” “could,” “will” and other words of similar meaning in connection with a discussion of future operating or financial performance.

 

Examples of forward-looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.

 

Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the Company’s actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, among others such as, but not limited to economic conditions, changes in the laws or regulations, demand for products and services of the company, the effects of competition and other factors that could cause actual results to differ materially from those projected or represented in the forward-looking statements. Any forward-looking information provided in this release should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.

 

Corporate Contact

Simon Yu, MBA

Phone: +1-702-479-3016

 

Investor Relations

Tiger Marketing & Branding Agency

info@TigerGMP.com