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): February 16, 2021, (January 27, 2021)

 

FORCE PROTECTION VIDEO EQUIPMENT CORP.

(Exact name of registrant as specified in its charter)

 

Florida   000-55519   45-1443512
(State or other jurisdiction of
incorporation or organization)
 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

2629 Townsgate Road, Suite 215

Westlake Village, CA 91361

(Address of principal executive offices )

 

(714) 312-6844

(Registrant’s telephone number, including area code)

 

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))

 

Title of Class   Trading Symbol   Name of Each Exchange on Which Registered
         

 

Indicate by check mark whether the registrant is an emerging growth company as defined in 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 checkmark 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. [  ]

 

 

 

 
 

 

EXPLANATORY NOTE

Capitalized terms not otherwise described in this Explanatory Note will have the meanings ascribed to them elsewhere in this Current Report on Form 8-K. On October 5, 2020, the Company disclosed in a Current Report on Form 8-K that it entered into the Share Exchange Agreement. In order to consummate the transaction, the Company was required to file an amendment to its articles of incorporation authorizing one trillion (1,000,000,000,000) shares of Common Stock (“Amended Articles”). On September 30, 2020, the holders of a majority of the voting power of the Company’s outstanding capital stock took action by way of a written consent and approved the Amended Articles.

On January 27, 2021, BIG Token announced the closing of the Share Exchange. Shortly after the announcement, the Company ascertained that it had failed to file the Amended Articles prior to such announcement and thus there were insufficient authorized shares available to consummate the transaction on the date of the announcement. As a result, the Company filed the Amended Articles subsequent to January 27, 2021 and the Company received approval from the Secretary of State of Florida that the Amended Articles were filed on February 3, 2021. As a result, the Company closed the Share Exchange on February 4, 2021.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the sections “Description of Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should carefully review the risks described in this Current Report on Form 8-K and in other documents we file from time to time with the Securities and Exchange Commission including our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

 

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

 

All references in this Form 8-K to the “Company,” “we,” “us” or “our” refer to Force Protection Video Equipment Corporation and our wholly owned subsidiary BIG token, Inc. on a consolidated basis. All references to “Common Stock” or “Common Shares” refers to the common stock, $0.0001 par value, of Forced Protection Video Equipment. All references to “BIG Token Application” refers to our consumer based platform, technologies offer and services used to identify and reach target consumers.

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On February 4, 2021, Force Protection Video Equipment Corporation (the “Company”) and SRAX, Inc. (“SRAX”) completed the share exchange transaction (“Share Exchange”) as described in the share exchange agreement (“Exchange Agreement”) entered into by and between the Company, SRAX, and Paul Feldman (the Company’s CEO and sole director) on September 30, 2020. The Exchange Agreement and proposed Share Exchange was disclosed in our Current Report on Form 8-K that was filed with the Securities and Exchange Commission (the “Commission” or “SEC”)) on October 5, 2020.

 

Pursuant to the Share Exchange, we acquired all of the outstanding capital stock of BIG Token, Inc. (“BIG Token”), a wholly owned subsidiary of SRAX. As a result, we became a majority owned subsidiary of SRAX, BIG Token became our wholly owned subsidiary and Force Protection Video Equipment Corporation adopted BIG Token’s business plan. In connection with the Share Exchange, we entered into the following agreements:

 

Amendment to Share Exchange Agreement

 

On January 27, 2021, the Company amended the Exchange Agreement (“Exchange Amendment”) pursuant to which, on a post-closing issued and outstanding basis, and not taking into account any shares of Common Stock issuable pursuant to the Company’s current Series B Preferred Stock offering or shares of Common Stock issuable upon the exercise or conversion of common stock equivalents: (i) SRAX will receive 88.90% of the issued and outstanding Common Stock, (ii) Paul Feldman will receive 0.50% of the issued and outstanding Common Stock in consideration for past due and unpaid deferred compensation, and (iii) Red Diamond Partners, LLC (“Red Diamond”) will receive 7,000,000,000 shares of unrestricted Common Stock as well as, 8,318 shares of the Company’s Series C Preferred Stock, convertible into approximately 12,864,419,313 shares of Common Stock, collectively representing approximately 10.1% of the Company on a fully diluted as converted basis. Please see the section below entitled—Exchange Agreement with Red Diamond Partners LLC for further information regarding this transaction.

 

 
 

 

Additionally, the Exchange Amendment provides that in the event the Company sells equity securities at a pre-money valuation of less than $10,000,000, resulting in SRAX owning less than 70% of the voting power of the issued and outstanding capital stock of the Company (on a fully diluted basis) post transaction, then SRAX will receive additional shares of Common Stock in such amount to make SRAX’s ownership percentage of the Company post transaction, equal to its ownership percentage immediately prior to such transaction (the “Anti-Dilution Protection”). Such Anti-Dilution Protection will lapse upon the Company raising aggregate funds of $5,000,000 at any time after September 30, 2020 or upon the Company’s securities being listed on a national exchange or quotation system.

 

Transition Services Agreement

 

On January 27, 2021, the Company entered into a Transition Services Agreement (“TSA”) with SRAX and BIG Token. Pursuant to the TSA, SRAX will provide the Company with certain transitional related services for such period of time as needed. Subsequent to the Share Exchange, the Company and BIG Token will pay SRAX, on a monthly basis, for certain services required to run the BIG Token business and platform separately from SRAX (as described in Item of this Current Report on Form 8-K (the “BIG Token Business”)), including but not limited to: (i) general and administrative services, (ii) finance and accounting services, (iii) technical operations, (iv) software services, (v) human resources services, (vi) use of facilities, (vii) and other services on an as needed basis if requested by the Company.

 

The TSA can be terminated by the Company upon notice to SRAX, or by the Company or SRAX upon 15 days-notice for certain uncured breaches, or in the event of other conditions as more fully set forth in the TSA.

 

Master Separation Agreement

 

On January 27, 2021, we entered into a Master Separation Agreement (“MSA”) with SRAX. Pursuant to the MSA, at or prior to the closing of the Share Exchange, (a) SRAX will transfer all of the BIG Token assets required to run the BIG Token Business including but not limited to (i) SRAXauto, SRAXcore, and SRAXshopper advertising tools and software, (ii) the BIG Token platform, (iii) associated BIG Token software and hardware; (iv) contracts associated with BIG Token, (v) intellectual property rights associated with BIG Token, (vi) bank accounts and certain inventory of BIG Token, and (vii) other assets that would be reflected on the carve out balance sheet of BIG Token contained in Item 9.01 of this Current Report on Form 8-K (the “BIG Token Balance Sheet”); and (b) certain liabilities and obligations related to the BIG Token Business including but not limited to (v) liabilities contained in the BIG Token Balance Sheet, (w) certain BIG Token accounts payable, (x) liabilities resulting from BIG Token contracts, (y) liabilities arising out of third-party claims against the BIG Token Business and its assets, and (z) other liabilities that arise out of or result from the BIG Token Business prior or subsequent to the closing of the Share Exchange. SRAX and the Company further agreed to take such steps necessary to facilitate the transfers, including continued efforts on each party if there is any delay in the assignment of any asset or liability.

 

The Company and SRAX further agreed to release each other from claims related to their respective assets and liabilities and to indemnify each other against claims related thereto, as more fully set forth in the MSA.

 

The MSA also requires, for as long as SRAX is required to consolidate our results of operations and financial position, that we agree to: (i) prepare its annual and quarterly financial statements in accordance with the general accepted accounting principles (GAAP), (ii) undertake certain internal controls and procedures over financial reporting, (iii) provide our preliminary financial statements to SRAX form review, (iv) file all required quarterly and annual reports with the Commission on a timely basis, (v) provide SRAX with all annual budgets and periodic financial projections related to our operations on a consolidated basis, (vi) cooperate with SRAX on all public filings, press releases, and proxy statements filed or disseminated by SRAX as needed, and (vii) to use the same certified public accountant as SRAX.

 

Provided that SRAX owns at least fifty percent (50%) of the total voting power of our capital stock, without the prior consent of SRAX, we (i) will not restrict the ability of SRAX to sell, transfer or dispose of the Common Stock, (ii) will not breach certain contraction obligation to which SRAX is a party to and pursuant to which we receive a benefit pursuant to the TSA, and (iii) will not make any acquisitions or dispositions of businesses or assets in excess of $3,000,000 in the aggregate, or acquire shares, or interest in any company or partnership or loans in excess of $3,000,000 in the aggregate.

 

 
 

 

Separation Agreement with Paul Feldman

 

On January 27, 2021, the Company entered into a separation agreement with Paul Feldman (“Separation Agreement”). Pursuant to the Separation Agreement, (i) Mr. Feldman’s employment with the Company was terminated effective January 27, 2021, (ii) Mr. Feldman received 841,184,289 shares of Common Stock in full satisfaction of any past due and unpaid compensation, and (iii) the parties mutually released each other from all claims associated with Mr. Feldman’s employment.

 

Common Stock Purchase Warrant issued to certain SRAX Debenture Holders

 

Pursuant to SRAX’s June 30, 2020 convertible debt offering (“Debt Offering”), as a condition to the divestiture of BIG Token by SRAX, we assumed the obligation to issue an aggregate of 25,568,064,462 Common Stock purchase warrants (the “FPVD Warrants”) to: (i) purchasers in the Debenture Offering and (ii) to certain SRAX warrant holders as consideration for amending their outstanding warrants to remove certain fundament transaction adjustments. The FPVD Warrants have a term of three (3) years, an exercise price of $0.00005844216 per share, and contain adjustments in the event of stock dividends and splits, subsequent rights offerings, pro rata distributions, and certain fundamental transactions as more fully described in the FPVD Warrants.

 

Additionally, the FPVD Warrants provide for price protection in the event that we issue Common Stock or Common Stock equivalents at an imputed pre-money valuation of less than $10,000,000 (“Qualifying Dilutive Issuance”). Upon the occurrence of a Qualifying Dilutive Issuance, (i) the number of shares underlying the FPVD Warrants will increase so that the holder of the FPVD Warrants will maintain the same percentage ownership immediately after the Qualified Dilutive Issuance as it did immediately prior thereto and (ii) the exercise price will be reduced so that the aggregate exercise price will remain unchanged after taking into account the additional shares. The adjustments to exercise price and number of shares underlying the FPVD Warrants will lapse and be of no further force or consequence upon the earlier of (y) the Company raising aggregate proceeds of $5,000,000 at any time after the issuance of the FPVD Warrants (with the holders receiving the benefit of such protection afforded by a Qualifying Dilutive Issuance until the first dollar over $5,000,000 is raised), and (z) the Common Stock becoming listed on a national exchange or quotation system. The FPVD Warrant provide for cashless exercise at any time after six (6) months of the issuance date in the event that the shares underlying the FPVD Warrants are not subject to an effective registration statement.

 

Exchange Agreement with Red Diamond Partners LLC

 

On January 27, 2021, the Company entered into an exchange agreement (“Debt Exchange Agreement”) with Red Diamond. Pursuant to the Debt Exchange Agreement, Red Diamond exchanged an aggregate of $815,520 plus accrued interest for (i) 7,000,000,000 shares of unrestricted Common Stock and (ii) 8,313 shares of Series C Convertible Preferred Stock, convertible into approximately 12,864,419,313 shares of Common Stock (“Series C Preferred Stock”). The terms of the Series C Preferred Stock are more fully described in Item 5.03 of this Current Report on Form 8-K. The Debt Exchange Agreement also provides that for a period of 6 months, Red Diamond will be limited to selling 20% of the five-day trailing average daily volume of the Common Stock.

 

Registration Rights Agreement with SRAX

 

On January 28, 2021, the Company entered into a registration rights agreement (“SRAX RRA”) with SRAX pursuant to which SRAX was provided with “Demand” and “Piggyback” registration rights with respect to 149,562,566,534 shares of Common Stock issued upon completion of the Share Exchange.

 

The foregoing summaries of each of the Exchange Amendment, TSA, MSA, Separation Agreement, FPVD Warrant, Debt Exchange Agreement, and SRAX RRA are qualified in their entirety by references to the full text of each such document, each of which is attached hereto as Exhibits 10.01, 10.02, 10.03, 10.04, 4.01, 10.05, and 10.09 respectively, and each of which is incorporated herein in its entirety by reference.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

As previously disclosed, on September 30, 2020, we entered into a share exchange agreement (the “Share Exchange Agreement”) with Paul Feldman, and SRAX to acquire BIG Token. The Share Exchange closed on February 4, 2021 The transaction resulted in a change of control of the Company and the appointment of a new board of directors and officers as described in Item 5.02 of this Current report on Form 8-K.

 

 
 

 

Item 1. Business.

 

Prior to the completion of the Share Exchange, BIG Token was an operating segment of SRAX. On February 4, 2021 we completed the Share Exchange. As a result, BIG Token became our wholly owned subsidiary and we adopted its business plan. We anticipate formally changing our name to BIG Token in the future. In connection with the Share Exchange, we also entered into certain agreements with SRAX including but not limited to the TSA and MSA. For description of the Share Exchange, Exchange Agreement, TSA and MSA, as well as a description of the other agreements entered into in connection with the Share Exchange, see the Item 1.01 of this Current Report on Form 8-K entitled “Entry into a Material Definitive Agreement” and the section of this Item 2.01 entitled Certain Relationships and Related Party Transactions—Relationship with SRAX” The terms of these agreements may be more or less favorable to us than if they had been negotiated with unaffiliated third parties. See the section entitled “Risk Factors—Risks Related to Our Separation from SRAX” Contained in this Section 2.01 below.

 

We were initially incorporated as M Street Gallery, Inc. in March of 2011, in the state of Florida. On September 25, 2013, we changed our name to Enhance-Your-Reputation.com, Inc. On February 1, 2015, we changed our name to Force Protection Video Equipment Corporation. Our headquarters are located in Westlake Village, California, but we work as a virtually distributed organization.

 

Company Overview

 

We are a data technology company offering a consumer based mobile application that allows consumers to own and earn from their digital data. We generate revenue by anonymizing the data, and using it to glean consumer insights that we sell to brand advertisers. Our consumer based platform and technologies offer tools and services to identify and reach the target consumers of our brand advertisers. Our technologies assist our clients in identifying their core consumers and such consumers’ characteristics across various channels in order to discover new and measurable opportunities that amplify the performance of marketing campaigns in order to maximize a return on marketing spend.

 

When consumers download our app, we ask them some questions, engage them with surveys, and ask them to connect their various online accounts including their bank accounts, credit card accounts, and social media accounts. Based on the amount of information they provide directly by answering questions or taking surveys, or passively, by connecting accounts, we’re able to track more than 4,000 attributes per consumer.

 

We derive our revenues from taking the data we collect, and deriving insights and audiences that we use to increase the efficiency of the online advertising of our clients. We then share the revenue generated with our consumers based on their activity and various other parameters.

 

To date, there have been more than 16 million accounts registered on BIGtoken. The vast majority of our registrations have been driven by referrals from existing users who get rewards for driving new users. Of the 16 million, we’ve “verified” over 9 million through emails and bot detection techniques.

 

Our Market Opportunity – Data Economy

 

The global big data market is forecasted to grow to $103B by 2027, more than double its market size in 2018. A consumer’s digital footprint includes everything they search for, view, read, listen to, purchase, like or comment on.

Data spending keeps rising - The majority of survey respondents (69.2%) said their organizations increased spending on data and related services in 2018 (relative to 2017), while over three-fourths (78.2%) anticipate investing even more in the coming year.

 

 
 

 

 

Data spending keeps rising - The majority of survey respondents (69.2%) said their organizations increased spending on data and related services in 2018 (relative to 2017), while over three-fourths (78.2%) anticipate investing even more in the coming year.

 

Companies are prioritizing data-driven insights in order to develop marketing strategy and allocate marketing spend

 

Government Regulation On Data Privacy Is Driving Major Tech Companies To Restrict Or Eliminate Traditional Data Collection Techniques

 

Regulation is changing the way businesses and tech can use data. In 2016, the European Union (EU) passed the General Data Protection Regulation (GDPR) to give individuals control over their personal data and to unify regulations within the EU. Other seminal regulatory events include the 2018 passage of the California Consumer Privacy Act (CCPA) intended to enhance privacy rights and consumer protection for Californians.

 

In response to the changing global regulatory environment around data privacy, major tech companies are changing how they allow their customers to collect user data. Notably, the major browsers, including Google’s Chrome and Apple’s Safari, are eliminating, or severely restricting, the use of 3rd party cookies. Those cookies have been a major way that brands have been able to identify and market to consumers. In addition, in iOS 14, Apple is changing the Identifier For Advertiser (IDFA) tags used by mobile apps to identify users from opt out, to opt-in.

 

As a result of the intensifying regulatory landscape, and the tech industry’s response, first-party opt-in data, like that collected by BIGtoken, is becoming increasingly valuable. As we scale our compliant first party data set, BIGtoken will be strongly positioned to capitalize on the rapidly evolving data marketplace. We are currently focused on increasing registered users on the platform, increasing the engagement of our users, monetizing our data driven insights, and rewarding our users for sharing their data.

 

Given the massive tailwinds in data privacy, and our focus on first-party opt-in data, we believe BIGToken is well positioned to accelerate growth as we play an increasingly larger role in ensuring data privacy is treated as a human right.

 

For additional information about government regulation applicable to our business, see Risk Factors in Part I, Item 1A.

 

 
 

 

Our Competitive Advantages — What Sets Us Apart

 

With the changing data privacy landscape, BIGtoken’s product offering is well positioned to provide marketing solutions compliant with these new and evolving regulations. BIGtoken’s product offering provides marketers with data solutions that traditional data providers cannot:

 

  Data accuracy for research and ad targeting
  Manage reach and frequency with greater accuracy across multiple media platforms
  Access to consumers at scale for research, measurement, and attribution
  Speed of execution for research and new targeting cohorts
  Ability to target advertising to consumers based on identity without cookies

 

Consumers are increasingly demanding data privacy, compensation for their data, and transparency and choice of how their data is used. The BIGtoken platform is focused on providing consumers with the tools they need to achieve their unique data requirements, including:

 

  Compensation
    Consumers earn when they opt-in to sharing their data and when that data is purchased.
     
  Choice
    Consumers decide what data is shared & who can buy it.
     
  Transparency
   

Consumers are fully aware of how their data is used.

 

Our Growth Strategy

 

Our business is currently based on using our mobile app to aggregate users who opt-in to providing us their data via direct and passive actions, anonymizing that data, and using that data to provide unique consumer insights that enable marketers to advertise more efficiently. We believe that as the information gathered through the BIGToken platform scales, we will be able to introduce new products, and monetize our growing user base at increasingly higher rates.

 

We are currently focused on increasing registered users on the platform, increasing the engagement of our users, monetizing our data driven insights, and rewarding our users for sharing their data. As part of this strategy, we continue to explore partnership opportunities that would allow us to leverage the capabilities of the BIGtoken platform to effectively grow the platform and increase and enhance our user experience and user rewards / compensation.

 

Examples of how we plan to use BIGToken and the proprietary consumer data derived therefrom include:

 

  The use of BIGToken user surveys and the sale of such information received from surveys.
     
  The creation and management of targeted rewards and loyalty programs based on information and buying trends ascertained by data captured on our BIGToken platform. We offer this solution both on and off the BIGtoken app.
     
  The ability to assist our customers in conducting market research based on analytics received from users of the BIGtoken platform.

 

 
 

 

  The ability to identify specific audiences for our customers and to target questions, surveys and data analytics geared toward our customers’ products / industries. Additionally, if we are unable to scale the needed information for a customer’s target audience, we may utilize our proprietary analytics to gain insight to further focus and refine user segments that need to be targeted in order to optimize data and media spend.

 

  The use of Lightning Insights that allow our customers to conduct research around specific audience groups through both long and short research studies.
     
 

The creation of customized loyalty programs that utilize rewards to drive consumer purchasing habits.

 

●     We plan to increasingly embrace crypto, including, but limited to, offering to reward our users with Bitcoin and other cryptocurrency, offering to pay our employees and vendors with crypto, offering our users digital wallets to store their crypto, enabling our users to store rewards in interest bearing stablecoins, holding cryptocurrency in our Treasury, developing our own Layer One Protocol optimized for users to own and monetize data, developing our own cryptocurrency to be used as rewards.

 

Marketing and sales

 

We market our services through our in-house sales team, with a focus today on the largest brand advertisers with the biggest advertising budgets. Our customers include 8 of the 10 largest brand advertisers, each poised to dramatically increase their spend with BIGtoken in 2021. We believe that our focus on the largest brand advertisers will not only drive meaningful revenue growth but will help build the BIGtoken brand as the leader in privacy focused, opt in, first-party data, positioning us well when we expand our focus to mid-market agencies and brands.

 

On the client side, our in-house marketing is focused on positioning BIGtoken as a thought leader in data privacy, via social media, including Facebook, LinkedIn and Twitter, public relations (PR), industry events and the creation of white papers which assist in our marketing efforts and are used as lead generation tools for our sales team.

 

On the consumer side, we are focused on marrying our privacy leadership, with a reward system that provides meaningful value to our users who provide us with meaningful data.

 

Intellectual property

 

We currently rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information. We have one Trademark, “BIGtoken.”

 

Competition

 

We operate in a highly competitive digital media and ad tech environment. We compete based on our ability to: assist our customers in obtaining the best available prices, data, and analytics, our customer service and, the quality and accessibility of our innovative products and service offerings. We believe our platform provides for a competitive advantage. We expect an increasing number of other companies to provide similar services, leading to an increasingly competitive landscape.

 

 
 

 

Management Opportunities, Challenges and Risks

 

As of February 14, 2021, BIG Token had 50 full-time employees.

 

Item 1A. Risk Factors.

 

RISK FACTORS

 

Investing in our Common Stock involves substantial risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Current Report, including our financial statements and the related notes included elsewhere in this Current Report, before deciding whether to invest in shares of our common stock. We describe below what we believe are currently the material risks and uncertainties we face, but they are not the only risks and uncertainties we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline and you could lose part or all of your investment.

 

Risks Related to the COVID-19 Pandemic

 

The COVID-19 pandemic, or other epidemic and pandemic diseases or governmental or other actions taken in response to them, could significantly disrupt our business.

 

Outbreaks of epidemic, pandemic or contagious diseases, such as the recent SARS-CoV-2 virus, or coronavirus, which causes coronavirus disease 2019, or COVID-19, or, historically, the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome or the H1N1 virus, could significantly disrupt our business. These outbreaks pose the risk that we or our employees, contractors, and other partners may be prevented from conducting business activities for an indefinite period of time due to spread of the disease within these groups, or due to restrictions that may be requested or mandated by governmental authorities. Business disruptions could include disruptions or restrictions on our ability to travel, as well as temporary closures of all or part of our facilities and the facilities of our partners. As the COVID-19 pandemic rapidly evolves and spreads, both across the United States and through much of the world, we continue to actively monitor the impact that COVID-19 is having and may have on our business.

 

As a result of the COVID-19 pandemic, the state of California, where our corporate offices are located, and many counties where our employees reside, have issued and may in the future issue orders for all residents to remain at home, except as needed for essential activities, and have placed restrictions on the scope and conduct of business activities. As a result, we have implemented work from home policies for a majority of our employees that may continue for an indefinite period. We have taken steps to ensure the safety of our patients and employees, while working to ensure the sustainability of our business operations as this unprecedented situation continues to evolve.

 

In addition, a significant outbreak of epidemic, pandemic or contagious diseases in the human population, such as the global COVID-19 pandemic, could result in a widespread health crisis and adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our current or future products.

 

While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a continuing widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the value of our common stock.

 

 
 

 

Risks Related to Our Business

 

We have a history of operating losses and there are no assurances we will report profitable operations in the foreseeable future.

 

We have losses from operations of $15,981,000 and $8,916,000 for the years ended December 31, 2018 and 2019, respectively, and $6,851,000 and $12,270,000 for the nine-month period ended September 30, 2020 2019, respectively. Our future success depends upon our ability to continue to grow our revenues, contain our operating expenses and generate profits. We do not have any long-term agreements with our customers. There are no assurances that we will be able to increase our revenues and cash flow to a level which supports profitable operations. We may continue to incur losses in future periods until such time, if ever, as we are successful in significantly increasing our revenues and cash flow beyond what is necessary to fund our ongoing operations and pay our obligations as they become due. If we are not able to grow, increase revenue and begin generating consistent profits, it is unlikely we will be able to generate sufficient cash from operations to pay our operating expenses and service our debt obligations, or report profitable operations in future periods.

 

We may not be able to continue as a going concern if we do not obtain additional financing.

 

We have incurred losses since our inception and have not demonstrated an ability to generate revenues from the sales of our proposed products. Our ability to continue as a going concern is dependent on raising capital from the sale of our common stock and/or obtaining debt financing. Our cash, cash equivalents and short-term investment balance as of September 30, 2020 was approximately $92,000. At the closing of the Share Exchange on February 4, 2021, we gained access to approximately $1,000,000 of previously encumbered cash pursuant to the sale of the Company’s Series B Preferred Stock, previously announced on October 26, 2020. Based on our cash, cash equivalents and short term investments, as well as the proceeds from our private placement, as well as our current expected level of operating expenditures, we expect to be able to fund our operations until February 28, 2021. Our ability to remain a going concern is wholly dependent upon our ability to continue to obtain sufficient capital to fund our operations. Accordingly, despite our ability to secure capital in the past, there can be no assurance that additional equity or debt financing will be available to us when needed or that we may be able to secure funding from any other sources. In the event that we are not able to secure funding, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.

 

We will need to raise additional capital to continue operations.

 

We have historically operated as a business unit of SRAX and accordingly, SRAX has funded our operations. As of September 30, 2020, we had minimal cash or cash equivalents or short-term investment. On February 4, 2021, upon the closing of the Share Exchange, we gained access to approximately $1,000,000 of previously encumbered capital. The funds were raised pursuant to our October 2020 private offering of our securities and were restricted until the closing of the Share Exchange. We anticipate that based upon our cash position on September 30, 2020 and taking into account the $1,000,000 in cash that we received in February 2021, we will be able to fund our operations until February 28, 2021. We cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt. Our inability to operate profitably, or secure additional financing will materially impact our ability to fund our current and planned operations.

 

We have spent and expect to continue spending substantial cash in the execution of our business plan and the development of the BIG Token platform. We cannot assure you that financing will be available if needed. If additional financing is not available, we may not be able to fund our operations, develop or enhance our product offerings, take advantage of business opportunities or respond to competitive market pressures. If we exhaust our cash reserves and are unable to secure additional financing, we may be unable to meet our obligations which could result in us initiating bankruptcy proceedings or delaying or eliminating some or all our research and product development programs.

 

 
 

 

Our failure to maintain an effective system of internal control over financial reporting may result in the need for us to restate previously issued financial statements. As a result, current and potential stockholders may lose confidence in our financial reporting, which could harm our business and value of our stock.

 

Or management has determined that, as of September 30, 2020, we did not maintain effective internal controls over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework as a result of identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Our auditors’ report on our December 31, 2019 consolidated financial statements expresses an opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Our current cash level raises substantial doubt about our ability to continue as a going concern past the beginning of the second quarter of 2021. If we do not obtain additional capital by such time, we may no longer be able to continue as a going concern and may cease operation or seek bankruptcy protection.

 

If we are unable to successfully retain and integrate a new management team, our business could be harmed.

 

We have historically operated as a business unit of SRAX. Our success depends largely on the development and execution of our business strategy by our senior management team. Effective February 16, 2021, Lou Kerner was appointed Chief Executive Officer. Our success depends largely on the development and execution of our business strategy by our senior management team. We currently have a limited executive team which may adversely affect our business. Additionally, the loss of any members or key personnel would likely harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate. There may be a limited number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify or employ such qualified personnel on acceptable terms, if at all. We cannot assure you that management will succeed in working together as a team. In the event we are unsuccessful, our business and prospects could be harmed.

 

We depend on the services of our executive officers and the loss of any of their services could harm our ability to operate our business in future periods.

 

Our success largely depends on the efforts and abilities of our or Chief Executive Officer, Lou Kerner. We are a party to an employment agreement with Mr. Kerner. Although we do not expect to lose his services in the foreseeable future, the loss of any of them could materially harm our business and operations in future periods until such time as we were able to engage a suitable replacement.

 

We have no operating history as a standalone entity or management team as presently configured which results in a high degree of uncertainty regarding our ability to effectively operate our business.

 

Our limited staff, operating history as well as our recently appointed management team means that there is a high degree of uncertainty regarding our ability to:

 

  develop and commercialize our technologies and proposed products;
  identify, hire and retain the needed personnel to implement our business plan;
  manage growth; or
  respond to competition.

 

No assurances can be given as to exactly when, if at all, we will be able to develop our business or take the necessary steps to derive net income.

 

 
 

 

The employment contract of Lou Kerner contains anti-termination provisions which could make changes in management difficult or expensive.

 

We have entered into an employment agreement with Lou Kerner, our Chief Executive Officer. This agreement may require the payment of severance in the event he ceases to be employed. The provision makes the replacement of Mr. Kerner costly and could cause difficulty in effecting any required changes in management or a change in control.

 

We may be required to expend significant capital to redeem BIGToken Points which will negatively impact our ability to fund our core operations.

 

Users of BIGToken receive points for undertaking certain actions on the platform that may be redeemed directly for cash from us, with such value as determined by management. Accordingly, we are currently obligated to redeem users’ points which are earned on BIGToken. We are currently redeeming each point for up to $0.01, subject to the user meeting certain conditions. As of September 30, 2020, we recorded a contingent liability for future point redemptions equal to approximately $263,000 and we have redeemed an aggregate amount of approximately $700,000. As of September 30, 2020, we had approximately 16 million application downloads. If our users continue to increase, we will be required to have enough cash reserves to redeem points held by our qualified users for cash. There can be no assurance that we will have enough cash reserves, or if we do have sufficient cash, if we will be able to continue to fund our other business obligations and operational expenses.

 

If our efforts to attract and retain BIGToken users are not successful, our number of users and the amount of data collected could fail to reach critical mass, grow or decline and our potential for BIGToken to earn revenues may be materially affected.

 

We will be dependent on advertisers to pay us for access to user data. We must attract users to grow the amount of accessible data and make it attractive to these third parties. If the public does not perceive our mission or our services to be reliable, valuable or of high quality, we may not be able to attract or retain users and create a critical mass of data which will impact our ability to earn revenues which could have a materially adversely affected us.

 

Natural disasters, epidemic or pandemic disease outbreaks, trade wars, political unrest or other events could disrupt our business or operations or those of our development partners, manufacturers, regulators or other third parties with whom we conduct business now or in the future.

 

A wide variety of events beyond our control, including natural disasters, epidemic or pandemic disease outbreaks (such as the recent novel coronavirus outbreak), trade wars, political unrest or other events could disrupt our business or operations or those of our manufacturers, regulatory authorities, or other third parties with whom we conduct business. These events may cause businesses and government agencies to be shut down, supply chains to be interrupted, slowed, or rendered inoperable, and individuals to become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. For example, California recently ordered most businesses closed, mandating work-from-home arrangements, where feasible, in response to the coronavirus pandemic. These limitations could negatively affect our business operations and continuity and could negatively impact ability to timely perform basic business functions, including making SEC filings and preparing financial reports. If our operations or those of third parties with whom we have business are impaired or curtailed as a result of these events, the development and commercialization of our products and product candidates could be impaired or halted, which could have a material adverse impact on our business.

 

Challenges in acquiring user data could adversely affect our ability to retain and expand BIGToken, and therefore could materially affect our business, financial condition and results of operations.

 

In order to expand BIGToken, we must continue to expend resources to make the submission of user data as user-friendly as possible. We, and our users, may face legal, logistical, cultural and commercial challenges in procuring user data. Additionally, once such data is obtained, if the process for validation and collection of rewards may be perceived as too cumbersome and discourage potential users from submission. We may need to expend significant resources on user interfaces for evolving platforms, such as mobile devices. Inconveniences to our users or potential users at any stage of the process may materially challenge our growth.

 

 
 

 

If we fail to ensure that the user data derived from BIGToken is of high quality, our ability to attract customers or monetize the data may be materially impaired.

 

The reliability of our user data depends upon the integrity and the quality of the process of accepting user data into BIGToken. We will take certain measures to validate user data submitted by our users and potential users to assure a high quality of data in BIGToken and generally confirming that data is submitted in accordance with our terms for such data. We must continue to invest in our quality control measures relating to BIGToken in order to provide a high-quality product to potential customers.

 

If BIGToken experiences an excessive rate of user attrition, our ability to attract customers could fail.

 

Users may elect to have their data deleted from BIGToken at any time. We must continually add new users both to replace users who choose to delete their data and to increase our user base. Users may choose to delete their data for many reasons. If users are concerned about privacy and security and do not perceive BIGToken to be reliable, if we fail to keep users engaged and interested in our application, or if we simply lose our users’ attention, we could fail to gather sufficient user data and our ability to earn revenues may be materially affected.

If we are unable to manage our marketing and advertising expenses, it could materially harm our results of operations and growth.

 

We plan to rely in part on our marketing and advertising efforts to attract new members. Our future growth and profitability, as well as the maintenance and enhancement of our brand, will depend in large part on the effectiveness and efficiency of our marketing and advertising strategies and expenditures. If we are unable to maintain our marketing and advertising channels on cost-effective terms, our marketing and advertising expenses could increase substantially, and our business, financial condition and results of operations may suffer. In addition, we may be required to incur significantly higher marketing and advertising expenses than we currently anticipate if excessive numbers of members withdraw their member data from our database.

 

Failure to comply with federal, state and local laws and regulations or our contractual obligations relating to data privacy, protection and security of BIGToken user data, and civil liabilities relating to breaches of privacy and security of user data, could damage our reputation and harm our business.

 

A variety of federal, state and local laws and regulations govern the collection, use, retention, sharing and security of user data. We will collect BIGToken user data from and about our members when they redeem rewards and maintain that date in our BIGToken Application. Claims or allegations that we have violated applicable laws or regulations related to privacy, data protection or data security could in the future result in negative publicity and a loss of confidence in us by our users and potential new users and may subject us to fines and penalties by regulatory authorities. In addition, we have privacy policies and practices concerning the collection, use and disclosure of user data as part of our agreements with our members, including ones posted on our website. Several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices. In addition, our use and retention of user data could lead to civil liability exposure in the event of any disclosure of such information due to hacking, malware, phishing, inadvertent action or other unauthorized use or disclosure. Several companies have been subject to civil actions, including class actions, relating to this exposure.

 

We have incurred, and will continue to incur, expenses to comply with data privacy, protection and security standards and protocols for BIGToken user data imposed by law, regulation, self-regulatory bodies, industry standards and contractual obligations. Such laws, standards and regulations, however, are evolving and subject to potentially differing interpretations, and federal, state and provincial legislative and regulatory bodies may expand current or enact new laws or regulations regarding privacy matters. Additionally, we accept user from foreign countries which subjects us to the personal and other data privacy, protection and security laws of those countries, We are unable to predict what additional legislation, standards or regulation in the area of privacy and security of personal information could be enacted or its effect on our operations and business.

 

 
 

 

If we are unable to satisfy data privacy, protection, security, and other government- and industry-specific requirements, our growth could be harmed.

 

We need or may in the future need to comply with a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data. Security compromises could harm our reputation, erode user confidence in the effectiveness of our security measures, negatively impact our ability to attract new members, or cause existing users to withdraw their data from BIGToken.

 

Regulatory, legislative or self-regulatory developments regarding internet privacy matters could adversely affect our ability to conduct our business.

 

The United States and foreign governments have enacted, considered or are considering legislation or regulations that could significantly restrict our ability to collect, process, use, transfer and pool data collected from and about consumers and devices. Trade associations and industry self-regulatory groups have also promulgated best practices and other industry standards relating to targeted advertising. Various U.S. and foreign governments, self-regulatory bodies and public advocacy groups have called for new regulations specifically directed at the digital advertising industry, and we expect to see an increase in legislation, regulation and self-regulation in this area. The legal, regulatory and judicial environment we face around privacy and other matters is constantly evolving and can be subject to significant change. For example, the General Data Protection Regulation, or GDPR, which was agreed by E.U. institutions in 2016 and came into effect after a two-year transition period on May 25, 2018, updated and modernized the principles of the 1995 Data Protection Directive and significantly increases the level of sanctions for non-compliance. Data Protection Authorities will have the power to impose administrative fines of up to a maximum of €20 million or 4% of the data controller’s or data processor’s total worldwide turnover of the preceding financial year. Similarly, the E-Privacy Regulation, which was launched by the European Parliament in October 2016, could result in, once enacted, new rules and mechanisms for “cookie” consent. In addition, the interpretation and application of data protection laws in the U.S., Europe and elsewhere are often uncertain and in flux. Legislative and regulatory authorities around the world may decide to enact additional legislation or regulations, which could reduce the amount of data we can collect or process and, as a result, significantly impact our business. Similarly, clarifications of and changes to these existing and proposed laws, regulations, judicial interpretations and industry standards can be costly to comply with, and we may be unable to pass along those costs to our clients in the form of increased fees, which may negatively affect our operating results. Such changes can also delay or impede the development of new solutions, result in negative publicity and reputational harm, require significant incremental management time and attention, increase our risk of non-compliance and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices, including our ability to charge per click or the scope of clicks for which we charge. Additionally, any perception of our practices or solutions as an invasion of privacy, whether or not such practices or solutions are consistent with current or future regulations and industry practices, may subject us to public criticism, private class actions, reputational harm or claims by regulators, which could disrupt our business and expose us to increased liability. Finally, our legal and financial exposure often depends in part on our clients’ or other third parties’ adherence to privacy laws and regulations and their use of our services in ways consistent with visitors’ expectations. We rely on representations made to us by clients that they will comply with all applicable laws, including all relevant privacy and data protection regulations. We make reasonable efforts to enforce such representations and contractual requirements, but we do not fully audit our clients’ compliance with our recommended disclosures or their adherence to privacy laws and regulations. If our clients fail to adhere to our contracts in this regard, or a court or governmental agency determines that we have not adequately, accurately or completely described our own solutions, services and data collection, use and sharing practices in our own disclosures to consumers, then we and our clients may be subject to potentially adverse publicity, damages and related possible investigation or other regulatory activity in connection with our privacy practices or those of our clients.

 

 
 

 

Privacy concerns could damage our reputation and deter current and potential users from contributing additional data through our BIGToken Application. If our security measures are breached resulting in the improper use and disclosure of user data, BIGToken may be perceived as not being secure, users and customers may curtail or stop using BIGToken, and we may incur significant legal and financial exposure.

 

Concerns about our practices with regard to the collection, use, disclosure, or security of user data or other privacy related matters, even if unfounded, could damage our reputation and adversely affect our operating results. Our services will involve the purchase, storage, transmission and sale of user data, and theft and security breaches expose us to a risk of loss of this information, improper use and disclosure of such information, litigation, and potential liability. Any systems failure or compromise of our security that results in the release of user data, or in our or our users’ ability to access such data, could seriously harm our reputation and brand and, therefore, our business, and impair our ability to attract and retain users. Additionally, if user data is somehow made public or made available through a security breach, it may be used to identify our users and people related thereto. We may experience cyber attacks of varying degrees. Our security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities, including vulnerabilities of our vendors, suppliers, their products, or otherwise. Such breach or unauthorized access, increased government surveillance, or attempts by outside parties to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to user data could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of BIGToken that could potentially have an adverse effect on our business. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, become more sophisticated, and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Additionally, cyber attacks could also compromise trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could negatively affect our business. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose members and customers.

 

Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, content, competition, consumer protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

 

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, such as privacy, data protection and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation and securities law compliance. Expansion of our activities in certain jurisdictions, or other actions that we may take, may subject us to additional laws, regulations, or other government scrutiny. In addition, foreign data protection, privacy, content, competition, and other laws and regulations can impose different obligations or be more restrictive than those in the United States.

 

Additionally, as we allow European users, we are subject to the European General Data Protection Regulation (GDPR), effective as of May 2018. The GDPR increases privacy rights for individuals in Europe, extends the scope of responsibilities for data controllers and data processors and imposes increased requirements and potential penalties on companies offering goods or services to individuals who are located in Europe or monitoring the behavior of such individuals (including by companies based outside of Europe). Noncompliance can result in penalties of up to the greater of €20 million, or 4% of global company revenues.

 

These U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government authorities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the newer industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.

 

These laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with and may delay or impede our international growth, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business.

 

 
 

 

Security breaches and improper access to or disclosure of our data or user data, or other hacking and phishing attacks on our systems, could harm our reputation and adversely affect our business.

 

Our industry is prone to cyber-attacks by third parties seeking unauthorized access to our data or users’ data or to disrupt our ability to provide service. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data, including personal information, content, or payment information from or to users, or information from marketers, could result in the loss or misuse of such data, which could harm our business and reputation and diminish our competitive position. In addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent in our industry. Our BIGToken platform has experienced an increase in the occurrence of such attempts and we cannot be assured that we will be able to prevent a successful attack on our systems in the future. We also regularly encounter attempts to create false or undesirable user accounts or take other actions on our BIGToken platform for purposes such as spreading misinformation, attempting to have us improperly purchase user data or other objectionable ends. As a result of recent attention and growth of our BIGToken platform, the size of our user base, and the types and volume of personal data on our systems, we believe that we are a particularly attractive target for such breaches and attacks. Our efforts to address undesirable activity may also increase the risk of retaliatory attacks. Such attacks may cause interruptions to the services we provide, degrade the user experience, cause users or marketers to lose confidence and trust in our products, impair our internal systems, or result in financial harm to us. Our efforts to protect our company data or the information we receive may also be unsuccessful due to software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance; government surveillance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data. Cyber-attacks continue to evolve in sophistication and volume, and inherently may be difficult to detect for long periods of time. Although we are currently in the process of developing systems and processes that are designed to protect our data and user data, to prevent data loss, to disable undesirable accounts and activities on our BIGToken platform, and to prevent or detect security breaches, we cannot assure you that such measures will ultimately become operational or provide absolute security, and we may incur significant costs in protecting against or remediating cyber-attacks.

 

Affected users or government authorities could initiate legal or regulatory actions against us in connection with any actual or perceived security breaches or improper disclosure of data, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices, especially with regard to the BIGToken platform. Such incidents or our efforts to remediate such incidents may also result in a decline in our active user base or engagement levels. Any of these events could have a material and adverse effect on our business, reputation, or financial results.

 

Certain user data must be provided on a recurring basis in order to provide full value.

 

Certain types of user data will need to be contributed by users recurrently for such data to provide full value to our potential customers. If users fail to provide us with sufficient recurring data, the value of the user data may substantially decrease and our ability to earn revenues may be materially affected.

 

Unfavorable media coverage could negatively affect our business.

 

Unfavorable publicity regarding, for example, our privacy practices, terms of service, regulatory activity, the actions of third parties, the use of our products or services for illicit, objectionable, or illegal ends or the actions of other companies that provide similar services to us, could adversely affect our reputation. Such negative publicity also could have an adverse effect on the size, engagement, and loyalty of our user base and result in user attrition which could adversely affect our business and financial results.

 

Weak economic conditions may reduce consumer demand for products and services.

 

A weak economy in the United States could adversely affect demand for advertising products, and services. A substantial portion of our revenue is derived from businesses that are highly dependent on discretionary spending by individuals, which typically falls during times of economic instability. Accordingly, the ability of our advertisers to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline further. We currently are unable to predict the extent of any of these potential adverse effects.

 

 
 

 

Because we store, process and use data, some of which contain personal information, we are subject to complex and evolving federal, state and foreign laws and regulations regarding privacy, data protection and other matters, which are subject to change.

 

We are subject to a variety of laws and regulations in the United States and other countries that involve matters central to our business, including with respect to user privacy, rights of publicity, data protection, content, protection of minors and consumer protection. These laws can be particularly restrictive in countries outside the United States. Both in the United States and abroad, these laws and regulations constantly evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Because we store, process and use data, some of which contain personal information, we are subject to complex and evolving federal, state and foreign laws and regulations regarding privacy, data protection and other matters. Many of these laws and regulations are subject to change and uncertain interpretation and could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could materially adversely affect our business, results of operations and financial condition.

 

Several proposals are pending before federal, state and foreign legislative and regulatory bodies that could significantly affect our business. For example, a revision to the 1995 European Union Data Protection Directive is currently being considered by European legislative bodies that may include more stringent operational requirements for data processors and significant penalties for non-compliance. In addition, the EU General Data Protection Regulation 2016/679 (“GDPR”), which came into effect on May 25, 2018, establishes new requirements applicable to the processing of personal data ( i.e. , data which identifies an individual or from which an individual is identifiable), affords new data protection rights to individuals ( e.g. , the right to erasure of personal data) and imposes penalties for serious data breaches. Individuals also have a right to compensation under GDPR for financial or non-financial losses. GDPR will impose additional responsibility and liability in relation to our processing of personal data. GDPR may require us to change our policies and procedures and, if we are not compliant, could materially adversely affect our business, results of operations and financial condition.

 

If advertising on the Internet loses its appeal, our revenue could decline.

 

Our business model may not continue to be effective in the future for a number of reasons, including:

 

  a decline in the rates that we can charge for advertising and promotional activities;
     
  our inability to create applications for our customers;
     
  Internet advertisements and promotions are, by their nature, limited in content relative to other media;
     
  companies may be reluctant or slow to adopt online advertising and promotional activities that replace, limit or compete with their existing direct marketing efforts;
     
  companies may prefer other forms of Internet advertising and promotions that we do not offer;
     
  the quality or placement of transactions, including the risk of non-screened, non-human inventory and traffic, could cause a loss in customers or revenue; and
     
  regulatory actions may negatively impact our business practices.

 

If the number of companies who purchase online advertising and promotional services from us does not grow, we may experience difficulty in attracting publishers, and our revenue could decline.

 

 
 

 

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

 

There has been significant volatility in the market price and trading volume of securities of technology and other companies, which may be unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our common stock.

 

Some specific factors that may have a significant effect on the market price of our common stock include:

 

  actual or anticipated fluctuations in our results of operations or our competitors’ operating results;
     
  actual or anticipated changes in the growth rate of the connected lifestyle market, our growth rates or our competitors’ growth rates;
     
  conditions in the financial markets in general or changes in general economic conditions;
     
  changes in governmental regulation, including taxation and tariff policies;
     
  interest rate or currency rate fluctuations;
     
  our ability to forecast accurate financial results; and
     
  changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally

 

We rely upon third parties for technology that is critical to our products, and if we are unable to continue to use this technology and future technology, our ability to develop, sell, maintain and support technologically innovative products would be limited.

 

We rely on third parties to obtain non-exclusive patented hardware and software license rights in technologies that are incorporated into and necessary for the operation and functionality of most of our products. In these cases, because the intellectual property we license is available from third parties, barriers to entry into certain markets may be lower for potential or existing competitors than if we owned exclusive rights to the technology that we license and use. Moreover, if a competitor or potential competitor enters into an exclusive arrangement with any of our key third-party technology providers, or if any of these providers unilaterally decides not to do business with us for any reason, our ability to develop and sell products and services containing that technology would be severely limited.

 

If we are offering products or services that contain third-party technology that we subsequently lose the right to license, then we will not be able to continue to offer or support those products or services. In addition, these licenses may require royalty payments or other consideration to the third-party licensor. Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to be licensed to us on commercially acceptable terms, if at all. In addition, if these third-party licensors fail or experience instability, then we may be unable to continue to sell products and services that incorporate the licensed technologies, in addition to being unable to continue to maintain and support these products and services. We do require escrow arrangements with respect to certain third-party software which entitle us to certain limited rights to the source code, in the event of certain failures by the third party, in order to maintain and support such software. However, there is no guarantee that we would be able to fully understand and use the source code, as we may not have the expertise to do so. We are increasingly exposed to these risks as we continue to develop and market more products containing third-party technology and software. If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technology, which could be of lower quality or performance standards. The acquisition or development of alternative technology may limit and delay our ability to offer new or competitive products and services and increase our costs of production. As a result, our business, results of operations and financial condition could be materially adversely affected.

 

The development of our operations and infrastructure in connection with our separation from SRAX, and any future expansion of such operations and infrastructure, may not be successful, and may strain our operations and increase our operating expenses.

 

In connection with our separation from SRAX, we have begun to implement a new information technology infrastructure for our business, which includes the creation of management information systems and operational and financial controls unique to our business. We may not be able to put in place adequate controls in an efficient and timely manner in connection with our separation from SRAX and as our business grows, and our current systems may not be adequate to support our future operations. The difficulties associated with installing and implementing new systems, procedures and controls may place a significant burden on our management and operational and financial resources. In addition, as we grow internationally, we will have to expand and enhance our communications infrastructure. If we fail to continue to improve our management information systems, procedures and financial controls, or encounter unexpected difficulties during expansion and reorganization, our business could be harmed.

 

 
 

 

For example, we plan to invest significant capital and human resources in the design, development and enhancement of our financial and operational systems. We will depend on these systems in order to timely and accurately process and report key components of our results of operations, financial condition and cash flows. If the systems fail to operate appropriately or we experience any disruptions or delays in enhancing their functionality to meet current business requirements, fulfill contractual obligations, accurately report our financials and otherwise run our business could be adversely affected. Even if we do not encounter these adverse effects, the development and enhancement of systems may be much more costly than we anticipated. If we are unable to continue to develop and enhance our information technology systems as planned, our business, results of operations and financial condition could be materially adversely affected.

 

As part of growing our business, we may make acquisitions. If we fail to successfully select, execute or integrate our acquisitions, then our business, results of operations and financial condition could be materially adversely affected and our stock price could decline.

 

From time to time, we may undertake acquisitions to add new product and service lines and technologies, acquire talent, gain new sales channels or enter into new sales territories. Acquisitions involve numerous risks and challenges, including relating to the successful integration of the acquired business, entering into new territories or markets with which we have limited or no prior experience, establishing or maintaining business relationships with new retailers, distributors or other channel partners, vendors and suppliers and potential post-closing disputes.

 

We cannot ensure that we will be successful in selecting, executing and integrating acquisitions. Failure to manage and successfully integrate acquisitions could materially harm our business, financial condition and results of operations. In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.

 

Risks Related to Our Separation from SRAX

 

The separation may not be successful.

 

Pursuant to the completion of the Share Exchange, we became a stand-alone public company, although we will continue to be controlled by SRAX. The process of becoming a stand-alone public company is complex and may distract our management from focusing on our business and strategic priorities. Further, although we expect to have direct access to the debt and equity capital markets following this offering, we may not be able to issue debt or equity on terms acceptable to us or at all. Moreover, even with equity compensation tied to our business, we may not be able to attract and retain employees as desired.

 

We also may not fully realize the intended benefits of being a stand-alone public company if any of the risks identified in this “Risk Factors” section, or other events, were to occur. These intended benefits include improving the strategic and operational flexibility of both companies, increasing the focus of the management teams on their respective business operations, allowing each company to adopt the capital structure, investment policy and dividend policy best suited to its financial profile and business needs, and providing each company with its own equity currency to facilitate acquisitions and to better incentivize management. If we do not realize these intended benefits for any reason, our business may be negatively affected. In addition, the separation could materially adversely affect our business, results of operations and financial condition.

 

As long as SRAX controls us, the ability of our other shareholders to influence matters requiring stockholder approval will be limited.

 

As a result of the Share Exchange, SRAX owns 149,562,566,584 shares of our common stock and 5,000,000 shares of our Series A Preferred Stock, representing voting power of approximately 95% of our issued and outstanding capital stock. For so long as SRAX beneficially owns shares of our outstanding securities representing at least a majority of the votes entitled to be cast by the holders of our outstanding securities, SRAX will be able to elect all of the members of our board of directors and influence other voting matters.

 

 
 

 

SRAX’s ability to control our board of directors may make it difficult for us to recruit high-quality independent directors.

 

So long as SRAX beneficially owns shares of our outstanding securities representing at least a majority of the votes entitled to be cast by the holders of our outstanding shares, SRAX can effectively control and direct our board of directors. Further, the interests of SRAX and our other stockholders may diverge. Under these circumstances, persons who might otherwise accept our invitation to join our board of directors may decline.

 

SRAX’s interests may conflict with our interests and the interests of our other stockholders. Conflicts of interest between us and SRAX could be resolved in a manner unfavorable to us and our other stockholders.

 

Various conflicts of interest between us and SRAX could arise. The ownership interest and voting power of SRAX in our capital stock and ownership interests of our directors and officers in SRAX capital stock, or service by an individual as either a director and/or officer of both companies, could create or appear to create potential conflicts of interest when such individuals are faced with decisions relating to us. These decisions could include:

 

  corporate opportunities;
     
  the impact that operating or capital decisions (including the incurrence of indebtedness) relating to our business may have on SRAX’s consolidated financial statements and/or current or future indebtedness (including related covenants);
     
  business combinations involving us;
     
  our dividend and stock repurchase policies;
     
  compensation and benefit programs and other human resources policy decisions;
     
  management stock ownership;
     
  the intercompany agreements and services between us and SRAX, including the agreements relating to our separation from SRAX;
     
  the payment of dividends on our common stock; and
     
  determinations with respect to our tax returns.

 

Potential conflicts of interest could also arise if we decide to enter into new commercial arrangements with SRAX in the future or in connection with SRAX’s desire to enter into new commercial arrangements with third parties. Additionally, we may be constrained by the terms of agreements relating to our indebtedness or equity securities from taking actions, or permitting us to take actions, that may be in our best interest.

 

Furthermore, disputes may arise between us and SRAX relating to our past and ongoing relationships, and these potential conflicts of interest may make it more difficult for us to favorably resolve such disputes, including those related to:

 

  tax, employee benefit, indemnification and other matters arising from the separation;
     
  the nature, quality and pricing of services SRAX agrees to provide to us; and
     
  sales and other disposals by SRAX of all or a portion of its ownership interest in us.

 

 
 

 

We do not have a policy that any material transactions with a related part in which there is an actual, or in some cases, perceived, conflict of interest, will be subject to any prior review or approval.

 

We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated third party. While we are controlled by SRAX, we may not have the leverage to negotiate amendments to our various agreements with SRAX (if any are required) on terms as favorable to us as those we would negotiate with an unaffiliated third party.

 

The terms of the agreements that we expect to enter into with SRAX in connection with the separation may limit our ability to take certain actions which may prevent us from pursuing opportunities to raise capital, acquire other businesses or provide equity incentives to our employees, which could impair our ability to grow.

 

The terms of the agreements that we expect to enter into with SRAX in connection with the separation, including the MSA, may limit our ability to take certain actions, which could impair our ability to grow. The MSA provides that, as long as SRAX beneficially owns at least 50% of the total voting power of our outstanding capital stock entitled to vote in the election of our board of directors, we will not (without SRAX’s prior written consent) take certain actions, such as incurring additional indebtedness and acquiring businesses or assets or disposing of assets in excess of certain amounts.

 

We have no operating history as a stand-alone public company and our historical and carve-out financial information is not necessarily representative of the results we would have achieved as a stand-alone public company and may not be a reliable indicator of our future results.

 

The historical financial information we have included in this Current Report does not reflect, what our financial condition, results of operations or cash flows would have been had we been a stand-alone entity during the historical periods presented, or what our financial condition, results of operations or cash flows will be in the future as an independent entity.

 

In addition, we have not made pro forma adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our transition to becoming a public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with being a publicly traded, stand-alone company.

 

If SRAX experiences a change in control, our current plans and strategies could be subject to change.

 

As long as SRAX controls us, it will have significant influence over our plans and strategies, including strategies relating to marketing and growth. In the event SRAX experiences a change in control, SRAX’s incumbent owner(s) may attempt to cause us to revise or change our plans and strategies, as well as the agreements between SRAX and us, described in this Current Report.

 

The assets and resources that we acquire from SRAX in the separation may not be sufficient for us to operate as a stand-alone company, and we may experience difficulty in separating our assets and resources from SRAX.

 

Because we have not operated as an independent company in the past, we will need to acquire assets in addition to those contributed by SRAX and its subsidiaries to us and our subsidiaries in connection with our separation from SSRAX. We may also face difficulty in separating our assets from SRAX’s assets and integrating newly acquired assets into our business. Our business, financial condition and results of operations could be harmed if we fail to acquire assets that prove to be important to our operations or if we incur unexpected costs in separating our assets from SRAX’s assets or integrating newly acquired assets.

 

 
 

 

The services that SRAX provides to us may not be sufficient to meet our needs, which may result in increased costs and otherwise adversely affect our business.

 

Pursuant to the TSA, we expect SRAX to continue to provide us with corporate and shared services for a transitional period related to corporate functions, such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, tax, treasury, shared facilities, operations, customer support, human resources and employee benefits, sales and sales operations and other services in exchange for the fees specified in the TSA between us and SRAX. SRAX will not be obligated to provide these services in a manner that differs from the nature of the services provided to the BIGToken business during the 12-month period prior to the separation, and thus we may not be able to modify these services in a manner desirable to us as a stand-alone public company. Further, if we no longer receive these services from SRAX due to the termination of the TSA or otherwise, we may not be able to perform these services ourselves and/or find appropriate third party arrangements at a reasonable cost (and any such costs may be higher than those charged by SRAX).

 

Our ability to operate our business effectively may suffer if we are unable to cost-effectively establish our own administrative and other support functions in order to operate as a stand-alone company after the termination of our shared services and other intercompany agreements with SRAX.

 

As an operating segment of SRAX, we relied on administrative and other resources of SRAX, including information technology, accounting, finance, human resources and legal services, to operate our business. In anticipation of the closing of the Share Exchange, we have entered into various service agreements to retain the ability for specified periods to use these SRAX resources. These services may not be provided at the same level as when we were a business segment within SRAX, and we may not be able to obtain the same benefits that we received prior to becoming a stand-alone company. These services may not be sufficient to meet our needs, and after our agreements with SRAX terminates, we may not be able to replace these services at all or obtain these services at prices and on terms as favorable as we currently have with SRAX. We will need to create our own administrative and other support systems or contract with third parties to replace SRAX’s systems. In addition, we have received informal support from SRAX, which may not be addressed in the agreements we have entered into with SRAX, and the level of this informal support may diminish as we become a more independent company. Any failure or significant downtime in our own administrative systems or in SRAX’S administrative systems during the transitional period could result in unexpected costs, impact our results and/or prevent us from paying our suppliers or employees and performing other administrative services on a timely basis.

 

We are a smaller company relative to SRAX, which could result in increased costs and decreased revenue due to difficulty maintaining existing customer relationships and obtaining new customers.

 

Prior to this offering, we were able to take advantage of SRAX’s size, technology and services, including insurance, employee benefit support and audit and other professional services. We are a smaller company than SRAX and we cannot assure you that we will have access to financial and other resources comparable to those available to us prior to this offering. As a stand-alone company, we may be unable to obtain office space, goods, technology and services in general, as well as components and services that are part of our supply chain, at prices or on terms as favorable as those available to us prior to this offering, which could increase our costs and reduce our profitability. Our future success depends on our ability to maintain our current relationships with existing customers, and we may have difficulty attracting new customers.

 

SRAX has agreed to indemnify us for certain liabilities. However, we cannot assure that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that SRAX’s ability to satisfy its indemnification obligation will not be impaired in the future.

 

Pursuant to the MSA and certain other agreements with SRAX, SRAX has agreed to indemnify us for certain liabilities. The MSA will provide for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of SRAX’s business with SRAX.

 

However, third parties could also seek to hold us responsible for any of the liabilities that SRAX has agreed to retain, and we cannot assure that an indemnity from SRAX will be sufficient to protect us against the full amount of such liabilities, or that SRAX will be able to fully satisfy its indemnification obligations in the future. Even if we ultimately succeed in recovering from SRAX any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could materially adversely affect our business, results of operations and financial condition.

 

 
 

 

Certain contracts used in our business will need to be replaced, or assigned from SRAX or its affiliates in connection with the separation, which may require the consent of the counterparty to such an assignment, and failure to obtain such replacement contracts or consents could increase our expenses or otherwise adversely affect our results of operations.

 

Our separation from SRAX requires us to replace shared contracts and, with respect to certain contracts that are to be assigned from SRAX or its affiliates to us or our affiliates, to obtain consents and assignments from third parties. It is possible that, in connection with the replacement or consent process, some parties may seek more favorable contractual terms from us. If we are unable to obtain such replacement contracts or consents, as applicable, we may be unable to obtain some of the benefits, assets and contractual commitments that are intended to be allocated to us as part of the separation. If we are unable to obtain such replacement contracts or consents, the loss of these contracts could increase our expenses or otherwise materially adversely affect our business, results of operations and financial condition.

 

Some of our directors and officers own SRAX common stock, restricted shares of SRAX common stock or options to acquire SRAX common stock and hold positions with SRAX, which could cause conflicts of interest, or the appearance of conflicts of interest, that result in our not acting on opportunities we otherwise may have.

 

Some of our directors and executive officers own SRAX common stock, restricted shares of SRAX stock or options to purchase SRAX common stock.

 

Ownership of SRAX common stock, restricted shares of SRAX common stock and options to purchase SRAX common stock by our directors and executive officers after this offering and the presence of executive officers or directors of SRAX on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both us and SRAX that could have different implications for SRAX than they do for us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between SRAX and us regarding terms of the agreements governing the separation and the relationship between SRAX and us thereafter, including the MSA or the transition services agreement. Potential conflicts of interest could also arise if we enter into commercial arrangements with SRAX in the future. As a result of these actual or apparent conflicts of interest, we may be precluded from pursuing certain growth initiatives.

 

We may have received better terms from unaffiliated third parties than the terms we will receive in the agreements that we entered with SRAX.

 

The agreements that entered into with SRAX in connection with the separation, including the MSA and the TSA were prepared in the context of the separation while we were still a wholly owned subsidiary of SRAX.

 

Ownership of Our Common Stock

 

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

 

On January 27, 2021 we entered into the Debt Exchange Agreement with Red Diamond. Pursuant to the Debt Exchange Agreement, we issued Red Diamond 7,000,000,000 free trading shares of Common Stock or approximately 837% of the prior public float of 841,184,289. We also issued Red Diamond 8,313 shares of Series C Preferred Stock, convertible into approximately 12,864,419,313 shares of Common Stock. Although Red Diamond agreed to a leak out of 20% of average daily volume for the five trading days preceding the sale, this will still result in a significant number of shares compared to our prior public float and will be difficult to monitor compliance. Sales of a substantial number of such shares now and upon expiration of the leak-out period or the perception that such sales may occur, could cause our market price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

 

 
 

 

If our stock price is extremely volatile and subject to price which may result in you losing a significant part of your investment.

 

The market price of our common stock will be influenced by many factors, some of which are beyond our control, including those described in this Risk Factors section and include the following:

 

  the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts;
     
  the inability to meet the financial estimates of securities analysts who follow our common stock or changes in earnings estimates by analysts;
     
  strategic actions by us or our competitors;
     
  announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;
     
  our quarterly or annual earnings, or those of other companies in our industry;
     
  actual or anticipated fluctuations in our operating results and those of our competitors;
     
  general economic and stock market conditions;
     
  the public reaction to our press releases, our other public announcements and our filings with the SEC;
     
  risks related to our business and our industry, including those discussed above;
     
  changes in conditions or trends in our industry, markets or customers;
     
  the trading volume of our common stock;
     
  future sales of our common stock or other securities;
     
  investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.

 

In particular, the realization of any of the risks described in these “Risk Factors” could have a material adverse impact on the market price of our common stock in the future and cause the value of your investment to decline. In addition, the stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.

 

We have never paid a cash dividend and do not intend to pay cash dividends on our common stock in the foreseeable future.

 

We have never paid a cash dividend, nor do we anticipate paying cash dividends in the foreseeable future. Accordingly, any return on your investment will be as a result of the appreciation of our common stock if any.

 

 
 

 

Future sales, or the perception of future sales, of our common stock, including by SRAX, may depress the price of our common stock.

 

The market price of our common stock could decline significantly as a result of sales or other distributions of a large number of shares of our common stock in the market, including shares that might be offered for sale or distributed by SRAX. The perception that these sales might occur could depress the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. As a result of the Share Exchange, we issued SRAX 149,562,566,584 shares of common stock. As we are currently not cash flow positive, we will be required to raise significant capital in the future through the sale of our debt and equity securities. Also, in the future, we may issue our securities in connection acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. The sale of these shares into the market could greatly depress the market price of our common stock.

 

Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

 

We have historically operated our business as a segment of a public company. As a stand-alone public company, we will have additional legal, accounting, insurance, compliance and other expenses that we have not incurred historically. After this offering, we will become obligated to file with the SEC annual and quarterly reports and other reports that are specified in Section 13 and other sections of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We will also be required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. In addition, we will become subject to other reporting and corporate governance requirements, including certain provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.

 

Sarbanes-Oxley, as well as rules subsequently implemented by the SEC, have imposed increased regulation and disclosure and required enhanced corporate governance practices of public companies. We are committed to maintaining a high standard of public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased selling and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these requirements and implementing them could materially adversely affect our business, results of operations and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired. If we do not implement such requirements in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could harm our reputation and the confidence of investors and customers in us and could materially adversely affect our business and cause our share price to fall.

 

Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could materially adversely affect our business, results of operations, financial condition and stock price.

 

As a public company, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of Sarbanes-Oxley (“Section 404”), which will require annual management assessments of the effectiveness of our internal control over financial reporting. Upon loss of emerging growth company status, an annual report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting will be required. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. We also expect the regulations under Sarbanes-Oxley to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over our financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy. If either we are unable to conclude that we have effective internal control over our financial reporting or our independent auditors are unable to provide us with an unqualified report as required by Section 404, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

 

 
 

 

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, our stock price could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrades our stock or if our operating results do not meet their expectations, our stock price could decline.

 

We could be subject to securities class action litigation.

 

In the past, securities class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in the price of our common stock, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and results of operations and divert management’s attention and resources from our business.

 

Your percentage ownership may be diluted in the future.

 

In the future, your percentage ownership may be diluted because of our need to raise additional capital, the conversion of outstanding convertible securities and the granting of equity awards to our directors, officers and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions. In connection with and following the Share Exchange, we anticipate granting equity awards to our employees and directors. In addition, following the Share Exchange, we will have outstanding a number of securities that are convertible into shares of our common stock. Upon conversion, you will experience substantial dilution.

 

In addition, our Articles of Incorporation authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our Common Stock. For example, the Company could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions.

 

We are a smaller reporting company and as a result have certain reduced disclosure requirements.

 

We are a “smaller reporting company” as defined in the Securities Act, as such, we are required to comply with certain reduced disclosure requirements for public company reporting requirements for future filings. As a smaller reporting company, we are not required to disclose certain executive compensation information only two years of audited financial statements in our public filings.

 

Our board of directors will have the ability to issue blank check preferred stock, which may discourage or impede acquisition attempts or other transactions.

 

Our board of directors will have the power, subject to applicable law, to issue series of preferred stock that could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt. For instance, subject to applicable law, a series of preferred stock may impede a business combination by including class voting rights, which would enable the holder or holders of such series to block a proposed transaction. Our board of directors will make any determination to issue shares of preferred stock on its judgment as to our and our stockholders’ best interests. Our board of directors, in so acting, could issue shares of preferred stock having terms which could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders may believe to be in their best interests or in which stockholders would have received a premium for their stock over the then prevailing market price of the stock.

 

 
 

 

Item 2. Financial Information.

 

Management’s discussion and analysis of financial condition and results of operations.

 

Company Overview

 

We are a data technology company offering a consumer-based application that allows consumers to own and earn from their digital identity and data. We generate revenue by providing this data, insights and the ability to connect with our users, to marketers. Our consumer-based platform and technologies offer tools and services to identify and reach their target consumers. Our technologies assist our clients in: (i) identifying their core consumers and such consumers’ characteristics across various channels in order to discover new and measurable opportunities that amplify the performance of marketing campaign in order to maximize a return on marketing spend.

 

Our Relationship with SRAX

 

Arrangements Between SRAX and Our Company

 

Pursuant to the completion of the Share Exchange, SRAX has entered into certain agreements that will affect the separation of our business from SRAX, provide a framework for our relationship with SRAX after the separation and provide for the allocation between us and SRAX of SRAX’s assets, employees, liabilities and obligations (including its investments, property and employee benefits assets and liabilities) attributable to periods prior to, at and after our separation from SRAX, specifically,

 

  a master separation agreement, or MSA;
  a transition services agreement, or TSA;

 

Arrangements Between SRAX and Our Company

 

SRAX currently owns 95% of the voting power of our capital securities.

 

For as long as SRAX continues to control more than 50% of our outstanding common stock, SRAX or its successor-in-interest will be able to direct the election of all the members of our board of directors. Similarly, SRAX will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in control of us and will have the power to take certain other actions that might be favorable to SRAX. In addition, the MSA provides that, as long as SRAX beneficially owns at least 50% of the total voting power of our outstanding capital stock entitled to vote in the election of our board of directors, we will not (without SRAX’s prior written consent) take certain actions, such as incurring additional indebtedness and acquiring businesses or assets or disposing of assets in excess of certain amounts.

 

Components of Operating Results

 

Revenue

 

Our revenues consist of the sale of consumer data obtained through the BIGtoken platform in conjunction with various marketing related services, such as the following:

 

  The use of BIGToken user surveys and the sale of such information received from surveys.
     
  The creation and management of targeted rewards and loyalty programs based on information and buying trends ascertained by data captured on our BIGToken platform.
     
  The ability to assist our customers in conducting market research based on analytics received from users of the BIGToken platform

 

 
 

 

  The ability to identify specific audiences for our customers and to target questions, surveys and data analytics geared toward our customers’ products / industries. Additionally, if we are unable to scale the needed information for a customer’s target audience, we may utilize our proprietary analytics to gain insight to further focus and refine user segments that need to be targeted in order to optimize data and media spend
     
  The use of Lightning Insights that allow our customers to conduct research around specific audience groups through both long and short research studies
     
  The creation of customized loyalty programs that utilize rewards to drive consumer purchasing habits.

 

Our revenue can vary based on a number of factors, including changes in the overall advertising and data markets, user adoption of the BIGtoken platform, the effectiveness of our audience targeting abilities; changes in technology; and adoption of our current and future BIGtoken product offerings.

 

Cost of Revenue

 

Cost of revenue consists of the costs of media and other third-party costs incurred in conjunction with the marketing related services we provide.

 

Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation: the cost of media utilized to perform our marketing services, the volume of media or the effectiveness of our services. From time to time, however, we may experience fluctuations in our gross margin as a result of the factors discussed above.

 

Employee related costs

 

Employee related costs consist of salaries other compensation and related costs paid to our employees and contractors. We expect these costs to increase in absolute dollars as we invest and expand our business.

 

Marketing and selling expenses

 

Marketing and selling expenses consist primarily of advertising, corporate communications and user acquisition related costs. We expect our sales and marketing expense to increase in absolute dollars for the foreseeable future as we continue to invest in brand marketing to strengthen our competitive position, to accelerate growth and to raise brand awareness.

 

Platform costs

 

Platform costs consist the technology and content hosting of our BIGtoken platform. We expect these costs to increase in absolute dollars for the foreseeable future as we continue to expand our user base.

 

Depreciation and Amortization

 

Depreciation and Amortization cost represent an allocation of the costs incurred to acquire the long-lived assets used in our business over their estimated useful lives. Our long-lived assets consist of property and equipment and internally developed software.

 

General and Administrative

 

General and administrative expense consists primarily of human resources, information technology, professional fees, IT and facility overhead, and other general corporate expense. We expect our general and administrative expense to increase in absolute dollars primarily as a result of the increased costs associated with being a stand-alone public company. However, we also expect our general and administrative expense to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of such expense.

 

 
 

 

Results of Operations

 

We operate as one operating and reportable segment. The following table sets forth, for the periods presented, the combined statements of operations data, which we derived from the accompanying financial statements.

 

    Nine months ended September 30,     Year ended December 31,  
                Change                 Change  
    2020     2019     $     %     2019     2018     $     %  
Revenue   $ 1,146,000     $ 2,242,000     $ (1,096,000 )     (48.9 )%   $ 3,228,000     $ 2,725,000     $ 503,000       18.5 %
Cost of revenue   $ 491,000     $ 1,013,000     $ (522,000 )     (51.5 )%   $ 1,613,000     $ 1,605,000     $ 8,000       0.5 %
Gross Profit   $ 655,000     $ 1,229,000     $ (574,000 )     (46.7 )%   $ 1,615,000     $ 1,120,000     $ 495,000       44.2 %
Profit Margin     57.2 %     54.8 %                     50.0 %     41.1 %                
Operating expense   $ 7,506,000     $ 13,499,000     $ (5,993,000 )     (44.4 )%   $ 17,596,000     $ 10,036,000     $ 7,560,000       75.3 %
Operating loss   $ (6,851,000 )   $ (12,270,000 )   $ 5,419,000       (44.2 )%   $ (15,981,000 )   $ (8,916,000 )   $ (7,065,000 )   79.2 %
Interest expense, net   $ (3,624,000 )   $ (669,000 )   $ (2,955,000 )     441.7 %   $ (686,000 )   $ (4,312,000 )   $ 3,626,000       (84.1 )%
Change in fair value of derivative liabilities   $ 218,000     $ 1,342,000     $ (1,124,000 )     (83.8 )%   $ 1,000,000     $ 5,252,000     $ (4,252,000 )     (81.0 )%
Other income   $ 333,000     $ 63,000     $ 270,000       428.6 %   $ 63,000     $ 5,000     $ 58,000       1,160.0 %
Provision for income tax benefit   $ -     $ -     $ -       0.0 %   $ -     $ 2,510,000     $ (2,510,000 )     (100.0 )%
Net loss   $ (9,924,000 )   $ (11,534,000 )   $ 1,610,000       (14.0 )%   $ (15,604,000 )   $ (5,461,000 )   $ (7,633,000 )     95.8 %

 

BIGToken revenues

 

BIGToken revenues for the nine months ended September 30, 2020 decreased to $1,146,000 compared to $2,242,000 during the nine months ended September 30, 2019. This decrease is primarily driven by the loss of core customers from our legacy sales verticals. Revenues for the year-ended December 31, 2019 increased $503,000 or 18.5% to $3,228,000 from revenues for the year-ended December 31, 2018 driven by the expansion of the Company’s legacy sales verticals.

 

BIGToken Profit Margin

 

BIGToken’s costs of revenue consist of media acquired from third parties to fulfill the media and advertising components of our revenues. BIGToken’s profit margin for the nine months ended September 30, 2020 increased to 57.2% as compared to 54.8% for the nine months ended September 30, 2019. Profit margin for the year-ended December 31, 2019 increased to 50.0% as compared to 41.1% in 2018. The increase is driven by the increase in revenues and enhanced operational execution.

 

 
 

 

Operating Expenses

 

Our operating costs for nine months ended September 30, 2020 declined to $7,506,000 as compared to $13,499,000 for the nine months-ended September 30, 2019 representing a decrease of $5,993,000. The decrease was primarily attributable to the reductions in staffing related and other general administrative expenses attributable to our legacy media verticals, and the reduction of our BIG Token point liability. Operating expense for the year ended December 31, 2019 as compared to December 31, 2018 increased by $7,560,000 due to the following increases; $2,700,000 increase in employee related cost, $2,000,000 in marketing and selling expenses, $700,000 in platform cost, $1,600,000 in general and administrative expenses and $550,000 in depreciation and amortization.

 

Interest Expense

 

Our interest cost for the nine months ended September 30, 2020 increased to $3,624,000 compared to $669,000 for 2019 for an increase of approximately $2,955,000. The increase is driven by cost incurred by our Parent in order to fund operations through the sale of convertible debentures in June of 2020 as compared to financing the operations of the business through the sale of assets and equity securities in 2019. Interest Expense for the year-ended December 31, 2019 as compared to December 31, 2018 decreased approximately $3,626,000 due to the decrease in costs associated with our Parent’s accounts receivable factoring facility and elimination of our Parent’s outstanding debentures.

 

Change in the Fair Value our Warrant Liabilities

 

Income or loss associated with the changes in the fair value of warrant liabilities we have recorded in other income for the nine months ended September 30 and for the full years ended December 31 represent a proportionate allocation of the income / (loss) our Parent has incurred attributable to the changes in the calculated value of warrants it issued through various financing transactions in 2017 through 2019.

 

Liquidity and Capital Resources

 

Historically, our operations have participated in cash management and funding arrangements managed by SRAX. Cash flows related to financing activities primarily reflect changes in Net parent investment. Other than those that are in BIGToken designated legal entities, SRAX’s cash has not been assigned to us for any of the periods presented because those cash balances are not directly attributable to us. Cash and cash equivalents presented in the combined balance sheets represent amounts pertaining to the BIGToken legal entity only. Cash used in operations was $3,400,000 for the nine months ended September 30, 2020, compared with cash used in operations of $5,973,000 for the nine months ended September 30, 2019, due primarily to lower operating expenses. Cash used in operations increased from $1,521,000 for the year ended December 31, 2018 to $7,484,000 for the year ended December 31, 2019 due primarily to increased operating expenses with the increased development and operations of BIGToken. Prior to the Share Exchange, we are dependent on SRAX for our continued support to fund our operations. Upon the close of our Share Exchange, we obtained access to approximately $1,000,000 in cash on hand and expect to raise an additional $2,000,000 to $3,000,000 shortly hereafter through a private offering of our Series B Preferred Stock.

 

Our capital structure and sources of liquidity will change significantly from our historical capital structure. Following the Share Exchange, we expect to use cash flows generated from operations, together with $1,000,000 in cash on-hand and our estimated net proceeds of approximately $3,000,000 from the sale of preferred stock in a private offering, as our primary sources of liquidity. Based on our current plans and market conditions, we believe that such sources of liquidity will be sufficient to satisfy our anticipated cash requirements for at least the next six months. However, we may require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions, and may seek to raise such additional funds through public or private equity or debt financing or from other sources. We cannot assure you that additional financing will be available at all or that, if available, such financing would be obtainable on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements will depend on numerous factors, including the introduction of new products and potential acquisitions of related businesses or technology.

 

Going Concern

 

The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its goods and services to achieved profitable operations. In addition, the Company’s operations will require significant additional financing. As of the closing of the Share Exchange, the Company had cash and cash equivalents of approximately $1 million which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued, and accordingly, these factors create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

 
 

 

In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flow and cash usage forecasts, and obligations and debts. Although management has a long history of successful capital raises, the analysis used to determine the Company’s ability to continue as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next 12 months.

 

Summary of Cash Flows

 

    Nine Months Ended September 30,     Full Year Ended December 31,  
    2020     2019     2019     2018  
                         
Net cash used in operating activities   $ (3,400,000 )     (5,973,000 )   $ (7,484,000 )     (1,521,000 )
Net cash used in investing activities     (38,000 )     (537,000 )     (748,000 )     (448,000 )
Net cash provided by financing activities     3,529,000       6,492,000       8,194,000       2,001,000  

 

Cash flows from operating activities

 

Net cash used in operating activities was $3,400,000 during the nine months ended September 30, 2020 compared to $5,973,000 for the comparable period in 2019. The decrease of cash used in operating activities of approximately $2,600,000 is driven by; (i) a decrease in our cash operating expenses of approximately $6,000,000. This partially offset by a decrease in revenues of $1,100,000, increase in allocation of corporate overhead of $2,100,000 and decrease in working capital of approximately $200,000. For the year-ended December 31, 2019 as compared to the year ended December 31, 2018 cash used in operating activities increased approximately by $5,963,000 to $7,484,000. This increase was driven by a $2,100,000 increase in employee related cost, $2,000,000 in marketing and selling expenses, $700,000 in platform cost, $1,600,000 in general and administrative expenses and partially offset by decrease in working capital of approximately $400,000.

 

Cash flows from investing activities

 

During the nine months ended September 30, 2020 net cash used in investing decreased approximately $499,000 to $38,000 due to lower cost incurred with the development of the BIGToken application. For the year-ended December 31, 2019 as compared to the year ended December 31, 2018 cash used in investing activities increased approximately $300,000 to $748,000. This increase was driven by an increase in costs incurred for the development of the BIGToken application and related software.

 

Cash flows from financing activities

 

Cash provided by financing activities represents cash contributed by our Parent to fund our operations and investing activities. We have accounted for these cash contributions as Net Parent Investment within the equity section of our Balance Sheets.

 

During the nine months ended September 30, 2020, cash provided by financing activities decreased approximately $2,963,000 due to low cash required to fund operations as compared to the nine months ended September 30, 2019. Cash provided by financing activities for the year ended December 31, 2019 increased approximately $6,193,000 driven primarily by the increase in the cash required to fund our operations.

 

 
 

 

Critical Accounting Policies and Estimates

 

Use of Estimates

 

The Carve-Out Financial Statements have been prepared in conformity with U.S. GAAP and requires management of the Company to make estimates and assumptions in the preparation of these Carve-Out Financial Statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Carve-Out Financial Statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

 

The most significant areas that require management judgment and which are susceptible to possible change in the near term include the Company’s revenue recognition, provision for bad debts, BIGToken point redemption liability, stock-based compensation, income taxes, goodwill and intangible assets.

 

As of September 30, 2020, the impact of COVID-19 continues to unfold and as a result, certain estimates and assumptions require increased judgment and carry a higher degree of variability and volatility that could result in material changes to our estimates in future periods.

 

Fair Value of Financial Instruments

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

 

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:

 

Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;

Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

 

The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.

 

Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.

 

The Company’s financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses, are carried at historical cost. At September 30, 2020 (unaudited), December 31, 2019 and 2018, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments. The Company measures certain non-financial assets, liabilities, and equity issuances at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and goodwill for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations.

 

 
 

 

Accounts Receivable

 

Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company usually does not require collateral.

 

Concentration of Credit Risk, Significant Customers and Supplier Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited with financial institutions within the United States. The balances maintained at these financial institutions are generally more than the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any loss on these accounts.

 

As of September 30, 2020 (unaudited), the Company had three customers with accounts receivable balances of approximately 23.7%, 19.2% and 17.1% of total accounts receivable. At December 31, 2019, the Company had three customers with accounts receivable balances of approximately 25.9%, 16.4% and 15.0%. At December 31, 2018, the Company had two customers with accounts receivable balances of approximately 42.9% and 10.5%.

 

For the period ended September 30, 2020 (unaudited), the Company had one customer that account for approximately 19.1% of total revenue. For the year ended December 31, 2019, the Company had two customers that account for approximately 19.3% and 14.1% of total revenue. For the year ended December 31, 2018, the Company had three customers that accounted for 21.0%, 14.1% and 10.3%.

 

MARKETABLE SECURITIES

 

Shares received will be accounted for in accordance with ASC 320 – Investments – Debt and Equity Securities, as such the shares will be classified as available-for-sale securities and will be measured at each reporting period at fair value with the unrealized gain (loss) as a component of other income (expense). Upon the sale of the shares, the Company will record the gain (loss) in the carve-out statement of operations as a component of other income (expense).

 

LONG-LIVED ASSETS

 

Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the Company’s stock price for a sustained period of time; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

No impairments have been recorded regarding its identifiable intangible assets or other long-lived assets during the nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) and the years ended December 31, 2019 or 2018, respectively.

 

Property and equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets of three to seven years.

 

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment.

 

Intangible assets

 

Intangible assets consist of the Company’s intellectual property of internally developed software and are stated at cost less accumulated amortization. Amortization is provided for on the straight-line basis over the estimated useful lives of the assets of five to nine years.

 

Costs incurred to develop computer software for internal use are capitalized once: (1) the preliminary project stage is completed, (2) management authorizes and commits to funding a specific software project, and (3) it is probable that the project will be completed and the software will be used to perform the function intended. Costs incurred prior to meeting the qualifications are expensed as incurred. Capitalization of costs ceases when the project is substantially complete and ready for its intended use. Post-implementation costs related to the internal use computer software, are expensed as incurred. Internal use software development costs are amortized using the straight-line method over its estimated useful life which ranges up to three years. Software development costs may become impaired in situations where development efforts are abandoned due to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned software product.

 

During 2016, the Company capitalizes the costs of developing internal-use computer software, including directly related payroll costs.

 

The Company capitalizes costs incurred during the application development stage of internal-use software and amortize these costs over the estimated useful life. Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion, and business process reengineering costs are expensed in the period in which they are incurred.

 

Goodwill

 

Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value. The Company performed its most recent annual goodwill impairment test as of
December 31, 2019 using market data and discounted cash flow analysis. Based on this analysis, it was determined that the fair value exceeded the carrying value of its reporting units.

 

The Company had historically performed its annual goodwill and impairment assessment on
December 31st of each year. This aligns the Company with other advertising sales companies who also generally conduct this annual analysis in the fourth quarter.

 

When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the impairment testing methodology primarily using the income approach (discounted cash flow method).

 

 
 

 

We compare the carrying value of the goodwill, with its fair value, as determined by a combination of the market approach and income approach, its estimated discounted cash flows. If the carrying value of goodwill exceeds its fair value, then the amount of impairment to be recognized. We operate as one reporting unit.

 

When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.

 

Revenue Recognition

 

The Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”) on January 1, 2018 using the modified retrospective method. Our operating results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts continue to be reported in accordance with our historic accounting under Topic 605. The timing and measurement of our revenues under ASC Topic 606 is similar to that recognized under previous guidance, accordingly, the adoption of ASC Topic 606 did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof at adoption or in the current period. There were no changes in our opening retained earnings balance as a result of the adoption of ASC Topic 606.

 

ASC Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. Application of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance. Application of ASC Topic 606 requires a five-step model applicable to all product offerings revenue streams as follows:

 

Identification of the contract, or contracts, with a customer

 

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

 

We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit or financial information pertaining to the customer.

 

Identification of the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

 

When a contract includes multiple promised goods or services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.

 

 
 

 

Determination of the transaction price

 

The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods or services to our customer. We estimate any variable consideration included in the transaction price using the expected value method that requires the use of significant estimates for discounts, cancellation periods, refunds and returns. Variable consideration is described in detail below.

 

Allocation of the transaction price to the performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative Stand-Alone Selling Price (“SSP,”) basis. We determine SSP based on the price at which the performance obligation would be sold separately. If the SSP is not observable, we estimate the SSP based on available information, including market conditions and any applicable internally approved pricing guidelines.

 

Recognition of revenue when, or as, we satisfy a performance obligation

 

We recognize revenue at the point in time that the related performance obligation is satisfied by transferring the promised goods or services to our customer.

 

Principal versus Agent Considerations

 

When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent. Our evaluation to determine if we control the goods or services within ASC Topic 606 includes the following indicators:

 

We are primarily responsible for fulfilling the promise to provide the specified good or service.

 

When we are primarily responsible for providing the goods and services, such as when the other party is acting on our behalf, we have indication that we are the principal to the transaction. We consider if we may terminate our relationship with the other party at any time without penalty or without permission from our customer.

 

We have risk before the specified good or service have been transferred to a customer or after transfer of control to the customer.

 

We may commit to obtaining the services of another party with or without an existing contract with our customer. In these situations, we have risk of loss as principal for any amount due to the other party regardless of the amount(s) we earn as revenue from our customer.

 

The entity has discretion in establishing the price for the specified good or service.

 

We have discretion in establishing the price our customer pays for the specified goods or services.

 

Contract Liabilities

 

Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities have been historically low historically recorded as current liabilities on our Carve-Out Financial Statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. We have no Long-term contract liabilities which would represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year.

 

 
 

 

Practical Expedients and Exemptions

 

We have elected certain practical expedients and policy elections as permitted under ASC Topic 606 as follows:

 

  We applied the transitional guidance to contracts that were not complete at the date of our initial application of ASC Topic 606 on January 1, 2018.
  We adopted the practical expedient related to not adjusting the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;
  We made the accounting policy election to not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;
  We made the accounting policy election to exclude any sales and similar taxes from the transaction price; and
  We adopted the practical expedient not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

Cost of Revenue

 

Cost of revenue consists of payments to media providers that are directly related to a revenue-generating event and project and application design costs. The Company becomes obligated to make payments related to media providers in the period the media is provided to us. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying Carve-Out Statements of Operations.

 

Stock-Based Compensation

 

The Company’s employees have historically participated in SRAX’s stock-based compensation plans. Stock-based compensation expense has been allocated to the Company based on the awards and terms previously granted to the Company’s employees as well as an allocation of SRAX’s corporate and shared functional employee expenses.

 

We account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

 

We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

Income taxes

 

The Company’s operations have historically been included in SRAX’s combined U.S. income tax returns. Income tax expense included in the Carve-Out Financial Statements has been calculated following the separate return method, as if the Company was a stand-alone enterprise and a separate taxpayer for the periods presented. The calculation of income taxes on a separate return basis requires considerable judgment and the use of both estimates and allocations that affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and the Carve-Out Financial Statement recognition of revenues and expenses. As a result, the Company’s deferred income tax rate and deferred tax balances may differ from those in SRAX’s historical results.

 

The provision for income taxes is determined using the asset and liability approach. Deferred taxes represent the future tax consequences expected when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between the Carve-Out Financial Statement and tax bases of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In evaluating the Company’s ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of operations. Any tax carryforwards reflected in the Carve-Out Financial Statements have also been determined using the separate return method. Tax carryforwards include net operating losses.

 

The complexity of tax regulations requires assessments of uncertainties in estimating taxes the Company will ultimately pay. The Company recognizes liabilities for anticipated tax audit uncertainties based on its estimate of whether, and the extent to which additional taxes would be due on a separate return basis. Tax liabilities are presented net of any related tax loss carryforwards.

 

Item 3. Properties.

 

As part of the TSA, SRAX provides us with facilities in Westlake Village, CA and Mexicali, Mexico where we lease a portion of the respective office spaces. Our costs associated with these facilities is a component of management costs we incur. As we are a virtual company, we believe these locations are suitable and adequate for our current levels of operations and anticipated growth.

 

Item 4. Security Ownership of Certain Beneficial Owners and Management.

 

Security ownership of certain beneficial owners.

 

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if they have or share the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or have the right to acquire such powers within 60 days. Accordingly, the following table does not include options to purchase our common stock that are not exercisable within the next 60 days.

 

 
 

 

 

Name and Address of Beneficial Owner (1)   Shares     Shares Underlying Convertible Securities     Total     Percent of Class (2)  
Directors and named executive officers                                
Paul Feldman (3)     841,184,289       -       841,184,289       *  
Lou Kerner (4)     -       -       -       *  
George Stella (5)     -       -       -       *  
Michael Malone     -       -       -       *  
Daina Middleton     -       -       -       *  
Yin Woon Rani     -       -       -       *  
Christopher Miglino     -       -       -       *  
All directors and named executive officers as a group (7 individuals)                     841,184,289       *  
                                 
5% owners                                
SRAX, Inc.     149,562,566,534       -       149,562,566,534       94.51 %
All directors, named executive officers, and 5% owners as a group (8 entities)                     150,403,750,823       95.55 %

 

* Represents less than one percent.

 

(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is c/o BIG Token, Inc. 2629 Townsgate Road #215, Westlake Village, CA 91361.

 

(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common share purchase options or warrants. There are 158,244,935,162 shares of common stock issued and outstanding as of January 27, 2021.

 

(3) Address for holder is 1249 Kildare Farm Road, Suite 2019, Cary, NC 27511. Mr. Feldman’s employment as CEO and sole member of the Board was terminated as of the close of business on January 27, 2021.

 

(4)

Mr. Kerner began service as CEO on February 16, 2021.

   
(5)

George Stella began service as Chief Revenue Officer on February 4, 2021.

 

Item 5. Directors and Executive Officers.

 

The names of our directors and executive officers and their ages, positions, and biographies as of the closing of the Share Exchange (except as expressly stated) are set forth below. Our executive officers are appointed by, and serve at the discretion of the Board. There are no family relationships among any of our directors or executive officers. For a description of the employment agreements and other ancillary agreements entered into between our officers and directors and the Company, please refer to Item 5.02 of this Current Report on Form 8-K.

 

 
 

 

Executive Officers and Directors

 

Name   Age   Positions   Officer / Director
Since
Lou Kerner   59   Chief Executive Officer   2021
George Stella   49   Chief Revenue Officer   2021
Michael Malone   39   Chief Financial Officer and Principal Accounting Officer   2021
Christopher Miglino   52   Director   2021
Daina Middleton   55   Director   2021
Yin Woon Rani   48   Director   2021

 

The following is biographical information on the members of our executive officers and board of directors as of the closing of the Share Exchange:

 

Lou Kerner, age 59, joined the Company as chief executive officer in February 2021. Prior to joining the Company, since June 29, 2017, Mr. Kerner had been focused on cryptocurrency, including as a VC at CryptoOracle, which he Co-Founded, as an active blogger, currently with Quantum Economics, and as an advisor to, and partner of, Blockchain Coinvestors, a fund-of-fund and operator of an AngelList syndicate investing in crypto related ventures. Mr. Kerner also founded CryptoMondays, a decentralized Meetup Group which he’s led since January 2018. Prior to his involvement in cryptocurrency, Mr. Kerner was a partner at Flight Ventures, an investment firm from March 2015 through December 2017 and served as a partner at Chameleon Collective, a strategic advisory firm from September 2015 through October 2017. Mr. Kerner holds a bachelor’s degree in economics from UCLA and an MBA from Stanford University. In evaluating Mr. Kerner’s specific experience, qualifications, attributes and skills in connection with his appointment as BIGToken CEO.

 

George Stella, age 49, joined the Company as chief revenue officer in February 2021. Prior to that, Mr. Stella served as executive vice president of SRAX since March 2018. George began his career in digital advertising spending 12 years with 24/7 Media where they played a huge role as the data driven digital marketing space emerged. He then entered the digital shopper marketing space in its infancy with OwnerIQ and then HookLogic. Prior to joining SRAX Mr. Stella served as vice president of sales, helping Yieldbot develop its digital shopper business.

 

Christopher Miglino, age 52, is the co-founder of SRAX, Inc Since April 2010, Mr. Miglino has served as its Chief Executive Officer and a member its board of directors. He was appointed President of SRAX company in January 2017. He also served as SRAX’s Chief Financial Officer from April 2010 until November 2014, and as its principal financial and accounting officer since August 2015. Mr. Miglino has over 15 years of experience running various data companies, and oversaw the creation and development of BIG Token. He also is the creator of the companies Sequire platform that provides data to publicly traded companies. In addition, from August 2008 until March 2010, Mr. Miglino was CEO of the Lime Ad Network, a subsidiary of Gaiam, Inc. (Nasdaq: GAIA), where his responsibilities included management of interactive and innovative advertising programs for 250 green and socially conscious websites. Prior to that, from June 2004 until August 2008, Mr. Miglino was Founder and CEO of Conscious Enlightenment, where he oversaw their day to day operations in the publishing and advertising industry. Mr. Miglino holds a bachelor’s degree from the University of Southern California. Mr. Miglino’s role as a co-founder of SRAX, his operational experience in SRAX as well as his professional experience technology and advertising sectors were factors considered with his appointment to the BIG Tokens Board upon completion of the Share Exchange.

 

Michael Malone, age 39, became our principal accounting officer since January 2021. Mr. Malone has over sixteen (16) years of experience in corporate finance in public and private companies. From 2014 until December 2018, he served as Vice President Finance of Westwood One, LLC, a subsidiary of Cumulus Media, Inc. (NYSE: “CMLS”), an audio broadcast network in New York. Prior to that, from January 2013 through June 2014, he served as Finance Director / Controller for Cumulus Media Network’, audio broadcast network, until its merger with Westwood One, LLC. Prior to that from 2012 to 2013, he worked as Director of Internal Auditing of Cumulus Media from. He holds a BA in accounting from Monmouth College.

 

 
 

 

Daina Middleton, age 55, is the CEO of Britelite Immersive. She also is an advisor and board member assisting companies in increasing their growth potential. From September 2017 through September 2019, she served as the Chief Executive Officer of Ansira Partners, a PE-backed marketing technology and services firm. Prior to that, from 2016 through September 2017, she served as a principal in Larsen Consulting Group, an arm of Gryphon Investors, coaching portfolio executives. Prior to joining LCG, she ran B2B Marketing for Twitter, and was the CEO of Performics, the performance marketing arm of Publicis. Earlier in her career, she worked for Hewlett-Packard for 16 years. She joined the board of directors at Marin Software (NASDAQ: MRIN) in 2014 where she serves on the Audit/ Finance and Compensation committees. She also serves on the board of PE-backed account-based marketing firm Madison Logic. She acts as an advisor for early start ups Ad Fontes Media and MarketBeam. She is also a published author, publishing “Marketing in the Participation Age: A Guide to Motivating People to Join, Share, Take Part, Connect, and Engage,” and “Grace Meets Grit: How to bring out the Remarkable Courageous Leader Within.” She holds a bachelor’s degree from Oregon State University. In evaluating Ms. Middleton’s specific experience, qualifications, attributes and skills in connection with her appointment to the BIG Tokens Board upon completion of the Share Exchange, the Company’s Board, and SRAX’s Board took into account her extensive experience in raising capital, revenue growth, leadership coaching, marketing and branding, technology, and her leadership skills throughout such industries.

 

Yin Woon Rani, age 48, has served as the chief executive officer of MilkPEP, a government administrated program that helps promote the consumption of fluid milk (best known for the Got Milk? campaign) since October 2019. Prior to that, from January 2014 – June 2018, she served as VP and chief customer experience officer for the Campbell Soup Company (NYSE: CPB), where she helped modernize and lead integrated communications for the company. Prior to that, from November 2011 through March 2013, she served as president (North America) of Universal MCCann, a global media and advertising agency. She graduated from Yale University, summa cum laude and earned a Masters of Business Administration from New York University Stern, where she graduated second in her class. In evaluating Ms. Rani’s specific experience, qualifications, attributes and skills in connection with her appointment to the BIG Tokens Board upon completion of the Share Exchange, the Company’s Board, and SRAX’s Board took into account her extensive experience in marketing, media, technology, and her leadership skills throughout such industries.

 

Legal Proceedings.

 

On November 13, 2013, Lou Kerner, our chief executive officer was found to be in violation of NASD Rule 2210(d)(1)(A) and FINRA Rule 2010 with regard to certain statements / posting made with regard to risk assessment and failure to properly disclose the name of member firm’s name, and failed to disclose certain ownership of certain securities discussed in television appearances in violation of NASD Rule 2711(h)(1)(A) and NASD Rule 2711(h)(1)(C). (See Cautionary Action - #20110274649). Given FINRA’s determination that Mr. Kerner did not (i) intend to mislead investors, (ii) attempt to conceal his financial interests and (iii) intentionally fail to include written website disclosure contained associated with his public appearances, FINRA only took a cautionary action.

Item 6. Executive Compensation.

 

Employment agreements and how the executive’s compensation is determined

 

We are a party to an employment agreement with Mr. Kerner, which provides the compensation arrangements with Mr. Kerner.

 

Mr. Stella, our chief revenue officer, and Mr. Malone our principal accounting officer pursuant to the services provided under the Company’s TSA with SRAX, do not have employment agreements with the Company. For a further description of the employment agreements and compensation arrangements of our executive officers, please refer to Item 5.02 of this Current Report on Form 8-K.

 

We have not engaged a compensation consultant or other consultant performing similar functions to advise our company on compensation arrangements for our executive officers and directors.

 

Summary Compensation Table

 

The following table summarizes all compensation recorded by us in each of the last two completed years ended December 31 (which was the fiscal year end of SRAX, our parent corporation upon completion of the Share Exchange on February 4, 2021), for:

 

  all individuals serving as our principal executive officer or acting in a similar capacity;
  our two most highly compensated named executive officers, whose annual compensation exceeded $100,000; and
  up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as a named executive officer of our company, at December 31, 2020.

 

 
 

 

Name and principal position   Year     Salary ($)     Bonus ($)    

Stock

Awards

($)

    Option Awards ($) (1)     No equity incentive plan compensation ($)    

Non-qualified

deferred

compensation

earnings

($)

    All other compensation ($)     Total ($)  
                                                       
George Stella     2020       175,000       23,047       -       -       -       -       14,087     212,134  
Chief Revenue Officer (2)     2019       175,000       10,534       -       110,450 (3)     -       -       437,392     733,376  
                                                                       
Lou Kerner     2020       -       -       -       -       -       -             -  
Chief Executive Officer (4)     2019       -       -       -       -       -       -             -  
                                                                       
Michael Malone     2020       200,000       -       75,000       -       -       -       21,554     296,554  
Chief Financial Officer (5)     2019       199,242       -       75000       167,798 (6)     -       -       28,722     470,762  
                                                                       
Paul Feldman     2020       -        -       -       -       -       -                
Chief Executive Officer(7)     2019       16,538       -       -       -       -       -             16,538  

 

  (1) The amounts included in the “Option Awards” column represent the aggregate grant date fair value of the stock options, computed in accordance with ASC Topic 718. The assumptions made in the valuations of the option awards are included in Note 12 of the notes to our Parent Company’s consolidated financial statements appearing in the 10-K for the year end December 31, 2019 for options awarded in 2019 or prior.
  (2) All amounts paid to Mr. Stella were from SRAX, the parent company of BIG Token prior to the closing of the Share Exchange on February 4, 2021.
  (3) Mr. Stella’s stock option award consisted of 50,000 options to purchase Class A Common Stock of SRAX at $3.47 per share. The Options vest 1/3 annually beginning March 24, 2019.
  (4) Lou Kerner became our Chief Executive Officer effective February 16, 2021.
  (5) All amounts paid to Mr. Malone were from SRAX, the parent company of BIG Token prior to the closing of the Share Exchange on February 4, 2021.
  (6) Mr. Malone’s stock option award consisted of 100,000 options to purchase Class A Common Stock of SRAX at $2.56 per share. The Options vest quarterly over a three-year period beginning January 1, 2019.
  (7) Effective January 27, 2021, Mr. Feldman resigned as chief executive officer, principal accounting officer, and as a member of our board of directors. He received no compensation for 2020. Notwithstanding, Mr. Feldman received 841,184,289 shares of Common Stock for certain past due and unpaid deferred compensation pursuant to his separation agreement entered into on January 27, 2021.

 

Employment Agreement with Mr. Kerner

 

For a further description of Mr. Kerner’s employment, please refer to Item 5.02 of this Current Report on Form 8-K.

 

 
 

 

Employment Agreement with Mr. Stella

 

Mr. Stella does not have an employment agreement with the Company. For a further description of his compensation arrangement, please refer to Item 5.02 of this Current Report on Form 8-K.

 

Employment Agreement with Mr. Malone

 

Pursuant to the terms of the TSA, Mr. Malone will serve as our principal accounting officer until as the earlier of (i) Mr. Malone’s resignation or termination, (ii) a replacement candidate is retained, or (iii) upon the termination of the TSA.

 

DIRECTOR COMPENSATION

 

Director Compensation

 

Below is a description of the Company’s compensation policy for non-employee director compensation, which is in effect beginning February 4, 2021, the date that the Share Exchange closed.

 

Board Compensation Policy

 

Beginning on February 4, 2021, each non-employee director will receive a cash payment of $7,500 per full quarter of service on the Board. All fees will be paid at the end of each respective quarter. In the event of partial service for a quarter, such Board member will receive such prorated portion of director fees for days of service in the applicable quarter.

 

The following table provides information concerning the compensation paid to our non-executive directors for their services as members of our board of directors for the year ended December 31, 2020. Upon completion of the Share Exchange, the Company is adopting a December 31 fiscal year end. The information in the following table excludes any reimbursement of out-of-pocket travel and lodging expenses which we may have paid.

 

Name   Fees earned or paid in cash ($)    

Stock

awards

($)

    Option awards ($)     Non-equity incentive plan compensation ($)    

Nonqualified deferred compensation earnings

($)

    All other compensation ($)    

Total

($)

 
Christopher Miglino(1)                                   1,090,031       1,090,031  
Yin Woon Rani                                                  
Daina Middleton                                                  

 

  (1)

Represents amounts paid to Mr. Miglino by SRAX, the parent company of BIG Token pursuant to his services as CEO of SRAX for the year end 12/31/20. Includes, salary, bonus, options, and fringe benefits.

 

Item 7. Certain Relationships and Related Transactions, and Director Independence.

 

Certain Relationships and Related Party Transactions

 

Since January 1, 2020, the Company has entered into the following transactions that may include related parties:

 

  (i)

On January 27, 2021, Mr. Feldman’s was terminated as our chief executive officer and sole director and in consideration for past due and unpaid deferred compensation, the Company issued him 841,184,289 shares of Common Stock.

 

 
 

 

List of Promotors and certain control persons:

 

Red Diamond Partners, LLC, and its affiliates (“Red Diamond”) made a series of investments in the Company during the period from 2016 through 2020. The investments were made predominantly through the sale of convertible debentures. In late 2019, the Company began the process of preparing to undertake a strategic transaction. Beginning in the fourth quarter of calendar year 2019 and continuing through calendar year 2020, Red Diamond re-commenced its investments in the Company to provide ongoing working capital to the Company in furtherance of such process.

 

During this 2019-2020 time period, the Company used the proceeds of Red Diamond’s investments for operations and for general corporate purposes, including (but not limited to) the payment of personnel, legal and outside auditor expenses related to bringing the Company current in its SEC filings.

 

As a result of Red Diamond being a significant creditor of the Company, during the period commencing in mid-2020, Red Diamond attended strategic planning meetings with our management and the management of SRAX where the parties discussed: (i) the requirements and timelines for bringing the Company current in its filings with the SEC, (ii) the terms of the Exchange Agreement, (iii) the terms of the Debt Exchange Agreement pursuant to which Red Diamond would convert its outstanding debt as required by the Exchange Agreement, and (iv) overall planning and execution of the strategy that resulted in BIG Token becoming a publicly reporting company as of January 27, 2021.

 

During the period from 2016 through 2021, Red Diamond made the following investments:

 

During 2016, Red Diamond invested a total of $682,500 into the Company in exchange for certain convertible promissory notes.

 

During 2017, Red Diamond invested a total of $532,625 into the Company in exchange for certain convertible promissory notes.

 

On October 11, 2019, Red Diamond invested $27,500 into the Company in exchange for a certain 5% secured promissory note. As of January 28, 2021, this promissory note accrued $1,814.24 in interest resulting in an outstanding balance of $29,314.24.

 

During the fourth quarter of 2019, Red Diamond invested a total of $170,606 into the Company in exchange for certain convertible promissory notes.

 

During the period January 2020 to July 2020, Red Diamond invested a total of $41,200 into the Company in exchange for certain convertible promissory notes.

 

During the period August 2020 to September 2020, Red Diamond invested a total of $90,679 into the Company in exchange for certain convertible promissory notes with a fixed conversion price of $0.0003. As of January 28, 2021, these convertible promissory notes accrued $2,889.30 in interest, resulting in an outstanding balance of $93,568.30.

 

On October 22, 2020, Red Diamond purchased 10,000 shares of Series B Preferred Stock for $1,000,000. The 10,000 shares of Series B Preferred Stock will be convertible into shares of Common Stock in accordance with the conversion price terms set forth in the terms of the Series B Preferred Stock.

 

On October 29, 2020 Red Diamond invested an additional $50,000 to purchase an additional 500 shares of the Series B preferred stock. The 500 shares of Series B Preferred Stock will be convertible into shares of Common Stock in accordance with the conversion price terms set forth in the terms of the Series B Preferred Stock.

 

On January 27, 2021, the Company and Red Diamond entered into the Debt Exchange Agreement pursuant to which the Company issued Red Diamond 7,000,000,000 unrestricted shares of Common Stock and 8,318 shares of its Series C Preferred Stock, convertible into 12,864,419,313 shares of Common Stock, in exchange for and cancellation of Red Diamond’s outstanding convertible debentures. The January 27, 2021 Exchange Agreement contains a provision that limits the amount of Company common shares that Red Diamond may sell into the public markets over the six month period following the closing January 27, 2021 closing under the Exchange Agreement.

 

 
 

 

The 7,000,000,000 shares of unrestricted Common Stock were issued in exchange for convertible notes with an outstanding principal and interest balance of $298,867.04 which relate to Red Diamond investments that were originally made between March of 2016 and August of 2017.

 

The 8,318 shares of Series C Preferred Stock, which are convertible into 12,864,419,313 of Common Stock, were issued in exchange for the remaining Red Diamond convertible and non-convertible notes have an outstanding principal and interest balance of $549,250.14.

 

Based on the closing price of the Company’s common stock of $0.0001 on August 5, 2020 (the date on which Red Diamond agreed to forebear collection efforts on the Company’s secured debt and about the time Red Diamond agreed in principle to exchange its debt) the aggregate value of the Common Stock and Series C preferred Stock, on an as converted basis and not taking into account any beneficial ownership limitation, was approximately $1.99 million.

 

The number of shares to be received by Red Diamond in exchange for such promissory notes was determined via negotiations with Paul Feldman, the Company’s former CEO, Red Diamond and SRAX. Red Diamond did not pay any additional consideration in connection with the conversion of the notes.

 

During the period from 2016 to 2020, Red Diamond entered into the following agreements and/or modifications:

 

On July 30, 2020, but effective as of May 1, 2019, the Company and Red Diamond entered into an amendment agreement, amending the conversion price for all outstanding promissory notes to a fixed price of $0.0003.

 

On August 1, 2020, Red Diamond and the Company entered into an exchange agreement, exchanging all previously outstanding Red Diamond convertible promissory notes as of that date into one master note with a principal amount of $697,341 with a maturity date of February 1. 2021. As of January 28, 2021 the Master Note accrued $27,893.64 in interest, resulting in an outstanding balance of $725,234.64.

 

On August 5, 2020, the Company and Red Diamond entered into an amendment agreement pursuant to which Red Diamond agreed to forebear any collection action against the Company with respect to the October 11, 2019 secured promissory note until such time as Red Diamond provided the Company written notice of its intent to commence collection activities.

 

During the third and fourth quarter of 2020, Red Diamond negotiated the terms of the Debt Exchange Agreement with the Company and SRAX. Pursuant to the Debt Exchange Agreement, in exchange for 7,000,000,000 unrestricted shares of Common Stock and 8,318 shares of its Series C Preferred Stock, convertible into 12,864,419,313 shares of Common Stock, Red Diamond agreed to exchange and cancel all of its outstanding convertible and non-convertible notes.

 

Red Diamond disclaims that it is a controlling person or promoter of the Company. Red Diamond’s current beneficial ownership of the Company’s outstanding common stock is less than 5%. The shares of Series B Preferred Stock and Series C Preferred Stock both contain provisions which limit conversions by Red Diamond (or any other holder) if any conversion would increase the holder’s beneficial ownership of the Company’s common stock above 4.99%.

 

Red Diamond has made previous investments in SRAX, our parent company. Red Diamond currently holds 38,200 SRAX common shares, a secured convertible debenture with a principal amount of $1,174,163.69 and warrants for 469,666 SRAX common shares. Any conversion or exercise of such SRAX convertible debentures or warrants would be limited if any conversion or exercise would increase the holder’s beneficial ownership of SRAX’s outstanding common stock above 4.99%. Red Diamond, along with the other participants in SRAX’s June 2020 private placement of $16.1 million secured convertible debentures, will be entitled to receive certain additional Company common stock warrants as an adjustment to their SRAX warrants to reflect the sale of BIG Token to the Company.

 

List of Parent Companies

 

  SRAX, Inc.

 

Effective February 4, 2021, SRAX became a majority shareholder of the Company and its subsidiary BIG Token. As of the date of this Current Report on Form 8-K, SRAX owns 149,562,566,584 shares of Common Stock of the Company, accounting for approximately 95% of the outstanding Common Stock. Notwithstanding, as more fully described in Item 1.01 of this Current Report on Form 8-K. SRAX also owns 5,000,000 shares of the Company’s Series A Preferred Stock, accounting for 100% of the Series A Preferred Stock outstanding. The Series A Preferred Stock votes 200 votes per share. As a result of such ownership of securities, SRAX has unilateral control over the Company in all matters of voting, including election of directors as of the date hereof.

 

 
 

 

Independence of Directors

 

As of January 27, 2021, the Company’s directors are contained below. For purposes of determining independence, the Company has adopted the definition of independence as contained in Nasdaq Market Place Rule 5605(a)(2). Pursuant to the definition, the Company has determined that Yin Woon Rani and Daina Middleton qualify as independent.

 

Director   Independent
Christopher Miglino   No
Yin Woon Rani   Yes
Daina Middleton   Yes

 

 

 

Prior to the Share Exchange, BIG Token operated as an operating segment of SRAX. Immediately following the Share Exchange, SRAX owns approximately 95% of the outstanding common stock of the Company. SRAX will continue to have the power acting alone to approve any action requiring the affirmative vote of a majority of the votes entitled to be cast and to elect all of our directors.

 

Pursuant to the closing of the Share Exchange, the Company entered into certain agreements with SRAX and BIG Token relating to and the Company and BIG Token’s ongoing relationship with SRAX. The material terms of such agreements with SRAX relating to our historical relationship, the Share Exchange and our relationship with SRAX subsequent thereto are described below. We do not currently expect to enter into any additional agreements or other transactions with SRAX outside the ordinary course or with any of our directors, officers or other affiliates, other than those specified below. Any transactions with directors, officers or other affiliates will be subject to requirements of Sarbanes-Oxley and SEC rules and regulations.

 

Relationship with SRAX

 

Historical Relationship with SRAX

 

SRAX currently provides certain services to us, and costs associated with these functions have been allocated to us. The allocations include costs related to corporate services, such as executive management, information technology, legal, finance and accounting, human resources, tax, treasury, research and development, sales and marketing, shared facilities and other services. These costs were allocated on a basis of operating expenses, headcount or other measures we have determined as reasonable. Stock-based compensation includes expense attributable to our employees and an allocation of stock-based compensation attributable to employees of SRAX. These allocations are primarily reflected within operating expenses in our carve-out statements of operations. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to, or the benefit received by, us during the periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent company during the periods prior to Share Exchange or of the costs we will incur in the future.

 

We have operated as an operating segment of SRAX since April 1, 2020. SRAX currently provides certain services to us, and costs associated with these functions have been allocated to us. The allocations include costs related to corporate services, such as executive management, information technology, legal, finance and accounting, human resources, tax, treasury, research and development, sales and marketing, shared facilities and other services. These costs were allocated on a basis of revenue, headcount or other measures we have determined as reasonable. The stock-based compensation includes expense attributable to our employees and an allocation of stock-based compensation attributable to employees of SRAX. These allocations are primarily reflected within operating expenses in our carve-out statements of operations. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to, or the benefit received by, us during the periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent company during the periods prior to the Share Exchange or of the costs we will incur in the future.

 

 
 

 

The amount of these allocations from SRAX was $1.64 million for the three months ended September 30, 2020, and $1.58 million.

 

For the years ended December 31, 2019 and 2018, allocations amounted to $3.88 million and $3.29 million, respectively for general and administrative expense.

 

SRAX as Our Controlling Stockholder

 

SRAX currently owns 95% of our outstanding Common Stock. Notwithstanding, pursuant to the Share Exchange, the Company has issued (i) FPVD Warrants to purchase up to 25,568,064,453 shares of Common Stock, (ii) 8,318 shares of Series C Preferred Stock convertible into approximately 12,864,419,306 shares of Common Stock, subject to certain beneficial ownership limitations. Accordingly, on a fully diluted as converted and as exercised basis, SRAX will own approximately 76.04% of the Company.

 

For as long as SRAX continues to control more than 50% of our outstanding common stock, SRAX or its successor-in-interest will be able to direct the election of all the members of our board of directors. Similarly, SRAX will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in control of us and will have the power to take certain other actions that might be favorable to SRAX. In addition, the master separation agreement will provide that, as long as SRAX beneficially owns at least 50% of the total voting power of our outstanding capital stock entitled to vote in the election of our board of directors, we will not (without SRAX’s prior written consent) take certain actions, such as incurring additional indebtedness and acquiring businesses or assets or disposing of assets in excess of certain amounts. To preserve the tax-free treatment of the separation, the master separation agreement will include certain covenants and restrictions to ensure that, until immediately prior to the share exchange, SRAX will retain beneficial ownership of at least 80% of our carve-out voting power and 80% of each class of nonvoting capital stock, if any is outstanding. In addition, to preserve the tax-free treatment of the separation, we will agree in the tax matters agreement to restrictions, including restrictions that would be effective during the period following the distribution, that could limit our ability to pursue certain strategic transactions, equity issuances or repurchases or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business.

 

Arrangements Between SRAX and Our Company

 

Upon completion of the Share Exchange, SRAX has enter into certain agreements that will effect the separation of our business from SRAX, provide a framework for our relationship with SRAX after the separation and provide for the allocation between us and SRAX of SRAX’s assets, employees, liabilities and obligations (including its investments, property and employee benefits assets and liabilities) attributable to periods prior to, at and after our separation from SRAX, specifically:

 

  a master separation agreement, or MSA;
     
  a transition services agreement, or TSA;

 

The material terms of each of these agreements are summarized below. These summaries are qualified in their entirety by reference to the full text of such agreements, which are filed as exhibits to the registration statement of which this Form 10 is a part.

 

 
 

 

When used in this section, “separation date” refers to the date on which SRAX will contribute the BIG Token business to us, which will occur prior to the completion of this Share Exchange.

 

Master Separation Agreement

 

Upon completion of the Share Exchange, we entered into the MSA with SRAX, which will set forth the agreements between us and SRAX regarding the principal corporate transactions required to effect our separation from SRAX, and other agreements governing the relationship between SRAX and us.

 

The Separation

 

The MSA identifies assets to be transferred, liabilities to be assumed and contracts to be assigned to each of us and SRAX as part of the separation of SRAX into two companies, and will provide for when and how these transfers, assumptions and assignments will occur. In particular, the MSA provides for, among other things, that, subject to certain exceptions and the terms and conditions contained therein:

 

  the assets exclusively related to the businesses and operations of SRAX’s BIG Token business as well as certain other assets mutually agreed upon by SRAX and BIG Token, which we collectively refer to as the “BIG Token Assets,” will be transferred to FPVD or one of our subsidiaries;
     
  certain liabilities (including whether accrued, contingent or otherwise) arising out of or resulting from the BIG Token Assets, and other liabilities related to the businesses and operations of SRAX’s BIG Token business, which we collectively refer to as the “BIG Token Liabilities,” will be retained by or transferred to us or one of our subsidiaries;
     
  certain shared contracts will be assigned in part to us or our applicable subsidiaries or be appropriately amended.

 

Except as may expressly be set forth in the MSA or any other transaction agreements, all assets will be transferred on an “as is,” “where is” basis, and the respective transferees will bear the economic and legal risks that (1) any conveyance will prove to be insufficient to vest in the transferee good title, free and clear of any security interest, and (2) any necessary consents or governmental approvals are not obtained or that any requirements of laws or judgments are not complied with.

 

Claims

 

In general, each party to the MSA will assume liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.

 

Intercompany Accounts

 

The MSA provides that, subject to any provisions in the MSA or any other transaction agreement to the contrary, at or prior to the separation from SRAX, all intercompany accounts between SRAX and its subsidiaries, on the one hand, and BIG Token and its subsidiaries, on the other hand, will be settled.

 

Further Assurances

 

To the extent that any transfers or assignments contemplated by the MSA have not been consummated on or prior to the date of the separation, the parties will agree to cooperate to effect such transfers as promptly as practicable following the date of the separation. In addition, each of the parties will agree to cooperate with the other party and use commercially reasonable efforts to take or to cause to be taken all actions, and to do, or to cause to be done, all things reasonably necessary under applicable law or contractual obligations to consummate and make effective the transactions contemplated by the MSA and the other transaction agreements.

 

 
 

 

Financial Covenants; Auditors and Audits; Annual Financial Statements and Accounting

 

We have agreed that, for so long as SRAX is required to consolidate our results of operations and financial position or account for its investment in our company under the equity method of accounting, we will, among other things:

 

  maintain disclosure controls and procedures and internal control over financial reporting that will provide reasonable assurance that, among other things, (1) our annual and quarterly financial statements are reliable and timely prepared in accordance with GAAP and applicable law, (2) our transactions are recorded as necessary to permit the preparation of our financial statements, (3) receipts and expenditures are authorized at the appropriate level within BIG Token and (4) unauthorized uses and dispositions of assets that could have a material effect on our financial statements are prevented or detected in a timely manner;
  maintain the same fiscal year as SRAX;
     
  establish a disclosure committee that will review our Forms 10-Q, 10-K and other significant filings with the SEC, and permit up to three employees selected by SRAX to attend such committee’s meetings;
     
  not change our independent auditors without SRAX’s prior written consent;
     
  use our reasonable best efforts to enable our independent auditors to complete their audit of our financial statements in a timely manner so as to permit timely filing of SRAX’s financial statements;
     
  provide to SRAX and its independent auditors all information required for SRAX to meet its schedule for the filing and distribution of its financial statements and to make available to SRAX and its independent auditors all documents necessary for the annual audit of our company as well as access to the responsible company personnel so that SRAX and its independent auditors may conduct their audits relating to our financial statements;
     
  adhere to certain specified SRAX accounting policies and notify and consult with SRAX regarding any changes to our accounting principles and estimates used in the preparation of our financial statements, and any deficiencies in, or violations of law in connection with, our internal control over financial reporting;
     
  coordinate with SRAX regarding the timing and content of our earnings releases and cooperate fully (and cause our independent auditors to cooperate fully) with SRAX in connection with any of its public filings; and
     
  promptly report in reasonable detail to SRAX the following events or circumstances that we become aware of: (1) significant deficiencies and material weaknesses which are reasonably likely to adversely affect our ability to report financial information;
    (1) any fraud that involves management or other employees who have a significant role in our internal control over financial reporting; (3) illegal acts; and (4) any report of a material violation of law made pursuant to the SEC’s attorney conduct rules.

 

Indemnification

 

In addition, the MSA provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of SRAX’s business with SRAX. Specifically, each party will indemnify, defend and hold harmless the other party, its affiliates and subsidiaries and their respective officers, directors, employees and agents (collectively, the “indemnified parties”) for any losses arising out of or otherwise in connection with:

 

 

the liabilities that each such party assumed or retained pursuant to the MSA (which, in our case, would include the BIG Token Liabilities and, in the case of SRAX, would include the SRAX Liabilities) and the other transaction agreements;

     
  the failure of SRAX or us to pay, perform or otherwise promptly discharge any of the SRAX Liabilities or the BIG Token Liabilities, respectively, in accordance with their terms, whether prior to, at or after the separation;
     
  any breach by such party of the MSA or the other transaction agreements (other than the intellectual property rights cross-license agreement, which specifies the parties’ obligations therein); and
     
 

except to the extent relating to a BIG Token Liability, in the case of SRAX, or a SRAX Liability, in our case, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement or arrangement for the benefit of SRAX or us, respectively.

 

 
 

 

We will also indemnify, defend and hold harmless the SRAX indemnified parties for any losses arising out of or otherwise in connection with any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (1) contained in any of our public filings with the SEC following the Share Exchange or (3) provided by us to SRAX specifically for inclusion in SRAX’s annual or quarterly or current reports following the Share Exchange to the extent (A) such information pertains to us or the BIG Token business or (B) SRAX has provided prior written notice to us that such information will be included in one or more annual or quarterly or current reports, specifying how such information will be presented, and the information is included in such annual or quarterly or current reports (except, in the case of clause (B), for liabilities arising out of or resulting from, or in connection with, any action or inaction of any member of SRAX, including as a result of any misstatement or omission of any information by SRAX to us).

 

SRAX will also indemnify, defend and hold harmless the BIG Token indemnified parties for any losses arising out of or otherwise in connection with any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (1) contained in our registration statement on Form S-1, of which this Form 10 is a part, or any Form 10 provided by SRAX specifically for inclusion therein to the extent such information pertains to (A) SRAX or (B) SRAX’s business (for the avoidance of doubt, other than the BIG Token business) or (2) provided by SRAX to us specifically for inclusion in our annual or quarterly or current reports following the Share Exchange to the extent (A) such information pertains to (x) SRAX or (y) SRAX’s business (for the avoidance of doubt, other than the BIG Token business) or (B) we have provided written notice to SRAX that such information will be included in one or more annual or quarterly or current reports, specifying how such information will be presented, and the information is included in such annual or quarterly or current reports (except, in the case of clause (B), for liabilities arising out of or resulting from, or in connection with, any action or inaction of ours, including as a result of any misstatement or omission of any information by us to SRAX.

 

The MSA also specifies procedures with respect to claims subject to indemnification and related matters.

 

Other Provisions

 

The master separation agreement will also govern other matters related to the consummation of this Share Exchange and the distribution, the provision and retention of records, access to information, confidentiality, cooperation with respect to governmental filings and third-party consents and insurance.

 

Transition Services Agreement

 

In connection with the completion of this Share Exchange we entered into a TSA with SRAX pursuant to which SRAX will provide us with specified services for an indefinite period of limited time to help ensure an orderly transition following the separation. The TSA specifies the calculation of our costs for these services. The cost of these services will be negotiated between us and SRAX.

 

In general, the services will begin on the date of the closing of the Share Exchange and will cover a period generally not expected to exceed 12 months. We and SRAX have agreed to perform our respective services with substantially the same nature, quality, standard of care and service levels at which the same or similar services were performed by or on behalf of us or SRAX, as applicable, prior to the separation or, if not so previously provided, then substantially similar to those which are applicable to similar services provided to the affiliates or other business components of us or SRAX, as applicable.

 

 
 

 

The TSA generally provides that the applicable service recipient indemnifies the applicable service provider for liabilities that such service provider incurs arising from the provision of services other than liabilities arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the TSA, and that the applicable service provider indemnifies the applicable service recipient for liabilities that such service recipient incurs arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the TSA.

 

Item 8. Legal Proceedings.

 

None.

 

Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

Market Information

 

The Company’s common shares are quoted on the pink sheets of the OTC Markets under the symbol FPVD. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Holders

 

As of January 20, 2021, the Company had approximately 41 record holders of our common stock.

 

As of January 20, 2021, BIG Token had 1 record holder of BIG Token common stock, SRAX, its parent corporation.

 

Dividend Policy

 

The Company has never declared or paid any cash dividends on our capital stock and it does not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. The Company currently intends to retain all of our future earnings, if any, to finance the operation and expansion of the Company and its business. Any future determination relating to the Company’s dividend policy will be made at the discretion of the board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants, applicable law and other factors that the board of directors may deem relevant. If the Company does not pay dividends, a return on your investment will occur only if the market price of the Company’s common stock appreciates.

 

Equity Compensation Plan Information

 

Neither FPVD nor BIG Token have any securities authorized for issuance under equity compensation plans.

 

Equity Compensation Plans Not Approved by Security Holders

 

N/A

 

Item 10. Recent Sales of Unregistered Securities.

 

Recent Sales of Unregistered Securities

 

The following information is given with regard to unregistered securities sold since January 1, 2018 by the Company. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering.

 

 
 

 

  During the three months ended January 31, 2018, the Company issued 1) 34,802,500 shares of Common Stock to RDW Capital, LLC upon the conversion of debt totaling $56,529; and 2) 100,000 shares in exchange for services valued at $600.
  During the six months ended October 31, 2018, the Company issued 570,451,868 shares of Common Stock pursuant to convertible note conversions of debt totaling $110,710.
  During the nine months ended January 31, 2019, the Company issued 646,768,535 shares of Common Stock pursuant to convertible note conversions of debt totaling $115,290.
  During the three months ended July 31, 2020, the Company sold $36,050 in 8%, convertible notes, under similar terms as its previous convertible note financings; and an additional $66,859 was sold during August and September 2020.
  During the six months ended October 31, 2020, the Company sold $126,729 in 8%, convertible notes.
  On October 22, 2020, the Company sold 10,500 shares of Series B Preferred Stock, with each share having a stated value of $100 for gross proceeds of $1,050,000. The Series B Preferred Stock is convertible into Common Stock at any time by the holder at conversion prices subject to certain adjustments as more fully described in the Company’s Designation of Preferences Rights and Limitations of Series B Preferred Stock. As of the date hereof, the Series B Preferred Shares are convertible into an aggregate of 13,636,906,500 shares of Common Stock.
  As disclosed elsewhere in this Current Report on Form 8-K, pursuant to the closing of the Share Exchange, the Company issued (i) 841,184,289 shares of Common Stock to Paul Feldman, our former CEO, (ii) 149,562,566,534 shares of Common Stock to SRAX, (iii) 7,000,000,000 shares of unrestricted Common Stock to Red Diamond, (iv) 8,318 shares of Series C Preferred Stock convertible into approximately 12,864,419,306 shares of Common Stock, and (v) FPVD Warrants to purchase 25,568,064,453 shares of Common Stock at an exercise price per share of $0.00005844216 per share.

 

Item 11. Description of Registrant’s Securities to be Registered.

 

Description of registrant’s securities.

 

Common Stock

 

Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our board of directors out of funds legally available for dividend payments. All shares of common stock outstanding as of the date of this Current Report are fully paid and nonassessable. The holders of common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. In the event of any liquidation, dissolution or winding-up of the Company’s affairs, holders of Common Stock will be entitled to share ratably in our assets that are remaining after payment or provision for payment of all of Seneca’s debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any.

 

Preferred Stock

 

The Company’s Board has the authority, without action by its stockholders, to designate and issue up to an additional 20,000,000 shares of preferred stock in one or more series and to designate the rights, preferences, and limitations of all such series, any or all of which may be superior to the rights of the Company’s Common Stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of the holders of Common Stock until the Company’s Board determines the specific rights of the holders of preferred stock. However, effects of the issuance of preferred stock include restricting dividends on the Company’s Common Stock, diluting the voting power of its Common Stock, impairing the liquidation rights of its Common Stock, and making it more difficult for a third party to acquire the Company, which could have the effect of discouraging a third party from acquiring, or deterring a third party from paying a premium to acquire, a majority of Seneca’s outstanding voting stock. The Company is currently undertaking an offering of its Series B Preferred Stock.

 

 
 

 

The Company’s Board may, without further action by its stockholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series, including voting rights, dividend rights and redemption and liquidation preferences. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of the Company’s Common Stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of shares of the Company’s Common Stock. In some circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of the Company’s securities or the removal of incumbent management. Upon the affirmative vote of the Company’s Board, without stockholder approval, the Company may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of the Company’s Common Stock.

 

Series A Preferred Stock

 

The Company has a class of preferred stock called Series A Preferred Stock, par value $0.0001 per share. The Series A Preferred Stock is not entitled to receive dividends and is not convertible into any other class of stock or security of the Company. Each Share of Series A Preferred Stock has the right to vote 200 votes per share on all shareholder matters where it is entitled to vote. The Company will redeem any issues shares of Series A Preferred Stock in whole, but not in part at the option of the holder for $0.0001 per share. As of January 27, 2021, pursuant to the completion of the Share Exchange, Mr. Feldman, our former CEO had transferred all 5,000,000 shares of Series A Preferred Stock outstanding to SRAX.

 

Series B Preferred Stock

 

The Company has a class of Preferred Stock called Series B Preferred Stock, par value $0.0001 per share. The Series B Preferred Stock has a stated value of $100 per share and can be converted into Common Stock of the Company at any time by the holder at a conversion price that adjusts pursuant to the terms as further described in the Certificate of Designation of Series B Preferred Stock. The Series B Preferred Stock is also subject to automatic conversion upon the occurrence of a “qualified financing” as described in the Certificate of Designation of Series B Preferred Stock. Upon a liquidation, the holders of Series B Preferred stock are entitled to receive their pro-rata portion on an as converted to Common Stock basis. The Series B Preferred Stock provides for 5% per annum dividend beginning one year after issuance, to be paid in Series B Preferred Stock. The Series B Preferred stock does not have any voting rights. The Company is authorized to issue up to 34,729 shares of Series B Preferred Stock, of which 10,500 has been issued as of the date hereof.

 

Series C Preferred Stock

 

The Company has a class of Preferred Stock called Series C Preferred Stock, par value $0.0001 per share. The Series C Preferred Stock is not redeemable and has no voting rights. Upon a liquidation, the holders of Series C Preferred stock are entitled to receive their pro-rata portion on an as converted to Common Stock basis. Each share of Series C Preferred Stock is convertible into 1,546,576 shares of Common Stock, subject to certain beneficial ownership limitations. The Company is authorized to issue up to 8,318 shares of Series C Preferred Stock, all of which have been issued as of the date hereof.

 

FPVD Warrants

 

The Company has issued 25,568,064,462 FPVD Warrants. The FPVD Warrants have a term of three (3) years, an exercise price of $0.00005844216, and contain adjustments in the event of stock dividends and splits, subsequent rights offerings, pro rata distributions, and certain fundamental transactions as more fully described in the FPVD Warrants.

 

 
 

 

Additionally, the FPVD Warrants provide for (i) price protection in the event that the Company issues Common Stock or securities convertible into Common Stock at a imputed pre-money valuation of less than $10 million (“Qualifying Dilutive Issuance”) (ii) the increase in the number of shares underlying the FPVD Warrants in the event that the Company undertakes a Qualifying Dilutive Issuance, the shares underlying the FPVD warrants will adjust so the holder will maintain its percentage ownership held immediately prior to the Dilutive Issuance. Additionally, the exercise price of the FPVD warrants will adjust so that the aggregate consideration received for the exercise of the warrant taking into account the additional shares will remain unchanged. The adjustments to exercise price and number of shares underlying the FPVD Warrant will lapse and be of no further force or consequence upon the earlier of (i) the Company raising aggregate proceeds of $5,000,000 at any valuation beginning on the date of the FPVD Warrants (with the holders receiving the benefit of such protection afforded by a Qualifying Dilutive Issuance until the first dollar over $5,000,000 is raised, and (ii) the Company’s Common Stock becomes listed on a national exchange or quotation system. The FPVD Warrant allow for cash-less exercise at any time after six months of issuance in the event that the shares underlying the FPVD warrants are not subject to an effective registration statement.

 

Registration Rights Agreement for Series B Preferred Stock

Pursuant to the sale of Series B Preferred Stock, the Company entered into a registration rights agreement (“RRA”) whereby the Company agreed to register all of the shares of Common Stock underlying the shares of Series B Preferred Stock sold to investors. The Company agreed to file the registration statement registering the shares of Common Stock within 180 days after the first sale of Series B Preferred Stock, which occurred on October 22, 2020.

Leak Out Agreement

Pursuant to the Debt Exchange Agreement entered into by and between the Company and Red Diamond on January 27, 2021, as described in Item 1.01 of this Current Report on Form 8-K, Red Diamond agreed that during the six (6) month period following the date of the Agreement, it will not offer or sell in a public broker transaction, any of the 7,000,000,000 unrestricted shares of Common Stock or shares of Common Stock underlying the 8,318 shares of Series C Preferred Stock on any trading day in an amount greater than 20% of the average daily trading volume over the five (5) trading days preceding any such sale.

SRAX Registration Rights Agreement

On January 28, 2021, the Company entered into the SRAX RRA with SRAX pursuant to which SRAX was provided with “Demand” and “Piggyback” registration rights with respect to 149,562,566,534 shares of Common Stock issued upon completion of the Share Exchange.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for the Company’s Common Stock is Issuer Direct located at 1 Glenwood Avenue, Suite 1001, Raleigh, North Carolina, 27603, telephone (919) 481-4000. The Company acts as the transfer agent and registrar for its Series A, B and C Preferred Stock.

 

Listing on the OTC Pink Sheets

 

The Company’s Common Stock is quoted on the pink sheets of the OTC Markets under the symbol FPVD. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Item 12. Indemnification of Directors and Officers.

 

Florida law permits, under certain circumstances, the indemnification of any person with respect to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which such person was or is a party or is threatened to be made a party, by reason of his or her being an officer, director, employee or agent of the corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against liability incurred in connection with such proceeding, including appeals thereof; provided, however, that the officer, director, employee or agent acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any such third-party action by judgment, order, settlement, or conviction or upon a plea of nolo contendere or its equivalent does not, of itself, create a presumption that the person (i) did not act in good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the best interests of the corporation or (ii) with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. In the case of proceedings by or in the right of the corporation, Florida law permits indemnification of any person by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against liability incurred in connection with such proceeding, including appeals thereof; provided, however, that the officer, director, employee or agent acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification is made where such person is adjudged liable, unless a court of competent jurisdiction determines that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

 

To the extent that such person is successful on the merits or otherwise in defending against any such proceeding, Florida law provides that he or she shall be indemnified against expenses actually and reasonably incurred by him or her in connection therewith.

 

 
 

 

Also, under Florida law, expenses incurred by an officer or director in defending a civil or criminal proceeding may be paid by the corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if he or she is ultimately found not to be entitled to indemnification by the corporation pursuant to this section. Expenses incurred by other employees and agents may be paid in advance upon such terms or conditions that the Board of Directors deems appropriate.

 

Our Bylaws provides that we shall indemnify our officers, directors, and employees, and agents unless specifically approved in writing by the Board of Directors, to the fullest extent authorized by Section 607.0850 of the Florida Business Corporation Act, or the FBCA, as it existed when the Bylaws were adopted or as it may hereafter be amended, but, in the case of any such amendment, only to the extent that such amendment permits us to provide broader indemnification rights than were permitted prior to such amendment. Such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent; provided, however, that we shall indemnify any such person seeking indemnity in connection with an action, suit, or proceeding (or part thereof) initiated by such person only if such action, suit, or proceeding (or part thereof) was authorized by the our Board of Directors.

 

The Bylaws also provide that such rights of indemnification shall be a contract right and shall include the right to be paid by us for all reasonable expenses incurred in defending any such proceeding in advance of final disposition; provided, however, that the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer in advance of the final disposition of such proceeding shall be made only upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under the Bylaws or otherwise.

 

In addition to the authority granted to us by Florida law to indemnify our directors, certain other provisions of the Florida Act have the effect of further limiting the personal liability of our directors. Pursuant to Florida law, a director of a Florida corporation cannot be held personally liable for monetary damages to the corporation or any other person for any act or failure to act regarding corporate management or policy except in the case of certain qualifying breaches of the director’s duties.

 

As a general policy, the Company anticipates entering into indemnification agreements with our officers and directors.

 

Insofar as indemnification for liabilities arising under the Securities Act, as amended, may be permitted to our directors and officers, or to persons controlling us, pursuant to our charter documents and Florida law, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended and is therefore unenforceable.

 

 
 

 

Item 13. Financial Statements and Supplementary Data.

 

BIGToken

(A Business of SRAX, Inc.)

 

Carve-Out Financial Statements

 

Table of Contents

 

  Page 
   
Report of Independent Registered Public Accounting Firm 1
   
Carve-Out Balance Sheets as of September 30, 2020 (unaudited), December 31, 2019 and 2018 2
   
Carve-Out Statements of Operations for the nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) and years ended December 31, 2019 and 2018 3
   
Carve-Out Statements of Changes in Net Parent Investment for the nine months ended September 30, 2020 (unaudited) and years ended December 31, 2019 and 2018 4
   
Carve-Out Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited) and years ended December 31, 2019 and 2018 5
   
Notes to Carve-Out Financial Statements 6-22

 

 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

SRAX, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of BigToken, an operating segment of SRAX, Inc., (A carve-out of SRAX, Inc.), (the “Company”), as of December 31, 2019 and 2018, and the related carve-out statements of operations, changes in net-parent investment and cash flows for each of the two years in the period ended December 31, 2019 and the related notes (collectively referred to as the “ carve-out financial statements”). In our opinion, the carve-out financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying carve-out financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the carve-out financial statements, the Company has recurring losses from operations, limited cash flow, and an accumulated deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The carve-out financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

Change in Accounting Principle

 

As discussed in Note 1 to the carve-out financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of the Accounting Standards Codification Topic 842, Leases.

 

Basis for Opinion

 

These carve-out financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these carve-out financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Emphasis of Matter

 

As discussed in Note 1, BigToken is an integrated business, an operating segment, of SRAX, Inc. and is not a stand-alone entity. The carve-out financial statements of the BigToken reflect the assets, liabilities, revenue and expenses directly attributable to BigToken, as well as allocations deemed reasonable by management, to present the carve-out financial position, results of operations, changes in net parent investment and cash flows of BigToken on a stand-alone basis and do not necessarily reflect the carve-out financial position, results of operations, changes in net parent investment and cash flows of BigToken in the future or what they would have been had the BigToken been a separate, stand-alone entity during the periods presented. Our opinion is not modified with respect to this matter.

 

We have served as SRAX, Inc.’s auditor since 2011.

 

New York, NY

February 16, 2021

 

1

 

 

BigToken

(A Business of SRAX, Inc.)

 

Carve-Out Balance Sheets

 

    As of     As of December 31,  
    September 30, 2020     2019     2018  
    (unaudited)              
Assets                        
Current assets:                        
Cash and cash equivalents   $ 92,000     $ 1,000     $ 39,000  
Accounts receivable, net     682,000       876,000       790,000  
Prepaid expenses     21,000       189,000       133,000  
Marketable securities     -       64,000       20,000  
Other current assets     1,000       1,000       -  
Total current assets     796,000       1,131,000       982,000  
                         
Property and equipment, net     1,000       3,000       4,000  
Goodwill     5,445,000       5,445,000       5,445,000  
Intangible assets, net     919,000       869,000       469,000  
Total Assets   $ 7,161,000     $ 7,448,000     $ 6,900,000  
                         
Liabilities and Net Parent Investment                        
Accounts payable and accrued expenses   $ 855,000     $ 1,225,000     $ 689,000  
Other current liabilities     263,000       445,000       -  
Total Liabilities     1,118,000       1,670,000       689,000  
                         
Commitments and contingencies (see Note 7)                        
                         
Net parent investment     6,043,000       5,778,000       6,211,000  
Total Net Parent Investment     6,043,000       5,778,000       6,211,000  
Total Liabilities and Net Parent Investment   $ 7,161,000     $ 7,448,000     $ 6,900,000  

 

The accompanying notes are an integral part of these Carve-Out Financial Statements.

 

2

 

 

BigToken

(A Business of SRAX, Inc.)

 

Carve-Out Statements of Operations

 

    Nine Months ended     Year ended  
    September 30,     December 31,  
    2020     2019     2019     2018  
    (unaudited)              
                         
Revenues   $ 1,146,000     $ 2,242,000     $ 3,228,000     $ 2,725,000  
Cost of revenues     491,000       1,013,000       1,613,000       1,605,000  
Gross profit     655,000       1,229,000       1,615,000       1,120,000  
                                 
Operating expenses                                
Employee related costs     3,630,000       6,322,000       8,123,000       5,470,000  
Marketing and selling expenses     725,000       2,144,000       2,515,000       514,000  
Platform costs     844,000       812,000       1,251,000       533,000  
Depreciation and amortization     714,000       631,000       929,000       379,000  
General and administrative expenses     1,593,000       3,590,000       4,778,000       3,140,000  
Total operating expenses     7,506,000       13,499,000       17,596,000       10,036,000  
                                 
Loss from operations     (6,851,000 )     (12,270,000 )     (15,981,000 )     (8,916,000 )
                                 
Other income (expense):                                
Financing costs     (3,624,000 )     (677,000 )     (694,000 )     (4,346,000 )
Interest income     -       8,000       8,000       34,000  
Gain (loss) on sale of assets     -       -       -       -  
Change in fair value of derivative liabilities     218,000       1,342,000       1,000,000       5,252,000  
Realized gain on marketable securities     333,000       50,000       50,000       23,000  
Unrealized loss on marketable securities     -       (6,000 )     (6,000 )     (3,000 )
Exchange Gain (loss)     -       19,000       19,000       (15,000 )
Total other income (expense)     (3,073,000 )     736,000       377,000       945,000  
                                 
Loss before provision for income taxes     (9,924,000 )     (11,534,000 )     (15,604,000 )     (7,971,000 )
                                 
Provision for income tax benefit     -       -       -       2,510,000  
Net loss   $ (9,924,000 )   $ (11,534,000 )   $ (15,604,000 )   $ (5,461,000 )

 

The accompanying notes are an integral part of these Carve-Out Financial Statements.

 

3

 

 

BigToken

(A Business of SRAX, Inc.)

 

Carve-Out Statements of Changes in Net Parent Investment

 

    Net Parent Investment  
       
Balance as of December 31, 2017   $ 6,211,000  
Net loss     (5,461,000 )
Net transfers from parent     5,018,000  
Stock-based compensation expense     443,000  
Balance as of December 31, 2018   $ 6,211,000  
Net loss     (15,604,000 )
Net transfers from parent     14,188,000  
Stock-based compensation expense     983,000  
Balance as of December 31, 2019   $ 5,778,000  
Net loss (unaudited)     (9,924,000 )
Net transfers from parent (unaudited)     9,419,000  
Stock-based compensation expense (unaudited)     770,000  
Balance as of September 30, 2020 (unaudited)   $ 6,043,000  

 

The accompanying notes are an integral part of these Carve-Out Financial Statements.

 

4

 

 

BigToken

(A Business of SRAX, Inc.)

 

Carve-Out Statements of Cash Flows

 

    Nine Months ended     Year ended  
    September 30,     December 31,  
    2020     2019     2019     2018  
    (unaudited)              
                         
Cash Flows From Operating Activities                                
Net loss   $ (9,924,000 )   $ (11,534,000 )   $ (15,604,000 )   $ (5,461,000 )
Adjustments to reconcile net loss to net cash used in operating activities:                                
Allocations of corporate overhead     6,423,000       4,525,000       6,510,000       3,460,000  
Stock-based compensation expense     237,000       278,000       467,000       -  
Provision for bad debts     29,000       246,000       446,000       3,000  
Depreciation expense     2,000       1,000       1,000       -  
Amortization of intangibles     385,000       240,000       348,000       143,000  
Realized gain on marketable securities     (333,000 )     (50,000 )     (50,000 )     (23,000 )
Unrealized loss on marketable securities     -       6,000       6,000       3,000  
Changes in operating assets and liabilities                                
Accounts receivable     165,000       (353,000 )     (532,000 )     82,000  
Prepaid expenses     168,000       (122,000 )     (56,000 )     9,000  
Other current assets     -       (5,000 )     (1,000 )     -  
Accounts payable and accrued expenses     (370,000 )     23,000       536,000       263,000  
Other current liabilities     (182,000 )     772,000       445,000       -  
Net Cash Used in Operating Activities     (3,400,000 )     (5,973,000 )     (7,484,000 )     (1,521,000 )
                                 
Cash Flows From Investing Activities                                
Proceeds from the sale of marketable securities     397,000       -       -       -  
Purchase of property and equipment     -       -       -       (4,000 )
Purchase of software     (435,000 )     (537,000 )     (748,000 )     (444,000 )
Net Cash Used by Investing Activities     (38,000 )     (537,000 )     (748,000 )     (448,000 )
                                 
Cash Flows From Financing Activities                                
Cash transfer from parent, net     3,529,000       6,492,000       8,194,000       2,001,000  
Net Cash Provided by Financing Activities     3,529,000       6,492,000       8,194,000       2,001,000  
                                 
Net increase (decrease) in Cash     91,000       (18,000 )     (38,000 )     32,000  
Cash, Beginning of Period     1,000       39,000       39,000       7,000  
Cash, End of Period   $ 92,000     $ 21,000     $ 1,000     $ 39,000  

 

The accompanying notes are an integral part of these Carve-Out Financial Statements.

 

5

 

 

BigToken

(A Business of SRAX, Inc.)

 

Notes to Carve-Out Financial Statements

 

NOTE 1 – THE COMPANY, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company

 

BIGToken (“We”, “Our”, or the “Company”) is a data technology company offering tools and services to identify and reach consumers for the purpose of marketing and advertising communication. We are located in Los Angeles, California. Our technologies assist our clients in: (i) identifying their core consumers and such consumers’ characteristics across various channels in order to discover new and measurable opportunities to maximize profits associated with advertising campaigns and (ii) gaining insight into the activities of their customers. We derive our revenues from the sale of proprietary consumer data and sales of digital advertising campaigns.

 

The Company currently operates as an operating segment of SRAX, Inc. (“SRAX”), as discussed in the Basis of Presentation, below. On October 1, 2020, SRAX entered into a share exchange agreement (the “Transaction”) with Force Protection Video Equipment Corp, a Florida corporation (“Force”). Prior to the Transactions, SRAX transferred the component of the BIGToken operating segment, excluding the accounts receivable balance (as of the transfer date) that did not reside in BIGToken, Inc. SRAX agreed to transfer 100% of the issued and outstanding common stock of BIGToken, Inc, for 90% of the issued and outstanding shares of Force and 100% of the issued and outstanding shares of Force’s preferred stock.

 

Basis of Presentation

 

The Carve-Out Financial Statements of the Company are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Throughout the periods covered by the Carve-Out Financial Statements, the Company did not operate as a separate stand-alone entity but, rather as a business of the SRAX. Consequently, stand-alone financial statements were not historically prepared for the Company. The Carve-Out Financial Statements have been prepared in connection with the Transaction, and are derived from the accounting records of SRAX using the historical results of operations and the historical bases of assets and liabilities of the Company, adjusted as necessary to conform to U.S. GAAP. The Carve-Out Financial Statements present the assets, liabilities, revenues, and expenses directly attributed to the Company as well as certain allocations from the SRAX. Intercompany balances and transactions between the Company and SRAX have been presented in Net Parent investment within the Carve-Out Balance Sheets. SRAX’s debt, the related interest expense and derivative liabilities have not been allocated and reflected within the Carve-Out Financial Statements as the Company is not the legal obligor of the debt and SRAX’s borrowings were not directly attributable to the Company’s business. The Carve-Out Financial Statements may, therefore, not reflect the results of operations, financial position or cash flows that would have resulted had the Company been operated as a separate entity.

 

Cash management

 

Historically, the Company received funding to cover any shortfalls on operating cash requirements through a centralized treasury function of SRAX.

 

Net Parent investment

 

As the Carve-Out Financial Statements are derived from the historical records of SRAX, the historical equity accounts are eliminated, and net parent investment is presented in lieu of shareholders’ equity on the Carve-Out Balance Sheets. The primary components of the net parent investment are intercompany balances other than related party payables and the allocation of shared costs. Balances between the Company and SRAX that were not historically cash settled are included in net parent investment. Balances between the Company and SRAX that would historically be cash settled are included in prepaid expenses and other current assets and accrued liabilities on the Carve-Out Balance Sheets. Net parent investment represents SRAX’s interest in the recorded assets of BIGToken and represents the cumulative investment by SRAX in BIGToken through the dates presented, inclusive of operating results.

 

6

 

 

Cost allocation and attribution

 

The Carve-Out Statements of Operations include all costs directly attributable to the Company, as well as costs for certain functions and services used by the Company that have been allocated from SRAX. Costs were allocated to the Carve-Out Financial Statements for certain operating, selling, governance and corporate functions such as direct labor, overhead, sales and marketing, administration, legal and information technology. The costs for these services and support functions were allocated to the Company using either specific identification or a pro-rata allocation using operating expenses, labor allocations and other drivers. Management believes the methodology for cost allocations is a reasonable reflection of common expenses incurred by SRAX on the Company’s behalf.

 

Liquidity and Going Concern

 

The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its goods and services to achieved profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. These factors create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Carve-Out Financial Statements are issued. The Carve-Out Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the Carve-Out Financial Statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position at September 30, 2020 our cash flow and cash usage forecasts for the period covering one-year from the issuance date of these Carve-Out Financial Statements and our current capital structure.

 

We anticipate raising additional capital through alternative private and public sales of our equity or debt securities, or a combination thereof. Although management believes that such capital sources will be available, there can be no assurance that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. As our operations have historically been funded through SRAX’s treasury program, the Company has minimal cash and cash equivalents and minimal working capital. If we do not raise sufficient capital in a timely manner, among other things, we may be forced to scale back our operations or cease operations all together.

 

Currently, we are dependent on SRAX for our continued support to fund our operations, without which we would need to curtail our operations.

 

7

 

 

Use of Estimates

 

The Carve-Out Financial Statements have been prepared in conformity with U.S. GAAP and requires management of the Company to make estimates and assumptions in the preparation of these Carve-Out Financial Statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Carve-Out Financial Statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

 

The most significant areas that require management judgment and which are susceptible to possible change in the near term include the Company’s revenue recognition, provision for bad debts, BIGToken point redemption liability, stock-based compensation, income taxes, goodwill and intangible assets.

 

As of September 30, 2020, the impact of COVID-19 continues to unfold and as a result, certain estimates and assumptions require increased judgment and carry a higher degree of variability and volatility that could result in material changes to our estimates in future periods. 

 

Fair Value of Financial Instruments

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

 

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:

 

Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;

Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

 

The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.

 

Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.

 

The Company’s financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses, are carried at historical cost. At September 30, 2020 (unaudited), December 31, 2019 and 2018, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments. The Company measures certain non-financial assets, liabilities, and equity issuances at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and goodwill for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations.

 

8

 

 

Accounts Receivable

 

Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company usually does not require collateral.

 

Concentration of Credit Risk, Significant Customers and Supplier Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited with financial institutions within the United States. The balances maintained at these financial institutions are generally more than the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any loss on these accounts.

 

As of September 30, 2020 (unaudited), the Company had three customers with accounts receivable balances of approximately 23.7%, 19.2% and 17.1% of total accounts receivable. At December 31, 2019, the Company had three customers with accounts receivable balances of approximately 25.9%, 16.4% and 15.0%. At December 31, 2018, the Company had two customers with accounts receivable balances of approximately 42.9% and 10.5%.

 

For the period ended September 30, 2020 (unaudited), the Company had one customer that account for approximately 19.1% of total revenue. For the year ended December 31, 2019, the Company had two customers that account for approximately 19.3% and 14.1% of total revenue. For the year ended December 31, 2018, the Company had three customers that accounted for 21.0%, 14.1% and 10.3%.

 

PREPAID EXPENSES

 

Prepaid expenses are assets held by the Company, which are expected to be realized and consumed within twelve months after the reporting period.

 

MARKETABLE SECURITIES

 

Shares received will be accounted for in accordance with ASC 320 – Investments – Debt and Equity Securities, as such the shares will be classified as available-for-sale securities and will be measured at each reporting period at fair value with the unrealized gain (loss) as a component of other income (expense). Upon the sale of the shares, the Company will record the gain (loss) in the carve-out statement of operations as a component of other income (expense).

 

LONG-LIVED ASSETS

 

Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the Company’s stock price for a sustained period of time; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairments have been recorded regarding its identifiable intangible assets or other long-lived assets during nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) and the years ended December 31, 2019 or 2018, respectively.

 

Property and equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets of three to seven years.

 

9

 

 

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment.

 

Intangible assets

 

Intangible assets consist of the Company’s intellectual property of internally developed software and are stated at cost less accumulated amortization. Amortization is provided for on the straight-line basis over the estimated useful lives of the assets of five to nine years.

 

Costs incurred to develop computer software for internal use are capitalized once: (1) the preliminary project stage is completed, (2) management authorizes and commits to funding a specific software project, and (3) it is probable that the project will be completed and the software will be used to perform the function intended. Costs incurred prior to meeting the qualifications are expensed as incurred. Capitalization of costs ceases when the project is substantially complete and ready for its intended use. Post-implementation costs related to the internal use computer software, are expensed as incurred. Internal use software development costs are amortized using the straight-line method over its estimated useful life which ranges up to three years. Software development costs may become impaired in situations where development efforts are abandoned due to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned software product. For the nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) there has been no impairment associated with internal use software. For the years ended December 31, 2019, and 2018 there has been no impairment associated with internal use software. For the nine months ended September 30, 2020 and years ended December 31, 2019, and 2018, the Company capitalized software development costs of $435,000 (unaudited) and $748,000 and $444,000, respectively.

 

During 2016, the Company began capitalizing the costs of developing internal-use computer software, including directly related payroll costs. The Company amortizes costs associated with its internally developed software over periods up to three years, beginning when the software is ready for its intended use.

 

The Company capitalizes costs incurred during the application development stage of internal-use software and amortize these costs over the estimated useful life. Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion, and business process reengineering costs are expensed in the period in which they are incurred.

 

Goodwill

 

Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value. The Company performed its most recent annual goodwill impairment test as of
December 31, 2019 using market data and discounted cash flow analysis. Based on this analysis, it was determined that the fair value exceeded the carrying value of its reporting units. The Company concluded the fair value of the goodwill exceed the carrying value accordingly there were no indicators of impairment for the nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) and years ended December 31, 2019 and 2018.

 

The Company had historically performed its annual goodwill and impairment assessment on
December 31st of each year. This aligns the Company with other advertising sales companies who also generally conduct this annual analysis in the fourth quarter.

 

When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the impairment testing methodology primarily using the income approach (discounted cash flow method).

 

10

 

 

We compare the carrying value of the goodwill, with its fair value, as determined by a combination of the market approach and income approach, its estimated discounted cash flows. If the carrying value of goodwill exceeds its fair value, then the amount of impairment to be recognized. We operate as one reporting unit.

 

When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.

 

Revenue Recognition

 

The Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”) on January 1, 2018 using the modified retrospective method. Our operating results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts continue to be reported in accordance with our historic accounting under Topic 605. The timing and measurement of our revenues under ASC Topic 606 is similar to that recognized under previous guidance, accordingly, the adoption of ASC Topic 606 did not have a material impact on our financial position, results of operations, cash flows, or presentation thereof at adoption or in the current period. There were no changes in our opening retained earnings balance as a result of the adoption of ASC Topic 606.

 

ASC Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. Application of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance. Application of ASC Topic 606 requires a five-step model applicable to all product offerings revenue streams as follows:

 

Identification of the contract, or contracts, with a customer

 

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

 

We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit or financial information pertaining to the customer.

 

Identification of the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

 

When a contract includes multiple promised goods or services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.

 

11

 

 

Determination of the transaction price

 

The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods or services to our customer. We estimate any variable consideration included in the transaction price using the expected value method that requires the use of significant estimates for discounts, cancellation periods, refunds and returns. Variable consideration is described in detail below.

 

Allocation of the transaction price to the performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative Stand-Alone Selling Price (“SSP,”) basis. We determine SSP based on the price at which the performance obligation would be sold separately. If the SSP is not observable, we estimate the SSP based on available information, including market conditions and any applicable internally approved pricing guidelines.

 

Recognition of revenue when, or as, we satisfy a performance obligation

 

We recognize revenue at the point in time that the related performance obligation is satisfied by transferring the promised goods or services to our customer.

 

Principal versus Agent Considerations

 

When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent. Our evaluation to determine if we control the goods or services within ASC Topic 606 includes the following indicators:

 

We are primarily responsible for fulfilling the promise to provide the specified good or service.

 

When we are primarily responsible for providing the goods and services, such as when the other party is acting on our behalf, we have indication that we are the principal to the transaction. We consider if we may terminate our relationship with the other party at any time without penalty or without permission from our customer.

 

We have risk before the specified good or service have been transferred to a customer or after transfer of control to the customer.

 

We may commit to obtaining the services of another party with or without an existing contract with our customer. In these situations, we have risk of loss as principal for any amount due to the other party regardless of the amount(s) we earn as revenue from our customer.

 

The entity has discretion in establishing the price for the specified good or service.

 

We have discretion in establishing the price our customer pays for the specified goods or services.

 

Contract Liabilities

 

Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities have been historically low historically recorded as current liabilities on our Carve-Out Financial Statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. We have no Long-term contract liabilities which would represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year.

 

12

 

 

Practical Expedients and Exemptions

 

We have elected certain practical expedients and policy elections as permitted under ASC Topic 606 as follows:

 

We applied the transitional guidance to contracts that were not complete at the date of our initial application of ASC Topic 606 on January 1, 2018.
We adopted the practical expedient related to not adjusting the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;
We made the accounting policy election to not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;
We made the accounting policy election to exclude any sales and similar taxes from the transaction price; and
We adopted the practical expedient not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

Cost of Revenue

 

Cost of revenue consists of payments to media providers that are directly related to a revenue-generating event and project and application design costs. The Company becomes obligated to make payments related to media providers in the period the media is provided to us. Such expenses are classified as cost of revenue in the corresponding period in which the revenue is recognized in the accompanying Carve-Out Statements of Operations.

 

Stock-Based Compensation

 

The Company’s employees have historically participated in SRAX’s stock-based compensation plans. Stock-based compensation expense has been allocated to the Company based on the awards and terms previously granted to the Company’s employees as well as an allocation of SRAX’s corporate and shared functional employee expenses.

 

We account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

 

We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

Income taxes

 

The Company’s operations have historically been included in SRAX’s combined U.S. income tax returns. Income tax expense included in the Carve-Out Financial Statements has been calculated following the separate return method, as if the Company was a stand-alone enterprise and a separate taxpayer for the periods presented. The calculation of income taxes on a separate return basis requires considerable judgment and the use of both estimates and allocations that affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and the Carve-Out Financial Statement recognition of revenues and expenses. As a result, the Company’s deferred income tax rate and deferred tax balances may differ from those in SRAX’s historical results.

 

The provision for income taxes is determined using the asset and liability approach. Deferred taxes represent the future tax consequences expected when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between the Carve-Out Financial Statement and tax bases of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In evaluating the Company’s ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of operations. Any tax carryforwards reflected in the Carve-Out Financial Statements have also been determined using the separate return method. Tax carryforwards include net operating losses.

 

13

 

 

The complexity of tax regulations requires assessments of uncertainties in estimating taxes the Company will ultimately pay. The Company recognizes liabilities for anticipated tax audit uncertainties based on its estimate of whether, and the extent to which additional taxes would be due on a separate return basis. Tax liabilities are presented net of any related tax loss carryforwards.

 

Recently Issued Accounting Standards

 

Changes to accounting principles are established by the FASB in the form of ASUs to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that are not yet effective, but may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02 (with amendments issued in 2018), which changes the accounting for leases and requires expanded disclosures about leasing activities. This new guidance also requires lessees to recognize a ROU asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018. We adopted ASU 2016-02 on January 1, 2019, as the Company is not a obligator on any lease agreements this standard did not have a material impact on our Carve-Out Financials Statements.

 

In September 2018, the FASB issued ASU 2018-07, “Improvements to Non-employee Share-Based Payment Accounting.” This guidance expands the scope of Topic 718 “Compensation - Stock Compensation” to include share-based payment transactions for acquiring goods and services from non-employees, but excludes awards granted in conjunction with selling goods or services to a customer as part of a contract accounted for under ASC 606, “Revenue from Contracts with Customers.” The adoption of ASU 2018-07 did not have a material impact on our Carve-Out Financials Statements.

 

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which amends ASC 350-40, “Intangibles - Goodwill and Other - Internal-Use Software.” The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and requires the capitalized implementation costs to be expensed over the term of the hosting arrangement. The accounting for the service element of a hosting arrangement that is a service contract is not affected. ASU 2018-15 is effective for fiscal periods beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-15, effective January 1, 2019, did not have a material impact on our Carve-Out Financials Statements.

 

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” This guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal periods beginning after December 31, 2019. Early adoption is permitted. We adopted ASU 2017-04 and it did not have a material impact on our Carve-Out Financials Statements.

 

14

 

 

Recent Accounting Updates Not Yet Effective

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance.

 

In September 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This guidance updates existing guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We do not expect the adoption of ASU 2016-13 will have a material impact on our Carve-Out Financials Statements.

 

NOTE 2 – ACCOUNTS RECEIVABLE

 

    September 30,
2020
(Unaudited)
    December 31,
2019
    December 31,
2018
 
                   
Gross accounts receivable   $ 1,168,000     $ 1,333,000     $ 801,000  
Allowance for bad debts     (486,000 )     (457,000 )     (11,000 )
Accounts receivable, net   $ 682,000     $ 876,000     $ 790,000  

 

The carve-out statements of operations include both provision for bad debts directly identifiable as BIGToken’s and allocated provision for bad debts from SRAX, Inc. The following table summarizes the Company’s provision for bad debts for the periods indicated:

 

    Nine months ended     Years ended  
    September 30,
2020
(Unaudited)
    September 30,
2019
(Unaudited)
    December 31,
2019
    December 31,
2018
 
Directly identifiable as BIGToken’s   $ 29,000     $ 246,000     $ 446,000     $ 3,000  
Allocated from SRAX, Inc.     32,000       -       4,000       3,000  
Provision for bad debts   $ 61,000     $ 246,000     $ 450,000     $ 6,000  

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

The components of property and equipment are as follows:

 

    September 30,
2020
(Unaudited)
    December 31,
2019
    December 31,
2018
 
                   
Computer Equipment   $ 4,000     $ 4,000     $ 4,000  
Accumulated depreciation     (3,000 )     (1,000 )     -  
Property and equipment, net   $ 1,000     $ 3,000     $ 4,000  

 

15

 

 

The carve-out statements of operations include both depreciation expense directly identifiable as BIGToken’s and allocated depreciation expense from SRAX, Inc. The following table summarizes the Company’s depreciation expense for the periods indicated:

 

    Nine months ended     Years ended  
    September 30,
2020
(Unaudited)
    September 30,
2019
(Unaudited)
    December 31,
2019
    December 31,
2018
 
Directly identifiable as BIGToken’s   $ 2,000     $ 1,000     $ 1,000     $ -  
Allocated from SRAX, Inc.     37,000       50,000       70,000       26,000  
Depreciation expense   $ 39,000     $ 51,000     $ 71,000     $ 26,000  

 

NOTE 4 – INTANGIBLE ASSETS

 

The components of intangible assets are as follows:

 

    September 30,
2020
(Unaudited)
    December 31,
2019
    December 31,
2018
 
                   
Software   $ 1,843,000     $ 1,408,000     $ 660,000  
Accumulated amortization     (924,000 )     (539,000 )     (191,000 )
Intangible assets, net   $ 919,000     $ 869,000     $ 469,000  

 

The carve-out statements of operations include both amortization expense directly identifiable as BIGToken’s and allocated amortization expense from SRAX, Inc. The following table summarizes the Company’s amortization expense for the periods indicated:

 

    Nine months ended     Years ended  
    September 30, 2020 (Unaudited)     September 30, 2019 (Unaudited)     December 31, 2019     December 31, 2018  
Directly identifiable as BIGToken’s   $ 385,000     $ 240,000     $ 348,000     $ 143,000  
Allocated from SRAX, Inc.     290,000       340,000       510,000       210,000  
Amortization expense   $ 675,000     $ 580,000     $ 858,000     $ 353,000  

 

As of September 30, 2020 (unaudited), estimated amortization expense related to finite-lived intangibles for future years was as follows:

 

2020 (remaining three months)   $ 137,000  
2021     471,000  
2022     263,000  
2023     48,000  
Total estimated amortization expense   $ 919,000  

 

16

 

 

As of September 30, 2020 (unaudited), December 31, 2019 and 2018, goodwill was $5,445,000 and there were no additions or impairments during the period ended September 30, 2020 (unaudited) and years ended December 31, 2019 and 2018.

 

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses are comprised of the following:

 

    September 30,
2020
(Unaudited)
    December 31,
2019
    December 31,
2018
 
                   
Accounts payable, trade   $ 659,000     $ 911,000     $ 584,000  
Accrued expenses     19,000       20,000       -  
Accrued bonus     6,000       3,000       26,000  
Accrued commissions     88,000       125,000       79,000  
Other accruals     83,000       166,000       -  
Accounts payable and accrued liabilities   $ 855,000     $ 1,225,000     $ 689,000  

 

NOTE 6 – OTHER CURRENT LIABILITIES

 

BIGToken Point liability

 

In 2019, the Company launched the BIGToken consumer data management platform, where registered users are rewarded for undertaking actions and sharing data within the platform. The business is currently based on a platform of registered users, developed as a direct to consumer data marketplace where users are paid for their data.

 

During the year ended December 31, 2019 the Company instituted a policy that allows BIGToken users to redeem outstanding BIGToken points for cash if their account and point balances meet certain criteria. As of September 30, 2020 (unaudited) and December 31, 2019, the Company has estimated the future liability for point redemptions to be $263,000 (unaudited) and $445,000, respectively. The Company considered the total number of points outstanding, the conversion rate in which points are redeemable for cash, and each user’s redemption eligibility.

 

The Company utilizes an account scoring system that evaluates a number of factors in determining an account’s redemption eligibility. These factors include an evaluation of the following: the infrastructure utilized by the user when engaging with BIGToken’s systems, the user’s geographical associations, consistency, and verifiability of the user’s data.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Other Commitments

 

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered indemnification agreements with its directors and certain of its officers and employees that will require the Company to, among other things, indemnify them against certain liabilities that may arise due to their status or service as directors, officers or employees. The Company has also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors and employees of acquired companies, in certain circumstances.

 

It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each agreement. Such indemnification agreements may not be subject to maximum loss clauses.

 

17

 

 

Employment agreements

 

We have entered employment agreements with key employees. These agreements may include provisions for base salary, guaranteed and discretionary bonuses and option grants. The agreements may contain severance provisions if the employees are terminated without cause, as defined in the agreements.

 

Litigation

 

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

 

Business Interruption

 

The Company may be impacted by public health crises beyond its control. This could disrupt its operations and negatively impact sales of its products. The Company’s customer and, suppliers may experience similar disruption. In December 2019, a novel strain of the Coronavirus, COVID-19, was reported to have surfaced in Wuhan, China, which has evolved into a pandemic. This situation and preventative or protective actions that governments have taken to counter the effects of the pandemic have resulted in a period of business disruption, including delays in shipments of products and raw materials. COVID-19 has spread to over 175 countries, including the United States, and efforts to contain the spread of COVID-19 have intensified. To the extent the impact of COVID-19 continues or worsens, the demand for the Company’s products may be negatively impacted. COVID-19 has also impacted the Company’s sales efforts as its ability to make sales calls is constrained. The Company’s ability to promote sales through promotional activities has also been constrained. Trade shows and sales conferences, major events used to introduce and sell the Company’s products, have been postponed indefinitely. The length and severity of the pandemic could also affect the Company’s regular sales, which could in turn result in reduced sales and a lower gross margin.

 

NOTE 8 – STOCK OPTIONS, AWARDS AND WARRANTS

 

The Company’s employees have historically participated in SRAX’s various stock-based plans, which are described below. All references to shares in the tables below refer to shares of SRAX’s common stock and all references to stock prices in the tables below refer to the price of a share of SRAX’s common stock.

 

In January 2012, SRAX’s board of directors and stockholders authorized the 2012 Equity Compensation Plan, which SRAX refer to as the 2012 Plan, covering 600,000 shares of SRAX’s Class A common stock.

 

On November 5, 2014, SRAX’s board of directors approved the adoption of SRAX 2014 Equity Compensation Plan (the “2014 Plan”) and reserved 600,000 shares of SRAX’s Class A common stock for grants under this plan.

 

On February 23, 2016, SRAX’s board of directors approved the adoption of SRAX 2016 Equity Compensation Plan (the “2016 Plan”) and reserved 600,000 shares of SRAX’s Class A common stock for grants under this plan.

 

The purpose of the 2012, 2014 and 2016 Plans is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to SRAX’s employees, directors and consultants and to promote the success of SRAX’s business. The 2012, 2014 and 2016 Plans are administered by SRAX’s board of directors. Plan options may either be:

 

incentive stock options (ISOs)
non-qualified options (NSOs),
awards of our common stock,

stock appreciation rights (SARs),
restricted stock units (RSUs),
performance units,
performance shares, and
other stock-based awards.

 

18

 

 

Any option granted under the 2012, 2014 and 2016 Plans must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any ISO granted to an eligible employee owning more than 10% of SRAX’s outstanding common stock must not be less than 110% of fair market value on the date of the grant. The plans further provide that with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year cannot exceed $100,000. The exercise price of any NSO granted under the 2012, 2014 or 2016 Plans is determined by SRAX’s board of directors at the time of grant but must be at least equal to fair market value on the date of grant. The term of each plan option and the manner in which it may be exercised is determined by SRAX’s board of directors or SRAX’s compensation committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. The terms of grants of any other type of award under the 2012, 2014 or 2016 Plans is determined by SRAX’s board of directors at the time of grant. Subject to the limitation on the aggregate number of shares issuable under the plans, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person.

 

Stock option and common stock award activities specifically identifiable or allocated to BIGToken’s employees for the nine months ended September 30, 2020 (unaudited) and years ended December 31, 2019 and 2018, respectively, were summarized as follows:

 

In September 2018, 125,000 common stock options for SRAX’s common stock, having an exercise price of $4.20 per share with an option value as of the grant date of $244,000 calculated using the Black-Scholes option pricing model were granted to Joseph P. Hannan, SRAX’s former chief financial officer. The options vested one third annually and expire three years after the vesting date. Upon Mr. Hannan’s termination in December of 2018, 117,188 options were terminated.

 

In December 2018, 50,000 common stock options for SRAX’s common stock, having an exercise price of $2.56 per share with an option value as of the grant date of $84,000 calculated using the Black-Scholes option pricing model were granted to Michael Malone, SRAX’s chief financial officer. The expense associated with this option award will be recognized in operating expenses ratably over the vesting period.

 

19

 

 

In March 2019, 388,500 common stock options for SRAX’s common stock having an exercise price of $3.42 per share with an option value as of the grant date of $858,000 calculated using the Black-Scholes option pricing model were granted to several employees and members of SRAX’s management team. The expense associated with this option award will be recognized in operating expenses ratably over the vesting period.

 

In April 2019, SRAX issued 5,626 options to purchase SRAX’s common stock at a price of $5.49 to SRAX’s non-executive directors. Each of SRAX’s four non-executive directors received 1,407 options that vest 1/4th quarterly over the next year with an expiration date of April 15, 2026. The options were valued using the Black Scholes option pricing model at a total of $30,000 based on the seven-year term, implied volatility of 102% and a risk-free equivalent yield of 2.46%, stock price of $5.49.

 

On May 13, 2019 SRAX entered into a consulting agreement with a contractor for services related to the Company. The agreement provides for 300,000 warrants with vesting conditions based on the Company’s user growth in Asia. The warrants were valued using the Black Scholes option pricing model at a total of $1,138,000 based on the five-year term, implied volatility of 101%, a risk-free equivalent yield of 1.8% and stock price of $4.99.

  

During the nine months ended September 30, 2020, 31,454 common stock options were terminated, and a total of 119,200 common stock options were issued to its employees. The options have a strike price of $2.70 and vest five years from their issue date or August 18, 2025. The options have a term of five years from their issue date.

 

    Number of Shares     Weighted Average Strike Price/Share     Weighted Average Remaining Contractual Term (Years)     Aggregate Intrinsic Value     Weighted Average Grant Date Fair Value  
                               
Outstanding — December 31, 2017     218,384     $ 6.76       2.71     $ -     $ -  
Granted     288,618       4.47       1.51       -       2.64  
Exercised     -       -       -       -       -  
Forfeited     (158,897 )     4.41       -       -       0.56  
Outstanding — December 31, 2018     348,105       5.94       2.39       -       -  
Vested and exercisable - December 31. 2018     145,526       6.73       2.12       -       4.05  
Unvested and non-exercisable - December 31, 2018     202,579       5.37       2.58       -       3.22  
                                         
Outstanding — December 31, 2018     348,105       5.94       2.39       -       -  
Granted     694,126       4.01       3.38       -       1.14  
Exercised     -       -       -       -       -  
Forfeited     (28,951 )     6.60       -       -       2.79  
Outstanding — December 31, 2019     1,013,280       4.60       2.63       -          
Vested and exercisable — December 31, 2019     229,162       6.32       1.68       -       3.96  
Unvested and non-exercisable - December 31, 2019     784,118       4.10       2.98       -       2.79  
                                         
Outstanding — December 31, 2019     1,013,280       4.60       2.63       -       -  
Granted (unaudited)     137,286       2.60       5.05       -       2.60  
Exercised (unaudited)     -       -       -       -       -  
Forfeited (unaudited)     (31,454 )     6.31       -       -       4.60  
Outstanding — September 30, 2020 (unaudited)     1,119,112       4.31       2.19       -       -  
Vested and exercisable — September 30, 2020 (unaudited)     462,977       5.04       1.75       -       3.33  
Unvested and non-exercisable - September 30, 2020 (unaudited)     656,135     $ 3.79       2.81     $ -     $ 2.78  

 

The table above includes $300,000 warrants issued on May 13, 2019 to a contractor for services related to the Company.

 

20

 

 

The following table sets forth the weighted-average assumptions used to estimate the fair value of option granted and warrants granted for the nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) and the years ended December 31, 2019 and 2018:

 

    Nine Months Ended
September 30,
    Years Ended
December 31,
 
    2020     2019     2019     2018  
    (unaudited)        
                         
Expected life (in years)     7.0       3.8       3.8       3.2  
Risk-free interest rate     0.5 %     1.3 %     1.3 %     1.0 %
Expected volatility     101 %     102 %     102 %     85 %
Dividend yield     0 %     0 %     0 %     0 %

 

The following table sets forth stock-based compensation expense for employees specifically identifiable to BIGToken and allocated charges deemed attributable to BIGToken’s operations resulting to stock options and purchase warrant awards included in the Company’s Carve-Out Statements of Operations for the nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) and years ended December 31, 2019 and 2018:

 

    Nine months ended     Years ended  
    September 30,
2020
(Unaudited)
    September 30,
2019
(Unaudited)
    December 31,
2019
    December 31,
2018
 
Directly identifiable as BIGToken’s   $ 237,000     $ 278,000     $ 467,000     $ -  
Allocated from SRAX, Inc.     533,000       442,000       516,000       443,000  
Stock-based compensation expense   $ 770,000     $ 720,000     $ 983,000     $ 443,000  

 

As of September 30, 2020 (unaudited), compensation cost related to the unvested options not yet recognized was approximately $1,430,000. The weighted average period over which the $1,430,000 will vest is estimated to be 1.8 years.

 

NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The carrying amounts of certain financial instruments, including cash and cash equivalents and accounts payable and accrued expenses, approximate their respective fair values due to the short-term nature of such instruments.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The Company had the following financial assets as of September 30, 2020 (unaudited), December 31, 2019 and 2018:

 

      Balance as of September 30, 2020 (unaudited)       Quoted Prices in Active Markets for Identical Assets
(Level 1)
      Significant Other Observable Inputs
(Level 2)
      Significant Unobservable Inputs
(Level 3)
 
                                 
Marketable securities     -       -       -       -  
Total assets   $ -     $ -     $ -     $ -  

 

21

 

 

    Balance as of December 31, 2019     Quoted Prices in Active Markets for Identical
Assets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
                         
Marketable securities     64,000       64,000                     -                  -  
Total assets   $ 64,000     $ 64,000     $ -     $ -  

 

    Balance as of December 31, 2018     Quoted Prices in Active Markets for Identical
Assets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
                         
Marketable securities     20,000       20,000                   -                 -  
Total assets   $ 20,000     $ 20,000     $ -     $ -  

 

NOTE 10 – INCOME TAXES

 

Prior to the legal reorganization on February 4, 2021, certain Carve-out entities did not file separate tax returns as they were included in the consolidated tax reporting of other Parent entities, within the respective entity’s tax jurisdiction. Accordingly, the income tax provision included in these carve out financial statements was calculated using a method consistent with a separate return basis, as if the Carve-out business had been a separate taxpayer. As of September 30, 2020, all amounts related to the Company’s tax positions are recognized on the Carve Out Balance Sheet. Income taxes are accounted for under the asset and liability method.

 

In the jurisdictions where the Carve-out business entities were included in the consolidated tax reporting of other Parent entities, the current tax payable or tax receivable of the Carve-out business represents the income tax to be paid or to be received from the e Parent Group. For the purpose of these carve out financial statements, it was assumed that only the current year was outstanding. For the years ended December 31, 2019, and 2018, the income tax benefit of the Carve-out business amounting to $0, and $2,510,000, respectively, is included within movements in net transfers from parent, in the Carve Out Statements of Changes in Net Parent Investment.

 

Income tax benefit consists of the following components for the years ended December 31:

 

    2019     2018  
Current tax benefit   $ -     $  
The Federal     -       1,926,000  
State     -       584,000  
Total     -       2,510,000  
                 
Deferred tax benefit                
The Federal     -       -  
State     -       -  
Total     -       -  
Total income tax benefit   $ -     $ 2,510,000  

 

The following table summarizes the principal components of deferred tax assets and liabilities of the Company at December 31:

 

    2019     2018  
Deferred income tax assets:   $ -     $  
Allowance for bad debts     126,000       3,000  
Stock-based compensation expense     773,000       502,000  
Interest expense limitation carryover     75,000          
Contribution carryover     3,000          
Accrued expenses     204,000          
Net operating loss carry forwards     7,657,000       3,754,000  
Total     8,838,000       4,259,000  
                 
Deferred income tax liabilities:                
Property and equipment     (49,000 )     (29,000 )
Intangible assets     (478,000 )     (219,000 )
Total     (527,000 )     (248,000 )
                 
Net deferred income tax assets     8,311,000       4,011,000  
Valuation allowance     (8,311,000 )     (4,011,000 )
Total income tax benefit   $ -     $ -  

 

A reconciliation of income tax benefit computed using The Federal statutory tax rate to the Company’s income tax benefit is as follows for the years ended December 31:

 

    2019     2018  
Income tax benefit calculated at The Federal statutory rate     21.00 %     21.00 %
Fair market adjustment derivatives     1.35 %     13.84 %
Amortization of debt discount     0.00 %     (4.77 )%
Current state income tax expense (net of federal benefit)     0.00 %     5.79 %
Change in valuation allowance     (21.19 )%     (4.22 )%
Other     (1.16 )%     (0.15 )%
Total income tax benefit     0.00 %     31.49 %

 

All percentages are calculated as a percentage of pretax income for each respective year.

 

NOTE 11 – SUBSEQUENT EVENTS

 

On February 4, 2021, the “Company and SRAX completed the Share Exchange as described in the Exchange Agreement entered into by and between the Company, SRAX, and Paul Feldman (the Company’s CEO and sole director) on September 30, 2020. The Exchange Agreement and proposed Share Exchange was disclosed in our Current Report on Form 8-K that was filed with the Commission on October 5, 2020.

 

Pursuant to the Share Exchange, we acquired all of the outstanding capital stock of BIG Token, a wholly owned subsidiary of SRAX. As a result, (i) we became a company majority owned by SRAX, (ii) BIG Token became our wholly owned subsidiary and (iii) the Company adopted BIG Token’s business plan. In connection with the Share Exchange, we entered into the following agreements:

 

Amendment to Share Exchange Agreement

 

The Company entered into an Amendment to the Exchange Agreement on January 27, 2021. The Exchange Amendment amended the amount of securities each party thereto would receive in the Share Exchange and included anti-dilution protection for SRAX should the Company sell equity securities at a pre-money valuation of less than $10,000,000 resulting in SRAX owning less than 70% of the voting power of the Company.

 

Transition Services Agreement

 

On January 27, 2021 BIG Token and the Company entered into the TSA with SRAX. Pursuant to the TSA, SRAX agreed to provide us with certain operational and administrative services as needed.

 

Master Separation Agreement

 

On January 27, 2021, BIG Token and the Company entered into the MSAMSA with SRAX. The MSA describes our separation from SRAX.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

22

 

 

Effective February 9, 2021, pursuant to its obligation under the Separation agreement with SRAX, Inc., the Company retained RBSM, LLP as its independent registered accounting firm. For a further description, please see Item 4.01 entitled “Changes in Registrant’s Certifying Accountant” of this Current Report on Form 8-K

 

Item 3.02 Unregistered Sales of Equity Securities.

 

The information set forth in Item 1.01 and 5.02 of this Current Report on Form 8-K is incorporated herein by reference in its entirety.

 

Item 4.01. Changes in Registrant’s Certifying Accountant.

 

(a) Dismissal of Independent Registered Public Accounting Firm

 

Effective February 9, 2021 the Board of Directors (“Board”) of Force Protection Video Equipment Corporation, a Florida corporation (the “Company”), dismissed Assurance Dimensions (“Assurance”) as the Company’s independent registered public accounting firm, effective immediately.

 

Assurance was the Company’s independent audit firm from October 16, 2019 until January 26, 2021. The reports of Assurance on the Company’s consolidated financial statements for the fiscal year ended April 30, 2020 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report of Assurance on the Company’s consolidated financial statements for the fiscal year ended April 30, 2020 contained an explanatory paragraph describing conditions that raise substantial doubt about the Company’s ability to continue as a going concern.

 

During the fiscal year ended April 30, 2020 and the subsequent interim period through July 31, 2020, there have been no “disagreements” (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) with Assurance on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Assurance, would have caused Assurance to make reference thereto in their reports on the consolidated financial statements for such fiscal years.

 

During the fiscal years ended April 30, 2020 and 2019 and the subsequent interim period through July 30, 2020, there have been no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K), except that, as of April 30, 2020, the Company identified the following three material weaknesses in the Company’s internal control over financial reporting: (i) Lack of Segregation of Duties - there is limited segregation of duties amongst the employees, (ii) Lack of in-House US GAAP Expertise — our operations and business practices include complex technical accounting issues that are outside expertise of our accounting staff (iii) Lack of Formal Documentation. we maintain informal controls over the billing and invoicing procedures which has resulted in invoicing delays. The Company had not remediated any of these material weaknesses as of April 30, 2020.

 

The Company provided Assurance with a copy of the disclosure it is making herein in response to Item 304(a) of Regulation S-K and requested that Assurance furnish the Company with a copy of its letter addressed to the SEC, pursuant to Item 304(a)(3) of Regulation S-K, stating whether Assurance agrees with the statements made by the Company in response to Item 304(a) of Regulation S-K. A copy of Assurance’s letter to the SEC dated February 9, 2021 is filed as Exhibit 16.1 to this Current Report on Form 8-K.

 

(b) Engagement of Independent Registered Public Accounting Firm

 

Effective February 9, 2021, the Board approved the appointment of RBSM, LLP (“RSMB”) as the Company’s new independent registered public accounting firm. During the fiscal years ended April 30, 2020 and 2019 and the subsequent interim period through February 8, 2021, neither the Company, nor anyone on its behalf, consulted RBSM regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the financial statements of the Company, and no written report or oral advice was provided to the Company by RBSM that the Company concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).

 

 

 

 

Item 5.01 Changes in Control of Registrant

 

The information set forth in Item 2.01 regarding the Share Exchange and the information set forth in Item 5.02 regarding the Company’s board of directors and executive officers following the Transaction are incorporated by reference into Item 5.01 of this Current Report on Form 8-K.

 

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

 

Departure of Paul Feldman as the Company’s chief executive officer, chief financial officer and principal accounting officer

 

On January 27, 2021, Mr. Feldman provided notice that as contemplated by the Exchange Agreement, he is resigning effective prior to the closing of the Share Exchange, as the sole member of the Company’s board of directors. Mr. Feldman is not resigning as a result of any matter relating to the Company’s operations, policies or practices.

 

Additionally, as described in the heading “Separation Agreement with Paul Feldman”, Paul Feldman’s employment with the Company as chief executive officer, chief financial officer, and principal accounting officer was terminated.

 

Appointment of Lou Kerner as Chief Executive Officer

 

The Company appointed Lou Kerner as chief executive officer, chief financial officer, effective February 16, 2021.

 

Lou Kerner, age 59, joined the Company as chief executive officer in February 2021. Prior to joining the Company, since June 29, 2017, Mr. Kerner had been focused on cryptocurrency, including as a VC at CryptoOracle, which he Co-Founded, as an active blogger, currently with Quantum Economics, and as an advisor to, and partner of, Blockchain Coinvestors, a fund-of-fund and operator of an AngelList syndicate investing in crypto related ventures. Mr. Kerner also founded CryptoMondays, a decentralized Meetup Group which he’s led since January 2018. Prior to his involvement in cryptocurrency, Mr. Kerner was a partner at Flight Ventures, an investment firm from March 2015 through December 2017 and served as a partner at Chameleon Collective, a strategic advisory firm from September 2015 through October 2017. Mr. Kerner holds a bachelor’s degree in economics from UCLA and an MBA from Stanford University. In evaluating Mr. Kerner’s specific experience, qualifications, attributes and skills in connection with his appointment as BIGToken CEO, and upon completion of the Share Exchange, the Company’s Board, SRAX’s Board took into account his prior business background, including his experience in digital media, cryptocurrency, and as a Wall Street equity analyst.

 

Employment Agreement of Lou Kerner

 

On January 3, 2021 BIG Token entered into an at-will employment agreement with Lou Kerner to serve as chief executive officer of BIG Token and subsequent to the completion of the Share Exchange and certain other conditions as more fully set forth in his Employment Agreement, he would become chief executive officer of the Company (the “Kerner Employment Agreement”). The Kerner Employment Agreement will not commence until certain conditions are met or waived, including the completion of an Applicable Financing (as defined below).

 

Pursuant to the Kerner Employment Agreement, Mr. Kerner will receive the following compensation: (i) an annual salary of $175,000, (ii) eligibility for a target annual bonus of up to 100% of his base salary subject to meeting certain performance baselines with the year ending December 31, 2021 baseline as the Company receiving $5.5 million of gross profit for such year, (iii) eligibility to participate in and receive comparable benefits under all plans and programs of the Company offered to similarly situated executives, and (iv) the ability to accrue up to 14 days of paid vacation per year, with a maximum roll over of 10 days for a following year.

 

 

 

 

Upon the Company receiving gross proceeds of at least $3,000,000 beginning September 30, 2020 (“Applicable Financing”), Mr. Kerner will be issued a Common Stock purchase option to purchase up to five percent (5%) of the Company’s issued and outstanding Common Stock on a post Applicable Financing basis (the “Kerner Option”). The Kerner Option will have a term of ten (10) years from issuance. The Kerner Option will be issued upon completion of the Applicable Financing from a to be authorized equity compensation plan of the Company. The Kerner Option will have an exercise price as follows: (i) 33.33% of the Kerner Option will have an exercise price at an imputed market capitalization of the Company of $15,000,000, (ii) 33.33% of the Kerner Option will have an exercise price at an imputed market capitalization of $17,500,000, and (iii) all remaining amounts of the Kerner Option will have an exercise price at an imputed market capitalization of $20,000,000. The Kerner Option will vest and become exercisable as follows: (i) 33.33% on the one-year anniversary of issuance and (ii) the remaining amount in equal installments over a two (2) year period after the initial vesting occurs.

 

Provided that certain triggering events occur (as more fully described in the Kerner Employment Agreement), all outstanding unvested equity awards owned by Mr. Kerner will accelerate and become fully exercisable and any repurchase rights of the Company will lapse.

 

The Kerner Employment Agreement is at will and may be terminated at any time by the Company or Mr. Kerner. If during the term of employment, the Company terminates Mr. Kerner “Without Cause” or Mr. Kerner resigns for “Good Reason” as such terms are defined in the Kerner Employment Agreement, (i) the Company will pay Mr. Kerner his base salary for twelve (12) months from the date of such termination (“Kerner Severance Pay”), (ii) any and all outstanding unvested equity awards will accelerate and become fully exercisable and any repurchase right of the company shall lapse, and (iii) the Company will pay monthly COBRA premiums until the earlier of (a) the end the period Mr. Kerner receives Kerner Severance Pay, (b) the expiration of Mr. Kerner’s continuation coverage under COBRA, and (c) the date when Mr. Kerner receives substantially equivalent health insurance coverage in connection with new employment. Notwithstanding, in the event that the Company’s securities become traded on an established securities market, the Kerner Severance Pay will be paid in a single lump-sum payment on the six (6) month anniversary of the employment termination date.

 

There were no arrangements pursuant to which Mr. Stella was appointed as an executive officer of member of the Board of Directors. There are no family relationships between Mr. Kerner and any of the directors or officers of the Company or any of its subsidiaries.

 

The following table lists the severance provisions Mr. Kerner would have received if he were terminated “without cause” by the Company or terminated by Mr. Kerner with “good reason” as of December 31, 2020.

 

Name  

Terminated
Without Cause /

For Good Reason

 
       
Lou Kerner (1)        
Salary   $ 175,000  
Accelerated Vesting of Awards      
Health Care        
Total:   $ 175,000  

 

(1) Severance not applicable given that Mr. Kerner was not an employee as of 12/31/2020. Notwithstanding, effective upon Mr. Kerner’s employment, he will receive 12 months of salary as well as immediate vesting of all unvested wards and 12 months of COBRA upon termination “without cause” or for “good reason” by Mr. Kerner. Table above shows amounts in salary to Mr. Kerner had a termination occurred as of 12/31/2020.

 

Appointment of George Stella as Chief Revenue Officer

 

On February 4, 2021, the Company appointed George Stella as chief revenue officer of the Company.

 

 

 

 

George Stella, age 49, joined the Company as chief revenue officer in February 2021. Prior to that, Mr. Stella served as executive vice president of SRAX since March 2018. George began his career in digital advertising spending 12 years with 24/7 Media where they played a huge role as the data driven digital marketing space emerged. He then entered the digital shopper marketing space in its infancy with OwnerIQ and then HookLogic. Prior to joining SRAX Mr. Stella served as vice president of sales, helping Yieldbot develop its digital shopper business.

 

Employment of George Stella

 

Mr. Stella is not a party to a written employment agreement. His compensation has been determined by the BIG Token Board to be effective upon completion of the Share Exchange in consultation with the Board of directors of SRAX. Effective February 4, 2021, Mr. Stella’s annual salary was $175,000.

 

There were no arrangements pursuant to which Mr. Stella was appointed as chief revenue officer. There are no family relationships between Mr. Stella and any of the directors or officers of the Company or any of its subsidiaries.

 

Appointment of Board Members Christopher Miglino, Daina Middleton and Yin Woon Rani.

 

At the close of business on January 27, 2021, the Company appointed Christopher Miglino, Daina Middleton, and Yin Woon Rani as members of its Board of Directors.

 

Christopher Miglino, age 52, is the co-founder of SRAX, Inc Since April 2010, Mr. Miglino has served as its Chief Executive Officer and a member its board of directors. He was appointed President of SRAX company in January 2017. He also served as SRAX’s Chief Financial Officer from April 2010 until November 2014, and as its principal financial and accounting officer since August 2015. Mr. Miglino has over 15 years of experience running various data companies, and oversaw the creation and development of BIG Token. He also is the creator of the companies Sequire platform that provides data to publicly traded companies. In addition, from August 2008 until March 2010, Mr. Miglino was CEO of the Lime Ad Network, a subsidiary of Gaiam, Inc. (Nasdaq: GAIA), where his responsibilities included management of interactive and innovative advertising programs for 250 green and socially conscious websites. Prior to that, from June 2004 until August 2008, Mr. Miglino was Founder and CEO of Conscious Enlightenment, where he oversaw their day to day operations in the publishing and advertising industry. Mr. Miglino holds a bachelor’s degree from the University of Southern California. Mr. Miglino’s role as a co-founder of SRAX, his operational experience in SRAX as well as his professional experience technology and advertising sectors were factors considered with his appointment to the BIG Tokens Board upon completion of the Share Exchange.

 

Daina Middleton, age 55, is the CEO of Britelite Immersive. She also is an advisor and board member assisting companies in increasing their growth potential. From September 2017 through September 2019, she served as the Chief Executive Officer of Ansira Partners, a PE-backed marketing technology and services firm. Prior to that, from 2016 through September 2017, she served as a principal in Larsen Consulting Group, an arm of Gryphon Investors, coaching portfolio executives. Prior to joining LCG, she ran B2B Marketing for Twitter, and was the CEO of Performics, the performance marketing arm of Publicis. Earlier in her career, she worked for Hewlett-Packard for 16 years. She joined the board of directors at Marin Software (NASDAQ: MRIN) in 2014 where she serves on the Audit/ Finance and Compensation committees. She also serves on the board of PE-backed account-based marketing firm Madison Logic. She acts as an advisor for early start ups Ad Fontes Media and MarketBeam. She is also a published author, publishing “Marketing in the Participation Age: A Guide to Motivating People to Join, Share, Take Part, Connect, and Engage,” and “Grace Meets Grit: How to bring out the Remarkable Courageous Leader Within.” She holds a bachelor’s degree from Oregon State University. In evaluating Ms. Middleton’s specific experience, qualifications, attributes and skills in connection with her appointment to the BIG Tokens Board upon completion of the Share Exchange, the Company’s Board, and SRAX’s Board took into account her extensive experience in raising capital, revenue growth, leadership coaching, marketing and branding, technology, and her leadership skills throughout such industries.

 

Yin Woon Rani, age 48, has served as the chief executive officer of MilkPEP, a government administrated program that helps promote the consumption of fluid milk (best known for the Got Milk? campaign) since October 201. Prior to that, from January 2014 – June 2018, she served as VP and chief customer experience officer for the Campbell Soup Company (NYSE: CPB), where she helped modernize and lead integrated communications for the company. Prior to that, from November 2011 through March 2013, she served as president (North America) of Universal MCCann, a global media and advertising agency. She graduated from Yale University, summa cum laude and earned a Masters of Business Administration from New York University Stern, where she graduated second in her class. In evaluating Ms. Rani’s specific experience, qualifications, attributes and skills in connection with her appointment to the BIG Tokens Board upon completion of the Share Exchange, the Company’s Board, and SRAX’s Board took into account her extensive experience in marketing, media, technology, and her leadership skills throughout such industries.

 

 

 

 

There were no arrangements pursuant to which Mr. Miglino, Ms. Middleton, or Ms. Rani were appointed to the Board of Directors. There are no family relationships between any of such directors and any of the other directors or officers of the Company or its subsidiaries.

 

In addition, each of Mr. Kerner, Mr. Stella, Mr. Miglino, Ms. Middleton, and Ms. Rani will enter into (i) the Company’s standard confidential information and invention assignment agreement (“Assignment Agreement”) governing the ownership of any inventions and confidential information and (ii) the Company’s standard indemnification agreement (“Indemnification Agreement”) which is entered into by the Company’s officers and directors.

 

The foregoing summary of the Kerner Employment Agreement, the form of Assignment Agreement, and the Form of Indemnification Agreement are qualified in their entirety by the terms of the Kerner Employment Agreement, Assignment Agreement and Indemnification Agreement, copies of which are attached to this report as Exhibits 10.06, 10.07, and 10.08.

 

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

 

Change of Fiscal Year

 

Effective February 13, 2021, the Company approved a change in fiscal year end of the Company from April 30 to December 31. The Board’s decision to change the fiscal year end was related to the Company’s completion of the Share Exchange and change of control in order to more closely align with the operations and internal controls of SRAX, its parent company.

 

Amendment to Articles of Incorporation– Common Stock

 

On February 3, 2021, the Company received approval from the Secretary of State of Florida of an amendment to its Articles of Incorporation increasing the number of shares of Common Stock authorized from twenty billion (20,000,000,000) to one trillion (1,000,000,000,000). A copy of the Amendment to the Articles of Incorporation are attached to this report as Exhibit 3.02(i).

 

Amendment to Articles of Incorporation – Series C Preferred Stock

 

Pursuant to the Amendment to Share Exchange, the Company has authorized a class of Preferred Stock called Series C Preferred Stock, par value $0.0001 per share. The Series C Preferred Stock is not redeemable and has no voting rights. Upon a liquidation, the holders of Series C Preferred stock are entitled to receive their pro-rata portion on an as converted to Common Stock basis. Each share of Series C Preferred Stock is convertible into 1,546,576 shares of Common Stock, subject to certain beneficial ownership limitations. The Company is authorized to issue up to 8,318 shares of Series C Preferred Stock, all of which was issued at the closing of the Share Exchange. A copy of the Amendment to the Articles of Incorporation Rights and Limitations of the Series C Preferred Stock (the “COD”) is attached to this report as Exhibit 3.01(i) and is qualified in its entirety by the terms of the COD.

 

Item 5.06 Change in Shell Company Status

 

As described in Item 1.01 of this Current Report on Form 8-K, on September 30, 2020, the Company entered into the Share Exchange Agreement, as amended thereto, the Share Exchange closed on February 4, 2021, pursuant to which the Company acquired all of the issued and outstanding capital stock of BIG Token in exchange for the issuance of the shares of Common Stock received by SRAX as described therein.

 

As a result of the Share Exchange and associated transactions, BIG Token. became the Company’s majority operating subsidiary and, upon the issuance of the Shares, SRAX owned in the aggregate, approximately 95% of all of our issued and outstanding Common Stock on such date. As of February 4, 2021, we currently have a total of 158,244,935,162 issued and outstanding shares of Common Stock, and 210,314,323,026 shares outstanding on a fully diluted, as converted, and fully exercised basis including shares of Common Stock issuable upon conversion of our outstanding Series B Preferred Stock (10,500 shares Series B Preferred Stock convertible into 13,636,904,090 shares of Common Stock as of February 4, 2021), Series C Preferred Stock (8,318 shares of Series C Preferred Stock convertible into 12,864,419,313 shares of Common Stock as of February 4, 2021), and the exercise of the FPVD Warrants (25,568,064,462 as of February 4, 2021).

 

 

 

 

As the result of the consummation of the Share Exchange, we are no longer a shell company as that term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.

 

Item 9.01 Financial Statements and Exhibits.

 

Please refer to the Financial Statements contained in Item 2.01, under the heading Item 13 – Financial Statements and Supplementary Data.

 

Exhibit No.   Description
3.01(i)   Articles of Amendment to Articles of Incorporation Rights and Limitations regarding Series C Preferred Stock
3.02(i)   Amendment to Articles of Incorporation
4.01   Form FPVD Warrant
10.01   Form of Amendment to Share Exchange Agreement
10.02   Form of Transition Services Agreement
10.03   Form of Master Separation Agreement
10.04   Separation Agreement between the Company and Paul Feldman
10.05   Form of Debt Exchange Agreement
10.06   Form of Kerner Employment Agreement
10.07   Form of Confidential Information and Invention Assignment Agreement
10.08   Form of Indemnification Agreement
10.09   Form of SRAX Registration Rights Agreement
16.1   Assurance Dimension’s Letter
21.01   List of Subsidiaries

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: February 16, 2021 Force Protection Video Equipment Corporation
     
   

/s/ Christopher Miglino

    By: Christopher Miglino
   

Chairman of the Board

 

 

 

 

INDEX OF EXHIBITS

 

Exhibit No.   Description
3.01(i)   Articles of Amendment to Articles of Incorporation Rights and Limitations regarding Series C Preferred Stock
3.02(i)   Amendment to Articles of Incorporation
4.01   Form FPVD Warrant
10.01   Form of Amendment to Share Exchange Agreement
10.02   Form of Transition Services Agreement
10.03   Form of Master Separation Agreement
10.04   Separation Agreement between the Company and Paul Feldman
10.05   Form of Debt Exchange Agreement
10.06   Form of Kerner Employment Agreement
10.07   Form of Confidential Information and Invention Assignment Agreement
10.08   Form of Indemnification Agreement
10.09   Form of SRAX Registration Rights Agreement
16.1   Assurance Dimension’s Letter
21.01   List of Subsidiaries

 

 

 

 

Exhibit 3.01(i)

 

FORCE PROTECTION VIDEO EQUIPMENT CORP.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES C PREFERRED STOCK

 

PURSUANT TO SECTION 607.0602 OF THE

FLORIDA BUSINESS CORPORATIONS ACT

 

The undersigned, Lou Kerner does hereby certify that:

 

1. He is the President of Force Protection Video Equipment Corporation, a Florida corporation (the “Corporation”).

 

2. The Corporation is authorized to issue 20,000,000 shares of preferred stock, of which 5,000,000 shares of Series A Preferred Stock, 10,500 shares of Series B Preferred Stock, and 8,318 shares of Series C Stock are issued and outstanding.

 

3. The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”):

 

WHEREAS, the Corporation’s certificate of incorporation provides for a class of authorized stock known as preferred stock, consisting of 20,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series at the discretion of the Board of Directors;

 

WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them;

 

WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of up to 8,318 shares of the preferred stock which the Corporation has the authority to issue, as follows; and

 

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NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, obligations, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:

 

TERMS OF SERIES C CONVERTIBLE PREFERRED STOCK

 

The Corporation shall designate a series of preferred stock, consisting of 8,318 shares, as Series C Convertible Preferred Stock (the “Series C”) which shall have the following designations, rights and preferences:

 

1. Redemption. The shares of the Series C are not redeemable.

 

2. Voting Rights. The Holders of shares of Series C (the “Holders”) shall not have any voting rights, except as required by law and as expressly provided in this Certificate of Designation.

 

3. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the Holders of Series C shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation for each Series C share such amount per share (x) as would have been payable had each share of Series C been converted into the Corporation’s common stock, par value $0.0001 per share (the “Common Stock”) immediately prior to such liquidation, dissolution or winding-up (without regard to the Beneficial Ownership Limitation or any other conversion limitations hereunder), plus (y) any accrued but unpaid dividends (if any). Any distribution in connection with the liquidation, dissolution or winding up of the Corporation, or any bankruptcy or insolvency proceeding, shall be made in cash to the extent possible

 

4. Remedies, Characterizations. Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designation, Preferences, Rights and Limitations (“Certificate of Designation”), shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy, and nothing herein shall limit a Holder’s right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designation.

 

5. Conversion. Each share of Series C shall be convertible into 1,546,576 shares of Common Stock (the “Conversion Ratio”). The Conversion Ratio is subsequent to adjustment as provided herein. At the option of the Holder, the Series C may be converted into Common Stock based upon the Conversion Ratio without exceeding the Beneficial Ownership Limitation (as defined below). The Common Stock to be issued upon conversion of the Series C shall be validly issued, fully paid and non-assessable. The Corporation shall at all times when the Series C shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series C, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series C.

 

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6. Conversion Limitations. The Corporation shall not affect any conversion of the Series C, and a Holder shall not have the right to convert such Series C, to the extent that after giving effect to the proposed conversion, the Holder (together with the Holder’s affiliates and any persons acting as a group together with the Holder or any of the Holder’s affiliates) would beneficially own in excess of the Beneficial Ownership Limitation. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series C with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series C owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6 applies, the determination of whether any Series C is convertible shall be in the sole discretion of the Holder, and the submission of a notice of conversion shall be deemed to be the Holder’s determination of whether the Series C may be converted, in each case subject to the Beneficial Ownership Limitation. For purposes of this Section 6, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Securities and Exchange Commission, as the case may be, (ii) a more recent public announcement by the Corporation, or (iii) a more recent written notice by the Corporation or the Corporation’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Series C held by the Holder. The Holder, upon not less than sixty-one (61) days’ prior notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Series C held by the Holder and the Beneficial Ownership Limitation provisions of this Section 6 shall continue to apply. Any such increase or decrease will not be effective until the sixty-first (61st) day after such notice is delivered to the Corporation. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section 6 shall apply to a successor Holder of the Series C. For the purposes of this Certificate of Designation, the term “Trading Day” shall mean any day on which the Common Stock is eligible to be traded on the securities exchange or market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder.

 

7. Stock Dividends and Stock Splits.

 

(a) If the Corporation, at any time while any Series C shares are outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any common stock equivalents, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Ratio shall be adjusted proportionately. Any adjustment made pursuant to this Section 7 shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

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(b) During such time as any Series C shares are outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Series C, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete Conversion of this Series C (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

8. Noncircumvention. The Corporation hereby covenants and agrees that the Corporation will not, by amendment of its Articles of Incorporation including by the filing of any Certificate of Designation (however such document is named), bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation, and will at all times in good faith carry out all the provisions of this Certificate of Designation and take all action as may be required to protect the rights of the Holders.

 

9. Vote to Change the Terms of or Issue Preferred Shares. In addition to any other rights provided by law, without first obtaining the written consent of at least a majority of the outstanding Series C, the Corporation shall not:

 

(a) amend or repeal any provision of, or add any provision to, its Articles of Incorporation or bylaws, or file any Certificate of Designation (however such document is named) or articles of amendment to create any class or any series of preferred stock, if such action would adversely alter or change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Series C, regardless of whether any such action shall be by means of amendment to the Articles of Incorporation or bylaws or by merger, consolidation or otherwise or filing any Certificate of Designation, it being understood that the creation of a new security having rights, preferences or privileges senior to or on parity with the Series C in a future financing will not constitute an amendment, addition, alteration, filing, waiver or repeal for these purposes;

 

(b) increase or decrease (other than by conversion) the authorized number of Series C; or

 

(c) without limiting any provision hereunder, whether or not prohibited by the terms of the Series C, circumvent a right of the Series C.

 

10. Notice to Holders.

 

(a) Whenever the Conversion Ratio is adjusted pursuant to any provision hereof, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Ratio after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

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(b) If (i) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (ii) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (iii) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (iv) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (v) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Series C, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Securities and Exchange Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Series C (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

11. Non-Public Information. The Company covenants and agrees that neither it, nor any other person acting on its behalf, will provide any Holder or its agents or counsel with any information that the Company believes constitutes material non-public information without the express prior written consent of the Holder. The Company understands and confirms that each Holder shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

12. Amendment. Except for the conversion limitations set forth in Section 6 of this Certificate of Designation, as otherwise set forth in Section 9 of this Certificate of Designation and as otherwise required by law, this Certificate of Designation may be amended by the written consent or affirmative vote of at least a majority of the outstanding Series C.

 

13. Waiver. Except for the conversion limitations set forth in Section 6 of this Certificate of Designation and as otherwise set forth in Section 9 of this Certificate of Designation, any of the rights, powers, preferences, privileges, restrictions, qualifications, limitations and other terms of the Series C set forth herein may be waived on behalf of all holders of Series C by the written consent or affirmative vote of at least a majority of the outstanding Series C.

 

14. Specific Shall Not Limit General. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein.

 

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RESOLVED, FURTHER, that the chairman, chief executive officer, chief financial officer, president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file a Designation of Preferences, Rights and Limitations of Series C Preferred Stock in accordance with the foregoing resolution and the provisions of Delaware law.

 

IN WITNESS WHEREOF, the undersigned has executed this Certificate this 1st day of February, 2021.

 

  FORCE PROTECTION VIDEO
  EQUIPMENT CORP.
     
  Signed:  
  Name: Lou Kerner
  Title: Chief Executive Officer

 

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Exhibit 3.02(i)

 

 

 
 

 

 

 

 

 

Exhibit 4.01

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

FORCE PROTECTION VIDEO EQUIPMENT CORPORATION

 

Warrant Shares: _______ Issue Date: [*], 2021

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issue Date (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on [*], 2024 (the “Termination Date”) but not thereafter, to subscribe for and purchase from FORCE PROTECTION VIDEO EQUIPMENT CORPORATION., a Florida corporation (the “Company”), up to ______ shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. The following definitions are not defined elsewhere in this Warrant, and will have the following respective meanings:

 

a) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.

 

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b) “Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

c) “Common Stock Equivalents” means any securities of the Company or its subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

d) “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, directors or consultants (provided if to consultants such issuance shall not exceed $1,000,000 shares of Common Stock or Common Stock Equivalents over any 18-month period, of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any securities issued hereunder this Warrant or any similar Warrants issued on the date hereof and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Warrant, provided that such securities have not been amended since the date of this Warrant to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, unless such agreement to issue additional securities is already in effect as of the date of this Warrant (including the anti-dilution protection held by SRAX, Inc. (“SRAX”) with regard to that certain Share Exchange Agreement entered into by and between the Company and SRAX on September 30, 2020, as amended) and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the first 9 months that this Warrant is outstanding, and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

e) “Trading Day” means a day on which the principal Trading Market is open for trading.

 

f) “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange, OTCQB or OTCQX, or the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices (or any successors to any of the foregoing).

 

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g) “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in The Pink Open Market (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, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Section 2. Exercise.

 

a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

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b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $[*]1, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If at any time after the six (6) month anniversary of the Issue Date there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).

 

 

1 NTD: Exercise Price based on a $10 million fully diluted pre-money valuation.

 

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Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (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, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c) if there is no effective registration statement registering, or the prospectus contained therein is not available for the resale of the Warrant Shares to the Holder.

 

d) Mechanics of Exercise.

 

i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

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vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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Section 3. Certain Adjustments.

 

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales. If, at any time while this Warrant is outstanding, if the Company or any of its subsidiaries, as applicable sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is less than the Imputed Value Price2 (a “Dilutive Issuance”), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance (i) the number of shares of Common Stock underlying this Warrant will automatically increase by such amount in order for the Warrant Shares to maintain the percentage of ownership in the Company upon exercise that such Warrant represented immediately prior to the Dilutive Issuance and (ii) the Exercise Price will be reduced such that the aggregate Exercise Price of the Warrant immediately prior to such Dilutive Issuance will remain the same aggregate dollar amount. For purposes of clarity and by way of example, if the Warrant had a current Exercise Price of $1.00 per share to purchase up to 1,000,000 shares of Common Stock and the Company had 50,000,000 Common Stock Equivalents outstanding, then upon a Dilutive Issuance whereby the Company sold another 50,000,000 Common Stock Equivalents, then (i) the number of shares of Common Stock underlying the Warrant will increase to 2,000,000 and (ii) the Exercise Price would be reduced to $0.50 per share. Notwithstanding the foregoing, no adjustment will be made under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holders in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, and will include (i) the new number of shares of Common Stock underlying the Warrant and (ii) the new applicable Exercise Price (the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holders are entitled to receive a number of shares of Common Stock and upon such Exercise Price that would have been applicable on or after the date of such Dilutive Issuance, regardless of whether a Holder accurately refers to the correct number of shares of Common Stock or Exercise Price in the Notice of Conversion. The protection contained in this Section 3(b) will terminate and be of no further force or consequence upon the earlier of (i) the Company raising aggregate funds of $5,000,000 at any valuation beginning on the date this Warrant is issued (with the Holder receiving the benefit of such protection afforded by this Section 3(b) up and until the first dollar over $5,000,000 is raised), or (ii) the Common Stock becomes listed on a national exchange or quotation system.

  

 

2 “Imputed Value Price” means the price per share value based on a $10,000,000 pre-money valuation, regardless of the actual price per share of securities issued in a Dilutive Issuance.

 

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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above (other than, following the date that the Warrant is no longer outstanding) if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, other than a Fundamental Transaction in which the Company is the Successor Entity (as defined below), the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the public announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. .

 

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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder.

 

i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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h) Voluntary Adjustment by the Company. The Company may, at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and

 

Section 4. Transfer of Warrant.

 

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

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c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Person to whom such Holder assigns or transfers any Warrants, provided that such transferee agrees in writing to be bound, with respect to the transferred Warrants by the provisions of the Warrants.

 

e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

Section 5. Miscellaneous.

 

a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

 

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

13
 

 

c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

14
 

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the state of New York, without regard to the principles of conflicts of laws thereof. .

 

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Business Day, (b) the next Business Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment as set forth on the Company’s parent corporation SRAX’s records o on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto..

 

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

15
 

 

j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

16
 

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  FORCE PROTECTION VIDEO EQUIPMENT CORP.
     
  By:                          
  Name:  
  Title:  

 

17
 

 

NOTICE OF EXERCISE

 

To: FORCE PROTECTION VIDEO EQUIPMENT CORPORATION

 

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

[  ] in lawful money of the United States; or

 

[  ] [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

     
     
     
     
     

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

 

 
 

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:
  (Please Print)
Address:
   
  (Please Print)
   
Phone Number:  
   
Email Address:  

 

Dated: _______________ __, ______  
   
Holder’s Signature:    
     
Holder’s Address:    

 

 

 

Exhibit 10.01

 

Amendment to Share Exchange Agreement

 

Reference is made to that certain SHARE EXCHANGE AGREEMENT (the “Agreement”), dated September 30, 2020, between Force Protection Video Equipment Corp. (“Acquiring Company”), SRAX, Inc. (the “Company”), and Paul Feldman (“Principal”).

 

This is an amendment (“Amendment”) to the Agreement. To the extent any provision of this Amendment conflicts with any of the provisions of the Agreement, the provisions of this Amendment shall govern. Capitalized terms but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Agreement, as applicable. Except for the amendments made hereby, the above referenced Agreement remains in full force and effect. This Amendment is effective as of January 27, 2021 (the “Amendment Effective Date”).

 

1. Section 2.1 of the Agreement entitled “Share Exchange” is amended and restated as follows:

 

2.1 Share Exchange. At the Closing, on a post-closing basis (i) the Acquiring Company shall issue shares of Acquiring Company Common Stock, which amount shall represent, 88.90% of the issued and outstanding shares of Acquiring Company Common Stock, (ii) the Principal will transfer all of the Acquiring Company Preferred Stock held by Principal to the Company, (iii) the Acquiring Company shall issue shares of Acquiring Company Common Stock, which amount shall represent along with all other Acquiring Company Common Stock held by Principal as of this Amendment Effective Date, .50% of the issued and outstanding shares of Acquiring Company Common Stock, and (iv) the Acquiring Company shall issues shares of Acquiring Company Common Stock to outstanding convertible debt holders of the Acquiring Company, equal to 10.1% of the issued and outstanding shares of Acquiring Company Common Stock (provided that such shares may be issued at the request of the debt holders in Common Stock and “toothless” convertible preferred stock) and, in consideration therefor, the Company shall issue to the Acquiring Company, the Common Stock, which shall account for all of the outstanding Equity Securities of Big Token (the “Share Exchange”).

 

2. A new Section 2.3 of the Agreement will be added to the Agreement and be entitled “Anti-dilution Protection” and will contain as follows:

 

2.3 Anti-dilution Protection. At any time after September 30, 2020, in the event that the Acquiring Company raises capital in exchange for equity securities at a pre-money valuation of less than $10,000,000 (a “Qualifying Equity Transaction”) and as a result of such Qualifying Equity Transaction, the Company would own less than 70% of the voting power of the issued and outstanding Acquiring Company capital stock (on a fully diluted basis), then the Acquiring Company will issue, for no additional consideration, such number of shares of Acquiring Company Common Stock required to make the Company’s ownership of Acquiring Company Common Stock equal to such ownership percentage of the issued and outstanding Common Stock held by the Company immediately prior to the Equity Transaction (the “Anti-dilution Protection”). The Anti-dilution Protection will lapse and be of no further force or consequence on the earlier of (i) the Acquiring Company raising aggregate funds of $5,000,000 at any valuation (with Company receiving benefit of such anti dilution protection until the first dollar of $5,000,000 is raised) or (ii) the Acquiring Company being listed on a national exchange or quotation system.

 

3. This Amendment, together with the Agreement, constitutes the final, complete and exclusive statement of the agreement between the parties pertaining to its subject matter and supersedes any and all prior and contemporaneous understandings or agreements of the parties with respect thereto.
   
4. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or other electronic means (e.g., via PDF) shall be effective delivery of a manually executed counterpart of this Amendment.

 

[signature page follows]

 

 

 

 

The parties, acting through their duly authorized representatives, have executed this Amendment as of the Amendment Effective Date.

 

“Acquiring Company”   “Company”
     
Force Protection Video Equipment Corp.   SRAX, Inc.
         
By:     By:  
         
Name: Paul Feldman   Name: Christopher Miglino
         
Title: CEO   Title: CEO
         
“Principal”      
       
Paul Feldman      
         
By:        
         
Name: Paul Feldman      
         
Title: N/A      

 

 

 

 

Exhibit 10.02

 

TRANSITION SERVICES AGREEMENT

 

among

 

SRAX, Inc.;

 

Force Protection Video Equipment Corporation;

 

and

 

BIG Token, Inc.

 

dated as of

 

January 27, 2021

 

 
 

 

TRANSITION SERVICES AGREEMENT

 

This Transition Services Agreement, dated as of January 27, 2021 (this “Agreement”), is entered into between SRAX, Inc., a Delaware corporation (“Parent”) on the one hand, and BIG Token, Inc., a Delaware corporation (“Subsidiary”), and Force Protection Video Equipment Corporation (“Company”), a Florida corporation on the other hand. Each of the foregoing parties may be referred to as a “Party” and collectively as the “Parties.”

 

RECITALS

 

WHEREAS, Subsidiary is a wholly owned subsidiary of Parent;

 

WHEREAS, Parent has entered into a share exchange agreement with Company dated September 30, 2020 (“Share Exchange Agreement”) pursuant to which Company is purchasing all of the outstanding capital stock of Subsidiary in exchange for certain securities of Company as more fully described therein;

 

WHEREAS, upon completion of the transactions contemplated in the Share Exchange Agreement, the Subsidiary’s business will become the business of Company, and such combined entity will be included in the term “Company”;

 

WHEREAS, in order to ensure an orderly transition of the business of the Subsidiary to Company and as a condition to consummating the transactions contemplated by the Share Exchange Agreement, the Parties have agreed to enter into this Agreement, pursuant to which Parent will provide, or cause its Affiliates to provide, Company with certain services, in each case on a transitional basis and subject to the terms and conditions set forth herein; and

 

WHEREAS, capitalized terms used herein and not otherwise defined shall have the meaning ascribed to such terms in the Share Exchange Agreement.

 

 
 

 

NOW, THEREFORE, in consideration of the mutual agreements and covenants hereinafter set forth, Company, Subsidiary, and Parent hereby agree as follows:

 

Article I
Services

 

Section 1.01 Provision of Services.

 

(a) Parent agrees to provide, or to cause its Affiliates to provide, the services (the “Services”) set forth on the exhibits attached hereto (as such exhibits may be amended or supplemented pursuant to the terms of this Agreement, collectively, the “Service Exhibits”) to Company for the respective periods and on the other terms and conditions set forth in this Agreement and in the respective Service Exhibits.

 

(b) Notwithstanding the contents of the Service Exhibits, Parent agrees to respond in good faith to any reasonable request by Company for access to any additional services that are necessary for the operation of the business of the Subsidiary and which are not currently contemplated in the Service Exhibits, at a price to be agreed upon after good faith negotiations between the Parties. Any such additional services so provided by Parent shall constitute Services under this Agreement and be subject in all respect to the provisions of this Agreement as if fully set forth on a Service Exhibit as of the date hereof.

 

(c) The Parties hereto acknowledge the transitional nature of the Services. Accordingly, as promptly as practicable following the execution of this Agreement, Company agrees to use commercially reasonable efforts to make a transition of each Service to its own internal organization or to obtain alternate third-party sources to provide the Services.

 

(d) Subject to Section 2.03, Section 2.04 and Section 3.05, the obligations of Parent under this Agreement to provide Services shall terminate with respect to each Service on the end date specified in the applicable Service Exhibit (the “End Date”). Notwithstanding the foregoing, the Parties acknowledge and agree that Company may determine from time to time that it does not require all the Services set out on one or more of the Service Exhibits or that it does not require such Services for the entire period up to the applicable End Date. Accordingly, Company may terminate any Service, in whole and not in part, upon notification to Parent in writing of any such determination.

 

Section 1.02 Standard of Service.

 

(a) Parent represents, warrants and agrees that the Services shall be provided in good faith, in accordance with Laws and, except as specifically provided in the Service Exhibits, in a manner generally consistent with the historical provision of the Services and with the same standard of care as historically provided. Subject to Section 1.03, Parent agrees to assign sufficient resources and qualified personnel as are reasonably required to perform the Services in accordance with the standards set forth in the preceding sentence.

 

(b) Except as expressly set forth in Section 1.02(a) or in any contract entered into hereunder, Parent makes no representations and warranties of any kind, implied or expressed, with respect to the Services, including, without limitation, no warranties of merchantability or fitness for a particular purpose, which are specifically disclaimed. Company acknowledges and agrees that this Agreement does not create a fiduciary relationship, partnership, joint venture or relationships of trust or agency between the parties and that all Services are provided by Parent as an independent contractor.

 

2
 

 

Section 1.03 Third-Party Service Providers. It is understood and agreed that Parent has been retaining, and will continue to retain, third-party service providers to provide some of the Services to Company. In addition, Parent shall have the right to hire other third-party subcontractors to provide all or part of any Service hereunder; provided, however, that in the event such subcontracting is inconsistent with past practices, Parent shall obtain the prior written consent of Company to hire such subcontractor, such consent not to be unreasonably withheld. Parent shall in all cases retain responsibility for the provision to Company of Services to be performed by any third-party service provider or subcontractor or by any of Parent’s Affiliates.

 

Section 1.04 Access to Premises.

 

(a) In order to enable the provision of the Services by Parent, Company agrees that it shall provide to Parent’s and its Affiliates’ employees and any third-party service providers or subcontractors who provide Services, at no cost to Parent, access to the facilities, assets and books and records of the Subsidiary, in all cases to the extent necessary for Parent to fulfill its obligations under this Agreement.

 

(b) Parent agrees that all of its and its Affiliates’ employees and any third-party service providers and subcontractors, when on the property of Company or when given access to any equipment, computer, software, network or files owned or controlled by Company, shall conform to the policies and procedures of Company concerning health, safety, security, and any applicable COVID-19 policies, which are made known to Parent in advance in writing.

 

Article II
Compensation

 

Section 2.01 Responsibility for Wages and Fees. For such time as any employees of Parent or any of its Affiliates are providing the Services to Company under this Agreement, (a) such employees will remain employees of Parent or such Affiliate, as applicable, and shall not be deemed to be employees of Company for any purpose, and (b) Parent or such Affiliate, as applicable, shall be solely responsible for the payment and provision of all wages, bonuses and commissions, employee benefits, including severance and worker’s compensation, and the withholding and payment of applicable Taxes relating to such employment.

 

3
 

 

Section 2.02 Terms of Payment and Related Matters.

 

(a) As consideration for provision of the Services, Company shall pay Parent the amount specified for each Service on such Service’s respective Service Exhibit. In addition to such amount, in the event that Parent or any of its Affiliates incurs reasonable and documented out-of-pocket expenses in the provision of any Service, including, without limitation, license fees and payments to third-party service providers or subcontractors, but excluding payments made to employees of Parent or any of its Affiliates pursuant to Section 2.01 (such included expenses, collectively, “Out-of-Pocket Costs”), Company shall reimburse Parent for all such Out-of-Pocket Costs in accordance with the invoicing procedures set forth in Section 2.02(b).

 

(b) As more fully provided in the Service Exhibits and subject to the terms and conditions therein:

 

(i) Parent shall provide Company, in accordance with Section 6.01 of this Agreement, with monthly invoices (“Invoices”), which shall set forth in reasonable detail, with such supporting documentation as Company may reasonably request with respect to Out-of-Pocket Costs, amounts payable under this Agreement; and

 

(ii) payments pursuant to this Agreement shall be made within twenty (20) days after the date of receipt of an Invoice by Company from Parent.

 

(c) It is the intent of the Parties that the compensation set forth in the respective Service Exhibits reasonably approximate the cost of providing the Services, including the cost of employee wages and compensation, without any intent to cause Parent to receive profit or incur loss. If at any time Parent believes that the payments contemplated by a specific Service Exhibit are materially insufficient to compensate it for the cost of providing the Services it is obligated to provide hereunder, or Company believes that the payments contemplated by a specific Service Exhibit materially overcompensate Parent for such Services, such party shall notify the other party as soon as possible, and the parties hereto will commence good faith negotiations toward an agreement in writing as to the appropriate course of action with respect to pricing of such Services for future periods.

 

Section 2.03 Extension of Services. The parties agree that Parent shall not be obligated to perform any Service after the applicable End Date; provided, however, that if Company desires and Parent agrees to continue to perform any of the Services after the applicable End Date, the parties shall negotiate in good faith to determine an amount that compensates Parent for all of its costs for such performance, including the time of its employees and its Out-of-Pocket Costs. The Services so performed by Parent after the applicable End Date shall continue to constitute Services under this Agreement and be subject in all respects to the provisions of this Agreement for the duration of the agreed-upon extension period.

 

4
 

 

Section 2.04 Terminated Services. Upon termination or expiration of any or all Services pursuant to this Agreement, or upon the termination of this Agreement in its entirety, Parent shall have no further obligation to provide the applicable terminated Services and Company will have no obligation to pay any future compensation or Out-of-Pocket Costs relating to such Services (other than for or in respect of Services already provided in accordance with the terms of this Agreement and received by Company prior to such termination).

 

Section 2.05 Invoice Disputes. In the event of an Invoice dispute, Company shall deliver a written statement to Parent no later than ten (10) days] prior to the date payment is due on the disputed Invoice listing all disputed items and providing a reasonably detailed description of each disputed item. Amounts not so disputed shall be deemed accepted and shall be paid, notwithstanding disputes on other items, within the period set forth in Section 2.02(b). The parties shall seek to resolve all such disputes expeditiously and in good faith. Parent shall continue performing the Services in accordance with this Agreement pending resolution of any dispute.

 

Section 2.06 No Right of Setoff. Each of the parties hereby acknowledges that it shall have no right under this Agreement to offset any amounts owed (or to become due and owing) to the other party, whether under this Agreement, the Share Exchange Agreement or otherwise, against any other amount owed (or to become due and owing) to it by the other party.

 

Section 2.07 Taxes. Company shall be responsible for all sales or use Taxes imposed or assessed as a result of the provision of Services by Parent.

 

Article III
Termination

 

Section 3.01 Termination of Agreement. Subject to Section 3.04, this Agreement shall terminate in its entirety (i) on the date upon which Parent shall have no continuing obligation to perform any Services as a result of each of their expiration or termination in accordance with Section 1.01(d) or Section 3.02 or (ii) in accordance with Section 3.03.

 

Section 3.02 Breach. Any party (the “Non-Breaching Party”) may terminate this Agreement with respect to any Service, in whole but not in part, at any time upon prior written notice to the other party (the “Breaching Party”) if the Breaching Party has failed (other than pursuant to Section 3.05) to perform any of its material obligations under this Agreement relating to such Service, and such failure shall have continued without cure for a period of fifteen (15) days after receipt by the Breaching Party of a written notice of such failure from the Non-Breaching party seeking to terminate such service. For the avoidance of doubt, non-payment by Company for a Service provided by Parent in accordance with this Agreement and not the subject of a good-faith dispute shall be deemed a breach for purposes of this Section 3.02, provided that if a dispute related to an invoice is not resolved within forty five (45) days, Parent may provide written notice of immediate termination.

 

5
 

 

Section 3.03 Insolvency. In the event that either party hereto shall (i) file a petition in bankruptcy, (ii) become or be declared insolvent, or become the subject of any proceedings (not dismissed within sixty (60) days) related to its liquidation, insolvency or the appointment of a receiver, (iii) make an assignment on behalf of all or substantially all of its creditors, or (iv) take any corporate action for its winding up or dissolution, then the other party shall have the right to terminate this Agreement by providing written notice in accordance with Section 6.01.

 

Section 3.04 Effect of Termination. Upon termination of this Agreement in its entirety pursuant to Section 3.01, all obligations of the parties hereto shall terminate, except for the provisions of Section 2.04, Section 2.06, Section 2.07, Article IV, Article V, and Article VI, which shall survive any termination or expiration of this Agreement.

 

Section 3.05 Force Majeure. The obligations of Parent under this Agreement with respect to any Service shall be suspended during the period and to the extent that Parent is prevented or hindered from providing such Service, or Company is prevented or hindered from receiving such Service, due to any of the following causes beyond such party’s reasonable control (such causes, “Force Majeure Events”): (i) acts of God, (ii) flood, fire or explosion, (iii) war, invasion, riot or other civil unrest, (iv) Governmental Order or Law, (v) actions, embargoes or blockades in effect on or after the date of this Agreement, (vi) action by any Governmental Authority, (vii) national or regional emergency, (viii) strikes, labor stoppages or slowdowns or other industrial disturbances, (ix) shortage of adequate power or transportation facilities, or (x) any other event which is beyond the reasonable control of such party. The party suffering a Force Majeure Event shall give notice of suspension as soon as reasonably practicable to the other party stating the date and extent of such suspension and the cause thereof, and Parent shall resume the performance of its obligations as soon as reasonably practicable after the removal of the cause. Neither Company nor Parent shall be liable for the nonperformance or delay in performance of its respective obligations under this Agreement when such failure is due to a Force Majeure Event. The applicable End Date for any Service so suspended shall be automatically extended for a period of time equal to the time lost by reason of the suspension.

 

6
 

 

Article IV
Confidentiality; Intellectual Property

 

Section 4.01 Confidentiality.

 

(a) During the term of this Agreement and thereafter, the parties hereto shall, and shall instruct their respective representatives to, maintain in confidence and not disclose the other party’s Confidential Information. Each party hereto shall use the same degree of care, but no less than reasonable care, to protect the other party’s Confidential Information as it uses to protect its own Confidential Information of like nature. Unless otherwise authorized in any other agreement between the Parties, any Party receiving any Confidential Information of the other Party (the “Receiving Party”) may use Confidential Information only for the purposes of fulfilling its obligations under this Agreement (the “Permitted Purpose”). Any Receiving Party may disclose such Confidential Information only to its representatives who have a need to know such information for the Permitted Purpose and who have been advised of the terms of this Section 4.01 and the Receiving Party shall be liable for any breach of these confidentiality provisions by such Persons; provided, however, that any Receiving Party may disclose such Confidential Information to the extent such Confidential Information is required to be disclosed by a Governmental Order, in which case the Receiving Party shall promptly notify, to the extent possible, the disclosing party (the “Disclosing Party”), and take reasonable steps to assist in contesting such Governmental Order or in protecting the Disclosing Party’s rights prior to disclosure, and in which case the Receiving Party shall only disclose such Confidential Information that it is advised by its counsel in writing that it is legally bound to disclose under such Governmental Order. As used herein, “Confidential Information” means any proprietary or confidential information, methodologies, technical data, trade secrets or know-how, including, but not limited to, research, product plans, business strategy, products, services, customer, supplier and vendor lists, software, developments, inventions, processes, formulas, technology, designs, drawings, marketing plans, market development, distribution and sales methods and systems, sales and profit figures, finances and other business information learned by either Party in the course of providing the Services or disclosed to one Party by the other, either directly or indirectly in writing, orally or by drawings or inspection of documents or other tangible property or by observations at either Party’s place of business.

 

(b) Notwithstanding the foregoing, “Confidential Information” shall not include any information that the Receiving Party can demonstrate: (i) was publicly known at the time of disclosure to it, or has become publicly known through no act of the Receiving Party or its representatives in breach of this Section 4.01; (ii) was rightfully received from a third party without a duty of confidentiality; or (iii) was developed by it independently without any reliance on the Confidential Information.

 

7
 

 

(c) Upon demand by the Disclosing Party at any time, or upon expiration or termination of this Agreement with respect to any Service, the Receiving Party agrees promptly to return or destroy, at the Disclosing Party’s option, all Confidential Information. Notwithstanding the foregoing, the obligation to return or destroy such Confidential Information shall not cover Confidential Information that is required to be retained by law or maintained on routine computer system backup tapes, disks or other backup storage devices as long as such backed-up information is not used, disclosed, or otherwise recovered from such backup devices.

 

Section 4.02 Intellectual Property. This Agreement and the performance of the Services hereunder will not affect or result in the transfer of any rights in or to, or the ownership of, any Intellectual Property Rights of Parent or any of its Affiliates. The Parties do not contemplate that the performance of the Services will, except as may be expressly set forth in the applicable Schedule, entail the development, delivery or the licensing of Intellectual Property Rights for or to the other Party. Neither Party will gain, by virtue of this Agreement or the provision of the Services hereunder, by implication or otherwise, any rights of ownership or otherwise of any property or Intellectual Property Rights owned by the other, except by separate written agreement. For the avoidance of doubt, nothing in this Agreement shall limit or modify the transfer of the rights in and to, the ownership of, or the licenses with respect to any Intellectual Property Rights as set forth in any other agreement.

 

Article V
Limitation on Liability

 

Section 5.01 Limitation on Liability. In no event shall Parent have any liability under any provision of this Agreement for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple, whether based on statute, contract, tort or otherwise, and whether or not arising from the other party’s sole, joint, or concurrent negligence, strict liability, criminal liability or other fault. Company acknowledges that the Services to be provided to it hereunder are subject to, and that its remedies under this Agreement are limited by, the applicable provisions of Section 1.02, including the limitations on representations and warranties with respect to the Services.

 

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Article VI
Miscellaneous

 

Section 6.01 Notices. All Invoices, notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 6.01):

 

(a) if to Parent:

 

SRAX, Inc.

2629 Townsgate Road, #215 Westlake Village, CA 91361

Facsimile: N/A

E-mail: Chris@srax.com

Attention: CEO

 

with a copy (which shall not constitute notice) to:

 

Silvestre Law Group, P.C.

2629 Townsgate Road #215, Westlake Village, CA 91361

Facsimile: (805) 553-9783

E-mail: rsilvestre@silvestrelaw.com

Attention: Raul Silvestre

 

(b) if to Company:

 

Force Protection Video Equipment Corporation

1249 Kildaire Farm Road

Cary, NC 27511

E-mail: TBD

Attention: CEO

 

with a copy (which shall not constitute notice) to:

 

Eric Littman

7695 SW 104th street #210

Miami, FL 33156

Facsimile: 305.668.0003

E-mail: littmanlaw@gmail.com

Attention: Eric Littman

 

Section 6.02 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

 

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Section 6.03 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

Section 6.04 Entire Agreement. This Agreement, including all Service Exhibits, constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event and to the extent that there is a conflict between the provisions of this Agreement and the provisions of the Share Exchange Agreement as it relates to the Services hereunder, the provisions of this Agreement shall control.

 

Section 6.05 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. [Subject to the following sentence,] neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. [Notwithstanding the foregoing sentence, Company may, without the prior written consent of Parent, assign all or any portion of its right to receive Services to any of its Affiliates that participate in the operation of the [business of the Company / Business]; provided, that such Affiliate shall receive such Services from Parent in the same place and manner as described in the respective Service Exhibit as Company would have received such Service.] No assignment shall relieve the assigning party of any of its obligations hereunder.

 

Section 6.06 No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.

 

Section 6.07 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

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Section 6.08 Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California without giving effect to any choice or conflict of law provision or rule. Any legal suit, action or proceeding arising out of or based upon this agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the state of California in each case located in the city of Los Angeles and county of Los Angeles, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by mail to such party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. 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.

 

Section 6.09 Waiver of Jury Trial. Each party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this agreement or the transactions contemplated hereby. Each party to this agreement certifies and acknowledges that (a) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (b) such party has considered the implications of this waiver, (c) such party makes this waiver voluntarily, and (d) such party has been induced to enter into this agreement by, among other things, the mutual waivers and certifications in this Section 6.09.

 

Section 6.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

  Force Protection Video Equipment Corp.
   
  By  
  Name: Eric Feldman
  Title: CEO
     
  BIG Token, Inc.
   
  By  
  Name: Christopher Miglino
  Title: Director
     
  SRAX, Inc.
     
  By  
  Name: Chris Miglino
  Title: CEO

 

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EXHIBIT A

 

[SEE ATTACHED SCHEDULE]

 

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Exhibit 10.03

 

MASTER SEPARATION AGREEMENT

 

BETWEEN

 

SRAX, INC.,

 

BIG TOKEN, INC.,

 

AND

 

FORCE PROTECTION VIDEO EQUIPMENT CORPORATION

 

Dated as of January 27, 2021

 

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This MASTER SEPARATION AGREEMENT (this “Agreement”) dated as of January 27, 2021, by and among SRAX, Inc., a Delaware corporation (“Parent”), BIG Token, Inc., a Delaware corporation (“BIG Token”) and Force Protection Video Equipment Corporation (“Company”), a Florida corporation. Each of the foregoing parties may be referred to herein as a “Party” and collectively as the “Parties.” Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Share Exchange Agreement entered into on September 30, 2020 by and between Parent, Company and Paul Feldman, and as amended on January 27, 2021 (the “Share Exchange Agreement”).

 

RECITALS

 

WHEREAS, BIG Token is a wholly owned subsidiary of Parent;

 

WHEREAS, Parent has entered into the Share Exchange Agreement pursuant to which Company is purchasing all of the outstanding capital stock of Subsidiary in exchange for certain securities of Company as more fully described in the Share Exchange Agreement;

 

WHEREAS, upon completion of the transactions contemplated in the Share Exchange Agreement, BIG Token’s business will become the business of Company, and such combined entity will be included in the term “Company” as defined herein;

 

WHEREAS, upon the Closing of the transactions contemplated in the Share Exchange Agreement, the Company will continue trading as a publicly traded company;

 

WHEREAS, the Parent intends to effect the separation of BIG Token from the Parent pursuant to the Share Exchange Agreement and accordingly will transfer certain BIG Token Assets to the Company and will assume certain applicable BIG Token Liabilities as more fully described herein;

 

WHEREAS, capitalized terms used herein and not otherwise defined shall have the meaning ascribed to such terms in the Share Exchange Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements and covenants hereinafter set forth, Company, Subsidiary, and Parent hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

For the purpose of this Agreement, the following terms shall have the following meanings:

 

Accounts Payable” shall mean any and all trade and non-trade accounts payable of either Party or member of its Group.

 

Accounts Receivable” shall mean any and all trade and non-trade accounts receivable of either Party or member of its Group.

 

Action” shall mean any demand, action, claim, dispute, suit, countersuit, arbitration, inquiry, subpoena, proceeding or investigation of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial or otherwise) by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal.

 

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Affiliate” shall mean, when used with respect to a specified Person, a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified Person. For the purpose of this definition, “control” (including, with correlative meanings, “controlled by” and “under common control with”), when used with respect to any specified Person, shall mean 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 or other interests, by contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment, undertaking or otherwise. It is expressly agreed that, prior to, at and after the Separation Time, for purposes of this Agreement and the Ancillary Agreements, (a) no member of the BIG Token Group shall be deemed to be an Affiliate of any member of the Parent Group and (b) no member of the Parent Group shall be deemed to be an Affiliate of any member of the BIG Token Group.

 

Agreement” shall have the meaning set forth in the Preamble.

 

Ancillary Agreements” shall mean all agreements (other than this Agreement) entered into by the Parties or the members of their respective Groups in connection with the Separation, or the other transactions contemplated by this Agreement, including the Transition Services Agreement, the Share Exchange Agreement, and the Transfer Documents.

 

Approvals or Notifications” shall mean any consents, waivers, approvals, permits or authorizations to be obtained from, notices, registrations or reports to be submitted to, or other filings to be made with, any third Person, including any Governmental Authority.

 

Arbitration Request” shall have the meaning set forth in Section 8.3(a).

 

Assets” shall mean, with respect to any Person, the assets, properties, claims and rights (including goodwill) of such Person, wherever located (including in the possession of vendors or other third Persons or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of such Person, including rights and benefits pursuant to any contract, license, permit, indenture, note, bond, mortgage, agreement, concession, franchise, instrument, undertaking, commitment, understanding or other arrangement.

 

BIG Token” shall have the meaning set forth in the Preamble and where applicable hereunder will include Company as the entity acquiring BIG Token pursuant to the Share Exchange Agreement.

 

BIG Token Accounts” shall have the meaning set forth in Section 2.10(a).

 

BIG Token Accounts Payable” shall mean any and all trade and non-trade accounts payable of either Party or member of its Group outstanding as of immediately prior to the Separation Time, in each case, to the extent related to the BIG Token Business or arising out of any BIG Token Contract.

 

BIG Token Accounts Receivable” shall mean any and all trade and non-trade accounts receivable of either Party or member of its Group outstanding as of immediately prior to the Separation Time, in each case, to the extent related to the BIG Token Business or arising out of any BIG Token Contract.

 

BIG Token Assets” shall have the meaning set forth in Section 2.2(a).

 

BIG Token Balance Sheet” shall mean the carve-out balance sheet of the BIG Token Business, including any notes and subledgers thereto, as of September 30, 2020, as presented in the Company’s Current Report on Form 8-K to be filed contemporaneously with the signing of this Agreement.

 

BIG Token Books and Records” shall mean all books and records used in or necessary, as of the Separation Time, for the general financial and administrative operation of the BIG Token Business, including financial, employee, and general business operating documents, instruments, papers, books, books of account, records and files and data related thereto; provided, that BIG Token Books and Records shall not include (i) BIG Token Product and Customer Records, (ii) BIG Token Customer Data and (iii) material that Parent is not permitted by applicable Law or agreement to disclose or transfer to BIG Token.

 

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BIG Token Business” shall mean the business, operations and activities of the BIG Token segment of Parent conducted immediately prior to the Separation Time by either Party or any member of its Group, as described in the Company’s Current Report on Form 8-K to be filed contemporaneously with the signing of this Agreement. For the avoidance of doubt, the BIG Token Business shall include the business, operations and activities set forth on Schedule 1.1(a).

 

BIG Token Contracts” shall mean the following contracts and agreements to which either Party or any member of its Group is a party or by which it or any member of its Group or any of their respective Assets is bound, whether or not in writing; provided, that BIG Token Contracts shall not include any contract or agreement that shall be retained by Parent or any member of the Parent Group from and after the Separation Time pursuant to any provision of this Agreement or any Ancillary Agreement:

 

(a) (i) any customer, reseller, distributor or development contract or agreement entered into prior to the Separation Time exclusively related to the BIG Token Business, including the contracts and agreements set forth on Schedule 1.2(a) and (ii) with respect to any customer, reseller, distributor or development contract or agreement entered into prior to the Separation Time that relates to the BIG Token Business but is not exclusively related to the BIG Token Business, that portion of any such contract or agreement that primarily relates to the BIG Token Business;

 

(b) (i) any supply or vendor contract or agreement entered into prior to the Separation Time exclusively related to the BIG Token Business, including the contracts and agreements set forth on Schedule 1.2(b) and (ii) with respect to any supply or vendor contract or agreement entered into prior to the Separation Time that relates to the BIG Token Business but is not exclusively related to the BIG Token Business, that portion of any such contract or agreement that primarily relates to the BIG Token Business;

 

(c) any contract or agreement entered into prior to the Separation Time set forth on Schedule 1.2(c), which grants a Third Party rights or licenses to Intellectual Property Rights that are BIG Token Intellectual Property Rights;

 

(d) any joint venture or partnership contract or agreement that exclusively relates to the BIG Token Business as of the Separation Time;

 

(e) any guarantee, indemnity, representation, covenant, warranty or other liability of either Party or any member of its Group in respect of any other BIG Token Contract, any BIG Token Liability or the BIG Token Business;

 

(f) any proprietary information and inventions agreement or similar Intellectual Property Rights assignment or license agreement with any current or former BIG Token Group employee, Parent Group employee, consultant of the BIG Token Group or consultant of the Parent Group, in each case entered into prior to the Separation Time (i) that is exclusively related to the BIG Token Business or (ii) if not exclusively related to the BIG Token Business, that portion of any such assignment or agreement that primarily relates to the BIG Token Business;

 

(g) any contract or agreement that is expressly contemplated pursuant to this Agreement or any of the Ancillary Agreements to be assigned to, or to be a contract or agreement in the name of, BIG Token or any member of the BIG Token Group;

 

(h) any interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements exclusively related to the BIG Token Business;

 

(i) any contract or agreement entered into in the name of, or expressly on behalf of, any division, business unit or member of the BIG Token Group;

 

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(j) any other contract or agreement exclusively related to the BIG Token Business or BIG Token Assets;

 

(k) BIG Token Leases; and

 

(l) any contracts, agreements or settlements set forth on Schedule 1.2(l), including the right to recover any amounts under such contracts, agreements, leases or settlements.

 

BIG Token Core Software” shall mean the Software set forth on Schedule 1.3.

 

BIG Token Customer Data” shall mean all data (i) provided by any user or generated by any BIG Token Product, and hosted or stored by or on behalf of BIG Token, including all video and audio data generated by any BIG Token Product, (ii) all associated device information (including IP and MAC addresses) or customer data associated with the material set forth in clause (i) and (iii) all data generated or derived from any of the foregoing, including metadata, performance data, aggregated data and anonymized data collected, used or generated by BIG Token. BIG Token Customer Data shall not include any material or information that may not be disclosed or transferred to BIG Token pursuant to any applicable Law or policies (including any policies regarding privacy).

 

BIG Token Designees” shall mean any and all entities (including corporations, general or limited partnerships, trusts, joint ventures, unincorporated organizations, limited liability entities or other entities) designated by Parent that will be members of the BIG Token Group as of immediately prior to the Separation Time.

 

BIG Token Group” shall mean (a) BIG Token and (b) each other Person that is controlled directly or indirectly by BIG Token immediately after the Separation Time.

 

BIG Token Information Technology” shall mean (a) all Information Technology owned by either Party or any member of its Group that is exclusively used or exclusively held for use in the BIG Token Business as of immediately prior to the Separation Time, and (b) the Information Technology set forth on Schedule 1.4.

 

BIG Token Intellectual Property Rights” shall mean (a) the BIG Token Registered IP, including the BIG Token Patents, (b) the Other IP of either Party or any of the members of its Group, in each case, that is embodied in the BIG Token Core Software, (c) the BIG Token Marks (to the extent not included in clause (a) above), and (d) the right to all past and future damages and claims for the infringement or misappropriation of any of the foregoing.

 

BIG Token Inventory” shall have the meaning set forth in Section 2.2(a)(vi).

 

BIG Token Leases” shall have the meaning set forth in the definition of BIG Token Real Property.

 

BIG Token Liabilities” shall have the meaning set forth in Section 2.3(a).

 

BIG Token Marks” shall mean the names, marks, trade dress, logos, monograms, domain names and other source or business identifiers (“Marks”) of either Party or any member of its Group that (a) use or contain “BIG Token” (including any stylized versions or design elements thereof), (b) are set forth in Schedule 1.6, or (c) otherwise identify BIG Token as a whole, either alone or in combination with other words or elements, and all names, marks, trade dress, logos, monograms, domain names and other source or business identifiers confusingly similar to or embodying any of the foregoing, either alone or in combination with other words or elements; provided, that BIG Token Marks shall not include the Parent Marks.

 

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BIG Token Patents” shall mean (a) the Patents set forth on Schedule 1.7 (the “BIG Token Listed Patents”), (b) any Patent issuing on a Patent Application that is a BIG Token Listed Patent, (c) any Patent issuing on any Patent Application that claims priority from, and that cover exclusively subject matter that is entitled to priority to, any Patent or Patent Application that is a BIG Token Listed Patent (including, but not limited to, any divisional, continuation, reissue, reexamination or extension) with a priority date that is prior to the Separation Time, and (d) any foreign counterpart of any of the foregoing Patents and Patent Applications with, or entitled to claim, a priority date that is prior to the Separation Time.

 

BIG Token Permits” shall mean all Permits owned or licensed by either Party or any member of its Group exclusively used or exclusively held for use in the BIG Token Business as of immediately prior to the Separation Time.

 

BIG Token Product” shall mean products and services manufactured, supplied, sold, provided or distributed, as the case may be, at any time, by BIG Token or members of its Group under a BIG Token Mark.

 

BIG Token Product and Customer Records” shall mean all books and records related to or used by BIG Token as of the Separation Time in connection with the sourcing, supply chain management, marketing, sale, distribution, maintenance and warranty of BIG Token Products, including vendor and supplier information and records, customer lists, sales records, e-commerce records and data, customer registration and account information, billing and subscription information, marketing materials, customer contracts, terms of use and privacy policies, sales literature catalogs, brochures, sales, warranty and other product information and materials, and Web Site content.

 

BIG Token Real Property” shall mean (a) all of the Real Property owned by either Party or member of its Group as of immediately prior to the Separation Time listed or described on Schedule 1.8(a), (b) the Real Property Leases to which either Party or member of its Group is party as of immediately prior to the Separation Time set forth on Schedule 1.8(b) (“BIG Token Leases”) and (c) all recorded Real Property notices, easements, and obligations with respect to the Real Property and/or Real Property leases described in clauses (a) and (b) of this paragraph.

 

BIG Token Records” shall have the meaning set forth in Section 2.2(a)(vii).

 

BIG Token Registered IP” shall mean the Registered IP set forth on Schedule 1.9.

 

BIG Token Tangible Personal Property” shall have the meaning set forth in Section 2.2(a)(xiv).

 

BIG Token Technology” shall mean (i) any Copyable Technology to the extent used in or necessary to the operation of the BIG Token Business as of immediately prior to the Separation Time and (ii) any other Technology that is not Copyable Technology that is used exclusively in the operation of the BIG Token Business as of immediately prior to the Separation Time or that is listed on Schedule 1.10; provided, that BIG Token Technology shall not include (x) any Information Technology, (y) any Technology, in the case of clause (y), in which neither BIG Token nor Parent own the Intellectual Property Rights or that was licensed to either of them by a Third Party, (z) any BIG Token Books and Records, (aa) any BIG Token Sales and Customer Records and (bb) any BIG Token Customer Data.

 

Business Day” means a day other than a Saturday, a Sunday or a day on which banking institutions located in New York, New York are authorized or obligated by Law or executive order to close.

 

CEO Negotiation Request” shall have the meaning set forth in Section 8.2.

 

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Change of Control” shall mean, with respect to a Party: (a) a transaction whereby any Person or group (within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended) would acquire, directly or indirectly, voting securities representing more than fifty percent (50%) of the total voting power of such Party; (b) a merger, consolidation, recapitalization or reorganization of such Party, unless securities representing more than fifty percent (50%) of the total voting power of the legal successor to such Party as a result of such merger, consolidation, recapitalization or reorganization are immediately thereafter beneficially owned, directly or indirectly, by the Persons who beneficially owned such Party’s outstanding voting securities immediately prior to such transaction; or (c) the sale of all or substantially all of the consolidated assets of such Party’s Group. For the avoidance of doubt, no transaction contemplated by this Agreement shall be considered a Change of Control.

 

Code” shall mean the Internal Revenue Code of 1986, as amended.

 

Company” shall have the meaning set forth in the Preamble and where applicable hereunder, will include BIG Token pursuant to its acquisition of BIG Token pursuant to the Share Exchange Agreement.

 

Company Auditors” shall have the meaning set forth in Section 6.1(i).

 

Company Board” shall mean the Board of Directors of the Company.

 

Company Common Stock” shall mean the Common Stock of Force Protection Video Equipment Corporation.

 

Company Indebtedness” shall mean the aggregate principal amount of total liabilities (whether long-term or short-term) for borrowed money (including capitalized leases) of the Company collectively, as determined for purposes of its annual and quarterly financial statements and prepared in accordance with GAAP.

 

Company Indemnitees” shall have the meaning set forth in Section 5.3.

 

Company Policies” shall have the meaning set forth in Section 6.8(b).

 

Copyable Technology” shall mean Technology that is in a form that can be copied or replicated without material cost, including documentation, Software and computer and data files.

 

Delayed BIG Token Asset” shall have the meaning set forth in Section 2.5(c).

 

Delayed BIG Token Liability” shall have the meaning set forth in Section 2.5(c).

 

Dispute” shall have the meaning set forth in Section 8.1.

 

Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

 

Force Majeure” shall mean, with respect to a Party, an event beyond the reasonable control of such Party (or any Person acting on its behalf), which event (a) does not arise or result from the fault or negligence of such Party (or any Person acting on its behalf) and (b) by its nature would not reasonably have been foreseen by such Party (or such Person), or, if it would reasonably have been foreseen, was unavoidable, and includes acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any significant and prolonged failure in electrical or air conditioning equipment. Notwithstanding the foregoing, the receipt by a Party of an unsolicited takeover offer or other acquisition proposal, even if unforeseen or unavoidable, and such Party’s response thereto shall not be deemed an event of Force Majeure.

 

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

 

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Governmental Approvals” shall mean any Approvals or Notifications to be made to, or obtained from, any Governmental Authority.

 

Governmental Authority” shall mean any nation or government, any state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, a government and any executive official thereof.

 

Group” shall mean either the BIG Token Group or the Parent Group, as the context requires.

 

Indemnifying Party” shall have the meaning set forth in Section 5.4(a).

 

Indemnitee” shall have the meaning set forth in Section 5.4(a).

 

Indemnity Payment” shall have the meaning set forth in Section 5.4(a).

 

Information Technology” shall mean all hardware, computers, servers, workstations, routers, hubs, switches, data communication lines, network and telecommunications equipment, Internet-related information technology infrastructure and other information technology equipment.

 

Insurance Proceeds” shall mean those monies:

 

  (a) received by an insured from an insurance carrier; or
  (b) paid by an insurance carrier on behalf of the insured;

 

in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof.

 

Insurance Termination Time” shall have the meaning set forth in Section 6.7(b).

 

Intellectual Property Rights” shall mean all common law and statutory rights anywhere in the world arising under or associated with: (i) patents and similar or equivalent rights in inventions (“Patents”) and applications and rights or claims of priority for Patents, including international applications under the Patent Cooperation Treaty (“Patent Applications”); (ii) Trademarks, (iii) trade secret and industrial secret rights and rights in confidential information (“Trade Secrets”); (iv) copyrights and any other equivalent rights in works of authorship (including Software) (“Copyrights”); (v) rights in domain names, uniform resource locators and other names and locators associated with Internet addresses and sites (“Domain Names”); (vi) applications for, registrations of and divisions, continuations, continuations-in-part, reissuances, renewals, extensions, restorations and reversions of the foregoing (as applicable); and (vii) all other similar or equivalent intellectual property or proprietary rights anywhere in the world.

 

Inventory” shall have the meaning set forth in Section 2.2(a)(vi).

 

Law” shall mean any national, supranational, federal, state, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any Tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued or entered by a Governmental Authority.

 

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Liabilities” shall mean any and all debts, guarantees, assurances, commitments, liabilities, responsibilities, Losses, remediation, deficiencies, damages, fines, penalties, settlements, sanctions, costs, expenses, interest and obligations of any nature or kind, whether accrued or fixed, absolute or contingent, matured or unmatured, accrued or not accrued, asserted or unasserted, liquidated or unliquidated, foreseen or unforeseen, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, claim (including any Third-Party Claim), demand, Action, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority or arbitration tribunal, and those arising under any contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment or undertaking, or any fines, damages or equitable relief that is imposed, in each case, including all costs and expenses relating thereto.

 

Linked” shall have the meaning set forth in Section 2.10(a).

 

Losses” shall mean actual losses (including any diminution in value), costs, damages, penalties and expenses (including legal and accounting fees and expenses and costs of investigation and litigation), whether or not involving a Third-Party Claim.

 

JAMS Rules” shall have the meaning set forth in Section 8.3(a).

 

Officer Negotiation Request” shall have the meaning set forth in Section 8.1.

 

Other IP” shall mean all Intellectual Property Rights, including Copyrights and Trade Secrets, but excluding Patents, Domain Names and Trademarks.

 

Parent” shall have the meaning set forth in the Preamble.

 

Parent Accounts” shall have the meaning set forth in Section 2.10(a).

 

Parent Annual Statements” shall have the meaning set forth in Section 6.2(b).

 

Parent Assets” shall have the meaning set forth in Section 2.2(b).

 

Parent Auditors” shall have the meaning set forth in Section 6.2(b).

 

Parent Business” shall mean all businesses, operations and activities conducted at any time prior to the Separation Time by either Party or any member of its Group, other than the BIG Token Business.

 

Parent Group” shall mean Parent and each Person that is a Subsidiary of Parent (other than BIG Token) and any other member of the BIG Token Group).

 

Parent Indemnitees” shall have the meaning set forth in Section 5.2.

 

Parent Intellectual Property Rights” shall mean all Intellectual Property Rights, other than BIG Token Intellectual Property Rights, owned by either Party or any member of its Group as of immediately prior to the Separation Time.

 

Parent Inventory” shall mean all Inventory, other than BIG Token Inventory, owned by either Party or any member of its Group as of immediately prior to the Separation Time.

 

Parent Liabilities” shall have the meaning set forth in Section 2.3(b).

 

Parent Marks” shall mean all Marks, other than the BIG Token Marks, owned by either Party or any member of its Group as of immediately prior to the Separation Time.

 

Parent Product” shall mean products and services manufactured, sold, provided or distributed, as the case may be, by Parent or members of its Group under a Parent Mark, or any other brand that does not include a BIG Token Mark.

 

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Parent Public Filings” shall have the meaning set forth in Section 6.1(i).

 

Parent Records” shall have the meaning set forth in Section 2.2(a)(viii).

 

Parties” shall mean the parties to this Agreement.

 

Permits” shall mean permits, approvals, authorizations, consents, licenses or certificates issued by any Governmental Authority.

 

Person” shall mean an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority.

 

Policies” shall mean insurance policies and insurance contracts of any kind, including but not limited to global property, excess and umbrella liability, domestic and foreign commercial general liability, local foreign placements, directors and officers liability, fiduciary liability, cyber, media and technology errors and omissions liability, employment practices liability, domestic and foreign automobile, cargo stock throughput, customer cargo, global cargo terrorism, workers’ compensation and employers’ liability, employee dishonesty/crime/fidelity, special contingency (K&R), bonds and self-insurance, together with the rights, benefits, privileges and obligations thereunder.

 

Privileged Information” shall mean any information, in written, oral, electronic or other tangible or intangible forms, including without limitation any communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials protected by the work product doctrine, as to which a Party or any member of its Group would be entitled to assert or have asserted a privilege or other protection, including the attorney-client and work product privileges.

 

Real Property” shall mean land together with all easements, rights and interests arising out of the ownership thereof or appurtenant thereto and all buildings, structures, improvements and fixtures located thereon.

 

Real Property Leases” shall mean all leases to Real Property and, to the extent covered by such leases, any and all buildings, structures, improvements and fixtures located thereon.

 

Registered IP” shall mean any Intellectual Property Rights that are registered, filed, issued or granted under the authority of, with or by, any Governmental Authority, including all Patents, registered Copyrights, registered Trademarks, registered service marks, registered Domain Names and all applications for any of the foregoing.

 

Representatives” shall mean, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys or other representatives.

 

SEC” shall mean the U.S. Securities and Exchange Commission.

 

Section 1542” shall have the meaning set forth in Section 5.1(c).

 

Securities Act” shall mean the U.S. Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

 

Security Interest” shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever.

 

Separation” shall have the meaning set forth in the Recitals.

 

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Separation Date” shall have the meaning set forth in Section 2.4.

 

Separation Time” shall mean 12:01 a.m. Pacific Time on the Separation Date.

 

Shared Contract” shall have the meaning set forth in Section 2.9(a).

 

Shared Third-Party Claim” shall have the meaning set forth in Section 5.5(b).

 

Software” shall mean any and all (a) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow charts and other work products used to design, plan, organize and develop any of the foregoing, (d) screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, and (e) documentation, including user manuals and other training documentation, relating to any of the foregoing.

 

Subsidiary” shall mean, with respect to any Person, any corporation, limited liability company, joint venture or partnership of which such Person (a) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total combined voting power of all classes of voting securities, (ii) the total combined equity interests or (iii) the capital or profit interests, in the case of a partnership, or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body.

 

Tangible Personal Property” shall mean machinery, equipment, hardware, furniture, fixtures, tools, motor vehicles and other transportation equipment, special and general tangible tools, prototypes, models and other tangible personal property, it being understood that Tangible Personal Property shall not include (i) any Information Technology and (ii) any Technology.

 

Tangible Information” shall mean information that is contained in written, electronic or other tangible forms.

 

Technology” shall mean embodiments, regardless of form, of Intellectual Property Rights, including, as the context requires, inventions (whether or not patentable), discoveries and improvements, works of authorship, documentation, diagrams, formulae, APIs, software (whether in source code or in executable code form), user interfaces, architectures, databases, data compilations and collections, know-how, technical data, trade secrets, mask works, models, prototypes, molds, methods, protocols, techniques, processes, devices, schematics, algorithms, molds and patterns, production and other manuals, manufacturing and quality control records and procedures and research and development files; provided, that Technology specifically excludes (i) any and all Intellectual Property Rights, (ii) books and records, (iii) sales and customer records and (iv) customer data.

 

Third Party” shall mean any Person other than the Parties or any members of their respective Groups.

 

Third-Party Claim” shall have the meaning set forth in Section 5.5(a).

 

Trademarks” shall mean all trademarks, service marks, trade names, service names, trade dress, logos, and other identifiers of the source or origin of goods and services, and all statutory, common law, and rights provided by international treaties or conventions, in any of the foregoing.

 

Transfer Documents” shall have the meaning set forth in Section 2.1(b).

 

Transition Services Agreement” shall mean the Transition Services Agreement to be entered into by and between Parent and BIG Token and the Company or any members of their respective Groups in connection with the Separation or the other transactions contemplated by this Agreement, as it may be amended from time to time.

 

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Unreleased BIG Token Liability” shall have the meaning set forth in Section 2.6(a)(ii).

 

ARTICLE II

THE SEPARATION

 

2.1 Transfer of Assets and Assumption of Liabilities.

 

(a) At or prior to the Separation Time, but in any case prior to the Closing Date of the Share Exchange, Parent will undertake the following:

 

(i) Transfer and Assignment of Subsidiary Assets. Parent shall, and shall cause the applicable members of its Group to, contribute, assign, transfer, convey and deliver to BIG Token, or the applicable BIG Token Designees, and BIG Token or such BIG Token Designees shall accept from Parent and the applicable members of the Parent Group, all of Parent’s and such Parent Group member’s respective direct or indirect right, title and interest in and to all of the BIG Token Assets;

 

(ii) Acceptance and Assumption of BIG Token Liabilities. BIG Token and the applicable BIG Token Designees shall accept, assume and agree faithfully to perform, discharge and fulfill all the BIG Token Liabilities in accordance with their respective terms. BIG Token and such BIG Token Designees shall be responsible for all BIG Token Liabilities, regardless of when or where such BIG Token Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Separation Time, regardless of where or against whom such BIG Token Liabilities are asserted or determined (including any BIG Token Liabilities arising out of claims made by Parent’s or BIG Token’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the BIG Token Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Parent Group or the BIG Token Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates;

 

(b) Transfer Documents. In furtherance of the contribution, assignment, transfer, conveyance and delivery of the Assets and the assumption of the Liabilities in accordance with Section 2.1(a), (i) each Party shall execute and deliver, and shall cause the applicable members of its Group to execute and deliver, to the other Party, such bills of sale, quitclaim deeds, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of such Party’s and the applicable members of its Group’s right, title and interest in and to such Assets to the other Party and the applicable members of its Group in accordance with Section 2.1(a), and (ii) each Party shall execute and deliver, and shall cause the applicable members of its Group to execute and deliver, to the other Party, such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Liabilities by such Party and the applicable members of its Group in accordance with Section 2.1(a). All of the foregoing documents contemplated by this Section 2.1(b) shall be referred to collectively herein as the “Transfer Documents.” The Transfer Documents shall effect certain of the transactions contemplated by this Agreement and, notwithstanding anything in this Agreement to the contrary, shall not expand or limit any of the obligations, covenants or agreements in this Agreement. It is expressly agreed that in the event of any conflict between the terms of the Transfer Documents and the terms of this Agreement or the Share Exchange Agreement, the terms of this Agreement or the Share Exchange Agreement, as applicable, shall control.

 

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(c) Misallocations. In the event that at any time or from time to time (whether prior to, at or after the Separation Time), one Party (or any member of such Party’s Group) shall receive or otherwise possess any Asset that is allocated to the other Party (or any member of such Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such Party shall promptly transfer, or cause to be transferred, such Asset to the Party so entitled thereto (or to any member of such Party’s Group), and such Party (or member of such Party’s Group) shall accept such Asset. Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for such other Person. In the event that at any time or from time to time (whether prior to, at or after the Separation Time), one Party hereto (or any member of such Party’s Group) shall be liable for or otherwise assume any Liability that is allocated to the other Party (or any member of such Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such other Party shall promptly assume, or cause to be assumed, such Liability and agree to faithfully perform such Liability.

 

(d) Waiver of Bulk-Sale and Bulk-Transfer Laws. BIG Token hereby waives compliance by each and every member of the Parent Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the BIG Token Assets to any member of the BIG Token Group.

 

(e) Intellectual Property Rights. If and to the extent that, as a matter of Law in any jurisdiction, Parent or the applicable members of its Group cannot assign, transfer or convey any of Parent’s or such Parent Group members’ respective direct or indirect right, title and interest in and to any Technology or Intellectual Property Rights included in the BIG Token Assets, then, to the extent possible, Parent shall, and shall cause the applicable members of its Group to, irrevocably grant to BIG Token, or the applicable BIG Token Designees, an exclusive, irrevocable, assignable, transferable, sublicenseable, worldwide, perpetual, royalty-free license to use, exploit and commercialize in any manner now known or in the future discovered and for whatever purpose, any such right, title or interest.

 

(f) Electronic Transfer. All transferred BIG Token Assets, including transferred Technology, that can be delivered by electronic transmission will be so delivered or made available to BIG Token, or the BIG Token Designees, at a designated FTP site or in another electronic form to be determined by the Parties.

 

2.2 BIG Token Assets; Parent Assets.

 

(a) BIG Token Assets. For purposes of this Agreement, “BIG Token Assets” shall mean (without duplication):

 

(i) except as otherwise set forth in this Section 2.2(a), all Assets of either Party or any members of its Group included or reflected as assets of the BIG Token Group on the BIG Token Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the BIG Token Balance Sheet; provided, that the amounts set forth on the BIG Token Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of BIG Token Assets pursuant to this clause (i);

 

(ii) except as otherwise set forth in this Section 2.2(a), all Assets of either Party or any of the members of its Group as of immediately prior to the Separation Time that are of a nature or type that would have resulted in such Assets being included as Assets of BIG Token or members of the BIG Token Group on a pro forma combined balance sheet of the BIG Token Group or any notes or subledgers thereto as of immediately prior to the Separation Time (were such balance sheet, notes and subledgers to be prepared on a basis consistent with the determination of the Assets included on the BIG Token Balance Sheet), it being understood that (x) the BIG Token Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Assets that are included in the definition of BIG Token Assets pursuant to this clause (ii); and (y) the amounts set forth on the BIG Token Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of BIG Token Assets pursuant to this clause (ii);

 

(iii) all Assets of either Party or any of the members of its Group as of immediately prior to the Separation Time that are expressly provided by any provision of this Agreement or any Ancillary Agreement as Assets to be transferred to or owned by BIG Token or any other member of the BIG Token Group;

 

(iv) all BIG Token Contracts as of immediately prior to the Separation Time and all rights, interests or claims of either Party or any of the members of its Group thereunder as of immediately prior to the Separation Time;

 

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(v) Reserved.

 

(vi) any and all finished goods inventory, supplies, components, packaging materials and other inventories, including any inventory in-transit other inventories being held by third parties pursuant to consignment and used inventory, and all valuation-related adjustments relating thereto (including those relating to warranty, prompt pay discounts, royalties and other items) (“Inventory”), in each case, exclusively related to the BIG Token Business (“BIG Token Inventory”) as of immediately prior to the Separation Time;

 

(vii) copies of any and all (x) BIG Token Books and Records, (y) BIG Token Product and Customer Records and (z) BIG Token Customer Data, in each case, in the possession of either Party as of immediately prior to the Separation Time (collectively, “BIG Token Records”); provided, that Parent shall be permitted to retain copies of, and continue to use, (A) any BIG Token Records that as of the Separation Date are used in or necessary for the operation or conduct of the Parent Business, (B) any BIG Token Records that Parent is required by Law to retain (and if copies are not provided to BIG Token, then, to the extent permitted by Law, such copies will be made available to BIG Token upon BIG Token’s reasonable request), (C) one (1) copy of any BIG Token Records to the extent required to demonstrate compliance with applicable Law or pursuant to internal compliance procedures or related to any Parent Assets or Parent’s and/or its Affiliates’ obligations under this Agreement or any of the Ancillary Agreements and (D) “back-up” electronic tapes of such BIG Token Records maintained by Parent in the ordinary course of business (such material in clauses (A) through (D), the “Parent Records”), and such copies of the Parent Records shall be considered Parent Assets;

 

(viii) all BIG Token Intellectual Property Rights as of immediately prior to the Separation Time, and all rights, interests or claims of either Party or any of the members of its Group thereunder as of immediately prior to the Separation Time, including the right to seek, recover and retain damages for the past and future infringement of any BIG Token Intellectual Property Rights;

 

(ix) without limiting clause (ix) above, the BIG Token Marks, and all goodwill of the BIG Token Business appurtenant thereto;

 

(x) all BIG Token Technology as of immediately prior to the Separation Time;

 

(xi) all BIG Token Information Technology;

 

(xii) all BIG Token Permits as of immediately prior to the Separation Time and all rights, interests or claims of either Party or any of the members of its Group thereunder as of immediately prior to the Separation Time;

 

(xiii) all BIG Token Real Property immediately prior to the Separation Time;

 

(xiv) the Tangible Personal Property listed in Schedule 2.2(a)(xiv) (collectively, the “BIG Token Tangible Personal Property”); and

 

(xv) any and all Assets set forth on Schedule 2.2(a)(xv).

 

Notwithstanding the foregoing, the Parties hereby acknowledge and agree that (A) while a single asset may fall within more than one of the clauses (i) through (xv) in this Section 2.2(a), such fact does not imply that (x) such asset shall be transferred more than once or (y) any duplication of such asset is required, and (B) the BIG Token Assets shall not in any event include any Asset referred to in clauses (i) through (xi) of Section 2.2(b) or any Assets set forth in Schedule 2.2(a)(xv).

 

(b) Excluded Assets. All assets not included in Section 2.2(a) hereof or those listed on Schedule 2.2(b).

 

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2.3 BIG Token Liabilities; Parent Liabilities.

 

(a) Big Token Liabilities. For the purposes of this Agreement, “BIG Token Liabilities” shall mean the following Liabilities of either Party or any of the members of its Group:

 

(i) all Liabilities included or reflected as liabilities or obligations of BIG Token or the members of the BIG Token Group on the BIG Token Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the BIG Token Balance Sheet; provided, that the amounts set forth on the BIG Token Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of BIG Token Liabilities pursuant to this clause (i);

 

(ii) all Liabilities as of immediately prior to the Separation Time that are of a nature or type that would have resulted in such Liabilities being included or reflected as liabilities or obligations of BIG Token or the members of the BIG Token Group on a pro forma combined balance sheet of the BIG Token Group or any notes or subledgers thereto as of immediately prior to the Separation Time (were such balance sheet, notes and subledgers to be prepared on a basis consistent with the determination of the Liabilities included on the BIG Token Balance Sheet), it being understood that (x) the BIG Token Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Liabilities that are included in the definition of BIG Token Liabilities pursuant to this clause (ii); and (y) the amounts set forth on the BIG Token Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of BIG token Liabilities pursuant to this clause (ii);

 

(iii) any and all BIG Token Accounts Payable;

 

(iv) any and all Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by BIG Token or any other member of the BIG Token Group, and all agreements, obligations and Liabilities of any member of the BIG Token Group under this Agreement or any of the Ancillary Agreements;

 

(v) any and all Liabilities set forth on Schedule 2.3(a)(v);

 

(vi) except as otherwise set forth in this Section 2.3(a), all Liabilities, relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, at or after the Separation Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Separation Time), in each case to the extent that such Liabilities relate to, arise out of or result from the BIG Token Business or a BIG Token Asset;

 

(vii) except as otherwise set forth in this Section 2.3(a), any and all Liabilities relating to, arising out of or resulting from the BIG Token Contracts, the BIG Token Intellectual Property Rights, the BIG Token Technology, BIG Token Information Technology, the BIG Token Permits, the BIG Token Real Property, the BIG Token Tangible Personal Property or any BIG Token Product, whether occurring or existing prior to, at or after the Separation Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Separation Time), including, for the avoidance of doubt, any and all Liabilities relating to, arising out of or resulting from the sale by any member of the Parent Group prior to the Separation Time of BIG Token Products; and

 

(viii) all Liabilities arising out of claims made by any Third Party (including Parent’s or BIG Token’s respective directors, officers, stockholders, employees and agents) against any member of the Parent Group or the BIG Token Group to the extent relating to, arising out of or resulting from the BIG Token Business or the BIG Token Assets, or the other business, operations, activities or Liabilities referred to in clauses (i) through (vii) above, including for the avoidance of doubt the claims set forth on Schedule 2.3(a)(viii).

 

Notwithstanding the foregoing, the Parties hereby acknowledge and agree that (A) while a single Liability may fall within more than one of the clauses (i) through (viii) in this Section 2.3(a), such fact does not imply that (x) such Liability shall be transferred more than once or (y) any duplication of such Liability is required, and (B) the BIG Token Liabilities shall not in any event include any Liability referred to in clauses (i) through (v) of Section 2.3(b).

 

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(b) Parent Liabilities. For the purposes of this Agreement, “Parent Liabilities” shall mean the following Liabilities of either Party or any of the members of its Group:

 

(i) any and all Accounts Payable, other than the BIG Token Accounts Payable;

 

(ii) all Liabilities, relating to, arising out of or resulting from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, at or after the Separation Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Separation Time) of any member of the Parent Group, and, prior to the Separation Time, any member of the BIG Token Group, in each case, to the extent that such Liabilities are not BIG Token Liabilities;

 

(iii) all Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by Parent or any other member of the Parent Group, and all agreements, obligations and Liabilities of any member of the Parent Group under this Agreement or any of the Ancillary Agreements;

 

(iv) all Liabilities set forth on Schedule 2.3(b)(iv);

 

(v) all Liabilities arising out of claims made by any Third Party (including Parent’s or BIG Token’s respective directors, officers, stockholders, employees and agents) against any member of the Parent Group or the BIG Token Group to the extent relating to, arising out of or resulting from the Parent Business or the Parent Assets, or the other business, operations, activities or Liabilities referred to in clauses (i) through (iv) above, including for the avoidance of doubt the claims set forth on Schedule 2.3(b)(v), in each case, to the extent that such Liabilities are not BIG Token Liabilities.

 

2.4 Separation Date. Subject to the terms and conditions of this Agreement, the Separation shall be consummated at a closing to be held at the offices of Silvestre Law Group, 2629 Townsgate Road #215, Westlake Village, CA 91351 on the Closing Date of the Share Exchange or at such other place or on such other date as Parent and Company may mutually agree upon in writing (the day on which such closing takes place, the “Separation Date”).

 

2.5 Approvals and Notifications.

 

(a) Approvals and Notifications for BIG Token Assets. To the extent that the transfer or assignment of any BIG Token Asset, the assumption of any BIG Token Liability, or the Separation, requires any Approvals or Notifications, the Parties shall use their commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably practicable; provided, however, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between Parent and BIG Token, neither Parent nor BIG Token shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make such Approvals or Notifications.

 

(b) Delayed BIG Token Transfers. If and to the extent that the valid, complete and perfected transfer or assignment to the BIG Token Group of any BIG Token Asset or assumption by the BIG Token Group of any BIG Token Liability in connection with the Separation, would be a violation of applicable Law or require any Approvals or Notifications that have not been obtained or made by the Separation Time then, unless the Parties mutually shall otherwise determine, the transfer or assignment to the BIG Token Group of such BIG Token Assets or the assumption by the BIG Token Group of such BIG Token Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approvals or Notifications have been obtained or made. Notwithstanding the foregoing, any such BIG Token Assets or BIG Token Liabilities shall continue to constitute BIG Token Assets and BIG Token Liabilities for all other purposes of this Agreement.

 

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(c) Treatment of Delayed BIG Token Assets and Delayed BIG Token Liabilities. If any transfer or assignment of any BIG Token Asset (or a portion thereof) or any assumption of any BIG Token Liability (or a portion thereof) intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated at or prior to the Separation Time, whether as a result of the provisions of Section 2.5(b) or for any other reason (any such BIG Token Asset (or a portion thereof), a “Delayed BIG Token Asset” and any such BIG Token Liability (or a portion thereof), a “Delayed BIG Token Liability”), then, insofar as reasonably possible and subject to applicable Law, the member of the Parent Group retaining such Delayed BIG Token Asset or such Delayed BIG Token Liability, as the case may be, shall thereafter hold such Delayed BIG Token Asset or Delayed BIG Token Liability, as the case may be, for the use and benefit (or the performance and obligation, in the case of a Liability) of the member of the BIG Token Group entitled thereto (at the expense of the member of the BIG Token Group entitled thereto). In addition, the member of the Parent Group retaining such Delayed BIG Token Asset or such Delayed BIG Token Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Delayed BIG Token Asset or Delayed BIG Token Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the member of the BIG Token Group to whom such Delayed BIG Token Asset is to be transferred or assigned, or which will assume such Delayed BIG Token Liability, as the case may be, in order to place such member of the BIG Token Group in a substantially similar position as if such Delayed BIG Token Asset or Delayed BIG Token Liability had been transferred, assigned or assumed as contemplated hereby and so that all the benefits and burdens relating to such Delayed BIG Token Asset or Delayed BIG Token Liability, as the case may be, including use, risk of loss, potential for gain and dominion, control and command over such Delayed BIG Token Asset or Delayed BIG Token Liability, as the case may be, and all costs and expenses related thereto, shall inure from and after the Separation Time to the BIG Token Group.

 

(d) Transfer of Delayed BIG Token Assets and Delayed BIG Token Liabilities. If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Delayed BIG Token Asset or the deferral of assumption of any Delayed BIG Token Liability pursuant to Section 2.5(b), are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Delayed BIG Token Asset or the assumption of any Delayed BIG Token Liability have been removed, the transfer or assignment of the applicable Delayed BIG Token Asset or the assumption of the applicable Delayed BIG Token Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.

 

(e) Costs for Delayed BIG Token Assets and Delayed BIG Token Liabilities; Payment of the Delayed BIG Token Asset Consideration. Except as otherwise agreed in writing between the Parties, any member of the Parent Group retaining a Delayed BIG Token Asset or Delayed BIG Token Liability due to the deferral of the transfer or assignment of such Delayed BIG Token Asset or the deferral of the assumption of such Delayed BIG Token Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made available) by BIG Token or the member of the BIG Token Group entitled to the Delayed BIG Token Asset or Delayed BIG Token Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by BIG Token or the member of the BIG Token Group entitled to such Delayed BIG Token Asset or Delayed BIG Token Liability.

 

2.6 Assignment and Novation of Liabilities.

 

(a) Assignment and Novation of BIG Token Liabilities.

 

(i) Prior to the Separation Time, BIG Token, at the request of Parent, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all BIG Token Liabilities and obtain in writing the unconditional release of each member of the Parent Group that is a party to or otherwise obligated under any such arrangements, to the extent permitted by applicable Law and effective as of the Separation Time, so that, in any such case, the members of the BIG Token Group shall be solely responsible for such BIG Token Liabilities; provided, however, that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither Parent nor BIG Token shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any third Person from whom any such consent, substitution, approval, amendment or release is requested. To the extent such substitution contemplated by the first sentence of this Section 2.6(a)(i) has been effected, the members of the Parent Group shall, from and after the Separation Time, cease to have any obligation whatsoever arising from or in connection with such BIG Token Liabilities.

 

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(ii) If BIG Token is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release, and the applicable member of the Parent Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “Unreleased BIG Token Liability”), BIG Token shall, to the extent not prohibited by Law, (A) use its commercially reasonable efforts to effect such consent, substitution, approval, amendment or release as soon as practicable following the Separation Time, but in any event within six (6) months thereof, and (B) as indemnitor, guarantor, agent or subcontractor for such member of the Parent Group, as the case may be, (1) pay, perform and discharge fully all the obligations or other Liabilities of such member of the Parent Group that constitute Unreleased BIG Token Liabilities from and after the Separation Time and (2) use its commercially reasonable efforts to effect such payment, performance or discharge prior to any demand for such payment, performance or discharge is permitted to be made by the obligee thereunder on any member of the Parent Group. If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased BIG Token Liabilities shall otherwise become assignable or able to be novated, Parent shall promptly assign, or cause to be assigned, and BIG Token or the applicable member of the BIG Token Group shall assume, such Unreleased BIG Token Liabilities without exchange of further consideration.

 

(iii) If BIG Token is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release as set forth in clause (ii) of this Section 2.6(a), BIG Token and any relevant member of its Group that has assumed the applicable Unreleased BIG Token Liability shall indemnify, defend and hold harmless Parent against or from such Unreleased BIG Token Liability in accordance with the provisions of Article V and shall, as agent or subcontractor for Parent, pay, perform and discharge fully all the obligations or other Liabilities of Parent thereunder.

 

2.7 Release of Guarantees. In furtherance of, and not in limitation of, the obligations set forth in Section 2.6:

 

(a) At or prior to Separation Date or as soon as practicable thereafter, each of Parent and BIG Token shall, at the request of the other Party and with the reasonable cooperation of such other Party and the applicable member(s) of such other Party’s Group, use commercially reasonable efforts to (i) have any member(s) of the Parent Group removed as guarantor of or obligor for any BIG Token Liability, other than any BIG Token Liability set forth on Schedule 2.7, including the removal of any Security Interest on or in any Parent Asset that may serve as collateral or security for any such BIG Token Liability; and (ii) have any member(s) of the BIG Token Group removed as guarantor of or obligor for any Parent Liability, including the removal of any Security Interest on or in any BIG Token Asset that may serve as collateral or security for any such Parent Liability.

 

(b) To the extent required to obtain a release from a guarantee of:

 

(i) any member of the Parent Group, BIG Token shall execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any Parent Asset that may serve as collateral or security for any such BIG Token Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (i) with which BIG Token would be reasonably unable to comply or which BIG Token would not reasonably be able to avoid breaching; and

 

(ii) any member of the BIG Token Group, Parent shall execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any BIG Token Asset that may serve as collateral or security for any such Parent Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (i) with which Parent would be reasonably unable to comply or (ii) which Parent would not reasonably be able to avoid breaching.

 

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(c) If Parent or BIG Token is unable to obtain, od to cause to be obtained, any such required removal or release, or is expressly not required to do so, in each case as set forth in clauses (a) and (b) of this Section 2.7, (i) the Party or the relevant member of its Group that is responsible pursuant to this Agreement for the Liability associated with such guarantee shall indemnify, defend and hold harmless the guarantor or obligor, as applicable, against or from any Liability arising from or relating thereto in accordance with the provisions of Article V and shall, as agent or subcontractor for such guarantor or obligor, pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder; and (ii) each of Parent and BIG Token, on behalf of itself and the other members of their respective Group, agree not to renew or extend the term of, increase any obligations under, or transfer to a Third Party, any loan, guarantee, lease, contract or other obligation for which the other Party or a member of its Group is or may be liable unless all obligations of such other Party and the members of such other Party’s Group with respect thereto are thereupon terminated by documentation satisfactory in form and substance to such other Party.

 

2.8 Termination of Agreements.

 

(a) Except as set forth in Section 2.8(b), in furtherance of the releases and other provisions of Section 5.1, BIG Token and each member of the BIG Token Group, on the one hand, and Parent and each member of the Parent Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings, whether or not in writing, between or among BIG Token and/or any member of the BIG Token Group, on the one hand, and Parent and/or any member of the Parent Group, on the other hand, effective as of the Separation Time. No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Separation Time. Each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.

 

(b) The provisions of Section 2.8(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof):

 

(i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by any of the Parties or any of the members of their respective Groups or to be continued from and after the Separation Time);

 

(ii) any agreements, arrangements, commitments or intercompany accounts receivable, accounts payable or other intercompany accounts listed or described on Schedule 2.8(b)(ii), which shall be treated as described therein;

 

(iii) any agreements, arrangements, commitments or understandings to which any Third Party is a party thereto, including any Shared Contracts; and

 

(iv) any agreements, arrangements, commitments or understandings to which any non-wholly owned Subsidiary of Parent or BIG Token, as the case may be, is a party (it being understood that directors’ qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned).

 

(c) All of the intercompany accounts receivable and accounts payable between any member of the Parent Group, on the one hand, and any member of the BIG Token Group, on the other hand, outstanding as of the Separation Time and arising out of the contracts or agreements described in Section 2.8(b) or out of the provision, prior to the Separation Time, of the services to be provided following the Separation Time pursuant to the Ancillary Agreements shall be repaid or settled following the Separation Time in the ordinary course of business or, if otherwise mutually agreed prior to the Separation Time by duly authorized representatives of Parent and BIG Token, cancelled. All other intercompany accounts receivable and accounts payable between any member of the Parent Group, on the one hand, and any member of the BIG Token Group, on the other hand, outstanding as of the Separation Time shall be repaid or settled immediately prior to or as promptly as practicable after the Separation Time.

 

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2.9 Treatment of Shared Contracts.

 

(a) Subject to applicable Law and without limiting the generality of the obligations set forth in Section 2.1, unless the Parties otherwise agree or the benefits of any contract, agreement, arrangement, commitment or understanding described in this Section 2.9 are expressly conveyed to the applicable Party pursuant to this Agreement or an Ancillary Agreement, any contract or agreement, a portion of which relates to matters that would be the subject of a BIG Token Contract, but the remainder of which relates to matters that would be the subject of a Parent Asset (any such contract or agreement, including those set forth on Schedule 2.9, a “Shared Contract”), shall be assigned in relevant part to the applicable member(s) of the applicable Group, if so assignable, or appropriately amended prior to, on or after the Separation Time, so that each Party or the member of its Group shall, as of the Separation Time, be entitled to the rights and benefits, and shall assume the related portion of any Liabilities, inuring to its respective businesses; provided, however, that (i) in no event shall any member of any Group be required to assign (or amend) any Shared Contract in its entirety or to assign a portion of any Shared Contract which is not assignable (or cannot be amended) by its terms (including any terms imposing consents or conditions on an assignment where such consents or conditions have not been obtained or fulfilled) and (ii) if any Shared Contract cannot be so partially assigned by its terms or otherwise, or cannot be amended or if such assignment or amendment would impair the benefit the parties thereto derive from such Shared Contract, then the Parties shall, and shall cause each of the members of their respective Groups to, take such other reasonable and permissible actions (including by providing prompt notice to the other Party with respect to any relevant claim of Liability or other relevant matters arising in connection with a Shared Contract so as to allow such other Party the ability to exercise any applicable rights under such Shared Contract) to cause a member of the BIG Token Group or the Parent Group, as the case may be, to receive the rights and benefits of that portion of each Shared Contract that relates to the BIG Token Business or the Parent Business, as the case may be (in each case, to the extent so related), as if such Shared Contract had been assigned to a member of the applicable Group (or amended to allow a member of the applicable Group to exercise applicable rights under such Shared Contract) pursuant to this Section 2.9, and to bear the burden of the corresponding Liabilities (including any Liabilities that may arise by reason of such arrangement), as if such Liabilities had been assumed by a member of the applicable Group pursuant to this Section 2.9.

 

(b) Each of Parent and BIG Token shall, and shall cause the members of its Group to, (i) treat for all Tax purposes the portion of each Shared Contract inuring to its respective businesses as an Asset owned by, and/or a Liability of, as applicable, such Party, or the members of its Group, as applicable, not later than the Separation Time, and (ii) neither report nor take any Tax position (on a Tax return or otherwise) inconsistent with such treatment (unless required by applicable Law).

 

(c) Nothing in this Section 2.9 shall require any member of any Group to make any payment (except to the extent advanced, assumed or agreed in advance to be reimbursed by any member of the other Group), incur any obligation or grant any concession for the benefit of any member of any other Group in order to effect any transaction contemplated by this Section 2.9.

 

2.10 Bank Accounts; Cash Balances.

 

(a) Each Party agrees to take, or cause the members of its Group to take, at the Separation Time (or such earlier time as the Parties may agree), all actions necessary to amend all contracts or agreements governing each bank and brokerage account owned by BIG Token or any other member of the BIG Token Group which are listed on Schedule 2.10(a) (collectively, the “BIG Token Accounts”) and all contracts or agreements governing each bank or brokerage account owned by Parent or any other member of the Parent Group (collectively, the “Parent Accounts”) so that each such BIG Token Account and Parent Account, if currently linked (whether by automatic withdrawal, automatic deposit or any other authorization to transfer funds from or to, hereinafter “ Linked”) to any Parent Account or BIG Token Account, respectively, is de-Linked from such Parent Account or BIG Token Account, respectively.

 

(b) It is intended that, following consummation of the actions contemplated by Section 2.10(a), there will be in place a cash management process pursuant to which the BIG Token Accounts will be managed and funds collected will be transferred into one (1) or more accounts maintained by BIG Token or a member of the BIG Token Group.

 

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(c) It is intended that, following consummation of the actions contemplated by Section 2.10(a), there will continue to be in place a cash management process pursuant to which the Parent Accounts will be managed and funds collected will be transferred into one (1) or more accounts maintained by Parent or a member of the Parent Group.

 

(d) With respect to any outstanding checks issued or payments initiated by Parent, BIG Token, or any of the members of their respective Groups prior to the Separation Time, such outstanding checks and payments shall be honored following the Separation Time by the Person or Group owning the account on which the check is drawn or from which the payment was initiated, respectively.

 

(e) As between Parent and BIG Token (and the members of their respective Groups), all payments made and reimbursements received after the Separation Time by either Party (or member of its Group) that relate to a business, Asset or Liability of the other Party (or member of its Group), shall be held by such Party in trust for the use and benefit of the Party entitled thereto and, promptly following receipt by such Party of any such payment or reimbursement, such Party shall pay over, or shall cause the applicable member of its Group to pay over to the other Party the amount of such payment or reimbursement without right of set-off.

 

2.11 Ancillary Agreements. Effective at or prior to the Separation Time, each of Parent and BIG Token will, or will cause the applicable members of their Groups to, execute and deliver all Ancillary Agreements to which it is a party.

 

2.12 Disclaimer of Representations and Warranties. EACH OF PARENT (ON BEHALF OF ITSELF AND EACH MEMBER OF THE PARENT GROUP) AND BIG TOKEN (ON BEHALF OF ITSELF AND EACH MEMBER OF THE BIG TOKEN GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR LIABILITIES TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR APPROVALS REQUIRED IN CONNECTION THEREWITH (INCLUDING WITHOUT LIMITATION GOVERNMENTAL APPROVALS OR PERMITS OF ANY KIND), AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM OR OTHER ASSET, INCLUDING ANY ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY ASSIGNMENT, DOCUMENT OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM OF DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR, WITHOUT LIMITATION, THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE WILL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY APPROVALS OR NOTIFICATIONS ARE NOT OBTAINED OR MADE OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.

 

ARTICLE III

RESERVED.

 

ARTICLE IV

RESERVED.

 

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ARTICLE V

MUTUAL RELEASES; INDEMNIFICATION

 

5.1 Release of Pre-Separation Claims.

 

(a) BIG Token Release of Parent. Except as provided in Section 5.1(c) and Section 5.1(e), effective as of the Separation Time, BIG Token does hereby, for itself and each other member of the BIG Token Group, and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Separation Time have been stockholders, directors, officers, agents or employees of any member of the BIG Token Group (in each case, in their respective capacities as such), remise, release and forever discharge (i) Parent and the members of the Parent Group, and their respective successors and assigns, and (ii) all Persons who at any time prior to the Separation Time have been stockholders, directors, officers, agents or employees of any member of the Parent Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, each case from: (A) all BIG Token Liabilities, (B) all Liabilities arising from or in connection with the transactions and all other activities to implement the Separation (for the avoidance of doubt this clause (B) shall not limit or affect indemnification obligations of the Parties set forth in this Agreement or any Ancillary Agreement) and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Separation Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Separation Time), in each case to the extent relating to, arising out of or resulting from the BIG Token Business, the BIG Token Assets or the BIG Token Liabilities.

 

(b) Parent Release of BIG Token. Except as provided in Section 5.1(c) and Section 5.1(e), effective as of the Separation Time, Parent does hereby, for itself and each other member of the Parent Group and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Separation Time have been stockholders, directors, officers, agents or employees of any member of the Parent Group (in each case, in their respective capacities as such), remise, release and forever discharge (i) BIG Token and the members of the BIG Token Group and their respective successors and assigns, and (ii) all Persons who at any time prior to the Separation Time have been stockholders, directors, officers, agents or employees of any member of the BIG Token Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from (A) all Parent Liabilities, (B) all Liabilities arising from or in connection with the transactions and all other activities to implement the Separation (for the avoidance of doubt this clause (B) shall not limit or affect indemnification obligations of the Parties set forth in this Agreement or any Ancillary Agreement) and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Separation Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Separation Time), in each case to the extent relating to, arising out of or resulting from the Parent Business, the Parent Assets or the Parent Liabilities.

 

(c) Acknowledgment of Unknown Losses or Claims. The Parties expressly understand and acknowledge that it is possible that unknown losses or claims exist or might come to exist or that present losses may have been underestimated in amount, severity, or both. Accordingly, the Parties are deemed expressly to understand provisions and principles of law such as Section 1542 of the Civil Code of the State of California (“Section 1542”) (as well as any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar or comparable to Section 1542), which provides: A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party. The Parties are hereby deemed to agree that the provisions of Section 1542 and all similar federal or state laws, rights, rules, or legal principles of California or any other jurisdiction that may be applicable herein, are hereby knowingly and voluntarily waived and relinquished with respect to the releases in Section 5.1(a) and Section 5.1(b).

 

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(d) Obligations Not Affected. Nothing contained in Section 5.1(a) or 5.1(b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.8(b) or the applicable Schedules thereto as not to terminate as of the Separation Time, in each case in accordance with its terms. Nothing contained in Section 5.1(a) or 5.1(b) shall release any Person from:

 

(i) any Liability provided in or resulting from any agreement among any members of the Parent Group or any members of the BIG Token Group that is specified in Section 2.8(b) or the applicable Schedules thereto as not to terminate as of the Separation Time, or any other Liability specified in Section 2.8(b) as not to terminate as of the Separation Time;

 

(ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group, including with respect to indemnification or contribution, under, this Agreement or any Ancillary Agreement;

 

(iii) any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of the other Group prior to the Separation Time;

 

(iv) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value received basis for work done by a member of one Group at the request or on behalf of a member of the other Group;

 

(v) any Liability provided in or resulting from any Contract or understanding that is entered into after the Separation Time between any Party (and/or a member of such Party’s Group), on the one hand, and any other Party (and/or a member of the other Party’s Group), on the other hand;

 

(vi) any Liability provided in or resulting from any agreement between any Person, who after the Separation Time is an employee of the BIG Token Group, on the one hand, and any member of the Parent Group, on the other hand, including any Liability resulting from any obligation of any such Person in respect of confidentiality, non-competition, non-disparagement or assignment of rights;

 

(vii) any Liability provided in or resulting from any agreement between any Person, who after the Separation Time is an employee of the Parent Group, on the one hand, and any member of the BIG Token Group, on the other hand, including any Liability resulting from any obligation of any such Person in respect of confidentiality, non-competition, non-disparagement or assignment of rights;

 

(viii) any Liability that the Parties may have with respect to any indemnification or contribution or other obligation pursuant to this Agreement, any Ancillary Agreement or otherwise for claims brought against the Parties by third Persons, which Liability shall be governed by the provisions of this Article V and Article VI and, if applicable, the appropriate provisions of the Ancillary Agreements; or

 

(ix) any Liability the release of which would result in the release of any Person other than a Person expressly contemplated to be released pursuant to this Section 5.1.

 

In addition, nothing contained in Section 5.1(a) shall release any member of the Parent Group from honoring its existing obligations to indemnify any director, officer or employee of BIG Token who was a director, officer or employee of any member of the Parent Group at or prior to the Separation Time, to the extent such director, officer or employee becomes a named defendant in any Action with respect to which such director, officer or employee was entitled to such indemnification pursuant to such existing obligations; it being understood that, if the underlying obligation giving rise to such Action is an BIG Token Liability, BIG Token shall indemnify Parent for such Liability (including Parent’s costs to indemnify the director, officer or employee) in accordance with the provisions set forth in this Article V.

 

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(e) No Claims. BIG Token shall not make, and shall not permit any other member of the BIG Token Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Parent or any other member of the Parent Group, or any other Person released pursuant to Section 5.1(a), with respect to any Liabilities released pursuant to Section 5.1(a). Parent shall not make, and shall not permit any other member of the Parent Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against BIG Token or any other member of the BIG Token Group, or any other Person released pursuant to Section 5.1(b), with respect to any Liabilities released pursuant to Section 5.1(b).

 

(f) Execution of Further Releases. At any time at or after the Separation Time, at the request of either Party, the other Party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions of this Section 5.1.

 

5.2 Indemnification by BIG Token. Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreement, to the fullest extent permitted by Law, BIG Token shall, and shall cause the other members of the BIG Token Group to, indemnify, defend and hold harmless Parent, each member of the Parent Group and each of their respective past, present and future directors, officers, employees and agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “ Parent Indemnitees”), from and against any and all Liabilities of the Parent Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

 

(a) any BIG Token Liability;

 

(b) any failure of BIG Token, any other member of the BIG Token Group or any other Person to pay, perform or otherwise promptly discharge any BIG Token Liabilities in accordance with their terms, whether prior to, on or after the Separation Time;

 

(c) any breach by BIG Token or any other member of the BIG Token Group of this Agreement or any of the Ancillary Agreements;

 

(d) except to the extent it relates to a Parent Liability, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding for the benefit of any member of the BIG Token Group by any member of the Parent Group that survives following the Separation; and

 

(e) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (i) contained in any public filings made by the Company with the SEC following the date of the Separation, or (ii) provided by BIG Token or the Company to Parent specifically for inclusion in Parent’s annual or quarterly or current reports following the date of the Separation to the extent (A) such information pertains to (x) a member of the BIG Token Group or (y) the BIG Token Business or (B) Parent has provided prior written notice to BIG Token that such information will be included in one or more annual or quarterly or current reports, specifying how such information will be presented, and the information is included in such annual or quarterly or current reports; provided, that this subclause (B) shall not apply to the extent that any such Liability arises out of or results from, or in connection with, any action or inaction of any member of the Parent Group, including as a result of any misstatement or omission of any information by any member of the Parent Group to BIG Token.

 

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5.3 Indemnification by Parent. Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreement, to the fullest extent permitted by Law, Parent shall, and shall cause the other members of the Parent Group to, indemnify, defend and hold harmless BIG Token, each member of the BIG Token Group and each of their respective past, present and future directors, officers, employees or agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Company Indemnitees”), from and against any and all Liabilities of the Company Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

 

(a) any Parent Liability;

 

(b) any failure of Parent, any other member of the Parent Group or any other Person to pay, perform or otherwise promptly discharge any Parent Liabilities in accordance with their terms, whether prior to, on or after the Separation Time;

 

(c) any breach by Parent or any other member of the Parent Group of this Agreement or any of the Ancillary Agreements;

 

(d) except to the extent it relates to a BIG Token Liability, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding for the benefit of any member of the Parent Group by any member of the BIG Token Group that survives following the Separation; and

 

(e) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information (i) provided by Parent to BIG Token or Company specifically for inclusion in the Company’s annual or quarterly or current reports following the date of the Separation to the extent (A) such information pertains to (x) a member of the Parent Group or (y) the Parent Business or (B) BIG Token has provided written notice to Parent that such information will be included in one or more annual or quarterly or current reports, specifying how such information will be presented, and the information is included in such annual or quarterly or current reports; provided, that this subclause (B) shall not apply to the extent that any such Liability arises out of or results from, or in connection with, any action or inaction of any member of the BIG Token Group, including as a result of any misstatement or omission of any information by any member of the BIG Token Group to Parent.

 

5.4 Indemnification Obligations Net of Insurance Proceeds and Other Amounts.

 

(a) The Parties intend that any Liability subject to indemnification, contribution or reimbursement pursuant to this Article V or Article VI will be net of Insurance Proceeds or other amounts actually recovered (net of any out-of-pocket costs or expenses incurred in the collection thereof) from any Person by or on behalf of the Indemnitee in respect of any indemnifiable Liability. Accordingly, the amount which either Party (an “Indemnifying Party”) is required to pay to any Person entitled to indemnification or contribution hereunder (an “Indemnitee”) will be reduced by any Insurance Proceeds or other amounts actually recovered (net of any out-of-pocket costs or expenses incurred in the collection thereof) from any Person by or on behalf of the Indemnitee in respect of the related Liability. If an Indemnitee receives a payment (an “Indemnity Payment”) required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds or any other amounts in respect of such Liability, then within ten (10) calendar days of receipt of such Insurance Proceeds, the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or such other amounts (net of any out-of-pocket costs or expenses incurred in the collection thereof) had been received, realized or recovered before the Indemnity Payment was made.

 

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(b) The Parties agree that it is their intent that an insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of any provision contained in this Agreement or any Ancillary Agreement, have any subrogation rights with respect thereto, it being understood that no insurer or any other Third Party shall be entitled to a “windfall” ( i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification and contribution provisions hereof. Each Party shall, and shall cause the members of its Group to, use commercially reasonable efforts (taking into account the probability of success on the merits and the cost of expending such efforts, including attorneys’ fees and expenses) to collect or recover any Insurance Proceeds that may be collectible or recoverable respecting the Liabilities for which indemnification or contribution may be available under this Article V. Notwithstanding the foregoing, an Indemnifying Party may not delay making any indemnification payment required under the terms of this Agreement, or otherwise satisfying any indemnification obligation, pending the outcome of any Action to collect or recover Insurance Proceeds, and an Indemnitee need not attempt to collect any Insurance Proceeds prior to making a claim for indemnification or contribution or receiving any Indemnity Payment otherwise owed to it under this Agreement or any Ancillary Agreement.

 

5.5 Procedures for Indemnification of Third-Party Claims.

 

(a) Notice of Claims. If, at or following the Separation Time, an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the Parent Group or the BIG Token Group of any claim or of the commencement by any such Person of any Action (collectively, a “Third-Party Claim”) with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 5.2 or 5.3, or any other Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof as soon as practicable, but in any event within fourteen (14) days (or sooner if the nature of the Third-Party Claim so requires) after becoming aware of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonable detail, including the facts and circumstances giving rise to such claim for indemnification, and include copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim. Notwithstanding the foregoing, the failure of an Indemnitee to provide notice in accordance with this Section 5.5(a) shall not relieve an Indemnifying Party of its indemnification obligations under this Agreement, except to the extent to which the Indemnifying Party is actually prejudiced by the Indemnitee’s failure to provide notice in accordance with this Section 5.5(a).

 

(b) Control of Defense. Subject to any insurer’s rights pursuant to any Policies of either Party, an Indemnifying Party may elect to defend (and seek to settle or compromise), at its own expense and with its own counsel, any Third-Party Claim; provided, that, prior to the Indemnifying Party assuming and controlling defense of such Third-Party Claim, it shall first confirm to the Indemnitee in writing that, assuming the facts presented to the Indemnifying Party by the Indemnitee being true, the Indemnifying Party shall indemnify the Indemnitee for any such damages to the extent resulting from, or arising out of, such Third-Party Claim. Notwithstanding the foregoing, if the Indemnifying Party assumes such defense and, in the course of defending such Third-Party Claim, (i) the Indemnifying Party discovers that the facts presented at the time the Indemnifying Party acknowledged its indemnification obligation in respect of such Third-Party Claim were not true in all material respects and (ii) such untruth provides a reasonable basis for asserting that the Indemnifying Party does not have an indemnification obligation in respect of such Third-Party Claim, then (A) the Indemnifying Party shall not be bound by such acknowledgment, (B) the Indemnifying Party shall promptly thereafter provide the Indemnitee written notice of its assertion that it does not have an indemnification obligation in respect of such Third-Party Claim and (C) the Indemnitee shall have the right to assume the defense of such Third-Party Claim. Within thirty (30) days after the receipt of a notice from an Indemnitee in accordance with Section 5.5(a) (or sooner, if the nature of the Third-Party Claim so requires), the Indemnifying Party shall provide written notice to the Indemnitee indicating whether the Indemnifying Party shall assume responsibility for defending the Third-Party Claim and specifying any reservations or exceptions to its defense. If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim as provided in this Section 5.5(b) or fails to notify an Indemnitee of its election within thirty (30) days after receipt of the notice from an Indemnitee as provided in Section 5.5(a), then the Indemnitee that is the subject of such Third-Party Claim shall be entitled to continue to conduct and control the defense of such Third-Party Claim. Notwithstanding anything herein to the contrary, to the extent a Third-Party Claim involves or would reasonably be expected to involve both an BIG Token Liability and Parent Liability (collectively, a “ Shared Third-Party Claim”), Parent shall have the sole right to defend and control such portion of any Action relating to such Third-Party Claim to the extent it relates to a Parent Liability, and BIG Token shall have the sole right to defend and control such portion of any Action relating to such Third-Party Claim to the extent it relates to a BIG Token Liability. For the avoidance of doubt, “Shared Third-Party Claim” shall include those matters set forth on Schedule 5.5(b).

 

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(c) Allocation of Defense Costs. If an Indemnifying Party has elected to assume the defense of a Third-Party Claim, whether with or without any reservations or exceptions with respect to such defense, then such Indemnifying Party shall be solely liable for all fees and expenses incurred by it in connection with the defense of such Third-Party Claim and shall not be entitled to seek any indemnification or reimbursement from the Indemnitee for any such fees or expenses incurred by the Indemnifying Party during the course of the defense of such Third-Party Claim by such Indemnifying Party, regardless of any subsequent decision by the Indemnifying Party to reject or otherwise abandon its assumption of such defense. If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim or fails to notify an Indemnitee of its election within thirty (30) days after receipt of a notice from an Indemnitee as provided in Section 5.5(a), and the Indemnitee conducts and controls the defense of such Third-Party Claim and the Indemnifying Party has an indemnification obligation with respect to such Third-Party Claim, then the Indemnifying Party shall be liable for all reasonable fees and expenses incurred by the Indemnitee in connection with the defense of such Third-Party Claim. In the event of a Shared Third-Party Claim, each Party shall be liable for the portion of the fees and expenses incurred by such Party in connection with the defense of such Shared Third-Party Claim that is equal to the relative portion of such Party’s Liability in respect of such Shared Third-Party Claim, and shall be entitled to seek any indemnification or reimbursement from the other Party for any fees or expenses incurred by such Party during the course of the defense of such Shared Third-Party Claim in excess of such fees and expenses that are the responsibility of such Party pursuant to this Agreement.

 

(d) Right to Monitor and Participate. An Indemnitee that does not conduct and control the defense of any Third-Party Claim, an Indemnifying Party that has failed to elect to defend any Third-Party Claim as contemplated hereby and either Party in the case of a Shared Third- Party Claim, nevertheless shall have the right to employ separate counsel (including local counsel as necessary) of its own choosing to monitor and participate in (but not control) the defense of any Third-Party Claim for which it is a potential Indemnitee or Indemnifying Party, but the fees and expenses of such counsel shall be at the expense of such Indemnitee or Indemnifying Party, as the case may be, and the provisions of Section 5.5(c) shall not apply to such fees and expenses. Notwithstanding the foregoing, but subject to Sections 7.7 and 7.8, such Party shall cooperate with the Party entitled to conduct and control the defense of such Third-Party Claim in such defense and make available to the controlling Party, at the non-controlling Party’s expense, all witnesses, information and materials in such Party’s possession or under such Party’s control relating thereto as are reasonably required by the controlling Party. In addition to the foregoing, if any Indemnitee shall in good faith determine that such Indemnitee and the Indemnifying Party have actual or potential differing defenses or conflicts of interest between them that make joint representation inappropriate, then the Indemnitee shall have the right to employ separate counsel (including local counsel as necessary) and to participate in (but not control) the defense, compromise, or settlement thereof, and in such case the Indemnifying Party shall bear the reasonable fees and expenses of such counsel for all Indemnitees.

 

(e) No Settlement. Neither Party may settle or compromise any Third-Party Claim for which either Party is seeking to be indemnified hereunder without the prior written consent of the other Party, which consent may not be unreasonably withheld, unless such settlement or compromise is solely for monetary damages that are fully payable by the settling or compromising Party, does not involve any admission, finding or determination of wrongdoing or violation of Law by the other Party or another member of its Group or the Indemnitee and provides for a full, unconditional and irrevocable release of the other Party and the other members of its Group and the Indemnitee(s) from all Liability in connection with the Third-Party Claim. The Parties hereby agree that if a Party presents the other Party with a written notice containing a proposal to settle or compromise a Third-Party Claim for which either Party is seeking to be indemnified hereunder and the Party receiving such proposal does not respond in any manner to the Party presenting such proposal within thirty (30) days (or within any such shorter time period that may be required by applicable Law or court order) of receipt of such proposal, then the Party receiving such proposal shall be deemed to have consented to the terms of such proposal.

 

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5.6 Additional Matters.

 

(a) Timing of Payments. Indemnification or contribution payments in respect of any Liabilities for which an Indemnitee is entitled to indemnification or contribution under this Article V shall be paid reasonably promptly (but in any event within forty-five (45) days of the final determination of the amount that the Indemnitee is entitled to indemnification or contribution under this Article V) by the Indemnifying Party to the Indemnitee as such Liabilities are incurred upon demand by the Indemnitee, including reasonably satisfactory documentation setting forth the basis for the amount of such indemnification or contribution payment, including documentation with respect to calculations made and consideration of any Insurance Proceeds that actually reduce the amount of such Liabilities. The indemnity and contribution provisions contained in this Article V shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee, and (ii) the knowledge by the Indemnitee of Liabilities for which it might be entitled to indemnification hereunder.

 

(b) Notice of Direct Claims. Any claim for indemnification or contribution under this Agreement or any Ancillary Agreement that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the applicable Indemnifying Party; provided, that the failure by an Indemnitee to so assert any such claim shall not prejudice the ability of the Indemnitee to do so at a later time except to the extent (if any) that the Indemnifying Party is prejudiced thereby. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such thirty (30)-day period, such specified claim shall be conclusively deemed a Liability of the Indemnifying Party under this Section 5.6(b) or, in the case of any written notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of the claim (or such portion thereof) becomes finally determined. If such Indemnifying Party does not respond within such thirty (30)-day period or rejects such claim in whole or in part, such Indemnitee shall, subject to the provisions of Article VIII, be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements, as applicable, without prejudice to its continuing rights to pursue indemnification or contribution hereunder.

 

(c) Pursuit of Claims Against Third Parties. If (i) a Party incurs any Liability arising out of this Agreement or any Ancillary Agreement; (ii) an adequate legal or equitable remedy is not available for any reason against the other Party to satisfy the Liability incurred by the incurring Party; and (iii) a legal or equitable remedy may be available to the other Party against a Third Party for such Liability, then the other Party shall use its commercially reasonable efforts to cooperate with the incurring Party, at the incurring Party’s expense, to permit the incurring Party to obtain the benefits of such legal or equitable remedy against the Third Party.

 

(d) Subrogation. In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

 

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5.7 Right of Contribution.

 

(a) Contribution. If any right of indemnification contained in Section 5.2 or Section 5.3 is held unenforceable or is unavailable for any reason, or is insufficient to hold harmless an Indemnitee in of any Liability for which such Indemnitee is entitled to indemnification hereunder, then the Indemnifying Party shall contribute to the amounts paid or payable by the Indemnitees as a result of such Liability (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the members of its Group, on the one hand, and the Indemnitees entitled to contribution, on the other hand, as well as any other relevant equitable considerations.

 

(b) Allocation of Relative Fault. Solely for purposes of determining relative fault pursuant to this Section 5.7: (i) any fault associated with the business conducted with the Delayed BIG Token Assets or Delayed BIG Token Liabilities (except for the gross negligence or intentional misconduct of a member of the Parent Group) or with the ownership, operation or activities of the BIG Token Business prior to the Separation Time shall be deemed to be the fault of BIG Token and the other members of the BIG Token Group, and no such fault shall be deemed to be the fault of Parent or any other member of the Parent Group; and (ii) any fault associated with the ownership, operation or activities of the Parent Business prior to the Separation Time shall be deemed to be the fault of Parent and the other members of the Parent Group, and no such fault shall be deemed to be the fault of BIG Token or any other member of the BIG Token Group.

 

5.8 Covenant Not to Sue. Each Party hereby covenants and agrees that none of it, the members of such Party’s Group or any Person claiming through it shall bring suit or otherwise assert any claim against any Indemnitee, or assert a defense against any claim asserted by any Indemnitee, before any court, arbitrator, mediator or administrative agency anywhere in the world, alleging that: (a) the assumption of any BIG Token Liabilities by BIG Token or a member of the BIG Token Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason; (b) the retention of any Parent Liabilities by Parent or a member of the Parent Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason; or (c) the provisions of this Article V are void or unenforceable for any reason.

 

5.9 Remedies Cumulative. The remedies provided in this Article V shall be cumulative and, subject to the provisions of Article VIII, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

 

5.10 Survival of Indemnities. The rights and obligations of each of Parent and BIG Token and their respective Indemnitees under this Article V shall survive (a) the sale or other transfer by either Party or any member of its Group of any Assets or businesses or the assignment by it of any Liabilities; or (b) any merger, consolidation, business combination, sale of all or substantially all of its Assets, restructuring, recapitalization, reorganization or similar transaction involving either Party or any of the members of its Group.

 

ARTICLE VI

 

CERTAIN OTHER MATTERS

 

6.1 Company Financial Covenants. Company agrees that, for so long as Parent is required to consolidate the results of operations and financial position of Company or to account for its investment in the Company under the equity method of accounting (determined in accordance with GAAP consistently applied and consistent with SEC reporting requirements):

 

(a) Disclosure of Financial Controls. Company will maintain, as of and after the Separation, disclosure controls and procedures and internal control over financial reporting as defined in Exchange Act Rule 13a-15 promulgated under the Exchange Act. Company will maintain, as of and after the Separation, internal systems and procedures that will provide reasonable assurance that (A) Company’s annual and quarterly financial statements are reliable and timely prepared in accordance with GAAP and applicable Law, (B) all transactions of Company are recorded as necessary to permit the preparation of the Company’s annual and quarterly financial statements, (C) the receipts and expenditures of members Company are authorized at the appropriate level within the Company, and (D) unauthorized use or disposition of the assets that could have a material effect on the Company’s annual and quarterly financial statements is prevented or detected in a timely manner.

 

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(b) Fiscal Year. Company will maintain a fiscal year that commences and ends on the same calendar days as Parent’s fiscal year commences and ends, and to maintain monthly accounting periods that commence and end on the same calendar days as Parent’s monthly accounting periods commence and end.

 

(c) Quarterly Financial Reports. No later than ten (10) Business Days after the end of each quarter (including the last quarter of Parent’s fiscal year), unless otherwise agreed in writing by the Parties, the Company will deliver to Parent a preliminary consolidated income statement and preliminary consolidated balance sheet and, if requested by Parent, income statements and balance sheets for each Affiliate of the Company which is consolidated with the Company, for such period. Company will also deliver to Parent a preliminary consolidated statement of cash flows for the Company for such period and, if requested, statements of cash flow for each Affiliate of Company which is consolidated with Company, no later than ten (10) Business Days after the end of each quarterly accounting period of the Company (including the last quarter accounting period of Company of each fiscal year). The income statements, balance sheets and statements of cash flows will be in a such format and detail as Parent may request, and the information supporting such statements shall be submitted electronically for inclusion in Parent’s financial reporting systems by such date to permit timely preparation of Parent’s consolidated financial statements. In addition, if the Company makes adjustments or other corrections to such financial information, adjustments or other corrections will be delivered by the Company to Parent as soon as practicable, and in any event within (8) hours thereafter.

 

(d) Quarterly and Annual Financial Statements. The Company shall be responsible for filing Forms 10-Q and Forms 10-K and other significant filings with the SEC. The management of Company shall be solely liable for the completeness and accuracy of any such filings, including any financial statements included therein. The Company will cause each of its principal executive and principal financial officers to sign and deliver to Parent the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and will include the certifications in Company’s periodic reports, as and when required pursuant to Exchange Act Rule 13a-14 and Item 601 of Regulation S-K.

 

(e) Budgets and Financial Projections. The Company will, as promptly as practicable, deliver to Parent copies of all annual budgets and periodic financial projections, if any (consistent in terms of format and detail and otherwise required by Parent), relating to Company on a consolidated basis and will provide Parent an opportunity to meet with management of Company to discuss such budgets and projections. The Company will continue to provide to Parent projections on a monthly basis consistent with past practices, including income, cash flow and operating indicators, as well as capital expenditure detail on a quarterly basis. Such projections will be submitted electronically for inclusion in Parent’s management reporting systems.

 

(f) Conformance with Parent Financial Presentation. All information provided by any member of the Company to Parent or filed with the SEC pursuant to Section 6.1(c) through (e) will be consistent in terms of format and detail and otherwise with Parent’s policies with respect to the application of GAAP and practices in effect on the date of the Separation with respect to the provision of such financial information by such member of the Company to Parent, with such changes therein as may be required by GAAP or requested by Parent from time to time consistent with changes in such accounting principles and practices.

 

(g) Other Information. With reasonable promptness, Company will deliver to Parent such additional financial and other information and data with respect to the Company and its business, properties, financial positions, results of operations and prospects as may be reasonably requested by Parent from time to time.

 

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(h) Press Releases and Similar Information. Company will consult with Parent as to the timing of Company’s quarterly earnings releases and any interim financial guidance for a current or future period and will give Parent the opportunity to review the information therein relating to the Company and to comment thereon. Parent and Company will make reasonable efforts to coordinate the issuance of their respective quarterly earnings releases. No later than five (5) days prior to the time and date that Company intends to publish its regular quarterly earnings release or any financial guidance for a current or future period, Company will deliver to Parent copies of drafts of (i) all press releases, (ii) investor presentations and (iii) other statements to be made available by any member of the Company to its employees or to the public, in each case, concerning any matters that could be reasonably likely to have a material financial impact on the earnings, results of operations, financial condition or prospects of any member of Company. No later than four (4) hours prior to the time and date that the Company intends to publish its regular quarterly earnings release or any financial guidance for a current or future period, the Company will deliver to Parent copies of substantially final drafts of all such materials. In addition, prior to the issuance of any such press release, investor presentation or public statement that meets the criteria set forth in the preceding two sentences, the Company will consult with Parent regarding any changes (other than typographical or other similar minor changes) to such substantially final drafts. Immediately following the issuance thereof, the Company will deliver to Parent copies of final drafts of all press releases, investor presentations and such other public statements.

 

(i) Cooperation on Parent Filings. The Company agrees to retain the same independent certified public accountant as Parent (“Company Auditors”). The Company will cooperate fully, and cause Auditors to cooperate fully, with Parent to the extent requested by Parent in the preparation of Parent’s public earnings or other press releases, Quarterly Reports on Form 10-Q, Annual Reports to Stockholders, Annual Reports on Form 10-K, any Current Reports on Form 8-K and any other proxy, information and registration statements, reports, notices, prospectuses and any other filings made by Parent with the SEC, any national securities exchange or otherwise made publicly available (collectively, the “Parent Public Filings”). Company is responsible for the preparation of its financial statements in accordance with Parent’s policies with respect to the application of GAAP and shall indemnify Parent for any Liabilities it shall incur with respect to the inaccuracy of such statements. As long as Parent is required to consolidate the results of operations and financial position of Company in its financial statements, Company will continue to prepare the quarterly and annual financial reporting analysis and provide support for financial statement footnotes and other information included in the Parent Public Filings. Such information and the timing thereof will be consistent with the Parent financial statement processes in place prior to the Separation Time. The Company also agrees to provide to Parent all other information that Parent reasonably requests in connection with any Parent Public Filings or that, in the judgment of Parent’s legal department, is required to be disclosed or incorporated by reference therein under any Law. The Company will provide such information in a timely manner on the dates requested by Parent (which may be earlier than the dates on which Company otherwise would be required hereunder to have such information available) to enable Parent to prepare, print and release all Parent Public Filings on such dates as Parent will determine, but in no event later than as required by applicable Law. The Company will use its commercially reasonable efforts to cause the Company Auditors to consent to any reference to them as experts in any Parent Public Filings required under any Law. If and to the extent requested by Parent, Company will diligently and promptly review all drafts of such Parent Public Filings and prepare in a diligent and timely fashion any portion of such Parent Public Filing pertaining to the Company. The Company management’s responsibility for reviewing such disclosures shall include a determination that such disclosures are complete and accurate and consistent with other public filings or other disclosures which have been made by the Company. Prior to any printing or public release of any Parent Public Filing, an appropriate executive officer of the Company will, if requested by Parent, certify that the information relating to any member of the BIG Token Group or Company in such Parent Public Filing is accurate, true, complete and correct in all material respects. Unless required by applicable Law, the Company will not publicly release any financial or other information which conflicts with the information with respect to any member of the BIG Token Group or Company that is included in any Parent Public Filing without Parent’s prior written consent. Prior to the release or filing thereof, Parent will provide the Company with a draft of any portion of a Parent Public Filing containing information relating to the Company and will give the Company an opportunity to review such information and comment thereon; provided, that Parent will determine in its sole discretion the final form and content of all Parent Public Filings.

 

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(j) For the avoidance of doubt, Company’s requirements under this Section 6.1 will continue until the reporting for all financial statement periods during which Parent was required to consolidate the results of operations and financial position of the Company or to account for its investment in the Company under the equity method of accounting (determined in accordance with GAAP consistently applied and consistent with SEC reporting requirements) has been completed. For example, if the Company ceases to be a consolidated subsidiary or equity method affiliate of Parent on September 30, Company’s obligations with regard to information required for Parent’s Form 10-K for the year ended December 31 will remain in effect until such Form 10-K has been filed.

 

6.2 Auditors and Audits; Annual Financial Statements and Accounting. The Company agrees that, for so long as Parent is required to consolidate the results of operations and financial position of Company or to account for its investment in the Company under the equity method of accounting (determined in accordance with GAAP consistently applied and consistent with SEC reporting requirements):

 

(a) Auditor. No member of the Company shall change its independent auditors without Parent’s prior written consent.

 

(b) Audit Timing. The Company shall use its reasonable best efforts to enable Parent to meet its timetable for the printing, filing and public dissemination of Parent’s audited annual financial statements (the “Parent Annual Statements”), all in accordance with Section 6.1 hereof and as required by applicable Law.

 

(c) Information Needed by Parent. The Company shall provide to Parent on a timely basis all information that Parent reasonably requires to meet its schedule for the preparation, printing, filing, and public dissemination of the Parent Annual Statements in accordance with Section 6.1 hereof and as required by applicable Law. Without limiting the generality of the foregoing, the Company will provide all required financial information with respect to the Company to the Company Auditors in a sufficient and reasonable time and in sufficient detail to permit the Company Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to the independent auditors of Parent (“Parent Auditors”) with respect to information to be included or contained in the Parent Annual Statements.

 

(d) Access to the Company Auditors. The Company shall authorize the Company Auditors to make available to the Parent Auditors both the personnel who performed, or are performing, the annual audit of the Company and work papers related to the annual audit of the Company, in all cases within a reasonable time prior to the Company Auditors’ opinion date, so that the Parent Auditors are able to perform the procedures they consider necessary to take responsibility for the work of the Company Auditors as it relates to the Parent Auditors’ report on Parent’s statements, all within sufficient time to enable Parent to meet its timetable for the printing, filing and public dissemination of the Parent Annual Statements.

 

(e) Access to Records. If Parent determines in good faith that there may be some inaccuracy in an Company’s financial statements or deficiency in internal accounting controls or operations that could materially impact Parent’s financial statements, at Parent’s request, the Company will provide Parent’s internal auditors with access to the Company’s books and records so that Parent may conduct reasonable audits relating to the financial statements provided by the Company under this Agreement as well as to the internal accounting controls and operations of the Company.

 

(f) Notice of Changes. Subject to Section 6.1(g), the Company will give Parent as much prior notice as reasonably practicable of any proposed determination of, or any significant changes in, the Company’s accounting estimates or accounting principles from those in effect on the Separation Date. The Company will consult with Parent and, if requested by Parent, the Company will consult with the Parent Auditors with respect thereto. The Company will not make any such determination or changes without Parent’s prior written consent if such a determination or a change would be sufficiently material to be required to be disclosed in the Company’s or Parent’s financial statements as filed with the SEC or otherwise publicly disclosed therein. The Company will give Parent as much prior notice as reasonably practicable of any business combination, the acquisition of any variable interest entities or any other transaction, in each case, which could reasonably be expected to result in the consolidation by Parent of the results of operations and financial position of an entity.

 

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(g) Accounting Changes Requested by Parent. Notwithstanding Section 6.2(f), the Company will make any changes in its accounting estimates or accounting principles that are requested by Parent in order for the Company’s accounting practices and principles to be consistent with those of Parent.

 

(h) Special Reports of Deficiencies or Violations. The Company will report in reasonable detail to Parent the following events or circumstances promptly after any executive officer of the Company or any member of the Company Board becomes aware of such matter: (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting; (C) any illegal act within the meaning of Section 10A(b) and (f) of the Exchange Act; and (D) any report of a material violation of Law that an attorney representing any member of the Company has formally made to any officers or directors of the Company pursuant to the SEC’s attorney conduct rules (17 C.F.R. Part 205).

 

(i) For the avoidance of doubt, the Company’s requirements under this Section 6.2 will continue until the reporting for all financial statement periods during which Parent was required to consolidate the results of operations and financial position of the Company to account for its investment in the Company or any other member of the BIG Token Group under the equity method of accounting (determined in accordance with GAAP consistently applied and consistent with SEC reporting requirements) has been completed. For example, if the Company ceases to be a consolidated subsidiary or equity method affiliate of Parent on September 30, the Company’s obligations with regard to information required for Parent’s Form 10-K for the year ended December 31 will remain in effect until such Form 10-K has been filed.

 

6.3 Reserved.

 

6.4 Covenants Relating to the Incurrence of Indebtedness.

 

(a) For so long as Parent beneficially owns at least fifty percent (50%) of the total voting power of Company’s outstanding capital stock entitled to vote in the election of the Company Board, Company will not, and Company will not without Parent’s prior written consent (which Parent may withhold in its sole discretion), directly or indirectly, incur, other than, subject to Section 6.4(b), any Company Indebtedness exceeding, in the aggregate, $5 million.

 

(b) For so long as Parent beneficially owns at least fifty percent (50%) of the total voting power of the Company’s outstanding capital stock entitled to vote in the election of the Company Board, Company will not, without Parent’s prior written consent (which Parent may withhold in its sole discretion), create, incur, assume or suffer to exist any Company Indebtedness if the incurrence of such Company Indebtedness would cause Parent to be in breach of or in default under any contract the existence of which Parent has advised Company, or if the incurrence of such Company Indebtedness could be reasonably likely to adversely impact the credit rating of any commercial indebtedness of Parent.

 

(c) In order to implement this Section 6.4, the Company will notify Parent in writing at least thirty (30) Business Days prior to the time it contemplates incurring any Company Indebtedness of its intention to do so and will either (x) demonstrate to Parent’s satisfaction that this Section 6.4 will not be violated by such proposed additional Company Indebtedness or (y) obtain Parent’s prior written consent to the incurrence of such proposed additional Company Indebtedness. Any such written notification from Company to Parent will include documentation of any existing Company Indebtedness and Company Indebtedness after giving effect to such proposed incurrence of additional Company Indebtedness. Parent will have the right to verify the accuracy of such information and Company will cooperate fully with Parent in such effort (including, without limitation, by providing Parent with access to the working papers and underlying documentation related to any calculations used in determining such information).

 

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6.5 Other Covenants.

 

(a) For so long as Parent beneficially owns at least fifty percent (50%) of the total voting power of the Company’s outstanding capital stock entitled to vote in the election of the Company Board:

 

(i) The Company will not, without the prior written consent of Parent (which Parent may withhold in its sole discretion), take, or cause to be taken, directly or indirectly, any action, including making or failing to make any election under the Law of any state, which has the effect, directly or indirectly, of restricting or limiting the ability of Parent to freely sell, transfer, assign, pledge or otherwise dispose of shares of Company Common Stock or would restrict or limit the rights of any transferee of Parent as a holder of Company Common Stock. Without limiting the generality of the foregoing, the Company will not, without the prior written consent of Parent (which Parent may withhold in its sole discretion), take any action, or take any action to recommend to its stockholders any action, which would among other things, limit the legal rights of, or deny any benefit to, Parent as a Company stockholder either (i) solely as a result of the amount of Company Common Stock owned by Parent or (ii) in a manner not applicable to Company stockholders generally.

 

(ii) To the extent that Parent is a party to any contract that provides that certain actions or inactions of Affiliates of Parent (which for purposes of such contract includes any member of the BIG Token Group) may result in Parent being in breach of or in default under such contract and Parent has advised the Company of the existence, and has furnished the Company with copies, of such contracts (or the relevant portions thereof), the Company will not take or fail to take, as applicable, and the Company will cause the other members of Company not to take or fail to take, as applicable, any actions that reasonably could result in Parent being in breach of or in default under any such contract. The Parties acknowledge and agree that from time to time Parent may in good faith (and not solely with the intention of imposing restrictions on the Company pursuant to this covenant) enter into additional contracts or amendments to existing contracts that provide that certain actions or inactions of members of the Parent Group (including, for purposes of this Section 6.5(a)(ii), members of the BIG Token Group) may result in Parent being in breach of or in default under such contracts. In such event, provided Parent has notified the Company of such additional contracts or amendments to existing contracts, the Company will not thereafter take or fail to take, as applicable, and the Company will cause the other members of the Company not to take or fail to take, as applicable, any actions that reasonably could result in Parent being in breach of or in default under any such additional contracts or amendments to existing contracts. Parent acknowledges and agrees that the Company will not be deemed in breach of this Section 6.5(a)(ii) to the extent that, prior to being notified by Parent of an additional contract or an amendment to an existing contract pursuant to this Section 6.5(a)(ii), a member of the BIG Token Group already has taken or failed to take one or more actions that would otherwise constitute a breach of this Section 6.5(a)(ii) had such action(s) or inaction(s) occurred after such notification, provided, that the Company does not, after notification by Parent, take any further action or fail to take any action that contributes further to such breach or default. The Company agrees that any information provided to it pursuant to this Section 6.5(a)(ii) will constitute information that is subject to the Company’s obligations under Article VII.

 

(iii) The Company will not, and the Company will not permit any other member of the Company to, without Parent’s prior written consent (which Parent may withhold in its sole discretion), directly or indirectly, (A) acquire any other businesses or assets or dispose of any of its own assets, in each case with an aggregate value for all such transactions in excess of $3 million or (B) acquire or agree to acquire any share, shares or other interest in any company, partnership or other venture, whether by way of a purchase of stock or securities, contributions to capital, or otherwise, or the loaning of any funds to third parties, in each case, in excess of $3 million in the aggregate.

 

6.6 Reserved.

 

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6.7 Names Following the Separation. Neither the Company nor any member of the BIG Token Group shall use, or have the right to use, the Parent Marks or any name or mark that, in the reasonable judgment of Parent, is confusingly similar to the Parent Marks. Additionally, neither the Company nor any member of the BIG Token Group shall use the Parent Marks in any manner that detracts from the goodwill and reputation of Parent associated with the Parent Marks.

 

6.8 Insurance Matters.

 

(a) Parent and the Company agree to cooperate in good faith to provide for an orderly transition of insurance coverage from the date hereof through the Separation Date. In no event shall Parent, any other member of the Parent Group or any Parent Indemnitee have Liability or obligation whatsoever to any member of the BIG Token Group in the event that any insurance policy or insurance policy related contract shall be terminated or otherwise cease to be in effect for any reason, shall be unavailable or inadequate to cover any Liability of any member of the BIG Token Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date.

 

(b) Until the date the Company has obtained in effect such insurance policies that meet the specifications set forth in Section 6.8(d) (the “Insurance Termination Time”), Parent shall (i) cause the members of the BIG Token Group and their respective employees, officers and directors to continue to be covered as insured parties under Parent’s Policies in place as of the date of this Agreement and permit the members of the BIG Token Group and their respective employees, officers and directors to submit claims arising from or relating to facts, circumstances, events or matters that occurred prior to the date the Company is required to have obtained the Company Policies in accordance with Section 6.8(d), to the extent permitted by such Policies; provided, that the Company is in compliance with its obligations set forth in Section 6.8(a) and shall use commercially reasonable efforts to obtain insurance policies that meet the specifications set forth in Section 6.8(d). With respect to policies, if any, procured by the Company for the sole benefit of the BIG Token Group and the Company (“Company Policies”), the Company shall continue to maintain such insurance coverage through the date that is twelve (12) months from the date of obtaining such Company Policies in a manner no less favorable than currently provided. Without limiting any of the rights or obligations of the parties pursuant to this Section 6.8, Parent and Company acknowledge that Parent intends to take such action as it may deem necessary or desirable to remove the members of the BIG Token Group and their respective employees, officers and directors as insured parties under any policy of insurance issued to any Parent Policy pursuant to the timing contained in Section 6.8(d). The Company further acknowledges and agrees that, from and after the Insurance Termination Time, neither the Company nor any member of the BIG Token Group shall have any rights to or under any Parent Policies other than as expressly provided in this Section 6.8(b).

 

(c) From and after the Separation Time, with respect to any losses, damages and Liability incurred by any member of the BIG Token Group prior to the Insurance Termination Time, Parent will provide the Company with access to, and the Company may make claims under, Parent’s Policies in place immediately prior to the Insurance Termination Time (and any extended reporting periods for claims made Policies) and Parent’s historical Policies, but solely to the extent that such Policies provided coverage for members of the BIG Token Group or the BIG Token Business prior to the Insurance Termination Time; provided, that such access to, and the right to make claims under, such Policies, shall be subject to the terms, conditions and exclusions of such Policies, including but not limited to any limits on coverage or scope, any deductibles, self-insured retentions and other fees and expenses, and shall be subject to the following additional conditions:

 

(i) The Company shall notify Parent, as promptly as practicable, of any claim made by the Company pursuant to this Section 6.8(c);

 

(ii) The Company and the members of the BIG Token Group shall indemnify, hold harmless and reimburse Parent and the members of the Parent Group for any deductibles, self-insured retention, fees, indemnity payments, settlements, judgments, legal fees, allocated claims expenses and claim handling fees, and other expenses incurred by Parent or any members of the Parent Group to the extent resulting from any access to, or any claims made by the Company or any other members of the BIG Token Group under, any insurance provided pursuant to this Section 6.8(c), whether such claims are made by the Company, its employees or third Persons; and

 

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(iii) The Company shall exclusively bear (and neither Parent nor any members of the Parent Group shall have any obligation to repay or reimburse the Company or any member of the BIG Token Group for) and shall be liable for all excluded, uninsured, uncovered, unavailable or uncollectible amounts of all such claims made by the Company or any member of the BIG Token Group under the Policies as provided for in this Section 6.8(c). In the event an insurance policy aggregate is exhausted, or believed likely to be exhausted, due to noticed claims, the BIG Token Group and Company, on the one hand, the Parent Group, on the other hand, shall be responsible for their pro rata portion of the reinstatement premium, if any, based upon the losses of such Group submitted to Parent’s insurance carrier(s) (including any submissions prior to the Insurance Termination Time). To the extent that the Parent Group or the Company or BIG Token Group is allocated more than its pro rata portion of such premium due to the timing of losses submitted to Parent’s insurance carrier(s), the other Party shall promptly pay the first Party an amount such that each Group has been properly allocated its pro rata portion of the reinstatement premium. Subject to the following sentence, a Party may elect not to reinstate the policy aggregate. In the event that a Party elects not to reinstate the policy aggregate, it shall provide prompt written notice to the other Party. A Party which elects to reinstate the policy aggregate shall be responsible for all reinstatement premiums and other costs associated with such reinstatement.

 

In the event that any member of the Parent Group incurs any losses, damages or Liability prior to or in respect of the period prior to the Separation Time for which such member of the Parent Group is entitled to coverage under the Company’s third-party Policies, the same process pursuant to this Section 6.8(c) shall apply, substituting “Parent” for “Company” and “Company” for “Parent,” including for purposes of the first sentence of Section 6.8(f).

 

(d) Except as provided in Section 6.8(b) and Section 6.7(c), Beginning on such date that Parent is no longer required to consolidate the results of operations and financial position of BIG Token and any other members of the BIG Token Group (determined in accordance with GAAP consistently applied and consistent with SEC reporting requirements), Parent and BIG Token Group agree that neither the Company nor any member of the BIG Token Group shall have any rights to or under any of the Policies of Parent or any other member of the Parent Group. Upon such date, the Company shall have in effect all insurance programs required to comply with the Company’s contractual obligations and such other Policies required by Law or as reasonably necessary or appropriate for companies operating a business similar to the Company’s.

 

(e) Neither the Company nor any member of the BIG Token Group, in connection with making a claim under any insurance policy of Parent or any member of the Parent Group pursuant to this Section 6.8, shall take any action that would be reasonably likely to (i) have a material and adverse impact on the then-current relationship between Parent or any member of the Parent Group, on the one hand, and the applicable insurance company, broker or third-party claims administrator, on the other hand; (ii) result in the applicable insurance company terminating or materially reducing coverage, or materially increasing the amount of any premium owed by Parent or any member of the Parent Group under the applicable insurance policy; or (ii) otherwise compromise, jeopardize or interfere in any material respect with the rights of Parent or any member of the Parent Group under the applicable insurance policy.

 

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(f) All payments and reimbursements by the Company pursuant to this Section 6.8 will be made within thirty (30) days after the Company’s receipt of an invoice therefor from Parent, unless otherwise agreed in writing by the Parties. If Parent incurs costs to enforce the Company’s obligations herein, the Company agrees to indemnify and hold harmless Parent for such enforcement costs, including reasonable attorneys’ fees, pursuant to Section 5.6(b). Parent shall retain the exclusive right to control its Policies and programs, including the right to exhaust, settle, release, commute, buy-back or otherwise resolve disputes with respect to any of its Policies and programs and to amend, modify or waive any rights under any such Policies and programs, notwithstanding whether any such Policies or programs apply to any BIG Token Liabilities and/or claims the Company has made or could make in the future, and no member of the Company or BIG Token Group shall erode, exhaust, settle, release, commute, buyback or otherwise resolve disputes with Parent’s insurers with respect to any of Parent’s Policies and programs, or amend, modify or waive any rights under any such Policies and programs. The Company shall cooperate with Parent and share such information as is reasonably necessary in order to permit Parent to manage and conduct its insurance matters as Parent deems appropriate. Neither Parent nor any member of the Parent Group shall have any obligation to secure extended reporting for any claims under any Policies of Parent or any member of the Parent Group for any acts or omissions by any member of the BIG Token Group or the Company incurred prior to the Separation Time. For the avoidance of doubt, each Party and any member of its applicable Group has the sole right to settle or otherwise resolve third party claims made against it or any member of its applicable Group covered under an applicable insurance Policy.

 

(g) This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the Parent Group in respect of any insurance policy or any other contract or policy of insurance.

 

(h) The Company does hereby, for itself and each other member of the BIG Token Group, agree that no member of the Parent Group shall have any Liability whatsoever as a result of the Policies and practices of Parent and the members of the Parent Group as in effect at any time, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, or the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.

 

6.9 Late Payments. Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, or as otherwise agreed in writing by the Parties, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to ten percent (10%); provided, that notice of any such late payment has been provided and the other Party has been provided fifteen (15) days to cure any such late payment.

 

6.10 Inducement. The Company acknowledges and agrees that Parent’s willingness to cause, effect and consummate the Separation has been conditioned upon and induced by the Company’s and the BIG Token Group’s covenants and agreements in this Agreement and the Ancillary Agreements, including the Company’s and BIG Token Group’s assumption of the BIG Token Liabilities pursuant to the Separation and the provisions of this Agreement and the Company’s and BIG Token’s covenants and agreements contained in Article V.

 

6.11 Post-Separation Time Conduct. The Parties acknowledge that, after the Separation Time, each Party shall be independent of the other Party, with responsibility for its own actions and inactions and its own Liabilities relating to, arising out of or resulting from the conduct of its business, operations and activities following the Separation Time, except as may otherwise be provided in any Ancillary Agreement, and each Party shall (except as otherwise provided in Article V) use commercially reasonable efforts to prevent such Liabilities from being inappropriately borne by the other Party.

 

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ARTICLE VII

EXCHANGE OF INFORMATION; CONFIDENTIALITY

 

7.1 Agreement for Exchange of Information. Subject to Section 7.9 and any other applicable confidentiality obligations, each of Parent and BIG Token, on behalf of itself and each member of its respective Group, agrees to use commercially reasonable efforts to provide or make available, or cause to be provided or made available, to the other Party and the members of such other Party’s Group, at any time before, on or after the Separation Time, as soon as reasonably practicable after written request therefor is received by such Party’s legal department from the requesting Party’s legal department, any information (or a copy thereof) in the possession or under the control of such Party or its Group which the requesting Party’s legal department requests to the extent that (i) such information relates to the BIG Token Business, or any BIG Token Asset or BIG Token Liability, if the Company or BIG Token is the requesting Party, or to the Parent Business, or any Parent Asset or Parent Liability, if Parent is the requesting Party; (ii) such information is required by the requesting Party to comply with its obligations under this Agreement or any Ancillary Agreement; or (iii) such information is required by the requesting Party to comply with any obligation imposed by any Governmental Authority; provided, however, that, in the event that the Party to whom the request has been made determines that any such provision of information could be detrimental to the Party providing the information, violate any Law or agreement, or waive any privilege available under applicable Law, including any attorney-client privilege, then the Parties shall use commercially reasonable efforts to permit compliance with such obligations to the extent and in a manner that avoids any such harm or consequence. The Party providing information pursuant to this Section 7.1 shall only be obligated to provide such information in the form, condition and format in which it then exists, and in no event shall such Party be required to perform any improvement, modification, conversion, updating or reformatting of any such information, and nothing in this Section 7.1 shall expand the obligations of a Party under Section 7.4.

 

7.2 Ownership of Information. The provision of any information pursuant to Section 7.1 or Section 7.7 shall not affect the ownership of such information (which shall be determined solely in accordance with the terms of this Agreement and the Ancillary Agreements), or constitute a grant of rights in or to any such information.

 

7.3 Compensation for Providing Information. The Party requesting information agrees to reimburse the other Party for the reasonable costs, if any, of creating, gathering, copying, transporting and otherwise complying with the request with respect to such information (including any reasonable costs and expenses incurred in any review of information for purposes of protecting the Privileged Information of the providing Party or in connection with the restoration of backup media for purposes of providing the requested information). Except as may be otherwise specifically provided elsewhere in this Agreement, any Ancillary Agreement or any other agreement between the Parties, such costs shall be computed in accordance with the providing Party’s standard methodology and procedures.

 

7.4 Record Retention. To facilitate the possible exchange of information pursuant to this Article VII and other provisions of this Agreement after the Separation Time, the Parties agree to use their commercially reasonable efforts, which shall be no less rigorous than those used for retention of such Party’s own information, to retain all information in their respective possession or control on the Separation Time in accordance with their respective policies regarding retention of records; provided, however, that in the case of any information relating to Taxes, such retention period shall be extended to the expiration of the applicable statute of limitations (giving effect to any extensions thereof). No Party will destroy, or permit any of its Subsidiaries to destroy, any information which the other Party may have the right to obtain pursuant to this Agreement prior to the end of the retention period set forth in such policies without first notifying the other Party of the proposed destruction and giving the other Party the opportunity to take possession of such information prior to such destruction.

 

7.5 Limitations of Liability. Neither Party shall have any Liability to the other Party in the event that any information exchanged or provided pursuant to this Agreement is found to be inaccurate in the absence of gross negligence, bad faith or willful misconduct by the Party providing such information. Neither Party shall have any Liability to any other Party if any information is destroyed after commercially reasonable efforts by such Party to comply with the provisions of Section 7.4.

 

7.6 Other Agreements Providing for Exchange of Information.

 

(a) The rights and obligations granted under this Article VII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, retention, destruction or confidential treatment of information set forth in any Ancillary Agreement.

 

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(b) Any party that receives, pursuant to a request for information in accordance with this Article VII, Tangible Information that is not relevant to its request shall, at the request of the providing Party, (i) return it to the providing Party or, at the providing Party’s request, destroy such Tangible Information; and (ii) deliver to the providing Party written confirmation that such Tangible Information was returned or destroyed, as the case may be, which confirmation shall be signed by an authorized representative of the requesting Party.

 

7.7 Production of Witnesses; Records; Cooperation.

 

(a) After the Separation Time, except in the case of a Dispute between Parent and BIG Token, or any members of their respective Groups, each Party shall use its commercially reasonable efforts to make available to the other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting Party (or member of its Group) may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all costs and expenses in connection therewith.

 

(b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third-Party Claim, the other Party shall make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be.

 

(c) Without limiting the foregoing, the Parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions.

 

(d) Without limiting any provision of this Section 7.7, each of the Parties agrees to cooperate, and to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect to any Intellectual Property Rights and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or infringing use of any Intellectual Property Rights of a third Person in a manner that would hamper or undermine the defense of such infringement or similar claim.

 

(e) The obligation of the Parties to provide witnesses pursuant to this Section 7.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses directors, officers, employees, other personnel and agents without regard to whether such person could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 7.7(a)).

 

7.8 Privileged Matters.

 

(a) The Parties recognize that legal and other professional services that have been and will be provided prior to the Separation Time have been and will be rendered for the collective benefit of each of the members of the Parent Group and the BIG Token Group, and that each of the members of the Parent Group and the BIG Token Group should be deemed to be the client with respect to such services for the purposes of asserting all privileges which may be asserted under applicable Law in connection therewith. The Parties recognize that legal and other professional services will be provided following the Separation Time, which services will be rendered solely for the benefit of the Parent Group or the BIG Token Group, as the case may be. In furtherance of the foregoing, each Party shall authorize the delivery to and/or retention by the other Party of materials existing as of the Separation Time that are necessary for such other Party to perform such services.

 

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(b) The Parties agree as follows:

 

(i) Parent shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the Parent Business and not to the BIG Token Business, whether or not the Privileged Information is in the possession or under the control of any member of the Parent Group or any member of the BIG Token Group. Parent shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any Parent Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the Parent Group or any member of the BIG Token Group;

 

(ii) BIG Token shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the BIG Token Business and not to the Parent Business, whether or not the Privileged Information is in the possession or under the control of any member of the BIG Token Group or any member of the Parent Group. BIG Token shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any BIG Token Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the BIG Token Group or any member of the Parent Group; and

 

(iii) if the Parties do not agree as to whether certain information is Privileged Information, then such information shall be treated as Privileged Information, and the Party that believes that such information is Privileged Information shall be entitled to control the assertion or waiver of all privileges and immunities in connection with any such information unless the Parties otherwise agree. The Parties shall use the procedures set forth in Article VIII to resolve any disputes as to whether any information relates solely to the Parent Business, solely to the BIG Token Business, or to both the Parent Business and the BIG Token Business.

 

(c) Subject to the remaining provisions of this Section 7.8, the Parties agree that they shall have a shared privilege or immunity with respect to all privileges and immunities not allocated pursuant to Section 7.8(b) and all privileges and immunities relating to any Actions or other matters that involve both Parties (or one or more members of their respective Groups) and in respect of which both Parties have Liabilities under this Agreement, and that no such shared privilege or immunity may be waived by either Party without the consent of the other Party.

 

(d) If any Dispute arises between the Parties or any members of their respective Groups regarding whether a privilege or immunity should be waived to protect or advance the interests of either Party and/or any member of their respective Groups, each Party agrees that it shall (i) negotiate with the other Party in good faith; (ii) endeavor to minimize any prejudice to the rights of the other Party; and (iii) not unreasonably withhold consent to any request for waiver by the other Party. Further, each Party specifically agrees that it shall not withhold its consent to the waiver of a privilege or immunity for any purpose except in good faith to protect its own legitimate interests.

 

(e) In the event of any Dispute between Parent and BIG Token, or any members of their respective Groups, either Party may waive a privilege in which the other Party or member of such other Party’s Group has a shared privilege, without obtaining consent pursuant to Section 7.8(c); provided, that the Parties intend such waiver of a shared privilege to be effective only as to the use of information with respect to the Action between the Parties and/or the applicable members of their respective Groups, and is not intended to operate as a waiver of the shared privilege with respect to any Third Party.

 

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(f) Upon receipt by either Party, or by any member of its respective Group, of any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of Privileged Information subject to a shared privilege or immunity or as to which another Party has the sole right hereunder to assert a privilege or immunity, or if either Party obtains knowledge that any of its, or any member of its respective Group’s, current or former directors, officers, agents or employees have received any subpoena, discovery or other requests that may reasonably be expected to result in the production or disclosure of such Privileged Information, such Party shall promptly notify the other Party of the existence of the request (which notice shall be delivered to such other Party no later than five (5) Business Days following the receipt of any such subpoena, discovery or other request) and shall provide the other Party a reasonable opportunity to review the Privileged Information and to assert any rights it or they may have under this Section 7.8 or otherwise, to prevent the production or disclosure of such Privileged Information.

 

(g) Any furnishing of, or access or transfer of, any information pursuant to this Agreement is made in reliance on the agreement of Parent and BIG Token set forth in this Section 7.8 and in Section 7.9 to maintain the confidentiality of Privileged Information and to assert and maintain all applicable privileges and immunities. The Parties agree that their respective rights to any access to information, witnesses and other Persons, the furnishing of notices and documents and other cooperative efforts between the Parties contemplated by this Agreement, and the transfer of Privileged Information between the Parties and members of their respective Groups as needed pursuant to this Agreement, is not intended to be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise.

 

(h) In connection with any matter contemplated by Section 7.7 or this Section 7.8, the Parties agree to, and to cause the applicable members of their Group to, use commercially reasonable efforts to maintain their respective separate and joint privileges and immunities, including by executing joint defense and/or common interest agreements where necessary or useful for this purpose.

 

7.9 Confidentiality.

 

(a) Confidentiality. Subject to Section 7.10, from and after the Separation Time each of Parent and BIG Token, on behalf of itself and each member of its respective Group, agrees to hold, and to cause its respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to Parent’s confidential and proprietary information pursuant to policies in effect as of the Separation Time, all confidential and proprietary information concerning the other Party or any member of the other Party’s Group or their respective businesses (giving effect to the Separation) that is either in its possession (including confidential and proprietary information in its possession prior to the date hereof) or furnished by any such other Party or any member of such Party’s Group or their respective Representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such confidential and proprietary information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such confidential and proprietary information has been (i) in the public domain or generally available to the public, other than as a result of a disclosure by such Party or any member of such Party’s Group or any of their respective Representatives in violation of this Agreement, (ii) later lawfully acquired from other sources by such Party (or any member of such Party’s Group) which sources are not themselves bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality with respect to such confidential and proprietary information, or (iii) independently developed or generated without reference to or use of any proprietary or confidential information of the other Party or any member of such Party’s Group. If any confidential and proprietary information of one Party or any member of its Group is disclosed to the other Party or any member of such other Party’s Group in connection with providing services to such first Party or any member of such first Party’s Group under this Agreement or any Ancillary Agreement, then such disclosed confidential and proprietary information shall be used only as required to perform such services.

 

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(b) No Release; Return or Destruction. Each Party agrees not to release or disclose, or permit to be released or disclosed, any information addressed in Section 7.9(a) to any other Person, except its Representatives who need to know such information in their capacities as such (who shall be advised of their obligations hereunder with respect to such information), and except in compliance with Section 7.10. Without limiting the foregoing, when any such information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, and is no longer subject to any legal hold or other document preservation obligation, each Party will promptly after request of the other Party either return to the other Party all such information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or notify the other Party in writing that it has destroyed such information (and such copies thereof and such notes, extracts or summaries based thereon); provided, that the Parties may retain electronic back-up versions of such information maintained on routine computer system backup tapes, disks or other backup storage devices; provided further, that any such information so retained shall remain subject to the confidentiality provisions of this Agreement or any Ancillary Agreement.

 

(c) Third-Party Information; Privacy or Data Protection Laws. Each Party acknowledges that it and members of its Group may presently have and, following the Separation Time, may gain access to or possession of confidential or proprietary information of, or legally protected personal information relating to, Third Parties (i) that was received under privacy policies and/or confidentiality or non-disclosure agreements entered into between such Third Parties, on the one hand, and the other Party or members of such other Party’s Group, on the other hand, prior to the Separation Time; or (ii) that, as between the two Parties, was originally collected by the other Party or members of such other Party’s Group and that may be subject to and protected by privacy policies, as well as privacy, data protection or other applicable Laws. Each Party agrees that it shall hold, protect and use, and shall cause the members of its Group and its and their respective Representatives to hold, protect and use, in strict confidence the confidential and proprietary information of, or legally protected personal information relating to, Third Parties in accordance with privacy policies and privacy, data protection or other applicable Laws and the terms of any agreements that were either entered into before the Separation Time or affirmative commitments or representations that were made before the Separation Time by, between or among the other Party or members of the other Party’s Group, on the one hand, and such Third Parties, on the other hand. With respect to legally protected personal information received from consumers before the Separation Time, each Party agrees that it will not use data in a manner that is materially inconsistent with promises made at the time the data was collected unless it first obtains affirmative express consent from the relevant consumer.

 

7.10 Protective Arrangements. In the event that a Party or any member of its Group either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable Law or receives any request or demand under lawful process or from any Governmental Authority to disclose or provide information of the other Party (or any member of the other Party’s Group) that is subject to the confidentiality provisions hereof, such Party shall notify the other Party (to the extent legally permitted) as promptly as practicable under the circumstances prior to disclosing or providing such information and shall cooperate, at the expense of the other Party, in seeking any appropriate protective order requested by the other Party. In the event that such other Party fails to receive such appropriate protective order in a timely manner, then the Party that received such request or demand may thereafter disclose or provide information to the extent required by such Law (as so advised by its counsel) or by lawful process or such Governmental Authority, and the disclosing Party shall promptly provide the other Party with a copy of the information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such information was disclosed, in each case to the extent legally permitted.

 

ARTICLE VIII

DISPUTE RESOLUTION

 

8.1 Good Faith Officer Negotiation. Subject to Section 8.4, either Party seeking resolution of any dispute, controversy or claim arising out of or relating to this Agreement or any Ancillary Agreement, including regarding whether any Assets are BIG Token Assets, any Liabilities are BIG Token Liabilities or the validity, interpretation, breach or termination of this Agreement or any Ancillary Agreement (a “Dispute”), shall provide written notice thereof to the other Party (the “Officer Negotiation Request”). Within fifteen (15) days of the delivery of the Officer Negotiation Request, the Parties shall attempt to resolve the Dispute through good faith negotiation. All such negotiations shall be conducted by executives who hold, at a minimum, the title of Senior Vice President and who have authority to settle the Dispute. All such negotiations shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. If the Parties are unable for any reason to resolve a Dispute within thirty (30)-days of receipt of the Officer Negotiation Request, and such thirty (30)-day period is not extended by mutual written consent of the Parties, the Chief Executive Officers of the Parties shall enter into good-faith negotiations in accordance with Section 8.2.

 

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8.2 Good-Faith Negotiation. If any Dispute is not resolved pursuant to Section 8.1, the Party that delivered the Officer Negotiation Request shall provide written notice of such Dispute to the Chief Executive Officer of each Party (a “CEO Negotiation Request”). As soon as reasonably practicable following receipt of a CEO Negotiation Request, the Chief Executive Officers of the Parties shall begin conducting good-faith negotiations with respect to such Dispute. All such negotiations shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. If the Chief Executive Officers of the Parties are unable for any reason to resolve a Dispute within thirty (30)-days of receipt of a CEO Negotiation Request, and such thirty (30)-day period is not extended by mutual written consent of the Parties, the Dispute shall be submitted to arbitration in accordance with Section 8.3.

 

8.3 Arbitration.

 

(a) In the event that a Dispute has not been resolved within thirty (30) days of the receipt of a CEO Negotiation Request in accordance with Section 8.2, or within such longer period as the Parties may agree to in writing, then such Dispute shall, upon the written request of a Party (the “Arbitration Request”) be submitted to be finally resolved by binding arbitration in accordance with the then-current JAMS Comprehensive Arbitration Rules and Procedures (“JAMS Rules”), except as modified herein. The arbitration shall be held in (i) Los Angeles, California, or (ii) such other place as the Parties may mutually agree in writing. Unless otherwise agreed by the Parties in writing, any Dispute to be decided pursuant to this Section 8.3 will be decided (i) before a sole arbitrator if the amount in dispute, inclusive of all claims and counterclaims, totals less than $1 million; or (ii) by a panel of three (3) arbitrators if the amount in dispute, inclusive of all claims and counterclaims, totals $1 million or more.

 

(b) The panel of three (3) arbitrators will be chosen as follows: (i) within thirty (30) days from the date of the receipt of the Arbitration Request, each Party will name an arbitrator; and (ii) the two (2) Party-appointed arbitrators will thereafter, within thirty (30) days from the date on which the second of the two (2) arbitrators was named, name a third independent arbitrator who will act as chairperson of the arbitral tribunal. In the event that either Party fails to name an arbitrator within thirty (30) days from the date of receipt of the Arbitration Request, then upon written application by either Party, that arbitrator shall be appointed pursuant to the JAMS Rules. In the event that the two (2) Party-appointed arbitrators fail to appoint the third, then the third independent arbitrator will be appointed pursuant to the JAMS Rules. If the arbitration will be before a sole independent arbitrator, then the sole independent arbitrator will be appointed by agreement of the Parties within thirty (30) days of the date of receipt of the Arbitration Request. If the Parties cannot agree to a sole independent arbitrator during such thirty (30) day period, then upon written application by either party, the sole independent arbitrator will be appointed pursuant to the JAMS Rules.

 

(c) The arbitrator(s) will have the right to award, on an interim basis, or include in the final award, any relief which it deems proper in the circumstances, including money damages (with interest on unpaid amounts from the due date), injunctive relief (including specific performance) and attorneys’ fees and costs; provided, that the arbitrator(s) will not award any relief not specifically requested by the Parties and, in any event, will not award any indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim). Upon selection of the arbitrator(s) following any grant of interim relief by a special arbitrator or court pursuant to Section 8.4, the arbitrator(s) may affirm or disaffirm that relief, and the Parties will seek modification or rescission of the order entered by the court as necessary to accord with the decision of the arbitrator(s). The award of the arbitrator(s) shall be final and binding on the Parties, and may be enforced in any court of competent jurisdiction. The initiation of arbitration pursuant to this Article VIII will toll the applicable statute of limitations for the duration of any such proceedings.

 

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8.4 Litigation and Unilateral Commencement of Arbitration. Notwithstanding the foregoing provisions of this Article VIII, (a) a Party may seek preliminary provisional or injunctive judicial relief with respect to a Dispute without first complying with the procedures set forth in Section 8.1, Section 8.2 and Section 8.3 if such action is reasonably necessary to avoid irreparable damage and (b) either Party may initiate arbitration before the expiration of the periods specified in Section 8.1, Section 8.2 and/or Section 8.3 if such Party has submitted an Officer Negotiation Request, a CEO Negotiation Request and/or an Arbitration Request and the other Party has failed to comply with Section 8.1, Section 8.2 and/or Section 8.3 in good faith with respect to such negotiation and/or the commencement and engagement in arbitration. In such event, the other Party may commence and prosecute such arbitration unilaterally in accordance with the JAMS Rules.

 

8.5 Conduct During Dispute Resolution Process. Unless otherwise agreed in writing, the Parties shall, and shall cause the respective members of their Groups to, continue to honor all commitments under this Agreement and each Ancillary Agreement to the extent required by such agreements during the course of dispute resolution pursuant to the provisions of this Article VIII, unless such commitments are the specific subject of the Dispute at issue.

 

ARTICLE IX

FURTHER ASSURANCES AND ADDITIONAL COVENANTS

 

9.1 Further Assurances. In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall use its reasonable best efforts, prior to, on and after the Separation Time, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.

 

(a) Without limiting the foregoing, prior to, on and after the Separation Time, each Party hereto shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all Approvals or Notifications of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfers of the BIG Token Assets and the assignment and assumption of the BIG Token Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each Party will, at the reasonable request, cost and expense of the other Party, take such other actions as may be reasonably necessary to vest in such other Party good and marketable title to the Assets allocated to such Party under this Agreement or any of the Ancillary Agreements, free and clear of any Security Interest, if and to the extent it is practicable to do so.

 

(b) At or prior to the Separation Time, Parent and BIG Token, in their respective capacities as direct and indirect stockholders of the members of their Groups, shall each ratify any actions which are reasonably necessary or desirable to be taken by Parent, BIG Token or any of the members of their respective Groups, as the case may be, to effectuate the transactions contemplated by this Agreement and the Ancillary Agreements.

 

ARTICLE X

TERMINATION

 

10.1 Termination by Mutual Consent. This Agreement and all Ancillary Agreements may be terminated at any time by the mutual consent of Parent, Company, and BIG Token.

 

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10.2 Other Termination. This Agreement and all Ancillary agreements may be terminated by Parent at any time, in its sole discretion, prior to the Separation.

 

10.3 Effect of Termination. In the event of any termination of this Agreement prior to the Separation, no Party (nor any of its directors, officers or employees) shall have any Liability or further obligation to the other Party by reason of this Agreement.

 

ARTICLE XI

MISCELLANEOUS

 

11.1 Counterparts; Entire Agreement; Corporate Power.

 

(a) This Agreement and each Ancillary Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

 

(b) This Agreement, the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. This Agreement and the Ancillary Agreements together govern the arrangements in connection with the Separation, and would not have been entered independently.

 

(c) Parent represents on behalf of itself and each other member of the Parent Group, and BIG Token represents on behalf of itself and each other member of the BIG Token Group, as follows:

 

(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby; and

 

(ii) this Agreement and each Ancillary Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.

 

(d) Each Party acknowledges that it and each other Party is executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement or any Ancillary Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by e-mail in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement or any Ancillary Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by e-mail in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause each such Ancillary Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

 

11.2 Governing Law. This Agreement and, unless expressly provided therein, each Ancillary Agreement (and any claims or disputes arising out of or related hereto or thereto or to the transactions contemplated hereby and thereby or to the inducement of any party to enter herein and therein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of California irrespective of the choice of laws principles of the State of California including all matters of validity, construction, effect, enforceability, performance and remedies.

 

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11.3 Assignability. Except as set forth in any Ancillary Agreement, this Agreement and each Ancillary Agreement shall be binding upon and inure to the benefit of the Parties and the parties thereto, respectively, and their respective successors and permitted assigns; provided, however, that neither Party nor any such party thereto may assign its rights or delegate its obligations under this Agreement or any Ancillary Agreement without the express prior written consent of the other Party hereto or other parties thereto, as applicable. Notwithstanding the foregoing, no such consent shall be required for the assignment of a party’s rights and obligations under this Agreement and the Ancillary Agreements (except as may be otherwise provided in any such Ancillary Agreement) in whole (i.e., the assignment of a party’s rights and obligations under this Agreement and all Ancillary Agreements all at the same time) in connection with a Change of Control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party.

 

11.4 Third-Party Beneficiaries. Except for the indemnification rights under this Agreement and each Ancillary Agreement of any Parent Indemnitee or Company Indemnitee in their respective capacities as such, (a) the provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and (b) there are no third-party beneficiaries of this Agreement or any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement shall provide any third person with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement.

 

11.5 Notices. All notices, requests, claims, demands or other communications under this Agreement shall be sent pursuant to the addresses / emails contained in the Transition Services Agreement.

 

11.6 Severability. If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.

 

11.7 Force Majeure. No Party shall be deemed in default of this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder or thereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. In the event of any such excused delay, the time for performance of such obligations (other than a payment obligation) shall be extended for a period equal to the time lost by reason of the delay. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement and the Ancillary Agreements, as applicable, as soon as reasonably practicable.

 

11.8 No Set-Off. Except as expressly set forth in any Ancillary Agreement or as otherwise mutually agreed to in writing by the Parties, neither Party nor any member of such Party’s Group shall have any right of set-off or other similar rights with respect to (a) any amounts received pursuant to this Agreement or any Ancillary Agreement; or (b) any other amounts claimed to be owed to the other Party or any member of its Group arising out of this Agreement or any Ancillary Agreement.

 

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11.9 Expenses. Except as otherwise expressly set forth in this Agreement or any Ancillary Agreement, or as otherwise agreed to in writing by the Parties, all fees, costs and expenses incurred at or prior to the Separation Time in connection with the preparation, execution, delivery and implementation of this Agreement, including the Separation, and any Ancillary Agreement, and the consummation of the transactions contemplated hereby and thereby will be borne by the Party or its applicable Subsidiary incurring such fees, costs or expenses.

 

11.10 Headings. The article, section and paragraph headings contained in this Agreement and in the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Ancillary Agreement.

 

11.11 Survival of Covenants. Except as expressly set forth in this Agreement or any Ancillary Agreement, the covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation, and shall remain in full force and effect.

 

11.12 Waivers of Default. Waiver by a Party of any default by the other Party of any provision of this Agreement or any Ancillary Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement or any Ancillary Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

 

11.13 Specific Performance. Subject to the provisions of Article VIII, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any Action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties.

 

11.14 Amendments. No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

 

11.15 Interpretation. In this Agreement and any Ancillary Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Ancillary Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Ancillary Agreement); (c) Article, Section, Schedule, Exhibit and Appendix references are to the Articles, Sections, Schedules, Exhibits and Appendices to this Agreement (or the applicable Ancillary Agreement) unless otherwise specified; (d) unless otherwise stated, all references to any agreement (including this Agreement and each Ancillary Agreement) shall be deemed to include the exhibits, schedules and annexes (including all Schedules, Exhibits and Appendixes) to such agreement; (e) the word “including” and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (i) unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to January 27, 2021.

 

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11.16 Limitations of Liability. Notwithstanding anything in this Agreement to the contrary, neither BIG Token or any member of the BIG Token Group, on the one hand, nor Parent or any member of the Parent Group, on the other hand, shall be liable under this Agreement to the other for any special, indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim).

 

11.17 Performance. Parent will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the Parent Group. BIG Token and Company will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the BIG Token Group. Each Party (including its permitted successors and assigns) further agrees that it will (a) give timely notice of the terms, conditions and continuing obligations contained in this Agreement and any applicable Ancillary Agreement to all of the other members of its Group and (b) cause all of the other members of its Group not to take any action or fail to take any such action inconsistent with such Party’s obligations under this Agreement, any Ancillary Agreement or the transactions contemplated hereby or thereby.

 

11.18 Mutual Drafting. This Agreement and the Ancillary Agreements shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

 

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have caused this Master Separation Agreement to be executed by their duly authorized representatives as of the date first written above.

 

SRAX, INC.  
     
By:    
Name: Christopher Miglino  
Title: CEO  
     
BIG TOKEN, INC.  
     
By:    
Name: Christopher Miglino  
Title: Director  
     
FORCE PROTECTION VIDEO EQUIPMENT CORPORATION.  
     
By:    
Name: Paul Feldman  
Title: CEO  

 

[Signature Page to Master Separation Agreement]

 

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SCHEDULES

 

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Exhibit 10.04

 

SEPARATION AGREEMENT

 

This Separation Agreement (“Agreement”) is made by and between Force Protection Video Equipment Corporation (the “Company”) and Paul Feldman (“Employee”) (collectively the “Parties”). The Company and Employee are collectively referred to as “the Parties” and each a “Party”. Any term not defined herein will have the meaning ascribed to it in the Employment Agreement (as defined below).

 

RECITALS

 

WHEREAS, Employee has been employed by the Company pursuant to the terms of that certain employment agreement effective November 24, 2015 (“Employment Agreement”);

 

WHEREAS, the Company and Feldman have entered into a Share Exchange Agreement with SRAX, Inc. (“SRAX”) dated September 30, 2020 (“Agreement”) whereby the SRAX will become the controlling shareholder of the Company;

 

WHEREAS, in anticipation of the transactions contemplated by the Agreement, the Company will be terminating Employee’s employment without Cause; and

 

WHEREAS, the Parties wish to acknowledge and memorialize the pre-existing obligations of the Parties as contained in the Employment Agreement.

 

NOW THEREFORE, in consideration of the mutual promises made herein, the Parties hereby agree as follows:

 

AGREEMENT

 

1. Separation Date. Employee’s employment with the Company is hereby terminated without cause effective January 27, 2021.

 

2. Consideration. In consideration for the execution of this Agreement, and the performance of the terms and conditions set forth herein, the Parties hereby agree as follows:

 

2.1 The Company will pay Employee 841,184,289 shares of the Company’s restricted common stock (the “Shares”).

 

2.2 No other consideration shall be paid to Employee

 

2.7 Payment Date. The Shares shall be issued upon the closing of the Agreement.

 

3. Mutual General Release of Claims. Except as to such rights or claims as may be created by this Agreement, Employee, and anyone and any entity claiming through Employee, including but not limited to Employee’s heirs, administrators, successors in interest, assigns and agents, hereby release and forever discharge the Company and all of its past, present and future employees, officers, directors, members, agents, trustees, administrators, representatives, owners, shareholders, partners, insurers, fiduciaries, attorneys, subsidiaries, parent companies, affiliates, related entities, assigns, predecessors and successors in interest, and each and all of them, jointly and severally (collectively the “Released Parties”), and Company hereby releases and forever discharges Employee, from any and all liabilities, claims, causes of action, charges, complaints, obligations, costs, losses, damages, injuries, penalties, interest, attorneys’ fees, and other legal responsibilities, of any form whatsoever, whether known or unknown, unforeseen, unanticipated, unsuspected or latent, which Employee or Company has at any time owned or held prior to Employee’s and Company’s execution of this Agreement, including but not limited to, any and all claims arising out of, connected with, or relating to:

 

any and all claims relating to or arising from Employee’s employment relationship with the Company and the termination of that relationship, compensation or benefits earned or received during that employment;

 

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any and all claims for wrongful discharge of employment; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; defamation; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion;

 

any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the California Fair Employment and Housing Act, the California Labor Code, the Maryland Wage Payment and Collection Law, and Maryland Wage and Hour law;

 

any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and

 

any and all claims for attorneys’ fees and costs.

 

The Employee agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. The foregoing general release does not apply to any of Employee’s or Company’s claims that cannot be released as a matter of law. The Parties agree and acknowledge that the release and waiver set forth above shall not prevent Employee from participating in or cooperating with any state or federal agency’s investigation or charge of discrimination, including the Equal Employment Opportunity Commission (“EEOC”). The Parties further agree and acknowledge that nothing in the Agreement prevents or prohibits Employee from filing a charge of discrimination with a state or federal agency, including the EEOC. However, Employee understands and agrees that Employee is releasing the Company from any and all claims by which Employee is giving up the opportunity to recover any compensation, damages, or any other form of relief in any proceeding brought by Employee or on Employee’s behalf.

 

4. Older Worker’s Benefit Protection Act. This Agreement constitutes a knowing and voluntary waiver of any and all rights or claims that Employee has or may have under the Federal Age Discrimination In Employment Act, as amended by the Older Workers’ Benefit Protection Act of 1990, 29 U.S.C. §§ 621 et seq. This paragraph and this Agreement are written in a manner calculated to be understood by Employee. Employee is hereby advised in writing to consult with an attorney before signing this Agreement. Employee has had a reasonable time of up to 45 days in which to consider signing this Agreement. If Employee decides not to use all 45 days, Employee knowingly and voluntarily waives any claims that Employee was not given the 45-day period or did not use the entire 45 days to consider this Agreement. Employee may revoke this Agreement at any time within the 7-day period following the date Employee signs this Agreement by providing written notice of revocation to the Company by email to [●] so that said revocation notice is received before the expiration of the 7-day revocation period (the “Revocation Period”). If Employee revokes the Agreement within the Revocation Period, Employee will only be entitled to receive the Accrued Obligations as provided for in the Employment Agreement.

 

5. Mutual Release of Unknown Claims. This Agreement extends to all claims or causes of action, of every nature and kind whatsoever, known or unknown, enumerated in this Agreement or otherwise. Employee or Company may hereafter discover presently unknown facts or claims different from or in addition to those that Employee or Company now knows as to the matters released herein. Nevertheless, it is Employee’s and Company’s intention, through this Agreement, to fully release all such matters and all claims related thereto, which do now exist, may exist or heretofore have existed.

 

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6. Mutual Covenant Not To Sue. Employee and Company have not, and will not, directly or indirectly institute any legal action against the Employee or the Released Parties based upon, arising out of, or relating to any claims released in this Agreement, to the extent allowed by law. Employee and Company have not, and will not, directly or indirectly encourage and/or solicit any third party to institute any legal action against the Employee or Released Parties, to the extent allowed by law.

 

7. Inquiries. The Company will respond to any inquiries about Employee’s employment by providing only Employee’s dates of employment and job titles. Employee will direct all such inquiries only to [●] by email at [●].

 

8. No Workplace Injuries. Employee has not sustained any workplace injury of any kind during Employee’s employment with the Company, and Employee does not intend to file any claim for or seek any workers’ compensation benefits.

 

9. Prior Agreements. This Agreement does not alter, modify or impact any confidentiality provisions and/or the restrictive covenants between the Parties, nor does it affect Employee’s obligation to comply with those provisions and/or covenants. Except as specifically provide for in Section 2.4, this Agreement does not alter, modify or amend the Employment Agreement.

 

10. Non-Disclosure of Trade Secrets, Confidential or Proprietary Information. Employee will not, for any reason, disclose to others or use for the benefit of anyone other than the Company any trade secret, confidential or proprietary information of the Company, including, but not limited to information relating to the Company’s customers, employees, consultants, affiliates, partners, products, services, know-how, techniques, computer systems, programs, policies and procedures, research, projects, future developments, costs, profits, pricing, customer and client information. The use of any trade secret, confidential or proprietary information belonging to the Company shall be a material breach of this Agreement. Notwithstanding anything contained herein or in any other confidentiality provision to which Employee may be or may have been subject as a result of Employee’s employment with the Company, nothing shall prohibit Employee from communicating with government authorities concerning any possible legal violations. The Company nonetheless asserts and does not waive its attorney-client privilege over any information appropriately protected by the privilege. Employee is advised that pursuant to the Defend Trade Secrets Act an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. However, Employee understands that in the event that disclosure of the Company’s trade secrets was not done in good faith pursuant to the above, Employee will be subject to substantial damages, including punitive damages and attorneys’ fees.

 

11. Litigation Cooperation.

 

11.1 Employee agrees to provide such assistance to the Company and its counsel as they may request in regard to any matters of which Employee has particular knowledge as a result of Employee’s employment with the Company, without the right to receive any additional consideration for such assistance, except as expressly agreed to below. Such assistance shall include, but is not limited to, answering any inquiries the Company may have or receive regarding the execution of Employee’s past duties at the Company, acting as a resource person in matters relevant to Employee’s knowledge and experience with the Company, providing information and answers in response to interrogatories or other discovery, giving sworn statements and testifying in arbitrations, depositions and/or trials, and committing to be available, upon reasonable notice, to meet with the Company and its attorneys to adequately prepare for any and all proceedings associated with pending or threatened litigation or arbitration involving the Company. Employee shall not be obligated to provide assistance that would unreasonably and materially interfere with Employee’s business or personal activities.

 

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11.2 In the event that travel or other expenses are incurred by Employee in connection with such assistance or in the event Employee’s deposition is required, the reasonable travel costs and out-of-pocket expenses in connection therewith shall be reimbursed by the Company.

 

12. Return of All The Company Materials. Employee has returned to the Company all the Company’s records, documents, electronically stored information, and tangible embodiments of such, in Employee’s possession, including but not limited to the Company’s trade secrets, confidential information and proprietary information. Employee confirms that Employee has already returned to the Company all property of the Company, including but not limited to automobiles, keys, key cards, cellular phones, credit cards, personal and laptop computers, and any other electronic equipment.

 

13. Non-Disparagement. Employee shall not make any disparaging remarks about any of the other Released Parties, verbally or in writing, including without limitation posting on social media applications such as YouTube, Facebook, Twitter, blogs, or other public fora, or otherwise take any action that could reasonably be anticipated to cause damage to the reputation, goodwill, or business of any of the Released Parties, or otherwise make remarks that may reflect negatively upon any of the Released Parties. This clause does not waive Employee’s right to testify in an administrative, legislative, or judicial proceeding concerning alleged criminal conduct or alleged sexual harassment when Employee has been required or requested to attend the proceeding pursuant to a court order, subpoena, or written request from an administrative agency or the legislature; provided, Employee agrees to give the Company the maximum notice possible of Employee’s intent to provide such testimony. This provision is a material term of this Agreement.

 

14. CIRCULAR 230 DISCLAIMER. EACH PARTY TO THIS AGREEMENT (FOR PURPOSES OF THIS SECTION, THE “ACKNOWLEDGING PARTY”; AND EACH PARTY TO THIS AGREEMENT OTHER THAN THE ACKNOWLEDGING PARTY, AN “OTHER PARTY”) ACKNOWLEDGES AND AGREES: (1) NO PROVISION OF THIS AGREEMENT, AND NO WRITTEN COMMUNICATION OR DISCLOSURE BETWEEN OR AMONG THE PARTIES OR THEIR ATTORNEYS AND OTHER ADVISERS, IS OR WAS INTENDED TO BE, NOR SHALL ANY SUCH COMMUNICATION OR DISCLOSURE CONSTITUTE OR BE CONSTRUED OR BE RELIED UPON AS, TAX ADVICE WITHIN THE MEANING OF UNITED STATES TREASURY DEPARTMENT CIRCULAR 230 (31 CFR PART 10, AS AMENDED); (2) THE ACKNOWLEDGING PARTY (A) HAS RELIED EXCLUSIVELY UPON HIS, HER OR ITS OWN INDEPENDENT LEGAL AND TAX ADVISERS FOR ADVICE (INCLUDING TAX ADVICE) IN CONNECTION WITH THIS AGREEMENT, (B) HAS NOT ENTERED INTO THIS AGREEMENT BASED UPON THE RECOMMENDATION OF ANY OTHER PARTY OR ANY ATTORNEY OR ADVISOR TO ANY OTHER PARTY, AND (C) IS NOT ENTITLED TO RELY UPON ANY COMMUNICATION OR DISCLOSURE BY ANY ATTORNEY OR ADVISER TO ANY OTHER PARTY TO AVOID ANY TAX PENALTY THAT MAY BE IMPOSED ON THE ACKNOWLEDGING PARTY; AND (3) NO ATTORNEY OR ADVISER TO ANY OTHER PARTY HAS IMPOSED ANY LIMITATION THAT PROTECTS THE CONFIDENTIALITY OF ANY SUCH ATTORNEY’S OR ADVISER’S TAX STRATEGIES (REGARDLESS OF WHETHER SUCH LIMITATION IS LEGALLY BINDING) UPON DISCLOSURE BY THE ACKNOWLEDGING PARTY OF THE TAX TREATMENT OR TAX STRUCTURE OF ANY TRANSACTION, INCLUDING ANY TRANSACTION CONTEMPLATED BY THIS AGREEMENT.

 

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15. Arbitration. Except for claims for emergency equitable or injunctive relief which cannot be timely addressed through arbitration, the Parties agree to submit any claim or dispute arising out of the terms of this Agreement to private and confidential arbitration by a single neutral arbitrator through Judicial Arbitration and Mediation Services, Inc. (“JAMS”). The JAMS Streamlined Arbitration Rules & Procedures in effect at the time of the claim or dispute is arbitrated will govern the procedure for the arbitration proceedings between the Parties. The arbitrator in this matter shall not have the power to modify any of the provisions of this Agreement. The decision of the arbitrator shall be final and binding on all Parties to this Agreement, and judgment thereon may be entered in any court having jurisdiction. The Party initiating the arbitration shall advance the arbitrator’s fee and all costs of services provided by the arbitrator and arbitration organization. However, all the costs of the arbitration proceeding or litigation to enforce this Agreement, including attorneys’ fees and costs, shall be paid as the arbitrator or court awards in accordance with applicable law. The Parties hereby waive any right to a jury trial on any dispute or claim covered by this Agreement.

 

16. Employee Representations and Acknowledgments. Employee hereby represents and warrants to the Company that Employee (a) has read this Agreement in its entirety, (b) has all requisite power and authority to execute and deliver this Agreement and to perform his or her obligations hereunder, (c) fully understands the contents of this Agreement, (d) freely, voluntarily and without coercion enters into this Agreement, and (e) is signing it with full knowledge that it is intended, to the maximum extent permitted by law, as a complete release and waiver of any and all claims.

 

17. Severability. In the event any provision of this Agreement is held to be void, null or unenforceable, the remaining portions shall remain in full force and effect.

 

18. No Admission of Wrongdoing. Neither this Agreement nor the furnishing of the consideration for this Agreement shall be deemed or construed as an admission of liability or wrongdoing on the part of the Released Parties, nor shall they be admissible as evidence in any proceeding other than for the enforcement of this Agreement.

 

19. Modification. This Agreement cannot be modified in any respect except in a written instrument signed by both Parties.

 

20. Entire Agreement. This Agreement sets forth the entire agreement between the Parties hereto, and fully supersedes any prior agreements or understandings between the Parties, except for any confidentiality agreements and the Employment Agreement between the Parties, which shall remain in full force and effect.

 

21. No Reliance. Employee has not relied on any representations, promises, or agreements of any kind made to Employee in connection with Employee’s decision to accept this Agreement, except for those set forth in this Agreement.

 

22. Interpretation. Any uncertainty or ambiguity in the Agreement shall not be construed for or against any Party based on the attribution of drafting to any Party.

 

23. Counterparts. This Agreement may be executed by the Parties in counterparts, which are defined as duplicate originals, all of which taken together shall be construed as one document.

 

24. Signature. A signature by facsimile or email on this Agreement shall be as legally binding as an original signature.

 

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25. Governing Law. This Agreement shall be governed and conformed in accordance with the laws of the State of California, without regard to its conflicts of law principles.

 

2.6 Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that:

 

(a) They have read this Agreement;

 

(b) They have had the opportunity to be represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice;

 

(c) They understand the terms and consequences of this Agreement and of the releases it contains;

 

(d) They are fully aware of the legal and binding effect of this Agreement.

 

PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.

 

  EMPLOYEE
     
Dated:________, 2021 By  
    Paul Feldman
     
  COMPANY
   
  Force Protection Video Equipment Corp.
     
Dated:________, 2021 By  

 

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Exhibit 10.05

 

EXCHANGE AGREEMENT

 

This Exchange Agreement (this “Agreement”), dated as of January 27th, 2021, is made by and among Force Protection Video Equipment Corporation, a Florida corporation (the “Company”), and RedDiamond Partners LLC as the holder of the Exchange Securities (as defined below) (the “Holder”).

 

WHEREAS, the Company is a party to that certain Share Exchange Agreement (the “Big Token Share Exchange Agreement”), dated as of September 30, 2020 with SRAX, Inc., a Delaware company (“SRAX”).

 

WHEREAS, pursuant to the Big Token Share Exchange Agreement, SRAX has agreed to transfer to the Company 100% of the issued and outstanding shares of Big Token, Inc., SRAX’s wholly owned subsidiary (“Big Token”).

 

WHEREAS, the Holder holds the convertible notes of the Company as more specifically set forth on Exhibit A attached hereto (the “Exchange Securities”).

 

WHEREAS, the closing of the transactions contemplated by the Big Token Share Exchange Agreement are conditioned upon all outstanding convertible notes of the Company having been converted into equity securities of the Company.

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 3(a)(9) of the Securities Act of 1933 (the “Securities Act”), the Company desires to exchange with the Holder, and the Holder desires to exchange with the Company, the Exchange Securities for an aggregate of 8,318 shares of the Company’s Series C Convertible Preferred Stock (the “Series C”), with such designations, rights, preferences, limitations and restrictions as set forth in the Certificate of Designation contained in Exhibit B attached hereto; and (y) 7,000,000,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”; such Series C and such Common Stock are collectively referred to herein as the “Issued Securities”).

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Holder agree as follows:

 

1. Terms of the Exchange. The Company and the Holder agree that the Holder will exchange the Exchange Securities held by the Holder and will relinquish any and all other rights it may have under the Exchange Securities in exchange for the Issued Securities.

 

2. Closing.

 

a. Time and Place of Closing. Subject to the satisfaction of the conditions set forth herein, a closing shall occur at the principal offices of the Company, or such other location as the parties shall mutually agree, simultaneously with the closing of the transactions contemplated by the Big Token Share Exchange Agreement.

 

b. Deliveries. At closing, the Company shall deliver to the Holder the Issued Securities. Upon closing, any and all obligations of the Company to Holder under the Exchange Securities shall be fully satisfied, the Holder will have no remaining rights, powers, privileges, remedies or interests under the Exchange Securities. On the closing date, the Company shall execute and cause its Transfer Agent to execute the form of reserve letter attached as Exhibit C.

 

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3. Further Assurances; Sale Restrictions.

 

a. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

b. During the six month period following the date of this Agreement, the Holder agrees that it will not offer or sell in a public broker transaction any Issued Securities (including Common Stock issued upon conversion of the Series C) on any trading day in an amount greater than 20% of the average daily trading volume over the five (5) trading days preceding any such sale.

 

4. Representations and Warranties of the Holder. The Holder represents and warrants as of the date hereof and as of the closing to the Company as follows:

 

a. Authorization; Enforcement. The Holder has the requisite power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Holder and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Holder and no further action is required by the Holder. This Agreement has been (or upon delivery will have been) duly executed by the Holder and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Holder enforceable against the Holder in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

b. Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. With respect to such matters, the Holder relied solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

 

c. Information Regarding Holder. The Holder is an “accredited investor,” as such term is defined in Rule 501 of Regulation D promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable the Holder to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment. The Holder has the authority and is duly and legally qualified to purchase and hold the Issued Securities. The Holder is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.

 

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d. Legend. The Holder understands that the Issued Securities (including the shares of Common Stock issuable upon the conversion of the Series C (the “Underlying Shares”)) will be issued pursuant to an exemption from registration or qualification under the Securities Act and applicable state securities laws, and except as set forth below, the Issued Securities shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE TRANSFERRED UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, A “NO-ACTION” LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

 

e. Restricted Securities. The Holder understands that: (i) the Issued Securities (and the Underlying Securities) have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) the Holder shall have delivered to the Company (if requested by the Company) an opinion of counsel to the Holder, in a form reasonably acceptable to the Company, to the effect that such Issued Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) the Holder provides the Company with reasonable assurance that such Issued Securities (or Underlying Securities, as applicable) can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the Securities Act (or a successor rule thereto) (collectively, “Rule 144”); and (ii) any sale of the Issued Securities (or Underlying Securities) made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the Issued Securities (or Underlying Securities) 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 Commission promulgated thereunder.

 

5. Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Holder:

 

a. Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the “Exchange Documents”) and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the board of directors of the Company or the Company’s stockholders in connection therewith, including, without limitation, the issuance of the Issued Securities has been duly authorized by the Company’s board of directors and no further filing, consent, or authorization is required by the Company, its board of directors or its stockholders. This Agreement has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

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b. Organization and Qualification. Each of the Company and its subsidiaries (the “Subsidiaries”) are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each of the Company and each of its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Exchange Documents or (iii) the authority or ability of the Company to perform any of its obligations under any of the Exchange Documents. Other than its Subsidiaries, there is no Person (as defined below) in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest. “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof.

 

c. No Conflict. The execution, delivery and performance of the Exchange Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Issued Securities will not (i) result in a violation of the Certificate of Incorporation (as defined herein) or other organizational documents of the Company or any of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries or Bylaws (as defined herein) of the Company or any of its Subsidiaries, (ii) except as set forth in the SEC Documents (as defined herein), conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws and regulations and the rules and regulations of The OTC Markets Group (the “Principal Market”) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected except, in the case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect.

 

d. No Consents. Neither the Company nor any Subsidiary is required to obtain any consent from, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its respective obligations under or contemplated by the Exchange Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company or any Subsidiary is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date of this Agreement, and neither the Company nor any of its Subsidiaries is aware of any facts or circumstances which might prevent the Company or any of its Subsidiaries from obtaining or effecting any of the registration, application or filings contemplated by the Exchange Documents. The Company is not in violation of the requirements of the Principal Market and has no knowledge of any facts or circumstances which could reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.

 

e.Securities Law Exemptions. Assuming the accuracy of the representations and warranties of the Holder contained herein, the offer and issuance by the Company of the Issued Securities is exempt from registration under the Securities Act. The offer and issuance of the Issued Securities is exempt from registration under the Securities Act pursuant to the exemption provided by Section 3(a)(9) thereof. The Company covenants and represents to the Holder that neither the Company nor any of its Subsidiaries has received, anticipates receiving, has any agreement to receive or has been given any promise to receive any consideration from the Holder or any other Person in connection with the transactions contemplated by the Exchange Documents. The Company hereby acknowledges that the holding period of the Issued Securities (and Underlying Shares) shall tack back to the date the Exchanged Securities were originally issued by the Company to the Holder (or its assignor) and it covenants not to take any position to the contrary.

 

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f. Issuance of the Issued Securities. The issuance of the Issued Securities is duly authorized by the Company. The issuance of shares of the Underlying Shares upon conversion of the Series C is duly authorized and, when issued in accordance with the Series C, will be duly and validly issued, fully paid and non-assessable, free from all taxes, liens, charges and other encumbrances imposed by the Company other than restrictions on transfer provided for in such documents.

 

g. Equity Capitalization. Except as disclosed in the SEC Documents: (i) none of the Company’s or any Subsidiary’s capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company or any Subsidiary; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any amounts filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act; (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Issued Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) neither the Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in the Company’s filings with the Commission (the “SEC Documents”) which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate, do not or could not have a Material Adverse Effect. The Company has furnished to the Holder true, correct and complete copies of the Company’s Amended and Restated Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s Amended and Restated Bylaws and as in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereto that have not been disclosed in the SEC Documents.

 

h. Shell Company Status. The Company is not, and has not been in the last three years, an issuer identified in, or subject to, Rule 144(i) of the Securities Act.

 

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6. Additional Acknowledgments. The Holder and the Company confirm that the Company has not received any consideration for the transactions contemplated by this Agreement. Pursuant to Rule 144 promulgated by the Commission pursuant to the Securities Act and the rules and regulations promulgated thereunder as such Rule 144 may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule 144, the holding period of the Issued Securities (and Underlying Shares) tacks back to the issue date of the Exchange Securities (or such prior date as is indicated on Exhibit A attached hereto). The Company hereby confirms that the Holder (who is exchanging the Exchange Securities) currently is not and will not be upon closing of this Agreement (individually or together as a group) deemed an “affiliate” as defined in Rule 144. The Company agrees not to take a position contrary to this paragraph.

 

7. Miscellaneous.

 

a. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.

 

b. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by and construed under the laws of the State of New York, without regard to the choice of law principles thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the State of New York, City of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby, and hereby irrevocably waives any objection that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

c. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

d. Counterparts/Execution. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains an electronic file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or electronic file signature page (as the case may be) were an original thereof.

 

e. Notices. Any notice or communication permitted or required hereunder shall be in writing and shall be deemed sufficiently given if hand-delivered or sent (i) postage prepaid by registered mail, return receipt requested, or (ii) by email, to the respective parties as set forth below, or to such other address as either party may notify the other in writing.

 

If to the Company, to:

 

Force Protection Video Equipment Corporation

1249 Kildaire Farm Road

Cary, NC 27511

Attn: Paul Feldman, CEO

Email: paul@forceprovideo.com

 

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If to the Holder, to the address set forth on the signature page of the Holder.

 

f. Expenses. The parties hereto shall pay their own costs and expenses in connection herewith.

 

g. Entire Agreement; Amendments. This Agreement constitutes the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between the parties. This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by all parties, or, in the case of a waiver, by the party waiving compliance. Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude any other or future exercise of any other right, power or privilege hereunder.

 

h. Headings. The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

i. Pledge of Issued Securities. The Company acknowledges and agrees that the Issued Securities may be pledged by the Holder in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Issued Securities. The pledge of the Issued Securities shall not be deemed to be a transfer, sale or assignment of the Issued Securities hereunder, and if the Holder effects a pledge of the Issued Securities it shall not be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Issued Securities may reasonably request in connection with a pledge of the Issued Securities to such pledgee by the Holder.

 

[SIGNATURE PAGES FOLLOW]

 

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

 

  FORCE PROTECTION VIDEO EQUIPMENT CORP.
     
  By:                              
  Name:  Paul Feldman
  Title: Chief Executive Officer

 

  RED DIAMOND PARTNERS LLC
     
  By:
  Name:  Alan Uryniak
  Title: Manager
     
  156 West Saddle River Road
  Saddle River, NJ 07458
  Email: jdjr11@aol.com

 

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EXHIBIT A

 

Exchange Securities

 

EXHIBIT B

 

Certificate of Designation of Series C

 

[Attached]

 

EXHIBIT C

 

Reserve Letter

 

[Attached]

 

 

 

 

Exhibit 10.06

 

BIG Token, inc.
2629 Townsgate Rd., Suite 215
Westlake Village, CA 91362

 

December ___, 2020

 

Lou Kerner
«EmployeeAddress1»
«EmployeeAddress2»

 

  Re: EMPLOYMENT AGREEMENT

 

Dear Mr. Kerner:

 

On behalf of BIG Token, Inc., a Delaware corporation (“BIG Token”), I am pleased to offer you the position of Chief Executive Officer of BIG Token and the public company with which the Company shall merge (“Merger”) into (anticipated to be Force Protection Video Equipment Corp.) (“PubCo” and together with BIG Token, the “Company”). Your employment by the Company shall be governed by the following terms and conditions (this “Agreement”):

 

1. Duties and Scope of Employment.

 

(a) Position. For the term of your employment under this Agreement (your “Employment”), the Company agrees to employ you in the position of Chief Executive Officer or in such other position as the Company subsequently may assign to you, which shall be of equal or more prominent position as the position of the Chief Executive Officer. You will report to the Company’s Board of Directors (“Board”). You will perform the duties and have the responsibilities and authority customarily performed and held by an employee in your position or as otherwise may be assigned or delegated to you by the Company’s Board.

 

(b) Obligations to the Company. During your Employment, you shall devote majority of your full business efforts and time to the Company. During your Employment, without the prior written approval of the Board, you shall not render services in any capacity to any other person or entity and shall not act as a sole proprietor or partner of any other person or entity or own more than five percent of the stock of any other corporation, except as set forth on Exhibit A attached hereto. The Company hereby acknowledges and agrees that all such activities conducted by you as of the Effective Date (including all boards of directors on which you serve as of the Effective Date) which are listed on Exhibit A to this Agreement, do not interfere with your performance of this Agreement and do not compete with the business of the Company. Notwithstanding the foregoing, you may serve on corporate, civic or charitable boards or committees, deliver lectures, fulfill speaking engagements, teach at educational institutions, or manage personal investments without such advance written consent, provided that such activities do not individually or in the aggregate interfere with the performance of your duties under this Agreement. You shall comply with the Company’s policies and rules, as they may be in effect from time to time during your Employment.

 

 
 

 

(c) No Conflicting Obligations. You represent and warrant to the Company that you are under no obligations or commitments, whether contractual or otherwise, that are inconsistent with your obligations under this Agreement. In connection with your Employment, you shall not use or disclose any trade secrets or other proprietary information or intellectual property in which you or any other person has any right, title or interest and your Employment will not infringe or violate the rights of any other person. You represent and warrant to the Company that you have returned all property and confidential information belonging to any prior employer.

 

(d) Commencement Date. You shall commence full-time Employment immediately upon satisfaction of the conditions contained in Section 9 hereof (such date on which Employment shall begin is referred to herein as the “Effective Date”).

 

2. Cash and Incentive Compensation.

 

(a) Salary. The Company shall pay you as compensation for your services an initial base salary at a gross annual rate of $175,000. Such salary shall be payable in accordance with the Company’s standard payroll procedures. The annual compensation specified in this subsection (a), together with any modifications in such compensation that the Company may make from time to time, is referred to in this Agreement as “Base Salary.”

 

(b) Incentive Bonuses. You will be eligible to be considered for an annual incentive bonus each calendar year during the term of your employment under this Agreement based upon the achievement of certain objective or subjective criteria established by the Board or any Compensation Committee of the Board. The target amount for any such annual incentive bonus will be up to 100% of your Base Salary (“Target Bonus”). The determinations of the Board in good faith with respect to such bonus shall be final and binding. You shall not earn an incentive bonus unless you are employed by the Company on the date when such bonus is payable, unless you are terminated without Cause or you terminate this Agreement for Good Reason. For purposes of determining your bonus, during December of each year, the Board or any Compensation Committee of the Board will determine a performance base line amount (“Performance Base Line”). If you achieve 80% of the Performance Base Line for a given year, you will receive 50% of your Target Bonus for such year. If you achieve your Performance Base Line for a given year, you will receive 100% of your Target Bonus for such year. Your Performance Base Line for you initial year of Employment which commences on January 1, 2021 and ends of December 31, 2021 is $5.5 million of Gross Profit, as calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). Notwithstanding the foregoing, the Board or any Compensation Committee of the Board may grant you a greater bonus amount at their sole and absolute discretion.

 

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(c) Stock Options. Subject to the approval of the Board, upon the Company completing an offering of its securities resulting in gross proceeds of at least $3,000,000 (“Financing”), the Company shall grant you a stock option to purchase five (5) percent of the Company’s issued and outstanding Common Stock, post Financing on a fully diluted basis (the “Option”). The Option shall be granted as soon as reasonably practicable after the completion of the Financing. The exercise price per Option will be: (i) 33.33% will be granted at an imputed Market Capitalization of $15 million, (ii) 33.33% will be granted at an imputed Market Capitalization of $17.5 million, and (iii) the remaining Options will have an exercise price equity to an imputed Market Capitalization of $20 million. The term of the Option shall be 10 years, subject to earlier expiration in the event of the termination of your services to the Company. The Option shall vest and become exercisable as follows: (x) 33.3% on the one-year anniversary of the Effective Date (the “Initial Vesting Date”), and (y) the remaining options will vest in equal installments quarterly over a period of two years from the Initial Vesting Date, with the first quarterly installment to vest on the first quarterly anniversary of the Initial Vesting Date. The Option will be a nonqualified stock option and shall be subject to the other terms and conditions set forth in the Company’s Equity Compensation Plan to be adopted by the Company in connection with the Merger in a standard and customary form (the “Stock Plan”) and in the Company’s standard form of Stock Option Agreement (the “Stock Agreement”). The Company agrees to establish, or cause the establishment of the Stock Plan promptly, but in no event later than ten days, after the consummation of the Merger. Market Capitalization is defined as: (a) the Company’s issued and outstanding Common Stock plus any convertible securities on an as converted basis, divided by (b) the closing price of the Company’s Common Stock on its primary trading market. Any terms not defined herein will have the meaning ascribed to it in the Stock Plan. As permitted by law, on or before the Initial Vesting Date, the Company shall use its commercially reasonable best efforts to file a Registration Statement on Form S-8 with the U.S. Securities and Exchange Commission (the “SEC”) to allow you (and if permitted by the Company, other senior executives) to (x) sell a number of shares of Common Stock the vested Options sufficient to cover your employment tax obligation arising in connection with the exercise of your Option in the open market pursuant to such Form S-8, and (y) sell the remaining vested Options if and when you determine during any open trading window.

 

(d) Acceleration Benefit. Provided the Company has either: (i) not requested for your employment to continue immediately after a Triggering Event or (ii) has requested for your employment to continue immediately after a Triggering Event on terms significantly similar to your employment terms, including Base Salary, immediately prior to the Trigger Event, and you have not rejected such request, then, effective immediately before the consummation of a Triggering Event, any and all of your outstanding unvested equity awards of the Company shall accelerate and become fully exercisable, and any repurchase right of the Company as a result of the Triggering Event applicable to such equity award shall lapse as to all of the number of shares of capital stock of the Company underlying such equity awards In addition, the acceleration of vesting and lapse of repurchase rights provided for in the previous sentence shall occur immediately prior to the effective date of termination of your Continuous Service Status as provided in Section 7. In order to be eligible for such acceleration of vesting benefit, you must execute the Company’s standard reasonable form of mutual release of all claims agreement.

 

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(e) Benefits. Except as otherwise agreed to by you or elected by you in any applicable voluntary election materials, you shall be eligible to participate in and shall receive all or comparable benefits under all welfare plans, pension plans, fringe benefit plans, other benefit plans, and all other arrangements, plans, policies, and programs in each case (w) that the Company makes available generally to the senior executives of the Company or of any other subsidiary or affiliate of the Company, (x) that are sponsored or maintained by the Company or any subsidiary or affiliate of the Company or to which the Company or any subsidiary or affiliate of the Company contributes, (y) on a basis no less favorable than the basis as such arrangements, plans, policies, and programs are applicable or made available to the other senior executives of the Company or any subsidiary or affiliate of the Company, and (z) whether now existing or established hereafter, including (a) all accidental death, business travel insurance, death benefits, dental, disability (including short-term disability and long-term disability), flexible spending accounts, health, hospitalization, life insurance, long term care, medical, prescription drug, salary continuation, sickness, surgical, vacation, vision, welfare, wellness, and similar arrangements, plans, policies, or programs, and (b) all change in control, deferred compensation, deferred stock unit, executive compensation, incentive (or other) bonus (whether short-term, long-term, or otherwise), other equity-based compensation, pension, profit sharing, restricted stock, restricted stock unit, retention, retirement, savings, stock appreciation right, stock option, stock purchase, supplemental retirement, and similar arrangements, plans, policies, and programs (collectively, the “Benefit Plans”). The Company agrees that your eligible dependents shall have the right to participate in all Benefit Plans as permitted in accordance with the applicable terms of the respective Benefit Plan and that the Company’s medical and hospital plan shall provide coverage for your eligible dependents.

 

(i) Definitions:

 

A. “Continuous Service Status” means the absence of any interruption or termination of service as an employee or consultant of the Company. Continuous Service Status as an employee or consultant shall not be considered interrupted or terminated in the case of: (i) Company approved sick leave; (ii) military leave; (iii) any other bona fide leave of absence approved by the Board, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to a written Company policy. Also, Continuous Service Status as an employee or consultant shall not be considered interrupted or terminated in the case of a transfer between locations of the Company or between the Company, its parents, subsidiaries or affiliates, or their respective successors, or a change in status from an employee to a consultant or from a consultant to an employee.

 

B. “Involuntary Termination” means (unless another definition is provided in the applicable equity grant documents, employment agreement or other applicable written agreement) the termination of your Continuous Service Status (i) other than for death or Permanent Disability (as defined below) or for Cause by the Company or a subsidiary, parent, affiliate or successor thereto, as appropriate, or (ii) for Good Reason.

 

C. “Triggering Event” means:

 

(x) a sale, transfer or disposition of all or substantially all of the Company’s assets other than to (A) a corporation or other entity of which at least a majority of its combined voting power is owned directly or indirectly by the Company, (B) a corporation or other entity owned directly or indirectly by the holders of capital stock of the Company in substantially the same proportions as their ownership of Common Stock, or (C) an Excluded Entity (as defined in subsection (ii) below); or

 

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(y) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity or person, other than a transaction with or into another corporation, entity or person in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding in the continuing entity or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction (an “Excluded Entity”).

 

(z) Notwithstanding anything stated herein, a transaction shall not constitute a “Triggering Event” if: (i) its sole purpose is to change the state of the Company’s incorporation, or to create a holding company that will be owned in substantially the same proportions by the persons who hold the Company’s securities immediately before such transaction or (ii) results from a decrease in ownership percentage of SRAX, Inc. as a result of the Company issuing securities other than in connection with the events described in Section 2(i)(C)(x) and (y). For clarity, the term “Triggering Event” as defined herein shall not include stock sale transactions whether by the Company or by the holders of capital stock other than in connection with the events described in Section 2(i)(C)(x) and (y).

 

3. Vacation/PTO and Employee Benefits. During your Employment, you shall be eligible to accrue up to 14 days of paid vacation / paid time off, pro-rated for the remainder of this calendar year, in accordance with the Company’s vacation / paid time off policy, as it may be amended from time to time. Any unused vacation/paid time off days shall be rolled over to the next year (not to exceed 10 days). During your Employment, you shall be eligible to participate in the employee benefit plans maintained by the Company and generally available to similarly situated employees of the Company, subject in each case to the generally applicable terms and conditions of the plan in question and to the determinations of any person or committee administering such plan.

 

4. Business Expenses. The Company will reimburse you for your necessary and reasonable business expenses incurred in connection with your duties hereunder upon presentation of an itemized account and appropriate supporting documentation, all in accordance with the Company’s generally applicable policies.

 

5. Clawback Provisions. If the Company is required to adopt a clawback policy pursuant to any applicable law, government regulation or stock exchange listing requirement, you agree to enter into the same clawback arrangement as applicable to all senior management of the Company.

 

6. Termination.

 

(a) Employment at Will. Your Employment shall be “at will,” meaning that either you or the Company shall be entitled to terminate your Employment at any time and for any reason, with or without Cause or Good Reason. Any contrary representations that may have been made to you shall be superseded by this Agreement. This Agreement shall constitute the full and complete agreement between you and the Company on the “at-will” nature of your Employment, which may only be changed in an express written agreement signed by you and a duly authorized officer of the Company.

 

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(b) Rights Upon Termination. Except as expressly provided in Section 6, upon the termination of your Employment, you shall only be entitled to the compensation and benefits earned and the reimbursements described in this Agreement for the period preceding the effective date of the termination.

 

7. Termination Benefits.

 

(a) General Release. Any other provision of this Agreement notwithstanding, Section 2(d) and subsections (b) and (c) below shall not apply unless and until (i) you have executed (and do not revoke) a full and complete mutual general release of all claims in a reasonable form provided by the Company and (ii) you have returned all Company property.

 

(b) Severance Pay. If, during the term of this Agreement, the Company terminates your Employment for any reason other than Cause, death or Permanent Disability or you terminate this Agreement for Good Reason, then, in addition to the amounts payable in accordance with Section 6(b), (i) the Company shall pay you severance pay at a rate equal to your Base Salary in effect at the time of termination of your Employment for a period of twelve (12) months following the termination of your Employment (the “Continuation Period”), and (ii) any and all of your outstanding unvested equity awards of the Company shall accelerate and become fully exercisable, and any repurchase right of the Company as a result of the Triggering Event applicable to such equity award shall lapse as to all of the number of shares of capital stock of the Company underlying such equity awards. Such severance pay shall be paid in accordance with the Company’s standard payroll procedures on the Company’s payroll dates and shall be subject to all applicable withholdings; provided that, if the Company’s stock becomes publicly traded on an established securities market, such severance pay shall be paid in a single lump-sum cash payment on the six (6) month anniversary of the employment termination date to the extent required by Code section 409A.

 

(c) Health Insurance. If subsection (b) above applies, and if you elect to continue and pay your health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) following the termination of your Employment, then the Company shall pay your monthly premium under COBRA until the earliest of (i) the end of the Continuation Period, (ii) the expiration of your continuation coverage under COBRA or (iii) the date when you receive substantially equivalent health insurance coverage in connection with new employment or self-employment.

 

(d) Definition of “Cause.” For all purposes under this Agreement, “Cause” shall mean:

 

(i) Any breach by you of this Agreement, the Confidential Information and Invention Assignment Agreement between you and the Company, or any other written agreement between you and the Company, in any case which is not cured by you within thirty (30) days after the Company provides to you written notice thereof with reasonable detail of the nature of such breach;

 

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(ii) Any failure by you to comply with the Company’s written policies or rules, as they may be in effect from time to time during your Employment, that are generally applicable to all employees or officers of the Company and that results or which could be reasonably expected to result in a material negative effect on the business of the Company, but solely to the extent such policies were made available to you prior to such failure;

 

(iii) Your repeated and continuous failure to follow reasonable and lawful instructions from the Company or the Board of the Company and your failure to cure such condition after receiving 20 days advance written notice. For the purposes of this Section “repeated” means more than two (2) times;

 

(iv) A plea of “guilty” or “no contest” to any charge of a felony requiring intent under the laws of the United States or any State thereof, or your conviction of a felony requiring intent under the laws of the United States or any State thereof, after the exhaustion of all possible appeals, in each case excluding any Limited Vicarious Liability (as hereinafter defined). For the purposes hereof, “Limited Vicarious Liability” means any liability that (x) is based on acts or omissions of the Company for which you are responsible solely as a result of his offices with the Company, where you were not directly involved in such acts or omissions and either had no prior knowledge of such intended acts or omissions or upon obtaining any such knowledge promptly acted reasonably and in good faith to attempt to prevent the acts or omissions causing such liability, or (y) you did not have a reasonable basis to believe that any applicable law was being violated by such acts or omissions; or

 

(v) Your misappropriation of funds or property of the Company;

 

(vi) Any gross or willful misconduct by you which is not cured by you within thirty (30) days prior written notice by the Company to you. For the purposes hereof: (i) any act or omission (including any refusal or violation) by you is “willful” only if the same is not in good faith and is without the reasonable belief by you that such act or omission is in the best interests of the Company; and (ii) any act or omission by you based upon any authority granted pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company in each case is presumed to be in good faith and in the best interests of the Company. For avoidance of doubt, “Cause” does not include (i) differences of opinion with respect to strategy or implementation of business plans, (ii) the success or lack of success of any such strategy or implementation, or (iii) any failure to achieve any performance or economic objectives, whether relating to you, the Company, or otherwise.

 

Notwithstanding anything to the contrary contained herein, no cessation of your employment with the Company shall be deemed to be for Cause unless, on or before the six month anniversary of the first date the Board has knowledge of the act or omission alleged to constitute Cause, or if later, the last day of the applicable Cause cure period, the Company delivers to you a copy of a resolution duly adopted by the affirmative vote of a majority of the Board (excluding you if you are a member thereof) at a meeting called and held for such purpose (i) finding that, in the good faith opinion of the Board, your conduct constitutes Cause hereunder, and (ii) authorizing the termination of your employment for Cause.

 

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(e) Definition of “Good Reason.” For all purposes under this Agreement, “Good Reason” shall mean:

 

(i) a reduction in your then-current base salary or then-current Target Bonus, or the Company’s failure to pay you any other material amounts owed to you within thirty (30) days after the date such payment was due to you under this Agreement; provided, that Good Reason shall not be deemed to exist if the Company reduces your then-current base salary or then-current Target Bonus at the same percentage as applied to all other senior executives of the Company;

 

(ii) the assignment to you of any authorities, duties, functions, offices, positions, or responsibilities, that materially impair your ability to function as the CEO of the Company (or any other position in which you are then serving) or the assignment to you of any duties that are materially inconsistent with any of the provisions of Section 1(a);

 

(iii) the Company failing to comply with Section 11(g); or

 

(iv) or any other material breach of this Agreement by the Company.

 

(f) Definition of “Permanent Disability.” For all purposes under this Agreement, “Permanent Disability” shall mean your inability to perform the essential functions of your position with or without reasonable accommodation for a period of 120 consecutive days because of your physical or mental impairment.

 

8. Non-Solicitation. During the period commencing on the date of this Agreement and continuing until the date when your Employment terminated for any reason, you shall not directly or indirectly, personally or through others, solicit or attempt to solicit (on your own behalf or on behalf of any other person or entity) either (i) any employee or any consultant of the Company or any of the Company’s affiliates or (ii) the business of any customer of the Company or any of the Company’s affiliates on whom you called or with whom you became acquainted during your Employment.

 

9. Pre-Employment Conditions.

 

(a) Confidentiality Agreement. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company’s Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the “Confidentiality Agreement”), prior to or on your Start Date.

 

(b) Right to Work. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your Start Date, or our employment relationship with you may be terminated.

 

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(c) Verification of Information. This offer of employment is also contingent upon the successful verification of the information you provided to the Company during your application process, as well as a general background check performed by the Company to confirm your suitability for employment. By accepting this offer of employment, you warrant that all information provided by you is true and correct to the best of your knowledge, you agree to execute any and all documentation necessary for the Company to conduct a background check and you expressly release the Company from any claim or cause of action arising out of the Company’s verification of such information.

 

(d) Financing. This offer of employment and your commencement of employment with the Company is contingent on the Company securing financing resulting in gross proceeds of $3,000,000 on or before February 1, 2021.

 

(e) Merger. This offer of employment and your commencement of employment with the Company is contingent on closing of the Merger. For the avoidance of doubt, this Agreement shall automatically become effective upon the satisfaction of the conditions in this Section 9.

 

10. Successors.

 

(a) Company’s Successors. This Agreement shall be binding upon any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business or assets that becomes bound by this Agreement.

 

(b) Your Successors. This Agreement and all of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

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11. Miscellaneous Provisions.

 

(a) Indemnification. The Company shall indemnify you and hold harmless to the maximum extent permitted by applicable law from and against any and all expenses (including, without limitation, reasonable attorneys’ fees, fees of experts, witness fees, fees of other professional advisors, other disbursements incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, appealing, or participating in a Proceeding (as hereinafter defined), bonds, all interest, assessments, and other charges paid or payable in connection with or in respect of the foregoing, and any federal, state, local, or foreign taxes imposed on you as a result of the actual or deemed receipt of any payments pursuant to this Section 11 (all of the foregoing, collectively, “Expenses”), demands, claims, damages, judgments, penalties, fines, settlements, and all other liabilities incurred or paid by you, or on your behalf, in connection with the investigation, defense, prosecution, settlement or appeal(s) of any threatened, pending or completed action, suit, proceeding, alternative dispute resolution mechanism, investigation, inquiry, or hearing (including any administrative hearing), whether civil, criminal, administrative or investigative and to which you were or are a party or other participant or is threatened to be made a party or other participant (a “Proceeding”), or any claim, issue, or matter therein (including any Proceeding brought by or in the right of the Company or any of its subsidiaries or affiliates), by reason of or arising from the fact that you are or were a director, officer, employee, agent, or fiduciary of the Company or of any subsidiary or affiliate of the Company or, at the request of the Company, of any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise in connection with your employment by the Company or at the direction of the Company or any of its affiliates, or by reason of or arising from anything done or not done by you in any such capacity or capacities, (including any Proceeding, or any claim, issue, or matter therein, by reason of or arising from: any actual or alleged breach by you of your fiduciary duty as a director or officer of the Company or of any subsidiary or affiliate of the Company; the registration, purchase, sale, or ownership of any securities of the Company, the Merger or any fiduciary obligation owed with respect thereto; or any misstatement or omission of material fact by the Company in violation of any duty of disclosure imposed on the Company by any federal, state, or foreign securities or common laws), provided that you acted in good faith and in a manner that was not grossly negligent and you reasonably believed to be in or not opposed to the best interests of the Company or such other subsidiary or affiliate of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe your conduct was unlawful. The Company also shall pay any and all Expenses incurred by you as a result of you being called as a witness in connection with any matter involving the Company, any other any subsidiary or affiliate of the Company, or any of its or their respective officers or directors. The Company shall pay any Expenses, judgments, penalties, fines, settlements, and other liabilities incurred by you in investigating, defending, settling or appealing any Proceeding described in this Section in advance of the final disposition of such Proceeding, as such Expenses, judgments, penalties, fines, settlements, and other liabilities come due. The Company shall promptly pay the amount of such Expenses, judgments, penalties, fines, settlements, and other liabilities to you, but, in respect of advances of Expenses, in no event later than ten (10) days following your delivery to the Company of a written request for an advance pursuant hereto, together with a reasonable accounting of such Expenses, and in respect of all other indemnification payments, in no event later than thirty (30) days following your delivery to Company of a written request therefor, together with such reasonable accounting or other applicable supporting information. The Company shall make the advances contemplated by this Section regardless of your financial ability to make repayment, and regardless whether indemnification of you by the Company will ultimately be required. Any advances and undertakings to repay pursuant to this Section shall be unsecured and interest-free. Your rights pursuant to this Section shall be in addition to any other rights you may now or hereafter have under the Company’s certificate of incorporation or bylaws (as now or hereafter in effect), any agreement, any vote of stockholders or directors, applicable law, or otherwise. To the extent that a change in applicable law (whether by statute, judicial decision, or otherwise) permits greater indemnification that would be afforded currently under the Company’s certificate of incorporation or bylaws, applicable law, any other agreement, or this Section, it is the intent of the Parties that Executive enjoy by this Section the greater benefits so afforded by such change. Notwithstanding the foregoing, the Company will not be obligated to pay or reimburse any Expenses in connection with any Proceedings from a breach of any of your pre-existing obligation as a result of your employment with the Company.

 

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(b) Insurance. You shall also be covered under a directors and officers liability insurance policy paid for by the Company to the extent that the Company maintains such a liability insurance policy now or in the future. The Company represents and warrants that SRAX, Inc. currently maintains such insurance that covers the Company, the post-Merger company (including the public company into which the Company shall merge with and into as a result of the Merger) and their respective officers and directors (collectively, the “Covered Persons”). If any time that SRAX Policy no longer covers the Covered Persons. The Company agrees that (i) from such date and during the remaining portion of your employment period the Company, the Company will maintain in full force and effect directors’ and officers’ liability insurance that has a liability limit of not less than Five Million Dollars ($5,000,000); (ii) in such insurance policy or policies maintained by the Company, you shall be named as an insured in such a manner as to provide the same rights and benefits as are accorded to the most favorably insured of the Company’s officers or directors, and (iii) such policy or policies shall include a “tail” for coverage for claims made within a minimum of three (3) years following the end of your employment period.

 

(c) Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In your case, mailed notices shall be addressed to you at the home address that you most recently communicated to the Company in writing, with a copy (which shall not constitute notice) to Jonathan Shechter, Esq., at js@foleyshechter.com. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

 

(d) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by you and by an authorized officer of the Company (other than you). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

 

(e) Whole Agreement. No other agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement and the Confidentiality Agreement contain the entire understanding of the parties with respect to the subject matter hereof.

 

(f) Withholding Taxes. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law.

 

(g) Choice of Law and Severability. This Agreement shall be interpreted in accordance with the laws of the State of California without giving effect to provisions governing the choice of law. If any provision of this Agreement becomes or is deemed invalid, illegal or unenforceable in any applicable jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the minimum extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision shall be stricken and the remainder of this Agreement shall continue in full force and effect. If any provision of this Agreement is rendered illegal by any present or future statute, law, ordinance or regulation (collectively, the “Law”) then that provision shall be curtailed or limited only to the minimum extent necessary to bring the provision into compliance with the Law. All the other terms and provisions of this Agreement shall continue in full force and effect without impairment or limitation.

 

11
 

 

(h) No Assignment. This Agreement and each party’s rights and obligations hereunder are personal to such party and may not be transferred or assigned by such party at any time; provided, that the Company may assign its rights and obligations under this Agreement to any entity that assumes the Company’s obligations hereunder in connection with any sale or transfer of all or substantial all of the Company’s assets to such entity.

 

(i) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

(j) Financing. You agree to assist the Company with its efforts to secure financing for the Company, through the sale of its securities or otherwise, resulting in gross proceeds of approximately $3,000,000.

 

[Signature Page Follows]

 

12
 

 

We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated original copy of the Confidentiality Agreement, on or before «ReplyDate». The Company requests that you begin work in this new position on or before «StartDate». Please indicate the date (either on or before the aforementioned date) on which you expect to begin work in the space provided below (the “Start Date”).

 

    Very truly yours,
       
    BIG tOKEN, inc.
       
    By:  
      (Signature)
       
    Name:  
       
    Title:  

 

ACCEPTED AND AGREED:    
     
lou kerner    
     
     
(Signature)    
     
     
Date    

 

Anticipated Start Date:    
     
Attachment A: Confidential Information and Invention Assignment Agreement

 

13
 

 

Exhibit A

 

Outside Activities, Investments and Board Positions

 

1. CryptoOracle LLC - spinning out assets to shareholders, monetizing CryptoMondays, a Meetup group active in more than a dozen cities around the world

 

2. Blockchain Coinvestors Syndicate on AngelList - with over 150LPs, the syndicate sources investments in blockchain/crypto projects and makes them available for our LPs

 

3. SWAG - a personal token project in development

 

4. Advisor

 

  1. SilverCastle - an Israeli digital asset manager
     
  2. TNS Total Network Services (BoD) - cloud infrastructure, domain names, blockchain technology
     
  3. Vesto - white label platform for banks to offer cryptocurrency related services
     
  4. Quantum Economics - crypto analysis, advisory, and money management
     
  5. Blockchain Coinvestors - a crypto- fund-of-funds
     
  6. Detomena - a blockchain data company

 

 
 

 

ATTACHMENT A

 

CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT

 

(See Attached)

 

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Exhibit 10.07

 

FORCE PROTECTION VIDEO EQUIPMENT CORPORATION

 

CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT

 

Candidate Name:

 

Effective Date:

 

As a condition of my becoming employed (or my employment being continued) by Force Protection Video Equipment Corporation, a Florida corporation, or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the “Company”), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following:

 

1. Relationship. This Agreement will apply to my employment relationship with the Company. If that relationship ends and the Company, within a year thereafter, either re-employs me or engages me as a consultant, I agree that this Agreement will also apply to such later employment or consulting relationship, unless the Company and I otherwise agree in writing. Any such employment or consulting relationship between the Company and me, whether commenced prior to, upon or after the date of this Agreement, is referred to herein as the “Relationship.”

 

2. Duties. I will perform for the Company such duties as may be designated by the Company from time to time or that are otherwise within the scope of the Relationship and not contrary to instructions from the Company. During the Relationship, I will devote my entire best business efforts to the interests of the Company and will not engage in other employment or in any activities detrimental to the best interests of the Company without the prior written consent of the Company.

 

3. Confidential Information.

 

(a) Protection of Information. I agree, at all times during the term of the Relationship and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company to the extent necessary to perform my obligations to the Company under the Relationship, and not to disclose to any person, firm, corporation or other entity, without written authorization from the Company in each instance, any Confidential Information (as defined below) that I obtain, access or create during the term of the Relationship, whether or not during working hours, until such Confidential Information becomes publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. I further agree not to make copies of such Confidential Information except as authorized by the Company.

 

(b) Confidential Information. I understand that “Confidential Information” means information and physical material not generally known or available outside the Company and information and physical material entrusted to the Company in confidence by third parties. Confidential Information includes, without limitation: (i) Company Inventions (as defined below); (ii) technical data, trade secrets, know-how, research, product or service ideas or plans, software codes and designs, developments, inventions, laboratory notebooks, processes, formulas, techniques, biological materials, mask works, engineering designs and drawings, hardware configuration information, lists of, or information relating to, suppliers and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), price lists, pricing methodologies, cost data, market share data, marketing plans, licenses, contract information, business plans, financial forecasts, historical financial data, budgets or other business information disclosed to me by the Company either directly or indirectly, whether in writing, electronically, orally, or by observation.

 

-1-
 

  

(c) Third Party Information. My agreements in this Section 3 are intended to be for the benefit of the Company and any third party that has entrusted information or physical material to the Company in confidence.

 

(d) Other Rights. This Agreement is intended to supplement, and not to supersede, any rights the Company may have in law or equity with respect to the protection of trade secrets or confidential or proprietary information.

 

4. Ownership of Inventions.

 

(a) Inventions Retained and Licensed. I have attached hereto, as Exhibit A, a complete list describing with particularity all Inventions (as defined below) that, as of the Effective Date, belong solely to me or belong to me jointly with others, and that relate in any way to any of the Company’s proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Inventions at the time of signing this Agreement.

 

(b) Use or Incorporation of Inventions. If in the course of the Relationship, I use or incorporate into a product, process or machine any Invention not covered by Section 4(d) of this Agreement in which I have an interest, I will promptly so inform the Company. Whether or not I give such notice, I hereby irrevocably grant to the Company a nonexclusive, fully paid-up, royalty-free, assumable, perpetual, worldwide license, with right to transfer and to sublicense, to practice and exploit such Invention and to make, have made, copy, modify, make derivative works of, use, sell, import, and otherwise distribute under all applicable intellectual properties without restriction of any kind.

 

(c) Inventions. I understand that “Inventions” means discoveries, developments, concepts, designs, ideas, know how, improvements, inventions, trade secrets and/or original works of authorship, whether or not patentable, copyrightable or otherwise legally protectable. I understand this includes, but is not limited to, any new product, machine, article of manufacture, biological material, method, procedure, process, technique, use, equipment, device, apparatus, system, compound, formulation, composition of matter, design or configuration of any kind, or any improvement thereon. I understand that “Company Inventions” means any and all Inventions that I may solely or jointly author, discover, develop, conceive, or reduce to practice during the period of the Relationship, except as otherwise provided in Section 4(g) below.

 

(d) Assignment of Company Inventions. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title and interest throughout the world in and to any and all Company Inventions. I further acknowledge that all Company Inventions that are made by me (solely or jointly with others) within the scope of and during the period of the Relationship are “works made for hire” (to the greatest extent permitted by applicable law) and are compensated by my salary. I hereby waive and irrevocably quitclaim to the Company or its designee any and all claims, of any nature whatsoever, that I now have or may hereafter have for infringement of any and all Company Inventions.

 

-2-
 

 

(e) Maintenance of Records. I agree to keep and maintain adequate and current written records of all Company Inventions made by me (solely or jointly with others) during the term of the Relationship. The records may be in the form of notes, sketches, drawings, flow charts, electronic data or recordings, laboratory notebooks, or any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company’s place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company’s business. I agree to deliver all such records (including any copies thereof) to the Company at the time of termination of the Relationship as provided for in Sections 5 and 6.

 

(f) Patent and Copyright Rights. I agree to assist the Company, or its designee, at its expense, in every proper way to secure the Company’s, or its designee’s, rights in the Company Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company or its designee of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company or its designee shall deem necessary in order to apply for, obtain, maintain and transfer such rights, or if not transferable, waive such rights, and in order to assign and convey to the Company or its designee, and any successors, assigns and nominees the sole and exclusive right, title and interest in and to such Company Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue during and at all times after the end of the Relationship and until the expiration of the last such intellectual property right to expire in any country of the world. I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters of patents, copyright, mask work and other registrations related to such Company Inventions. This power of attorney is coupled with an interest and shall not be affected by my subsequent incapacity.

 

(g) Exception to Assignments. I understand that the Company Inventions will not include, and the provisions of this Agreement requiring assignment of inventions to the Company do not apply to, any invention which qualifies fully for exclusion under the provisions of applicable state law or federal laws, if any. In order to assist in the determination of which inventions qualify for such exclusion, I will advise the Company promptly in writing, during and after the term of the Relationship, of all Inventions solely or jointly conceived or developed or reduced to practice by me during the period of the Relationship.

 

5. Company Property; Returning Company Documents. I acknowledge and agree that I have no expectation of privacy with respect to the Company’s telecommunications, networking or information processing systems (including, without limitation, files, e-mail messages, and voice messages) and that my activity and any files or messages on or using any of those systems may be monitored at any time without notice. I further agree that any property situated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. I agree that, at the time of termination of the Relationship, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any of the aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns.

 

-3-
 

 

6. Termination Certification. In the event of the termination of the Relationship, I agree to sign and deliver the “Termination Certification” attached hereto as Exhibit B; however, my failure to sign and deliver the Termination Certification shall in no way diminish my continuing obligations under this Agreement.

 

7. Notice to Third Parties. I understand and agree that the Company may, with or without prior notice to me and during or after the term of the Relationship, notify third parties of my agreements and obligations under this Agreement.

 

8. Solicitation of Employees, Consultants and Other Parties. I agree that during the term of the Relationship, and for a period of twenty-four (24) months immediately following the termination of the Relationship for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees or consultants to terminate their relationship with the Company, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, during the Relationship and at any time following the termination of the Relationship for any reason, whether with or without cause, I shall not use any Confidential Information of the Company to negatively influence any of the Company’s clients or customers from purchasing Company products or services or to solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.

 

9. At-Will Relationship. I understand and acknowledge that, except as may be otherwise explicitly provided in a separate written agreement between the Company and me, my Relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability, other than those provisions of this Agreement that explicitly survive the termination of the Relationship.

 

10. Representations and Covenants.

 

(a) Facilitation of Agreement. I agree to execute promptly, both during and after the end of the Relationship, any proper oath, and to verify any proper document, required to carry out the terms of this Agreement, upon the Company’s written request to do so.

 

(b) No Conflicts. I represent that my performance of all the terms of this Agreement does not and will not breach any agreement I have entered into, or will enter into, with any third party, including without limitation any agreement to keep in confidence proprietary information or materials acquired by me in confidence or in trust prior to or during the Relationship. I will not disclose to the Company or use any inventions, confidential or non-public proprietary information or material belonging to any previous client, employer or any other party. I will not induce the Company to use any inventions, confidential or non-public proprietary information, or material belonging to any previous client, employer or any other party. I acknowledge and agree that I have listed on Exhibit A all agreements (e.g., non-competition agreements, non-solicitation of customers agreements, non-solicitation of employees agreements, confidentiality agreements, inventions agreements, etc.), if any, with a current or former client, employer, or any other person or entity, that may restrict my ability to accept employment with the Company or my ability to recruit or engage customers or service providers on behalf of the Company, or otherwise relate to or restrict my ability to perform my duties for the Company or any obligation I may have to the Company. I agree not to enter into any written or oral agreement that conflicts with the provisions of this Agreement.

 

-4-
 

 

(c) Voluntary Execution. I certify and acknowledge that I have carefully read all of the provisions of this Agreement, that I understand and have voluntarily accepted such provisions, and that I will fully and faithfully comply with such provisions.

 

11. General Provisions.

 

(a) Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws.

 

(b) Entire Agreement. This Agreement, along with the employment agreement between myself and the Company of even date herewith (“Employment Agreement”) sets forth the entire agreement and understanding between the Company and me relating to its subject matter and merges all prior discussions between us. No amendment to this Agreement will be effective unless in writing signed by both parties to this Agreement. The Company shall not be deemed hereby to have waived any rights or remedies it may have in law or equity, nor to have given any authorizations or waived any of its rights under this Agreement, unless, and only to the extent, it does so by a specific writing signed by a duly authorized officer of the Company, it being understood that, even if I am an officer of the Company, I will not have authority to give any such authorizations or waivers for the Company under this Agreement without specific approval by the Board of Directors. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement.

 

(c) Severability. If one or more of the provisions in this Agreement are deemed void or unenforceable to any extent in any context, such provisions shall nevertheless be enforced to the fullest extent allowed by law in that and other contexts, and the validity and force of the remainder of this Agreement shall not be affected.

 

(d) Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives, and my successors and assigns, and will be for the benefit of the Company, its successors, and its assigns.

 

(e) Remedies. I acknowledge and agree that violation of this Agreement by me may cause the Company irreparable harm, and therefore agree that the Company will be entitled to seek extraordinary relief in court, including, but not limited to, temporary restraining orders, preliminary injunctions and permanent injunctions without the necessity of posting a bond or other security (or, where such a bond or security is required, I agree that a $1,000 bond will be adequate), in addition to and without prejudice to any other rights or remedies that the Company may have for a breach of this Agreement.

 

(f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

 

-5-
 

 

The parties have executed this Agreement on the respective dates set forth below, to be effective as of the Effective Date first above written.

  

COMPANY:   EMPLOYEE:
     
FORCE PROTECTION VIDEO EQUIPMENT CORPORATION      
       
By:      
       
       
Name:    
    (Signature)
     
Title:      
       
       
Date:   Date:  
       
       
Address:   Address:  
       

 

-6-
 

 

EXHIBIT A

 

LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
EXCLUDED UNDER SECTION 4(a)

 


Title
 
Date
  Identifying Number
or Brief Description
         

 

 

___ No inventions, improvements, or original works of authorship

 

___ Additional sheets attached

 

Signature of Employee:    
     
Print Name of Employee:    

 

Date:    

 

 
 

 

EXHIBIT B

 

TERMINATION CERTIFICATION

 

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to Force Protection Video Equipment Corporation, a Florida corporation, its subsidiaries, affiliates, successors or assigns (collectively, the “Company”).

 

I further certify that I have complied with all the terms of the Company’s Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any Inventions (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement.

 

I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.

 

I further agree that for twenty-four (24) months from the date of this Certification, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees or consultants to terminate their relationship with the Company, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, I shall not at any time use any Confidential Information of the Company to negatively influence any of the Company’s clients or customers from purchasing Company products or services or to solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.

 

Date:    
   
     

 

 

 

 

Exhibit 10.08

 

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (“Agreement”) is entered into as of the [*]th day of [*], [*] by and between Force Protection Video Equipment Corporation (the “Company”), and [*] (“Indemnitee”).

 

RECITALS

 

A. The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company’s directors and officers, the significant increases in cost of such insurance and the general reductions in the coverage of such insurance.

 

B. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors and officers to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.

 

C. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to continue to provide services to the Company, wishes to provide for the indemnification and advancing of expenses to Indemnitee to the maximum extent permitted by law.

 

D. In view of the considerations set forth above, the Company desires that Indemnitee be indemnified by the Company as set forth herein.

 

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

 

AGREEMENT

 

1. Indemnification.

 

(a) Indemnification of Expenses. The Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a “Claim”) by reason of (or arising in part out of) any event or occurrence related to the fact that Indemnitee is or was a director or officer of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity (hereinafter an “Indemnifiable Event” ) against any and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), losses, claims, damages, liabilities, judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses (collectively, hereinafter “Expenses”) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action, suit or proceeding, Indemnitee had no reasonable cause to believe Indemnitee’s conduct was unlawful.

 

1

 

 

(b) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 7 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of a Claim without prejudice, in defense of any Claim referred to in Section (1)(a) hereof or in the defense of any Claim, issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith.

 

2. Expenses; Indemnification Procedure.

 

(a) Advancement of Expenses. The Company shall pay all Expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal Claim referenced in Section 1(a) hereof in advance of the final disposition of such Claim. Indemnitee shall deliver to the Company an Undertaking, substantially in the form of Exhibit A hereto, whereby Indemnitee undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee following a request therefor, but in any event no later than forty-five days after receipt by the Company of written demand from Indemnitee for such advances.

 

(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee’s right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification or advancement will or could be sought under this Agreement. Notice to the Company shall be directed to the General Counsel of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). The failure to promptly notify the Company of the commencement of the action, suit or proceeding, or of Indemnitee’s request for indemnification, will not relieve the Company from any liability that it may have to Indemnitee hereunder or otherwise, except to the extent the Company is actually and materially prejudiced in its defense of such action, suit or proceeding as a result of such failure or delay, and any such failure or delay shall not constitute a waiver by Indemnitee of any rights under this Agreement or otherwise. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to enable the Company to determine whether and to what extent Indemnitee is entitled to indemnification.

 

(c) Procedure. Any indemnification and advances of Expenses provided for in Section 1 and Section 2 of this Agreement shall be paid by the Company to Indemnitee as soon as practicable after receipt of written request from Indemnitee for such indemnification or advances along with appropriate written documentation verifying such Expenses, but in any event no later than forty-five days after receipt of such request. If the Company believes that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the Expenses claimed, the Company may file an action in the Court of Chancery of the State of Delaware to obtain a declaratory judgment that Indemnitee is not entitled under applicable law to receive indemnification or advancement from the Company (hereinafter a “Declaratory Action”). If the Company files a Declaratory Action, Indemnitee shall be entitled to receive interim payments of Expenses pursuant to Subsection 2(a) including Expenses incurred in defending a Declaratory Action unless and until the Court of Chancery of the State of Delaware issues an order or judgment that Indemnitee is not entitled under applicable law to receive indemnification or advancement from the Company. If the Court of Chancery of the State of Delaware issues an order or judgment in a Declaratory Action that Indemnitee is not entitled under applicable law to receive indemnification or advancement from the Company, the Company shall have no further obligation under this Agreement, the Company’s Certificate of Incorporation, the Company Bylaws or any other applicable law, statute or rule to provide indemnification or advances of Expenses to Indemnitee and Indemnitee shall be responsible for repaying all such amounts previously advanced to Indemnitee as provided in Section 2(a).

 

2

 

 

(d) No Presumptions. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

 

(e) Burden of Proof. In a Declaratory Action, the burden of proof shall be on the Company to establish that Indemnitee is not entitled to indemnification or advances.

 

(f) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.

 

(g) Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim. Notwithstanding the Company’s assumption of the defense of any Claim, the Company shall be obligated to pay the Expenses of any Claim if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) the Company shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense such that Indemnitee needs to be separately represented, or (C) the Company shall not continue to retain counsel to defend such Claim, then the fees and expenses of counsel retained by Indemnitee shall be at the expense of the Company. The Company shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any Claim against Indemnitee without the consent of the Indemnitee; provided, that in no event shall the Company have the right to settle any Claim that imposes non-monetary penalties on Indemnitee without the prior written consent of Indemnitee which may be granted or withheld in Indemnitee’s sole discretion.

 

3. Additional Indemnification Rights; Nonexclusivity.

 

(a) Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, the Company’s Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 7(a) hereof.

 

(b) Nonexclusivity. The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.

 

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4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Certificate of Incorporation, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder.

 

5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of Expenses incurred in connection with any Claim, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

 

6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

 

7. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

 

(a) Excluded Action or Omissions. To indemnify (i) any Claim by or in the right of the Company as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware or such other court in which such Claim was brought, shall determine upon application that despite the adjudication of liability, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses such court shall deem proper, or (ii) any other acts, omissions or transactions from which Indemnitee may not be relieved of liability under applicable law;

 

(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to Claims brought to establish or enforce a right to indemnification or advancement under this Agreement or any other agreement or insurance policy or under the Company’s Certificate of Incorporation or Bylaws, as now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be;

 

(c) Claims Under Section 16(b). To indemnify Indemnitee for Expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

 

(d) Disgorgement of Profits and Bonuses Pursuant to Section 304. To indemnify Indemnitee for (i) any bonus or other incentive-based or equity-based compensation received by Indemnitee or (ii) any profits arising from the sale of securities made by Indemnitee that Indemnitee is required pursuant to Section 304 of the Sabarnes-Oxley Act of 2002 to reimburse to the Company.

 

8. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

 

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9. Construction of Certain Phrases.

 

(a) For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

 

(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

 

10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

 

11. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise at the Company’s request.

 

12. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission with confirmation of receipt, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee address as set forth beneath Indemnitee signatures to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten days’ advance written notice to the other party hereto.

 

13. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.

 

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14. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 

15. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.

 

16. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

17. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

 

18. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

 

19. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

  Force Protection Video Equipment Corporation Inc.
                    
     
  By: [*]
  Title: [*]

 

AGREED TO AND ACCEPTED BY:  
      
Signature:    

 

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EXHIBIT A — GENERAL FORM OF UNDERTAKING FOR ADVANCEMENT OF EXPENSES

 

1. This instrument (this “Undertaking”) is being executed by the undersigned in favor of [*], Inc. a Florida corporation (the “Corporation”), pursuant to that certain Indemnification Agreement, made as of [*] (the “Indemnification Agreement”), by and between the Corporation and the undersigned.

 

2. I am requesting advancement of expenses which have been or will be actually and reasonably incurred by me or on my behalf in connection with a proceeding to which I am a party or am threatened to be made a party, or in which I am or may be participating, by reason of my status as a director, officer or fiduciary of the Company.

 

3. With respect to all matters related to such proceeding, I believe I acted in good faith and in a manner I reasonably believed to be in or not opposed to the best interests of the Corporation or its affiliates, and, with respect to any criminal proceeding, I had no reasonable cause to believe that my conduct was unlawful.

 

4. I hereby undertake to repay any advancement of expenses if it shall ultimately be determined by final judicial decision from which there is no further right to appeal or otherwise in accordance with Delaware law that I am not entitled to be so indemnified for such Expenses.

 

5. I am requesting advancement of Expenses in connection with the following matter: [PROVIDE DETAILS]

 

   
Name of Indemnitee:  
Dated:  

 

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Exhibit 10.09

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), is made as of January 28, 2021 by and among Force Protection Video Equipment Corporation, a Florida corporation (the “Company”), and the investor listed on Schedule A hereto, which is referred to in this Agreement as the “Investor”.

 

RECITALS

 

WHEREAS, the Company and the Investor are parties to that certain Share Exchange Agreement dated September 30, 2020, and any amendments thereto (the “Exchange Agreement”); and

 

WHEREAS, the Company has agreed to provide Investor with certain registration rights related to the shares issued pursuant to the Exchange Agreement;

 

NOW, THEREFORE, the parties hereby agree as follows:

 

Definitions. For purposes of this Agreement:

 

1.1 “Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or other investment fund now or hereafter existing that is controlled by one (1) or more general partners, managing members or investment adviser of, or shares the same management company or investment adviser with, such Person.

 

1.2 “Board of Directors” means the board of directors of the Company.

 

1.3 “Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.

 

1.4 “Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.

 

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

 

1.6 “Excluded Registration” means (i) a registration relating to the sale or grant of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, equity incentive or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.

 

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1.7 “Form S-1” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.

 

1.8 “Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits forward incorporation of substantial information by reference to other documents filed by the Company with the SEC.

 

1.9 “Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

 

1.10 “Registrable Securities” means the 149,562,566,534 shares of Common Stock held by the Investor that were issued pursuant to the Exchange Agreement.

 

1.11 “Restricted Securities” means the securities of the Company required to be notated with the legend set forth in Section 2.12(b) hereof.

 

1.12 “SEC” means the Securities and Exchange Commission.

 

1.13 “SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.

 

1.14 “SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.

 

1.15 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

1.16 “Selling Expenses” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for Investor, except for the fees and disbursements of the Selling Investor Counsel borne and paid by the Company as provided in Section 2.6.

 

2. Registration Rights. The Company covenants and agrees as follows:

 

2.1 Demand Registration.

 

(a) Form S-1 Demand. If at any time after the date of this Agreement, the Company receives a request from the Investor that the Company file a Form S-1 registration statement with respect to any amount outstanding of the Registrable Securities, then the Company shall within thirty (30) days after the date such request is given by the Investor, file a Form S-1 resale registration statement) under the Securities Act covering all Registrable Securities requested to be registered, subject to the limitations of Sections 2.1(c) and 2.3.

 

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(b) Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from the Investor that the Company file a Form S-3 registration statement with respect to any amount outstanding of the Registrable Securities, then the Company shall shall within thirty (30) days after the date such request is given by the Investor, file a Form S-3 resale registration statement under the Securities Act covering all Registrable Securities requested to be registered, subject to the limitations of Sections 2.1(c) and 2.3.

 

(c) Notwithstanding the foregoing obligations, if the Company furnishes to Investor, a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than thirty (30) days after the request of the Investor is given; provided, however, that the Company may not invoke this right more than once in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such thirty (30) day period other than an Excluded Registration.

 

2.2 Company Registration. If the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Investor) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration, a registration relating to a demand pursuant to Section 2.1, the Company shall, at such time, promptly give Investor notice of such registration. Upon the request of Investor given within ten (10) days after such notice is given by the Company, the Company shall, subject to the provisions of Section 2.3, cause to be registered all of the Registrable Securities that Investor has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not Investor has elected to include Registrable Securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.6.

 

2.3 Underwriting Requirements.

 

(a) If, pursuant to Section 2.1, the Investor intends to distribute the Registrable Securities covered by its request by means of an underwriting, it shall so advise the Company as a part of its request made pursuant to Section 2.1. The underwriter(s) will be selected by the Investor, subject only to the reasonable approval of the Board of Directors. Investor shall (together with the Company as provided in Section 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting; provided, however, that Investor (or any of its assignees) shall not be required to make any representations, warranties or indemnities except as they relate to Investor’s ownership of shares and authority to enter into the underwriting agreement and to Investor’s intended method of distribution, and the liability of Investor shall be limited to an amount equal to the net proceeds from the offering received by Investor. Notwithstanding any other provision of this Section 2.3, if the underwriter(s) advise(s) the Investor in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Investor shall be reduced in good faith by the Investor; provided, however, that the number of Registrable Securities held by the Investor to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.

 

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(b) In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section 2.2, the Company shall not be required to include any of the Investor’s Registrable Securities in such underwriting unless the Investor accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be reduced in good faith by the Investor. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering.

 

(c) For purposes of Section 2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in Section 2.3(a), fewer than fifty percent (50%) of the total number of Registrable Securities that Investor has requested to be included in such registration statement are actually included.

 

2.4 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

 

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Investor, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Investor refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to 180 days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

 

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(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;

 

(c) furnish to the Investor such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Investor may reasonably request in order to facilitate its disposition of the Registrable Securities;

 

(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the Investor; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

 

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;

 

(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;

 

(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities;

 

(h) promptly make available for inspection by the Investor, any underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the Investor, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

 

(i) notify Investor, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and

 

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(j) after such registration statement becomes effective, notify Investor of any request by the SEC that the Company amend or supplement such registration statement or prospectus.

 

In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Company’s directors may implement a trading program under Rule 10b5-1 of the Exchange Act.

 

Notwithstanding the registration obligations set forth in Section 2.2 and 2.2, if the SEC informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform the Investor and use its commercially reasonable efforts to file amendments to such registration statement as required by the SEC, covering the maximum number of Registrable Securities permitted to be registered by the SEC; provided, however, that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the SEC for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09

 

2.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of Investor that Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of Investor’s Registrable Securities.

 

2.6 Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $25,000 per registration, of one counsel for the Investor selected by the Investor (“Selling Investor Counsel”), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Investor (in which case the Investor shall bear such expenses), unless the Investor agrees to forfeit its right to one registration pursuant to Sections 2.1(a) or 2.1(b), as the case may be. All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 (other than the Selling Investor Counsel shall be borne and paid by the Investor.

 

2.7 Reserved.

 

2.8 Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:

 

(a) To the extent permitted by law, the Company will indemnify and hold harmless Investor, and the partners, members, officers, directors, and stockholders of Investor; legal counsel and accountants for Investor; any underwriter (as defined in the Securities Act) for Investor; and each Person, if any, who controls Investor or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to Investor, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of Investor, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration except to the extent such information has been corrected in a subsequent writing prior to or concurrently with the sale of Registrable Securities to the Person asserting the claim.

 

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(b) To the extent permitted by law, Investor will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), and any controlling Person of any such underwriter, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of Investor for use in connection with such registration and has not been corrected in a subsequent writing prior to or concurrently with the sale of Registrable Securities to the Person asserting the claim; and Investor will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of Investor, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by Investor by way of indemnity or contribution under Section 2.8(b) and 2.8(d) exceed the proceeds from the offering received by Investor (net of any Selling Expenses paid by Investor), except in the case of fraud or willful misconduct by Investor.

 

(c) Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, only to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8.

 

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(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case (x) Investor will not be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by Investor pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall Investor’s liability pursuant to this Section 2.8(d), when combined with the amounts paid or payable by Investor pursuant to Section 2.8(b), exceed the proceeds from the offering received by Investor (net of any Selling Expenses paid by Investor), except in the case of willful misconduct or fraud by Investor.

 

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control; provided, however, that any matter expressly provided for or addressed by the foregoing provisions that is not expressly provided for or addressed by the underwriting agreement shall be controlled by the foregoing provisions.

 

(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Investor under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement or any provision(s) of this Agreement.

 

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2.9 Reports Under Exchange Act. With a view to making available to the Investor the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit Investor to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:

 

(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144;

 

(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and

 

(c) furnish to Investor, so long as the Investor owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Securities Act, and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); and (ii) such other information as may be reasonably requested in availing Investor of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).

 

2.10 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Investor, enter into any agreement with any holder or prospective holder of any securities of the Company that would (i) provide to such holder or prospective holder the right to include securities in any registration on other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after Investor has had the opportunity to include in the registration and offering all shares of Registrable Securities that it wishes to so include.

 

2.11 Reserved.

 

2.12 Restrictions on Transfer.

 

(a) The Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. Investor will cause any proposed purchaser, pledgee, or transferee of any of the Registrable Securities held by Investor to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement. Notwithstanding the foregoing, the Company shall not require any transferee of shares pursuant to an effective registration statement or SEC Rule 144, in each case, to be bound by the terms of this Agreement.

 

(b) Each certificate, instrument, or book entry representing the Registrable Securities upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Section 2.12(c)) be notated with a legend substantially in the following form:

 

9
 

 

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

 

THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

The Investor consents to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 2.12.

 

(c) The holder of such Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction or, the transfer is made pursuant to SEC Rule 144, the holder thereof shall give notice to the Company of such holder’s intention to effect such sale, pledge, or transfer, provided that no such notice shall be required in connection if the intended sale, pledge or transfer complies with SEC Rule 144. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the holder to the Company. The Company will not require such a notice, legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144; or (y) in any transaction in which such holder distributes Restricted Securities to an Affiliate of such holder for no consideration; provided that[with respect to transfers under the foregoing clause (y), each transferee agrees in writing to be subject to the terms of this Section 2.12. Each certificate, instrument, or book entry representing the Restricted Securities transferred as above provided shall be notated with, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 2.12(b), except that such certificate instrument, or book entry shall not be notated with such restrictive legend if, in the opinion of counsel for the holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.

 

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3. Miscellaneous.

 

3.1 Governing Law. This Agreement shall be governed by the internal law of the State of California without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

 

3.2 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via electronic mail (including pdf) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

3.3 Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

 

3.4 Notices.

 

(a) All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A, or (as to the Company) to the principal office of the Company and to the attention of the Chief Executive Officer, or in any case to such email address or address as subsequently modified by written notice given in accordance with this Section 3.4.

 

3.5 Amendments and Waivers. Any term of this Agreement may be amended, modified or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the Investor. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one (1) or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.

 

3.6 Severability. In case any one (1) or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

 

3.7 Entire Agreement. This Agreement (including any Schedules hereto), constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.

 

3.8 Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or non-defaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

  COMPANY:
   
  Force Protection Video Equipment Corporation
     
  By:  
  Name:  
  Title:  
     
  INVESTOR:
   
  SRAX, Inc.
     
  By:  
  Name: Michael Malone
  Title: CFO

 

 
 

 

SCHEDULE A

 

Investor

 

Name and Address

 

SRAX, Inc.

2629 Townsgate Road #215

Westlake Village, CA 91361

Phone: (323) 694,9800

Email: chris@srax.com

 

With a copy to:

Raul Silvestre

Silvestre Law Group, P.C.

2629 Townsgate Road #215

Westlake Village, CA 91361

Phone: (818) 597-7552

Email: rsilvestre@silvestrelaw.com

 

 

 

 

Exhibit 16.1

 

 

 

 

 

Exhibit 21.01

 

List of Subsidiaries

 

BIG Token, Inc.