UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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)  October 30, 2014


[SCRI_8K001.JPG]

SOCIAL REALITY, INC.

(Exact name of registrant as specified in its charter)


Delaware

000-54996

42-2925231

(State or other jurisdiction of
incorporation or organization)

(Commission File Number)

(I.R.S. Employer
Identification No.)


456 Seaton Street, Los Angeles, CA   90013

(Address of principal executive offices)(Zip Code)


Registrant's telephone number, including area code :   (323) 283-8505


not applicable

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


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


o

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


o

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


o

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


o

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 






Item 1.01

Entry into a Material Definitive Agreement.

Item 2.01

Completion of Acquisition or Disposition of Assets.

Item 2.03

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


Acquisition of Steel Media


On October 30, 2014, Social Reality, Inc. (the “ Company ”) acquired 100% of the capital stock of Steel Media, a California corporation (“ Steel Media ”), from Richard Steel pursuant to the terms and conditions of a stock purchase agreement, dated October 30, 2014, by and among the Company, Steel Media and Mr. Steel (the “ Stock Purchase Agreement ”). As consideration for the purchase of Steel Media, the Company agreed to pay Mr. Steel up to $20 million, consisting of: (i) a cash payment at closing of $7.5 million; (ii) a cash payment of $2 million which is being held in escrow pursuant to the Escrow Agreement, dated October 30, 2014, by and among Wells Fargo Bank, National Association, the Company and Mr. Steel (the “ Indemnity Escrow Agreement ”), to satisfy certain indemnification obligations to the extent such arise under the Stock Purchase Agreement; (iii) a one year secured subordinated promissory note in the principal amount of $2.5 million (the “ Note ”) which is secured by 2,386,863 shares of the Company’s Class A common stock (the “ Escrow Shares ”); and (iv) an earnout payment of up to $8 million (the “ Earnout Consideration ”).


The Earnout Consideration is payable upon the attainment of certain earnings before interest, taxes, depreciation and amortization (“ EBITDA ”) targets of Steel Media during the two year period following the closing, 60% of which may be satisfied in shares of the Company’s Class A common stock subject to the satisfaction of certain conditions set forth in the Stock Purchase Agreement. Further, in the event of (i) a change of control of the Company or Steel Media or (ii) Mr. Steel’s termination without “cause” or resignation for “good reason” (each as defined in the Steel Employment Agreement (as hereinafter defined)) during the two year period following the closing, the Company is obligated to pay Mr. Steel 100% of the Earnout Consideration (less any amount previously paid to Mr. Steel). To the extent the Company is prohibited from paying any Earnout Consideration in cash and Mr. Steel is prohibited from receiving same under the terms of the Subordination Agreement (as hereinafter defined) described below, Mr. Steel has the right to request that the Company pay him the prohibited cash earnout payment in shares of the Company’s Class A common stock.


The Stock Purchase Agreement contains certain customary indemnification provisions by both the Company and Mr. Steel.


The Note issued to Mr. Steel at the closing bears interest at the rate of 5% per annum and the principal and accrued interest is due and payable on October 30, 2015. The amounts due under the Note accelerate and become immediately due and payable upon the occurrence of an event of default as described in the Note. Upon an event of default under the Note, the interest rate increases to 10% per annum. The Note may be prepaid upon five days’ notice to Mr. Steel, and the Note must be prepaid upon a change of control of the Company or Steel Media. The Note is also subject to certain mandatory partial prepayments for each of the fiscal quarters ending December 31, 2014, March 31, 2015 and June 30, 2015 in an amount equal to 25% of the “Excess Cash Amount” as defined in the Note.




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The obligations under the Note are subordinated to the Company’s obligations under the Financing Agreement (as hereinafter defined) pursuant to the terms of the Subordination Agreement (as hereinafter described) and are secured by the Escrow Shares. Upon an event of default under the Note, if the Escrow Shares are released to Mr. Steel all amounts due under the Note will be deemed paid and the Note will be satisfied in full provided that (i) all of the Escrow Shares (or at least 90% of the Escrow Shares, in the case of a cut-back required by the SEC as a result of limitations under SEC Rule 415, as defined in the Registration Rights Agreement described below) are subject to a then effective SEC registration statement having a customary plan of distribution for resale, (ii) the Escrow Shares are freely tradable by Mr. Steel, without restriction of any kind or nature (other than insider trading laws), and (iii) the certificates evidencing the Escrow Shares are free of any legend or other restrictive notation. If these conditions are not each satisfied at the time of release of the Escrow Shares to Mr. Steel, then the principal and interest due under the Note remains outstanding except that it will be deemed repaid from time to time, dollar for dollar, from the proceeds realized by Mr. Steel from the sale or other disposition of the Escrow Shares. The Escrow Shares are considered issued but not outstanding and Mr. Steel does not have any voting or other rights as a stockholder to the Escrow Shares during the period they are held in escrow. The Escrow Shares are being held by an escrow agent pursuant to the terms of that certain Escrow Agreement, dated October 30, 2014, by and among Mr. Steel, the Company and Lowenstein Sandler LLP, as escrow agent (the “ Escrow Shares Agreement ”). Subject to the terms and conditions of the Stock Purchase Agreement and the Subordination Agreement, upon a release of the Escrow Shares to Mr. Steel, Mr. Steel has the right to put the Escrow Shares to the Company at a per share price of $1.0474 (the “ Put Right ”).


On October, 30, 2014, in connection with the acquisition of Steel Media, the Company entered into a registration rights agreement (the “ Registration Rights Agreement ”) with Mr. Steel pursuant to which the Company agreed to register any Earnout Shares issued to him or Escrow Shares released to him. The Company granted Mr. Steel demand registration rights over the Escrow Shares and the Earnout Shares which he may exercise 90 days after such shares are issued or released to him. In addition, Mr. Steel has the right to include any Earnout Shares issued to him or Escrow Shares released to him in registration statements for offerings by the Company as well as offerings of the Company’s Class A common stock held by third parties. The terms of the Registration Rights Agreement contain underwriter and Rule 415 cutback provisions in which the number of either Earnout Shares or Escrow Shares, or both, that the Company may include in a subsequent registration statement to be filed with the SEC will be reduced subject to certain allocation provisions as set forth in the Registration Rights Agreement. The Company agreed to pay all costs and expenses with such registration statement, other than Mr. Steel’s selling expenses. The Registration Rights Agreement contains customary indemnification provisions. Under the terms of the Registration Rights Agreement, Mr. Steel agreed to certain restrictions on the amount of Earnout Shares that may be sold by him without the Company’s consent; provided, however, that these restrictions will automatically terminate upon (i) an event of default under the Note, or (ii) the Company’s failure to fully pay the Earnout Consideration if and when due.


The foregoing description of the Stock Purchase Agreement, the Note, the Indemnity Escrow Agreement, the Escrow Shares Agreement and the Registration Rights Agreement are not complete and are qualified in their entirety by reference to the full and complete terms of the Stock Purchase Agreement, the Note, the Indemnity Escrow Agreement, the Escrow Shares Agreement and the Registration Rights Agreement, which are attached to this Form 8-K as Exhibits 2.1, 10.18, 10.19, 10.20 and 10.21, respectively and incorporated herein by reference.




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Financing Agreement with Victory Park Management, LLC as agent for the lenders


On October 30, 2014 (the “ Financing Agreement Closing Date ”), the Company entered into a financing agreement (the “ Financing Agreement ”) with Victory Park Management, LLC, as administrative agent and collateral agent for the lenders and holders of notes and warrants issued thereunder (the “ Agent ”). The Financing Agreement provides for borrowings of up to $20 million to be evidenced by notes issued thereunder, which are secured by a first priority, perfected security interest in substantially all of the assets of the Company and its subsidiaries (including Steel Media) and a pledge of 100% of the equity interests of each domestic subsidiary of the Company pursuant to the terms of a pledge and security agreement (the “ Pledge and Security Agreement ”) entered into by the Company on the Financing Agreement Closing Date (which was joined by Steel Media immediately after the Company’s acquisition of Steel Media). The Financing Agreement contains covenants limiting, among other things, indebtedness, liens, transfers or sales of assets, distributions or dividends, and merger or consolidation activity. The notes (the “ Financing Notes ”) issued pursuant to the Financing Agreement, including the note issued to the lender thereunder in the original aggregate principal amount of $9 million on the Financing Agreement Closing Date (the “ Initial Financing Note ”), bear interest at a rate per annum equal to the sum of (1) cash interest at a rate of 10% per annum and (2) payment-in-kind (PIK) interest at a rate of 4% per annum for the period commencing on the Financing Agreement Closing Date and extending through the last day of the calendar month during which the Company’s financial statements for December 31, 2014 are delivered, and which PIK interest rate thereafter from time to time may be adjusted based on the ratio of the Company’s consolidated indebtedness to its earnings before interest, taxes, depreciation and amortization. If the Company achieves a reduction in the leverage ratio as described in the Financing Agreement, the PIK interest rate declines on a sliding scale from 4% to 2%. The Financing Notes issued under the Financing Agreement are scheduled to mature on October 30, 2017. Proceeds from the Initial Financing Note issued on the Financing Agreement Closing Date were used to finance, in part, the Company’s acquisition of Steel Media as described earlier in this report.


The Financing Agreement provides for subsidiaries of the Company to join the Financing Agreement from time to time as borrowers and cross guarantors thereunder. Immediately after the Company’s acquisition of Steel Media on October 30, 2014, Steel Media executed a joinder agreement under which it became a borrower under the Financing Agreement. The Company and its subsidiary, Steel Media, are cross guarantors of each other’s obligations under the Financing Agreement, all of which guaranties and obligations are secured pursuant to the terms of the Pledge and Security Agreement.


Pursuant to the Financing Agreement, the Company also issued to the lender thereunder, on the Financing Agreement Closing Date, a five year warrant to purchase 2,900,000 shares of its Class A common stock at an exercise price of $1.00 per share (the “ Financing Warrant ”). The warrant holder may not, however, exercise the Financing Warrant for a number of shares of Class A common stock that would cause such holder to beneficially own shares of Class A common stock in excess of 4.99% of the Company’s outstanding shares of Class A common stock following such exercise. The number of shares issuable upon exercise of the Financing Warrant and the exercise price therefor are subject to adjustment in the event of stock splits, stock dividends, recapitalizations and similar corporate events. Pursuant to the Financing Warrant, the warrant holder has the right, at any time after the earlier of April 30, 2016 and the maturity date of the Financing Notes issued pursuant to the Financing Agreement, but prior to the date that is five years after the Financing Agreement Closing Date, to exercise its put right under the terms of the Financing Warrant, pursuant to which the warrant holder may sell to the Company, and the Company will purchase from the warrant holder, all or any portion of the Financing Warrant that has not been previously exercised. In connection with any exercise of this put right, the purchase price will be equal to an amount based upon the percentage of the Financing Warrant for which the put right is being exercised, multiplied by the lesser of (A) 50% of the total revenue for the Company and its subsidiaries, on a consolidated basis, for the trailing 12- month period ending with the Company’s then-most recently completed fiscal quarter, and (B) $1,500,000.




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As contemplated under the Financing Agreement, the Company also entered into a registration rights agreement on the Financing Agreement Closing Date (the “ Financing Registration Rights Agreement ”) with the holder of the Financing Warrant, pursuant to which the Company granted to such holder certain “piggyback” rights to register the shares of the Company’s Class A common stock issuable upon exercise of the Financing Warrant. Specifically, the holder of the Financing Warrant has the right, subject to certain allocation provisions set forth in the Financing Registration Rights Agreement, to include the shares underlying the Financing Warrant in registration statements for offerings by the Company of its Class A common stock, as well as offerings of the Company’s Class A common stock held by third parties.


As part of the arrangements under the Financing Agreement, the Agent, Mr. Steel, and the Company and Steel Media (as borrowers under the Financing Agreement) have also entered into a subordination agreement (the “ Subordination Agreement ”) under which Mr. Steel has agreed, subject to the terms and conditions of the Subordination Agreement, to subordinate to the lenders and holders of Financing Notes and the Financing Warrant issued under the Financing Agreement (i) certain obligations, liabilities, and indebtedness, including, without limitation, payments under the Note and payments of Earnout Consideration, owed to him by the Company and any of its subsidiaries and (ii) Mr. Steel’s right to exercise the Put Right.


The foregoing descriptions of the Financing Agreement, the Initial Financing Note, the Pledge and Security Agreement, the Financing Warrant, the Financing Registration Rights Agreement and the Subordination Agreement are not complete and are qualified in their entirety by reference to the full and complete terms of the Financing Agreement, the Initial Financing Note, the Pledge and Security Agreement, the Financing Warrant, the Financing Registration Rights Agreement and the Subordination Agreement, which are attached to this Form 8-K as Exhibits 10.23, 10.24, 10.25, 4.8 and 10.26, respectively and incorporated herein by reference.


Employment Agreements


In connection with the acquisition of Steel Media, on October 30, 2014, the Company entered into an employment agreement with each of Messrs. Steel, Chad Holsinger and Adam Bigelow. The material terms of the employment agreements with Messrs. Steel and Holsinger are described under Item 5.02 of this report and incorporated herein by reference.


On October 30, 2014, the Company entered into an employment agreement with Adam Bigelow (the “ Bigelow Employment Agreement ”) pursuant to which he was engaged to serve as the Company’s Senior Director, Ad Operations. The initial term of the agreement expires on October 30, 2018, subject to automatic 12 month extensions unless a non-renewal notice is received by either party at least 60 days prior to the expiration of the then current renewal term. Mr. Bigelow’s compensation includes: (i) an annual salary of $100,000, subject to increase at the discretion of the board of directors; (ii) an annual discretionary bonus, payable in cash or equity; (iii) options to purchase 25,000 shares of the Company’s Class A common stock, at an exercise price of $1.50 per share, vesting 25% on each of the first, second, third and fourth annual anniversary of the agreement; and (iv) paid time off of 15 days per calendar year, subject to accrual limitations. Mr. Bigelow is entitled to severance in an amount equal to his annual base salary payable in equal installments over a twelve month period in the event he is terminated without “cause” or resigns for “good reason” each as defined in the Bigelow Employment Agreement. The Bigelow Employment Agreement contains a customary non-solicitation and invention assignments clause and Mr. Bigelow executed separate confidentiality and arbitration agreements with the Company.


The foregoing description of the Bigelow Employment Agreement is not complete and is qualified in its entirety by reference to the full and complete terms of the Bigelow Employment Agreement which is attached to this Form 8-K as Exhibit 10.29 and incorporated herein by reference.




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Item 3.02

Unregistered Sales of Equity Securities.


Note


On October 30, 2014, the Company issued the Note to Mr. Steel as partial consideration for the purchase of Steel Media as described earlier in this report. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933, as amended (the “ Securities Act ”) in reliance on an exemption provided by Section 4(a)(2) of that act.


Financing


On October 30, 2014, the Company issued to the original lender under the Financing Agreement the Initial Financing Note and the Financing Warrant on the Financing Agreement Closing Date. The original lender under the Financing Agreement was an accredited investor on the Financing Agreement Closing Date and the issuance of such securities was exempt from registration under the Securities Act in reliance on an exemption provided by Section 4(a)(2) of that act and Regulation D promulgated thereunder.


Private Placement


On October 30, 2014, the Company sold 4,120,500 units of its securities to 26 accredited investors in a private placement exempt from registration under the Securities Act, in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D. The units were sold at a purchase price of $1.00 per unit resulting in gross proceeds to the Company of $4,120,500. Each unit consisted of one share of the Company’s Class A common stock and one three year Class A common stock purchase warrant to purchase 0.5 shares of its Class A common stock. Each redeemable three year warrant (the “ Private Placement Warrant ”) entitles the holder to purchase one-half share of the Company’s Class A common stock at an exercise price of $1.50 per share. The Private Placement Warrants must be exercised in such denominations as to require the issuance of a whole number of shares. Providing that there is an effective registration statement registering the shares of the Company’s Class A common stock issuable upon exercise of the Private Placement Warrants, it has the right to redeem all or any portion of the warrants at a price of $0.001 per share of Class A common stock underlying such warrants upon 20 days’ notice at any time that the closing price of the Company’s Class A common stock equals or exceeds $3.75 per share for 20 consecutive trading days and the daily average minimum volume of its Class A common stock during those 20 trading days is at least 100,000 shares. The foregoing summary of the Private Placement Warrants does not purport to be complete and is subject to, and qualified in its entirety by, the full text of warrant which is filed as Exhibit 4.7 to this report and incorporated herein by reference.


In addition to the units sold for cash, the Company also issued T.R. Winston & Company, LLC, a broker dealer and member of FINRA (“ T.R. Winston ”) 800,000 units, valued at $800,000 as compensation for the firm’s investment banking services to it in connection with the acquisition of Steel Media described elsewhere in this report. The units issued to T.R. Winston were identical to the units sold in the private placement.


As a result, the Company issued an aggregate of 4,920,500 shares of its Class A common stock and Private Placement Warrants to purchase an additional 2,460,250 shares of its Class A common stock. T.R. Winston acted as placement agent for the Company in private placement offering. The Company paid the placement agent and a selling agent cash commissions totaling $344,435 and agreed to issue T.R. Winston and the selling agent three year warrants which are identical to the Private Placement Warrant to purchase 295,230 of the Company’s Class A common stock at an exercise price of $1.50 per share. The Company used $2,500,000 of the net proceeds from the offering as part of the cash consideration for the acquisition of Steel Media described elsewhere in this report and approximately $678,000 for fees in this transaction, including $580,000 to T.R. Winston as a loan origination fee for the Financing Agreement. The balance of the net proceeds will be used for general working capital.


The Company agreed to file a registration statement covering the shares underlying the Private Placement Warrants and the placement agent warrants within 90 days from the closing of the Steel Media acquisition. The Company is obligated to pay all costs associated with this registration statement, other than selling expenses of the warrant holders.


The information set forth above under Items 1.01. 2.01 and 2.03 is hereby incorporated by reference into this Item 3.02.




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Item 5.02

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


Appointment of director and executive officers


On October 30, 2014, in connection with the acquisition of Steel Media, Mr. Richard Steel was appointed to the Company’s board of directors and elected President of the Company, and Mr. Chad Holsinger, an employee of Steel Media, was appointed as the Company’s Chief Revenue Officer. The terms of the Stock Purchase Agreement require that the Company use its commercially reasonable efforts to cause Mr. Steel to be elected as a member of the Company’s board of directors until the later of October 30, 2016 or such time as he no longer owns any shares of the Company’s capital stock. Mr. Kristoffer Nelson, formerly the Company’s President, was appointed the Company’s Chief Operating Officer. Biographical information concerning Messrs. Steel and Holsinger is as follows:


Richard Steel . Mr. Steel, 40, founded Steel Media in 1999 and has served as its Chief Executive Officer since April 2005. He has set the strategic direction of the business and is involved in a few key accounts. Mr. Steel is a founding partner and former president of the Global Strategic Marketing Alliance and serves in a leadership role, advising the White House Business Council. He is a trade association member of the Direct Marketing Association, Mobile Marketing Association, IAB (on both the Legal Affairs and Public Policy Councils), American Marketing Association, eMarketing Association, and the Direct Marketing Club of New York. Mr. Steel also serves as the Chair of the Steel Media Charitable Giving Fund. He holds a B.A. in English from California State University at Long Beach, and has completed an executive MBA course at Harvard Business School.


Chad Holsinger . Mr. Holsinger, 42, has significant experience in global business development, business management, marketing, business strategy and team management within the digital advertising space, wireless and satellite communications industries. Since August 2010 he has served as President of Steel Media. From December 2009 until June 2010, Mr. Holsinger was Vice President U.S. Sales for Adenyo Inc., a Toronto, Ontario-based company where he successfully worked to build a U.S. presence for Adenyo through the acquisition of Movoxx LLC and ultimately the sale of Adenyo to Motrocity Inc. in April 2011. Earlier, Mr. Holsinger was recruited by Cordova Ventures to facilitate the reorganization and restructuring of Axonn, LLC where he served as Vice President Sales and Marketing from November 2006 until November 2009. During his tenure with Axonn, he successfully established product markets and value propositions, developed a global distribution strategy and defined the direction for Axonn products, as well as implementing a sales and operation planning process and hiring the appropriate supporting personnel. Axonn, LLC was successfully sold to Globalstar, Inc. in December 2009. Mr. Holsinger received a B.S. in Finance from California State University at Long Beach State.


Employment agreements


At the closing of the Steel Media acquisition, the Company entered into an employment agreements with each of Messrs. Steel and Holsinger, the material terms and conditions of each of which are described below.


Employment Agreement with Richard Steel . On October 30, 2014, the Company entered into an employment agreement with Richard Steel (the “ Steel Employment Agreement ”) pursuant to which he was engaged to serve as the Company’s President. The initial term of the agreement expires on October 30, 2018, subject to automatic 12 month extensions unless a non-renewal notice is received by either party at least 60 days prior to the expiration of the then current renewal term. Under the terms of the Steel Employment Agreement, Mr. Steel is to be nominated as a member of the Company’s board of directors during the term. Mr. Steel’s compensation includes: (i) an annual salary of $114,000, subject to increase at the discretion of the board of directors; (ii) a guaranteed annual cash bonus of $136,000 payable on January 31 of each year during the initial term of the agreement; (iii) an annual discretionary bonus, payable in cash or equity; (iv) options to purchase 600,000 shares of the Company’s Class A common stock, at an exercise price of $1.50 per share, vesting 50% on the third annual anniversary of the agreement and 50% on the fourth annual anniversary of the agreement; and (v) paid time off of 30 days per calendar year, subject to accrual limitations.


The Steel Employment Agreement provides that if the guaranteed annual cash bonus and the cash portion of any annual discretionary bonus would result in a reduction of the Earnout Consideration which may otherwise be payable to Mr. Steel by an amount greater than the sum of (i) the guaranteed annual cash bonus and (ii) the cash portion of the annual discretionary bonus, then the applicable portion of the guaranteed annual cash bonus and/or cash portion of the annual discretionary bonus resulting in such reduction will not be paid for the applicable period.



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In the event Mr. Steel is terminated without “cause” or as a result of a non-renewal after the initial four year term or resigns for “good reason” he is entitled to, among other things, (i) an amount equal to his base salary for 18 months, plus (ii) an amount equal to the greater of (x) the most recent guaranteed annual cash bonus that would be payable to Mr. Steel, calculated on an annualized basis up to the month he is terminated, and (y) $136,000.


The Steel Employment Agreement contains a customary invention assignments clause and Mr. Steel executed separate confidentiality and arbitration agreements with the Company.


Employment Agreement with Chad Holsinger . On October 30, 2014, the Company entered into an employment agreement with Chad Holsinger (the “ Holsinger Employment Agreement ”) pursuant to which he was engaged to serve as the Company’s Chief Revenue Officer. The initial term of the agreement expires on October 30, 2018, subject to automatic 12 month extensions unless a non-renewal notice is received by either party at least 60 days prior to the expiration of the then current renewal term. Mr. Holsinger’s compensation includes: (i) an annual salary of $114,000, subject to increase at the discretion of the board of directors; (ii) a guaranteed annual cash bonus of $111,000 payable on January 31 of each year during the initial term of the agreement; provided, however , that in the event Steel Media does not achieve the year-one EBITDA target, then the guaranteed annual bonus will not be due Mr. Holsinger for that period; (iii) an annual discretionary bonus, payable in cash or equity; (iv) an individual incentive bonus of up to $200,000 and a team incentive bonus of up to $500,000, subject to the achievement of the achievement of certain quarterly and annual revenue and gross profit margin goals; (v) options to purchase 250,000 shares of the Company’s Class A common stock, at an exercise price of $1.50 per share, vesting 25% on each of the first, second, third and fourth annual anniversary of the agreement; and (vi) paid time off of 22 days per calendar year, subject to accrual limitations.


The agreement provides that if the guaranteed annual cash bonus and the cash portion of any annual discretionary bonus or the incentive bonus would result in a reduction of the Earnout Consideration which may otherwise be payable to Mr. Holsinger by an amount greater than the sum of (i) the guaranteed annual cash bonus and (ii) the cash portion of the annual discretionary bonus, then the applicable portion of the guaranteed annual cash bonus and/or cash portion of the annual discretionary bonus resulting in such reduction will not be paid for the applicable period by the Company but will be paid directly by Mr. Steel.


In the event Mr. Holsinger is terminated without “cause” or resigns for “good reason”, he is entitled to, among other things, (i) an amount equal to his base salary for 12 months, plus (ii) an amount equal to the greater of (x) the most recent guaranteed annual cash bonus that would be payable to Mr. Holsinger, calculated on an annualized basis up to the month he is terminated, and (y) $111,000.


The Holsinger Employment Agreement contains a customary non-solicitation and invention assignments clause and Mr. Holsinger executed separate confidentiality and arbitration agreements with the Company.


The foregoing descriptions of the Steel Employment Agreement and the Holsinger Employment Agreement are not complete and are qualified in their entirety by reference to the full and complete terms of the Steel Employment Agreement and the Holsinger Employment Agreement which are attached to this Form 8-K as Exhibits 10.27 and 10.28 and incorporated herein by reference.


Director indemnification agreements


At the closing of the Steel Media acquisition, the Company entered into an indemnification agreement (the “ Steel Indemnification Agreement ”) with Mr. Steel pursuant to which the Company agreed to indemnify him (in excess of statutory indemnification) and provide for advancement of expenses in connection with any action brought, or threatened to be brought, against him in connection with his service or in his capacity as a director and officer of the Company or its subsidiaries. The Company expects to enter into similar agreements with the Company’s other directors in the near future. The foregoing description of the Steel Indemnification Agreement is not complete and is qualified in its entirety by reference to the full and complete terms of the Steel Indemnification Agreement which is attached to this Form 8-K as Exhibit 10.30 and incorporated herein by reference.


The information set forth above under Items 1.01. 2.01 and 2.03 is hereby incorporated by reference into this Item 5.02.



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Item 9.01

Exhibits.


(a)

Financial statements of business acquired .


The audited financial statements of Steel Media at December 31, 2013 and 2012 and for the years then ended will be filed under an amendment to this report within the time period specified by the rules and regulations of the Securities and Exchange Commission.


(b)

Pro forma financial information .


The unaudited pro forma financial statements giving effect to the acquisition of Steel Media will be filed under an amendment to this report within the time period specified by the rules and regulations of the Securities and Exchange Commission.


(d)

Exhibits .


No.

 

Description

2.1

 

Stock Purchase Agreement, dated October 30, 2014, by and among Richard Steel, Steel Media and Social Reality, Inc. **

4.7

 

Form of Class A common stock purchase warrant issued October 30, 2014

4.8

 

Warrant to Purchase Class A Common Stock issued October 30, 2014

10.18

 

Secured subordinated promissory note in the principal amount of $2,500,000, dated October 30, 2014, issued by Social Reality, Inc. to Richard Steel

10.19

 

Escrow Agreement, dated October 30, 2014, by and among Social Reality, Inc., Richard Steel and Wells Fargo Bank, National Association, as escrow agent.

10.20

 

Escrow Agreement, dated October 30, 2014, by and among Social Reality, Inc., Richard Steel and Lowenstein Sandler LLP, as escrow agent

10.21

 

Registration Rights Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Richard Steel

10.22

 

Subordination Agreement, dated October 30, 2014, by and among Social Reality, Inc., Richard Steel and Victory Park Management, LLC

10.23

 

Financing Agreement, dated as of October 30, 2014, by and among Social Reality, Inc., the Guarantors, the Lenders and Victory Park Management, LLC as Agent

10.24

 

Senior Secured Term Note, dated October 30, 2014, in the principal amount of $9,000,000 issued to the original lender under the Financing Agreement

10.25

 

Pledge and Security Agreement, dated October 30, 2014 by and among Social Reality, Inc., Steel Media and Victory Park Management, LLC

10.26

 

Registration Rights Agreement, dated October 30, 2014, by and among Social Reality, Inc. and the lenders listed on the schedule of Buyers thereto

10.27

 

Employment Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Richard Steel

10.28

 

Employment Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Chad Holsinger

10.29

 

Employment Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Adam Bigelow

10.30

 

Indemnification Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Richard Steel

**

 

Exhibits and schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. Social Reality, Inc. agrees to furnish a supplemental copy of an omitted exhibit or schedule to the SEC upon request.








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SIGNATURES

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

 

SOCIAL REALITY, INC.

 

 

 

Date: November 4, 2014

By:

/s/ Chris Miglino

 

 

Chris Miglino, Chief Executive Officer









10




Exhibit Index


No.

 

Description

2.1

 

Stock Purchase Agreement, dated October 30, 2014, by and among Richard Steel, Steel Media and Social Reality, Inc. **

4.7

 

Form of Class A common stock purchase warrant issued October 30, 2014

4.8

 

Warrant to Purchase Class A Common Stock issued October 30, 2014

10.18

 

Secured subordinated promissory note in the principal amount of $2,500,000, dated October 30, 2014, issued by Social Reality, Inc. to Richard Steel

10.19

 

Escrow Agreement, dated October 30, 2014, by and among Social Reality, Inc., Richard Steel and Wells Fargo Bank, National Association, as escrow agent.

10.20

 

Escrow Agreement, dated October 30, 2014, by and among Social Reality, Inc., Richard Steel and Lowenstein Sandler LLP, as escrow agent

10.21

 

Registration Rights Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Richard Steel

10.22

 

Subordination Agreement, dated October 30, 2014, by and among Social Reality, Inc., Richard Steel and Victory Park Management, LLC

10.23

 

Financing Agreement, dated as of October 30, 2014, by and among Social Reality, Inc., the Guarantors, the Lenders and Victory Park Management, LLC as Agent

10.24

 

Senior Secured Term Note, dated October 30, 2014, in the principal amount of $9,000,000 issued to the original lender under the Financing Agreement

10.25

 

Pledge and Security Agreement, dated October 30, 2014 by and among Social Reality, Inc., Steel Media and Victory Park Management, LLC

10.26

 

Registration Rights Agreement, dated October 30, 2014, by and among Social Reality, Inc. and the lenders listed on the schedule of Buyers thereto

10.27

 

Employment Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Richard Steel

10.28

 

Employment Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Chad Holsinger

10.29

 

Employment Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Adam Bigelow

10.30

 

Indemnification Agreement, dated October 30, 2014, by and between Social Reality, Inc. and Richard Steel

**

 

Exhibits and schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. Social Reality, Inc. agrees to furnish a supplemental copy of an omitted exhibit or schedule to the SEC upon request.




Exhibit 2.1

STOCK PURCHASE AGREEMENT

AMONG

RICHARD STEEL,

STEEL MEDIA

AND

SOCIAL REALITY, INC.

dated as of

October 30, 2014





TABLE OF CONTENTS

 

Page

ARTICLE I.  DEFINITIONS; CONSTRUCTION

1

 

 

 

1.1

Definitions

1

1.2

Table of Defined Terms

10

1.3

Construction

12

 

 

 

ARTICLE II.  PURCHASE AND SALE OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES

13

 

 

 

2.1

Purchase and Sale of Shares

13

2.2

Purchase Price

13

2.3

Closing

13

2.4

Working Capital Adjustment

15

2.5

Earnout Payments

18

2.6

Books and Records

24

 

 

 

ARTICLE III.  REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY

24

 

 

 

3.1

Organization and Good Standing

25

3.2

Capitalization

25

3.3

Authorization of Agreement

25

3.4

Conflicts; Consents of Third Parties

25

3.5

Subsidiaries

26

3.6

Financial Statements

26

3.7

Taxes

26

3.8

Real Property

27

3.9

Tangible Personal Property

27

3.10

Assets

27

3.11

Intellectual Property

27

3.12

Material Contracts

28

3.13

Employee Matters

28

3.14

Litigation

29

3.15

Compliance with Laws; Permits

29

3.16

Absence of Certain Changes

30

3.17

Related Party Transactions

30

3.18

Financial Advisors

30

3.19

Environmental

30

3.20

No Other Representations or Warranties; Schedules

30

 

 

 




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ARTICLE IV.  REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER

31

 

 

 

4.1

Ownership and Transfer of Shares

31

4.2

Authorization of Agreement

31

4.3

Conflicts; Consents of Third Parties

31

4.4

Financial Advisors

32

4.5

Investment

32

4.6

No Other Representations or Warranties; Schedules

32

 

 

 

ARTICLE V.  REPRESENTATIONS AND WARRANTIES OF THE BUYER

33

 

 

 

5.1

Organization and Good Standing

33

5.2

Authorization of Agreement

33

5.3

Conflicts; Consents of Third Parties

33

5.4

Litigation

34

5.5

Valid Issuance; SEC Filings

34

5.6

Assets

35

5.7

Intellectual Property

35

5.8

Employee Matters

35

5.9

Compliance with Laws

36

5.10

Absence of Certain Changes

36

5.11

Financial Advisors

36

5.12

Financial Capability

36

5.13

No Other Representations or Warranties; Schedules

36

 

 

 

ARTICLE VI.  COVENANTS OF THE PARTIES

37

 

 

 

6.1

Access to Records

37

6.2

Employees; Employee Benefits

37

6.3

Public Announcements

37

6.4

Expenses

38

6.5

Transfer Taxes

38

6.6

Tax Matters

38

6.7

Indemnification of Directors and Officers

40

6.8

Noncompetition; Non-Solicitation

41

6.9

Board Seat

42

6.10

Put Right

42

 

 

ARTICLE VII.  INDEMNIFICATION

43

 

 

 

7.1

Survival of Representations and Warranties

43

7.2

Indemnification by the Seller

43

7.3

Indemnification by the Buyer

44

7.4

Claims Procedures

44



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7.5

Limitations

46

7.6

Calculation and Satisfaction of Losses

47

7.7

Effect on Purchase Price

48

7.8

Sole and Exclusive Remedy

48

 

 

 

ARTICLE VIII.  GENERAL PROVISIONS

48

 

 

 

8.1

Further Assurances

48

8.2

Notices

48

8.3

Amendment; Waiver

49

8.4

Assignment

49

8.5

No Third Party Beneficiaries

50

8.6

Severability

50

8.7

Entire Understanding

50

8.8

Captions

50

8.9

Counterparts; Electronic Signatures

50

8.10

Governing Law; Venue; Wavier of Trial by Jury

51

8.11

Currency

51




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STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “ Agreement ”), dated as of October 30, 2014, is by and among Richard Steel (the “ Seller ”), Steel Media, a California corporation (the “ Company ”) and Social Reality, Inc., a Delaware corporation (the “ Buyer ”).

PRELIMINARY STATEMENTS

A.

The Seller is the owner of 100,000 shares of common stock, no par value per share, of the Company (the “ Shares ”), constituting 100% of the issued and outstanding shares of the Company.  

B.

The Seller desires to transfer, assign and sell to the Buyer, and the Buyer desires to acquire and purchase from the Seller, all of the Shares, and thereby purchase and acquire the Business (as defined herein) of the Company on the terms and subject to the conditions contained in this Agreement.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I.
DEFINITIONS; CONSTRUCTION

1.1

Definitions .  

For purposes of this Agreement:

Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

Business ” means the digital advertising business involving the outsourced execution and management of digital advertising campaigns across display, mobile, video and email advertising channels.

Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in New York City.

Business Employee ” means any employee of the Company immediately prior to the Closing.

Buyer Common Stock ” means Class A common stock of the Buyer, $0.001 par value per share.



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Buyer Change of Control ” means any one of the following, whether in one or a series of transactions, directly or indirectly: (i) the consummation of a merger or consolidation of the Buyer or the Company with or into another Person (except a merger or consolidation in which the holders of capital stock of the Buyer or the Company, as applicable, immediately prior to such merger or consolidation collectively continue to hold at least 60% of the earning power, voting power or capital stock of the surviving Person); (ii) the issuance, transfer, sale or disposition to another Person in a single transaction or in a series of closely related transactions of the voting power or capital stock of the Buyer or the Company, as applicable, if after such issuance, sale, transfer or disposition such Person would hold more than 40% of the voting power or capital stock of the Buyer or the Company; (iii) if the Persons who, on the date of this Agreement, constitute a majority of the board of directors of the Buyer or the Company (collectively, the “ Original Directors ”) or Persons nominated and/or appointed as directors by vote of a majority of such Persons, shall for any reason cease to constitute a majority of either such board of directors; (iv) a sale, transfer or disposition of all or substantially all of the assets or earning power of the Buyer, the Company or the Business; or (v) dissolution, liquidation or winding up of the affairs of the Buyer or the Company.

Buyer Intellectual Property ” means the Intellectual Property owned by or licensed to the Buyer and, in the case of registered Buyer Intellectual Property, that which is set forth on Schedule 5.7 of the Buyer Disclosure Schedule.

Cause ” has the meaning set forth in the Seller Employment Agreement.

Claim ” means a Third Party Claim or Interparty Claim, as applicable.

Closing Date Share Price ” $1.0474, subject to proportionate adjustment in the event of a stock split, stock dividend or distribution, recapitalization or similar event.

 “ Closing Price ” means (a) if the Buyer Common Stock is then listed or quoted on the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market or any other national securities exchange, the closing price per share of the Buyer Common Stock for such date (or the nearest preceding date) on such Eligible Market on which the Buyer Common Stock is then listed or quoted; or (b) if clause (a) is not applicable and prices for the Buyer Common Stock are then quoted on the OTC Bulletin Board or any tier of the OTC Markets, the closing bid price per share of the Buyer Common Stock for such date (or the nearest preceding date) so quoted.  

Code ” means the Internal Revenue Code of 1986, as amended.

Company Intellectual Property ” means the Intellectual Property owned by or licensed to the Company and, in the case of registered Company Intellectual Property, that which is set forth on Schedule 3.11 of the Company Disclosure Schedule.

Contract ” means any written or verbal contract, agreement, indenture, note, bond, mortgage, loan, instrument, lease, or license in effect on the Closing Date or any offers or solicitations made to any third party to enter into any of the foregoing outstanding on the Closing Date.



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Cumulative EBITDA Amount ” means the sum of the Earnout EBITDA for the First Earnout Period and the Earnout EBITDA for the Second Earnout Period.

Cumulative EBITDA Target ” means Eight Million Nine Hundred Forty-Three  Thousand Dollars ($8,943,000).

Current Assets ” means the current assets of the Company consisting of accounts receivable, unbilled receivables, prepaid expenses, inventory and other current assets as of the Closing Date and including cash and cash equivalents as determined in accordance with GAAP, subject to the principles and adjustments set forth on Schedule 1.1 hereto.

Current Liabilities ” means the current liabilities of the Company consisting of accounts payable, accrued expenses and other current liabilities as of the Closing Date determined in accordance with GAAP, subject to the principles and adjustments set forth on Schedule 1.1 hereto.

Earnout Consideration ” means the Year-One Earnout Consideration and/or the Year-Two Earnout Consideration, as applicable.

Earnout Payment ” means the sum of the (x) the cash amount of any Earnout Consideration actually paid to the Seller, plus (y) the dollar value (based on the applicable Earnout Share Price) of the shares of Buyer Common Stock issued to the Seller as Earnout Consideration.

Earnout Period ” means each of the First Earnout Period and the Second Earnout Period, as applicable.

Earnout Share Price ” means the volume weighted average price (with respect to any Trading Day for which such average is being calculated, the aggregate sales price of all trades of Buyer Common Stock during such Trading Day divided by the total number of shares of Buyer Common Stock traded during such Trading Day) of the Buyer Common Stock for the twenty (20) Trading Days immediately preceding, up to and including, the last day of an Earnout Period as reported by Bloomberg L.P. using the AQR function.

Earnout Shares ” means any shares of Buyer Common Stock issued to the Seller in satisfaction of an Earnout Payment.

EBITDA ” means, with respect to the Company and any now or hereafter existing subsidiaries, earnings before interest, taxes, depreciation and amortization for the twelve month period ending on the last day of the applicable Earnout Period, each of the foregoing calculated in accordance with GAAP, and then adjusted to add back items of expense: that are: (i) personal to the current or former owners of the Company in nature (to the extent it relates to any period prior to the Closing), (ii) non-recurring in the ordinary course, (iii) expenses attributable to Buyer’s ownership and control of the Company, including without limitation, increased staffing costs, increased vendor costs from vendors not previously used by the Company, costs relating to audits, costs relating to compliance with federal and state securities Laws and other increased administrative and operational costs, which are incurred at the request or direction of the Buyer, (iv) any expense incurred in connection with the conduct of the



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Business that is not consistent with past practice and not approved by the Seller, and (v) any expense giving rise to or paid in satisfaction of an indemnification claim under Section 7.3 (collectively, the “ EBITDA Adjustments ”).  

Eligible Market ” means the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the NYSE MKT, any other national securities exchange, the OTCBB, the OTCQX or the OTCQB.

Environmental Laws ” means any federal, state or local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, consent, court order, judgment, decree, injunction, code, requirement or agreement with any Governmental Body (x) relating to pollution (or the cleanup thereof or the filing of information with respect thereto), human health or the protection of air, surface water, ground water, drinking water supply, land (including land surface or subsurface), plant and animal life or other natural resources, or (y) concerning exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production or disposal of Regulated Substances as no in effect.  

Equity Conditions ” means each of the following, which must be satisfied through the applicable date of determination:

(i)

the Buyer shall have complied in all respects with all applicable federal and state securities laws and regulations and all rules and regulations of the Eligible Market(s) on which the Buyer Common Stock shall have been listed for trading in respect of the offer, sale and issuance of the Buyer Common Stock under this Agreement;

(ii)

the Buyer Common Stock (including all shares of Buyer Common Stock to be received by the Seller) shall be listed or designated for quotation (as applicable) on an Eligible Market and no Trading Market Event (or event which with notice or passage of time would be a Trading Market Event) shall have occurred;

(iii)

the Buyer shall be in compliance in all material respects with all of its obligations under this Agreement;

(iv)

all Buyer Common Stock issued pursuant to this Agreement when issued shall be validly issued, fully paid and non-assessable, and, assuming Seller is not an affiliate of Buyer at such time, the Earnout Shares shall be freely tradeable (subject to the Section 2.10 of the Registration Rights Agreement) by the Seller, without restriction of any kind or nature, and the certificates evidencing such Earnout Shares, shall be free of any legend or other restrictive notation;

(v)

the Buyer is, and has been since the date of this Agreement, in full and timely compliance with all of its obligations under the Securities Exchange Act and the regulations promulgated thereunder;

(vi)

neither the Buyer nor any of its Subsidiaries, including the Company, has suffered a Material Adverse Effect since the date of this Agreement; and  



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(vii)

the Seller shall have received a written legal opinion from Buyer’s counsel (who shall be reasonably acceptable to the Seller), dated and effective as of the date of determination, in the form of Exhibit A , annexed hereto and made a part hereof.

Equity Conditions Failure ” means that on any applicable date of determination any of the Equity Conditions have not been satisfied, except for any Equity Condition that is to be satisfied contemporaneously with issuance of the Buyer Common Stock, in which case, such Equity Condition is satisfied at the time of such issuance.

Estimated Closing Balance Sheet ” means an estimated balance sheet of the Company as of 11:59 p.m. on the Business Day immediately preceding the Closing Date  prepared in accordance with GAAP and Section 2.4(a) .

Estimated Closing Working Capital ” means a statement of the amount of Working Capital derived from the Estimated Closing Balance Sheet prepared in accordance with GAAP and Section 2.4(a) .

First Earnout Period ” means the period commencing on the November 1, 2014 and ending on October 31, 2015.

Fundamental Representations ” means Section 3.1 (Organization and Good Standing), Section 3.2 (Capitalization), Section 3.3 (Authorization of Agreement), Section 3.4(a)(i) (Conflicts), Section 3.18 (Financial Advisors), Section 4.1 (Ownership and Transfer of Shares), Section 4.2 (Authorization of Agreement), Section 4.4 (Financial Advisors), Section 4.5 (Investment), Section 5.1 (Organization and Good Standing), Section 5.2 (Authorization of Agreement), Section 5.3(a)(i) (Conflicts) , Section 5.5 (Valid Issuance; SEC Filings), Section 5.11 (Financial Advisors) and Section 5.12 (Financial Capability).

GAAP ” means generally accepted accounting principles in the United States as in effect on the date hereof, using principles consistently applied by the Company.

Good Reason ” has the meaning set forth in the Seller Employment Agreement.

Governmental Body ” means any government or quasi-governmental or regulatory agency or body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency, commission, instrumentality or authority thereof, or any court or arbitrator (public or private), or any self-regulatory organization, including any Eligible Market.

Income Taxes ” means any income, franchise, net profits, excess profits or similar Taxes, measured on the basis of net income.

Income Tax Return ” means any Tax Return related to Income Taxes.

Indebtedness ” of any Person means, without duplication: (i) the principal of and, accreted value and accrued and unpaid interest in respect of (A)  indebtedness of such Person for borrowed money and (B) interest bearing indebtedness evidenced by notes, debentures or bonds for the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of



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such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities); (iii) all obligations of the type referred to in clauses (i) through (ii) of any Persons the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise; (iv) all capitalized lease obligations; and (v) all obligations of the type referred to in clauses (i) through (iii) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person).

Indemnification Escrow Agent ” means Wells Fargo Bank, National Association.

Indemnification Escrow Agreement ” means that certain escrow agreement, dated as of the date of this Agreement, by and among the Seller, the Buyer and the Indemnification Escrow Agent.

Intellectual Property ” means all intellectual property rights used by the Company arising from or in respect of the following: (i) all patents and applications therefor, including continuations, divisionals, continuations-in-part, re-examinations, or reissues of patent applications and patents issuing thereon (collectively, “ Patents ”), (ii) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, Internet domain names and corporate names, together with the goodwill associated with any of the foregoing, and all applications, registrations and renewals thereof, (collectively, “ Marks ”), (iii) copyrights and registrations and applications therefor, works of authorship and mask work rights (collectively, “ Copyrights ”) and (iv) all Software and Technology of the Company.

IRS ” means the United States Internal Revenue Service and, to the extent relevant, the United States Department of Treasury.

Knowledge of the Buyer ” means the actual knowledge after reasonable inquiry of Christopher Miglino.

Knowledge of the Company ” means the actual knowledge after reasonable inquiry of Richard Steel or Chad Holsinger.

Law ” means any statute, law, ordinance, regulation, rule, code, injunction, judgment, decree or order of any Governmental Body.

Legal Proceeding ” means any judicial, administrative or arbitral actions, investigations, suits or proceedings (public or private) by or before a Governmental Body.

Liability ” means any debt, liability or obligation (whether direct or indirect, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due) and including all costs and expenses relating thereto.

Lien ” means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude or transfer restriction.



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Losses ” means losses, liabilities, claims, demands, judgments, damages, fines, payments, penalties, awards, suits, actions, costs and expenses; provided , that ,  “ Losses ” shall not include any special, incidental, punitive, consequential or similar damages (including damages for lost profits, business interruption or diminution of value, whether or not known, unknown, or notice of which has been given before or after the fact) other than special, incidental, punitive, consequential or similar damages (including damages for lost profits, business interruption or diminution of value) that are awarded to a third party pursuant to a Third Party Claim.

Material Adverse Effect ” means with respect to any Person, any event, change, circumstance, effect or state of facts that is materially adverse to the business, financial condition, operations, assets, liabilities or results of operations of such Person;   provided , however , that a Material Adverse Effect shall not include the effect of any event, change, circumstance, effect or state of facts arising out of or attributable to any of the following: (i) the consummation of the transactions contemplated by this Agreement, (ii) matters generally applicable to the industry in which such Person operates, ( iii) the announcement or other disclosure of the transaction contemplated by this Agreement, ( iv) any changes in the United States or global economy or capital or financial markets generally, ( v) any changes in state, federal or foreign laws, including, without limitation, proposed or enacted legislation or regulatory changes or changes in GAAP or regulatory accounting principles applicable to such Person, ( vi) consequences of natural disasters, hostilities, acts of terrorism or war, or any material escalation of any such hostilities, acts of terrorism or war existing as of the date of this Agreement, or ( vii) failure in and of itself (as distinguished from any change or event giving rise or contributing to such failure) by such Person to meet any projected financial performance; provided, that with respect to each of clauses ( ii), ( iv), (v) and ( vi), such effect does not have a disproportionately negative impact on such Person, as compared to other companies in the industries, markets or geographic areas in which such Person operates.

Maximum Target Working Capital ” means the sum of (x) the Target Working Capital plus (y) $200,000.

Minimum Target Working Capital ” means the difference of (x) Target Working Capital minus (y) $200,000.

Order ” means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award of a Governmental Body.

Ordinary Course of Business ” means the ordinary and usual course of normal operations of the Business consistent with past practice.

 “ Permits ” means any approvals, authorizations, consents, licenses, permits or certificates of a Governmental Body.

Permitted Liens ” means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances disclosed in policies of title insurance; (ii) statutory liens for current Taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings; (iii) mechanics’, carriers’,



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workers’, repairers’ and similar Liens arising or incurred in the Ordinary Course of Business;  (iv) title of a lessor under a capital or operating lease; (v) restrictions imposed by federal and state securities laws; and (vi) such other imperfections in title, charges, easements, restrictions and encumbrances which would not, in each case, result in a Material Adverse Effect on such Person.

Person ” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.

Pre-Closing Tax Period means any Tax period ending on or before 11:59 p.m. on the day immediately preceding the Closing Date; and, with respect to a Straddle Period, the portion of such Tax period ending on 11:59 p.m. on the day immediately preceding the Closing Date.

Regulated Substances ” means pollutants, contaminants, hazardous or toxic substances, compounds or related materials or chemicals, hazardous materials, hazardous waste, flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products.

Representatives ” means the officers, directors, managers, trustees, employees, agents, counsel, accountants, financial advisors, and other representatives of a party or other Person.

Second Earnout Period ” means the period commencing on November 1, 2015 and ending on October 31, 2016.

Securities Act ” means the Securities Act of 1933, as amended.

Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended.

Seller Employment Agreement ” means the Employment Agreement, dated as of the date hereof, by and among the Seller, the Company and the Buyer and attached hereto as Exhibit D-1 .

Separation Date ” means the date on which the Seller shall cease to be employed by the Company or the Buyer following the occurrence of a Separation Event.

Separation Event ” shall mean the termination of the Seller’s employment under the Seller Employment Agreement by (i) the Buyer or the Company without Cause or (ii) the Seller for Good Reason.

Software ” means any and all computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code.



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Subordination Agreement ” means the subordination agreement, dated as of the date of this Agreement, by and among the Seller, the Buyer and Victory Park Management, LLC.

Target Working Capital ” means an amount equal to One Million Three Hundred Thousand Dollars ($1,300,000).

Tax” or “ Taxes ” means with respect to any Person all federal, state, local, and foreign taxes, assessments or other government charges, including, without limitation, any income, alternative or add on minimum tax, estimated gross income, gross receipts, sales, use, ad valorem , value added, transfer, capital stock franchise, profits, license, registration, recording, documentary, intangibles, gains, withholding, payroll, employment, social security (or similar), unemployment, disability, excise, severance, stamp, occupation, premium, property (real and personal), environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment, charge, or tax of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Governmental Body.

Taxing Authority ” means the IRS and any other Governmental Body responsible for the administration of any Tax.

Tax Return means all reports, returns, declarations, statements or other information required to be supplied to a Taxing Authority in connection with Taxes and any amendment thereof.

Technology ” means, collectively, all information, designs, formulae, algorithms, procedures, methods, techniques, ideas, know-how, research and development, technical data, programs, subroutines, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings, and other tangible embodiments of the foregoing, in any form whether or not specifically listed herein, and all related technology, that are used in, incorporated in, embodied in, displayed by or relate to, or are used by the Company.

Termination Date ” has the meaning set forth in the Seller Employment Agreement.

Trading Day ” means any day on which the Buyer Common Stock is traded on an Eligible Market.

Trading Market Event ” means any of the following: (x) if the Buyer Common Stock or any shares of Buyer Common Stock issuable pursuant to this Agreement shall cease or fail to be listed for trading or quoted on an Eligible Market; or (y) if the Buyer shall no longer be eligible to have its securities listed or quoted on any Eligible Market or be subject to any disciplinary or other proceeding by or involving any Eligible Market.

Transaction Documents ” means this Agreement, the Note, the Registration Rights Agreement, the Employment Agreements, the Escrow Agreement, the Indemnification Escrow Agreement and all agreements, documents, certificates and instruments executed and delivered by the parties in connection with this Agreement.



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Victory Park Financing ” means the transactions contemplated by the Financing Agreement, dated as of the date hereof, by and among the Buyer, as the borrower, the guarantors from time to time party thereto, the lenders party thereto and Victory Park Management, LLC, as agent.

Working Capital ” means, as of any date, (a) Current Assets minus (b) Current Liabilities, all as determined in accordance GAAP and Section 2.4(a) and in a manner consistent with Schedule 1.1 attached hereto.

Year-One Earnout Consideration ” means up to Four Million Dollars ($4,000,000).

Year-One EBITDA Target ” means Four Million Eighty-Nine Thousand Dollars ($4,089,000).

Year-Two Earnout Consideration ” means up to Four Million Dollars ($4,000,000), subject to reduction as provided in Section 2.4(i) .

Year-Two EBITDA Target ” means Four Million Eight Hundred Fifty-Four Thousand Dollars ($4,854,000).

1.2

Table of Defined Terms .  Terms that are not defined in Section 1.1 have the meanings set forth in the following Sections:

Defined Term

Section

Agreement

Preamble

Buyer

Preamble

Buyer Benefit Plans

5.8(a)

Buyer Disclosure Schedule

Article V

Buyer Indemnified Party(ies)

7.2

Buyer Interim Financial Statements

5.5(b)

Cap

7.5(a)

Closing

2.3(a)

Closing Cash Adjustment Notice

2.4(d)

Closing Cash Payment

2.2

Closing Date

2.3(a)

Closing Date Balance Sheet

2.4(d)(i)

Closing Report Objection Notice

2.4(e)

Closing Reports

2.4(d)(ii)

Closing Statement

2.4(d)(ii)

Closing Working Capital

2.4(d)

Company

Preamble

Company Benefit Plan

3.13(b)

Company Disclosure Schedule

Article III

Competitive Activities

6.8(a)

Competitor

6.8(a)



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Continuing Employees

6.2

Copyrights

Definitions

Deductible

7.5(b)

Downward Closing Cash Adjustment

2.4(i)

Earnout EBITDA

2.5(b)

Earnout Expert

2.5(d)

Earnout Notice

2.5(b)

Earnout Objection Notice

2.5(c)

Earnout Objection Period

2.5(c)

EBITDA Adjustments

Definitions

Employee Transfer

2.5(p)

Employment Agreement

2.3(a)(ii)(E)

ERISA

3.13(b)

Escrow Agent

2.3(a)(ii)(F)

Escrow Agreement

2.3(a)(ii)(F)

Escrow Shares

2.3(a)(iii)

Escrow Shares Election Period

6.10(a)

Estimated Closing Reports

2.4(a)

Estimated Working Capital Excess

2.4(b)

Estimated Working Capital Shortfall

2.4(b)

Excluded Revenue

2.5(p)

Financial Statements

3.6

Fundamental Cap

7.5(a)

Indemnification Escrow Account

2.2

Indemnification Escrow Amount

2.2

Indemnified Party

7.4(a)

Indemnifying Party

7.4(a)

Interim Earnout Payment Amount

2.5(m)

Interparty Claim

7.4(c)

Interparty Claim Notice

7.4(c)

Marks

Definitions

Material Contracts

3.12(a)

Note

2.2

Note Default Notice

6.10(a)

Patents

Definitions

Personal Property Leases

3.9

Purchase Price

2.2

Put Notice

6.10(b)

Put Period

6.10(b)

Put Price

6.10(c)

Put Right

6.10(b)

Put Shares

6.10(b)

Original Directors

Definitions

Qualifying Claims

7.5(b)



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Real Property Lease(s)

3.8

Records

6.1

Registration Rights Agreement

2.3(a)(ii)(D)

Related Person

3.17

Restricted Period

6.8(a)

Shares

Recitals

Seller

Preamble

Seller Disclosure Schedules

Article IV

Seller Indemnified Party(ies)

7.3

Seller Interim Financial Statements

3.6

Straddle Period

6.6(a)

SEC

5.5(b)

SEC Documents

5.5(b)

Stock Payment Notice

2.5(s)

Third Party Claim

7.4(a)

Third Party Claim Notice

7.4(a)

Transfer Taxes

6.5

Upward Closing Cash Adjustment

2.4(i)

WC Expert

2.4(f)

Year End Financial Statements

3.6


1.3

Construction .

(a)

Unless the context otherwise requires, as used in this Agreement: (i) an accounting term not otherwise defined herein has the meaning ascribed to it in accordance with GAAP; (ii) “or” is not exclusive; (iii) “including” and its variants mean “including, without limitation” and its variants; (iv) words defined in the singular have the parallel meaning in the plural and vice versa; (v) words of one gender shall be construed to apply to each gender; (vi) the words “hereof”, “herein”, “hereby”, “hereto” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (vii) the terms “Article”, “Section”, “Exhibit” and “Schedule” refer to the specified Article, Section, Exhibit or Schedule of or to this Agreement; and (viii) any references to time shall be references to New York, New York time.

(b)

The Schedules and Exhibits to this Agreement are incorporated herein by reference and made a part hereof for all purposes. Disclosure of any item or matter on any Schedule shall not constitute an admission or indication that such item or matter is material or would have a Material Adverse Effect, or that any such item or matter is required to be disclosed thereon.  No disclosure on a Schedule relating to a possible breach or violation of any Contract, Law or Order shall be construed as an admission or indication that breach or violation exists or has actually occurred. Any capitalized terms used in any Schedule or Exhibit, but not otherwise defined therein, shall have the meaning set forth in this Agreement.

(c)

The Buyer, on the one hand, and the Seller, on the other, are each represented by legal counsel and have each participated in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation should arise, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall



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arise favoring or burdening any party by virtue of the authorship of any of the provisions of this Agreement.

(d)

All financial calculations and financial statements required by, or described in this Agreement, including, without limitation, Current Assets, Current Liabilities, Estimated Closing Balance Sheet, EBITDA, Estimated Working Capital, Closing Working Capital, Closing Date Balance Sheet and Financial Statements shall, except as otherwise expressly provided herein, be calculated or prepared, as the case may be, in accordance with GAAP.

ARTICLE II.
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES

2.1

Purchase and Sale of Shares .  On the Closing Date and pursuant to the terms and upon the conditions of this Agreement, the Buyer agrees to purchase and acquire from the Seller, and the Seller agrees to sell and transfer to the Buyer, the Shares, free and clear of all Liens, being all of the issued and outstanding capital stock of the Company.

2.2

Purchase Price .  In consideration of the Seller’s transfer of the Shares to the Buyer pursuant to this Agreement, the Buyer shall pay to the Seller up to an aggregate of Twenty Million Dollars ($20,000,000), consisting of: (i) a cash payment at Closing equal to Seven Million Five Hundred Thousand Dollars ($7,500,000) (the “ Closing Cash Payment ”), subject to adjustment as provided in Section 2.4 hereof; (ii) delivery of cash, by wire transfer of immediately available funds, at Closing in the amount of Two Million Dollars ($2,000,000) (the “ Indemnification Escrow Amount ”) to the Indemnification Escrow Agent, which Indemnification Escrow Amount shall be held in an escrow account (the “ Indemnification Escrow Account ”) and disbursed in the manner set forth in the Indemnification Escrow Agreement; (iii) the issuance by the Buyer to the Seller at the Closing of a 5% secured subordinated promissory note in the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000), in the form attached hereto as Exhibit B (the “ Note ”); and (iv) the Earnout Payments having an aggregate value of up to Eight Million Dollars ($8,000,000).  For purposes of this Agreement, the “ Purchase Price ” shall mean the sum of: (w) the Closing Cash Payment, as adjusted pursuant to Section 2.4 , plus (x) the Indemnification Escrow Amount, plus (y) the principal amount of the Note, plus (z) the aggregate amount of the Earnout Payments (including the value of any shares of Buyer Common Stock issued in connection therewith).

2.3

Closing .

(a)

The consummation of the transactions contemplated by this Agreement is herein referred to as the “ Closing ”, and the date on which the Closing occurs is herein referred to as the “ Closing Date ”. The Closing shall take place at 10:00 a.m. local time, at the offices of Lowenstein Sandler LLP, 1251 Avenue of the Americas, New York, New York 10020, on the date hereof. Regardless of the actual time of the Closing, except as otherwise expressly provided herein, for tax and accounting purposes, the Closing shall be deemed effective as of 11:59 p.m. on the day immediately preceding the Closing Date. Unless the context indicates otherwise, all references herein to the “ Closing Date ” and the “ Closing ” shall mean the date on which and the time at which the Closing is effective. At the Closing:



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(i)

The Buyer shall (i) pay to the Seller the Closing Cash Payment by wire transfer of immediately available funds to the account or accounts designated in writing by the Seller to the Buyer prior to the Closing Date, and (ii) deliver the Indemnification Escrow Amount, by wire transfer of immediately available funds, to the Indemnification Escrow Agent for deposit in the Indemnification Escrow Account on the Closing Date.

(ii)

The Buyer shall deliver, or cause to be delivered, to the Seller the following documents, instruments and other items:

A.

A certificate, dated within five (5) Business Days of the Closing Date, from the Secretary of State of the State of Delaware, certifying that the Buyer is in good standing in Delaware;

B.

A certificate, dated as of the Closing Date, of the secretary of the Buyer (i) certifying and attaching the resolutions of the board of directions of the Buyer approving the execution, delivery and performance of this Agreement and each of the other Transaction Documents to which it is a party, (ii) certifying and attaching the certificate of incorporation and by-laws of the Buyer, each as in effect on the date hereof, and (iii) certifying the incumbency and signatures of the officers of the Buyer duly authorized to act on its behalf in connection with the transactions contemplated by this Agreement and by the other Transaction Documents to which it is a party;

C.

an original duly executed Note; and

D.

a duly executed registration rights agreement, in the form of Exhibit C , annexed hereto and made a part hereof (the “ Registration Rights Agreement ”);

E.

an Employment Agreement executed by the Buyer, among the Company and the Buyer and each of the individuals listed on Schedule 2.3(a) (the “ Employment Agreements ”), in the form of Exhibits D-1 , D-2 and D-3 , annexed hereto and made a part hereof, providing for the continued employment of the individuals listed on Schedule 2.3 with the Company on the terms and conditions therein;

F.

an escrow agreement executed by the Buyer, among the Buyer, the Seller and Lowenstein Sandler LLP, as escrow agent (the “ Escrow Agent ”), in the form of Exhibit E , annexed hereto and made a part hereof (the “ Escrow Agreement ”);

G.

the Indemnification Escrow Agreement, duly executed by the Buyer;

H.

an indemnification agreement executed by the Buyer, among the Buyer and the Seller in the form of Exhibit F , annexed hereto and made a part hereof; and

I.

evidence satisfactory to the Seller that the Buyer has complied with the provisions of Section 6.9(b) , including delivery to the Seller of the applicable directors’ and officers’ liability insurance policy.



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(iii)

The Buyer shall deliver to the Escrow Agent a stock certificate, registered in the name of the Seller, representing 2,386,863 shares of Buyer Common Stock (the “ Escrow Shares ”).  

(iv)

The Seller shall deliver, or cause to be delivered, to the Buyer the following documents, instruments and other items:

A.

a certificate, dated within five (5) Business Days of the Closing Date, from the Secretary of State of the State of California, certifying that the Company is in good standing in California;

B.

stock certificate(s) evidencing the Shares, free and clear of all Liens, duly endorsed in blank or accompanied by stock powers or other instruments of transfer duly executed in blank, with all required stock transfer tax stamps affixed thereto;

C.

a certificate, dated as of the Closing Date, of the secretary of the Company (i) certifying and attaching the resolutions of the board of directors of the Company approving the execution, delivery and performance of this Agreement and each of the other Transaction Documents to which it is a party, (ii) certifying and attaching the certificate of incorporation and bylaws of the Company, each in effect on the date hereof, and (iii) certifying the incumbency and signatures of the officers of the Company duly authorized to act on its behalf in connection with the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party;

D.

the Estimated Closing Reports;

E.

the Escrow Agreement executed by the Seller;

F.

the Indemnification Escrow Agreement, duly executed by the Seller; and

G.

all other agreements, documents, instruments or certificates required to be delivered by the Seller at or prior to the Closing pursuant to this Agreement.

2.4

Working Capital Adjustment .

(a)

On the Closing Date, the Seller shall have provided the Buyer with a statement of the Estimated Closing Balance Sheet and the Estimated Closing Working Capital (collectively, the “ Estimated Closing Reports ”).  The Estimated Closing Reports shall be prepared by the Seller in accordance with GAAP and using the same accounting methods, practices, principles policies and procedures, with consistent classifications, judgments and valuation and estimation and accrual methodologies that were used by the Company prior to the Closing Date and in accordance with Schedule 1.1 .

(b)

If the Estimated Closing Working Capital is less than the Minimum Target Working Capital (the amount by which the Minimum Target Working Capital exceeds the Estimated Closing Working Capital, the “ Estimated Working Capital Shortfall ”), then the



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amount of such Estimated Working Capital Shortfall shall, dollar for dollar, decrease the amount of the Closing Cash Payment.

(c)

If the Estimated Closing Working Capital is greater than the Maximum Target Working Capital (the amount by which the Estimated Closing Working Capital exceeds the Maximum Target Working Capital, the “ Estimated Working Capital Excess ”), then the amount of such Estimated Working Capital Excess shall, dollar for dollar, increase the amount of the Closing Cash Payment.  If the Estimated Closing Working Capital is greater than the Minimum Target Working Capital and less than the Maximum Target Working Capital, then no adjustment shall be made to the Closing Cash Payment with respect to the Estimated Working Capital.

(d)

Following the Closing, the amount of the Closing Cash Payment shall be adjusted as provided herein to reflect the difference between the Working Capital as derived from the Closing Date Balance Sheet (the “ Closing Working Capital ”) and the Estimated Closing Working Capital, and as finally determined in accordance with this Section 2.4 .  Within sixty (60) days after the Closing Date, the Buyer shall prepare and deliver to the Seller a notice signed by a senior officer of the Buyer setting forth its proposed adjustments, if any, to the Closing Cash Payment, such notice (the “ Closing Cash Adjustment Notice ”) shall include:

(i)

a balance sheet of the Company as of 11:59 p.m. on the Business Day immediately preceding the Closing Date (the “ Closing Date Balance Sheet ”); and

(ii)

a calculation of the Closing Working Capital (the “ Closing Statement ” and, together with the Closing Date Balance Sheet, the “ Closing Reports ”). The Closing Statement shall include a detailed computation of the Closing Working Capital set forth thereon.

The Closing Reports shall be prepared in accordance with GAAP using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation and accrual methodologies that were used in preparation of the Estimated Closing Reports, including Schedule 1.1 .  

(e)

Upon the receipt by the Seller of all of the Closing Reports, the Seller shall have a period of thirty (30) days to review the Closing Reports and may have the same verified by independent accountants (who may be the current auditors of the Seller) and other Representatives selected by it. The Seller and its Representatives shall be entitled to perform all reasonable procedures (including review of all relevant accounting, financial and other records, including work papers and other supporting materials) and to take any other reasonable steps that the Seller and its Representatives deem appropriate to confirm that each of the Closing Reports have been prepared in accordance with the terms of this Agreement. If the Seller shall have any objections to the Closing Reports or the calculation set forth therein, the Seller shall deliver to the Buyer, within thirty (30) days after its receipt of all of the Closing Reports, a written statement (the “ Closing Report Objection Notice ”) setting forth the component or components of the Closing Reports that are in dispute, the basis of such dispute and, if known, the amount proposed as an adjustment.  The failure of the Seller to deliver a Closing Report Objection Notice within the thirty (30) day period hereinabove provided shall constitute the acceptance by



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the Seller of the Closing Reports as submitted by the Buyer whereupon such Closing Reports shall be final, binding and conclusive for all purposes hereunder.  Notwithstanding anything to the contrary contained in this Section 2.4 , in the event any information reasonably requested by the Seller under this Section 2.4(e) has not been provided to the Seller promptly following the Seller’s request thereof and within such thirty (30) day period, then the Closing Reports shall not be deemed final, binding or conclusive hereunder and the Seller may unilaterally (without the Buyer’s consent) extend the period for which the Seller may submit the Closing Report Objection Notice five (5) days for each day beyond the thirty (30) day period that such item remains outstanding by delivering a written notice to the Buyer of such extension.  

(f)

If the Seller delivers a Closing Report Objection Notice, the Buyer and the Seller shall use their good faith efforts to resolve the matters in dispute, but, if the Buyer and the Seller fail to resolve all of the items in dispute within thirty (30) days after the Seller’s delivery of the Closing Report Objection Notice to the Buyer (or such longer period as they may mutually agree in writing), then either party may elect to submit any remaining disputed items to an independent third-party arbitrator mutually acceptable to the Buyer and the Seller who shall be qualified by experience and training to arbitrate commercial disputes (the “ WC Expert ”); provided , however , that if the Buyer and the Seller are unable to mutually agree on an individual to act as the WC Expert within five (5) Business Days after the Buyer or the Seller elect to submit the dispute to arbitration, then each of the Buyer and the Seller shall each designate an independent third-party arbitrator and such designees shall promptly (and in any event within ten (10) days) select an individual to act as the WC Expert.

(g)

If any disputed items are referred to the WC Expert, the parties shall cooperate in good faith with the determination process and the WC Expert’s requests for information, including providing the WC Expert with information as promptly as practicable after its request therefor.  Each party shall be entitled to receive copies of all materials provided by the other to the WC Expert in connection with the determination process. In making its determination on the disputed items, the WC Expert shall make such determinations: (i) only in accordance with the standards set forth in this Agreement; (ii) only with respect to the disputed items submitted to the WC Expert and no other item; (iii) on a disputed item by disputed item basis (i.e., not in the aggregate); and (iv) where the result of the WC Expert’s determination for such disputed item is neither greater than the greatest amount presented by the parties to the WC Expert with respect to the item in dispute, nor less than the lowest amount presented by the parties to the WC Expert with respect to the item in dispute. In connection with his review, the WC Expert shall have the right to engage an independent accounting firm; provided such independent accounting firm does not have, and has not had, a relationship with the Seller, the Buyer or any of their respective Affiliates in the past five (5) years.  The determination of the WC Expert shall be final, conclusive and binding on the parties, absent manifest error. The parties shall instruct the WC Expert to provide its determination in writing to the parties within thirty (30) days of the date it is engaged on such project.  None of the parties shall have any ex parte conversations or meetings with the WC Expert without the prior consent of the other parties.

(h)

The Closing Reports, either as accepted or deemed to have been accepted by the Seller or as adjusted and resolved in the manner herein provided, shall fix the Closing Working Capital and the adjustment to the Closing Cash Payment, if any, resulting therefrom.  



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Subject to the reimbursement provided in the next sentence, each party shall bear its own expenses and the fees and expenses of its own Representatives, including its independent accountants, in connection with the preparation, review, dispute (if any) and final determination of the Closing Cash Payment. The party (either the Buyer or the Seller) whose determination of the amount of Closing Working Capital (as set forth in the Closing Cash Adjustment Notice provided by the Buyer or Closing Report Objection Notice provided by the Seller, as applicable) was farthest from the final determination of Closing Working Capital by the WC Expert, shall bear the fees and expenses of the WC Expert and shall reimburse the other party for all out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) of the party whose determination of the Closing Working Capital was closest to the final determination by the WC Expert.  If the determination by the WC Expert is equidistant between the determination of the parties, or is no more than five percent (5%) more or less than such equidistant amount, the fees and expenses of the WC Expert shall be borne equally by the Buyer and the Seller and each of the Buyer and the Seller shall bear the cost of their own out-of-pocket fees and expenses.  The WC Expert shall determine the allocation of fees and expenses in accordance with this Section 2.4(h) and include such allocation in its award.  

(i)

Upon the Closing Working Capital becoming final as provided in Section 2.4(h) , the Closing Cash Payment shall be recalculated using the finally determined Closing Working Capital instead of the Estimated Closing Working Capital that was used at Closing (giving effect to the Minimum Target Working Capital or Maximum Target Working Capital, as applicable).  If as a result of such recalculation, the Closing Cash Payment (giving effect to the Minimum Target Working Capital or Maximum Target Working Capital, as applicable) is less than the amount paid at Closing (such difference, the “ Downward Closing Cash Adjustment ”), then within three (3) Business Days after the final determination thereof, the Seller shall reduce the principal amount of the Note dollar-for-dollar by an amount equal to the Downward Closing Adjustment.  If as a result of such recalculation the Closing Cash Payment (giving effect to the Minimum Target Working Capital or Maximum Target Working Capital, as applicable) is greater than the amount paid at Closing (such difference, the “ Upward Closing Cash Adjustment ”), then within three (3) Business Days after the final determination thereof, the Buyer shall pay to the Seller an amount equal to the Upward Closing Cash Adjustment by wire transfer of immediately available funds to an account designated by such Seller in writing to the Buyer.  

(j)

  The pendency of a dispute shall not affect the payment obligation of either the Buyer or the Seller to the extent of any undisputed portion of any payment to be made by the parties under this Article II after the Closing.  The payment of any undisputed amount payable under this Section 2.4 , shall be made by wire transfer of immediately available funds to an account designated in writing by the party receiving such payment within three (3) Business Days after the final determination thereof pursuant to this Section 2.4 .  Any payments under this Section 2.4 shall constitute an adjustment to the Purchase Price.  

2.5

Earnout Payments .

(a)

The Seller shall be entitled to, and shall, earn each of the Year-One Earnout Consideration and the Year-Two Earnout Consideration as and to the extent provided in this Section 2.5 .



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(b)

Within sixty (60) days after the expiry of each Earnout Period, the Buyer shall provide the Seller with written notice (the “ Earnout Notice ”) of the Buyer’s reasonably detailed computation of the EBITDA during such Earnout Period (the “ Earnout EBITDA ”), the Earnout Consideration calculated therefrom.  If the Buyer shall fail to timely provide an Earnout Notice, then the Earnout EBITDA shall be finally and conclusively deemed to equal 100% of the Earnout Target for such Earnout Period.

(c)

Upon the receipt by the Seller of an Earnout Notice, the Seller shall have a period of thirty (30) days to review the Earnout Notice and may have the same verified by independent accountants and other Representatives selected by him. The Seller and his Representatives shall be entitled to perform all reasonable procedures (including review of all records of the Buyer and the Company supporting such calculations and other materials as they may reasonably request) and to take any other reasonable steps that the Seller and his Representatives deem appropriate to confirm that the amount of the Earnout EBITDA for the applicable Earnout Period set forth in the Earnout Notice has been prepared in accordance with the terms of this Agreement. If the Seller shall have any objections to the calculation of the Earnout EBITDA set forth in the Earnout Notice, the Seller shall deliver to the Buyer, within thirty (30) days from his receipt of the Earnout Notice (the “ Earnout Objection Period ”), a written statement (the “ Earnout Objection Notice ”) setting forth the component or components of the Earnout Notice that are in dispute, the basis of such dispute and, if known, the amount proposed as an adjustment. The failure of the Seller to deliver an Earnout Objection Notice within the thirty (30) day period hereinabove provided shall constitute the acceptance by the Seller of the Earnout EBITDA and the amount of Earnout Consideration set forth in the Earnout Notice whereupon such amounts shall be final, binding and conclusive for all purposes hereunder.  Notwithstanding anything to the contrary contained in this Section 2.5 , in the event any information reasonably requested by the Seller under this Section 2.5(c) has not been provided to the Seller promptly following the Seller’s request thereof and within such thirty (30) day period, then the Earnout EBITDA and the amount of Earnout Consideration, each as set forth in the Earnout Notice shall not be deemed final, binding or conclusive hereunder, and the Seller may unilaterally (without the Buyer’s consent) extend the period for which the Seller may submit the Earnout Objection Notice five (5) days for each day beyond the thirty (30) day period that such item remains outstanding by delivering a written notice to the Buyer of such extension.

(d)

If the Seller delivers an Earnout Objection Notice, the Seller and the Buyer shall in good faith attempt to resolve any such dispute and, if the parties so resolve all such disputes, then the computation of the Earnout EBITDA and the amount of Earnout Consideration set forth in the Earnout Notice for the applicable Earnout Period as resolved by the parties, shall be conclusive and binding on the parties upon written acknowledgement of such resolution.  If the Seller and the Buyer fail to resolve all of the items in dispute within thirty (30) days after the Seller’s delivery of the Earnout Objection Notice to the Buyer (or such longer period as they may mutually agree in writing), then either party may elect to submit any remaining disputed items to an independent third-party arbitrator mutually acceptable to the Buyer and the Seller who shall be qualified by experience and training to arbitrate commercial disputes (the “ Earnout Expert ”) who shall be retained to review promptly the Earnout EBITDA and the amount of Earnout Consideration set forth in the Earnout Notice and the disputed items or amounts; provided , however , that if the Buyer and the Seller are unable to mutually agree on an individual to act as the Earnout Expert within five (5) Business Days after the Buyer or the



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Seller elect to submit the dispute to arbitration, then each of the Buyer and the Seller shall each designate an independent third-party arbitrator and such designees shall promptly (and in any event within ten (10) days) select an individual to act as the Earnout Expert.

(e)

If any disputed items are referred to the Earnout Expert, the parties shall cooperate in good faith with the determination process and the Earnout Expert’s requests for information, including providing the Earnout Expert with information as promptly as practicable after its request therefor. Each party shall be entitled to receive copies of all materials provided by the other to the Earnout Expert in connection with the determination process. In making its determination on the disputed items, the Earnout Expert shall make such determinations (i) only in accordance with the standards set forth in this Agreement, (ii) only with respect to the disputed items submitted to the Earnout Expert and no other items, (iii) on a disputed item by disputed item basis (i.e., not in the aggregate), and (iv) where the result of the Earnout Expert’s determination for such disputed item is neither greater then nor less than the amounts presented by the parties to the Earnout Expert with respect to the item in dispute. In connection with his review the Earnout Expert shall have the right to engage an independent accounting firm; provided such independent accounting firm does not have, and has not had, a material relationship with the Seller, the Buyer or any of their respective Affiliates in the past five (5) years.  The determination of the Earnout Expert shall be final, conclusive and binding on the parties, absent manifest error. The parties shall instruct the Earnout Expert to provide its determination in writing to the parties within thirty (30) days of the date it is engaged on such project.  Neither party shall have any ex parte conversations or meetings with the Earnout Expert without the prior written consent of the other party.

(f)

The amount of Earnout EBITDA for the applicable Earnout Period and the amount of Earnout Consideration calculated therefrom either as accepted or deemed to have been accepted by the Seller or as adjusted and resolved in the manner herein provided, shall fix the amount of the Earnout EBITDA for the applicable Earnout Period and the amount of Earnout Consideration calculated therefrom. Subject to the reimbursement provided in the next sentence, each party shall bear its own expenses and the fees and expenses of its own Representatives, including its independent accountants, in connection with the preparation, review, dispute (if any) and final determination of the amount of Earnout EBITDA for the applicable Earnout Period and the Earnout Consideration calculated therefrom. The fees and expenses of the Earnout Expert shall be borne by the party (either the Buyer or the Seller) whose determination of the amount of Earnout EBITDA (as set forth in the Earnout Notice or Earnout Objection Notice, as applicable) was farthest from the final determination by the Earnout Expert, and such party shall reimburse the other party for all out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) incurred in connection therewith; provided, that, if the determination by the Earnout Expert is equidistant between the determinations of the parties, or is no more than five percent (5%) more or less than such equidistant amount, the fees of the Earnout Expert shall be borne equally by the Buyer and the Seller and each of the Buyer and the Seller shall bear the cost of their own respective fees and expenses.

(g)

If the Earnout EBITDA set forth in the Earnout Notice for the First Earnout Period is equal to or greater than one hundred percent (100%) of the Year-One EBITDA Target then the Seller shall be entitled to receive one hundred percent (100%) of the Year-One Earnout Consideration.  



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(h)

If the Earnout EBITDA as set forth in the Earnout Notice for the First Earnout Period is equal to or greater than seventy percent (70%) and less than one hundred percent (100%) of the Year-One EBITDA Target, then the Seller shall be entitled to receive a portion of the Year-One Earnout Consideration equal to the product of (A) the Year-One Earnout Consideration multiplied by (B) a fraction, the numerator of which is the Earnout EBITDA for the First Earnout Period, and the denominator of which is the Year-One EBITDA Target.  If the Earnout EBITDA for the First Earnout Period is less than seventy percent (70%) of the Year-One EBITDA Target, then the Seller shall not be entitled to any portion of the Year-One Earnout Consideration.  

(i)

If the Earnout EBITDA set forth in the Earnout Notice for the Second Earnout Period is equal to or greater than one hundred percent (100%) of the Year-Two EBITDA Target then the Seller shall be entitled to receive an amount equal to the Year-Two Earnout Consideration.   

(j)

If the Earnout EBITDA as set forth in the Earnout Notice for the Second Earnout Period is equal to or greater than seventy percent (70%) and less than one hundred percent (100%) of the Year-Two EBITDA Target, then the Seller shall be entitled to receive a portion of the Year-Two Earnout Amount equal to the product of (A) the Year-Two Earnout Amount multiplied by (B) a fraction, the numerator of which is the Earnout EBITDA for the Second Earnout Period, and the denominator of which is the Year-Two EBITDA Target.  If the Earnout EBITDA for the Second Earnout Period is less than seventy percent (70%) of the Year-Two EBITDA Target, then the Seller shall not be entitled to any portion of the Year-Two Earnout Consideration.  

(k)

Except as set forth in Section 2.5(l) , the Earnout Consideration shall be paid by wire transfer of immediately available funds; provided , however , to the extent there shall not be an Equity Conditions Failure, at the Buyer’s discretion, up to sixty percent (60%) of the Earnout Consideration for any Earnout Period may be satisfied with shares of the Buyer Common Stock valued at a price per share equal to the Earnout Share Price.

(l)

If no Earnout Objection Notice is received, within three (3) Business Days of the expiration of the Earnout Objection Period, the Buyer shall either (i) pay to the Seller in immediately available funds the applicable percentage of the Earnout Consideration, or (ii) to the extent there shall not be an Equity Conditions Failure, (x) pay in immediately available funds and (y) issue such number of shares of Buyer Common Stock, which together shall equal in value the applicable percentage of the Earnout Consideration to the Seller; provided, that at least forty percent (40%) of such Earnout Consideration shall be paid in immediately available funds.  If an Earnout Objection Notice is received, within five (5) Business Days of the Earnout EBITDA determination becoming final, conclusive and binding upon the parties in accordance with the terms set forth above, the Buyer shall (i) pay to the Seller in immediately available funds the applicable percentage of the Earnout Consideration or (ii) to the extent the Equity Conditions are then satisfied, (x) pay in immediately available funds and (y) issue such number of shares of Buyer Common Stock, which together shall equal in value the applicable percentage of the Earnout Consideration to the Seller; provided, that at least forty percent (40%) of such Earnout Consideration shall be paid in immediately available funds.



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(m)

Notwithstanding anything contained in this Section 2.5 to the contrary, if (i) the Seller timely delivers an Earnout Objection Notice to the Buyer and (ii) the Buyer’s computation of EBITDA for such Earnout Period is in an amount sufficient for a portion of the Earnout Consideration to be paid (or if applicable, issued) for such Earnout Period, then, within three (3) Business Days of the receipt of the Earnout Objection, the Buyer shall (i) pay to the Seller in immediately available funds the applicable percentage of the Earnout Consideration or (ii) to the extent there shall be no Equity Conditions Failure, (x) pay in immediately available funds and (y) issue such number of shares of Buyer Common Stock, which together shall equal in value the applicable percentage of the Earnout Consideration to the Seller (any such amount so paid or issued, an “ Interim Earnout Payment Amount ”). Upon final determination of the appropriate amount of the Earnout Consideration for such Earnout Period in accordance with this Section 2.5 , the Buyer shall promptly pay and/or issue to Seller the amount of such Earnout Consideration less the Interim Earn-out Payment Amount previously paid and/or issued; provided, that at least forty percent (40%) of the aggregate amount of such Earnout Consideration shall be paid in immediately available funds.

(n)

Any payments under this Section 2.5 shall constitute an adjustment to the Purchase Price.

(o)

From and after the Closing Date until the expiration of the Second Earnout Period, the Buyer shall, and the Buyer shall cause the Company to, own and operate the Company as a separate business and maintain separate financial statements for the Company, to include all business that is originated or generated by the Company, including, without limitation, all revenue generated by employees compensated by the Company (including those individuals set forth on Schedule 2.3(a) ) with or by the use of the Buyer’s products or platforms including SRAX, SRAX MD, SRAX DI, GroupAD, Social Spotlight Media, Facebook ads and advertisements on other social media platforms, as well as any future products, platforms or other sales channels or methodologies developed by the Buyer, which shall be counted toward the determination of the Company’s EBITDA; provided , however , that (i) the related employee compensation costs, (ii) the actual cost of utilizing any such product, platform, sales channel or other methodology which is directly attributable to the revenue generated by such employees which are compensated by the Company (but not the cost of any development or creation of such products, platform, sales channels or other methodologies) and (iii) any project or campaign specific development costs or creative services costs requested by the Seller, in each case shall be counted toward the determination of the Company’s EBITDA and shall not be an EBITDA Adjustment. The Buyer shall act in good faith in the exercise of its power, authority and control of the Company and shall cause the Company to operate the Business in a manner generally consistent with the Company’s operation of the Business in the fiscal year prior to the Closing and in a manner intended to maximize EBITDA during each Earnout Period.  In furtherance of the foregoing covenants in this Section 2.5(o) , from the Closing Date until the expiration of the Second Earnout Period, the Buyer shall not, and the Buyer shall cause the Company not to, without the prior written consent of the Seller:  (i) increase the compensation of any employees, consultants, contractors or other persons providing services to the Business or the Company, which such increase, in the aggregate, would be material to the Company or the Business; (ii) engage in any transaction or incur any expense or obligation to an Affiliate unless such expense or obligation is on terms and conditions which are no more favorable to such Affiliate than the Buyer or the Company would obtain in an arms’ length arrangement negotiated with a third



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party; (iii) increase any reserve or take any charge against earnings except to the extent required by applicable Law or GAAP and, in which case, any such increase or reserve shall be disregarded for purposes of calculating the Company’s EBITDA; (iv) incur any expense inconsistent with the type, amount or timing of expenses incurred by the Company in the conduct of the Business during the fiscal year prior to the Closing, unless the Buyer or the Company reasonably determines such expense is reasonably necessary to generate or protect revenues during such Earnout Period; (v) increase or decrease the book value of any of the Company’s assets except to the extent required by GAAP and, in which case, any such increase or decrease shall be disregarded for purposes of calculating the Company’s EBITDA; (vi) dissolve or liquidate or adopt any plan of dissolution or liquidation; (vii) sell any material assets of the Business; (viii) enter into any transaction involving the consolidation or merger of the Company; or (ix) take any other action which the Seller objects to in writing promptly upon becoming aware thereof which the Seller believes in his reasonable judgment will adversely affect the Company’s EBITDA during any Earnout Period, provided that the Buyer shall have no obligation to comply with any such objection from the Seller pursuant to this clause (ix) if such compliance would adversely effect its stockholders, considered as a whole, and the obligations of the Buyer and the Company to any creditors of the Buyer or the Company in any material respect.

(p)

Following the Closing, the Company may train certain employees of the Buyer as may be mutually selected by the Seller and the Buyer; provided, that such employees, if any, shall continue to be compensated by the Buyer until such time as the Seller, in his sole discretion, shall provide written notice to the Buyer that any such employee be transferred to the Company effective as of date set forth in such notice (an “ Employee Transfer ”).  From and after the effective date of any Employee Transfer, with respect to each such employee of the Buyer so trained, (x) shall be terminated by the Buyer (and any severance and other related termination costs shall be borne by the Buyer), (y) immediately hired by the Company, and (z) any revenue generated by each such employee shall be attributed to the Company and counted toward the Company’s EBITDA; provided , however , that (i) the related employee compensation costs, (ii) the actual cost of utilizing any such product, platform, sales channel or other methodology which is directly attributable to the revenue (other than Excluded Revenue) generated by such employees (but not the cost of any development or creation of such products, platform, sales channels or other methodologies) and (iii) any project or campaign specific development costs or creative services costs requested by the Seller which is directly attributable to the revenue (other than Excluded Revenue) generated by such employees, in each case shall be counted toward the determination of the Company’s EBITDA and shall not be an EBITDA Adjustment; provided , further , that revenue generated by such employees which is attributable to sales to certain existing clients of the Buyer who are forth on Schedule 2.5(p) hereto shall not be counted toward the Company’s EBITDA (“ Excluded Revenue ”).

(q)

The Buyer shall, or shall cause the Company, within thirty (30) days following the end of each three (3) month period during each Earnout Period, to provide the Seller with the Buyer’s computation of the Company’s EBITDA for such three (3) month period and to date from November 1, 2014, provided that the first such reporting period in the First Earnout Period shall be the period commencing on  November 1, 2014 and ending on January 31, 2015, and the last three (3) month report will be for the period beginning August 1, 2016 and ending on October 31, 2016.



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(r)

In the event of (i) the consummation of a Buyer Change of Control (other than as contemplated by this Agreement) or (ii) a Separation Event during (x) the First Earnout Period then, immediately following the consummation of such Buyer Change of Control or on the Separation Date, as applicable, the Buyer shall pay to the Seller one hundred percent (100%) of each of the Year-One Earnout Consideration and Year-Two Earnout Consideration in immediately available funds, or (y) the Second Earnout Period then, immediately following the consummation of the Buyer Change of Control or on the Separation Date, as applicable, the Buyer shall pay to the Seller one hundred (100%) of the Year-Two Earnout Consideration in immediately available funds; provided, that if any Earnout Payment with respect to the First Earnout Period has been earned but not yet been paid, such amount shall be paid by the Buyer to the Seller immediately following the consummation of such Buyer Change of Control or on the Separation Date, as applicable.

(s)

Notwithstanding anything in this Agreement to the contrary, if the Company is prohibited from paying, and the Seller is prohibited from receiving, any Earnout Consideration in cash hereunder, by operation of the Subordination Agreement, then, the Seller may at any time, in its sole discretion, send a written notice to the Company electing to receive such prohibited cash Earnout Consideration in Buyer Common Stock (a “ Stock Payment Notice ”); provided , however , for the avoidance of doubt, the Seller may only give a Stock Payment Notice if the Earnout Consideration is payable pursuant to Section 2.5(g)-(j) or (r) .  If the Company receives a Stock Payment Notice, then, on the 135 th calendar day after the Earnout Consideration is payable under this Agreement, unless such prohibition ceases during such 135-day period (in which case, the Earnout Consideration shall be paid in accordance with the other terms of this Section 2.5 and the Stock Payment Notice shall be deemed rescinded), the Company shall issue to the Seller a number of shares of Buyer Common Stock equal to quotient of (x) the dollar amount of the prohibited cash Earnout Consideration, divided by (y) the Earnout Share Price, which shares shall be considered Earnout Shares.  The issuance of such Earnout Shares shall be fully paid, non-assessable shares of the Company, and shall satisfy the Company’s obligation with respect to the prohibited cash portion of the Earnout Consideration so paid.  

2.6

Books and Records .  Until all adjustments pursuant to Section 2.4 are finally determined and all Earnout Payments have been made pursuant to Section 2.5 , the Buyer shall make available to the Seller and his authorized Representatives, and to the WC Expert and/or the Earnout Expert, as appropriate, all books, records and other information in the Buyer’s or its Affiliates’ possession or control which relate to any unresolved adjustments or the determination of any Earnout Payment.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY

Except as set forth in the disclosure schedules delivered by the Company to the Buyer concurrently with the execution and delivery of this Agreement (the “ Company Disclosure Schedule ”), the Company hereby represents and warrants to the Buyer as follows (the disclosures in any section or subsection of the Company Disclosure Schedule shall qualify the corresponding section or subsection of this Article III , provided , however , that any matter set forth in any section of the Company Disclosure Schedule shall be deemed to be referred to and incorporated



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in all other sections of the Company Disclosure Schedule to which such matter’s application or relevance is reasonably apparent on its face):

3.1

Organization and Good Standing .  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now conducted.  The Company is duly qualified or authorized to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the conduct of its business requires such qualification or authorization, except where the failure to be so qualified, authorized or in good standing would not have a Material Adverse Effect on the Company.

3.2

Capitalization .  The authorized capital stock of the Company consists of 100,000 shares of common stock, no par value, all of which are issued and outstanding and are owned of record by the Seller.  All of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and nonassessable and are not subject to preemptive rights.  The Company has no other capital stock, equity securities or securities containing any equity features authorized, issued or outstanding, and there are no agreements, options, warrants or other rights or arrangements existing or outstanding which provide for the sale or issuance of any of the foregoing by the Company.  There are no agreements or other obligations which require the Company to repurchase or otherwise acquire any shares of the Company’s capital stock or other equity securities.  

3.3

Authorization of Agreement .  The Company has full power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement and each other Transaction Document to which the Company is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company.  This Agreement and each of the other Transaction Documents to which it is a party has been duly and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes the legal, valid and binding obligations of the Company enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

3.4

Conflicts; Consents of Third Parties .

(a)

Except as set forth on Schedule 3.4(a) , neither the execution and delivery by the Company of this Agreement or any other Transaction Document to which it is a party, the consummation of the transactions contemplated hereby or thereby, nor compliance by the Company with any of the provisions hereof or thereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of (i) the certificate of incorporation of the Company or bylaws of the Company, (ii) any Material Contract to which the Company is a



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party or by which the properties or assets of the Company are bound; (iii) any Order of any Governmental Body applicable to the Company or by which any of its respective properties or assets are bound; or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, defaults, terminations or cancellations, that would not have a Material Adverse Effect on the Company.

(b)

Except as set forth on Schedule 3.4(b) , no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Company in connection with the execution and delivery of this Agreement or the other Transaction Documents to which it is a party or the compliance by the Company with any of the provisions hereof or thereof, or the consummation of the transactions contemplated hereby or thereby, except for such other consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not have a Material Adverse Effect on the Company.

3.5

Subsidiaries .  The Company does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person.

3.6

Financial Statements .  The Company has made available to the Buyer copies of (i) the audited balance sheet of the Company as at December 31, 2012 and December 31, 2013, and the related statements of income of the Company for the respective twelve-month periods then ended (the “ Year End Financial Statements ”) and (ii) the unaudited balance sheet of the Company as at September 30, 2014 and the related statement of income of the Company for the eight month period then ended (the “ Seller Interim Financial Statements ” and, collectively with the Year End Financial Statements, the “ Financial Statements ”).  Each of the Financial Statements has been prepared in accordance with GAAP (except for the absence of footnotes in the case of the Seller Interim Financial Statements) and presents fairly in all material respects the financial position and results of operations of the Company as at the dates and for the periods indicated therein, subject to normal year-end adjustments and the absence of footnotes in the case of the Seller Interim Financial Statements. The Company has no material liabilities or obligations (i) of the nature (whether known or unknown and whether absolute, accrued, contingent or otherwise) that GAAP would require to be set forth in the balance sheet as of September 30, 2014 included in the Seller Interim Financial Statements which are not set forth therein or (ii) other than liabilities or obligations incurred in the ordinary course of the Company’s business since September 30, 2014.

3.7

Taxes .

(a)

Except as set forth on Schedule 3.7 , all material Income Tax Returns of the Company required to be filed with respect to the Business have been timely filed, all such Tax Returns are complete and correct in all material respects, and the Company has paid on a timely basis all Income Taxes that were due and payable as reflected on such Income Tax Returns.  At all times since its formation, the Company has been classified for U.S. federal income tax purposes as an S corporation, and is so classified for U.S. federal income tax purposes at the time of the Closing.  The Company has not waived any statute of limitations in



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respect of Taxes in connection with the Business or agreed to any extension of time with respect to a Tax assessment or deficiency in connection with the Business.  

(b)

The Company is not a party to any Income Tax allocation or sharing agreement.

(c)

The Company is not and has not been a party to any “listed transaction,” as defined in Code Section 6707A(c)(2) and U.S. Treasury Regulation Section 1.6011-4(b)(2).

3.8

Real Property .  The Company does not own any real property.   Schedule 3.8 sets forth a complete list of all leases of real property of the Company (individually, a “ Real Property Lease ” and collectively, the “ Real Property Leases ”).  The Company has not received any written notice of any default or event that with notice or lapse of time, or both, would constitute a default by the Company under any of the Real Property Leases.

3.9

Tangible Personal Property.   Schedule 3.9 sets forth all leases of personal property used by the Company in the Business (the “ Personal Property Leases ”) involving annual payments in excess of $25,000.  The Company has not received any written notice of any default or any event that with notice or lapse of time, or both, would constitute a default, by the Company under any of the Personal Property Leases which would result in a Material Adverse Effect on the Company.

3.10

Assets .  The Company has good and marketable title, free and clear of all Liens to all of the properties and assets, real and personal, tangible or intangible, which are reflected in the balance sheet included in the Seller Interim Financial Statements, except (i) for Permitted Liens, (ii) pledges to secure deposits and other Liens incurred in the ordinary course of business, (iii) such imperfections of title, easements and encumbrances, if any, as do not materially interfere with the use of such property as such property is used on the date of this Agreement, (v) Liens set forth on Schedule 3.10 and (vi) other similar Liens arising in the ordinary course of business and which would not have a Material Adverse Effect on the Company.

3.11

Intellectual Property .   Schedule 3.11 sets forth a true and complete list of each United States registered patent, domain name, trademark, trade name, service mark and application therefor that is used in the Business, the absence of which would have a Material Adverse Effect on the Company. Except as set forth on Schedule 3.11 , the Company owns or has valid licenses to use all Company Intellectual Property, except to the extent the failure to be the owner or the valid licensee would not have a Material Adverse Effect on the Company.  Except as set forth on Schedule 3.11 , (i) the material Company Intellectual Property is not the subject of any challenge received by the Company in writing and (ii) the Company has not received any written notice of any default or any event that with notice or lapse of time, or both, would constitute a default under any Company Intellectual Property license to which the Company is a party and which default would result in a Material Adverse Effect on the Company. The sale of the Shares contemplated hereby will not give rise to any obligations to make any material payments to any Person in respect of software or other Technology under any contract relating to open source software.



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3.12

Material Contracts .

(a)

Schedule 3.12(a) sets forth all of the following Contracts to which the Company is a party or by which it is bound (collectively, the “ Material Contracts ”), which list shall include:

(i)

Contracts governing the employment of any Business Employee whose annual salary is in excess of $125,000 (other than offer letters providing for at-will employment);

(ii)

Contracts with any labor union representing any employee of the Company;

(iii)

Contracts granting a Lien on any of the material assets of the Company;

(iv)

Contracts for the sale of any of the assets of the Company other than in the Ordinary Course of Business, for consideration in excess of $25,000;

(v)

Contracts relating to the incurrence of Indebtedness by the Company, or the making of any loans, in each case involving amounts in excess of $25,000;

(vi)

Contracts which involve the expenditure of more than $50,000 in the aggregate which are not terminable by the Company without penalty on notice of 30 days’ or less; and

(vii)

Any other Contract that is material to the Company.

(b)

Each Material Contract is in full force and effect and is the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.  The Company is not in default under any Material Contract and, to the Knowledge of the Company, no event, condition or occurrence exists which (with or without due notice or lapse of time, or both) would constitute such a default by the Company under any Material Contract, except for defaults that would not have a Material Adverse Effect on the Company.

3.13

Employee Matters .

(a)

Schedule 3.13(a) , contains a true and correct list of all Business Employees, together with each such Business Employee’s (i) job title, (ii) current rate of base pay and annual bonus opportunity, (iii) 2013 annual rate of base pay and annual bonus, (iv) date of hire and (v) any accrued paid time off.

(b)

The only “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) that is maintained by the Company for the benefit of the Business Employees or under which the Company has any liability is a group health plan (the “ Company Benefit Plan ”).  



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(c)

The Company Benefit Plan has been administered in accordance with its terms and complies with all applicable Laws, except for any administrative failure or noncompliance that would not have a Material Adverse Effect on the Company.  No actions, proceedings or claims (other than routine claims for benefits) are pending or, to the Knowledge of the Company, threatened against the Company Benefit Plan.  All contributions and other payments required to be made by the Company to the Company Benefit Plan have been made on a timely basis.  None of the Company Benefit Plans are subject to Title IV of ERISA or Section 412 of the Code and the Company has no liability, contingent or otherwise, under Title IV of ERISA.  The Company has not at any time contributed to (or had an obligation to contribute to) any “multiemployer plan” within the meaning of Section 3(37) of ERISA.

(d)

Except as set forth on Schedule 3.13(d) , neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement (either alone or in conjunction with any other event) will entitle any Business Employee to severance pay or accelerate the time of payment or vesting, or increase the amount of compensation due to any Business Employee or result in any payment to any Business Employee that is not deductible by virtue of Section 280G of the Code.  

(e)

The Company is in compliance, in all material respects, with all applicable Laws respecting employment and employment practices, in each case, with respect to the Business Employees.  There are no Legal Proceedings pending or, to the Knowledge of the Company, threatened with respect to any matters described in the preceding sentence.   The Company is not  presently, nor has it been in the past, a party to or bound by any union contract or agreement, collective bargaining agreement or similar Contract and to the Knowledge of the Company, there are no activities or proceedings of any labor union or works council or other employee representation group to organize any Business Employees.  The Company has not been provided with written notice from any Business Employee that such Business Employee intends to terminate his or her employment following the Closing Date.

3.14

Litigation .  Except as set forth on Schedule 3.14 , there are no Legal Proceedings pending or, to the Knowledge of the Company, threatened against the Company or involving or relating to the Business before any Governmental Body.  The Company is not subject to any Order of any Governmental Body involving or relating to the Business or which is reasonably likely to prohibit or restrain the ability of the Company to enter into this Agreement or any other Transaction Document to which it is a party or to consummate the transactions contemplated hereby or thereby.

3.15

Compliance with Laws; Permits .

(a)

The Company is in compliance in all material respects with all Laws of any Governmental Body applicable to the operation of the Business.

(b)

The Company currently has all Permits which are required for the operation of Business, other than those the failure of which to possess would not have a Material Adverse Effect on the Company.   Schedule 3.15(b) contains a true and complete list of all Permits used by the Company in connection with the operation of the Business.  The Company is not in default or violation (and no event has occurred which, with notice or the lapse of time or



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both, would constitute a default or violation) of any term, condition or provision of any Permit to which it is a party required for the operation of Business, except where such default or violation would not have a Material Adverse Effect on the Company.

3.16

Absence of Certain Changes .  Except as contemplated by this Agreement and as set forth on Schedule 3.16 , since December 31, 2013 the Company has conducted its business in the ordinary course and there has not been a Material Adverse Effect on the Company.  The Company has not received written notice from any of the clients of the Business that any such client intends to discontinue its current relationship with the Company which would have a Material Adverse Effect on the Company nor, to the Knowledge of the Company, is any such notice pending or threatened which would have a Material Adverse Effect on the Company.

3.17

Related Party Transactions .  Except as set forth on Schedule 3.17 , no Affiliate of the Company, and no employee, officer, manager or shareholder of the Company (or any member of his or her immediate family) (a “ Related Person ”) (a) owes any amount to the Company nor does the Company owe any amount to, nor has the Company committed to make any loan or extend or guarantee credit to or for the benefit of any, Related Person, (b) is involved in any business arrangement or other relationship (other than customary employment relationships) with the Company or (c) owns any property or right, tangible or intangible, that is used by the Company (other than raising out of customary employee rights).

3.18

Financial Advisors .  Except as set forth on Schedule 3.18 , no Person is entitled to any investment banking fees, financial advisory fees, brokerage fees, finders’ fees or commissions in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any of its Affiliates.

3.19

Environmental .  The Company does not own nor has ever owned any real property.  To the Knowledge of the Company, the Company and the Business has at all times been conducted in compliance with all applicable Environmental Laws and, to the Knowledge of the Company, there are no, nor have there ever been any violations of any applicable Environmental Laws at any of their leased locations.

3.20

No Other Representations or Warranties; Schedules .  Except for the representations and warranties contained in this Article III (as modified by the Company Disclosure Schedule hereto), the Company makes no other express or implied representation or warranty with respect to the Company, the Business or the transactions contemplated by this Agreement, and the Company disclaims any other representations or warranties, whether made by the Seller, the Company or any of their respective Affiliates, officers, directors, employees, agents or Representatives.  Except for the representations and warranties contained in this Article III (as modified by the Company Disclosure Schedule hereto), the Company hereby disclaims all liability and responsibility for any representation, warranty, projection, forecast, statement, or information made, communicated, or furnished (orally or in writing) to the Buyer or its Affiliates or Representatives (including any opinion, information, projection, or advice that may have been or may be provided to the Buyer by any director, officer, employee, agent, consultant, or Representative of the Seller, the Company or any of their respective Affiliates) with respect to the Company, the Business or the transactions contemplated by this Agreement.  The Company



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makes no representations or warranties to the Buyer regarding the probable success or profitability of the Company or the Business.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
REGARDING THE SELLER

Except as set forth in the disclosure schedules delivered by the Seller to the Buyer concurrently with the execution and delivery of this Agreement (the “ Seller Disclosure Schedule ”), the Seller hereby  represents and warrants to the Buyer as to itself (the disclosures in any section or subsection of the Seller Disclosure Schedule shall qualify the corresponding section or subsection of this Article IV , provided , however , that any matter set forth in any section of the Seller Disclosure Schedule shall be deemed to be referred to and incorporated in all other sections of the Seller Disclosure Schedule to which such matter’s application or relevance is readily apparent on its face):

4.1

Ownership and Transfer of Shares .  The Seller is the record and beneficial owner of the Shares free and clear of any and all Liens (other than restrictions on transfer imposed under applicable state and federal securities Laws).  The Seller has full power and authority to sell, transfer, assign and deliver the Shares as provided in this Agreement, and such delivery will convey to the Buyer good and valid title to such Shares, free and clear of any and all Liens (other than restrictions on transfer imposed under applicable state and federal securities Laws).

4.2

Authorization of Agreement .  The Seller has full legal capacity, power and authority to execute and deliver this Agreement and the other Transaction Documents to which he is a party, and to consummate the transactions contemplated hereby and thereby.  This Agreement and each of the Transaction Documents to which he is a party has been duly and validly executed and delivered by the Seller and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement and each other Transaction Document to which he is a party constitutes the legal, valid and binding obligations of the Seller enforceable against him in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

4.3

Conflicts; Consents of Third Parties .

(a)

Neither the execution and delivery by the Seller of this Agreement or any other Transaction Document to which he is a party, the consummation of the transactions contemplated hereby or thereby, nor compliance by the Seller with any of the provisions hereof or thereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of (i)  any material Contract to which the Seller is a party or by which the properties or assets of the Seller are bound, (ii) any Order of any Governmental Body applicable to the Seller or by which any of his properties or assets are bound or (iii) any applicable Law, other than such conflicts, violations, defaults, terminations or cancellations, that would not have a material



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adverse effect on the ability of the Seller to consummate the transactions contemplated by this Agreement.

(b)

Except as set forth on Schedule 4.3(b) , no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Seller in connection with the execution and delivery of this Agreement or the other Transaction Documents to which he is a party or the compliance by the Seller with any of the provisions hereof or thereof, or the consummation of the transactions contemplated hereby or thereby, except for such other consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not have a material adverse effect on the ability of the Seller to consummate the transactions contemplated by this Agreement.

4.4

Financial Advisors .  Except as set forth on Schedule 4.4 , no Person is entitled to any investment banking fees, financial advisory fees, brokerage fees, finders’ fees or commissions in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Seller or any of his Affiliates.

4.5

Investment .  The Seller: (i) is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in securities including, to the extent applicable, the Earnout Shares; (ii) is acquiring, if and when issued, the Earnout Shares for his own account for investment only and with no present intention of distributing any of such shares or any arrangement or understanding with any other persons regarding the distribution of such shares within the meaning of Section 2(11) of the Securities Act; (iii) will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any such shares except in compliance with the Securities Act, applicable state securities laws and the respective rules and regulations promulgated thereunder; and (iv) is, and at the time of issuance of the Earnout Shares, if any, will be, an Accredited Investor.  The Seller understands that his acquisition of the Earnout Shares, as applicable, will not be registered under the Securities Act, or registered or qualified under any state securities laws in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of the Seller’s investment intent as expressed herein.

4.6

No Other Representations or Warranties; Schedules .  Except for the representations and warranties contained in this Article IV (as modified by the Seller Disclosure Schedule hereto), the Seller makes no other express or implied representation or warranty.  Except for the representations and warranties contained in Article IV hereof (as modified by the Seller Disclosure Schedule hereto) and except as set forth in Article VII hereof, the Seller hereby disclaims all liability and responsibility for any representation, warranty, projection, forecast, statement, or information made, communicated, or furnished (orally or in writing) to the Buyer or its Affiliates or Representatives (including any opinion, information, projection, or advice that may have been or may be provided to the Buyer by any director, officer, employee, agent, consultant, or Representative of the Seller, the Company or any of their respective Affiliates) with respect to the Company, the Business or the transactions contemplated by this Agreement.  The Seller makes no representations or warranties to the Buyer regarding the probable success or profitability of the Company or the Business.



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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE BUYER

Except as set forth in the disclosure schedules delivered by the Buyer concurrently with the execution and delivery of this Agreement (the “ Buyer Disclosure Schedule ”), the Buyer represents and warrants to the Seller as follows (the disclosures in any section or subsection of the Buyer Disclosure Schedule shall qualify the corresponding section or subsection of this Article V , provided , however , that any matter set forth in any section of the Buyer Disclosure Schedule shall be deemed to be referred to and incorporated in all other sections of the Buyer Disclosure Schedule to which such matter’s application or relevance is readily apparent on its face):

5.1

Organization and Good Standing .  The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate properties and carry on its business.  The Buyer is duly qualified or authorized to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the conduct of its business requires such qualification or authorization, except where the failure to be so qualified, authorized or in good standing would not have a Material Adverse Effect on the Buyer.  The Buyer does not own, directly or indirectly, any capital, stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person.

5.2

Authorization of Agreement .  The Buyer has full power and authority to execute and deliver this Agreement and each other Transaction Document to which it is a party, and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance by the Buyer of this Agreement and each other Transaction Document to which it is a party has been duly authorized by all requisite corporate action on the part of the Buyer.  This Agreement and each of the other Transaction Document to which it is a party has been duly and validly executed and delivered by the Buyer and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement and each other Transaction Document to which it is a party constitutes the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

5.3

Conflicts; Consents of Third Parties .

(a)

None of the execution and delivery by the Buyer of this Agreement or the other Transaction Documents to which it is a party, the consummation of the transactions contemplated hereby or thereby, or the compliance by the Buyer with any of the provisions hereof or thereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of (i) the certificate of incorporation and bylaws of the Buyer, as either may be amended from time to time; (ii) any material Contract to which the Buyer is a party or by which the properties or assets of the Buyer are bound; (iii) any Order of any Governmental Body



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applicable to the Buyer or by which any of the properties or assets of the Buyer are bound; or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, defaults, terminations or cancellations, that would not have a Material Adverse Effect on the Buyer.

(b)

No consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Buyer in connection with the execution and delivery of this Agreement or the other Transaction Documents to which it is a party, the compliance by the Buyer with any of the provisions hereof or thereof, the consummation of the transactions contemplated hereby or thereby, except for such other consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not have a Material Adverse Effect on the Buyer.

5.4

Litigation .

Except as set forth on Schedule 5.4 , there are no Legal Proceedings pending or, to the Knowledge of the Buyer, threatened against the Buyer or involving or relating to the business of the Buyer before any Governmental Body.  The Buyer is not subject to any Order of any Governmental Body involving or relating to its business or which is reasonably likely to prohibit or restrain the ability of the Buyer to enter into this Agreement or any other Transaction Document to which it is a party or to consummate the transactions contemplated hereby or thereby.

5.5

Valid Issuance; SEC Filings .

(a)

The Buyer has duly authorized and reserved for issuance 9,320,388 shares of Buyer Common Stock, which shall be issued in respect of any Earnout Shares issued under this Agreement.  The Earnout Shares, if and when issued in accordance with the terms of this Agreement, will be validly issued, fully paid, non-assessable and free of preemptive rights.

(b)

As of their respective filing dates, none of the Buyer’s periodic reports (the “ SEC Documents ”) filed with the Securities and Exchange Commission (the “ SEC ”) contain any untrue statement of material fact or omitted a statement of material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made, not misleading, and the Buyer’s SEC Documents complied when filed in all material respects with the then applicable requirements of the Securities Act or the Securities Exchange Act, as the case may be, and the rules and regulations promulgated by the SEC thereunder. The Buyer has filed all reports required to be filed under the Securities Exchange Act as of the date hereof. The financial statements of the Buyer included in the Form 10-Q for the fiscal quarter ended June 30, 2014 (the “ Buyer Interim Financial Statements ”) complied when filed in all material respects with the then applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP during the periods involved (except as may have been indicated in the notes thereto) and present fairly the financial position of Buyer as of the dates thereof.   The Buyer has no material liabilities or obligations (i) of the nature (whether known or unknown and whether absolute, accrued, contingent or otherwise) that GAAP would require to be set forth in the balance sheet as of June 30, 2014 included in the Buyer Interim Financial Statements which are not set forth therein or (ii) other than liabilities or obligations incurred in the ordinary course of the Buyer’s business since June 30, 2014.



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5.6

Assets .  The Buyer has good and marketable title, free and clear of all Liens to all of the properties and assets, real and personal, tangible or intangible, which are reflected in the balance sheet included in the Buyer Interim Financial Statements, except (i) for Permitted Liens, (ii) pledges to secure deposits and other Liens incurred in the ordinary course of business, (iii) such imperfections of title, easements and encumbrances, if any, as do not materially interfere with the use of such property as such property is used on the date of this Agreement, (v) Liens set forth on Schedule 5.6 and (vi) other similar Liens arising in the ordinary course of business and which would not have a Material Adverse Effect on the Buyer.

5.7

Intellectual Property .   Schedule 5.7 sets forth a true and complete list of each United States registered patent, domain name, trademark, trade name, service mark and application therefor that is used in the business of the Buyer, the absence of which would have a Material Adverse Effect on the Buyer. Except as set forth on Schedule 5.7 , the Buyer owns or has valid licenses to use all Buyer Intellectual Property, except to the extent the failure to be the owner or the valid licensee would not have a Material Adverse Effect on the Buyer.  Except as set forth on Schedule 5.7 , to the Knowledge of the Buyer, (i) the material Buyer Intellectual Property is not the subject of any challenge received by the Buyer in writing and (ii) the Buyer has not received any written notice of any default or any event that with notice or lapse of time, or both, would constitute a default under any Buyer Intellectual Property license to which the Buyer is a party and which default would result in a Material Adverse Effect on the Buyer.

5.8

Employee Matters .

(a)

Schedule 5.8(a) contains a true and correct list of each “employee benefit plan” (as defined in Section 3(3) of ERISA) and each other incentive, bonus, retirement, deferred compensation, equity, equity-based, phantom, change in control, retention, severance, fringe or other material employee benefit or compensation plan, program or arrangement that is maintained or sponsored by the Buyer for the benefit of the employees of the Buyer or under which the Buyer has any liability (each, a “ Buyer Benefit Plan ”).  

(b)

Each Buyer Benefit Plan has been administered in accordance with its terms and complies with all applicable Laws, except for any administrative failure or noncompliance that would not have a Material Adverse Effect on the Buyer. No actions, proceedings or claims (other than routine claims for benefits) are pending or, to the Knowledge of the Buyer, threatened against any Buyer Benefit Plan.  All contributions and other payments required to be made by the Buyer to any Buyer Benefit Plan have been made on a timely basis.  None of the Buyer Benefit Plans are subject to Title IV of ERISA or Section 412 of the Code and the Buyer has no liability, contingent or otherwise, under Title IV of ERISA.  The Buyer has not at any time contributed to (or had an obligation to contribute to) any “multiemployer plan” within the meaning of Section 3(37) of ERISA.

(c)

Except as set forth on Schedule 5.8(c) , neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement (either alone or in conjunction with any other event) will entitle any employee of the Buyer to severance pay or accelerate the time of payment or vesting, or increase the amount of compensation due to any employee of the Buyer or result in any payment to any employee of the Buyer that is not deductible by virtue of Section 280G of the Code.  



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(d)

The Buyer is in compliance, in all material respects, with all applicable Laws respecting employment and employment practices, in each case, with respect to its employees.  There are no Legal Proceedings pending or, to the Knowledge of the Buyer, threatened with respect to any matters described in the preceding sentence.   The Buyer is not presently, nor has it been in the past, a party to or bound by any union contract or agreement, collective bargaining agreement or similar Contract and to the Knowledge of the Buyer, there are no activities or proceedings of any labor union or works council or other employee representation group to organize any employees of the Buyer.

5.9

Compliance with Laws .  The Buyer is in compliance in all material respects with all Laws of any Governmental Body applicable to the operation of the business of the Buyer.

5.10

Absence of Certain Changes .  Except as contemplated by this Agreement, since December 31, 2013 the Buyer has conducted its business in the ordinary course and there has not been a Material Adverse Effect on the Buyer.

5.11

Financial Advisors .  Other than T.R. Winston & Company, LLC, no Person is entitled to any investment banking fees, financial advisory fees, brokerage fees, finders’ fees or commissions in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Buyer or any of its Affiliates.

5.12

Financial Capability .  The Buyer (i) has, and at the Closing will have, sufficient internal funds (giving effect to the consummation of the Victory Park Financing) available to pay the Closing Cash Payment and any expenses incurred by the Buyer in connection with the transactions contemplated by this Agreement, (ii) has, and at the Closing will have, the resources and capabilities (financial or otherwise) to perform its obligations hereunder and under the other Transaction Documents to which it is a party, (iii) will use its best efforts to have at the expiration of the applicable Earnout Periods, sufficient internal funds (without giving effect to any unfunded financing regardless of whether any such financing is committed) available to pay the applicable Earnout Consideration, and (iv) except for the Victory Park Financing, has not incurred any obligation, commitment, restriction or Liability of any kind, which would impair or adversely affect such resources and capabilities.

5.13

  No Other Representations or Warranties; Schedules .  Except for the representations and warranties contained in this Article V (as modified by the Buyer Disclosure Schedule hereto), the Buyer makes no other express or implied representation or warranty with respect to the Buyer or the transactions contemplated by this Agreement, and the Buyer disclaims any other representations or warranties, whether made by the Buyer or any of its Affiliates, officers, directors, employees, agents or Representatives.  Except for the representations and warranties contained in this Article V (as modified by the Buyer Disclosure Schedule hereto), the Buyer hereby disclaims all liability and responsibility for any representation, warranty, projection, forecast, statement, or information made, communicated, or furnished (orally or in writing) to the Seller, the Company or any of their respective Affiliates or Representatives (including any opinion, information, projection, or advice that may have been or may be provided to the Seller or the Company by any director, officer, employee, agent, consultant, or Representative of the Buyer or its Affiliates) with respect to the Buyer or the



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transactions contemplated by this Agreement.  The Buyer makes no representations or warranties to the Seller or the Company regarding the probable success or profitability of the Buyer.

ARTICLE VI.
COVENANTS OF THE PARTIES

6.1

Access to Records .  The Seller and his respective Representatives shall be entitled, for any lawful purpose (including in connection with any Legal Proceeding or Tax matter in any way relating to such Seller in the Seller’s capacity as the seller of the Shares hereunder, the Company or any of their Affiliates or the Business), after the Closing, upon reasonable notice and during the regular business hours of the Company, to have access to and, at the Seller’s expense, to make copies of the books, records, files, correspondence and other information (whether in written form, electronic form or otherwise) (collectively, “ Records ”) of the Business or the Company related to periods prior to the Closing.  The Buyer shall, or shall cause the Company to, retain such Records for a period of ten (10) years from the Closing Date and shall not destroy or otherwise dispose of such Records without the Seller’s consent and upon the request and at the expense of the Seller, shall deliver to the Seller copies of any such Records.  

6.2

Employees; Employee Benefits . Effective from and after the Closing Date, the Buyer shall: (i) cause the Business Employees whom shall continue to be employed by the Company following the Closing (the “ Continuing Employees ”), to be given credit for all service with the Company and its respective Affiliates and predecessor entities for all purposes (including, but not limited to, eligibility to participate, vesting credit, entitlement to benefits and benefit accrual) under any employment or employee benefit plans, programs or policies providing benefits to the Continuing Employees (including those providing for severance, vacation and other paid time-off) on or after the Closing Date; (ii) waive any pre-existing exclusion requirements or waiting periods under all employee health or other welfare benefit plans continued, established or maintained on or after the Closing Date for the benefit of the Continuing Employees (and their dependents); and (iii) credit the Continuing Employees (and their dependents) for any eligible expenses incurred under all employee health or other welfare benefit plans of the Company for purposes of satisfying all deductible, coinsurance and maximum out of pocket requirements applicable to the Continuing Employees (and their dependents) under the corresponding health and welfare benefit plans of the  Company.  Nothing contained in this Section 6.2 shall (i) be treated as an amendment of any employee benefit plan or compensatory arrangement, (ii) give any Continuing Employee any right to enforce, or make any Continuing Employee a third-party beneficiary of, the provisions of Section 6.2 , or (iii) obligate the Buyer or any of its Affiliates to retain the employment of any particular Continuing Employee for any specified period of time following the Closing Date.  

6.3

Public Announcements .  None of the Seller, the Company or the Buyer will issue or permit any agent or Affiliate to issue any press release or make any other public statement with respect to the transactions contemplated by this Agreement and each of them shall keep the terms and conditions of this Agreement confidential, unless either (x) the text of such release or statement shall have been consented to by the Seller and the Buyer (which consent shall not be unreasonably withheld or delayed), or (y) such other public statement is required by applicable Laws; provided , however , in the case of clause (y), the Seller and the Buyer shall consult with



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each other regarding the content thereof and cooperate in the making of such public statement, and then, such public statement shall be permitted to be made but only to the extent required by such Laws.  No such press releases or other publicity shall state the financial terms of the transactions contemplated by this Agreement except as required by applicable Laws or with the Seller’s and the Buyer’s express prior written consent.

6.4

Expenses .  Except as otherwise specifically provided for in this Agreement, each party shall pay all costs and expenses incident to its negotiation, preparation and execution of this Agreement and the other Transaction Documents and to its performance and compliance with all agreements and conditions contained herein on its part to be performed or complied with, including the fees, expenses and disbursements of its counsel, financial advisors, investment bankers and independent public accountants.

6.5

Transfer Taxes .  The Buyer shall (a) be responsible for (and shall indemnify and hold harmless the Seller against) any and all liabilities for any sales, use, stamp, value added, documentary, filing, recording, transfer, stock transfer, gross receipts, registration, duty, securities transactions or similar fees or taxes or governmental charges (together with any interest or penalty, addition to tax or additional amount imposed) as levied by any Governmental Body in connection with the transactions contemplated by this Agreement (collectively, “ Transfer Taxes ”), regardless of the Person liable for such Transfer Taxes under applicable Law and (b) timely file or caused to be filed all necessary documents (including all Tax Returns) with respect to Transfer Taxes.  The Buyer shall provide the Seller with a copy of each such Tax Return no later than ten (10) days prior to filing such Tax Return.

6.6

Tax Matters .

(a)

Without duplication of any indemnification obligations under Section 7.2 or Section 7.3 , all real property Taxes, personal property Taxes, or ad valorem obligations and similar recurring Taxes and fees on the purchased assets of the Business for any Tax period that includes (but does not end on) 11:59 p.m. on the day immediately preceding the Closing Date (each such Tax period hereinafter is referred to as a “ Straddle Period ”) shall be prorated between the Buyer and the Seller based on the number of days in such taxable period up to and including 11:59 p.m. on the day immediately preceding the Closing Date (which shall be for the account of the Seller, except to the extent such Taxes are reflected as a liability on the Closing Statement, to which extent the Buyer shall be liable) and the number of days in such taxable period after 11:59 p.m. on the day immediately preceding the Closing Date (which shall be for the account of the Buyer).  If one party remits to the appropriate Governmental Body payment for Taxes which are subject to proration under this Section 6.6(a) and such payment includes the other party’s share of such Taxes, such other party shall reimburse the remitting party for its share of such Taxes within five (5) Business Days of notice of payment.  

(b)

Without duplication of any indemnification obligations under Section 7.2 or Section 7.3 , all Income Taxes and sales Taxes with respect to the Business for any Straddle Period shall be prorated between the Buyer and the Seller based on an interim closing of the books of the Company as of 11:59 p.m. on the day immediately preceding the Closing Date.  Income Taxes and sales Taxes for the portion of any such Straddle Period ending as of 11:59 p.m. on the day immediately preceding the Closing Date shall be for the account of the Seller,



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except to the extent such Taxes are reflected as a liability on the Closing Statement, to which extent the Buyer shall be liable.   Income and sales Taxes for the portion of any such Straddle Period ending after 11:59 p.m. on the day immediately preceding the Closing Date shall be for the account of the Buyer.  If one party remits to the appropriate Governmental Body payment for Taxes which are subject to proration under this Section 6.6(b) and such payment includes the other party’s share of such Taxes, such other party shall reimburse the remitting party for its share of such Taxes within five (5) Business Days of notice of payment.  

(c)

The Seller shall prepare all Tax Returns for all Pre-Closing Tax Periods (other than any Straddle Periods) and shall timely file all such Tax Returns or, if applicable Law requires that the Buyer or the Company file such Tax Returns, the Seller shall prepare and deliver such Tax Returns to the Buyer or the Company, as the case may be, for filing by no later than the tenth (10 th ) Business Day prior to the due date therefor, taking into account any applicable extensions.  The Seller and the Buyer shall reasonably cooperate in the conduct of all federal, state and local tax examinations and audits relating to the Tax Returns that are required to be prepared or filed by the Seller pursuant to this Section 6.6 . The Seller shall provide the Buyer with a copy of each Tax Return for any Pre-Closing Tax Period that the Seller is required to prepare or file pursuant to this Section 6.6 no later than ten (10) Business Days prior to filing any such Tax Return, and the Buyer shall have the right to review, comment and approve any such Tax Return and the Seller shall make the revisions to any such Tax Return as are reasonably requested by the Buyer.

(d)

The Buyer shall prepare all Tax Returns for any Straddle Periods in a manner consistent with the Company’s prior Tax Returns and shall timely file all such Tax Returns. The Buyer shall provide the Seller with a copy of each Tax Return for any Straddle Period that it is required to file pursuant to this Section 6.6 no later than ten (10) Business Days prior to filing such Tax Return, and the Seller shall have the right to review, comment and approve such Tax Return and the Buyer shall make the revisions to such Tax Return as are reasonably requested by the Seller.

(e)

The Seller and the Buyer agree to cooperate, as and to the extent reasonably requested by the other Party, in connection with (i) the preparation and filing of any Tax Return relating to the Company or the Business, and (ii) any examination, audit or other proceeding by a Governmental Body with respect to any such Tax Return.  In the case of any such examination, audit or other proceeding, such cooperation shall include the provision of records and information which are reasonably relevant to such examination, audit or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Except as may be required by applicable Law or as may be required by any Governmental Body, the Buyer shall not, and shall not permit any of its Affiliates to, do any of the following without the Seller’s prior written consent: (i) file any amended Tax Return relating to a Pre-Closing Tax Period, (ii) agree to extend any statute of limitations with respect to any Pre-Closing Tax Period, (iii) make any election or (iv) take any other similar administrative action or enter into any agreements or settlements with any Governmental Body that, in each case, would reasonably be expected to materially increase the Seller’s Tax Liabilities for any Pre-Closing Tax Period, including any indemnification obligation of the Seller under Section 7.2(a) (but solely to the extent that such



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indemnification obligation arises from a breach of the representations and warranties set forth in Section 3.7 (Taxes)) or Section 7.2(c) .

(f)

The Buyer agrees (i) to retain all books and records with respect to Tax matters pertinent to the Business or the Company relating to any Taxable period beginning before the Closing Date until the expiration of the applicable statute of limitations, and (ii) to give the Seller reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the Seller so requests, the Buyer shall allow the Seller to take possession of such books and records.

(g)

For the avoidance of doubt, the Seller shall be entitled to any refund of any Taxes from or relating to a Pre-Closing Tax Period.  In the event that the Buyer or, after the Closing Date, the Company, receives any such refund (including by way of any action taken by the Buyer post-Closing), the Buyer shall pay, or cause the Company to pay, the amount of such refund to the Seller within three (3) Business Days of its receipt thereof.

(h)

The Buyer and the Seller agree to treat the Earnout Consideration as purchase price for the Shares except to the extent applicable Tax law requires a portion of the Earnout Consideration to be treated as interest.

6.7

Indemnification of Directors and Officers .

(a)

For a period of six years after the Closing Date, the Company’s certificate of incorporation and bylaws (each as amended and in effect from time to time during such period), shall contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of each present and former director, manager (or other equivalent Person) and officer of the Company than are presently set forth in the Company’s certificate of incorporation and bylaws, which provisions shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any such individuals.

(b)

For a period of six years after the Closing Date, the Buyer shall cause to be maintained in effect and fully pay for policies of directors’ and officers’ liability insurance covering the current and former officers, directors, managers (or other equivalent Person) and employees of the Company who are currently covered by the existing directors’ and officers’ liability insurance of the Company, from an insurance carrier with the same or better credit rating as the insurance carrier of the Company in place on the date hereof and on terms and conditions no less favorable to such directors, managers (or other equivalent Persons) and officers than those in effect on the date hereof.

(c)

If the Buyer or the Company or any of their respective successor or assigns (i) shall merge or consolidate with or merge into any other Person and shall not be the surviving or continuing Person in such consolidation or merger or (ii) shall transfer all or substantially all of its properties or assets as an entity in one or a series of related transactions to any Person, then in each such case, proper provision shall be made so that the successor or assign of the Buyer or the Company shall assume the obligations set forth in this Section 6.7 .



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6.8

Noncompetition; Non-Solicitation .  In consideration of the transactions contemplated by this Agreement, and in order to protect and preserve the legitimate business interests of the Buyer, the Seller agrees as follows:

(a)

Commencing on the Closing Date and ending on the six (6) year anniversary of the Closing Date (the “ Restricted Period ”), the Seller shall not, anywhere in the United States, directly or indirectly, engage in any Competitive Activities (as defined below).  The Seller shall be deemed to be engaged in Competitive Activities if the Seller serves as a shareholder, officer, director, member, manager, trustee or partner of, or consults with, advises or assists in any way, whether or not for consideration, any Person that engages in any Competitive Activities (a “ Competitor ”).  In the event a court of competent jurisdiction determines that the provisions of this Section 6.8(a) are excessively broad as to duration, geographical scope or activity, it is expressly agreed that this Section 6.8(a ) shall be construed so that the remaining provisions of this Section 6.8(a) shall not be affected, but shall remain in full force and effect, and any such overbroad provisions shall be deemed, without further action on the part of any Person, to be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable in such jurisdiction.  The term “ Competitive Activities ” as used herein shall mean any activity that is directly competitive with the Business; provided , however , the term “ Competitive Activities ” shall not include, the ownership of securities of entities which are listed on a national securities exchange or traded in the national over-the-counter market in an amount which shall not exceed five percent (5%) of the outstanding shares of any such entity or the ownership of the securities of the Persons set forth on Schedule 6.8(a) .

(b)

During the Restricted Period, (i) the Seller or any Affiliate of the Seller shall not, directly or indirectly, solicit or assist any third party in soliciting any Person who is, from the date hereof until the earlier of (x) the expiration of the Restricted Period and (y) the Termination Date, a client or customer of the Business for purpose of reducing the level of business that such Person transacts with the Business, and (ii) the Seller or any Affiliate of the Seller shall not, directly or indirectly, solicit for employment or hire any persons who on the Termination Date are employees of the Company (including, without limitation, any Continuing Employees), unless such employee’s employment has been terminated by the Company other than for cause; provided , however , that this Agreement shall in no way restrict the Seller or any Affiliate of the Seller from hiring any person who first contacts the Seller or any Affiliate of the Seller in response to a general advertisement for employment to the public in a newspaper of general circulation, on recruitment or similar website or by other similar means.

(c)

The parties agree that the provisions and restrictions contained in this Section 6.8 are necessary to protect the legitimate continuing interests of the Buyer, and that any violation or breach of these provisions will result in irreparable injury to the Buyer for which monetary damages or any other remedy at law may be inadequate and that, in addition to any relief at law which may be available to the Buyer for such violation or breach and regardless of any other provision contained in this Agreement, the Buyer may be entitled to seek temporary and permanent injunctive relief (without the necessity of having to prove actual damages therefrom) and such other equitable relief as a court may grant.

(d)

Notwithstanding anything in this Section 6.8 to the contrary, in the event of (i) an Event of Default under the Note or (ii) if the Buyer shall fail to fully satisfy its



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obligations under Section 2.5 of this Agreement when due , which failure shall not have been cured within ninety (90) days following the Buyer ’s receipt of the Seller’s written notice of such failure, in each case, then the Restricted Period and the remaining provisions of this Section 6.8 shall automatically, without any further action, notice or deed terminate and be of no further force and effect.

6.9

Board Seat .  The Buyer shall use its commercially reasonable efforts to take all steps as are necessary to cause the Seller to be elected to the board of directors of the Buyer promptly following the Closing Date, including making all requisite filings with the SEC, and to cause the Seller to continue to be a director of the Buyer (or any successor thereto) until the later of (x) the second anniversary of the Closing Date or (y) such time as the Seller shall cease to hold any capital stock of the Buyer (or any successor to the Buyer).  

6.10

Put Right .

(a)

Upon the occurrence of an Event of Default (as defined in the Note) either the Buyer or the Seller shall provide written notice to the other of the occurrence of such Event of Default, including any known details thereof to the other (a “ Note Default Notice ”).  Within forty-five (45) days of (i) the receipt by the Seller of such Note Default, to the extent delivered by the Buyer or (ii) delivery by the Seller of such Note Default Notice (such period, the “ Escrow Shares Election Period ”) the Seller shall deliver a Default Notice (as defined in the Escrow Agreement) to the Escrow Agent pursuant to which such number of Escrow Shares set forth in such Default Notice shall be transferred to the Seller; provided, however in no event shall the value of such Escrow Shares (based on the Closing Date Share Price) released to the Seller exceed the principal amount plus any accrued but unpaid interest then outstanding under the Note.  Any Escrow Shares which are not released to the Seller pursuant to this Section 6.10(a) shall be delivered to the Buyer promptly following the expiration of the Escrow Shares Election Period.

(b)

Within forty-five (45) days of the receipt of such Escrow Shares from the Escrow Agent (the “ Put Period ”), the Seller shall provide written notice to the Buyer (the “ Put Notice ”) requiring the Buyer, to purchase all or part of the Escrow Shares held by the Seller pursuant Section 6.10(a) , at a purchase price per share equal to the Closing Date Share Price (the “ Put Right ”) which Put Notice shall specify the number of Escrow Shares to be purchased by the Buyer (the “ Put Shares ”). If the Seller does not elect to exercise the Put Right within the Put Period, then Put Right shall expire and be of no further force or effect.

(c)

 Subject to Section 6.10(d) , within five (5) Business Days of the Buyer’s receipt of any Put Notice, the Buyer shall deliver to the Seller by wire transfer of immediately available funds to an account designated by the Seller, an amount (the “ Put Price ”) equal to the product of (x) the Closing Date Share Price multiplied by (y) the number of Put Shares, against simultaneous delivery by the Buyer to the Seller of the Put Shares.  

(d)

The Buyer’s obligation to pay the Put Price to the Seller following the Seller’s election to exercise the Put Right pursuant to this Section 6.10 shall be tolled solely to the extent that the payment of any portion of the Put Price by the Buyer (i) is not permitted under the Subordination Agreement, as in effect on the date hereof or (ii) would render the Buyer



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insolvent under applicable Law.  In the event that the Buyer’s obligation to pay any portion the Put Price to the Seller  is so tolled, the Buyer shall provide written notice thereof to the Seller prior to the expiration of the Put Period, and within three (3) Business Days following the date on which the conditions giving rise to the tolling of the payment of any portion of the Put Price to the Seller are no longer in effect, the Buyer shall provide notice thereof to the Seller, and the Buyer shall then have five (5) Business Days to pay such portion the Put Price to the Seller against delivery of the Put Shares in the manner specified in Section 6.10(c) .  In the event the Buyer’s obligation to pay the Put Price is tolled pursuant to this Section 6.10(d) , then any unpaid portion of the Put Price payable to the Seller shall accrue interest at a rate of 10% per annum.

(e)

The Buyer acknowledges and agrees that any transaction between the Buyer and the Seller pursuant to this Section 6.10 is a non-market transaction and as such, any policies of the Buyer relating to the sale by its Affiliates of its securities shall not apply.

ARTICLE VII.
INDEMNIFICATION

7.1

Survival of Representations and Warranties .  Except as set forth in the immediately succeeding sentences of this Section 7.1 , the representations and warranties provided for in this Agreement shall survive the Closing until twelve (12) months following the Closing Date.  The Fundamental Representations shall survive the Closing Date and remain in full force and effect until the expiration of the applicable statute of limitations and the representations and warranties set forth in Section 3.7 (Taxes) shall survive until sixty (60) days after the expiration of the applicable statute of limitations.  Unless otherwise expressly set forth in this Agreement, the covenants shall survive the Closing until the expiration of the applicable statute of limitations.

7.2

Indemnification by the Seller .  Subject to the limitation set forth in Section 7.5 , the Seller shall defend, indemnify and hold the Buyer and its Affiliates and the directors, officers, managers, members, stockholders and employees of the Buyer and its Affiliates (each, a “ Buyer Indemnified Party ” and collectively, the “ Buyer Indemnified Parties ”), harmless from any and all of the Losses that the Buyer Indemnified Parties may suffer, sustain or incur or become subject to arising out of, based upon or in connection with:

(a)

any breach of a representation or warranty contained in this Agreement or any other Transaction Document (other than the Employment Agreements) made by the Company or the Seller; or

(b)

any violation or breach by the Seller of a covenant or agreement contained in this Agreement or any other Transaction Document (other than the Employment Agreements); or

(c)

any Taxes relating to the Company or the Business in respect of any Pre-Closing Tax Period, except to the extent such Taxes are reflected as a liability on the Closing Statement.  For purposes of this Section 7.2(c) , Taxes for any Straddle Period shall be prorated based on an interim closing of the books of the Company as of 11:59 p.m. on the day immediately preceding the Closing Date.  For the avoidance of doubt, the Seller shall have no



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obligation to defend, indemnify, or hold the Buyer Indemnified Parties harmless from any and all Taxes resulting from a breach of the last sentence of Section 6.6(e) by the Buyer or the Company.

7.3

Indemnification by the Buyer .   Subject to the limitations set forth in Section 7.5 , the Buyer shall defend, indemnify and hold the Seller and his respective Affiliates and the directors, officers, managers, members, stockholders and employees of the Seller and his respective Affiliates (each, a “ Seller Indemnified Party ” and collectively, the “ Seller Indemnified Parties ”) harmless from and against all Losses that they may suffer, sustain or incur or become subject to arising out of, based upon or in connection with:

(a)

any breach of a representation or warranty contained in this Agreement or any other Transaction Document (other than the Employment Agreements) made by the Buyer;

(b)

any violation or breach of a covenant or agreement by the Company (from and after the Closing) or the Buyer contained in this Agreement or any other Transaction Document (other than the Employment Agreements); or

(c)

any Taxes relating to the Company or the Business in respect of any Tax Period beginning on the Closing Date and in the case of a Straddle Period, in respect of Taxes attributable to the portion of such period beginning on the Closing Date (measured by revenue earned and recognized during such portion of that period determined based on an interim closing of the books as of 11:59 p.m. on the day immediately preceding the Closing Date), including, for the avoidance of doubt, any and all Taxes arising out of, based upon, or in connection with any transaction occurring on the Closing Date (other than as expressly contemplated by this Agreement).

7.4

Claims Procedures .

(a)

In the case of any claim for indemnification arising from a claim of a third party (a “ Third Party Claim ”), a Person entitled to indemnification under this Article VII (an “ Indemnified Party ”) shall give prompt written notice to the Person(s) obligated to provide indemnification under Article VII with respect to such Third Party Claim (an “ Indemnifying Party ”) of any claim or demand of which such Indemnified Party has knowledge and as to which it may request indemnification hereunder (a “ Third Party Claim Notice ”). The Third Party Claim Notice shall state in reasonable detail the facts and circumstances of the Third Party Claim, including the nature, basis and amount of such claim and the provisions in this Agreement that entitle the Indemnified Party to indemnification hereunder, and shall be accompanied by a copy of any writings received in respect of such Third Party Claim.  If the Indemnifying Party does not receive a Third Party Claim Notice within thirty (30) days after the date of the receipt by the Indemnified Party or any of its Affiliates of notice of, or of the Indemnified Party or of any of its Affiliates otherwise becoming aware of, any Third Party Claim, the Indemnifying Party shall be relieved of liability hereunder in respect of such Third Party Claim (or the facts and circumstances giving rise thereto) solely to the extent that such Indemnifying Party is actually and materially prejudiced or harmed as a consequence of such failure (and, to such extent, all Losses resulting from such Third Party Claim shall thereafter be disregarded for purposes of determining whether the Deductible has been exceeded), and in any event the Indemnifying



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Party shall not be liable for any expenses incurred during the period in which the Indemnified Party was overdue (i.e. more than thirty (30) days after becoming aware of a Third Party Claim) in giving, and had not given, such Third Party Claim Notice.  

(b)

Each of the Indemnifying Parties shall have the right (and if it elects to exercise such right, to do so within twenty (20) days after receiving the Third Party Claim Notice from the Indemnified Party) to defend and to direct the defense against any such Third Party Claim, in its name or in the name of the Indemnified Party, as the case may be, at the expense of the Indemnifying Party, and with counsel selected by the Indemnifying Party, unless (i) the Indemnifying Party shall not have taken any action to defend such Third Party Claim within such twenty (20) day period, or (ii) the Indemnified Party shall have reasonably concluded that there is a conflict of interest between the Indemnified Party and the Indemnifying Party in the conduct of the defense of such Third Party Claim.  Notwithstanding anything in this Agreement to the contrary, if the Indemnified Party is in control of the defense of such Third Party Claim, it shall, at the expense of the Indemnifying Party, cooperate with the Indemnifying Party, and keep the Indemnifying Party fully informed, in the defense of such Third Party Claim.  The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel employed at its own expense; provided , however , that, in the case of any Third Party Claim described in clause (ii) of the second preceding sentence or as to which the Indemnifying Party shall not in fact have employed counsel to assume the defense of such Third Party Claim within such twenty (20) day period, the reasonable fees and disbursements of such Indemnified Party’s counsel shall be at the expense of the Indemnifying Party.  The Indemnifying Party shall have no indemnification obligations with respect to any Third Party Claim which shall be settled by the Indemnified Party without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld.  The Indemnifying Party shall have the right to settle any Third Party Claim, whether or not in control of the defense thereof, if such settlement (i) involves only the payment of money which the Indemnifying Party pays or satisfies with insurance proceeds or any combination thereof, (ii) includes a full general release of the Indemnified Party from the third party, and (iii) does not contain any admission of fault or culpability or a failure to act by or on behalf of such Indemnified Party.  

(c)

In the event that an Indemnified Party determines that it has a claim for Losses against an Indemnifying Party hereunder (other than as a result of a Third Party Claim) (an “ Interparty Claim ”), the Indemnified Party shall give prompt written notice thereof to the Indemnifying Party, specifying the amount of such claim, the section of this Agreement under which such claim arises and any other relevant facts and circumstances relating thereto (an “ Interparty Claim Notice ”).  The Indemnified Party shall provide the Indemnifying Party with reasonable access to its books and records for the purpose of allowing the Indemnifying Party a reasonable opportunity to verify any such claim for Losses.  The Indemnified Party and the Indemnifying Party shall negotiate in good faith for a thirty (30) day period beginning on the date the Indemnified Party provides an Interparty Claim Notice hereunder regarding the resolution of any disputed claims for Losses.  If no resolution is reached with regard to such disputed Interparty Claim between the Indemnifying Party and the Indemnified Party within such thirty (30) day period, the Indemnified Party shall be entitled to seek appropriate remedies in accordance with the terms hereof.  Notwithstanding anything herein to the contrary, in no event shall any Seller Indemnified Party or Buyer Indemnified Party be entitled to make any Interparty Claim for Losses against any Seller Indemnifying Party or Buyer Indemnifying Party, as



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applicable, related to Losses arising out of the failure to obtain any consent required by a Contract in connection with the transactions contemplated by this Agreement.  If the Indemnifying Party does not receive a Interparty Claim Notice within thirty (30) days after the date the Indemnified Party or any of its Affiliates becomes aware of any Interparty Claim, the Indemnifying Party shall be relieved of liability hereunder in respect of such Interparty Claim (or the facts or circumstances giving rise thereto) solely to the extent that such Indemnifying Party is actually and materially prejudiced or harmed as a consequence of such failure (and, to such extent, all Losses resulting from such Interparty Claim shall thereafter be disregarded for purposes of determining whether the Deductible has been exceeded), and in any event the Indemnifying Party shall not be liable for any expenses incurred during the period in which the Indemnified Party was overdue (i.e., more than thirty (30) days after becoming aware of an Interparty Claim) in giving, and had not given such Interparty Claim Notice.

(d)

Promptly following a final determination of the amount of any Losses claimed by the Indemnified Party by either (i) a final non-appealable decision, judgment or award rendered by a Governmental Body of competent jurisdiction or (ii) the mutual agreement by the Indemnified Party and Indemnifying Party, the Indemnifying Party shall pay such Losses to the Indemnified Party by wire transfer of immediately available funds to an account designated by the Indemnified Party; provided , however , that to the extent the Indemnifying Party is the Seller, the Seller shall be entitled to satisfy its indemnification obligations under this Article VII by reducing, dollar-for-dollar, the amount due to the Seller under the Note in accordance with Section 7.6(b) .

7.5

Limitations .

(a)

Notwithstanding any provision herein to the contrary, the aggregate indemnification obligations of the Seller under Section 7.2(a) , other than the indemnification obligations for breaches of the Fundamental Representations of the Seller or breaches of Section 3.7 (Taxes), shall at Closing not exceed One Million Seventeen Thousand Five Hundred Dollars ($1,017,500) (the “ Cap ”); provided , however , that the Cap shall be increased dollar-for-dollar by an amount equal to 10.7% of any cash indefeasibly paid to (or at the direction of) the Seller under the Note.  The aggregate indemnification obligations of the Seller with respect to any breaches of Fundamental Representations of the Seller or breaches of Section 3.7 (Taxes) or under Section 7.2(b) or Section 7.2(c) shall not exceed in the aggregate $20,000,000; provided , however , that the Seller shall not be obligated to pay any amount in cash under this Article VII in excess of the amount of cash indefeasibly received by (or on behalf of) the Seller pursuant to this Agreement, and any indemnity obligation payable by the Seller under this Article VII in excess of such cash amount shall only be payable by off-set against the Note (including the Escrow Shares) and the Earnout Consideration (the “ Fundamental Cap ”). To the extent an indemnity claim exceeds the amount of cash indefeasibly paid to (together with any amounts paid at the direction of) the Seller, the Buyer Indemnified Parties’ sole recourse, if any, shall be to off-set against the Note (including the Escrow Shares) and the Earnout Consideration, irrespective of whether or not outstanding or earned, as applicable; the Seller shall have no liability for any shortfall.  For the avoidance of doubt, (i) the Seller shall have no obligation to pay an amount in cash more than the cash indefeasibly received by (or on behalf of) the Seller under this Agreement for any indemnity obligation under this Article VII , and (ii) for purposes of this Agreement, the Indemnification Escrow Amount shall be deemed to be cash indefeasibly



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received by (or on behalf of), and cash indefeasibly paid to, the Seller, and shall therefore be available to fund the Seller’s indemnity obligations under this Article VII in accordance with Section 7.6(b) .

(b)

Notwithstanding any provision herein to the contrary, the indemnification obligations of the Seller under Section 7.2(a) , shall not apply to any Loss until the aggregate amount of all Losses for which indemnification claims that have been asserted under Section 7.2(a) exceeds the aggregate amount of One Hundred Seventy-Five Thousand Dollars ($175,000) (the “ Deductible ”) (with the determination of whether the Deductible has been reached to include only individual claims or series of related claims which are greater than Fifteen Thousand Dollars ($15,000), such claims being referred to herein as “ Qualifying Claims ”), and then, such indemnification obligation shall apply to all such Losses (but only including Qualifying Claims) in excess of the Deductible; provided , however , that breaches of the Fundamental Representations of the Seller or breaches Section 3.7 (Taxes) shall not be subject to the Deductible.

(c)

Any claims for Losses under Section 7.2 or Section 7.3 must be submitted before 11:59 p.m., New York, New York time, on or prior to the date the survival period applicable to the representations and warranties or covenants on which such claim is based expires.  In the event a claim for Losses is not given on or prior to the date the survival period for such representation, warranty or covenant expires then such claim for Losses will be irrevocably released and/or waived.

7.6

Calculation and Satisfaction of Losses .

(a)

Payments by the Indemnifying Party pursuant to this Article VII shall be limited to the amount of any Loss that remains after deducting therefrom (i) any insurance proceeds and any indemnity, contribution or other similar payment to which any Indemnified Party is entitled to recover from any third party with respect thereto, net of any reasonable expenses (excluding increases in premiums attributable to such claims) incurred by such Indemnified Parties in collecting such insurance proceeds or any indemnity, contribution or other similar payment, (ii) any Tax benefit to the Indemnified Parties as a result of incurring the Losses whether or not realized in the period in which such Losses arose and (iii) any Liability included in the calculation of Working Capital.  The Indemnifying Party shall be subrogated, to the extent of such payment, to all rights and remedies of the Indemnified Party to any insurance benefits or other claims of the Indemnified Party with respect to any Third Party Claim.

(b)

If the Seller is the Indemnifying Party, the Seller’s indemnification obligations under this Article VII , subject to Section 7.5 hereof, shall be satisfied in the following order: (i) first by reducing, dollar-for-dollar, the amount due to the Seller under the Note for so long as the Note is outstanding, any such reduction shall be applied first to reduce any accrued but unpaid interest then outstanding under the Note and next to reduce the principal amount then outstanding under the Note; (ii) second by release and payment of the Indemnification Escrow Amount, in immediately available funds, to (or for the benefit of) the Buyer, in accordance with the Indemnification Escrow Agreement; (iii) third by payment of cash in immediately available funds up to the amount of cash received by (or on behalf of) the Seller pursuant to this Agreement (without duplication); and (iv) fourth by surrendering to the Buyer



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shares of Buyer Common Stock issued to the Seller, if any, pursuant to the terms of this Agreement, with (A) each Earnout Share so surrendered having a per share value, solely for purposes of this Section 7.6(b) , equal to the Earnout Share Price with respect to such Earnout Share (subject to proportionate adjustment in the event of a stock split, stock dividend or distribution, recapitalization or similar event), and (B) each Escrow Share so surrendered having a per share value, solely for purposes of this Section 7.6(b) , equal to the Closing Date Share Price (subject to proportionate adjustment in the event of a stock split, stock dividend or distribution, recapitalization or similar event).  If the Buyer is the Indemnifying Party, the Buyer shall satisfy its indemnification obligations under this Article VII by the payment of cash in immediately available funds.

7.7

Effect on Purchase Price .  All indemnification, purchase price adjustments, reimbursement payments and other payments made pursuant to this Agreement subsequent to the date of this Agreement, as applicable, will be treated as an adjustment to the Purchase Price unless otherwise required by Law.

7.8

Sole and Exclusive Remedy .  Except for fraud claims or actions in equity, the indemnification and other rights of the parties set forth in this Article VII shall be the sole and exclusive remedies of the parties for any Losses arising out of or relating to this Agreement after the date hereof.  

ARTICLE VIII.
GENERAL PROVISIONS

8.1

Further Assurances .  If at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as any other party reasonably may request, all at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefor hereunder).  

8.2

Notices .  All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing, shall be delivered either in person, by facsimile (which is confirmed), e-mail or other electronic means, by overnight air courier or by certified or registered mail, and shall be deemed to have been duly given and to have become effective (a) upon receipt if delivered in person or by facsimile, e-mail or other electronic means calculated to arrive on any Business Day prior to 5:00 p.m., New York time, or on the next succeeding Business Day if delivered on a non-Business Day or after 5:00 p.m., New York time, (b) one (1) Business Day after having been delivered to a nationally-recognized courier for overnight delivery (with written confirmation of delivery), or (c) three (3) Business Days after having been deposited in the mails as certified or registered mail, return receipt requested, all fees prepaid, directed to the parties or their assignees at the following addresses (or at such other address as shall be given in writing by a party hereto):

If to the Seller, addressed as follows:

Richard Steel

_______________

_______________



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

Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, New York 10020

Attention: Steven E. Siesser, Esq.

Telephone: (212) 204-8688

Facsimile: (973) 597-2507

Email: ssiesser@lowenstein.com


If to the Buyer or the Company (post-Closing), addressed as follows:

Social Reality, Inc.

456 Seaton Street

Los Angeles, CA 90013

Attention:  Christopher Miglino

Telephone:  (323) 283-8505

Facsimile: (323) [___-____]

Email:chris@socialreality.com


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

Pearlman Schneider LLP

2200 Corporate Boulevard, N.W.

Suite 210

Boca Raton, FL  33431

Attention:  James M. Schneider, Esq.

Telephone: (561) 362-9595

Facsimile: (561) 361-9612

Email: jim@pslawgroup.net


8.3

Amendment; Waiver .  This Agreement may not be amended, supplemented or changed except by an instrument in writing signed by both the Seller and the Buyer.  Any party to this Agreement may waive in writing any obligation owed to it by any other party under this Agreement.  No waiver of any party of any default, misrepresentation, breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent occurrence.

8.4

Assignment .  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns.  No party may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other parties hereto; provided, that, such permitted assignment shall not relieve such party of any of its obligations hereunder and such assignee shall agree in writing to assume the obligations of the assignor under this Agreement. Any assignment or attempted assignment shall be null and void.  



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Notwithstanding the foregoing, before expiration of the Second Earnout Period, the Buyer shall not consummate a Buyer Change of Control unless: (a) the Seller has indefeasibly received all principal and accrued interest on the Note; (b) if during the First Earnout Period, each of the Year-One Earnout Consideration and the Year-Two Earnout Consideration has been indefeasibly received by the Seller, whether or not earned, due or payable; and (c) if during the Second Earnout Period, the Year-One Earnout Consideration has been indefeasibly received by the Seller to the extent due and payable under this Agreement and the Year-Two Earnout Consideration has been indefeasibly received by the Seller, whether or not earned, due or payable; provided , however , if the surviving Person in such Buyer Change of Control is reasonably acceptable to the Seller, then such Person may comply with clauses (b) and (c) by agreeing in a writing reasonably acceptable to the Seller to assume the obligations to under Section 2.5 of this Agreement as though the direct party hereto.

8.5

No Third Party Beneficiaries .  Except as set forth in this Section 8.5 , this Agreement does not create, and shall not be construed as creating, any rights enforceable by any Person not a party to this Agreement, except to the extent that such Person is an Indemnified Party in respect of the indemnification provided in Article VII hereof.

8.6

Severability .  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Laws, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Laws in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.  Upon such holding that any term or other provision is invalid, illegal or unenforceable, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible with respect to the purportedly invalid, illegal or unenforceable provision in a mutually acceptable manner so that the transactions contemplated by this Agreement may be consummated as originally contemplated to the greatest extent possible.

8.7

Entire Understanding .  This Agreement (including the Schedules and Exhibits hereto) and the Confidentiality Letter, dated March 12, 2014, between the Company and the Buyer contains the entire understanding between the parties concerning the subject matter of this Agreement and supersedes all prior understandings and agreements, whether oral or written, between them with respect to the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or written, between or among the parties hereto relating to the subject matter of this Agreement which are not fully expressed herein.

8.8

Captions .  The captions contained in this Agreement are for convenience of reference only and shall not be given any effect whatsoever in the construction or interpretation of this Agreement.

8.9

Counterparts; Electronic Signatures .  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. This Agreement may be transmitted by facsimile or



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electronically, and it is the intent of the parties that the facsimile copy (or a photocopy or PDF copy) of any signature printed by a receiving facsimile machine or computer printer shall be deemed an original signature and shall have the same force and effect as an original signature.

8.10

Governing Law; Venue; Wavier of Trial by Jury .  This Agreement and all matters arising directly or indirectly herefrom shall be construed and enforced in accordance with the laws of the State of California without giving effect to principles of conflicts of laws.  The parties hereby submit to the exclusive jurisdiction of any state or federal court sitting Los Angeles County, to the extent the Buyer is the defendant and, Contra Costa County, to the extent the Seller is the defendant, over any suit, action or proceeding arising out of or relating to this Agreement or any Transaction Document and waive any claims of lack of personal jurisdiction or forum non conveniens.  The parties agree that a final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the parties and may be enforced in any other courts to whose jurisdiction other parties are or may be subject, by suit upon such judgment.  THE PARTIES HEREBY WAIVE ALL RIGHT AND ENTITLEMENT TO A TRIAL BY JURY AS TO ANY DISPUTES BETWEEN THEM.

8.11

Currency .  All references to “dollars” or “$” in this Agreement refer to United States dollars, which is the currency used for all purposes in this Agreement.

IN WITNESS WHEREOF , the parties have duly executed this Agreement as of the date first above written.

 

THE BUYER:

 

 

 

 

SOCIAL REALITY, INC.

 

By:

/s/ Christopher Miglino

 

Name:

Christopher Miglino

 

Title:

Chief Executive Officer

 

 

 

 

THE COMPANY:

 

 

 

 

STEEL MEDIA

 

By:

/s/ Richard Steel

 

Name:

Richard Steel

 

Title:

Chief Executive Officer

 

 

 

 

THE SELLER:

 

 

 

 

/s/ Richard Steel

 

Richard Steel





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Exhibit 4.7


FORM OF CLASS A COMMON STOCK PURCHASE WARRANT


THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT (i) EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES.


[•], 2014

No. W-__


SOCIAL REALITY INC.


FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

This certifies that, for good and valuable consideration, receipt of which is hereby acknowledged, [•] (“ Holder ”) is entitled to purchase, subject to the terms and conditions of this Warrant, from Social Reality Inc., a Delaware corporation (the “ Company ”), [•] fully paid and nonassessable shares of the Company’s Class A Common Stock, par value $0.001 per share (“ Class A Common ”).  Holder shall be entitled to purchase the shares of Class A Common in accordance with Section 2 at any time subsequent to the date of this Warrant set forth above and prior to the Expiration Date (as defined below).  The shares of Class A Common of the Company for which this Warrant is exercisable, as adjusted from time to time pursuant to the terms hereof, are hereinafter referred to as the “ Shares .”  This Warrant is one of a series of Warrants included in the Units issued and sold pursuant to the terms and conditions of the Company’s Confidential Private Placement Memorandum dated September 29, 2014 (the “ Memorandum ”), as may be supplemented from time to time.  


1.

Exercise Period; Price .  


1.1

Exercise Period .  This Warrant shall be immediately exercisable and the exercise period (“ Exercise Period ”) shall terminate at 5:00 p.m. Pacific time on [•] , 2017 (the “ Expiration Date ”).


1.2

Exercise Price .  The initial purchase price for each of the Shares shall be $1.50 per share.  Such price shall be subject to adjustment pursuant to the terms hereof (such price, as adjusted from time to time, is hereinafter referred to as the “ Exercise Price ”).


2 .

Exercise and Payment .  


2.1

Exercise .  At any time after the date of this Warrant, this Warrant may be exercised, in whole or in part, from time to time by the Holder, during the term hereof, by surrender of this Warrant and the Notice of Exercise attached hereto as Annex I , duly completed and executed by the Holder, to the Company at the principal executive offices of the Company, together with payment in the amount obtained by multiplying the Exercise Price then in effect by the number of Shares thereby purchased, as designated in the Notice of Exercise.  Payment may be in cash, wire transfer or by check payable to the order of the Company in immediately available funds.  If not exercised in full, this Warrant must be exercised for a whole number of Shares.





2.2

Holder’s Exercise Limitation .  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 2.1 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 (as that term is defined in the Exchange Act), and any other 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 (as defined below).  For purposes of the foregoing sentence, the number of shares of Class A Common beneficially owned by the Holder and its Affiliates shall include the number of shares of Class A Common issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Class A Common 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 and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Class A Common 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.  Except as set forth in the preceding sentence, for purposes of this Section 2.2, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (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 2.2 applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) 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 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 and shall have no liability for exercises of the Warrant that are not in compliance with the Beneficial Ownership Limitation.  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 and the Company shall have no obligation to verify or confirm the accuracy of such determination and shall have no liability for exercises of the Warrant that are not in compliance with the Beneficial Ownership Limitation.  For purposes of this Section 2.2, in determining the number of outstanding shares of Class A Common, a Holder may rely on the number of outstanding shares of Class A Common as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities and Exchange 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 its transfer agent setting forth the number of shares of Class A Common outstanding.  Upon the written or oral request of a Holder, the Company shall as promptly as practicable confirm orally and in writing to the Holder the number of shares of Class A Common then outstanding.  In any case, the number of outstanding shares of Class A Common 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 since the date as of which such number of outstanding shares of Class A Common was reported.  The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Class A Common outstanding immediately after giving effect to the issuance of shares of Class A Common issuable upon exercise of this Warrant.  The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2.2, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Class A Common outstanding immediately after giving effect to the issuance of shares of Class A Common upon exercise of this Warrant held by the Holder and the provisions of this Section 2.2



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shall continue to apply.  Any such increase or decrease will not be effective until the 61 st 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 2.2 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.  


3.

Company’s Right to Call this Warrant .  Subject to the terms and conditions set forth herein, and providing that there is an effective registration statement registering the Shares issuable upon exercise of this Warrant, during the Exercise Period, upon twenty (20) days prior written notice to the Holder (each, a “ Call Notice ”) following the date on which the last sale price of the Company’s Class A Common equals or exceeds $3.75 per share for twenty (20) consecutive trading days, as may be adjusted for stock splits, stock dividends and similar corporate events, and the daily average minimum volume of the Class A Common during those twenty (20) trading days is at least 100,000 shares, the Company shall have the right to call any or all of the Warrants at a call price of $0.001 per underlying Share (the " Call Price ").  Warrant holders shall have the period from the date of the Call Notice until 5 p.m., Pacific time, on the twentieth (20th) day following the Call Notice (the " Call Date ") to exercise the Warrant pursuant to the terms hereof.  Any Warrants which have been called but remain unexercised by the Call Date shall automatically terminate and no longer entitle the Holder to exercise such Warrant or to receive any consideration therefor, other than the Call Price.  For any Warrants which are not exercised by the Call Date, the Company shall promptly as possible following the Call Date pay the Call Price to the Holder of any Warrants which have been called and not exercised.


4.

Reservation of Shares .  The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of Shares or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant .  All such shares shall be duly authorized, and when issued upon such exercise, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights.


5.

Delivery of Stock Certificates .  Within three (3) trading days after exercise, in whole or in part, of this Warrant, the Company shall issue in the name of and deliver to the Holder a certificate or certificates for the number of fully paid and nonassessable Shares which the Holder shall have requested in the Notice of Exercise.  If this Warrant is exercised in part, the Company shall deliver to the Holder a new Warrant (dated the date hereof and of like tenor) for the unexercised portion of this Warrant at the time of delivery of such stock certificate or certificates.  In lieu of delivering physical certificates representing the Shares issuable upon exercise of this Warrant, provided the Company is participating in the Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer (FAST) program, upon request of the Holder in the Notice of Exercise, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Shares issuable upon exercise to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“ DWAC ”) system.


6.

No Fractional Shares .  This Warrant must be exercised for a whole number of Shares.  No fractional shares or scrip representing fractional Shares will be issued upon exercise of this Warrant.  Any fractional Share which otherwise might be issuable on the exercise of this Warrant as a result of the anti-dilution provisions Section 10 hereof will be rounded up to the nearest whole Share.




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7.

Charges, Taxes and Expenses .  The Company shall pay all transfer taxes or other incidental charges, if any, in connection with the transfer of the Shares purchased pursuant to the exercise hereof from the Company to the Holder.


8.

Loss, Theft, Destruction or Mutilation of Warrant .  Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to the Company, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of this Warrant.


9.

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 be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding weekday which is not a legal holiday.


10.

Adjustment of Exercise Price and Number of Shares .  The Exercise Price and the number of and kind of securities purchasable upon exercise of this Warrant shall be subject to adjustment from time to time as follows:


10.1

Subdivisions, Combinations and Other Issuances .  If the Company shall at any time after the date hereof but prior to the expiration of this Warrant subdivide its outstanding securities as to which purchase rights under this Warrant exist, by split-up or otherwise, or combine its outstanding securities as to which purchase rights under this Warrant exist, the number of Shares as to which this Warrant is exercisable as of the date of such subdivision, split-up or combination shall forthwith be proportionately increased in the case of a subdivision, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to the Exercise Price, but the aggregate purchase price payable for the total number of Shares purchasable under this Warrant as of such date shall remain the same.


10.2

Stock Dividend .  If at any time after the date hereof the Company declares a dividend or other distribution on its Class A Common payable in Class A Common or other securities or rights convertible into Class A Common (“ Class A Common Equivalents ”) without payment of any consideration by such holder for the additional shares of Class A Common or the Class A Common Equivalents (including the additional shares of Class A Common issuable upon exercise or conversion thereof), then the number of Shares for which this Warrant may be exercised shall be increased as of the record date (or the date of such dividend distribution if no record date is set) for determining which holders of Class A Common shall be entitled to receive such dividend, in proportion to the increase in the number of outstanding shares (and shares of Class A Common issuable upon conversion of all such securities convertible into Class A Common) of Class A Common as a result of such dividend, and the Exercise Price shall be adjusted so that the aggregate amount payable for the purchase of all the Shares issuable hereunder immediately after the record date (or on the date of such distribution, if applicable), for such dividend shall equal the aggregate amount so payable immediately before such record date (or on the date of such distribution, if applicable).


10.3

Other Distributions .  If at any time after the date hereof the Company distributes to holders of its Class A Common, other than as part of its dissolution or liquidation or the winding up of its affairs, any shares of its capital stock, any evidence of indebtedness or any of its assets (other than cash, Class A Common or Class A Common Equivalents), then the Company may, at its option, either (i) decrease the Exercise Price of this Warrant by an appropriate amount based upon the value distributed on each share of Class A Common as determined in good faith by the Company’s Board



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of Directors, or (ii) provide by resolution of the Company’s Board of Directors that on exercise of this Warrant, the Holder hereof shall thereafter be entitled to receive, in addition to the shares of Class A Common otherwise receivable on exercise hereof, the number of shares or other securities or property which would have been received had this Warrant at the time been exercised.


10.4

Effect of Consolidation, Merger or Sale .  In case of any reclassification, capital reorganization, or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of any subdivision, combination, stock dividend or other distribution provided for in Sections 10.1 , 10.2 and 10.3 above), or in case of any consolidation or merger of the Company with or into any corporation (other than a consolidation or merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance satisfactory to the holder of this Warrant), or the Company shall make appropriate provision without the issuance of a new Warrant, so that the holder of this Warrant shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the Shares theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, capital reorganization, change, merger or sale by a holder of the number of Shares then purchasable under this Warrant.  In any such case, appropriate provisions shall be made with respect to the rights and interest of Holder so that the provisions hereof shall thereafter be applicable to any shares of stock or other securities and property deliverable upon exercise hereof, or to any new Warrant delivered pursuant to this Section 10.4 , and appropriate adjustments shall be made to the Exercise Price per share payable hereunder, provided, that the aggregate Exercise Price shall remain the same.  The provisions of this Section 10.4 shall similarly apply to successive reclassifications, capital reorganizations, changes, mergers and transfers.


11.

Notice of Adjustments; Notices .  Whenever the Exercise Price or number of Shares purchasable hereunder shall be adjusted pursuant to Section 10 hereof, the Company shall execute and deliver to the Holder a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Exercise Price and number of and kind of securities purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the Holder.


12.

Rights As Stockholder; Notice to Holders .  Nothing contained in this Warrant shall be construed as conferring upon the Holder or his or its transferees the right to vote or to receive dividends or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or of any other matter, or any rights whatsoever as stockholders of the Company.  The Company shall give notice to the Holder by registered mail if at any time prior to the expiration or exercise in full of the Warrants, any of the following events shall occur:


(i)

a dissolution, liquidation or winding up of the Company shall be proposed;


(ii)

a capital reorganization or reclassification of the Class A Common (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of any subdivision, combination, stock dividend or other distribution) or any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company; or



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(iii)

a taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) for other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other rights.


Such giving of notice shall be simultaneous with (or in any event, no later than) the giving of notice to holders of Class A Common.  Such notice shall specify the record date or the date of closing the stock transfer books, as the case may be.  Failure to provide such notice shall not affect the validity of any action contemplated in this Section 12 .


13.

Restricted Securities .  The Holder understands that this Warrant and the Shares purchasable hereunder constitute “restricted securities” under the federal securities laws inasmuch as they are, or will be, acquired from the Company in transactions not involving a public offering and accordingly may not, under such laws and applicable regulations, be resold or transferred without registration under the Act, or an applicable exemption from such registration.  The Holder further acknowledges that a securities legend to the foregoing effect shall be placed on any Shares issued to the Holder upon exercise of this Warrant.

14.

Disposition of Shares; Transferability .

14.1

Transfer .  This Warrant shall be transferable only on the books of the Company, upon delivery thereof duly endorsed by the Holder or by its duly authorized attorney or representative, accompanied by proper evidence of succession, assignment or authority to transfer.  Upon any registration of transfer, the Company shall execute and deliver new Warrants to the person entitled thereto.


14.2

Rights, Preferences and Privileges of Class A Common .  The powers, preferences, rights, restrictions and other matters relating to the shares of Class A Common will be as determined in the Company’s Certificate of Incorporation, as amended, as then in effect.


15.

Miscellaneous .


15.1

Binding Effect .  This Warrant and the various rights and obligations arising hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.


15.2

Entire Agreement .  This Warrant, the Purchase Agreement and the Registration Rights Agreement of even date herewith constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, whether oral or written, between the parties hereto with respect to the subject matter hereof.


15.3

Amendment and Waiver .  Any term of this Warrant may be amended and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holders representing a majority-in-interest of the Shares underlying the Warrants pursuant to the Purchase Agreement.  Any waiver or amendment effected in accordance with this Section 15.3 shall be binding upon the Holder and the Company.




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15.4

Governing Law .  This Agreement shall be governed by and construed under the laws of the State of Delaware without reference to the conflicts of law principles thereof.  The exclusive jurisdiction for any legal suit, action or proceeding arising out of or related to this Warrant shall be either the California State Supreme Court, County of Los Angeles, or in the United States District Court for the Central District of California.


15.5

Headings .  The headings in this Agreement are for convenience only and shall not alter or otherwise affect the meaning hereof.


15.6

Severability .  If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and the balance shall be enforceable in accordance with its terms.


15.7

Notices .  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in the same manner as provided in the Agreement.


IN WITNESS WHEREOF , the parties hereto have executed and delivered this Warrant as of the date appearing on the first page of this Warrant.


 

THE COMPANY:

 

 

 

 

SOCIAL REALITY, INC.

 

 

 

 

 

 

 

By:

 

 

 

Christopher Miglino, Chief Executive Officer

 

 

 




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ANNEX I

NOTICE OF EXERCISE

To:

Social Reality Inc.

1.

The undersigned Holder hereby elects to purchase _____________ shares of  Class A common stock, $0.001 par value per share (the “ Shares ”) of Social Reality Inc., a Delaware corporation (the “ Company ”), pursuant to the terms of the attached Warrant.  The Holder shall make payment of the Exercise Price by delivering the sum of $____________, in lawful money of the United States, to the Company in accordance with the terms of the Warrant.


2.

Please issue and deliver certificates representing the Warrant Shares purchased hereunder to Holder:__________________________, Address:__________________________________________ in the following denominations: ____________________________.


Taxpayer ID No.: __________________________________


If delivery of the Warrant Shares is requested via DWAC, please check this box and provide the requested information:


¨

The Company is requested to electronically transmit the Warrant Shares issuable pursuant to this Notice of Exercise to the account of the Holder with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).


Name of DTC Prime Broker:

_______________________________

Account Number:

_______________________________


3.

Please issue a new Warrant for the unexercised portion of the attached Warrant, if any, in the name of the undersigned.


Holder:

___________________________________________________________

Dated:

___________________________________________________________

By:

___________________________________________________________

Its:

___________________________________________________________

Address:

___________________________________________________________


4.

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: _______________________________________________________________________________







Exhibit 4.8


THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 2(e) HEREOF.  THE SECURITIES REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(e) HEREOF.  



SOCIAL REALITY, INC.


W ARRANT T O P URCHASE C LASS A C OMMON S TOCK


Warrant No.: SRW – 001

Number of Shares: 2,900,000

Date of Issuance: October 30, 2014


Social Reality, Inc., a Delaware corporation (the “ Company ”), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, VPC SBIC I, LP, a Delaware limited partnership, the registered holder hereof, or its successors or permitted assigns (the “ Holder ”), is entitled, subject to the terms and conditions set forth below, to purchase from the Company, at any time or times on or after the date hereof, but not after 11:59 P.M. New York City time on the Expiration Date (as defined herein) Two Million Nine Hundred Thousand (2,900,000) fully paid nonassessable shares of Common Stock (as defined in Section 1(b) ) of the Company, subject to adjustment as hereinafter provided (the “ Warrant Shares ”), at the Warrant Exercise Price (as defined in Section 1(b) ); provided , however, that in no event shall the Holder be entitled or required to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares that, upon giving effect to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its Affiliates and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Holder is a member) to exceed 4.99% of the outstanding shares of the Common Stock following such exercise.  For purposes of the foregoing proviso, the aggregate 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 exercise of this Warrant with respect to which the determination of such proviso is being made, but shall exclude shares of Common Stock that



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would be issuable upon (i) exercise of the remaining, unexercised Financing Warrants (as defined in Section 1(a) below) beneficially owned by the Holder and its Affiliates and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and (ii) exercise, conversion or exchange of the unexercised, unconverted or unexchanged portion of any other securities of the Company beneficially owned by the Holder and its Affiliates and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act subject to a limitation on conversion, exercise or exchange analogous to the limitation contained herein.  For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission, and, except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act.  For purposes of this Warrant, 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 (1) the Company’s most recent periodic report filed on Form 10-K or Form 10-Q, (2) a more recent public announcement by the Company or (3) any other written (including e-mail) notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written request of the Holder, the Company shall promptly, but in no event later than two Business Days following the receipt of such request, confirm 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, exercise or exchange of securities of the Company, including this Warrant, by the Holder and its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.


Section 1.

(a)

Financing Agreement .  This Warrant is one of the warrants issued pursuant to that certain Financing Agreement, dated as of October 30, 2014, among the Company, the guarantors party thereto, Holder and the other lenders party thereto and Victory Park Management, LLC, as administrative agent and collateral agent for the lenders party thereto (as such agreement may be amended from time to time as provided therein, the “ Financing Agreement ”), or issued in exchange or substitution therefor or replacement thereof (all such warrants being collectively referred to as the “ Financing Warrants ”).  Each capitalized term used, and not otherwise defined, herein shall have the meaning ascribed thereto in the Financing Agreement.

(b)

Definitions .  The following words and terms used in this Warrant shall have the following meanings:

(i)

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.




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(ii)

Common Stock ” means (A) the Company’s Class A Common Stock, par value $0.001 per share, and (B) any capital stock into which such Class A Common Stock shall have been changed or any capital stock resulting from a reclassification of such Class A Common Stock.

(iii)

Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for Common Stock.

(iv)

dollar ” or “ $ ” means U.S. dollars.

(v)

Enterprise Value ” means (1) the product of (A) the number of issued and outstanding shares of Common Stock on the date the Company delivers the Major Transaction Notice, multiplied by (B) the Weighted Average Price for the Common Stock on such date, plus (2) the amount of the Company’s and its Subsidiary debt as shown on a consolidated basis on the latest balance sheet filed with the SEC prior to the date the Company delivers the Major Transaction Notice (the “ Current Balance Sheet ”), less (3) the amount of cash and cash equivalents of the Company and its Subsidiaries as shown on a consolidated basis on the Current Balance Sheet.

(vi)

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(vii)

Expiration Date ” means the date that is five years after the Warrant Date (as defined in Section 14 ) or, if such date does not fall on a Business Day, then the next Business Day.

(viii)

Major Transaction ” means each of the following:

(1)

the consolidation, merger or other business combination of the Company with or into another Person (other than a consolidation, merger or other business combination in which holders of the Company’s voting power immediately prior to the transaction continue after the transaction to hold, directly or indirectly, a majority of the combined voting power of the surviving entity or entities entitled to vote generally for the election of a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities);

(2)

the sale or transfer of (A) all or substantially all of the Company’s assets (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries in the aggregate) or (B) assets of the Company (including, for the avoidance of doubt, assets of the Company and its Subsidiaries in the aggregate) for a purchase price equal to more than 50% of the Enterprise Value (as defined above) of the Company;

(3)

the consummation of a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding shares of Common Stock;




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(4)

the acquisition by any Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; or

(5)

any change in the composition of the board of directors of the Company such that the individuals who, as of the Warrant Date, constituted the board of directors of the Company cease for any reason to constitute at least a majority of the board of directors of the Company.

(ix)

Options ” means any rights, warrants or options to subscribe for or purchase any Common Stock or Convertible Securities.

(x)

Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof or any other legal entity.

(xi)

Principal Market ” means, with respect to the Common Stock or any other security, the principal securities exchange or trading market for the Common Stock or such other security.  

(xii)

Securities Act ” means the Securities Act of 1933, as amended, together with the rules and regulations promulgated by the Securities and Exchange Commission thereunder.

(xiii)

Trading Day ” means any day on which the Common Stock or other security, as applicable, is traded on its Principal Market; provided that “Trading Day” shall not include any day on which the Principal Market is open for trading for less than 4.5 hours.

(xiv)

Warrant ” means this Warrant and all warrants issued in exchange, transfer or replacement thereof pursuant to the terms of this Warrant.

(xv)

Warrant Exercise Price ” shall be equal to, with respect to any Warrant Share, $1.00, subject to adjustment as hereinafter provided.

(xvi)

Weighted Average Price ” means, for any security as of any date, the dollar volume-weighted average price for such security on its Principal Market during the period beginning at 9:30 a.m. New York City time (or such other time as its Principal Market publicly announces is the official open of trading) and ending at 4:00 p.m. New York City time (or such other time as its Principal Market publicly announces is the official close of trading) as reported by Bloomberg Financial Markets (or any successor thereto) (“ Bloomberg ”) through its “Volume at Price” functions, or if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m. New York City time (or such other time as over-the-counter market publicly announces is the official open of trading), and ending at 4:00 p.m. New York City time (or such other time as such over-the-counter market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-




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weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported by OTC Markets Group, Inc. (or any successor thereto).  If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 2(d) below.  All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any period during which the Weighted Average Price is being determined.

Section 2.

Exercise of Warrant .

(a)

Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. New York City time on the Expiration Date by (i) delivery of a written notice, in the form of the exercise notice attached as Exhibit A hereto (the “ Exercise Notice ”), of such Holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased and, if such exercise is conditioned upon consummation of a Major Transaction (as defined below) or an Organic Change (as defined below) or any other transaction (such Major Transaction, Organic Change or other transaction, an “ Exercise Trigger Transaction ”), such condition to exercise, (ii) payment to the Company of an amount equal to the product of the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (such product, the “ Aggregate Exercise Price ”), by check or wire transfer of funds or through a reduction of an amount of principal outstanding under a Note or Notes held by the Holder in accordance with Section 2.3(e) of the Financing Agreement, and (iii) if required by Section 2(e) , unless the Holder has previously delivered this Warrant to the Company and it or a new replacement Warrant has not yet been delivered to the Holder, the surrender to a common carrier for overnight delivery to the Company as soon as practicable following such date, of this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction pursuant to Section 12 ); provided , that if such Warrant Shares are to be issued in any name other than that of the Holder, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable.  Notwithstanding anything to the contrary contained herein, the Holder may elect, in connection with an exercise that is contingent upon an Organic Change, that such exercise be effected contemporaneously with such Organic Change and that the Holder will acquire and receive in lieu of or in addition to (as the case may be) the Warrant Shares immediately theretofore acquirable and receivable upon such exercise of this Warrant, such shares of stock, securities or assets of the Acquiring Entity (as defined below) that would have been issued or payable in such Organic Change with respect to or in exchange for the number of Warrant Shares that would have been acquirable and receivable upon such exercise of this Warrant as of the date of such Organic Change.  In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a) , on or before the second Business Day (the “ Warrant Share Delivery Date ”) following the date of its receipt of the Exercise Notice, the Aggregate Exercise Price (including through a reduction in principal outstanding under applicable Notes in accordance with the Financing Agreement) and, if required by Section 2(e) (unless the Holder has previously delivered this Warrant to the




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Company and a new or replacement Warrant has not yet been delivered to the Holder), this Warrant (or an indemnification undertaking, in customary form, with respect to this Warrant in the case of its loss, theft or destruction, pursuant to Section 12 ) (the “ Exercise Delivery Documents ”) (or, if the exercise of this Warrant is conditioned upon the consummation of an Exercise Trigger Transaction, on the date of (and immediately prior to) the consummation of such Exercise Trigger Transaction), the Company shall, at the option of the Holder, (A) issue such aggregate number of shares of Common Stock to which the Holder shall be entitled electronically in the name of the Holder or its designee through the Direct Registration System (DRS) of The Depository Trust Company (“ DTC ”) or, if the Holder or its designee is eligible to receive shares through DTC, credit such aggregate number of shares of Common Stock to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal At Custodian system, or (B) issue and deliver to the address specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled.  Upon the latest of (x) the date of delivery of the Exercise Notice, (y) the date of delivery of the Aggregate Exercise Price referred to in clause (ii) above (including through a reduction in principal outstanding under applicable Notes in accordance with the Financing Agreement), and (z) if the exercise of this Warrant is conditioned upon the consummation of an Exercise Trigger Transaction, the date of such consummation, the Holder shall be deemed for all purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised (the date thereof being referred to as the “ Deemed Issuance Date ”), irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares.  

(b)

If this Warrant is submitted for exercise, as may be required by Section 2(e) , and unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three Business Days after receipt of this Warrant (the “ Warrant Delivery Date ”) and at its own expense, issue a new Warrant identical in all respects to this Warrant, except that it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which such Warrant is exercised.

(c)

No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number (with 0.5 rounded up).

(d)

If the Company shall fail for any reason or for no reason (x) to issue and deliver to the Holder within two Business Days of receipt of the Exercise Delivery Documents a certificate for the number of shares of Common Stock to which the Holder is entitled, or to issue electronically in the name of the Holder or its designee through the Direct Registration System (DRS) of DTC such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, or to credit the Holder’s or its designee’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant or (y) to issue and deliver to the Holder on the Warrant Delivery Date a new Warrant for the number of shares of Common Stock to which the Holder is entitled pursuant to Section 2(b) , if any, then the Company shall, in addition to any other remedies under this Warrant or the Financing Agreement or otherwise available to the Holder, including any indemnification under Section 13.12 of the Financing Agreement, pay as




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additional damages in cash to the Holder on each day after such second Business Day that such shares of Common Stock are not issued and delivered to the Holder or its designee, in the case of clause (x) above, or such third Business Day that such Warrant is not delivered, in the case of clause (y) above, an amount equal to the sum of (i) two percent (2%) of the product of (A) the number of shares of Common Stock not issued to the Holder or its designee on or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Common Stock on the Warrant Share Delivery Date, in the case of the failure to deliver Common Stock, and (ii) if the Company has failed to deliver a Warrant to the Holder on or prior to the Warrant Delivery Date, two percent (2%) of the product of (X) the number of shares of Common Stock issuable upon exercise of the Warrant as of the Warrant Delivery Date, and (Y) the Weighted Average Price of the Common Stock on the Warrant Delivery Date.  Alternatively, at the election of the Holder made in the Holder’s sole discretion, the Company shall (I) pay to the Holder, in lieu of the additional damages referred to in the preceding sentence (but in addition to all other available remedies that the Holder may pursue hereunder and under the Financing Agreement (including indemnification pursuant to Section   13.12 thereof)), 110% of the amount that (1) the Holder’s total purchase price (including brokerage commissions, if any) for shares of Common Stock purchased to make delivery in satisfaction of a sale by such holder of the shares of Common Stock to which the Holder is entitled but has not received upon an exercise, exceeds (2) the net proceeds received by the Holder from the sale of the shares of Common Stock to which the Holder is entitled but has not received upon such exercise, and (II) in the case of clause (x) above, 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 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.  If the Holder and the Company are unable to agree upon the determination of the Weighted Average Price, within one Business Day of such disputed determination being submitted to the Holder, then the Company shall immediately submit via facsimile the disputed determination of the Weighted Average Price to an independent, reputable investment banking firm agreed to by the Company and the Holder.  The Company shall cause the investment banking firm to perform the determination and notify the Company and the Holder of the results no later than two Business Days after the date it receives the disputed determinations.  Such investment banking firm’s determination shall be deemed conclusive absent manifest error.

(e)

Book-Entry .  Notwithstanding anything to the contrary set forth herein, upon exercise of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless it is being exercised for all of the Warrant Shares represented by the Warrant.  The Holder and the Company shall maintain records showing the number of Warrant Shares exercised and issued and the dates of such exercises or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise.  In the event of any dispute or discrepancy, such records of the Company establishing the number of Warrant Shares to which the Holder is entitled shall be controlling and determinative in the absence of error.  Notwithstanding the foregoing, if this Warrant is exercised as aforesaid, the Holder may not transfer this Warrant unless the Holder first physically surrenders this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant of like tenor, registered as the Holder may request, representing in the aggregate the remaining number of Warrant Shares represented by this Warrant.  The Holder, by




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acceptance of this Warrant, acknowledges and agrees that, by reason of the provisions of this paragraph, following exercise of any portion of this Warrant, the number of Warrant Shares represented by this Warrant may be less than the number stated on the face hereof.  

Section 3.

Covenants as to Common Stock .  The Company hereby covenants and agrees as follows:

(a)

This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)

All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of payment therefor from the Holder (including through a reduction in principal outstanding under applicable Notes in accordance with the Financing Agreement), be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)

At all times through (and including) the Expiration Date, the Company will at all times have authorized and reserved at least 100% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant (without regard to any limitations or restrictions on exercise).

(d)

The Company shall promptly secure the quotation or listing of the Warrant Shares on the Principal Market for the Common Stock and each other market or exchange on which the Common Stock is traded or listed and shall maintain, so long as any other shares of Common Stock shall be so traded or listed, such listing of all Warrant Shares from time to time issuable upon the exercise of this Warrant; and the Company shall so list, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant on the Principal Market for such capital stock and each other market or exchange on which such capital stock is traded or listed.

(e)

The Company will not, by amendment of 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 to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and take all such action as may reasonably be requested by the Holder in order to protect the exercise privilege of the Holder against impairment, consistent with the tenor and purpose of this Warrant.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above $0.001 per share, and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)

This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets.




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Section 4.

Taxes .  The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

Section 5.

Warrant Holder Not Deemed a Stockholder .  Except as otherwise provided herein, the Holder, as holder of this Warrant, shall not be entitled to vote or be deemed the holder of shares of the Company for any purpose (other than to the extent that the Holder is deemed to be a beneficial owner of Warrant Shares under applicable securities laws after taking into account the limitation set forth in the first paragraph of this Warrant), nor shall anything contained in this Warrant be construed to confer upon the Holder, as holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the Deemed Issuance Date of the Warrant Shares that the Holder is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (except to the extent set forth in an Exercise Notice that has been delivered by the Holder to the Company) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding the foregoing, the Company will provide the Holder with copies of the same notices (without duplication if the Holder is also a stockholder of the Company) and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

Section 6.

Representations and Warranties of Holder .  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant, and upon exercise hereof will acquire the Warrant Shares, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares in a manner that would not violate the Securities Act, except pursuant to sales registered, or exempted from registration, under the Securities Act; provided , however, that by making the representations herein, the Holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.  The Holder further represents, by acceptance hereof, that, as of the date of its acquisition of this Warrant, the Holder is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act.  The Holder, by acceptance hereof, understands that (a) no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Warrant or the Warrant Shares or the fairness or suitability of the investment in the Warrant or the Warrant Shares, and (b) except as provided in the Registration Rights Agreement, this Warrant and the Warrant Shares issuable upon exercise hereof 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 except pursuant to an effective registration statement or an exemption from registration; provided, however, that the Warrant and the Warrant Shares may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured thereby and such pledge of the Warrant and the Warrant Shares, as applicable, shall not be deemed by the Company to be a transfer, sale or assignment thereof hereunder, and, in such event, the Holder shall not be required to provide the




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Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Warrant or otherwise.  Each delivery of an Exercise Notice (other than in connection with an exercise through a reduction in principal outstanding under applicable Notes in accordance with the Financing Agreement) shall constitute confirmation at such time by the Holder of the representations concerning the Warrant Shares set forth in the first three sentences of this Section 6 , unless contemporaneously with the delivery of such Exercise Notice, the Holder notifies the Company in writing that it is not making such representations (a “ Representation Notice ”).  If the Holder delivers a Representation Notice in connection with an exercise, it shall be a condition to the Holder’s exercise of this Warrant and the Company’s obligations set forth in Section 2 in connection with such exercise, that the Company receive such other representations as the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any applicable registration requirements of United States or state securities laws.

Section 7.

Ownership and Transfer .

(a)

The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee.  The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

(b)

Subject to compliance with applicable U.S. federal and state securities laws, this Warrant may be offered, sold, assigned or transferred by the Holder, upon proper surrender of this Warrant, properly endorsed, without the consent of the Company, and in connection therewith the Holder may transfer any rights related thereto under the Financing Agreement pursuant to Section 13.8(c) thereof; provided, however, that the Holder may not offer, sell, assign or transfer this Warrant to any Person that is directly engaged in the same business as the Company and its subsidiaries as conducted on the Warrant Date.

Section 8.

Adjustment of Number of Warrant Shares .  The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)

Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock .  If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased.  If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased.  Any adjustment under this Section 8(a) shall




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become effective at the close of business on the date the subdivision or combination becomes effective or, if earlier, the record date with respect to the subdivision or combination.

(b)

Distribution of Assets .  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case:

(i)

the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s board of directors) applicable to one share of Common Stock, and (B) the denominator shall be the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such record date; and

(ii)

at the option of the Holder, in its sole discretion, either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or quoted on an over-the-counter market, then the holder of this Warrant shall receive an additional warrant, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable for the number of shares of common stock of such company that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant in full immediately prior to such record date (without taking into account any limitations on the exercisability of this Warrant) and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

(c)

Certain Events .  If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions, then the Company’s Board of Directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the Holder; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8 .




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(d)

Par Value .  Notwithstanding anything to the contrary contained in this Section 8 , if, as a result of an adjustment pursuant to this Section 8 , the par value per share of Common Stock would be greater than the Warrant Exercise Price after such adjustment, then the Warrant Exercise Price shall be an amount equal to the par value per share of the Common Stock but the number of shares the holder of this Warrant shall be entitled to purchase shall be the number of shares of Common Stock as would have resulted from the Warrant Exercise Price that, absent such limitation, would have resulted from such adjustment pursuant to this Section 8 .  The foregoing adjustment shall not constitute a waiver of any claim arising against the Company by reason of any covenant contained in Section 3(e) .

Section 9.

Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale; Dividends/Distributions of Assets .

(a)

Purchase Rights .  In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that 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 or restrictions on exercise) 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 Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b)

Organic Change .  Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction that is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an “ Organic Change .”  Prior to the consummation of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the “ Acquiring Entity ”) a written agreement (in form and substance satisfactory to holders of Financing Warrants representing at least a majority of the shares of Common Stock obtainable upon exercise of the Financing Warrants then outstanding without regard to any limitation on exercise thereof) to deliver to each holder of Financing Warrants, in exchange for each such Financing Warrant, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of Financing Warrants (including, an adjusted Warrant Exercise Price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of such Financing Warrant (without regard to any limitations on exercises), if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale).  Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of such Financing Warrants representing at least a majority of the shares of Common Stock obtainable upon exercise of the Financing Warrants then outstanding, without regard to




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any limitation on exercise thereof) to ensure that each of the holders of the Financing Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holders’ Financing Warrants (without regard to any limitations on exercises), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock that would have been acquirable and receivable upon the exercise of such holder’s Financing Warrant as of the date of such Organic Change (without taking into account any limitations on the exercisability of any of the Financing Warrants).

(c)

Notices .

(i)

As soon as reasonably practicable, but in no event later than two Business Days, upon any adjustment of the Warrant Exercise Price or number of shares of Common Stock obtainable upon exercise of this Warrant, the Company will give written notice thereof to the Holder, setting forth in reasonable detail, and certifying, the calculation of such adjustment; provided , however , that neither the timing of giving any such notice nor any failure by the Company to give such a notice shall effect any such adjustment or the effective date thereof.

(ii)

The Company will give written notice to the Holder at least 10 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change, dissolution or liquidation, provided that such information shall be made known to the public prior to or contemporaneously with such notice being provided to the Holder.

(iii)

The Company will also give written notice to the Holder at least 10 days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or contemporaneously with such notice being provided to the Holder.

Section 10.

Put Right .  

(a)

At any time after the earlier of (i) April 30, 2016 and (ii) the Maturity Date (as such term is defined in the Financing Agreement), but on or prior to the Expiration Date (“ Put Period ”), the Holder shall have the right (a “ Put Right ”), but not the obligation, in its sole discretion, to require the Company to purchase from the Holder, from time to time, all or any portion of this Warrant that has not then been previously exercised (without taking into account any limitations on the exercisability of this Warrant) in accordance with the terms hereof.  In order to exercise a Put Right, the Holder shall deliver to the Company a written notice (a “ Put Right Notice ”) setting forth (i) the election by the Holder to exercise a Put Right and (ii) the unexercised portion of this Warrant, by reference to the number of underlying Warrant Shares, for which a Put Right is being exercised (“ Put Right Securities ”).  




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(b)

The purchase price for Put Right Securities at any Put Right Closing shall be an amount equal to the product of (i) a fraction, the numerator of which is the number of Put Right Securities for which the Put Right is then being exercised, and the denominator of which is the total number of Warrant Shares for which this Warrant was originally exercisable as of the Warrant Date (giving effect to any adjustment of the number of Warrant Shares occurring prior to the Put Right Closing, as provided herein, as if such adjustment had been effective when this Warrant was originally issued, and without regard to any limitations or restrictions on exercise), multiplied by the lesser of (A) fifty percent (50%) of the total revenue for the Company and its subsidiaries, on a consolidated basis, for the trailing twelve month period ending with the then-most recently completed fiscal quarter of the Company, as shall be certified in writing by the Company’s Chief Financial Officer and agreed upon in good faith by the Company and the Holder, and (B) One Million Five Hundred Thousand Dollars ($1,500,000), and multiplied by (ii) a fraction, the numerator of which is the total number of Warrant Shares for which this Warrant was originally exercisable as of the Warrant Date, and the denominator of which is the total number of shares of Common Stock for which the Financing Warrants, including this Warrant, were originally exercisable as of the Warrant Date (in each such case without regard to any limitations or restrictions on exercise).

(c)

The consummation of a purchase and sale of Put Right Securities (a “ Put Right Closing ”) shall be as mutually determined by the Company and the Holder, but in any event shall occur no later than 30 days following the delivery of the Put Right Notice.  At a Put Right Closing, the Company shall deliver the purchase price, calculated in accordance with Section 10(b) , by wire transfer of immediately available funds to an account designated by the Holder.  The Holder shall not be required to physically surrender this Warrant in connection with any election by the Holder to exercise a Put Right pursuant to this Section 10 , unless such Put Right is being exercised for all of the remaining Warrant Shares then-represented by this Warrant.  The Company shall be responsible for the expenses (including attorneys’ fees and expenses) of the Holder incurred in connection with any exercise of the Put Right.

Section 11.

Major Transaction Early Termination Right .

(a)

At least 30 days prior to the consummation or occurrence of any Major Transaction prior to the Expiration Date, but, in any event, no later than the first to occur of (i) the date of the public announcement of such Major Transaction if such announcement is made before 4:00 p.m., New York City time, or (ii) the day following the public announcement of such Major Transaction if such announcement is made on and after 4:00 p.m., New York City time, the Company shall deliver written notice thereof to the Holder (a “ Major Transaction Notice ”).  At any time during the period beginning after the Holder’s receipt of a Major Transaction Notice and ending on the later of (x) five Trading Days prior to the consummation of such Major Transaction, and (y) five Trading Days following the Holder’s receipt of such Major Transaction Notice (the “ Early Termination Period ”), the Holder may require the Company to purchase (an “ Early Termination Upon Major Transaction ”) all or any portion of this Warrant (without taking into account any limitations on the exercisability of this Warrant), which shall be conditioned upon the consummation of the Major Transaction, by delivering written notice thereof (“ Major Transaction Early Termination Notice ”) to the Company, which Major Transaction Early Termination Notice shall indicate the portion of the Warrant, calculated with reference to the number of Warrant Shares underlying such portion relative to the total number of Warrant Shares underlying the Warrant, that the Holder is electing to have redeemed upon the



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consummation of the Major Transaction.  The portion of this Warrant subject to purchase pursuant to this Section 11(a) (the “ Redeemable Shares ”) shall be redeemed by the Company at a price (the “ Major Transaction Warrant Early Termination Price ”) payable in cash equal to the “Black Scholes Value” of the Redeemable Shares determined by use of the Black Scholes Option Pricing Model applying the criteria set forth in Schedule I hereto.  The Holder shall not be required to physically surrender this Warrant in connection with any election by the Holder to cause an Early Termination Upon Major Transaction, unless such Early Termination Upon Major Transaction is being exercised for all of the remaining Warrant Shares then-represented by this Warrant.

(b)

Concurrently upon the consummation of such Major Transaction, the Company shall pay the Major Transaction Warrant Early Termination Price, by wire transfer of immediately available funds, to an account designated by the Holder.  Notwithstanding anything to the contrary in this Section 11 , until the Major Transaction Warrant Early Termination Price is paid in full, this Warrant may be exercised, in whole or in part, by the Holder in accordance with the terms hereof.  

(c)

The Company hereby acknowledges and agrees that, in the event the Holder delivers to the Company a Major Transaction Early Termination Notice, the Holder shall have the right to apply for an injunction in any state or federal courts sitting in the City of Chicago to prevent the closing of the Major Transaction unless and until the Company shall have made arrangements (which may include obtaining a written agreement from the Acquiring Entity, as applicable, that payment of the Major Transaction Warrant Early Termination Price shall be made to the Holder upon the consummation of the Major Transaction) satisfactory to the Holder, as determined by the Holder in its sole discretion, that the Major Transaction Warrant Early Termination Price will be paid, in full, to the Holder concurrently with the consummation of such Major Transaction.

Section 12.

Lost, Stolen, Mutilated or Destroyed Warrant .  If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking in customary form (or in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

Section 13.

Notice .  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) or e-mail; or (iii) one Business Day after deposit with a nationally recognized overnight courier service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company:


Social Reality, Inc.

456 Seaton Street

Los Angeles, California 90013

Attention:  Christopher Miglino




-15-





If to the Holder, to it at the address, facsimile number and e-mail address set forth on the Schedule of Lenders to the Financing Agreement, with copies to the Holder’s representatives as set forth on the Schedule of Lenders , or, in the case of the Holder or any Person named above, at such other address, facsimile number and/or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to the other party at least five days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.


Section 14.

Date .  The date of this Warrant is October 30, 2014 (the “ Warrant Date ”).  This Warrant, in all events, shall be wholly void and of no effect after 11:59 P.M., New York City time, on the Expiration Date, except to the extent it has been exercised prior thereto and except that any applicable provisions of this Warrant shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

Section 15.

Amendment and Waiver .  Except as otherwise provided herein, the provisions of this Warrant and the other Financing Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of Financing Warrants representing at least a majority of the shares of Common Stock obtainable upon exercise of the Financing Warrants then outstanding; provided that no such action may increase the warrant exercise price of any Financing Warrant or decrease the number of shares or change the class of stock obtainable upon exercise of any Financing Warrant without the written consent of the holder of such Financing Warrant.

Section 16.

Descriptive Headings; Governing Law .  The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.  All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Illinois.

Section 17.

Rules of Construction .  Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, and (c) the use of the word “including” in this Warrant shall be by way of example rather than limitation.




-16-




Section 18.

Signatures .

In the event that any signature to this Warrant or any amendment hereto is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature 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 “.pdf” signature page were an original thereof.  Notwithstanding the foregoing, the Company shall be obligated to deliver to the Holder an originally executed Warrant.  No party hereto shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Warrant or any amendment hereto or the fact that such signature was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

* * * * * *




-17-






IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as of the 30th day of October, 2014.

 

SOCIAL REALITY, INC.

 

 

 

 

By:

/s/ Christopher Miglino

 

Name:

Christopher Miglino

 

Title:

Chief Executive Officer







18





EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

SOCIAL REALITY, INC.

The undersigned holder (the “ Holder ”) hereby exercises the right to purchase _________________ of the shares of Class A Common Stock (“ Warrant Shares ”) of SOCIAL REALITY, INC., a Delaware corporation (the “ Company ”), evidenced by the attached Warrant (the “ Warrant ”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.   Form of Warrant Exercise Price .  The holder intends that payment of the Warrant Exercise Price shall be made with respect to ___________________ Warrant Shares.

2.   Payment of Warrant Exercise Price .  In the event that the Holder has elected an exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall

£

pay all or a portion of the Aggregate Exercise Price in the sum of $___________________ to the Company by check or wire transfer of funds; and/or

£

pay all or a portion of the Aggregate Exercise Price in the sum of $__________ through cancellation of such amount of principal outstanding under Notes held by the Holder in accordance with Section 2.3(e) of the Financing Agreement.

3.   Exercise Trigger Transaction .  This exercise of the Warrant is conditioned upon the consummation of the following Exercise Trigger Transaction: __________________________ 1

4.   Delivery of Warrant Shares .  The Company shall issue __________ Warrant Shares in accordance with the terms of the Warrant as follows:

£  Physical Certificate; or

£  Direct Registration System (DRS); or

£  Deposit/Withdrawal At Custodian (DWAC) system

Issue to:_________________________________________________________________

Address (for delivery of physical certificate or DRS statement, as applicable): _________

________________________________________________________________________

Facsimile Number: ________________________________________________________

DTC Participant Number and Name (if through DWAC):  _________________________

Account Number  (if through DWAC): ________________________________________

———————

1

No such condition applies if left blank








5.   Representations .  Other than in connection with an exercise through a reduction in principal outstanding under applicable Notes in accordance with the Financing Agreement, the undersigned hereby confirms the representations concerning the Warrant Shares set forth in the first three sentences of Section 6 of the Warrant (unless the Holder has otherwise notified the Company in writing).

Name of Registered Holder of this Warrant



By:____________________________

Date: ____________________________

Name:

Title:

ACKNOWLEDGMENT


The Company hereby acknowledges this Exercise Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ________, 2014 from the Company and acknowledged and agreed to by [TRANSFER AGENT].


 

SOCIAL REALITY, INC.

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 










Schedule I

Criteria for Calculating Black Scholes Value

Remaining Term

Number of calendar days from the date of public announcement of the Major Transaction until the Expiration Date.

 

Interest Rate

A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the Remaining Term.

 

Volatility

If the first public announcement of the Major Transaction is made at or prior to 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.


If the first public announcement of the Major Transaction is made after 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the next succeeding Trading Day following the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

 

Stock Price

The greater of (1) the closing price of the Common Stock on the Principal Market (the “ Closing Market Price ”) on the Trading Day immediately preceding the date on which the Major Transaction is consummated, (2) the first Closing Market Price following the first public announcement of the Major Transaction, or (3) the Closing Market Price on the date immediately preceding the first public announcement of the Major Transaction.

 

Dividends

Zero.

 

Strike Price

Warrant Exercise Price as defined in Section 1(b) .






Exhibit 10.18

THIS SECURED SUBORDINATED PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THIS NOTE HAS NOT BEEN REGISTERED UNDER THE ACT OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT OR THOSE LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.


SECURED SUBORDINATED PROMISSORY NOTE


$2,500,000.00

October 30, 2014


FOR VALUE RECEIVED , Social Reality, Inc. , a Delaware corporation (the “ Payor ”), hereby promises to pay, in lawful money of the United States of America, to Richard Steel or his successors or assigns (the “ Holder ”), the principal sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) (the “ Principal Amount ”), together with interest on the unpaid portion of the Principal Amount from time to time outstanding at the rate of 5.00% per annum.

1.

Purchase Agreement; Definitions . This Secured Subordinated Promissory Note (this “ Note ”) is being delivered to the Holder in connection with the execution and delivery of that certain Stock Purchase Agreement, of even date herewith (the “ Purchase Agreement ”), by and among the Payor, the Holder and Steel Media, a California corporation (the “ Company ”).  Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Purchase Agreement.  

2.

Principal and Interest; Payment .   Subject to earlier payment pursuant to the terms of Section 5 , the entire unpaid Principal Amount, together with all accrued and unpaid interest thereon, shall be due and payable on October 30, 2015 (the “ Maturity Date ”). Any payment hereunder which would be payable on a day which is not a Business Day shall instead be due and payable on the Business Day prior to such date for payment.  All  payments made hereunder shall be made in lawful tender of the United States of America in immediately available funds on the date on which such payment shall be due.

3.

Default; Remedies .  


(a)

Event of Default .  The Payor shall be in default under this Note upon the occurrence of any of the following events (each, an “ Event of Default ”):

(i)

the Payor shall fail to pay when due any principal or interest or other payment required under the terms of this Note ;



1




(ii)

the Payor shall fail to observe or perform any covenant, obligation, condition, or agreement in any material respect contained in this Note or any other Transaction Document, and such failure shall continue for more than five (5) Business Days after the Payor receives written notice thereof from the Holder;

(iii)

any representation or warranty made by the Payor herein or in any Transaction Document is breached in any material respect, and such breach is not cured within thirty (30) calendar days after the Payor receives written notice thereof from the Holder;

(iv)

a default, breach or “event of default” shall have occurred by or in respect of the Payor, the Company, or any of the Payor’s other subsidiaries, as borrowers under any instruments and agreements executed and delivered by such borrowers pursuant to the Victory Park Financing (the “ Senior Credit Documents ”);

(v)

the acceleration of any amounts due under any of the Senior Credit Documents;

(vi)

the Payor shall (A) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (B) be unable, or admits in writing its inability, to pay its debts generally as they mature, (C) make a general assignment for the benefit of it or any of its creditors, (D) be dissolved, liquidated or wound up; or (E) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it ; or

(vii)

proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Payor or of all or a substantial part of the property thereof, or an involuntary case or other proceeding seeking liquidation, reorganization or other relief with respect to the Payor or the debts thereof under any bankruptcy insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.

(b)

Remedies . Upon the occurrence of an Event of Default specified in Section 3(a)(vi) or (vii) above, the outstanding Principal Amount and all other obligations hereunder shall automatically be and become immediately due and payable without notice or demand.  Upon the occurrence of any other Event of Default hereunder, the Holder may declare this Note and all payments due hereunder to be immediately due and payable. Upon the occurrence of any Event of Default, then, upon acceleration, the Holder shall be entitled to exercise at any time thereafter (to the extent and in such order or combination as the Holder may elect, in its sole and absolute discretion) any or all rights and remedies provided for and under this Note, under the Transaction Documents, at Law (including, without limitation, the Uniform Commercial Code), and in equity.




2




4.

Default Interest Rate .  In the event that any Event of Default shall occur beyond any applicable notice and cure period, the then outstanding Principal Amount shall bear interest at the rate of 10.00% per annum (the “ Default Rate ”).

5.

Prepayment .  

(a)

Voluntary Prepayment .  Upon five (5) calendar days’ prior written notice to the Holder, the Payor may prepay this Note in full or in part, without any penalty, at any time or from time to time prior to the Maturity Date.

(b)

Prepayment upon Change of Control . Notwithstanding anything to the contrary contained in this Note, the entire then outstanding Principal Amount, together with all unpaid accrued interest thereon, shall mature and be due and payable upon the consummation of a Buyer Change of Control.     

(c)

Mandatory Partial Prepayment .  With respect to each of the fiscal quarters ending December 31, 2014, March 31, 2015 and June 30, 2015, upon the earlier to occur of (x) five (5) days after the Payor finalizes its financial statements for such fiscal quarter and (y) the 60 th after the last day of such fiscal quarter, the Payor shall pay to the Holder an amount equal to twenty-five percent (25%) of the Excess Cash Amount (as hereinafter defined) in prepayment of this Note. “ Excess Cash Amount ” shall be computed in accordance with GAAP and shall mean, for any fiscal quarter, (a) EBITDA for such fiscal quarter minus, without duplication, (b) the sum of each of the following to the extent paid in cash: (i) the aggregate amount of scheduled principal repayments (including without limitation, excess cash flow sweeps) on any indebtedness under the Senior Credit Documents (“ Senior Debt ”), (ii) interest on Senior Debt for such period, (iii) income tax expense for such period, (iv) the payment obligations under this Note, (v) the Earnout Consideration (solely to the extent satisfied in cash) and (vi) capital expenditures not financed by Senior Debt and made during such period.

(d)

Treatment of Prepayments .  Prepayments shall be applied (i) first, to any fees, costs or other charges payable hereunder, (ii) next, to accrued but unpaid interest, and (iii) then, to principal.

6.

Subordination .  The Holder and any subsequent holder of this Note, by its acceptance of this Note, agrees that the obligation of the Payor to make any payment hereunder is subject to that certain Subordination Agreement of even date herewith (the “ Subordination Agreement ”) by and among the Holder, the Payor, and Victory Park Management, LLC, as agent for the lenders in the Victory Park Financing (the “ Senior Lenders ”).  Subject to the rights of the Senior Lenders under the Subordination Agreement, nothing contained in this Section 6 or elsewhere in this Note is intended to or shall impair, as between the Payor and the Holder, the obligation of the Payor to pay to the Holder all or a portion of the payment obligations under this Note, including the payment of all principal and interest under this Note, as and when the same shall become due and payable in accordance with the terms hereof and the Purchase Agreement, or is intended to or shall affect the relative rights of the Holder and creditors of the Payor other than the Senior Lender.



3




7.

Security .  This Note is secured, inter alia , by the Escrow Shares pursuant to the Escrow Agreement.  After an Event of Default, if the Escrow Shares are released to the Holder pursuant to the Escrow Agreement, then, upon such delivery of the Escrow Shares to the Holder, all amounts due under this Note, including the principal amount of this Note and all accrued but unpaid interest due hereunder, shall be deemed paid and this Note shall be deemed satisfied in full, if, but only if, (x) 100% of the Escrow Shares (or at least 90% of the Escrow Shares, in the case of a cut-back required by the SEC as a result of limitations under SEC Rule 415, as defined in the Registration Rights Agreement) are subject to a then effective SEC registration statement having a customary plan of distribution for resale, (y) such Escrow Shares shall be freely tradable by the Holder, without restriction of any kind or nature (other than insider trading laws), and (z) the certificates evidencing such Escrow Shares shall be free of any legend or other restrictive notation.  If the conditions in clauses (x), (y) and (z) are not each satisfied at the time of release of the Escrow Shares to the Holder, then this Note, and the principal and accrued interest hereunder, shall remain outstanding except that it shall be deemed repaid from time to time, dollar for dollar, from the proceeds realized by the Holder from the sale or other disposition of the Escrow Shares.  The Holder may sell the Escrow Shares in accordance with the plan of distribution set forth in the aforesaid registration statement or in any other manner permitted by law.

8.

Usury Disclosure .  Regardless of any provision contained in this Note, it is expressly stipulated and agreed by the Payor (and, by the acceptance of this Note, the Holder) that the intent of the Payor and the Holder is to comply at all times with all usury and other applicable Laws relating to this Note.  If applicable Law would now or hereafter render usurious, or are revised, repealed or judicially interpreted so as to render usurious, the indebtedness evidenced by this Note, or if any prepayment by the Payor or results in the Payor’s having paid any interest in excess of that permitted by applicable Law, then it is the Holder’s and the Payor’s express intent that all excess amounts theretofore collected by the Holder be credited to the Principal Amount (or, if this Note has been paid in full, refunded to the Payor), and the provisions of this Note immediately be deemed reformed and the amounts therefor collectible hereunder reduced, without the necessity of execution of any new document, so as to comply with the then-applicable Law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.  

9.

Miscellaneous .

(a)

Cancellation .  After all payment obligations, including payment of the Principal Amount and all interest accrued thereon has been indefeasibly paid in full, the Holder will surrender this Note to the Payor for cancellation and this Note will not be reissued.


(b)

Lost, Stolen, Destroyed or Mutilated Note .  Upon receipt of evidence reasonably satisfactory to the Payor of the loss, theft, destruction or mutilation of this Note and upon surrender or cancellation of this Note if mutilated, the Payor shall make and deliver a new note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note.


(c)

Successors and Assigns .  The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  The Payor may not assign this Note or delegate any of its obligations hereunder without the prior



4




written consent of the Holder, except that no such consent of the Holder shall be required for any such assignment and delegation by the Payor to any successor to the Payor in connection with a Buyer Change in Control to the extent that simultaneously with the consummation of such Buyer Change of Control all of the principal and interest payable under this Note is indefeasibly paid to the Holder; provided, however, that the Holder shall be permitted to freely assign this Note for estate planning purposes, either during his lifetime or on death by will or intestacy to his spouse, child (natural or adopted), or any other direct lineal descendant of the Holder (or his or her spouse) (all of the foregoing collectively referred to as “ family members ”), or any custodian or trustee of any trust, partnership or limited liability company for the benefit of, or the ownership interests of which are owned wholly by, such Holder or any such family member.


(d)

Waiver and Amendment.  The term “Note” as used herein shall mean this instrument as originally executed or, if later amended, supplemented, modified or restated, then as so amended, supplemented, modified or restated.  Any provision of this Note may be amended, waived or modified only upon the written consent of the Payor and the Holder.  No previous waiver or failure or delay by the Holder in acting with respect to the terms of this Note shall constitute a waiver of any breach or default under this Note.  A waiver of any term of this Note shall be limited to the express terms of such waiver, and shall not constitute a waiver of any subsequent obligation of the Payor.  The acceptance at any time by the Holder of any past-due amount shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter due and payable.

(e)

Severability.  If any provision of this Note is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect under applicable Law, such provision will be enforced to the maximum extent possible given the intent of the parties hereto.  If such clause or provision cannot be so enforced, such provision shall be stricken from this Note and the remainder of this Note shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Note.


(f)

Titles and Subtitles .  The titles and subtitles used in this Note are used for convenience only and are not to be considered in construing or interpreting this Note.


(g)

Notices.  Any notice, request, instruction or other document to be given hereunder by either party to the other shall be in writing and shall be (i) delivered personally, (ii) mailed by certified mail, postage prepaid, return receipt requested, or (iii) delivered by Fedex or similar overnight courier, in each case to the address set forth below (or to such other address in the United States as the applicable party below may indicate from time to time by notice delivered in accordance with this Section 9(g) :


If to the Payor:  

Social Reality, Inc.

457 Seaton Street

Los Angeles, CA 90013

Email: chris@socialreality.com

Attn:

Christopher Miglino




5




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


Pearlman Schneider LLP

220 Corporate Boulevard, N.W.

Suite 201

Boca Raton, FL 33431

Email: jim@pslawgroup.net

Attn:

James M. Schneider, Esq.


If to the Holder:

Richard Steel

_______________
_______________

Email: rich@steelmediainc.com


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

Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, New York 10020

Email: ssiesser@lowenstein.com

Attention:   Steven E. Siesser, Esq.


Notices shall be deemed received (i) upon receipt if delivered personally, (ii) on the third Business Day after the date of mailing if mailed by certified mail, postage prepaid, return receipt requested, or (iii) on the next Business Day if dispatched by Fedex or similar overnight courier.


(h)

Submission to Jurisdiction .  Each of the Payor and the Holder, by its acceptance hereof, hereby irrevocably submits to the non-exclusive jurisdiction of any federal or state court located within Los Angeles County, with respect to any dispute brought against the Payor and Contra Costa County, with respect to any dispute brought against the Holder, over any dispute arising out of or relating to this Note and each of the Payor and the Holder, by its acceptance hereof, hereby irrevocably agrees that all claims in respect of such dispute or any suit, action proceeding related thereto may be heard and determined in such courts.  Each of the Payor and the Holder, by its acceptance hereof, hereby irrevocably waive, to the fullest extent permitted by applicable Law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute.  Each of the Payor and the Holder, by its acceptance hereof, agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.


(i)

Consent to Services of Process .  Each of the Payor and the Holder, by its acceptance hereof, hereby consents to process being served by the Payor or the Holder, as the case may be, in any suit, action or proceeding by delivery of a copy thereof in accordance with the provisions of Section 9(g) .




6




(j)

Waiver of Trial by Jury .  EACH OF THE PAYOR AND THE HOLDER, BY ITS ACCEPTANCE HEREOF, HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, OR ANY ACTS OR OMISSIONS OF ANY PARTY OR ANY OF THEIR RESPECTIVE OFFICERS, EMPLOYEES, DIRECTORS, OR AGENTS IN CONNECTION THEREWITH.  


(k)

Governing Law .  This Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to principles of conflicts of laws.


(l)

Time is of the Essence .  Time is of the essence with respect to each and every obligation of the Payor hereunder.

(m)

Cumulative Remedies .  The Holder’s rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies which the Holder may have under other agreements, at law or in equity.

(n)

No Formalities for Payment; Etc.  This Note and all payment obligations hereunder shall be due and payable without presentment, protest or any other similar formality.  The Payor hereby forever waives presentment, protest or notice of dishonor.  The Payor also waives all defenses based on suretyship, impairment of collateral or otherwise.

(o)

Collection Expenses .  Any payment made or expense incurred by the Holder (including, without limitation, legal fees and expenses) in connection with the exercise of any rights or remedies pursuant to this Note shall be paid by the Payor on demand.

(p)

Set-Off .  Except to the extent expressly set forth in the Purchase Agreement, the Payor shall not, and shall not have the right to, set off any amounts due and owing by it under this Note against any payment or other obligation due and owing to the Payor by the Holder.  The Holder shall have the right to satisfy any of its indemnification obligations under the Purchase Agreement by reducing, dollar-for-dollar, the amount due to the Holder under this Note (any such reduction shall be applied first to reduce any accrued but unpaid interest then outstanding under this Note and next to reduce the Principal Amount then outstanding under this Note) by delivering written notice thereof to the Payor.

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


 

SOCIAL REALITY, INC.

 

 

 

 

By:

/s/ Christopher Miglino

 

Name:

Christopher Miglino

 

Title:

Chief Executive Officer




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Exhibit 10.19

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this “ Escrow Agreement ”), dated as of October 30, 2014 (the “ Agreement Date ”), is by and among Social Reality, Inc., a Delaware corporation (the “ Buyer ”), Richard Steel (the “ Seller ”), and Wells Fargo Bank, National Association, a national banking association, as escrow agent (the “ Escrow Agent ”). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Stock Purchase Agreement (as defined below).

RECITALS

A.

The Buyer, the Seller and Steel Media, a California corporation (the “ Company ”), are parties to that certain Stock Purchase Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the “ Purchase Agreement ”).

B.

The Purchase Agreement provides that the Buyer shall deposit with the Escrow Agent at Closing an amount of Two Million Dollars ($2,000,000) (the “ Escrow Amount ”), which is intended to serve as recourse for Losses for which the Buyer (or any Buyer Indemnified Party) is entitled to make a claim for indemnification under Article VII of the Purchase Agreement.

C.

The Buyer has entered into a Financing Agreement, dated as of the date hereof, with lenders party thereto and Victory Park Management, LLC (“ Victory Park ”), as administrative agent and collateral agent for the lenders, pursuant to which, among other things, the lenders have agreed, subject to the terms and conditions set forth in such Financing Agreement, to make certain loans and financial accommodations to the Buyer, the Company and other borrowers thereunder.

D.

The Escrow Amount shall be held and disbursed by the Escrow Agent in accordance with the terms and conditions set forth in this Escrow Agreement.

E.

The basis for claims for any indemnification shall be governed by the Purchase Agreement, which, as between the Buyer and the Seller, shall be controlling for all purposes of this Escrow Agreement to the extent inconsistent with any provisions hereof.

AGREEMENT

In consideration of the mutual covenants of the parties hereto set forth in this Escrow Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.

Agent .  The Buyer and the Seller hereby appoint and designate the Escrow Agent as escrow agent for the purposes set forth herein, and the Escrow Agent hereby accepts such appointment and agrees to accept, hold and disburse the Escrow Fund (as defined below) in accordance with the terms hereof.  All references to the “ Escrow Agent ,” as that term is used herein, shall refer to the Escrow Agent solely in its capacity as such, and not in any other capacity whatsoever, whether as individual, agent, fiduciary, trustee or otherwise. The Escrow Agent shall have no obligation to assure or participate in the enforcement or performance of the Purchase Agreement, whether or not the Escrow Agent shall have knowledge or notice of the terms thereof, or any acts or omissions relating thereto.




2.

Deposit of Escrow Amount .  Pursuant to the terms of the Purchase Agreement, on the date hereof, the Buyer hereby deposits with the Escrow Agent, by wire transfer of immediately available funds, and the Escrow Agent hereby acknowledges receipt of, the Escrow Amount, which shall be held and disbursed by the Escrow Agent as set forth herein.  The term “ Escrow Fund ” as used herein refers to the Escrow Amount plus all earnings thereon from the investment thereof in accordance with the terms of this Escrow Agreement, less amounts paid out of the Escrow Fund hereunder.  Subject to the provisions of Section 3 , the Escrow Fund shall be deposited by the Escrow Agent in a segregated account designated by the Escrow Agent solely for the purposes of this Escrow Agreement (the “ Escrow Account ”) at the Escrow Agent and shall be maintained in such Escrow Account until the distribution of the Escrow Fund in accordance with the terms hereof.  The Buyer’s and the Seller’s wire transfer instructions are as set forth on Exhibit A attached hereto.

3.

Investment of Escrow Fund .  Until the termination of this Escrow Agreement in accordance with its terms, the Escrow Agent shall, at any time, and from time to time, invest and reinvest the Escrow Fund: (i) in the investments set forth on Schedule I (collectively, the “ Permitted Investments ”) as directed in writing by the Seller in its sole discretion, including, without limitation, a written direction to sell, liquidate, or dispose of specific Permitted Investments to generate cash for disbursement purposes; or (ii) in such other investment or investments as may be directed by a joint writing executed by the Buyer and the Seller; provided that the Escrow Agent shall have no responsibility to evaluate or monitor the investment grade status of any investments, and further provided that the Escrow Agent will not be required to invest in investments that the Escrow Agent reasonably determines are not consistent with the Escrow Agent’s policies or practices. In the event no written instructions are received from the Seller, the Escrow Agent shall invest the Escrow Fund in the Wells Fargo Bank Money Market Deposit Account (the “MMDA”).  Amounts on deposit in the MMDA are insured up to a total of $250,000 per depositor, per insured bank (including principal and accrued interest) by the Federal Deposit Insurance Corporation (FDIC), subject to the applicable rules and regulations of the FDIC.  The parties understand that deposits in the MMDA are not secured.  The Escrow Agent shall have no authority to invest the Escrow Fund in any other obligations or investments except as provided in this Section 3 .

(a)

The parties hereto recognize and agree that the Escrow Agent will not provide supervision, recommendations or advice relating to either the investment of moneys held in the Escrow Account or the purchase, sale, retention or other disposition of any Permitted Investment.

(b)

Interest and other earnings on Permitted Investments shall be added to the Escrow Account and will be part of the Escrow Fund.  Any loss or expense incurred as a result of an investment will be borne by the Escrow Account.

(c)

All investments, including, without limitation, Permitted Investments, shall be made in the name of the Escrow Agent.  The Escrow Agent is hereby authorized to execute purchases and sales of Permitted Investments through the facilities of its own trading or capital markets operations or those of any affiliated entity.  The Escrow Agent shall have no duty to supervise, monitor, inspect, inquire of, act upon or value the investments in which it is directed to invest.  The Escrow Agent shall have no duty to vote or otherwise respond to any corporate actions related to any Permitted Investment absent written direction from the Seller.

(d)

The Escrow Agent shall (i) send statements to the Seller and the Buyer on a monthly basis reflecting activity and assets in the Escrow Account (including a list of all investments, and for each Permitted Investment, the position name and CUSIP number, cost and fair market value, in each case, as of the last day of the applicable month, and detail for each Permitted Investment transaction during the month, including acquisition, sale or maturity date, number of securities purchased, sold or matured) with



2




respect to the Escrow Fund for the preceding month (each, a “ Monthly Statement ”) no later than ten (10) Business Days after the last day of such preceding month.  Although each of the parties hereto recognizes that it may obtain a broker confirmation or written statement containing comparable information at no additional cost, the parties hereto hereby agree that confirmations of Permitted Investments are not required to be issued by the Escrow Agent for each month in which a monthly statement is rendered. No statement need be rendered for the Escrow Account if no activity occurred for such month.

(e)

The parties hereto acknowledge and agree that the delivery of the Escrow Fund is subject to the sale and final settlement of Permitted Investments.  Proceeds of a sale of Permitted Investments will be delivered on the Business Day on which the appropriate instructions are delivered to the Escrow Agent if received prior to the deadline for same day sale of such Permitted Investments. If such instructions are received after the applicable deadline, proceeds will be delivered on the next succeeding Business Day.

(f)

If any Monthly Statement reflects a decrease in the aggregate value of the Escrow Fund from the aggregate value reported in the previous Monthly Statement other than as a result of a distribution pursuant to this Escrow Agreement (the aggregate amount of such decrease, the “ Shortfall ”), then the Seller shall promptly, but in no event later than three (3) Business Days after receipt of the applicable Monthly Statement, deposit additional funds with Escrow Agent to replenish the Escrow Fund in the amount of the Shortfall.  The Seller shall deliver such payment by wire transfer of immediately available funds and shall provide to the Escrow Agent and the Buyer advance written notice identifying (i) date of payment, (ii) exact dollar amount of wire, and (iii) name of sending bank.  The Escrow Agent shall have no duty or obligation to enforce or pursue the collection of such funds and shall only be responsible for funds actually received by it.

4.

Tax Matters .

(a)

Reporting of Income .  The Buyer and the Seller agree that, for Tax reporting purposes, all Taxable interest on or other income, if any, attributable to the Escrow Fund shall be allocable to the Seller.  All income earned from the cash and investments of the Escrow Funds held in the Escrow Accounts shall be taxable to the Seller and shall be reportable by the Escrow Agent to the IRS or any other taxing authority, on IRS Form 1099, 1042S or other applicable tax form, whether or not such income has been distributed during such year.   The Escrow Agent shall have no responsibility for the preparation and/or filing of any tax or information return with respect to any transactions, whether or not related to this Agreement that occurs outside the Escrow Fund.

(b)

Tax Distributions .  For so long as the Escrow Fund remains held pursuant to this Escrow Agreement, the Escrow Agent shall distribute to the Seller out of the Escrow Fund, no later than ten (10) days following the end of each calendar quarter (or, with respect to any partial calendar year ending on the Escrow Fund Distribution Date or on any subsequent date on which a distribution is made pursuant to Section 5 , prior to any distribution on such date), an amount equal to the product of (x) 45% and (ii) the amount of income earned from the Escrow Account during such calendar quarter (or, with respect to any partial calendar year ending on the Escrow Fund Distribution Date or any subsequent date on which a distribution is made pursuant to Section 5 , in the portion of such quarter ending on such date).

(c)

Taxes on Distributions .  The Escrow Agent shall be entitled to deduct and withhold from any amount otherwise payable to any Person pursuant to this Escrow Agreement such amounts as may be required to be deducted or withheld with respect to the making of such payment under the Code, or any applicable provision of state, local or foreign Tax law.  To the extent that amounts are so deducted or withheld and paid over to the appropriate Governmental Authority by the Escrow Agent, such amounts shall be treated for all purposes of this Escrow Agreement as having been paid to the Person to whom



3




such amounts would otherwise have been paid.  At the Closing, the Buyer and the Seller shall provide the Escrow Agent with IRS Forms W-9 or W-8 as applicable.

5.

Presentation and Payment of Indemnity Claims .

(a)

At any time prior to the Escrow Fund Distribution Date (as defined herein), if the Buyer (or a Buyer Indemnified Party) has incurred Losses for which it is entitled to make a claim for indemnification under the Purchase Agreement, the Buyer shall deliver to the Escrow Agent and the Seller a written notice of the Buyer (each such claim, a “ Demand ”) stating that the Buyer (or a Buyer Indemnified Party) has paid or incurred (or is reasonably likely to pay or incur) Losses and is entitled to indemnification under the Purchase Agreement, describing the Losses, the amount thereof, and the method of computation of such Losses, in each case, to the extent that the amount of Losses is reasonably ascertainable, specifying the applicable section(s) of the Purchase Agreement pursuant to which the Buyer is claiming it is entitled to indemnification (each, a “ Claim ”).

(b)

The Seller may reply to any Demand made under Section 5(a) hereof by written notice given to the Buyer with a copy to the Escrow Agent, which notice shall state whether the Seller agrees or disagrees that the Claim asserted by the Buyer is a valid claim pursuant to the Purchase Agreement and agrees or disagrees with respect to the amount of the Claim or that the Buyer has provided insufficient information with respect to a Claim (a “ Dispute Notice ”). If, within ten (10) Business Days after the date of receipt by the Seller (the “ Claim Response Period ”) and the Escrow Agent of the Demand from the Buyer, and the Escrow Agent and the Buyer have not received a Dispute Notice from the Seller that asserts that a dispute exists, or insufficient information has been provided, with respect to such Claim, then the Seller shall be deemed to have agreed with such Claim, the Escrow Agent shall pay to the Buyer from the Escrow Amount the amount of the Claim, and the Escrow Amount shall be reduced to the extent thereof.  If, within the applicable Claim Response Period, the Seller has provided a Dispute Notice in which the Seller acknowledges that a portion of the Claim is a valid Claim and agrees with the amount attributable to such portion of the Claim, the Escrow Agent shall disburse to the Buyer solely the amount so agreed to by the Seller from the Escrow Amount.

(c)

If a Dispute Notice is given by the Seller in accordance with Section 5(b) hereof, then the amount of the Claim less the amount (if any) acknowledged in the Dispute Notice by the Seller as due to the Buyer and disbursed to the Buyer, shall be treated as a disputed claim (the “ Disputed Claim ”), and the amount of such Disputed Claim shall be held by the Escrow Agent as an undivided portion of the Escrow Amount (which amount shall continue to be available to satisfy other Claims) until the earlier to occur of (i) the Escrow Agent’s receipt of a joint direction executed by the Seller and the Buyer with respect to such Disputed Claim (a “ Joint Written Instruction ”) or (ii) the Escrow Agent’s receipt of a final judgment, order or decree of a court or other judicial body of competent jurisdiction that decided the Disputed Claim, together with a certificate of the presenting party to the effect that such judgment is final and from a court of competent jurisdiction, upon which certificate the Escrow Agent shall be entitled to conclusively rely without further investigation (a “ Final Judgment ”).  The aggregate of all Disputed Claims and all Claims with respect to which the deadline for delivery of a Dispute Notice has not passed is sometimes referred to herein as the “ Reserve .”  Upon Escrow Agent’s receipt of either a Joint Written Instruction or a Final Judgment with respect to any Disputed Claim, (i) if such Joint Written Instruction or a Final Judgment sets forth any amounts that are to be paid in favor of the Buyer (or other Buyer Indemnified Party), the Escrow Agent shall within three (3) Business Days of the date of such receipt disburse such amount to the Buyer and (ii) (A) if the Escrow Fund Distribution Date has not yet occurred, then the Escrow Agent shall reduce the amount of the Reserve to an amount equal to the aggregate of all then-existing Disputed Claims and all Claims with respect to which the deadline for delivery of a Dispute Notice has not passed, or (B) if the Escrow Fund Distribution Date has occurred, then the Escrow Agent



4




shall within three (3) Business Days after the date of such receipt disburse to the Seller (or as directed in writing by the Seller) an amount equal to the excess, if any, of the amount of such Disputed Claim over the amount, if any, paid in favor of the Buyer, but only to the extent that the Reserve as of such date (after giving effect to such disbursement) is equal to the aggregate of all then-existing Disputed Claims and all Claims with respect to which the deadline for delivery of a Dispute Notice has not passed.

6.

Distributions and Payments .

(a)

For so long as the Escrow Fund remains held pursuant to this Escrow Agreement, the Escrow Agent shall make the distributions described in Section 4(b) .

(b)

On October 30, 2017 (the “ Escrow Fund Distribution Date ”), the Escrow Agent shall disburse to the Seller (or as directed in writing by the Seller) all remaining funds in the Escrow Fund then held by the Escrow Agent less the aggregate amount of the Reserve as of the Escrow Fund Distribution Date.  Amounts remaining in the Escrow Fund after the Escrow Fund Distribution Date shall be distributed in accordance with Sections 4(b) and 5(c) hereof.

(c)

Other than pursuant to the terms expressly set forth herein, the Escrow Agent shall make distributions from the Escrow Fund to the Buyer and/or the Seller only as shall be specified in a Joint Written Instruction delivered to the Escrow Agent.  Notwithstanding anything herein to the contrary, any payment or other distribution by the Escrow Agent from the Escrow Fund pursuant to this Escrow Agreement, to the Buyer or the Seller shall be made to such party’s account, and in accordance with such party’s wire transfer instructions, set forth on Exhibit A attached hereto or such other account and wire transfer instructions authorized by such party by delivering not less than two (2) Business Days advance written notice to the Escrow Agent.

(d)

Any distribution required to be made by the Escrow Agent under this Escrow Agreement shall be made by the Escrow Agent promptly upon liquidation of any investment required for such distribution.

7.

Rights, Obligations and Indemnification of the Escrow Agent .

(a)

In performing any of its duties under this Escrow Agreement, or upon the claimed failure to perform its duties hereunder, the Escrow Agent shall not be liable to anyone for any damages, losses, or expenses that such party may incur as a result of the Escrow Agent so acting or failing to act; provided that the Escrow Agent shall be liable for damages arising out of its own gross negligence or willful misconduct. Accordingly, the Escrow Agent shall not incur any such liability with respect to: (i) any action taken or omitted to be taken in good faith and without gross negligence or willful misconduct; or (ii) any action taken or omitted to be taken in reliance (including reliance not only as to a document’s due execution and the validity and effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein) upon any document, including any written notice, request or instruction provided for in this Escrow Agreement, that the Escrow Agent shall in good faith and with exercise of due care believe to be genuine without inquiry and without requiring substantiating evidence of any kind, to have been signed or presented by a proper Person or Persons and to conform with the provisions of this Escrow Agreement.  Concurrent with the execution of this Escrow Agreement, the Buyer and the Seller shall deliver to the Escrow Agent Exhibits C-1 and C-2, which contain an authorized signer designation in Part A thereof.  The Escrow Agent shall have no liability for loss arising from any cause beyond its control, including, but not limited to, the following: (x) the act, failure or neglect of any agent or correspondent selected by the Seller or the Buyer for the remittance of funds; (y) any delay, error, omission or default of any communication by any Person other than the Escrow Agent; or (z) the acts or



5




edicts of any government or governmental agency or other group or entity exercising governmental powers.

(b)

The Seller, on the one hand, and the Buyer, on the other hand, each hereby agrees to indemnify and hold the Escrow Agent and its parent, affiliates, directors, officers, agents and employees (collectively, the “ Escrow Agent Indemnitees ”) harmless from and against one-half (½) of any and all claims, liabilities, losses, damages, fines, penalties and expenses, including out-of-pocket, incidental expenses and reasonable legal fees and expenses (“ Escrow Agent Losses ”) that may be imposed on, incurred by, or asserted against, the Escrow Agent Indemnitees or any of them in connection with or arising out of (i) the Escrow Agent’s performance under this Escrow Agreement (including any action taken by the Escrow Agent in accordance with Section 7(h) ), or (ii) for following any instruction or other direction upon which the Escrow Agent is authorized to rely pursuant to the terms of this Escrow Agreement; provided that the Escrow Agent has not acted with gross negligence or willful misconduct. The provisions of this Section 7(b) shall survive the termination of this Escrow Agreement and the resignation or removal of the Escrow Agent for any reason.

(c)

The Escrow Agent shall have only those duties as are specifically provided herein, which shall be deemed purely ministerial in nature, and shall under no circumstance be deemed a fiduciary for any of the parties to this Escrow Agreement. The Escrow Agent shall neither be responsible for, nor chargeable with, knowledge of the terms and conditions of any other agreement, instrument or document between the other parties hereto, in connection herewith, including, but not limited to, the Purchase Agreement. This Escrow Agreement sets forth all matters pertinent to the escrow contemplated hereunder, and no additional obligations of the Escrow Agent shall be inferred from the terms of this Escrow Agreement or any other agreement.  IN NO EVENT SHALL THE ESCROW AGENT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (i) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (ii) SPECIAL, INDIRECT OR CONSEQUENTIAL LOSSES OR DAMAGES OF ANY KIND WHATSOEVER (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.

(d)

If any part of the Escrow Fund is at any time attached, garnished or levied upon under any court order, or if the payment or transfer of any such funds shall be stayed or enjoined by any court order, or any order, judgment or decree shall be made or entered by any court affecting such funds or any portion thereof, then in any of such events, the Escrow Agent (i) shall provide the Seller and the Buyer with prompt written notice of any such events; and (ii) is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree which it is advised by legal counsel is binding upon it.  If the Escrow Agent complies with the preceding sentence and any such order, writ, judgment or decree, it shall not be liable to the parties hereto or any other Person by reason of such compliance, even though such order, writ, judgment or decree may subsequently be reversed, modified, annulled, set aside or vacated.

(e)

Except as specifically provided in Section 3 of this Escrow Agreement, the Escrow Agent shall have no responsibility for the investment of any funds held hereunder, except as a result of the Escrow Agent’s own gross negligence or willful misconduct. The Escrow Agent shall not be liable to any party hereto and hereby disclaims any responsibility for any losses or penalties incurred with respect to any such investments.



6




(f)

Subject to the terms hereof, the Escrow Agent may resign without obtaining the order of any court, by giving written notice to the Seller and the Buyer of the Escrow Agent’s intent to resign and, upon the taking of all the actions as described in this Section 7(f) by the Escrow Agent, the Escrow Agent shall have no further responsibilities hereunder to the parties hereto or to any other Person in connection with this Escrow Agreement.  Similarly, the Escrow Agent may be removed and replaced following the giving of thirty (30) calendar days’ prior joint written notice to the Escrow Agent by the Seller and the Buyer.  Such resignation or removal shall be effective upon the appointment by the Seller and the Buyer of a successor agent.  Any such successor agent shall be appointed (which appointment shall be made without delay) by a written instrument, mutually satisfactory to, and executed by, the parties hereto and the successor agent, and the Escrow Agent shall execute an assignment by the Escrow Agent of the Escrow Account to the successor agent. Any successor agent appointed under the provisions of this Escrow Agreement shall have all of the same rights, powers, privileges, immunities and authority with respect to the matters contemplated herein as are granted herein to the original Escrow Agent and thereafter such successor escrow agent shall be the Escrow Agent hereunder. If the parties hereto have failed to appoint a successor prior to the expiration of thirty (30) days following receipt of the notice of resignation or removal, the Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor escrow agent or for other appropriate relief.  Any such resulting appointment shall be binding upon all of the parties hereto and thereafter such successor escrow agent shall be the Escrow Agent hereunder.

(g)

It is not the intention of the parties hereto to create, nor shall this Escrow Agreement be construed as creating, a partnership or association, or to render the parties hereto liable as partners.

(h)

Notwithstanding any provision herein to the contrary, in the event (i) of any disagreement or controversy arising under this Escrow Agreement, (ii) conflicting demands or notices are made upon the Escrow Agent arising out of or relating to this Escrow Agreement, or (iii) the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall have the right, at its election, to withhold and stop all further proceedings in, and performance of, this Escrow Agreement and all instructions received hereunder and file a suit in interpleader and obtain an order from a court of competent jurisdiction requiring all parties involved to interplead and litigate in such court their claims and rights among themselves and with the Escrow Agent. Should any suit or legal proceeding be instituted arising out of or related to this Escrow Agreement, whether such suit be initiated by the Escrow Agent or others, the Escrow Agent shall have the right, at its option, to stop all further proceedings under and performance of this Escrow Agreement and of all instructions received hereunder until all differences shall have been rectified and all doubts resolved by agreement or until the rights of all parties shall have been fully adjudicated.

(i)

The Escrow Agent shall have the right to perform any of its duties hereunder through agents, attorneys, custodians or nominees.

(j)

The Escrow Agent shall have the right, but not the obligation, to consult with counsel of its choice and shall not be liable for any action taken or omitted to be taken by the Escrow Agent either in accordance with the advice of such counsel or in accordance with any opinion of counsel addressed and delivered to the Escrow Agent.

(k)

The parties hereto shall provide to the Escrow Agent such information as the Escrow Agent may reasonably require to permit the Escrow Agent to comply with its obligations under the federal USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001).  The Escrow Agent shall not credit any amount of interest or investment proceeds earned on the Escrow Fund, or make any payment of all or a



7




portion of the Escrow Fund, to any person unless and until such person has provided to the Escrow Agent such documents as the Escrow Agent may reasonably require to permit the Escrow Agent to comply with its obligations under the federal USA PATRIOT Act.

8.

Fees .  The Seller, on the one hand, and the Buyer, on the other hand, shall each be liable for one-half (½) of the fees and expenses of the Escrow Agent as described in Exhibit B attached hereto for so long as any portion of the Escrow Fund is held by the Escrow Agent hereunder.  The Escrow Agent shall have, and is hereby granted, a prior lien upon the Escrow Fund with respect to its unpaid fees, non-reimbursed expenses and unsatisfied indemnification rights, superior to the interest of any other persons or entities and is hereby granted the right to set-off and deduct any unpaid fees, non-reimbursed expenses and unsatisfied indemnification rights from amounts on deposit in the Escrow Fund.

9.

Notices and Instructions .  Any notices, account statements, consents or other communication required to be sent or given hereunder by any of the parties hereto shall in every case be in writing and be sent or given to each party referenced below, and shall be deemed properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, or (c) sent by facsimile transmission with a confirmation copy sent by overnight courier, in each case, to the parties at the addresses and facsimile numbers as set forth on Schedule II or at such other addresses and facsimile numbers as may be furnished in writing in accordance with this Section 9 .  Date of service of such notice shall be (x) the date such notice is personally delivered, (y) one (1) Business Day after the date of delivery to the overnight courier if sent by overnight courier or (z) the next succeeding Business Day after transmission by facsimile.  The Escrow Agent shall be entitled to rely on such original or amended schedule until it is provided with a new schedule.  .

10.

Entire Agreement .  This Escrow Agreement (and among the parties hereto other than the Escrow Agent, the Purchase Agreement) sets forth the entire understanding of the parties hereto, and supersedes and preempts all prior oral or written understandings and agreements with respect to the subject matter hereof, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party hereto in connection with the negotiation of the terms hereof.

11.

Governing Law .  THIS ESCROW AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO HEREUNDER SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS RULES OF CONFLICTS OF LAW.

12.

Consent to Jurisdiction; Forum Selection; Waiver of Jury Trial .

(a)

THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS ESCROW AGREEMENT SHALL BE TRIED AND LITIGATED EXCLUSIVELY IN THE FEDERAL COURTS LOCATED IN WILMINGTON, DELAWARE.  THE AFOREMENTIONED CHOICE OF VENUE IS INTENDED BY THE PARTIES TO BE MANDATORY AND NOT PERMISSIVE IN NATURE, THEREBY PRECLUDING THE POSSIBILITY OF LITIGATION BETWEEN THE PARTIES HERETO WITH RESPECT TO OR ARISING OUT OF THIS ESCROW AGREEMENT IN ANY JURISDICTION OTHER THAN THOSE SPECIFIED IN THIS SECTION 12 . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON-CONVENIENS OR SIMILAR DOCTRINE OR TO OBJECT TO VENUE WITH RESPECT TO ANY PROCEEDING BROUGHT IN ACCORDANCE WITH THIS SECTION 12 , AND STIPULATES THAT THE FEDERAL COURTS LOCATED IN WILMINGTON,



8




DELAWARE SHALL HAVE IN PERSONAM JURISDICTION AND VENUE OVER SUCH PARTY FOR THE PURPOSE OF LITIGATING ANY DISPUTE, CONTROVERSY OR PROCEEDING ARISING OUT OF OR RELATED TO THIS ESCROW AGREEMENT.  EACH PARTY HERETO HEREBY AUTHORIZES AND ACCEPTS SERVICE OF PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST IT AS CONTEMPLATED BY THIS SECTION 12 BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO ITS ADDRESS FOR THE GIVING OF NOTICES AS SET FORTH IN THIS ESCROW AGREEMENT, OR IN THE MANNER SET FORTH IN SECTION 9 OF THIS ESCROW AGREEMENT FOR THE GIVING OF NOTICE. ANY FINAL JUDGMENT RENDERED AGAINST A PARTY HERETO IN ANY ACTION OR PROCEEDING SHALL BE CONCLUSIVE AS TO THE SUBJECT OF SUCH FINAL JUDGMENT AND MAY BE ENFORCED IN OTHER JURISDICTIONS IN ANY MANNER PROVIDED BY LAW.

(b)

EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION IN ANY LEGAL PROCEEDING ARISING OUT OF THIS ESCROW AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.  THE PARTIES HERETO EACH AGREE THAT ANY AND ALL SUCH CLAIMS AND CAUSES OF ACTION SHALL BE TRIED BY THE COURT WITHOUT A JURY.  EACH OF THE PARTIES HERETO FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LEGAL PROCEEDING IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LEGAL PROCEEDING IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.

13.

Severability .  The unenforceability or invalidity of any provision of this Escrow Agreement shall not affect the enforceability or validity of any other provision.

14.

Amendment and Waiver .  This Escrow Agreement may be amended, or any provision of this Escrow Agreement may be waived; provided that any such amendment or waiver will be binding on a party hereto only if such amendment or waiver is set forth in a writing executed by such party.  The waiver by any provision of this Escrow Agreement shall not operate or be construed as a waiver of any other breach.

15.

Headings .  The subject headings of Sections of this Escrow Agreement are included for purposes of convenience of reference only and shall not affect the construction or interpretation of any of its provisions.

16.

Successors and Assigns .  All covenants and agreements contained in this Escrow Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as otherwise provided herein, this Escrow Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto; provided , that the Buyer may, without prior consent, assign its rights, but not its obligations, under this Escrow Agreement to Victory Park (or any successor thereto); and provided further , that upon prior written notice to each of the Escrow Agent and the Seller, the Buyer may, without prior written consent of any other party hereto, (i) designate one or more of its Affiliates to perform its obligations hereunder, (ii) assign this Escrow Agreement in connection with any merger, sale of substantially all of its or any of its Affiliate’s assets, or sale of all of its or any of its Affiliate’s outstanding equity interests; and/or (iii) assign its rights, but not its obligations, under this Escrow Agreement to Victory Park, or any successor thereto (in any or all of which cases described in subclause (i), (ii) or (iii), the Buyer shall nonetheless remain responsible for the performance of all of its obligations hereunder).  



9




17.

Successor Escrow Agent by Merger .  Notwithstanding anything contained herein to the contrary, any entity into which the Escrow Agent may be merged or with which it may be consolidated, or any entity resulting from any merger or consolidation to which the Escrow Agent shall be a party, or any entity to which the Escrow Agent may sell or otherwise transfer all or substantially all of its corporate trust business, shall be the successor Escrow Agent hereunder without the execution or filing of any paper or any further act on the part of the parties hereto.

18.

Recitals; Not an Amendment .  The Recitals set forth above are hereby incorporated herein by reference.  This Escrow Agreement is not intended to amend or supersede any provision of the Purchase Agreement.

19.

Counterparts .  This Escrow Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other.

20.

Delivery .  This Escrow Agreement and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or other electronic transmission (including transmission in portable document format by electronic mail), shall be treated in all manner and respects and for all purposes as an original agreement and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto, each other party hereto shall re-execute original forms hereof and deliver them to all other parties hereto.  No party hereto shall raise the use of a facsimile machine or other electronic transmission to deliver a signature, or the fact that any signature was transmitted or communicated through the use of a facsimile machine or other electronic transmission, as a defense to the formation or enforceability of a contract and each such party forever waives any such defense.

21.

Termination .  This Escrow Agreement shall terminate upon final disbursement of the Escrow Fund in accordance with the terms hereof.

22.

Assignment of Interests .  No assignment of the interest of any of the parties hereto shall be binding upon the Escrow Agent unless and until written notice of such assignment shall be filed with and acknowledged by the Escrow Agent.

23.

Force Majeure .  The Escrow Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Escrow Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fire; flood; wars; acts of terrorism; civil or military disturbances; sabotage; epidemic; riots; interruptions, loss or malfunctions of utilities, computer (hardware or software) or communications services; accidents; labor disputes; acts of civil or military authority or governmental action; it being understood that the Escrow Agent shall use commercially reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as reasonably practicable under the circumstance.

24.

Security Procedure for Funds Transfer .

The Escrow Agent shall confirm each funds transfer instruction received in the name of a party by means of the security procedure selected by such party and communicated to the Escrow Agent in the form of Exhibit C-1 and C-2 attached hereto, which upon receipt by the Escrow Agent shall become a part of this Escrow Agreement.  Once delivered to the Escrow Agent, Exhibit C-1 and C-2 may be revised or rescinded only by a writing signed by an authorized representative of the party.  Such revisions or rescissions shall be effective only after actual



10




receipt and following such period of time as may be necessary to afford the Escrow Agent reasonable opportunity to act on it.  If a revised Exhibit C-1 or C-2 or a rescission of an existing Exhibit C-1 or C-2 is delivered to the Escrow Agent by an entity that is a successor-in-interest to a party, such document shall be accompanied by additional documentation satisfactory to the Escrow Agent showing that such entity has succeeded to the rights and responsibilities of the party under this Escrow Agreement.  The parties understand that the Escrow Agent’s inability to receive or confirm funds transfer instructions pursuant to the security procedure selected by such party may result in a delay in accomplishing such funds transfer, and agree that the Escrow Agent shall not be liable for any loss caused by any such delay.

25.

Third Party Beneficiaries .  This Escrow Agreement is for the sole benefit of the parties hereto and their respective successors and assigns and nothing in this Escrow Agreement, 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 Escrow Agreement, and no such other Person (other than as provided in the immediately preceding sentence) shall be deemed to be a third party beneficiary under or by reason of this Escrow Agreement.

IN WITNESS WHEREOF , this Escrow Agreement has been duly executed as of the date first written above.

 

BUYER :

 

 

SOCIAL REALITY, INC.

 

 

 

 

 

By:

/s/ Christopher Miglino

 

Name:

Christopher Miglino

 

Title:

Chief Executive Officer

 

 

 

 

SELLER :

 

 

 

 

/s/ Richard Steel

 

Name: Richard Steel

 

 

 

 

ESCROW AGENT :

 

 

 

 

WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ESCROW AGENT

 

 

 

 

By:

/s/ Timothy P. Martin

 

Name:

Timothy P. Martin

 

Title:

Vice President






11



Exhibit 10.20


ESCROW AGREEMENT


ESCROW AGREEMENT, dated as of October 30, 2014 (the “ Agreement ”), by and among Social Reality, Inc., a Delaware corporation (the “ Company ”), Richard Steel (the “ Seller ”) and Lowenstein Sandler LLP, as escrow agent (the “ Escrow Agent ”).  Capitalized terms used but not defined herein have the meaning afforded to them in the Purchase Agreement (defined below).


WHEREAS , the Company has entered into a Stock Purchase Agreement, of even date herewith (the “ Purchase Agreement ”), pursuant to which, the Seller sold all of the issued and outstanding capital stock of Steel Media, a California corporation (“ SM ”) to the Company;


WHEREAS , in connection with the transactions contemplated by the Purchase Agreement, the Company issued to the Seller a secured subordinated promissory note in the principal amount of $2,500,000 (the “ Note ”);


WHEREAS , the Company has agreed to secure its obligations under the Note by, among other things, depositing 2,386,863 shares of the Company’s Class A common stock, $0.001 par value per share, registered in the name of the Seller (the “ Escrow Shares ”) with the Escrow Agent; and


WHEREAS , the Company and the Seller desire that the Escrow Agent accept the Escrow Shares plus any and all dividends and distributions thereon (the “ Escrow Property ”), in escrow, to be held and disbursed as hereinafter provided.


IT IS AGREED :


1.

Appointment of Escrow Agent . The Company and the Seller hereby appoint the Escrow Agent to act in accordance with and subject to the terms of this Agreement and the Escrow Agent hereby accepts such appointment and agrees to act in accordance with and subject to such terms.


2.

Deposit of Escrow Shares .  On or before the date hereof, the Company shall deliver to the Escrow Agent a certificate representing the Escrow Shares, to be held and disbursed subject to the terms and conditions of this Agreement. The certificate representing the Escrow Shares shall bear the following legend:


“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”


3.

Disposition of Escrow .  The Escrow Agent will hold the Escrow Property in escrow until authorized hereunder to release and deliver the Escrow Property as follows:


(a)

Note Repayment Notice .  Upon payment in full to the Seller of the Note, the Seller shall send a written notice to Escrow Agent (with a copy to the Company) certifying to the Escrow Agent that the Note, including all unpaid and accrued interest thereon has been paid in full (the “ Note




Repayment Notice ”).  Upon receipt of the Note Repayment Notice, the Escrow Agent shall promptly, without any further notice, action or deed, release and deliver the Escrow Property to the Company.


(b)

Payment Default Notice .  Upon an Event of Default (as defined in the Note), the Seller shall send a written notice to the Escrow Agent (with a copy to the Company), certifying to the Escrow Agent that an Event of Default has occurred and the number of Escrow Shares or other Escrow Property to be released by the Escrow Agent (a “ Default Notice ”).  Upon receipt of a Default Notice, the Escrow Agent shall, within three (3) business days of receipt of such notice, without any further notice, action or deed, release and deliver the Escrow Property set forth in such Default Notice to the Seller.  To the extent any Escrow Property continues to be held by the Escrow Agent following the release of the Escrow Property set forth in the Default Notice to the Seller, such Escrow Property, if any, shall be delivered to the Company.


(c)

Disposition Dispute .  If either the Seller or the Company believes that the Escrow Property should not be released by the Escrow Agent pursuant to a notice given under this Agreement, then such party shall deliver written notice thereof to the Escrow Agent prior to such release (with the failure to timely deliver such notice waiving any right to challenge the release of the Escrow Property).  Upon receipt of such notice, the Escrow Agent may take one of the following actions, in its sole and absolute discretion: (i) deposit the Escrow Property with the clerk of a court of competent jurisdiction, provided, that upon the deposit by the Escrow Agent of the Escrow Property with such clerk, the Escrow Agent shall be relieved of all further obligations and released from all liability hereunder; (ii) file a suit in interpleader in such court and obtain an order from such court requiring all parties involved to litigate in such court their respective claims arising out of or in connection with the Escrow Property; (iii) continue to hold the Escrow Property until direction to release the Escrow Property by the final, non-appealable judgment of a court of competent jurisdiction or by mutual written agreement of the Seller and the Company; or (iv) deliver the Escrow Property to a successor escrow agent mutually selected by the Seller and the Company, provided that the Seller and the Company release the Escrow Agent from all further liability with respect to the Escrow Property. In the event that any such controversy arises hereunder may take the aforementioned actions and in no event shall the Escrow Agent be required to determine the proper resolution of such controversy or the proper disposition of the Escrow Property.


(d)

No Discretionary Authority .  The Escrow Agent has no discretion with respect to, or duty to make any determination as to, whether a notice is properly given, nor is the Escrow Agent required to review or evaluate, or be subject to, the Purchase Agreement, the Note, any other Transaction Document or any other underlying agreement.  The Escrow Agent shall have no further duties hereunder after the disbursement of the Escrow Property in accordance with this Section 3 .  


4.

Rights of the Seller in Escrow Shares .


4.1

Voting and Other Stockholder Rights .  The Seller shall not have any voting rights or any other rights as a stockholder of the Company with respect to the Escrow Shares until such time as they are delivered to the Seller in accordance with Section 3 .


4.2

No Dividends or Other Distributions in Respect of the Escrow Shares; Adjustments in Number of Escrow Shares . For so long as the Escrow Shares are held by the Escrow Agent (the “ Escrow Period ”), no dividends or distributions payable in cash or non-cash property (including capital stock of the Company) shall be paid with respect to the Escrow Shares. The number of Escrow Shares will be adjusted to reflect any split, reverse split, reclassification or other adjustment to the Class A common stock of the Company in the same manner as the number of issued and outstanding shares of the Class A common stock are adjusted to reflect any such event.  




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4.3

Restrictions on Transfer and Redemption . During the Escrow Period, no sale, transfer or other disposition may be made of any or all of the Escrow Shares by the Company or the Seller.  During the Escrow Period, the Company shall not be permitted to redeem, substitute or replace the Escrow Shares without the Seller’s prior written consent.  During the Escrow Period, the Escrow Shares will be reflected on the books and records of the Company as issued but not outstanding shares.


5.

Concerning the Escrow Agent .


5.1

Good Faith Reliance . The Escrow Agent shall not be liable for any action taken or omitted by it in good faith or for any mistake of fact or law, or for any error of judgment, or for the misconduct of any employee, agent or attorney appointed by it, while acting in good faith.  The Escrow Agent shall be entitled to consult with internal or external counsel of its own selection and the opinion of such counsel shall be full and complete authorization and protection to the Escrow Agent in respect of any action taken or omitted by the Escrow Agent hereunder in good faith and in accordance with the opinion of such counsel.  The Escrow Agent may rely conclusively and shall be protected in acting upon any order, notice, demand, certificate, opinion or advice of counsel (including internal or external counsel chosen by the Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is believed by the Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The Escrow Agent shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement unless evidenced by a writing delivered to the Escrow Agent signed by the proper party or parties and, if the duties or rights of the Escrow Agent are affected, unless it shall have given its prior written consent thereto.  It is understood and acknowledged that certain notices given by the Seller hereunder may be prepared by the Escrow Agent when acting in its capacity as counsel to the Seller, and that fact shall not undermine the validity of any such notice or the Escrow Agent’s ability to rely thereon.


5.2

Duties Limited .  The Escrow Agent: (i) is not responsible for the performance by the Company or the Seller of this Agreement or any of the other Transaction Documents or for determining or compelling compliance therewith; (ii) is only responsible for holding the Escrow Property in escrow pending release thereof in accordance with Section 3 ; and (iii) shall not be obligated to take any legal or other action hereunder which might in its judgment involve or cause it to incur any expense or liability unless it shall have been furnished with indemnification acceptable to it, in its sole and absolute discretion.  The duties and obligations of the Escrow Agent shall be limited to and determined solely by the express provisions of this Escrow Agreement and no implied duties or obligations shall be read into this Escrow Agreement against the Escrow Agent.  The Escrow Agent’s duties hereunder are purely ministerial and the Escrow Agent is not acting as a fiduciary to the Seller or the Company.  The Escrow Agent is not bound by and is under no duty to inquire into the terms or validity of any other agreements or documents, including any agreements which may be related to, referred to in or deposited with the Escrow Agent in connection with this Escrow Agreement, notwithstanding that the Escrow Agent has acted as counsel to the Seller in connection with the subject matter thereof.


5.3

Indemnification .  The Escrow Agent shall be indemnified and held harmless jointly and severally by the Company and the Seller from and against any expenses, including counsel fees and disbursements, or loss suffered by the Escrow Agent in connection with any action, suit or other proceeding involving any claim which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, or the Escrow Property held by it hereunder.  In no event shall Escrow Agent be liable for special, indirect, consequential, or punitive damages, or damages for lost profits.  In the event of the receipt of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent, in its sole and absolute discretion, may take the actions set forth in Section 3(c) hereof with respect to the Escrow Property. The provisions of this Section 5.3 shall survive in the event the Escrow Agent resigns or is discharged pursuant to



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Sections 5.6 or 5.7 below. The Escrow Agent shall not incur any liability for not performing or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of the Escrow Agent (including but not limited to any act or provision of any present or future Law or Governmental Body or any act of God or war).


5.4

Fees and Expenses .  The Company shall be liable for and shall pay 100% of the Escrow Agent’s out of pocket expenses incurred by Escrow Agent in the performance of its duties hereunder.  The out of pocket expenses shall be paid to the Escrow Agent from time to time at its request.


5.5

Further Assurances .  From time to time on and after the date hereof, the Company and the Seller shall deliver or cause to be delivered to the Escrow Agent such further documents and instruments and shall do or cause to be done such further acts as the Escrow Agent shall reasonably request to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.


5.6

Resignation .  The Escrow Agent shall have the right at any time to resign for any reason or no reason at all and be discharged of its duties as Escrow Agent hereunder by giving written notice of its resignation to the parties hereto at least ten (10) calendar days prior to the date specified for such resignation to take effect.  All obligations of the Escrow Agent hereunder shall cease and terminate on the effective date of its resignation and its sole responsibility thereafter shall be to hold the Escrow Property, for a period of ten (10) calendar days following the effective date of resignation, at which time:


(i)

if a successor escrow agent shall have been appointed and written notice thereof shall have been given to the resigning Escrow Agent by parties hereto and the successor escrow agent, then the resigning Escrow Agent shall deliver the Escrow Property to the successor escrow agent; or


(ii)

if a successor escrow agent shall not have been appointed, for any reason whatsoever, the resigning Escrow Agent shall deliver the Escrow Property to a court of competent jurisdiction in the county in which the Escrow Property is then being held, and take all necessary steps to do so, and give written notice of the same to the parties hereto.


5.7

Discharge of Escrow Agent .  The Escrow Agent shall resign and be discharged from its duties as escrow agent hereunder if so requested in writing at any time jointly by the Company and the Seller; provided, that any notice of discharge must (i) direct the disposition of the Escrow Property by Escrow Agent and (ii) include a full release of the Escrow Agent of all liability hereunder.


5.8

Conflicting Demands .  In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions with respect to the Escrow Property which, in its sole and absolute discretion, are in conflict either with other instructions received by it or with any provision of this Escrow Agreement, the Escrow Agent shall have the absolute right to suspend all further performance or that portion of further performance subject to such uncertainty under this Escrow Agreement (except for the safekeeping of the Escrow Property) until such uncertainty or conflicting instructions have been resolved to the Escrow Agent’s sole and absolute satisfaction in accordance with Section 3(c) hereof; provided that if the Escrow Agent so suspends all or some portion of further performance under this Escrow Agreement because of any such uncertainty, then the Escrow Agent shall use its commercially reasonable efforts to resolve such uncertainty as soon as reasonably practicable so as to be able to resume such performance.  




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6.

Miscellaneous .


6.1

Governing Law . This Agreement shall for all purposes be deemed to be made under and shall be construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof.


6.2

Entire Agreement .  This Agreement contains the entire agreement of the parties hereto with respect to the subject matter hereof and, except as expressly provided herein, may not be changed or modified except by an instrument in writing signed by the Seller, the Company and the Escrow Agent.


6.3

Headings .  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation thereof.


6.4

Binding Effect .  This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their legal representatives, successors and assigns.


6.5

Notices . Any notice or other communication required or which may be given hereunder shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, or sent by facsimile or other electronic transmission (with confirmation of receipt), addressed as follows:


If to the Company, to:


Social Reality, Inc.

456 Seaton Street
Los Angeles, CA 90013

Attention: Christopher Miglino

Telephone: (323) 283-8505

Facsimile:  

Email: chris@socialreality.com

 

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


Pearlman Schneider LLP

2200 Corporate Boulevard, N.W., Suite 201

Boca Raton, FL 33431

Attention:  James M. Schneider, Esq.

Telephone: (561) 362-9595

Facsimile: (561) 361-9612

Email: jim@pslawgroup.net


If to the Seller, to:


Richard Steel

_______________

_______________

Telephone: _______________

Facsimile:

Email: rich@steelmediainc.com




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


Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, New York 10020

Attention:  Steven E. Siesser, Esq.

Telephone: (212) 204-8688

Facsimile: (973) 597-2507

Email: ssiesser@lowenstein.com


If to the Escrow Agent, to:


Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, New York 10020

Attention:  Steven E. Siesser, Esq.

Telephone: (212) 204-8688

Facsimile: (973) 597-2507

Email: ssiesser@lowenstein.com


The parties may change the persons and addresses to which the notices or other communications are to be sent by giving written notice to any such change in the manner provided herein for giving notice.


6. 6

Counterparts .  This Agreement may be executed in several counterparts, each one of which shall constitute an original and may be delivered by facsimile transmission, and together shall constitute one instrument.


6.7

No Conflict of Interest .  The Company and the Seller (i) (A) acknowledge and agree that the Escrow Agent’s serving as escrow agent hereunder shall not constitute a conflict of interest despite the Escrow Agent’s contemporaneously serving as counsel to the Seller in connection with the Purchase Agreement, the Note, this Agreement and the other Transaction Documents and any other matters, and shall not constitute a conflict of interest in connection with Escrow Agent’s representation of the Seller in the future in any matter, (B) waives any conflict of interest resulting from the Escrow Agent’s contemporaneously serving as counsel to the Company in connection with the Purchase Agreement, Note, this Agreement and the other Transaction Documents, and (ii) covenants and agrees not to assert a conflict of interest as a result of the Escrow Agent serving in such roles.  The parties agree that the Escrow Agent may serve as counsel to the Seller in connection with a dispute involving this Agreement or the Escrow Property, provided that the Escrow Agent shall promptly resign from its duties as Escrow Agent as provided for in Section 5.6 .  The Seller acknowledges that the provisions of this Section 6.7 constitute a material inducement for the Escrow Agent to serve as escrow agent hereunder.  The Seller and the Company further acknowledge and agree that they have selected the Escrow Agent in order to facilitate the consummation of the transactions contemplated by the Purchase Agreement and the retention of the Escrow Property in order to avoid the time, cost and expense of a third party serving as the escrow agent hereunder.




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WITNESS the execution of this Agreement as of the date first above written.


 

COMPANY:

 

 

SOCIAL REALITY, INC.

 

 

 

 

 

By:

/s/ Christopher Miglino

 

Title:

Chief Executive Officer

 

 

 

 

SELLER:

 

 

 

 

/s/ Richard Steel

 

Richard Steel

 

 

 

 

ESCROW AGENT:

 

 

 

 

LOWENSTEIN SANDLER LLP

 

 

 

 

By:

/s/ Steven Siesser

 

Name:

Steven E. Siesser

 

Title:

Partner




-7-




Exhibit 10.21


REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”), dated as of October 30, 2014 (the “ Effective Date ”), by and between Social Reality, Inc., a Delaware corporation (the “ Company ”) and Richard Steel (the “ Investor ”). Capitalized terms used by not defined herein have the meaning set forth in the Purchase Agreement (defined below).

RECITALS

WHEREAS , the Company and the Investor are parties to the Stock Purchase Agreement, dated as of October 30, 2014 (the “ Purchase Agreement ”); and

WHEREAS , in connection with the transactions contemplated by the Purchase Agreement, the Investor and the Company desire to enter into this Agreement, which shall, among other things, govern the rights of the Investor to cause the Company to register shares of Common Stock issued or issuable to the Investor under the terms of the Purchase Agreement.

NOW, THEREFORE , the parties hereby agree as follows:

1.

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 or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.

1.2

Common Stock ” means shares of the Company’s Class A common stock, $0.001 par value.

1.3

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

1.4

Excluded Registration ” means (i) a registration on Form S-8 (or similar successor form) relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction or (ii) a registration on Form S-4 (or similar successor form).

1.5

 “ 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






1.6

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 incorporation of substantial information by reference to other documents filed by the Company with the SEC.

1.7

  Immediate Family Member ” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, life partners or others covered under the applicable domestic relationship statute, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including, adoptive relationships, of a natural person referred to herein.

1.8

“Permitted Registrable Shares ” means with respect to registration statements for resales pursuant to SEC Rule 415 a number of Registrable Securities equal to the least of (i) the number of Registrable Securities not then covered by an effective registration statement that is available for resales pursuant to Rule 415, (ii) the number of Registrable Securities requested to be included in the registration statement for a proposed registration, and (iii) the maximum number of Registrable Securities the Company is permitted to include in such registration statement by the SEC in accordance with applicable SEC rules and regulations.

1.9

Person ” means any individual, corporation, partnership, trust, limited liability company, association or other entity .

1.10

Private Placement Securities ” means the shares of Common Stock issued and issuable upon the exercise of Class A Common Stock purchase warrants, (excluding, for the avoidance of doubt, the Victory Park Securities) which warrants were issued by the Company on October 30, 2014 pursuant to the private placement consummated on October 30, 2014; provided, however, that any such securities shall cease to be Private Placement Securities for purposes of this Agreement when (i) a Form S-1 registration statement or Form S-3 registration statement covering such securities has been declared effective by the SEC and has not been withdrawn or suspended, or (ii) such securities shall have ceased to be outstanding or have been sold.

1.11

 “ Registrable Securities ” means (a) any Earnout Shares which may be issued to the Investor, (b) any Escrow Shares which may be released to the Investor pursuant to the terms of the Escrow Agreement, and (c) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Earnout Shares and/or the Escrow Shares. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a Form S-1 registration statement or Form S-3 registration statement covering such securities has been declared effective by the SEC and such securities have been disposed of pursuant to such effective Form S-1 registration statement or Form S-3 registration statement, or (ii) such securities shall have ceased to be outstanding.  

1.12

Registrable Securities then outstanding ” means the number of shares of outstanding Common Stock that are Registrable Securities.

1.13

 “ SEC ” means the Securities and Exchange Commission.



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1.14

SEC Rule 144 ” means Rule 144 promulgated by the SEC under the Securities Act.

1.15

SEC Rule 145 ” means Rule 145 promulgated by the SEC under the Securities Act.  

1.16

SEC Rule 415 ” means Rule 415 promulgated by the SEC under the Securities Act.

1.17

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.18

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 the Investor .

1.19

Victory Park Financing ” shall have the same meaning as in the Purchase Agreement.

1.20

Victory Park Securities ” shall mean the Victory Park Warrant and the Victory Park Warrant Shares.

1.21

Victory Park Warrant ” shall mean common stock purchase warrant or warrants, as applicable, issued pursuant to the terms of the Victory Park Financing.

1.22

Victory Park Warrant Shares ” shall mean the shares of Common Stock issued and issuable upon the exercise of the Victory Park Warrant.

1.23

Year-One Earnout Shares ” means any Earnout Shares issued by the Company as Year-One Earnout Consideration.

1.24

Year-Two Earnout Shares ” means any Earnout Shares issued by the Company as Year-Two Earnout Consideration.

2.

Registration Rights .  The Company covenants and agrees as follows:

2.1

Demand Registration .

(a)

Form S-1 Demand .  If at any time beginning one hundred eighty (180) days after the issuance of Registrable Securities to the Investor, the Company receives a request from the Investor that the Company file a Form S-1 registration statement with respect to Registrable Securities then outstanding, then the Company shall as soon as practicable, and in any event within seventy-five (75) days after the date such request is given by the Investor, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Investor requested to be registered, and in each case, 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 beginning one hundred eighty (180) days after the issuance of Registrable Securities to the Investor when the Company 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 outstanding Registrable Securities of the Investor, then the Company shall as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Investor, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by the Investor, subject to the limitations of Sections 2.1(c) and 2.3 .

(c)

Notwithstanding the foregoing obligations, if the Company furnishes to the Investor a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Company’s Board of Directors there exists material nonpublic information relating to the Company that is not otherwise required to be disclosed and that such disclosure would be materially detrimental to the Company and its stockholders, then the Company shall have the right to defer taking action with respect to such filing, for a period of not more than sixty (60) 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 sixty (60) day period other than an Excluded Registration and the Investor may withdraw its request for such registration.

(d)

The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(a) (i) during the period that is sixty (60) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith its best efforts to cause such registration statement to become effective; (ii) after the Company has effected two (2) registrations pursuant to Section 2.1(a) ; or (iii) if the Investor proposes to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.1(b) .  The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(b) (i) during the period that is thirty (30) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith its best efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Section 2.1(b) within the twelve (12) month period immediately preceding the date of such request.  In addition to Section 2.3(c) , a registration shall not be counted as “effected” for purposes of this Section 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC.

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), the Company shall, at such time, promptly give the Investor notice of such registration.  Upon the request of the Investor given within thirty (30) 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



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that the Investor has requested to be included in such registration.  The Investor shall have the right to withdraw the Investor’s request for inclusion of the Investor’s Registrable Securities in any registration statement pursuant to this Section 2.1 by giving written notice to the Company of such withdrawal. The Company shall not have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, if the Investor has elected to include Registrable Securities in such registration.

2.3

Underwriting Requirements .

(a)

If, pursuant to Section 2.1 , the Investor intends to distribute the Registrable Securities covered by his request by means of an underwriting, he shall so advise the Company as a part of his request made pursuant to Section 2.1 .  The underwriter(s) will be selected by the Investor. In such event, the right of the Investor to include his Registrable Securities in such registration shall be conditioned upon his participation in such underwriting and the inclusion of the Investor’s Registrable Securities in the underwriting to the extent provided herein.  The Investor shall (together with the Company as provided in Section 2.4(f) ) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting.  Notwithstanding any other provision of this Section 2.3 , if the managing underwriter advises the Investor in writing that marketing factors require a limitation on the number of shares to be underwritten, then the number of securities that may be included in the underwriting shall be allocated (i) first , to the Registrable Securities requested to be included in such underwriting by the Investor, the Private Placement Securities requested to be included therein, and Victory Park Securities requested to be included therein, pro rata among the Investor, the holders of the Private Placement Securities and the holder or holders of the Victory Park Securities on the basis of the number of shares of Registrable Securities owned by the Investor, the number of Private Placement Securities  and the number of shares of Common Stock underlying the Victory Park Securities, with further successive pro rata allocations among the Investor, the holder or holders of the Private Placement Securities and the holder or holders of the Victory Park Securities if the Investor has requested the underwriting of less than all of the Registrable Securities the Investor is entitled to register, and (ii) second , to any other securities requested to be included in such underwriting.

(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 accepts 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 managing underwriter in its reasonable discretion determines 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 managing underwriter determines that less than all of the Registrable Securities requested to be registered can be included in such offering, then the number of securities that are included in such offering shall be allocated (i) first , to the securities that the Company proposes to sell, (ii) second , to the



5






Registrable Securities requested to be included in such registration by the Investor, the Private Placement Securities requested to be included therein and the Victory Park Securities requested to be included therein, pro rata among the Investor, the holders of the Private Placement Securities and the holder or holders of the Victory Park Securities on the basis of the number of shares of Registrable Securities owned by the Investor, the number of Private Placement Securities and the number of shares of Common Stock underlying the Victory Park Securities, with further successive pro rata allocations among the Investor, the holder or holders of the Private Placement Securities and the holder or holders of the Victory Park Securities if the Investor has requested the registration of less than all of the Registrable Securities the Investor is entitled to register, and (iii) third , to any other securities requested to be included in such registration.  

(c)

If the proposed registration statement to be filed by the Company is for an offering pursuant to SEC Rule 415 and the number of Registrable Securities requested by the Investor to be included therein exceeds the number of Permitted Registrable Shares, the initial number of Registrable Securities included in any registration statement in respect of such proposed registration and each increase in the number of Registrable Securities included therein shall be allocated pro rata among the Investor on the basis of the number of shares of Registrable Securities owned by the Investor, with further successive pro rata allocations among the Investor if the Investor has requested the registration of less than all of the Registrable Securities the Investor is entitled to register. In the event that an Investor sells or otherwise transfers any of such Investor’s Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such registration statement for such transferor.  Notwithstanding anything to the contrary contained in this Section 2(c), if the proposed registration statement to be filed by the Company is the first registration statement filed with the SEC that includes any Private Placement Securities for an offering pursuant to SEC Rule 415, and the total number of securities proposed to be included therein exceeds the maximum number of securities of the Company that the Company is permitted to include in such registration statement by the SEC in accordance with applicable SEC rules and regulations, the initial number of securities included in any registration statement in respect of such proposed registration and each increase in the number of securities included therein shall be allocated (i) first, to such Private Placement Securities which have not been previously included in a registration statement, and (ii) second, pro rata among the Investor and the holder or holders of the Victory Park Securities on the basis of the number of Escrow Shares owned by the Investor and the shares of Common Stock underlying the Victory Park Securities, with further successive pro rata allocations among the Investor and the holder or holders of the Victory Park Securities if the Investor has requested the registration of less than all of the Escrow Shares the Investor is entitled to register.  Notwithstanding anything to the contrary contained herein, if for any reason the SEC asserts or proposes a limitation on the securities to be included in any registration statement filed pursuant to this Section 2.3(c) in which the Registrable Securities are to be included, the Company shall use diligent efforts to advocate with the SEC for the registration of all of the securities required or requested to be included in such registration statement, in accordance with applicable SEC guidance.



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(d)

The Investor may not participate in any registration hereunder which is underwritten unless the Investor (i) agrees to sell such Investor’s Registrable Securities on the basis provided in any underwriting arrangements, and (ii) completes and executes all questionnaires, powers of attorney, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided , however , that the Investor shall not be required to make any representations or warranties to the Company or the underwriters solely as a result of the inclusion of the Registrable Securities in the registration statement for an underwritten offering (other than representations and warranties made on a several and not joint basis and which solely relate to the Investor, the Investor’s ownership of his shares of Common Stock to be sold in the offering and the Investor’s intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 2.8 hereof and on a several and not joint basis.

(e)

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) or Section 2.3(b) or the SEC Rule 415 cutback provision in Section 2.3(c) , fewer than 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 best 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 (x) the earlier of (i) three (3) years or (ii) the maximum period permitted by applicable law or, if earlier, (y) until the distribution contemplated in the registration statement has been completed; provided, however, that such 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;

(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)

provide to the Investor and the Investor’s counsel for review each registration statement and all amendments and supplements thereto no fewer than ten (10) Business Days prior to their filing with the SEC and not file any document to which such counsel reasonably objects within ten (10) Business Days following receipt by the Investor and the Investor’s counsel of such registration statement and or amendment/supplements thereto;



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(d)

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 his disposition of his Registrable Securities;

(e)

use its best efforts to register and qualify the Registrable 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;

(f)

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;

(g)

use its best 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 or quoted;

(h)

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, in each case not later than the effective date of such registration;

(i)

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 the Investor, 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;

(j)

notify the 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

(k)

after such registration statement becomes effective, provide written notice to the Investor (a “ Suspension Notice ”) of the occurrence of any of the following events, as promptly as practicable after becoming aware of such event: (i) any request by the SEC or any other federal or state governmental authority, during the period of effectiveness of the registration statement, for amendments or supplements to such registration statement or related prospectus or for additional information; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose; (iii) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from



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qualification of any of the Registrable Securities for sale in any jurisdiction from a state governmental authority or the initiation of any proceeding for such purpose by a state governmental authority; or (iv) any event or circumstance which necessitates the making of any changes to the registration statement or related prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the registration statement, it will not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading and, in the case of the prospectus, it will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  The Company shall promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and deliver a copy of such supplement or amendment to the Investor. The Company shall also promptly notify the Investor in writing (x) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a registration statement or any post-effective amendment has become effective and (y) of the Company’s reasonable determination that a post-effective amendment to a registration statement would be appropriate.

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.

2.5

Suspension of Registration Statement . The Investor agrees that upon its receipt of any Suspension Notice from the Company, the Investor will discontinue the disposition of Registrable Securities pursuant to any registration statement covering such Registrable Securities to the extent required by the SEC or such other federal or state governmental authority until the earlier of the Investor’s receipt of (i) copies of the supplemented or amended prospectus contemplated by Section 2.4(k) , (ii) written notice from the Company that no supplement or amendment is required, (iii) written notice from the Company that the any suspension of the effectiveness such registration statement or initiation of any related proceeding has ceased or (iv) written notice from the Company that any suspension of the qualification or exemption from qualification or initiation of any proceeding related thereto has ceased; in each case, which shall be promptly and within two (2) Business Days delivered by the Company to the Investor.

2.6

Furnish Information .  It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2 with respect to the Registrable Securities of the Investor that the Investor shall furnish to the Company such information regarding himself, the Registrable Securities held by him, and the intended method of disposition of such securities as is reasonably required to effect the registration of the Investor’s Registrable Securities.  

2.7

Expenses of Registration .  All expenses (excluding 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.



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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 the Investor, and the partners, members, officers, directors and stockholders of the Investor; legal counsel and accountants; any underwriter (as defined in the Securities Act) for the Investor; and each Person, if any, who controls the Investor or underwriter within the meaning of the Securities Act or the Exchange Act, against any loss, damage, claim or liability (joint or several) to which such aforementioned Person 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 Company or its officers, directors, employees, 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, and the Company will pay to the Investor, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any such loss, claim, liability or action, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section 2.8(a) shall not apply if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission made in conformity with written information furnished by or on behalf of the Investor, underwriter, controlling Person, or other aforementioned Person specifically for use in connection with such registration.

(b)

To the extent permitted by law, the 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), any other stockholder selling securities in such registration statement, and any controlling Person of any such underwriter or other stockholder, against any loss, damage, claim or liability, in each case only to the extent that such loss, claim, damage or liability arises out of or are based upon (i) any untrue statement or omission made in conformity with written information furnished by or on behalf of the Investor specifically for use in connection with such registration; or (ii) the use by the Investor of an outdated or defective prospectus after the Company has notified the Investor, through the Company’s delivery of a Suspension Notice, that the prospectus is outdated or defective; and the 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 any loss, claim, damage or liability may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section 2.8 shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Investor, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by the Investor by way of indemnity or contribution under Sections



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2.8(b) and 2.8(d) exceed the proceeds from the offering received by the Investor (net of any Selling Expenses paid by the Investor), except in the case of fraud by the 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 , 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 .

(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) the 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 the 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



11






fraudulent misrepresentation; and provided further that in no event shall the Investor’s liability pursuant to this Section 2.8(d) , when combined with the amounts paid or payable by the Investor pursuant to Section 2.8(b) , exceed the proceeds from the offering received by the Investor (net of any Selling Expenses paid by the Investor), except in the case of fraud by the 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.

(f)

Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and the 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.

2.9

Reports Under Exchange Act .  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 its best 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; and

(c)

furnish to the 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 the 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

Market Stand-off Agreement .  

(a)

The Investor agrees that, without the prior written consent of the Company, he will not:

(i)

sell any shares of the Year-One Earnout Shares (regardless of when issued) during the period commencing on the date of the expiration of the First Earnout Period and ending sixty (60) days thereafter (the “ First Y1 Lockup Period ”);

(ii)

sell more than one-third (1/3) of the Year-One Earnout Shares then outstanding during the period commencing on the expiration of the First Y1 Lockup Period and ending  sixty (60) day thereafter (the “ Second Y1 Lockup Period ”); and



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(iii)

sell more than two-thirds (2/3) of the Year-One Earnout Shares then outstanding during the period commencing on the expiration of the Second Y1 Lockup Period and ending sixty (60) days thereafter (the “ Third Y1 Lockup Period ”).

(b)

The Investor agrees that, without the prior written consent of the Company, he will not:

(i)

sell any shares of the Year-Two Earnout Shares (regardless of when issued) during the period commencing on the date of the expiration of the Second Earnout Period and ending sixty (60) days thereafter (the “ First Y2 Lockup Period ”);

(ii)

sell more than one-third (1/3) of the Year-Two Earnout Shares then outstanding during the period commencing on the expiration of the First Y2 Lockup Period and ending  sixty (60) day thereafter (the “ Second Y2 Lockup Period ”); and

(iii)

sell more than two-thirds (2/3) of the Year-Two Earnout Shares then outstanding during the period commencing on the expiration of the Second Y2 Lockup Period and ending sixty (60) days thereafter (the “ Third Y2 Lockup Period ”).

(c)

At any time after the expiration of (i) the Third Y1 Lockup Period, the Investor shall not be subject to any restrictions with respect to the sale of Year-One Earnout Shares or (ii) the Third Y2 Lockup Period, the Investor shall not be subject to any restrictions with respect to the sale of the Year-Two Earnout Shares,  in each case, except to the extent required by applicable law; provided, however, that the restrictions in this Section 2.10 shall automatically, without any further action, deed or notice, terminate upon (i) an Event of Default (as defined in the Note) under the Note or (ii) the Buyer’s failure to fully satisfy its obligations in Section 2.5 of the Purchase Agreement.  Notwithstanding anything to the contrary contained in this Agreement, the Investor shall not be subject to any restrictions with respect to the disposition of any shares of Common Stock purchased in an open market transaction except to the extent required by applicable law.

3.

Miscellaneous .

3.1

Successors and Assigns .  The rights under this Agreement may be assigned (but only with all related obligations) by the Investor to a transferee of Registrable Securities that (i) is an Affiliate of the Investor; or (ii) is a member of the Investor’s Immediate Family Member or trust for the benefit of the Investor or one or more of the Investor’s Immediate Family Members; provided , however , that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement.  For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate of the Investor; (2) who is the Investor’s Immediate Family Member; or (3) that is a trust for the benefit of the Investor or the Investor’s Immediate Family Member shall be aggregated together and with those of the Investor; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the



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purpose of exercising any rights, receiving notices, or taking any action under this Agreement.  The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

3.2

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. This Agreement may be transmitted by facsimile or electronically, and it is the intent of the parties that the facsimile copy (or a photocopy or PDF copy) of any signature printed by a receiving facsimile machine or computer printer shall be deemed an original signature and shall have the same force and effect as an original signature .  

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 .  All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing, shall be delivered either in person, by facsimile (which is confirmed) or other electronic means, by overnight air courier or by certified or registered mail, and shall be deemed to have been duly given and to have become effective (a) upon receipt if delivered in person or by facsimile, e-mail or other electronic means calculated to arrive on any Business Day prior to 5:00 p.m., New York time, or on the next succeeding Business Day if delivered on a non-Business Day or after 5:00 p.m., New York time, (b) one (1) Business Day after having been delivered to a nationally-recognized courier for overnight delivery (with written confirmation of delivery), or (c) three (3) Business Days after having been deposited in the mails as certified or registered mail, return receipt requested, all fees prepaid, directed to the parties or their assignees at the following addresses (or at such other address as shall be given in writing by a party hereto):

If to the Investor, addressed as follows:

Richard Steel

_______________

_______________

Telephone:

Facsimile:

Email:


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

Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, New York 10020

Attention: Steven E. Siesser, Esq.
Telephone: (212) 204-8688

Facsimile: (973) 597-2507

Email: ssiesser@lowenstein.com



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If to the Company, addressed as follows:

Social Reality, Inc.

456 Seaton Street

Los Angeles, CA 90013

Attention:  Christopher Miglino
Telephone:  (323) 283-8505

Facsimile: (323) ___________

Email:chris@socialreality.com


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

Pearlman Schneider LLP

2200 Corporate Boulevard, N.W.

Suite 210

Boca Raton, FL  33431

Attention:  James M. Schneider, Esq.
Telephone: (561) 362-9595

Facsimile: (561) 361-9612

Email: jim@pslawgroup.net


3.5

Amendments and Waivers .  This Agreement may not be amended, supplement or changed except by an instrument in writing signed by both the Investor and the Company.  Any party to this Agreement may waive in writing any obligation owed to it by any other party under this Agreement.  No waiver of any party of any default, misrepresentation, breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent occurrence.

3.6

Severability .  In case any one 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

Aggregation of Stock .  All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.

3.8

Entire Agreement .  This Agreement 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.  



15






3.9

Governing Law; Wavier of Trial by Jury .  This Agreement and all matters arising directly or indirectly herefrom shall be construed and enforced in accordance with the laws of the State of Delaware without giving effect to principles of conflicts of laws.  The parties agree that a final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the parties and may be enforced in any other courts to whose jurisdiction other parties are or may be subject, by suit upon such judgment.  THE PARTIES HEREBY WAIVE ALL RIGHT AND ENTITLEMENT TO A TRIAL BY JURY AS TO ANY DISPUTES BETWEEN THEM.

3.10

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 nondefaulting 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.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.


 

COMPANY:

 

 

 

 

SOCIAL REALITY, INC.

 

 

 

By:

/s/ Christoper Miglino

 

Name:

Chris Miglino

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

INVESTOR:

 

 

 

 

/s/ Richard Steel

 

Richard Steel




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Exhibit 10.22

SUBORDINATION AGREEMENT

THIS SUBORDINATION AGREEMENT (this “Agreement”) is entered into as of this 30th day of October, 2014, by and among RICHARD STEEL , an individual (the “Subordinated Creditor”), SOCIAL REALITY, INC. , a Delaware corporation (the “Borrower”; the Borrower and each other Person who executes a joinder to this Agreement and becomes an obligor hereunder, including, without limitation, Steel Media, a California corporation (“Steel Media”), from and after the consummation of the Closing Date Acquisition (as defined in the Senior Loan Agreement described below), from time to time, each a “Company” and collectively, the “Companies”) and VICTORY PARK MANAGEMENT, LLC, as administrative agent and collateral agent for the Lenders (as defined in the Senior Loan Agreement described below) or such then present holder or holders of the “Senior Debt” (as hereinafter defined) as may from time to time exist (“Senior Agent”; the Senior Agent, the Lenders and such other present holders of “Senior Debt” from time to time are referred to herein each individually as a “Senior Lender Party” and collectively as the “Senior Lender Parties”).

RECITALS

A.

The Borrower and the Senior Lender Parties have entered into a Financing Agreement dated as of even date herewith (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Senior Loan Agreement”) pursuant to which, among other things, the Senior Lender Parties have agreed, subject to the terms and conditions set forth in the Senior Loan Agreement, to make certain loans and financial accommodations to the Companies. All of the Companies’ obligations to the Senior Lender Parties under the Senior Loan Agreement and the other Senior Debt Documents (as hereinafter defined) are secured by first priority Liens on substantially all of the now existing and hereafter acquired personal property of the Companies.

B.

The Borrower, Steel Media and the Subordinated Creditor are parties to that certain Stock Purchase Agreement dated as of even date herewith (as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms hereof, the “Stock Purchase Agreement”), pursuant to which, among other things, (i) the Borrower has acquired all of the outstanding stock of Steel Media, (ii) the Subordinated Creditor has extended credit to the Borrower as seller financing for such purchase, as evidenced by a Secured Subordinated Promissory Note of even date herewith made by the Borrower in favor of the Subordinated Creditor in the original principal amount of $2,500,000 (together with all promissory notes and other instruments issued in replacement thereof or substitution therefor, and in each case as amended, supplemented, restated, substituted or otherwise modified and in effect, the “Seller Subordinated Note”) and (iii) the Subordinated Creditor may from time to time become entitled to the Earnout Payments.  The Borrower is also obligated to indemnify the Subordinated Creditor under Section 7.3 of the Stock Purchase Agreement (the “SPA Indemnification Obligations”), and the Borrower has also undertaken to indemnify the Subordinated Creditor for certain errors or omissions in the Subordinated Creditor’s capacity as an officer and director of the Borrower, pursuant to its certificate of incorporation, by-laws, and the Indemnification Agreement, of even date herewith, by and between the Borrower and the Subordinated Creditor (the “Indemnification Agreement”), which indemnification obligations (the “D&O Indemnification Obligations”) are supported by “D&O” insurance maintained by  the Borrower (“D&O Insurance”).  Further, the Borrower is obligated to the Subordinated Creditor under a certain employment agreement, of even date herewith, between the Borrower and the Subordinated Creditor (the “Employment Agreement”). Further, the Borrower has granted to the Subordinated Creditor certain options to purchase shares of the Borrower pursuant to the terms of the Stock Purchase Agreement (the “Stock Options”).  The obligations under the Seller Subordinated Note are secured by the Subordinated Creditor’s interests in the Escrow Shares



1




pursuant to the terms of Section 7 of the Seller Subordinated Note and the related Put Right set forth in Section 6.10 of the Stock Purchase Agreement (collectively, the “Subordinated Debt Security”).  The obligations of the Companies under the Earnout Payments, the SPA Indemnification Obligations, the D&O Indemnification Obligations, the Stock Options and the Employment Agreement are unsecured.

NOW, THEREFORE, for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby covenant and agree as follows:

1.

Definitions .  Capitalized terms used but not otherwise defined in this Agreement shall have the meanings assigned to such terms in the Senior Loan Agreement. As used in this Agreement, the following terms have the following meanings:

Bankruptcy Code ” shall mean Chapter 11 of Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder.

Catch-Up Payment ” shall mean any Permitted Subordinated Debt Payment by the Borrower to the Subordinated Creditor that was not permitted to be paid as a result of the restrictions contained in Subsection 2.2 of this Agreement.

 “ Distribution ” shall mean, with respect to any indebtedness, (a) any payment or distribution by any Person of cash, securities or other property, by set-off or otherwise, on account of such indebtedness or obligation, (b) any redemption, purchase or other acquisition of such indebtedness or obligation by any Person or (c) the granting of any Lien on or for the benefit of the holders of such indebtedness or obligation in or upon any property of any Person; provided that, notwithstanding anything set forth in this definition, no Transaction-Related Payment shall be deemed a “Distribution” under this Agreement.

Earnout Payments ” has the meaning ascribed to such term in the Stock Purchase Agreement, as in effect on the date hereof.

Enforcement Action ” shall mean (a) to take from or for the account of any Company or any Subsidiary of any Company, by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by any Company or any Subsidiary of any Company with respect to the Subordinated Debt, (b) to sue for payment of, or to initiate or participate with others in any suit, action or proceeding against any Company or any Subsidiary of any Company to (i) enforce payment of or to collect the whole or any part of the Subordinated Debt or (ii) commence judicial enforcement of any of the rights and remedies under the Subordinated Debt Documents or applicable law with respect to the Subordinated Debt or any of the Companies’ property or assets, including the commencement of any Proceeding, (c) to accelerate the Subordinated Debt (other than pursuant to Section 2.6(r) of the Stock Purchase Agreement, (d) to exercise the Put Right or any other put option or to cause any Company or any Subsidiary of any Company to honor any redemption or mandatory prepayment obligation under any Subordinated Debt Document, (e) to notify account debtors or directly collect accounts receivable or other payment rights of any Company or any Subsidiary of any Company, (f) to take control or possession of or sell or otherwise realize upon, or to exercise any other rights or remedies with respect to the Subordinated Debt Security, or (g) to take any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code, or under any contract or agreement, to enforce, foreclose upon, take possession of or sell any property or assets of any Company or any Subsidiary of any Company; provided that, notwithstanding anything set forth in this definition, no action to enforce the Subordinated Creditor’s right to a Transaction-Related Payment shall be deemed to be an “Enforcement Action” under this Agreement.

Escrow Shares ” has the meaning ascribed to such term in the Stock Purchase Agreement.



2



Lender” or “Lenders ” shall mean any “Lender” or the “Lenders,” respectively, as such terms are defined in the Senior Loan Agreement.

Lien ” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or otherwise), security interest or other security arrangement and any other preference, priority or preferential arrangement of any kind or nature whatsoever, including any conditional sale contract or other title retention arrangement, the interest of a lessor under a capital lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.  

Permitted Subordinated Debt Payments ” shall mean (a) payments required to be made pursuant to Section 2 and 5(c) of the Seller Subordinated Note, (b) Earnout Payments required to be made pursuant to Section 2.5 of the Stock Purchase Agreement, in each case, due and payable on a non-accelerated basis in accordance with the terms of the Subordinated Debt Documents, as in effect on the date hereof and (c) Earnout Payments accelerated pursuant to Section 2.5(r) of the Stock Purchase Agreement in accordance with the terms of the Subordinated Debt Documents, as in effect on the date hereof; provided, that the payment of Earnout Payments pursuant to Section 2.5(s) of the Stock Purchase Agreement shall be excluded from a Permitted Subordinated Debt Payment.

Person ” shall mean any natural person, corporation, general or limited partnership, limited liability company, firm, trust, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity.

Put Right ” has the meaning ascribed to such term in the Stock Purchase Agreement.

Senior Debt ” shall mean all “Obligations” (as defined in the Senior Loan Agreement), including, without limitation, all interest, fees, expenses, indemnities and reimbursement obligations, in each case, whether now existing or hereafter created, including, without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under the Bankruptcy Code together with (a) any amendments, modifications, renewals or extensions thereof and (b) any interest accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim.

Senior Debt Documents ” shall mean the Senior Loan Agreement, all promissory notes or other instruments evidencing the Senior Debt or the obligation to pay the Senior Debt, any guaranty with respect to the Senior Debt, any security agreement or other collateral document securing the Senior Debt and all other documents, agreements and instruments now existing or hereafter entered into evidencing or pertaining to all or any portion of the Senior Debt.

Senior Default Notice ” means a written notice from Senior Agent to the Subordinated Creditor pursuant to which the Subordinated Creditor is notified of the existence of a Senior Covenant Default which notice shall reference this Agreement and which includes a reasonably detailed description of such Senior Covenant Default.

Senior Covenant Default ” means any “Default” or “Event of Default” under the Senior Loan Agreement, other than a Senior Payment Default.

Senior Payment Default ” means (a) an Event of Default resulting from the failure of any Company to pay, on a timely basis, any principal or interest required to be paid under the Senior Loan Agreement, including, without limitation, in each case, any default in payment of Senior Debt after



3



acceleration thereof or (b) an Event of Default resulting from the failure of any Company to pay, on a timely basis, any fee or other amount required to be paid pursuant to the terms of the Senior Loan Agreement in an aggregate amount (individually or together with all other such unpaid amounts) in excess of $500,000, including, without limitation, in each case, any default in payment of Senior Debt after acceleration thereof.

 “ Subordinated Debt ” shall mean all obligations, liabilities and indebtedness of every nature of any Company or any Subsidiary of any Company, if any, from time to time owed to the Subordinated Creditor in respect of the Seller Subordinated Note, the Put Right and the Earnout Payments, whether now existing or hereafter created, including, without limitation, the principal amount thereof; claims and indebtedness thereon, accrued and unpaid interest thereon and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, on account thereof, whether before or after the filing of a proceeding under the Bankruptcy Code together with any amendments, modifications, renewals or extensions thereof. Subordinated Debt specifically excludes any obligation of any Company or any Subsidiary of any Company to make a Transaction-Related Payment.

Subordinated Debt Documents ” shall mean the Stock Purchase Agreement, the Seller Subordinated Note, any other instrument evidencing the Subordinated Debt or the obligation to pay the Subordinated Debt, any guaranty with respect to the Subordinated Debt and any other security agreement or other collateral document securing the Subordinated Debt and all other documents, agreements and instruments now existing or hereafter entered into evidencing or pertaining to all or any portion of the Subordinated Debt; provided that the Escrow Shares, the Employment Agreement, the Indemnification Agreement, the D&O Insurance, the Registration Rights Agreement (as defined in the Stock Purchase Agreement), the Escrow Agreement (as defined in the Stock Purchase Agreement), and the Indemnification Escrow Agreement (as defined in the Stock Purchase Agreement),  shall not constitute Subordinated Debt Documents.

Subordinated Default ” means a default in the payment of the Subordinated Debt, or performance of any term, covenant or condition contained in the Subordinated Debt Documents or the occurrence of any other event or condition constituting an event of default under the Subordinated Debt Documents, in each case in respect of which all applicable grace and cure periods under the Subordinated Debt Documents have lapsed.

Subordinated Default Notice ” means a written notice to Senior Agent pursuant to which Senior Agent is notified of the existence of a Subordinated Default, which notice shall reference this Agreement and which includes a reasonably detailed description of such Subordinated  Default.

Transaction-Related Payment ” shall mean any or all of the following: (i) a distribution to, or sale or other disposition by, the Subordinated Creditor of the Escrow Shares in accordance with the terms of the Stock Purchase Agreement and Escrow Agreement to or for the benefit of the Subordinated Creditor (but excluding any exercise of the Put Right with respect to such Escrow Shares); (ii) a payment of any SPA Indemnification Obligation; (iii) a payment of any D&O Indemnification Obligation; (iv) a payment under the Employment Agreement; (v) the exercise of any Stock Option; (vi) the release of all or any portion of the Indemnification Escrow Amount (as defined in the Stock Purchase Agreement); and (viii) the payment of Earnout Payments pursuant to Section 2.5(s) of the Stock Purchase Agreement.

2.

Subordination .

2.1

Subordination of Subordinated Debt to Senior Debt .  Each Company covenants and agrees, and the Subordinated Creditor likewise covenants and agrees, notwithstanding anything to the



4



contrary contained in any of the Subordinated Debt Documents, that the payment of any and all of the Subordinated Debt shall be subordinate and subject in right and time of payment, to the extent and in the manner hereinafter set forth, to the prior indefeasible payment in full in cash of all Senior Debt.  Each holder of Senior Debt (including, without limitation, each Senior Lender Party), whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Debt in reliance upon the provisions contained in this Agreement. Except as otherwise permitted under Subsection 2.2 below, all Senior Debt shall first be indefeasibly paid in full in cash and all commitments to lend under the Senior Debt Documents shall be terminated before any Distribution, whether in cash, securities or other property, shall be made to the Subordinated Creditor on account of any Subordinated Debt.

2.2

Subordinated Debt Payment Restrictions .  (a) Notwithstanding the provisions of subsection 2.1 hereinabove, Permitted Subordinated Debt Payments shall be permitted to be made by the Companies to the Subordinated Creditor and accepted by the Subordinated Creditor; provided , that, the Companies shall not make and the Subordinated Creditor shall not accept or receive from the Companies or otherwise, directly or indirectly, in cash or other property or by set-off or in any other manner (including, without limitation, from or by way of the exercise of the Put Right, but excluding each of the distribution of the Escrow Shares to the Subordinated Creditor in accordance with the terms of the Stock Purchase Agreement and the Escrow Agreement and the sale or other disposition thereof by the Subordinated Creditor), payment of all or any part of the Subordinated Debt that otherwise would have been permitted to be made if, at the time of such payment or immediately after giving effect thereto:

(i)

Subject to Subsection 2.2(b)(i) below, a Senior Payment Default exists; or

(ii)

Subject to Subsection 2.2(b)(ii) below, the Subordinated Creditor shall have received a Senior Default Notice from Senior Agent stating that a Senior Covenant Default exists or would be created by the making of such payment.

(b)

The Companies may resume making Permitted Subordinated Debt Payments in respect of the Subordinated Debt:

(i)

in the case of a Senior Payment Default:

(x) with respect to any Permitted Subordinated Debt Payment to be made pursuant to clauses (a) and/or (b) of the definition thereof, upon the earlier to occur of (A) the cure or waiver (as evidenced by a written waiver from Senior Agent to Borrower) of such Senior Payment Default in accordance with the terms of the Senior Loan Agreement or (B) the date on which the Senior Debt is paid in full and all commitments to lend under the Senior Debt Documents have terminated or (C) the date upon which the Senior Agent, in its sole discretion, consents in writing to the resumption of Permitted Subordinated Debt Payments; and

(y) with respect to any Permitted Subordinated Debt Payment to be made pursuant to clause (c) of the definition thereof, upon the earliest to occur of (A) the cure or waiver (as evidenced by a written waiver from Senior Agent to Borrower) of such Senior Payment Default in accordance with the terms of the Senior Loan Agreement, (B) the date on which the Senior Debt is paid in full and all commitments to lend under the Senior Debt Documents have terminated or (C) the expiration of two hundred seventy (270) days from the date of the occurrence of such Senior Payment Default or (D) the date upon which the Senior Agent, in its sole discretion, consents in writing to the resumption of Permitted Subordinated Debt Payments; and



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(ii)

in the case of a Senior Covenant Default, upon the earliest to occur of (x) the cure or waiver (as evidenced by a written waiver from Senior Agent to Borrower) of such Senior Covenant Default in accordance with the terms of the Senior Loan Agreement, (y) the date on which the Senior Debt is paid in full and all commitments to lend under the Senior Debt Documents have terminated, and (z) the expiration of one hundred thirty-five (135) days from the date on which the Senior Default Notice with respect thereto was received.

(c)

Promptly following the date on which the Companies are permitted to resume making Permitted Subordinated Debt Payments in accordance with Subsection 2.2(b) above (and in no event later than three (3) Business Days) the Companies may make a Catch-Up Payment to the Subordinated Creditor and resume making Permitted Subordinated Debt Payments, and Subordinated Creditor shall be entitled to accept such payments from the Companies.  

(d)

In the event the Companies do not make a Permitted Subordinated Debt Payment otherwise required to be made by them under the Subordinated Debt Documents as a result of the restrictions set forth in this Agreement, any such non-payment, in and of itself, shall not (x) result in or be deemed to constitute a default or an event of default under, or a violation or breach of, the Subordinated Debt Documents or (y) limit or affect the Subordinated Creditor’s obligations under the Subordinated Debt Documents; it being agreed that such other agreements are independent of any provisions hereof and the existence of any claim or cause of action hereunder shall not constitute a defense to the enforcement by the Companies of such other agreements.  Nothing contained in this Section 2.2 shall be construed to waive, limit or otherwise impair the Subordinated Creditor’s rights or remedies or entitlement to pursue or obtain (x) any Transaction-Related Payment (or any sale or other disposition thereof) and (y) the Escrow Shares (or any sale or other disposition of the Escrow Shares) in accordance with the terms of the Stock Purchase Agreement and the Escrow Agreement; provided that the exercise of the Put Right with respect to the Escrow Shares shall be limited and subordinated to the Senior Debt in accordance with the terms of this Agreement.

(e)

No more than two (2) Senior Default Notices may be sent pursuant to Subsection 2.2(a)(ii) during any consecutive three hundred sixty-five (365) day period and no more than three (3) Senior Default Notices may be sent pursuant to Subsection 2.2(a)(ii) in the aggregate during the term of this Agreement.

2.3

Subordinated Debt Standstill Provisions .  Until the Senior Debt has been indefeasibly paid in full and all commitments to lend under the Senior Debt Documents have terminated, the Subordinated Creditor shall not, without the prior written consent of the Senior Agent, take any Enforcement Action, except as provided in the following sentence.  Upon the earliest to occur of:

(a)

the passage of one-hundred thirty-five (135) days from the date of Senior Agent’s receipt of a Subordinated Default Notice from the Subordinated Creditor if the Subordinated Default described therein shall not have been cured or waived in accordance with the relevant Subordinated Debt Document within such period;

(b)

 acceleration of the Senior Debt ( provided , however , that if, following any such acceleration of the Senior Debt, such acceleration in respect of the Senior Debt is rescinded, then all Enforcement Actions taken by the Subordinated Creditor shall likewise be rescinded if (i) such Enforcement Actions are based on this clause (b) and (ii) the Subordinated Creditor shall have no right under any other clause of this Subsection 2.3 to take any Enforcement Action);

(c)

the occurrence of a Proceeding ( provided , however , that if such Proceeding is dismissed, the corresponding prohibition against the Subordinated Creditor taking any Enforcement



6



Action shall automatically be reinstated as of the date of dismissal as if such Proceeding had not been initiated, unless the Subordinated Creditor shall have the right to take any Enforcement Action under another clause of this subsection 2.3; provided , further , that such reinstatement shall not affect the running of the one-hundred thirty-five (135)-day period under clause (a) above to the extent the Subordinated Default giving rise thereto is not based on an acceleration of the Senior Debt or the initiation of such Proceeding);

(d)

 the institution or commencement by Senior Agent of any action under the provisions of any state or federal law, including, without limitation, the Uniform Commercial Code, or under any contract or agreement, to, with respect to the Senior Debt, enforce, foreclose upon, take possession of or sell any material portion of the collateral securing Senior Debt  (other than any action by Senior Agent to take “control” of any deposit account or securities account of any Company);

(e)

the date on which the Senior Debt is paid in full and all commitments to lend under the Senior Debt Documents have terminated;

the Subordinated Creditor may, upon not less than five (5) Business Days’ prior written notice to Senior Agent, which in respect of Enforcement Actions taken pursuant to clause (a) above, which notice may be given during such one hundred thirty-five (135) day period, take Enforcement Actions, but subject in all events to the restrictions and limitations of this Agreement.

Notwithstanding the foregoing or any other terms of this Agreement, the Subordinated Creditor may (i) file proofs of claim against the Borrower or any Company in any Proceeding (defined below) involving such party, (ii) subject to this Agreement, take such actions as are reasonably necessary in such Proceeding to establish and preserve such claim, and (iii) commence any legal action against the Borrower or any Company to the extent (but only to the extent) that the commencement of such legal action is necessary to toll the running of any applicable statute of limitations (but not earlier than ninety (90) days before the expiration thereof).  

2.4

Incorrect Payments .  If any Distribution on account of the Subordinated Debt not permitted to be made by any Company or any Subsidiary of any Company or accepted by the Subordinated Creditor under this Agreement is made and received by the Subordinated Creditor, such Distribution shall not be commingled with any of the assets of the Subordinated Creditor, shall be held in trust by the Subordinated Creditor for the benefit of the Senior Agent and the other Senior Lender Parties and shall be promptly paid over to Senior Agent for application (in accordance with the Senior Debt Documents) to the payment of the Senior Debt then remaining unpaid, until the earlier of all of the Senior Debt is paid in full or otherwise permitted in writing by the Senior Agent.

2.5

[Reserved] .

2.6

[Reserved] .  

2.7

Liquidation, Dissolution, Bankruptcy . Upon any dissolution, winding up, liquidation or reorganization of any Company or any other Credit Party (or any of their respective assets) or similar distribution of assets, whether in any bankruptcy, insolvency, reorganization or receivership proceeding or upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of any Company or any other Credit Party (each, a “ Proceeding ”):

(a)

the Senior Lender Parties shall be entitled to receive indefeasible payment in full in cash of all Senior Debt (including interest, fees and charges accruing thereon after the commencement of any such Proceedings whether or not such interest, fees and charges are allowed claims) before the



7



Subordinated Creditor is entitled to receive any payment upon the Subordinated Debt (provided the foregoing shall not be deemed to restrict Permitted Subordinated Debt Payments permitted to be made pursuant to the terms hereof prior to the commencement of any such Proceeding), and the holders of Senior Debt shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash, property or securities or by set-off or otherwise, which may be payable or deliverable in any such Proceedings in respect of the Subordinated Debt;

(b)

any payment or distribution of assets of Company or such other Credit Party of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the holders of the Subordinated Debt would be entitled pursuant to the Subordinated Debt Documents following the commencement of any such Proceeding but for the provisions hereof shall be paid by the liquidating trustee or agent or other person or entity making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to Senior Agent, for the benefit of the Senior Lender Parties, ratably according to the aggregate amounts remaining unpaid on account of the Senior Debt held or represented by each such holder (or in such other proportions otherwise agreed to among the holders of Senior Debt in writing), to the extent necessary to make payment in full in cash of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the Senior Lender Parties and the Subordinated Creditor acknowledges and agrees that such a payment or distribution may, particularly with respect to interest, fees and charges on Senior Debt after the commencement of such Proceeding, result in the Subordinated Creditor receiving less than they would otherwise;

(c)

the Subordinated Creditor hereby irrevocably (x) authorizes, empowers and directs all receivers, trustees, debtors-in-possession, liquidators, custodians, conservators and others having authority in the premises to effect all such payments and deliveries, and the Subordinated Creditor also irrevocably authorizes, empowers and directs Senior Agent (or its agent, designee or nominee) to demand, sue for, collect and receive every such payment or distribution, and (y) agrees to execute and deliver to Senior Agent (or its agent, nominee or designee) all such further instruments confirming the authorization referred to in the foregoing clause (x);

(d)

the Subordinated Creditor agrees to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Debt requested by Senior Agent (or its agent, designee or nominee) in connection with any such Proceedings and hereby irrevocably authorizes, empowers and appoints Senior Agent (or its agent, designee or nominee) its agent and attorney-in-fact to (x) execute, verify, deliver and file such proofs of claim and (y) vote such proofs of claim or related claims in any such Proceedings; provided that no Senior Lender Party shall have any obligation to execute, verify, deliver, file and/or vote any such proof of claim or claim.  In the event that Senior Agent (or any agent, designee or nominee thereof) votes any claim in accordance with the authority granted hereby, the Subordinated Creditor shall not be entitled to change or withdraw such vote;

(e)

until the payment in full in cash of the Senior Debt and the termination of the Senior Debt Documents and commitments to loan money thereunder, the Subordinated Creditor agrees that it shall not without each Senior Loan Party’s written consent to the contrary: (1) take, join, support or consent to any action or vote in connection with any plan of reorganization or otherwise in any way so as to directly or indirectly challenge or contest: (A) the validity or the enforceability of the Senior Debt Documents, or (B) the validity or enforceability of this Agreement, or (2) propose, join, support or consent to, or vote in favor of or otherwise approve a plan of reorganization, arrangement or liquidation, or file, join, or consent to any motion or pleading in support of any plan of reorganization, arrangement or liquidation, unless the plan provides for the payment in full cash of the Senior Debt on the effective date of such plan;



8



(f)

this Agreement shall constitute a subordination agreement within the meaning of Section 510(a) of the Bankruptcy Code.  This Agreement shall be applicable both before and after the filing of any petition by or against any Person under the Bankruptcy Code and shall be applicable both before and after the commencement of any other Proceeding.  The relative rights of the parties hereto, and the rights of such parties in or to distributions shall continue after the filing of such petition, or the commencement of any other Proceeding, on the same basis as prior thereto; and

(g)

nothing contained in this Subsection 2.7 shall be construed to waive, limit or otherwise impair the Subordinated Creditor’s rights or remedies or entitlement to pursue or obtain the Escrow Shares in accordance with the terms of the Stock Purchase Agreement and the Escrow Agreement; provided that the exercise of the Put Right with respect to the Escrow Shares shall be limited and subordinated to the Senior Debt in accordance with the terms of this Agreement.

3.

Modifications .

3.1

Modifications to Senior Debt Documents .  Senior Agent and the other Senior Lender Parties may at any time and from time to time without the consent of or notice to the Subordinated Creditor, without incurring liability to the Subordinated Creditor and without impairing or releasing the obligations of the Subordinated Creditor under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any of the terms of the Senior Debt, or amend in any manner any agreement, note, guaranty or other instrument evidencing or securing at otherwise relating to the Senior Debt in accordance with the terms set forth in the Senior Debt Documents; provided that without the prior written consent of the Subordinated Creditor, the Senior Debt Documents shall not be amended so as to:

(a)

contravene the provisions of this Agreement; or

(b)

modify any provision of the Senior Debt Documents to further restrict the Borrower or any Company from making any payments under the Subordinated Debt Documents in addition to those in existence on the date hereof.

3.2

Modifications to Subordinated Debt Documents .  Until the Senior Debt has been indefeasibly paid in full in cash and all lending commitments under the Senior Debt Documents have terminated, and notwithstanding anything to the contrary contained in the Subordinated Debt Documents, the Subordinated Creditor shall not, without the prior written consent of Senior Agent, agree to any amendment, modification or supplement to the Subordinated Debt Documents.

4.

Waiver of Certain Rights by the Subordinated Creditor .

4.1

Marshaling .  The Subordinated Creditor hereby waives any rights it may have under applicable law to assert the doctrine of marshaling or to otherwise require Senior Agent and the other Senior Lender Parties to marshal any property of any Company or any Subsidiary of any Company or any guarantor of the Senior Debt for the benefit of the Subordinated Creditor.

4.2

Rights Relating to Senior Agent’s Actions with respect to the Collateral . The Subordinated Creditor hereby waives, to the extent permitted by applicable law, any rights which it may have to enjoin or otherwise obtain a judicial or administrative order preventing Senior Agent or the other Senior Lender Parties from taking, or refraining from taking, any action with respect to all or any part of the collateral subject to the Senior Lender Parties’ Liens. Without limitation of the foregoing, the Subordinated Creditor hereby agrees that it has no right to direct or object to the manner in which Senior



9



Agent applies the proceeds of such collateral to the Senior Debt resulting from the exercise by Senior Agent and the other Senior Lender Parties of rights and remedies under the Senior Debt Documents.

4.3

Rights Relating to Disclosures .  The Subordinated Creditor hereby agrees that Senior Agent has not assumed any obligation or duty to disclose information regarding any Company or any Subsidiary of any Company or the Senior Debt to the Subordinated Creditor and Senior Agent shall have no special or fiduciary relationship to the Subordinated Creditor. The Subordinated Creditor hereby fully waives and releases Senior Agent from any affirmative disclosures which may be required of Senior Agent under applicable law.

5.

No Additional Liens or Guarantees; Turnover .  The Subordinated Creditor agrees that it shall not seek to obtain and shall not take, accept, obtain or have (i) any guarantee of all or any part of the Subordinated Debt by any Credit Party (other than the Borrower) or (ii) any lien or security interest in any assets of, or equity interests in, the Companies or any other Credit Party as security for all or any part of the Subordinated Debt, other than the Subordinated Debt Security, and, in the event that the Subordinated Creditor obtains any guarantees, liens or security interests, other than the Subordinated Debt Security, the Subordinated Creditor shall (or shall cause its agent to) promptly execute and deliver to Senior Agent such documents, agreements and instruments, and take such other actions, as Senior Agent shall request to release such guarantees, liens or security interests.  Without limiting any of the foregoing, the Subordinated Creditor agrees and acknowledges that, in the event the Subordinated Creditor takes any action to realize on any collateral securing the Subordinated Debt (excluding any action to pursue or obtain the Escrow Shares in accordance with the terms of the Stock Purchase Agreement and the Escrow Agreement, but excluding any action taken to  exercise of the Put Right with respect to the Escrow shares) (in violation of the foregoing), if any (including as a result of any judgment lien), all proceeds therefrom shall be received in trust for the benefit of the Senior Lender Parties and shall be paid over upon demand to Senior Agent, for the benefit of the Senior Lender Parties, in the same form as so received (with all necessary endorsements) to be applied to the payment of the Senior Debt until the Senior Debt shall have been paid in full in cash.

6.

Construction .  The terms of this Agreement were negotiated among business persons sophisticated in the area of business finance, and accordingly, in construing the terms of this Agreement, no rule or law which would require that this instrument be construed against the party who drafted this instrument shall be given any force or effect.

7.

Modification .  Any modification or waiver of any provision of this Agreement, or any consent to any departure by any party from the terms hereof, shall not be effective in any event unless the same is in writing and signed by Senior Agent and the Subordinated Creditor, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on any party hereto in any event not specifically required hereunder shall not entitle the party receiving such notice or demand to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.

8.

Further Assurances .  Each party to this Agreement promptly will execute and deliver such further instruments and agreements and do such further acts and things as may be reasonably requested in writing by any other party hereto that may be necessary or desirable in order to effect fully the purposes of this Agreement.

9.

Notices .  Any notice or other communication required or permitted under this Agreement shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent by regular mail), or sent by prepaid



10



overnight courier service, and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice under this Agreement:

(a)

If to Senior Agent or any other Senior Lender Party, at:


Victory Park Management, LLC

227 W. Monroe Street, Suite 3900

Chicago, Illinois 60606

Telephone:

(312) 705-2786

Facsimile:

(312) 701-0794

Attention:  

Scott Zemnick, Esq.

E-mail:

szemnick@vpcadvisors.com


with a copy to:

Katten Muchin Rosenman LLP

525 West Monroe Street

Chicago, Illinois 60661

Telephone:

(312) 902-5297 and (312) 902-5495

Facsimile:

(312) 577-8964 and (312) 577-8854

Attention:

Mark R. Grossmann, Esq. and Scott E. Lyons, Esq.

E-mail:

mg@kattenlaw.com and scott.lyons@kattenlaw.com


(b)

If to any Company, at:


Social Reality, Inc.

456 Seaton Street

Los Angeles, CA  90013

Telephone:

(323) 283-8505

Attention:

Christopher Miglino

Email:

chris@socialreality.com


with a copy to:

c/o Sidley Austin LLP

787 Seventh Avenue

New York, New York  10019

Telephone:

(212) 339-5480

Attention:

Alan Jakimo, Esq.

Email:

ajakimo@sidley.com


(c)

If to the Subordinated Creditor, at:


Richard Steel

_______________

_______________



11



Attention: Laura Juarez, President

Facsimile: (419) 636-8129


with a copy to:


Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, NY 10020

Attention Steven E. Siesser, Esq.

Telephone: (212) 204-8688

Fascimile: (973) 597-2507

Email:  ssiesser@lowenstein.com


If mailed, notice shall be deemed to be given five (5) days after being sent, and if sent by personal delivery, telecopier or prepaid courier, notice shall be deemed to be given when delivered.

10.

Successors and Assigns .   This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of Senior Agent, the other Senior Lender Parties, the Subordinated Creditor and the Companies.  Senior Agent and the other Senior Lender Parties may, from time to time, without notice to the Subordinated Creditor, assign or transfer any or all of the Senior Debt or any interest therein to any Person in accordance with the terms of the Senior Loan Agreement and, notwithstanding any such assignment or transfer, or any subsequent assignment or transfer, the Senior Debt shall, subject to the terms hereof, be and remain Senior Debt for purposes of this Agreement, and every permitted assignee or transferee of any of the Senior Debt or of any interest therein shall, to the extent of the interest of such permitted assignee or transferee in the Senior Debt, be entitled to rely upon and be the third party beneficiary of the subordination provided under this Agreement and shall be entitled to enforce the terms and provisions hereof to the same extent as if such assignee or transferee were initially a party hereto.

11.

Relative Rights .  This Agreement shall define the relative rights of Senior Agent, the other Senior Lender Parties and the Subordinated Creditor.  Nothing in this Agreement shall (a) impair, as among the Companies, the other Senior Lender Parties and Senior Agent, the obligation of the Companies with respect to the payment of the Senior Debt and the Subordinated Debt in accordance with their respective terms or (b) affect the relative rights of Senior Agent, the other Senior Lender Parties or the Subordinated Creditor with respect to any other creditors of the Companies.

12.

Miscellaneous .  In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Subordinated Debt Documents, the provisions of this Agreement shall control and govern.  The paragraph headings used in this Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, but in making proof hereof, it shall only be necessary to produce one such counterpart containing signature pages signed by each party. In the event that any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement. This Agreement shall be governed by and shall be construed and enforced in accordance with the internal laws of the State of Illinois, without regard to conflicts of law principles.    



12



13.

Continuation of Subordination; Termination of Agreement .  This Agreement shall remain in full force and effect until the indefeasible payment in full in cash of the Senior Debt and the termination of all lending commitments under the Senior Debt Documents after which this Agreement shall terminate without further action on the part of the parties hereto.

14.

CONSENT TO JURISDICTION .   ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS LOCATED IN THE CITY OF CHICAGO, COUNTY OF COOK, OR OF THE UNITED STATES OF AMERICA FOR THE FOR THE NORTHERN DISTRICT OF ILLINOIS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE SUBORDINATED CREDITOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.  THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH JURISDICTIONS.   EACH PARTY HERETO HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH PERSON AT THEIR RESPECTIVE ADDRESSES SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

15.

WAIVER OP JURY TRIAL .   THE PARTIES HERETO, TO THE EXTENT PERMITTED BY LAW, WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING ARISING OUT OF, IN CONNECTION WITH OR RELATING TO, THIS AGREEMENT AND ANY OTHER TRANSACTION CONTEMPLATED HEREBY AND THEREBY. THIS WAIVER APPLIES TO ANY ACTION, SUIT OR PROCEEDING WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE.  EACH OF SUBORDINATED CREDITOR, EACH COMPANY AND SENIOR AGENT WARRANTS AND REPRESENTS THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

IN WITNESS WHEREOF , intending to be legally bound, and intending that this Agreement constitute an instrument executed and delivered under seal, the parties have caused this Agreement to be executed under seal as of the date first written above.

 

SUBORDINATED CREDITOR:

 

 

 

 

RICHARD STEEL , an individual

 

 

 

 

/s/ Richard Steel

 

 

 

 

COMPANIES:

 

 

 

 

SOCIAL REALITY, INC. , a Delaware corporation

 

 

 

 

By:

/s/ Christopher Miglino

 

Name:

Christopher Miglino

 

Title:

Chief Executive Officer



13




 

 

 

 

SENIOR AGENT:

 

 

 

 

VICTORY PARK MANAGEMENT, LLC, a Delaware limited liability company

 

 

 

 

By:

/s/ Scott Zemnick

 

Name:

Scott Zemnick

 

Title:

Authorized Signatory





14




Exhibit 10.23

FINANCING AGREEMENT

Dated as of October 30, 2014

by and among

SOCIAL REALITY, INC., a Delaware corporation (“Social”),

as the Borrower,


the Guarantors from time to time party hereto,


THE LENDERS PARTY HERETO

and

VICTORY PARK MANAGEMENT, LLC
as Agent

______________________________________________________________________________

UP TO $20,000,000 SENIOR SECURED NOTES

 AND

WARRANTS TO PURCHASE SHARES OF

COMMON STOCK

______________________________________________________________________________





TABLE OF CONTENTS


 

 

Page

                          

                                                                                                                 

        

Article I DEFINITIONS; CERTAIN TERMS

2

 

 

 

Section 1.1

Definitions

2

Section 1.2

Terms Generally

19

Section 1.3

Accounting and Other Terms

20

Section 1.4

Borrower Representative

20

 

 

 

Article II AUTHORIZATION OF ISSUE

20

 

 

 

Section 2.1

Senior Secured Notes

20

Section 2.2

Interest

22

Section 2.3

Redemptions, Payments

23

Section 2.4

Payments

26

Section 2.5

Dispute Resolution

27

Section 2.6

Taxes

27

Section 2.7

Reissuance

28

Section 2.8

Register

29

Section 2.9

Maintenance of Register

30

Section 2.10

Consideration for Notes

30

Section 2.11

Transfer Agent Instructions

30

Section 2.12

Compensation for Increased Costs and Taxes

30

Section 2.13

Capital Adequacy Adjustment

31

 

 

 

Article III PURCHASE AND SALE OF CLOSING DATE NOTES

32

 

 

 

Section 3.1

Closing

32

 

 

 

Article IV INTENTIONALLY OMITTED

32

 

 

 

Article V CONDITIONS TO EACH LENDER’S OBLIGATION  TO PURCHASE

32

 

 

 

Section 5.1

Closing

32

Section 5.2

Additional Notes

36

 

 

 

Article VI LENDER’S REPRESENTATIONS AND WARRANTIES

37

 

 

 

Section 6.1

No Public Sale or Distribution

37

Section 6.2

Investor Status

37

Section 6.3

No Governmental Review

37

Section 6.4

Transfer or Resale

37

Section 6.5

Legends

38

Section 6.6

Residency

38



i




Article VII CREDIT PARTIES’ REPRESENTATIONS AND WARRANTIES

38

                          

                                                                                                                 

        

Section 7.1

Organization and Qualification

38

Section 7.2

Authorization; Enforcement; Validity

39

Section 7.3

Issuance of Securities

39

Section 7.4

No Conflicts

40

Section 7.5

Consents

40

Section 7.6

Subsidiary Rights

41

Section 7.7

Equity Capitalization

41

Section 7.8

Indebtedness and Other Contracts

42

Section 7.9

Off Balance Sheet Arrangements

42

Section 7.10

Ranking of Notes

42

Section 7.11

Title

42

Section 7.12

Intellectual Property Rights

42

Section 7.13

Creation, Perfection, and Priority of Liens

43

Section 7.14

Absence of Certain Changes

43

Section 7.15

Absence of Litigation

44

Section 7.16

No Undisclosed Events, Liabilities, Developments or Circumstances

44

Section 7.17

No Disagreements with Accountants and Lawyers

44

Section 7.18

No General Solicitation; Placement Agent’s Fees

44

Section 7.19

No Integrated Offering

45

Section 7.20

Tax Status

45

Section 7.21

Transfer Taxes

45

Section 7.22

Conduct of Business; Compliance with Laws; Regulatory Permits

45

Section 7.23

Foreign Corrupt Practices

46

Section 7.24

Sarbanes-Oxley Act

46

Section 7.25

Environmental Laws

46

Section 7.26

Margin Stock

47

Section 7.27

ERISA

47

Section 7.28

Investment Company

48

Section 7.29

U.S. Real Property Holding Corporation

48

Section 7.30

Internal Accounting and Disclosure Controls

48

Section 7.31

SEC Documents; Financial Statements

48

Section 7.32

Transactions With Affiliates

49

Section 7.33

Acknowledgment Regarding Lenders’ Purchase of Securities

50

Section 7.34

Acknowledgement Regarding Lender’s Trading Activity

50

Section 7.35

Insurance

50

Section 7.36

Closing Date Acquisition Documents

50

Section 7.37

Employee Relations

50

Section 7.38

Disclosure

51

Section 7.39

Patriot Act

51

Section 7.40

Material Contracts

52

Section 7.41

Manipulation of Prices; Securities

52

Section 7.42

Application of Takeover Protections; Rights Agreement

52

Section 7.43

Absence of Securities-Related Litigation

52



ii




Section 7.44

No Disqualification Events

52

                          

                                                                                                                 

        

Article VIII COVENANTS

53

 

 

 

Section 8.1

Financial Covenants

53

Section 8.2

Deliveries

55

Section 8.3

Notices

57

Section 8.4

Rank

59

Section 8.5

Incurrence of Indebtedness

59

Section 8.6

Existence of Liens

59

Section 8.7

Restricted Payments

59

Section 8.8

Mergers; Acquisitions; Asset Sales

60

Section 8.9

No Further Negative Pledges

60

Section 8.10

Affiliate Transactions

60

Section 8.11

Insurance

61

Section 8.12

Corporate Existence and Maintenance of Properties

62

Section 8.13

Non-circumvention

62

Section 8.14

Conduct of Business

62

Section 8.15

U.S. Real Property Holding Corporation

63

Section 8.16

Compliance with Laws

63

Section 8.17

Additional Collateral

63

Section 8.18

Audit Rights; Field Exams; Appraisals; Meetings

63

Section 8.19

Pledge of Securities

64

Section 8.20

Additional Issuances of Debt or Equity

64

Section 8.21

Right to Participate in Future Offering

64

Section 8.22

Use of Proceeds

66

Section 8.23

Costs, Expenses and Other Amounts

66

Section 8.24

Modification of Organizational Documents and Certain Documents

67

Section 8.25

Joinder

67

Section 8.26

Investments

68

Section 8.27

Further Assurances

68

Section 8.28

Board Observation Rights

68

Section 8.29

Form D and Blue Sky

69

Section 8.30

Reporting Status

69

Section 8.31

Listing; DTC Eligibility

69

Section 8.32

Removal of Legends

69

Section 8.33

Disclosure of Transactions and Other Material Information

70

Section 8.34

Material Non-public Information

71

Section 8.35

Reservation of Shares

72

Section 8.36

Internal Accounting Controls

72

Section 8.37

Regulation M

72

Section 8.38

Disqualification Events

73

Section 8.39

Hiring of Chief Financial Officer

73

Section 8.40

Segregated Accounts.

73

Section 8.41

Operating Losses.

73



iii




Article IX CROSS GUARANTY

73

                          

                                                                                                                 

        

Section 9.1

Cross-Guaranty

73

Section 9.2

Waivers by Guarantors

74

Section 9.3

Benefit of Guaranty

74

Section 9.4

Waiver of Subrogation, Etc

74

Section 9.5

Election of Remedies

74

Section 9.6

Limitation

75

Section 9.7

Contribution with Respect to Guaranty Obligations

75

Section 9.8

Liability Cumulative

76

Section 9.9

Stay of Acceleration

76

Section 9.10

Benefit to Borrowers

76

 

 

 

Article X RIGHTS UPON EVENT OF DEFAULT

76

 

 

 

Section 10.1

Event of Default

76

Section 10.2

Acceleration Right

80

Section 10.3

Consultation Rights

80

Section 10.4

Other Remedies

80

 

 

 

Article XI INTENTIONALLY OMITTED

81

 

 

 

Article XII AGENCY PROVISIONS

81

 

 

 

Section 12.1

Appointment

81

Section 12.2

Binding Effect

82

Section 12.3

Use of Discretion

82

Section 12.4

Delegation of Duties

83

Section 12.5

Exculpatory Provisions

83

Section 12.6

Reliance by Agent

83

Section 12.7

Notices of Default

84

Section 12.8

Non Reliance on the Agent and Other Holders

85

Section 12.9

Indemnification

85

Section 12.10

The Agent in Its Individual Capacity

85

Section 12.11

Resignation of the Agent; Successor Agent

86

Section 12.12

Reimbursement by Holders and Lenders

86

Section 12.13

Withholding

86

Section 12.14

Release of Collateral or Guarantors

87

 

 

 

Article XIII MISCELLANEOUS

87

 

 

 

Section 13.1

Payment of Expenses

87

Section 13.2

Governing Law; Jurisdiction; Jury Trial

88

Section 13.3

Counterparts

89

Section 13.4

Headings

89



iv




Section 13.5

Severability

89

Section 13.6

Entire Agreement; Amendments

89

Section 13.7

Notices

90

Section 13.8

Successors and Assigns

91

Section 13.9

No Third Party Beneficiaries

93

Section 13.10

Survival

93

Section 13.11

Further Assurances

93

Section 13.12

Indemnification

93

Section 13.13

No Strict Construction

94

Section 13.14

Waiver

94

Section 13.15

Payment Set Aside

94

Section 13.16

Independent Nature of Lenders’ Obligations and Rights

94

Section 13.17

Set-off; Sharing of Payments

95

                          

                                                                                                                 

        




v



EXHIBITS

Exhibit A

Note

Exhibit B

Warrant

Exhibit C

Security Agreement

Exhibit D

Registration Rights Agreement

Exhibit E

Compliance Certificate

Exhibit F

Funds Flow Letter

Exhibit G

Irrevocable Transfer Agent Instructions

Exhibit H

Secretary’s Certificate

Exhibit I

Officer’s Certificate

Exhibit J

Reserved

Exhibit K

Reserved

Exhibit L

Joinder Agreement


SCHEDULES

Schedule of Lenders


Schedule 1.1

EBITDA; Fixed Charge Coverage Ratio; Interest Coverage Ratio

Schedule 7.1

Subsidiaries

Schedule 7.4

No Conflicts

Schedule 7.5

Consents

Schedule 7.6

Subsidiary Rights

Schedule 7.7

Equity Capitalization

Schedule 7.8

Indebtedness and Other Contracts

Schedule 7.9

Off Balance Sheet

Schedule 7.11

Title

Schedule 7.12

Intellectual Property Rights

Schedule 7.14

Absence of Certain Changes

Schedule 7.15

Absence of Litigation

Schedule 7.16

Disclosure

Schedule 7.18

Placement Agent’s Fees

Schedule 7.22

Conduct of Business; Regulatory Permits

Schedule 7.25

Environmental Laws

Schedule 7.27

ERISA

Schedule 7.32

Transactions with Affiliates

Schedule 7.34

Acknowledgement Regarding Lender’s Trading Activity

Schedule 7.40

Material Contracts

Schedule 8.6

Existing Liens

Schedule 8.7

Restricted Payments

Schedule 8.25

Existing Investments




vi



FINANCING AGREEMENT


This FINANCING AGREEMENT (as modified, amended, extended, restated, amended and restated and/or supplemented from time to time, this " Agreement "), dated as of October 30, 2014, is being entered into by and among Social Reality, Inc., a Delaware corporation (" Social "; Social and each other Person who executes a Joinder Agreement and becomes a New Borrower hereunder, including, without limitation, Steel Media, a California corporation (" Steel Media "), from and after the consummation of the Closing Date Acquisition, from time to time, each a " Borrower " and collectively, the " Borrowers "), Social, as the Borrower Representative, the entities party hereto from time to time as Guarantors, the lenders from time to time listed on the Schedule of Lenders attached hereto (each individually, a " Lender " and collectively, the " Lenders ") and Victory Park Management, LLC, as administrative agent and collateral agent (the " Agent ") for the Lenders and the Holders (as defined herein).


RECITALS


WHEREAS , the Borrowers have authorized a new series of senior secured notes to be issued by the Borrowers;


WHEREAS , each Lender wishes to purchase, and the Borrowers wish to sell, upon the terms and conditions stated in this Agreement, from time to time that principal amount of Senior Secured Notes, in substantially the form attached hereto as Exhibit A , as set forth opposite such Lender's name in column three (3) on the Schedule of Lenders attached hereto;


WHEREAS , in connection with the initial sale of Notes at the Closing, and as an inducement to the Lenders to purchase such Notes, Social wishes to issue to the Lenders at the Closing, upon the terms and conditions stated in this Agreement and in the Warrants (as defined below), warrants to purchase an aggregate of 2,900,000 shares of Class A common stock, par value $0.001 per share, of Social (or any capital stock issued in substitution or exchange for, or otherwise in respect of, such common stock) (the " Common Stock "), in substantially the form attached hereto as Exhibit B , and in the respective denominations as set forth opposite each Lender's name in column four (4) on the Schedule of Lenders attached hereto (the " Warrants ");


WHEREAS , Social and the Lenders are executing and delivering this Agreement in reliance upon the exemption from securities registration with respect to the Notes (as defined below), the Warrants and the Warrant Shares (as defined below) afforded by the Securities Act of 1933, as amended (the " 1933 Act "), and Regulation D (" Regulation D ") promulgated by the United States Securities and Exchange Commission (the " SEC ") under the 1933 Act;


WHEREAS , contemporaneously with the execution and delivery of this Agreement, the Borrowers, as applicable, the Guarantors, as applicable, and the Agent, on behalf of the Holders and the Lenders, are executing and delivering a Pledge and Security Agreement, substantially in the form attached hereto as Exhibit C (the " Security Agreement "), pursuant to which substantially all of the assets of the Borrowers and the Guarantors will be pledged as Collateral to secure the Obligations; and


WHEREAS , contemporaneously with the execution and delivery of this Agreement, Social and the Lenders are executing and delivering a Registration Rights Agreement, in substantially the form attached hereto as Exhibit D (the " Registration Rights Agreement "),


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pursuant to which Social has agreed to provide the Holder(s) of the Warrants and Warrant Shares certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.


NOW, THEREFORE , in consideration of the premises and the covenants and agreements contained herein, the Borrowers, the Guarantors, the Agent and each Lender hereby agree as follows:


ARTICLE I

DEFINITIONS; CERTAIN TERMS


Section 1.1

Definitions .  As used in this Agreement, the following terms have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:


" 1933 Act " has the meaning set forth in the Recitals.


" 1933 Act Legend " has the meaning set forth in Section 6.5.


" 1934 Act " means the Securities Exchange Act of 1934, as amended.


" Acquisition " means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of all or substantially all of any business line, unit or division of a Person, (b) the acquisition of in excess of 50% of the Equity Interests of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person.


" Additional Notes " has the meaning set for in Section 2.1(b).


" Agent " has the meaning set forth in the introductory paragraph hereto.


" Affiliate " means, with respect to a specified Person, another Person that (i) is a director or officer (or, in the case of a Borrower, a Responsible Officer), of such specified Person, or (ii) directly or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with the Person specified.


" Approved Stock Plan " means the Social Reality, Inc. 2012 Equity Compensation Plan, as in effect as of the Closing Date, without amendment or modification thereafter.


" Asset Sale " means (i) the sale, lease, license, conveyance or other disposition of any assets or rights of any Credit Party or any Subsidiary of any Credit Party, and (ii) the sale of Equity Interests in any Credit Party or any Subsidiary of any Credit Party.


" Assignee " has the meaning set forth in Section 13.8.


" Bankruptcy Law " has the meaning set forth in Section 10.1(c).



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" Business Day " means any day other than Saturday or Sunday or any day that banks in Chicago, Illinois are required or permitted to close.


"Capital Expenditures" means any expenditure or obligation which should be capitalized in accordance with GAAP.


" Capital Stock " means (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests, respectively; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into, or exchangeable for, Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.


" Cash Equivalent Investment " means, at any time, (a) any evidence of debt, maturing not more than one year after such time, issued or guaranteed by the United States Government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case rated at least A-l by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or P-l by Moody's Investors Service, Inc., (c) any certificate of deposit, time deposit or banker's acceptance, maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, (d) any repurchase agreement entered into with any commercial banking institution of the nature referred to in clause (c) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder, (e) money market accounts or mutual funds which invest exclusively in assets satisfying the foregoing requirements, and (f) other short term liquid investments approved in writing by Agent.


" Cash Interest Rate " means a rate per annum equal to ten percent (10.0%).


" Change of Control " means the occurrence of any of the following:


(A)

any Credit Party or any Subsidiary of any Credit Party shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not a Credit Party or any such Subsidiary is the surviving corporation) another Person which results in such Person or any other Person (other than the then current holders) owning more than 50% of the outstanding common shares of or otherwise having voting control over any Credit Party, (ii) sell, assign, transfer, lease, license, convey or otherwise dispose of all or substantially all of the properties or assets of such Credit Party or such Subsidiary to another Person, (iii) reorganize, recapitalize or reclassify the Capital Stock of such Credit Party or such Subsidiary, or (iv) consummate a stock purchase agreement or other business combination (including a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock; or


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(B)

with respect to any Credit Party or any Subsidiary of any Credit Party, any Person shall make a purchase, tender or exchange offer that is accepted by the holders of more than fifty percent (50%) of the outstanding shares of Capital Stock or other voting securities of such Credit Party or Subsidiary thereof (not including any shares of Capital Stock or other voting securities of such entity held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer); or


(C)

with respect to Social, any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the 1934 Act), other than the Lenders, is or becomes the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act), directly or indirectly, or record owner, of issued and outstanding voting securities having thirty-five percent (35%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors;


(D)

any change in the composition of the board of directors of Social such that the individuals who, as of the Closing Date, constituted the board of directors of Social cease for any reason to constitute at least a majority of the board of directors of Social; or