Item
1.01 Entry into a Material Definitive Agreement.
Sale
of LD Micro, Inc.
On
March 3, 2023 (the “Closing Date”), SRAX, Inc. (the “Company”) entered into and consummated the transactions
contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) with Freedom Holding Corp., a Nevada corporation
(the “Parent”), Freedom U.S. Markets, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Parent
(the “Buyer”), LDM Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Buyer (“Merger Sub”),
LD Micro, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“LD Micro”), to sell LD Micro, a small
cap platform and conference provider. Specifically, pursuant to the terms of the Merger Agreement, at the closing of the transactions
contemplated by the Merger Agreement (the “Closing”), LD Micro merged with and into Merger Sub (the “Merger”),
with Merger Sub surviving the Merger (the “Surviving Corporation”), in a transaction intended to qualify for tax-free treatment
under Section 368(a) of the Internal Revenue Code of 1986, as amended.
At
the Closing, as consideration for the sale of LD Micro by means of the Merger, the Buyer paid the Company $8,300,000 in consideration,
consisting of $4,000,000 in cash (the “Cash Payment”), and 59,763 shares of the Parent’s common stock, par value $0.001
per share (the “Parent Common Stock”), which is equal to the quotient obtained by dividing (x) $4,300,000 by (y) the volume
weighted average of the daily closing sales prices of the Parent Common Stock, as reported on the Nasdaq Capital Market for the thirty
(30) consecutive trading days ending on the three (3) trading days prior to the Closing (the “Payment Shares,” and together
with the Cash Payment, the “Merger Consideration”). The Company also entered into a four (4) year Sponsorship Agreement that
provides the Company certain exclusive rights as it relates to LD Micro following the Merger, as more fully described below.
LD
Micro’s President, Christopher Lahiji, is a member of the Company’s board of directors (the “Board”). The Merger
was approved on March 2, 2023, by the Board. In such case, it was considered that Mr. Lahiji is an interested director of the Company
with respect to the Merger. In such case, it also was determined, among other things, that, notwithstanding that Mr. Lahiji is an interested
director of the Company, the Merger Consideration received for the sale of LD Micro, by means of the Merger, constitute fair and adequate
consideration. In connection with the Merger, Mr. Lahiji stepped down from the Board, as more fully described below in Item 5.02 of this
Current Report on Form 8-K.
Additionally,
the Merger Agreement provides for piggy-back registration rights to register the Payment Shares. Specifically, at any time the Parent
intends to file on its behalf or on behalf of any of Parent’s other securityholders a registration statement in connection with
a public offering of any of the Parent’s securities on a form and in a manner that would permit the registration for the offer
and sale of the Payment Shares held by the Company, the Company will have the right to register its Payment Shares for resale in that
offering, subject to certain exceptions, including registration statements filed in connection with any employee stock option or benefits,
an exchange offer between the Parent’s existing stockholders, an “at the market” registered offering, or pursuant to
a Registration Statement on Form S-4.
Pursuant
to the Merger Agreement, the Company and the Parent agreed to provide mutual indemnification to each other with respect to certain alleged
representations, warranties or covenant breaches exceeding $100,000, but in no case exceeding $400,000. The Company also has the obligation
to indemnify the Parent for any of LD Micro’s Indebtedness (as defined in the Merger Agreement) outstanding at the Closing.
The
parties also agreed to representations, warranties and covenants customary of transactions of this type as more fully contained in the
Merger Agreement. The representations and warranties were qualified by disclosure schedules and are subject to the materiality standards
set forth in the Merger Agreement.
Further,
in connection with the Merger, the Company also entered into a sponsorship agreement with the Surviving Corporation (the “Sponsorship
Agreement”), whereby the Surviving Corporation agreed to designate the Company as an exclusive sponsor of certain flagship events
that will be organized by the Surviving Corporation after the consummation of the Merger for a period of four (4) years and to provide
certain benefits to the Company which include (i) exclusive virtual and live streaming partner for the events; (ii) exclusive partner
to provide video recording interviews; and (iii) certain exclusivity to be the only sponsor providing SAAS platform services and digital
marketing and services at the events. Also included in the Sponsorship Agreement is a mutual indemnification clause that covers breach,
misrepresentation or non-performance under the Sponsorship Agreement, certain third-party claims and intellectual property claim or claim
infringement.
The
descriptions of the Merger Agreement and Sponsorship Agreement are qualified in their entirety by reference to the full text of the Merger
Agreement and Sponsorship Agreement, a copy of which is filed as Exhibit 2.1 and 10.1, respectively, to this Current Report on Form 8-K
and is incorporated by reference herein.
Consent,
Waiver and Release Agreement
On
August 8, 2022, the Company, LD Micro and ATW Opportunities Master Fund II, LP (the “Lender”), entered into that certain
Senior Secured Revolving Credit Facility Agreement (the “Credit Agreement”), pursuant to which, the Company may borrow from
Lender up to $9,450,000 in the aggregate, from time to time, subject to certain conditions (the “Revolving Loans”). The obligations
of the Company under the Credit Agreement, Revolving Loans and other documents or instruments executed in connection therewith (the “Loan
Documents”) are secured by the assets of the Company and guaranteed by LD Micro.
The
Company and LD Micro entered into a consent, waiver and release agreement (the “Consent Agreement”) dated as of March 1,
2023, but effective as of the Closing Date, with the Lender, pursuant to which the Lender agreed to: (i) fully release LD Micro from
its obligations as a credit party in each of the Loan Documents LD Micro is a party of; (ii) release and terminate the Lender’s
lien and security interest in and to any assets of LD Micro granted under the respective Loan Document creating such interest; (iii)
release and terminate LD Micro’s issued and outstanding shares pledge under the respective Loan Document creating such pledge;
(iv) waive any restrictions, covenants and other obligations contained in the Loan Documents, which would otherwise be potentially breached
as a result of the Merger; and (v) waive any Events of Default (as defined in the Credit Agreement) arising under the Loan Documents
as a result of or in connection with the Merger.
The
Consent Agreement also provides that, within forty-five (45) days following the Company’s receipt of the Merger Consideration,
the Company must use 15% of the gross cash proceeds from the Cash Payment to redeem its common stock at a price per share of less than
$5.00, and pay 10% of the gross cash proceeds from the Cash Payment to pay any outstanding amounts under the Revolving Loans. Further,
to the extent permitted under applicable law, following the Company’s sale of the Payment Shares, and within forty-five (45) days
of the receipt of the proceeds from any sale of the Payment Shares, the Company will use 15% of the gross cash proceeds from the sale
of the Payment Shares (less any broker’s fees or commissions) to redeem its common stock at a price per share less than $5.00,
and 10% of such proceeds to pay any outstanding amounts under the Revolving Loans (less any broker’s fees or commissions).
The
description of the Credit Agreement is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which
is filed as Exhibit 10.01 of the Current Report on Form 8-K filed with the SEC on August 12, 2022 and is incorporated herein by reference.
The
description of the Consent Agreement is qualified in its entirety by reference to the full text of the Consent Agreement, a copy
of which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.
