Madison Technologies Inc 10-K for FY2021
Madison Technologies Inc. (MDEX)
About this 10-K
Madison Technologies Inc filed this 10-K on August 26, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.24M
- up 90413.5% from $1374 a year earlier
- Net loss
- $14.26M
- compared with a net loss of $910.16K a year earlier
United states
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Annual report pursuant to section 13 0r 15(d) of the securities exchange act of 1934 |
For
the fiscal year ended
| transition report pursuant to section 13 0r 15(d) of the securities exchange act of 1934 |
For the transition period from ___________ to___________
Commission
file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| Not Applicable | Not Applicable | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| OTCQB |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $0.001 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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Yes ☒
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act from their obligations under those sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange Act.
| Larger accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company | ||
| Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
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Yes ☒
As
of June 30, 2021, the last business day of the Registrant’s most recently completed second fiscal quarter, the market value of
our common stock held by non-affiliates was approximately $
The number of shares of the Registrant’s common stock, $0.001 par value per share, outstanding as of August 26, 2022, was .
| Madison Technologies Inc. | Form 10-K - 2021 | Page 2 |
Forward Looking Statements
The information in this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve risks and uncertainties, including statements regarding Madison’s capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined from time to time, in other reports Madison’s files with the Securities and Exchange Commission.
The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this Form 10-K for the fiscal year ended December 31, 2021, are subject to risks and uncertainties that could cause actual results to differ materially from the results expressed in or implied by the statements contained in this report. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate.
All forward-looking statements are made as of the date of filing of this Form 10-K and Madison disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. Madison may, from time to time, make oral forward-looking statements. Madison strongly advises that the above paragraphs and the risk factors described in this Annual Report and in Madison’s other documents filed with the United States Securities and Exchange Commission should be read for a description of certain factors that could cause the actual results of Madison to materially differ from those in the oral forward-looking statements. Madison disclaims any intention or obligation to update or revise any oral or written forward-looking statements whether as a result of new information, future events or otherwise.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 3 |
part I
Item 1. Business.
Summary
Madison Technologies Inc. (“Madison” or the “Company” or “we” or “us” or “our”) is a Nevada corporation that was incorporated on June 15, 1998.
On February 16, 2021, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Sovryn Holdings, Inc. (“Sovryn”) and the holders (the “Sovryn Shareholders”) of Sovryn’s issued and outstanding shares of common stock, par value $0.001 per share (“Sovryn Common Shares”), pursuant to which the Shareholders exchanged 100% of the outstanding Sovryn Common Shares, for (i) 100 shares of our Series B Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”), which was transferred by Jeffrey Canouse, our controlling shareholder and Chief Executive Officer at the time (the “Controlling Shareholder”), to the designee of Sovryn and (ii) 1,000 shares of Series E Preferred Stock, par value $0.001 per share of Sovryn (“Series E Preferred Stock,” and together with Series B Preferred Stock, the “Preferred Exchange Shares,” and the foregoing exchange of Sovryn Common Shares for Preferred Exchange Shares being the “Equity Exchange”).
Immediately prior to the closing of the Share Exchange Agreement, we entered into Exchange Agreements (the “Convertible Note Exchange Agreements”) with the holders of our outstanding of convertible promissory notes (the “Convertible Notes”). Pursuant to Convertible Note Exchange Agreements, the holders of the Convertible Notes were issued, in exchange for their Convertible Notes, a total of 230,000 shares of our newly-designated Series D Preferred Stock. Our new Series D Preferred Stock is convertible into common stock at a ratio of 1,000 shares of common stock for each share of preferred stock held. Immediately prior to the closing of the Share Exchange Agreement, we entered into Exchange Agreements (the “Preferred Stock Exchange Agreements” and together with the Convertible Note Exchange Agreements, the “Exchange Agreements”) with the holders of our outstanding series A convertible preferred stock (the “Series A Preferred Stock”). Pursuant to the Preferred Stock Exchange Agreements, the holders of the Series A Preferred Stock were issued, in exchange for their Series A Preferred Stock, options to purchase a majority of the outstanding shares of common stock of our newly to be formed wholly owned subsidiary to be called CZJ License, Inc. In addition, the agreements related to the Luxurie Legs line of products were transferred to CZJ License, Inc. in March 2021.
On February 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”) pursuant to which we issued convertible notes in an aggregate principal amount of $16.5 million for an aggregate purchase price of $15 million (collectively, the “Notes”). In connection with the issuance of the Notes, we issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of Common Stock (collectively, the “Warrants”) and 1,000 shares of Series F Preferred Stock (the “Series F Preferred Stock”).
The Notes each have a term of thirty-six months and mature on February 17, 2024, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at our election, any interest payable on an applicable payment date may be paid in our registered Common Stock (rather than cash) in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average volume weighted average price of our Common Stock for the five days immediately preceding the date of conversion.
The Notes are convertible at any time, at the holder’s option, into shares of our Common Stock at a price of $0.02, subject to adjustment (the “Conversion Price”), subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion Price in effect shall be equal to 75% of the average volume weighted average price of our Common Stock for the five Trading Days on the Trading Market immediately preceding the date of conversion (the Alternative Conversion Price”); provided, however, that the Alternate Conversion Price may not exceed $0.015 per share, as adjusted pursuant to the terms of the Notes. The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. We may not redeem the Notes.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 4 |
Each Warrant is exercisable for a period of five years from the date of issuance at an initial exercise price of $0.025, subject to adjustment herein, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The exercise price is also subject to adjustment due to certain events, including stock dividends, stock splits and recapitalizations.
The Series F Preferred Stock converted into 192,073,017 shares of Common Stock upon the increase of our authorized shares of capital stock which occurred on September 16, 2021.
On February 17, 2021, Sovryn, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with NRJ TV II CA OPCO, LLC, a Delaware limited liability company (“OpCo”) and NRJ TV III CA License Co., LLC, a Delaware limited liability company (together with OpCo, “Sellers”). Upon the terms and subject to the satisfaction of the conditions described in the Asset Purchase Agreement, Sovryn will acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KNET-CD and KNLA-CD Class A television stations owned by the Sellers (the “Los Angeles Acquired Stations”), certain tangible personal property, real property, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Los Angeles Acquired Stations (the “Asset Sale Transaction”). As consideration for the Asset Sale Transaction, Sovryn has agreed to pay the Sellers $10,000,000, $2,000,000 of which was paid to Sellers upon execution of the Asset Purchase Agreement, as follows: (i) an escrow deposit of $1,000,000 to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Sellers (the “Escrow Fee”) and (ii) a non-refundable option fee of $1,000,000 (the “Option Fee”). The closing of the Asset Sale Transaction took place on April 19, 2021.
On March 14, 2021, Sovryn entered into an asset purchase agreement (the “KVVV Asset Purchase Agreement”) with Abraham Telecasting Company, LLC, a Texas limited liability company (the “Houston Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVVV Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVVV-LD low power television station owned by the Houston Seller (the “Houston Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Houston Acquired Station (the “KVVV Asset Sale Transaction”). As consideration for the KVVV Asset Sale Transaction, Sovryn has agreed to pay the Houston Seller $1,500,000 in cash, $87,500 of which was paid to the Houston Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Houston Seller (the “KVVV Escrow Fee”). The closing of the KVVV Asset Sale Transaction (the “KVVV Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Houston Acquired Station, from the Houston Seller to Sovryn (the “Houston FCC Consent”). The KVVV Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Houston FCC Consent has been granted and (ii) the other conditions to the KVVV Closing set forth in the KVVV Asset Purchase Agreement. The closing of the KVVV Asset Sale Transaction took place on June 1, 2021.
On March 29, 2021, Sovryn, entered into an asset purchase agreement (the “KYMU Asset Purchase Agreement”) with Seattle 6 Broadcasting Company, LLC, a Washington limited liability company (the “Seattle Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KYMU Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the KYMU-LD low power television station owned by the Seattle Seller (the “Seattle Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Seattle Acquired Station (the “KYMU Asset Sale Transaction”). As consideration for the Seattle Asset Sale Transaction, Sovryn has agreed to pay the Seattle Seller $1,750,000, $87,500 of which was paid to the Seattle Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Seattle Seller (the “Seattle Escrow Fee”). The closing of the KYMU Asset Sale Transaction (the “KMYU Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Seattle Acquired Station, from Seattle Seller to Sovryn (the “Seattle FCC Consent”). The Seattle Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Seattle FCC Consent has been granted and (ii) the other conditions to the KMYU Closing set forth in the KMYU Asset Purchase Agreement. The closing of the KMYU Asset Sale Transaction took place on September 24, 2021.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 5 |
On June 9, 2021, Sovryn, entered into an asset purchase agreement (the “W27EBAsset Purchase Agreement”) with Local Media TV Chicago, LLC, a Delaware limited liability company (the “Chicago Seller”). Upon the terms and subject to the satisfaction of the conditions described in the W27EB Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the W27EB-D Class A television station owned by the Chicago Seller (the “Chicago Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Chicago Acquired Station (the “W27EBAsset Sale Transaction”). As consideration for the Chicago Asset Sale Transaction, Sovryn has agreed to pay the Seattle Seller $5,700,000, $285,000 of which was paid to the Chicago Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Chicago Seller (the “Chicago Escrow Fee”). The closing of the W27EB Asset Sale Transaction (the “W27EB Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Chicago Acquired Station, from Chicago Seller to Sovryn (the “Chicago FCC Consent”). The Chicago Closing shall occur no more than third (3rd) business days following the later to occur of (i) the date on which the Chicago FCC Consent has been granted and (ii) the other conditions to the W27EB Closing set forth in the W27EB Asset Purchase Agreement.
On July 13, 2021, Sovryn, entered into an asset purchase agreement (the “KPHE Asset Purchase Agreement”) with Lotus TV of Phoenix LLC, an Arizona limited liability company (the “Arizona Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KPHE Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the KPHE-LD low power television station owned by the Arizona Seller (the “Arizona Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Arizona Acquired Station (the “Arizona Asset Sale Transaction”). As consideration for the Arizona Asset Sale Transaction, Sovryn has agreed to pay the Seattle Seller $2,000,000, $100,000 of which was paid to the Arizona Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Arizona Seller (the “Chicago Escrow Fee”). The closing of the KPHE Asset Sale Transaction (the “Arizona Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Arizona Acquired Station, from Arizona Seller to Sovryn (the “Arizona FCC Consent”). The Arizona Closing shall occur no more than five (5) business days following the later to occur of (i) the date on which the Arizona FCC Consent has been granted and (ii) the other conditions to the Arizona Closing set forth in the KPHE Asset Purchase Agreement.
On August 31, 2021, Sovryn entered into an asset purchase agreement (the “KVSD Asset Purchase Agreement”) with D’Amico Brothers Broadcasting Corp., a California company (the “San Diego Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVSD Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVSD-LD low power television station owned by the San Diego Seller (the “San Diego Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the San Diego Acquired Station (the “KVSD Asset Sale Transaction”). As consideration for the KVSD Asset Sale Transaction, Sovryn has agreed to pay the San Diego Seller $1,500,000 in cash, $75,000 of which was paid to the San Diego Seller (subsequent to the period end) and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the San Diego Seller (the “KVSD Escrow Fee”).The closing of the KVSD Asset Sale Transaction (the “KVSD Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the San Diego Acquired Station, from the San Diego Seller to Sovryn (the “San Diego FCC Consent”). The KVSD Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the San Diego FCC Consent has been granted and (ii) the other conditions to the KVSD Closing set forth in the KVSD Asset Purchase Agreement.
On September 9, 2021, we entered into a Secured Loan and Security Agreement (“Loan Agreement”) with Top Dog Productions, Inc.,(d/b/a The Jay and Tony Show) as the borrower (the “Borrower”) under such Loan Agreement. The Loan Agreement provides that we will make one or more disbursements of a Loan to the Borrower in an aggregate principal amount not to exceed $2,000,000. Our commitment to make disbursements ends on September 8, 2022 and all unpaid principal will mature on September 9, 2022. Interest will accrue on the outstanding principal under the Note at 5%; provided, however, that interest will accrue at 24% per annum from the date of the occurrence of an Event of Default until the principal is paid. Any accrued and unpaid interest shall be payable on March 9, 2022 and September 9, 2022 and on the date any principal of the loan is prepaid on the amount of such principal so prepaid. The Borrower may repay the principal of the loan at any time. Any principal that is repaid may not be reborrowed. To date, the Borrower has not made a principal or interest payment and unpaid interest was approximately $12,000 as of June 30, 2022.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 6 |
On the September 16, 2021, we entered into an exchange agreement (collectively, the “Exchange Agreement”) with the holders of Series E Preferred Stock pursuant to which the holders agreed to exchange all of the shares of Series E Preferred Stock for an aggregate of 1,152,500 shares of convertible Series E-1 Preferred Stock and an aggregate of 1,091,388,889 shares of Common Stock. Each share of series E-1 Preferred Stock is convertible into 1,000 shares of Common Stock and has voting rights equal to the number of shares of Common Stock into which the Series E would be convertible on the record date for the vote or consent of our stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock.
On September 23, 2021, we entered into a Limited Waiver and First Amendment to the Securities Purchase Agreement, Notes, Warrants and Registration Rights Agreement (the “Waiver”), with the Investors and Arena Investors, LP, in its capacity as agent. Pursuant to the Agreement, the Agent and the Investors have agreed (i) to waive certain Event of Default (each as defined in the Notes) which occurred on or prior to the date of the Waiver , (ii) to make certain amendments to the Purchase Agreement to, among other things, allow for us to issue up to $2 million of subordinated indebtedness, enter into the loan agreement with Top Dog Productions Inc., make certain amendments to the Purchase Agreement to effect such waivers and to release the remainder of the proceeds in the Funding Account (as defined in the Purchase Agreement) to us, (iii) to make certain amendments to the Notes to, among other things, make the conversion price a fixed price of $0.02 and to provide for certain Permitted Acquisitions (as defined under the Waiver), (iv) to make certain amendments to the Warrants to, among other things, make the exercise price a fixed price of $0.025 and to clarify the mechanics of the cashless exercise provision and (v) to make certain amendments to the registration rights agreement to extend the Effectiveness Date (as defined in the Registration Rights Agreement) to February 17, 2022.
On October 20, 2021, we entered into a Stock Acquisition Agreement with Top Dog Productions Inc., Jay Blumenfield and Anthony Marsh whereby we will acquire all of the shares of Top Dog Productions Inc., and in exchange, we will pay the purchase price of $10,000,000 in shares of our Common Stock.
The number of shares of Common Stock to be issued will be subject to a “collar”, with a minimum number of 16,666,667 shares in the event that the closing bid and ask price before the Closing for our stock is $0.60 or greater, and a maximum number of 25,000,000 shares in the event that the closing bid and ask price before the Closing for our stock is $0.40 or less, with ratable adjustments for a Closing Price between $0.40 and $0.60. The Closing is subject to receipt of audited and other financial statements of Top Dog Productions Inc., other deliverables, and terms and conditions. This agreement is also subject to standard termination provisions including if the Closing had not occurred within 60 days of the execution of the Agreement. The terms of this transaction have since been amended. The number of shares of our Common Stock issued to the shareholders of Top Dog Productions Inc. to complete the transaction will total 12,500,000 shares. In addition, the shareholders of Top Dog Productions Inc. may receive an additional 12,500,000 shares of our Common Stock by the year ended December 31, 2024, subject to EBITDA milestones.
On October 25, 2021, Sovryn entered into an asset purchase agreement with Mako Communications, LLC, a Texas Limited Liability company to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the K07AAJ-D and W05DK-D low power television stations construction permits for the Bakersfield and San Juan. As consideration for the Bakersfield and San Juan Asset Sale Transaction, Sovryn has agreed to pay $115,000 in cash, $10,000 of which was paid in escrow pursuant to the terms of an escrow agreement entered into between us and Mako Communications LLC.
On November 3, 2021, Sovryn entered into an asset purchase agreement with Prism Broadcasting Network Inc., a Georgia corporation to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the WANN-CD low power television station. As consideration for the WANN Asset Sale Transaction, Sovryn has agreed $5,250,000 in cash, $200,000 of which was paid to in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Prism Broadcasting Network Inc.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 7 |
On November 15, 2021, we entered into a Purchase and Sale agreement with ZA Group Inc. to sell CZJ License Inc., one of our wholly owned subsidiaries, for $250,000. At Closing, the ZA Group Inc. delivered a convertible promissory note with a principal amount equal to the purchase price. The interest rate on the note was 5% per annum and matures on November 5, 2023. The Note may be converted, from time to time, after 180 days from the issuance date of the Note into common stock of ZA Group Inc., at a fixed conversion price of $0.005 per share, subject to a beneficiary ownership limitation of not more than 4.99% of the outstanding shares of common stock of ZA Group Inc.
Our operations, prior to the acquisition of Sovryn Holdings, Inc. in February 2021, included (i) the distribution of Tuffy Pack’s product line of custom inserts that provided a level of personal protection from ballistic threats similar to what law enforcement officers wear daily as bullet proof vests and (ii) with its licensing agreement with the Casa Zeta-Jones Brand, development and distribution of a new luxury shaving regiment under the Luxurie Legs line of products exclusively designed and branded for women under the Casa Zeta-Jones Brand.
We abandoned the Tuffy Pack product line during the fourth quarter of 2020 and in connection with the Acquisition of Sovryn Holdings, as described below, we no longer intended to focus on the CZJ Brand and Luxurie Legs line of products and instead pursued the business of Sovryn Holdings.
Product and Services
We, through our wholly-owned subsidiary, Sovryn embarked on an acquisition strategy, rolling-up un-affiliated Class A/LPTV TV stations in the top 100 DMA’s (Designated Market Areas) with a goal of building out a nationwide platform through one or more station acquisitions per DMA. Each licensed TV station can broadcast between 10 and 12 and potentially more revenue “streams” of content (“channels”) over-the-air, 24 hours per day/7 days per week. Management’s strategy is to stage the acquisitions focusing on DMA’s 1-30 and expanding thereafter on DMA’s 31-100, acquiring one station per DMA and building a portfolio of 100 stations within 18-24 months. Management has received FCC approval for seven acquisitions (i) KNLA/KNET, a Class A television station in Los Angeles, (ii) KVVV, a low power television station in Houston and (iii) KYMU-LD, a low power television station in Seattle, having closed, with four remaining, W27EB Chicago, KVSD San Diego, KPHE Phoenix, and KDTL St. Louis. Finally, we have also signed a purchase agreements to acquire the WXNY in New York and WANN in Atlanta, as well ownership of The Jay & Tony Show.
Madison’s initial objective was to create a broadcast Over-The-Air (“OTA”) content distribution platform to capitalize on the changing media and distribution landscape and on the growing OTA viewership in the U.S. The over-the-air programming carried on these stations is initially expected to include entertainment, shopping, weather, sports as well as religious networks and networks targeting select ethnic groups with content lease agreements as the prime source of revenue. Pricing of lease agreements is in part determined by market rank, the signal contour and the number of OTA TV households in a given market, as well as supply and demand.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 8 |
Recent Developments
We are exploring more capital efficient and technology centric alternatives to its planned station acquisition distribution platform. While there is no guarantee that we will be successful with this alternative approach, we have determined that we will postpone further capital expenditures on acquisitions and as a result, the planned acquisitions of W27EB-Chicago, KPHE-Phoenix, KVSD-San Diego, WANN-Atlanta and KDTL-St. Louis stations have been terminated and future acquisition plans have been put on hold while we evaluate this alternative approach.
As the cornerstone of our new strategy, we formed a new vertical and have embarked on a buildout of a news and entertainment network, Blockchain TV (“BCTV”) dedicated to cryptocurrency, NFT, Web3 and blockchain technology which we expect to launch in the coming months. On February 15, 2022, we entered into an agreement with TMG, Inc., a Canada-based television production firm to produce, manage and operate the television network and have since hired and engaged a number of blockchain news and entertainment personalities as anchors and hosts.
Through our relationship with TMG, Inc., we plan to produce, manage and operate proprietary content that will be broadcast and streamed 24/7 as “BCTV” on our OTA platform, APP and website and through third party broadcasters, cable television operators, alternative video distribution platforms such as YouTube, Roku, Pluto and xumo. The live content is designed and modeled after “Squawk Box” with anchors, Bobby Del Rio, Catherine Murray and Ruth O’Neill, bringing viewers live, hourly shows on what is happening in the crypto space, NFT, Web3 and the Metaverse marketplace. BCTV plans to go “live” with its network in the third quarter of 2022. Our primary revenue sources for BCTV will be advertising and sponsorship revenues.
We seek to complete our acquisition of Top Dog Productions, Inc., a Los Angeles based television production company founded and operated by Award-winning producers Jay Blumenfield and Tony Marsh. Their studio team will continue creating and developing shows for third party networks as well proprietary content for BCTV. One example is their creation of an unscripted series, “Woke up Rich”, that details rags to riches story of individuals who got involved in crypto.
We plan to derive additional programming content by aggregating the world’s top influencers in the space, bringing larger than life personalities to the screen and elevating their viral content into long and short-form programing that we push out on all platforms from social media to broadcast television. We envision airing gaming content with viewers enabled to play along interactively and be rewarded with real world and meta world prizes.
We registered the trademark “BLOCKCHAIN.TV Power 100” and we are compiling a list of the top 100 most influential people and companies in the blockchain space around the world that we plan to use as a source for interviews that we incorporate in a daily show. Our programming content plans include Blockchain Awards Shows for NFT, Crypto and Metaverse.
We plan to livestream our content globally with game center technology from studios in New York City, Miami and Niagara Fall, Canada. Blockchain Entertainment will create and develop special events and conferences including opportunities around education.
We see the opportunity to use BLOCKCHAIN.TV to generate another revenue stream through e-commerce opportunities in Community NFT, Metaverse and crypto services.
Station Operations
Each licensed TV station has the capability of delivering 10+ different TV channels of content Over-the-Air, 24 hours per day/7 days per week. If converted to the new FCC approved ATSC 3.0 technology, the streaming capacity will increase to 25+ channels or more, giving us the potential to stream content upon completion of the roll-up to over 2500 channels aggregated over expected 100 stations.
We operate the stations remotely and centrally, eliminating the need for in-market personnel or a studio facility. Remote operations of stations results in significant cost efficiencies. Recent FCC deregulation in TV broadcasting has eliminated the need for full time employees and studio facilities operating Class A and Low Power stations allowing for greater cost efficiency.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 9 |
New Broadcast TV Technology
In 2017, the FCC approved ATSC 3.0 technology, a next generation broadcast platform that will bring new revenue opportunities to broadcast television. ATSC 3.0 is an enhancement to the previous standard, providing new opportunities such as increased capacity, mobility and addressability allowing for customizable content, viewer measurability, target advertising and internet connectivity. All these features and more will be available on mobile devices allowing for broadcast operators to capitalize on audiences traditionally reserved for telecom operators.
Competitive Conditions
Our broadcast stations will face competition from other free over-the-air television and radio stations, telecommunication companies, cable and satellite providers, print media providers, internet and other emerging technologies. Some of our current and potential competitors have greater resources and access to capital. If we need to obtain additional funding, we may not be able to obtain such capital on favorable terms and be forced to delay its development as a result. Furthermore, technological advancements and the resulting increase in programming alternatives may increase competition for household audiences.
Our BCTV content will compete for viewership in a marketplace that is fragmented and niche. Major media organizations such as Bloomberg and Comcast, which operates CNBC and MSNBC, deliver content about crypto, NFT, Web3 and the metaverse, but none have a dedicated source for viewers to continuously consume that content.
Dependence on Customers
Currently, we are not and will not be dependent on one or a few major customers. Our business is designed to generate revenue from four primary categories of customers: (1) advertisers and sponsors of our BCTV content that airs on our OTA platform, APP and website and through third party broadcasters, cable television operators, alternative video distribution platforms such as YouTube, Roku, Pluto and xumo; (2) people who view our BCTV content, and form the audience that attracts advertisers and sponsors; (3) people who interact with our content either as viewers or as attendees as BLOCKCHAIN.TV branded events; and (4) third party networks that lease channels on our OTA platform.
Technology and Intellectual Property
Except for the trademark “BLOCKCHAIN.TV Power 100”, we do not own, either legally or beneficially, any patents or trademarks.
Governmental and Industry Regulations
Broadcast licenses are issued by and subject to the jurisdiction of the FCC, pursuant to the Communications Act of 1934. The FCC regulates our broadcasting business and has the authority to issue, renew, revoke and modify broadcast licenses and impose penalties for the violation of its regulations. We must often obtain the FCC’s approval to obtain, renew, assign or modify a license, purchase a new station or sell an existing station. Our FCC license for KVVV is due for renewal on August 1, 2022, our licenses for KNLA and KNET are due for renewal on December 1, 2022 and our license for KYMU is due for renewal on February 1, 2023. The FCC licenses are critical to the operations and we cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future if acquired or approve new acquisitions in a timely manner. If licenses are not renewed or acquisitions are not approved, we may lose revenue that we could otherwise have earned and this would have an adverse effect on the overall business and financial condition.
We will be subject to federal and state laws and regulations that relate directly or indirectly to its operations including federal securities laws. Madison will also be subject to common business and tax rules and regulations pertaining to the operation of its business.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 10 |
Research and Development Activities and Costs
We have not spent any funds on research and development activities to date.
Compliance with Environmental Laws
Our current operations are not subject to any environmental laws.
Facilities
We lease TV production and broadcast transmission facilities in Los Angeles County, California, King County, Washington and Harris County, Texas.
Number of Total Employees and Number of Full Time Employees
We have four employees, all of whom are full time with three in TV broadcast operations and one in administration.
Item 1A. Risk Factors.
Our business involves significant risks, some of which are described below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face. Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our common stock could decline and you could lose part or all of your investment.
Risks Related to Our Business
We have a history of losses. We have not been profitable historically and may not achieve or maintain profitability in the future.
We have a history of losses. Our ability to forecast our future operating results is subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly evolving industries. If our assumptions regarding these uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from expectations, our business could suffer and the trading price of our stock may decline.
We have incurred net losses of $14.3 million and $0.9 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had accumulated deficit of $15.7 million.
We are not certain whether or when we will obtain a high enough volume of sales of our products and services to sustain or increase our growth or achieve or maintain profitability in the future. We expect our costs to increase in future periods, which could negatively affect our future operating results if our revenue does not increase. In particular, we expect to continue to expend substantial financial and other resources on:
| ● | content production related to our network operations, including investments in expanding our content and production teams; |
| Madison Technologies Inc. | Form 10-K - 2021 | Page 11 |
| ● | sales and marketing, including a significant expansion of our sales organization; |
| ● | continued expansion of our business into adjacent geographic markets; and |
| ● | general administration expenses, including legal and accounting expenses related to being a public company. |
These investments may not result in increased revenue or growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, our business, financial position and results of operations will be harmed, and we may not be able to achieve or maintain profitability over the long term. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our financial performance may be harmed, and we may not be able to achieve or maintain profitability in the future.
We incurred debt in connection with our acquisitions of television station assets which could adversely affect our financial condition and restrict our operating flexibility.
In connection with our acquisitions of the Los Angeles Stations, the Houston Station and the Seattle Station completed in 2021, we issued $16.5 million in convertible notes to Arena Investors LP. The convertible notes require us to make quarterly interest payments, based on a fixed 11.0% interest rate interest, of approximately $0.4 million that commenced March 31, 2021 with a pro-rated payment of $0.2 million. The notes are convertible at any time, at the option of Arena Investors LP, into shares of our Common Stock at a price of $0.02, subject to adjustment (the “Conversion Price”), subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion Price in effect shall be equal to 75% of the average volume weighted average price of our Common Stock for the five (5) Trading Days on the Trading Market immediately preceding the date of conversion (the Alternative Conversion Price”); provided, however, that the Alternate Conversion Price may not exceed $0.015 per share, as adjusted pursuant to the terms of the Notes. We man not redeem the Notes. The convertible notes are secured by substantially all of our assets.
The convertible notes include negative covenants that restrict our ability to, among other things: incur additional indebtedness; create liens or other encumbrances on assets; make loans, guarantees, investments and acquisitions; sell or otherwise dispose of assets; cause or permit a change of control; merge or consolidate with another entity; make negative pledges; enter into affiliate transactions; make cash distributions to our stockholders; and change the nature of our business materially.
Outstanding amounts under the convertible notes may be accelerated by Arena Investors LP upon the occurrence and continuance of certain events of default, including without limitation: payment defaults; breach of covenants beyond applicable grace periods; breach of representations and warranties; bankruptcy and insolvency defaults; and the occurrence of a material adverse effect (as defined). Acceleration is automatic upon the occurrence of certain bankruptcy and insolvency defaults.
The convertible notes and related obligations, including interest payments, covenants and restrictions, could have important consequences, including the following:
reserving cash in order to satisfy the obligations relating to the convertible notes could adversely affect the amount or timing of investments to grow our business, impairing our ability to invest in and successfully grow our business; |
the convertible notes could limit our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, debt obligations and other general corporate requirements; |
| Madison Technologies Inc. | Form 10-K - 2021 | Page 12 |
the convertible notes may increase our vulnerability to general economic downturns, competition and industry conditions and we may be unable to take advantage of opportunities that our leverage prevents us from exploiting, placing us at a disadvantage to our competitors that are less leveraged; and |
the convertible notes impose restrictions on the manner in which we conduct our business, including restrictions on our ability to pay dividends, incur additional debt and sell assets. |
The obligations under the convertible notes could have an adverse effect on our business, financial condition, operating results or cash flows. In addition, our failure to comply with the covenants under the convertible notes could result in an event of default and acceleration of the outstanding balance, which could significantly harm our business and cause our stock price to decline. We have not yet made the $0.4 million interest payments that were due on April 1, 2022 and July 1, 2022, and as a result, under terms of the convertible notes, the interest rate is 20.0% per annum. We are currently in discussions with our lender, Arena Capital LP, on a plan of forbearance; however, there is no assurance that we will be successful in completion of a plan, which may disrupt our operations and result in a restructuring of obligations.
Our broadcast facilities are vulnerable to disruption due to natural or other disasters, strikes and other events beyond our control.
A major earthquake, fire, tsunami, hurricane, cyclone, or other disaster, such as a major flood, seasonal storms, nuclear event, or terrorist attack affecting our facilities or the areas in which we are located, or affecting those of our customers or third-party manufacturers or suppliers, could significantly disrupt our or their operations and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our or their damaged manufacturing facilities. These delays could be lengthy and costly. If our third-party contract manufacturer’s, suppliers’ or customers’ facilities are negatively impacted by such a disaster, production, shipment, and installation of our products could be delayed, which can impact the period in which it recognizes the revenue related to that product sale. Additionally, customers may delay purchases of our products until operations return to normal. Even if we can respond quickly to a disaster, the continued effects of the disaster could create uncertainty in our business operations. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, labor strikes, war, including the developing conflict between Russia and Ukraine, or the outbreak of epidemic diseases (including the on-going COVID-19 pandemic) could have a negative effect on our operations and sales.
If we are unable to acquire new customers, our future revenues and operating results will be harmed. Likewise, potential customer turnover in the future, or costs we incur to retain our existing customers, could materially and adversely affect our financial performance.
Our success depends on our ability to acquire new customers in new and existing vertical markets, and in new and existing geographic markets. If we are unable to attract a sufficient number of new customers, we may be unable to generate revenue growth at desired rates. The security solutions market is competitive and many of our competitors have substantial financial, personnel and other resources that they utilize to develop solutions and attract customers. As a result, it may be difficult for us to add new customers to our customer base. Competition in the marketplace may also lead us to win fewer new customers or result in us providing discounts and other commercial incentives. Additional factors that impact our ability to acquire new customers include the perceived need for AI-based weapons detection for security solutions, the size of our prospective customers’ security budgets, the utility and efficacy of our existing and new products, whether proven or perceived, and general economic conditions. These factors may have a meaningful negative impact on future revenues and operating results.
If we are unable to sell additional services to our customers and maintain and grow our customer retention rates, our future revenue and operating results will be harmed.
Our future success depends, in part, on our ability to expand the deployment of our services with existing customers by selling them additional services. This may require increasingly sophisticated and costly sales efforts and may not result in additional sales. In addition, the rate at which our customers purchase additional services depends on a number of factors, including the perceived need for additional TV entertainment, information and other content as well as general economic conditions. If our efforts to sell additional services to our customers are not successful, our business may suffer.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 13 |
Our business model is predicated, in part, on building a customer base that will generate a recurring stream of revenues. If that recurring stream of revenues does not develop as expected, or if our business model changes as the industry evolves, our operating results may be adversely affected.
Our business model is dependent, in part, on our ability to maintain and increase distribution to generate recurring revenues. Existing and future customers may not utilize our television broadcast assets at the same rate at which customers currently do. If our current and future customers reduce their utilization, our recurring revenue stream relative to our total revenues would be reduced and our operating results would be adversely affected.
Fluctuating economic conditions make it difficult to predict revenue for a particular period, and a shortfall in revenue may harm our operating results.
Our revenue depends significantly on general economic conditions. Economic weakness and customer financial difficulties may result in decreased revenue and earnings. Such factors could make it difficult to accurately forecast our sales and operating results and could negatively affect our ability to provide accurate forecasts of our costs and expenses. General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, restructuring initiatives and associated expenses and impairment of investments.
Uncertainty about future economic conditions also makes it difficult to forecast operating results and to make decisions about future investments. Future or continued economic weakness for us or our customers, failure of our customers and markets to recover from such weakness and customer financial difficulties could have a material adverse effect on demand, and consequently on our business, financial condition and results of operations.
Our brand, reputation and ability to attract, retain, and serve our customers are dependent in part upon the reliable performance of our products and infrastructure.
Our brand, reputation and ability to attract, retain, and serve our customers are dependent in part upon the reliable performance of, and the ability of our existing customers and new customers to access and use our television broadcast assets. We have experienced, and may in the future experience, disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, equipment failure, human or software errors, capacity constraints, and fraud or cybersecurity attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.
Interruptions in our systems or the third-party systems on which we rely, whether due to system failures, computer viruses, physical or electronic break-ins, or other factors, could affect the security or availability of our television broadcast assets, network infrastructure, cloud infrastructure and website.
Problems with the reliability or security of our systems could harm our reputation. Damage to our reputation and the cost of remedying these problems could negatively affect our business, financial condition and operating results.
Any disruptions or other performance problems with our television broadcast assets could harm our reputation and business and may damage our customers’ businesses. Interruptions in our service delivery might reduce our revenue, cause us to issue credits to customers, subject us to potential liability and cause customers not to renew their subscription purchases of our products.
If we are not able to maintain and enhance our brand or reputation as an industry leader, our business and operating results may be adversely affected.
We believe that maintaining and enhancing our reputation as the leader in next-generation television is critical to our relationship with our existing end-user customers and our ability to attract new customers and reseller partners. The successful promotion of our brand will depend on multiple factors, including our marketing efforts, our ability to continue to deliver a superior customer experience and develop high-quality features and our ability to successfully differentiate our broadcast services from those of our competitors. Our brand promotion activities may not be successful or yield increased revenue. The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new geographies and vertical markets. To the extent that these activities yield increased revenue; this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand and reputation, our business and operating results may be adversely affected.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 14 |
We are dependent on the continued services and performance of our senior management and other key employees, as well as on our ability to successfully hire, train, manage and retain qualified personnel, especially those in sales and marketing and research and development.
Our future performance depends on the continued services and contributions of our senior management, particularly Philip Falcone, our President and Chief Executive Officer, and other key employees to execute on our business plan and to identify and pursue new opportunities and product innovations. We do not maintain key man insurance for any of our executive officers or key employees. From time to time, there may be changes in our senior management team resulting from the termination or departure of our executive officers and key employees. Our senior management and key employees are generally employed on an at-will basis, which means that they could terminate their employment with us at any time. The loss of the services of our senior management, particularly Mr. Falcone, or other key employees for any reason could significantly delay or prevent our development or the achievement of our strategic objectives and harm our business, financial condition and results of operations.
Our ability to successfully pursue our growth strategy will also depend on our ability to attract, motivate and retain our personnel, especially those in sales and marketing and research and development. We face escalating compensation demands from new and prospective employees, as well as intense competition for these employees from numerous technology, software and other companies, especially in certain geographic areas in which we operate, and we cannot ensure that we will be able to attract, motivate and/or retain additional qualified employees in the future. If we are unable to attract new employees and retain our current employees, we may not be able to adequately develop and maintain new products, or market our existing products at the same levels as our competitors and it may, therefore, lose customers and market share. Our failure to attract and retain personnel, especially those in sales and marketing and engineering positions could have an adverse effect on our ability to execute our business objectives and, as a result, our ability to compete could decrease, our operating results could suffer and our revenue could decrease. Even if we are able to identify and recruit a sufficient number of new hires, these new hires will require significant training before they achieve full productivity and they may not become productive as quickly as we would like, or at all.
If we cannot maintain our company culture as it grows, we could lose the innovation, teamwork, passion and focus on execution that we believe contributes to our success and as a result, our business may be harmed.
We believe that a critical component to our success has been our mission-driven company culture based on our shared commitment to make television accessible to younger consumers, which we believe fosters innovation, teamwork, passion for customers and focus on execution, and facilitates critical knowledge transfer, knowledge sharing and professional growth. We have invested substantial time and resources in building our team within this company culture. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to maintain our company culture, our business may be adversely impacted.
We may acquire or invest in other companies or technologies in the future, which could divert management’s attention, fail to meet our expectations, result in additional dilution to our stockholders, increase expenses, disrupt our operations or otherwise harm our operating results.
We may in the future acquire or invest in, businesses, television broadcast assets or technologies that we believe could complement or expand our platform, enhance our technical capabilities or otherwise offer growth opportunities. We may not be able to fully realize the anticipated benefits of any future acquisitions or anticipated benefits may not transpire. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses related to identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 15 |
There are inherent risks in integrating and managing acquisitions. If we acquire additional businesses, we may not be able to assimilate or integrate the acquired personnel, operations, products, services and technologies successfully or effectively manage the combined business following the acquisition and our management may be distracted from operating our business. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including, without limitation:
| ● | unanticipated costs or liabilities associated with the acquisition; |
| ● | incurrence of acquisition-related costs, which would be recognized as a current period expense; |
| ● | inability to generate sufficient revenue to offset acquisition or investment costs; |
| ● | inability to maintain relationships with customers and partners of the acquired business; |
| ● | difficulty of incorporating acquired technology and rights into our platform and of maintaining quality and security standards consistent with our brand; |
| ● | delays in customer purchases due to uncertainty related to any acquisition; |
| ● | the potential loss of key employees; |
| ● | use of resources that are needed in other parts of our business and diversion of management and employee resources; |
| ● | inability to recognize acquired deferred revenue in accordance with our revenue recognition policies; and |
| ● | use of substantial portions of our available cash and equity or the incurrence of debt to consummate the acquisition. |
Acquisitions also increase the risk of unforeseen legal liability, including for potential shareholder suits or potential violations of applicable law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses that are not discovered by due diligence during the acquisition process or new regulatory restrictions at the federal, state, or local levels. Generally, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our business, results of operations and financial condition.
In addition, a significant portion of the purchase price of companies it acquires may be allocated to goodwill and other intangible assets, which must be assessed for impairment at least annually. If our acquisitions do not ultimately yield expected returns, we may be required to take charges to our operating results based on our impairment assessment process, which could harm our results of operations.
If we are unable to compete effectively with new entrants and other potential competitors, our sales and profitability could be adversely affected.
The sales prices for our products and services may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products and services, anticipation of the introduction of new products or promotional programs. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse product and service offerings may reduce the price of products that compete with theirs or may bundle them with other products and services. Additionally, currency fluctuations in certain countries and regions may negatively impact prices that partners and customers are willing to pay in those countries and regions. We cannot be certain that we will be successful in developing and introducing new products with enhanced functionality on a timely basis, or that our new product offerings, if introduced, will enable it to maintain our prices and gross profits at levels that will allow us to maintain positive gross margins and achieve profitability.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 16 |
Because our services may collect and store viewer and related information, domestic and international privacy and cyber security concerns, and other laws and regulations, could result in additional costs and liabilities to us or inhibit sales of our products.
We may be affected by cyber-attacks and other means of gaining unauthorized access to our products, systems, and data. For instance, cyber criminals or insiders may target us or third parties with which we have business relationships to obtain data, or in a manner that disrupts our operations or compromises our products or the systems into which our products are integrated. The evolution of technology systems introduces ever more complex security risks that are difficult to predict and defend against. An increasing number of companies, including those with significant online operations, have recently disclosed breaches of their security, some of which involved sophisticated tactics and techniques allegedly attributable to criminal enterprises or nation-state actors. While we take measures to protect the security of personal information, it is possible that our security controls over personal information and other practices we follow may not prevent the unauthorized access to, or the unintended release of, personal information. In addition, we do not know whether our current practices will be deemed sufficient under applicable laws or whether new regulatory requirements might make our current practices insufficient. If there is a breach of our computer systems and we know or suspect that certain personal information has been accessed, or used inappropriately, we may need to inform the affected individual and may be subject to significant fines and penalties. In the event of a breach we could face government scrutiny or consumer class actions.
Cybersecurity incidents directed at us or our third-party vendors can range from uncoordinated individual attempts to gain unauthorized access to information technology systems to sophisticated and targeted measures known as advanced persistent threats. Cybersecurity incidents are also constantly evolving, increasing the difficulty of detecting and successfully defending against them. In the ordinary course of our business, we and our third-party vendors collect and store personal information, as well as our proprietary business information and intellectual property and that of our customers and employees. Additionally, we rely on third-parties and their security procedures for the secure storage, processing, maintenance, and transmission of information that is critical to our operations. Despite measures designed to prevent, detect, address, and mitigate cybersecurity incidents, such incidents may occur to us or our third-party providers and, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties, including personal information of our customers and employees) and the disruption of business operations. We have experienced and expect to continue to experience attempted routine cyber-attacks of our information technology networks, such as through phishing scams and ransomware. Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future. For example, we are at risk for interruptions, outages and breaches of: operational systems, including business, financial, accounting, product development, data processing or production processes, owned by us or our third-party vendors or suppliers; facility security systems, owned by us or our third-party vendors or suppliers; in-product technology owned by us or our third-party vendors or suppliers; the integrated software in our solutions; or customer or other data that we process or our third-party vendors or suppliers process on our behalf. Such cyber incidents could materially disrupt operational systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers, or others; jeopardize the security of our facilities; or affect the performance of in-product technology and the integrated software in our solutions.
A cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception. The techniques used by cyber attackers change frequently and may be difficult to detect for long periods of time. Although we maintain information technology measures designed to protect us against intellectual property theft, data breaches and other cyber incidents, such measures will require updates and improvements, and we cannot guarantee that such measures will be adequate to detect, prevent or mitigate cyber incidents.
Any actual or alleged security breaches or alleged violations of federal or state laws or regulations relating to privacy and data security could result in mandated user notifications, litigation, government investigations, significant fines, and expenditures; divert management’s attention from operations; deterring people from using our platform; damage our brand and reputation; and a materially adversely affect our business, results of operations, and financial condition. Defending against claims or litigation based on any security breach or incident, regardless of their merit, will be costly and may cause reputation harm. In addition, we may incur significant costs for remediation that may include liability for stolen assets or information, repair of system damage, and compensation to customers, employees, and business partners. The successful assertion of one or more large claims against us that exceed available insurance coverage, denial of coverage as to any specific claim, or any change or cessation in our insurance policies and coverages, including premium increases or the imposition of large deductible requirements, could have a material adverse effect on our business, results of operations, and financial condition.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 17 |
We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business.
We, and our customers are subject to a number of domestic and international laws and regulations that apply to cloud services and the internet generally. These laws, rules and regulations address a range of issues including data privacy and cyber security, breach notification and restrictions or technological requirements regarding the collection, processing, use, storage, protection, disclosure, retention or transfer of data. The regulatory framework for online services, data privacy and cyber security issues worldwide can vary substantially from jurisdiction to jurisdiction, is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal, state, local and foreign government bodies and agencies have adopted or are considering adopting laws, rules and regulations regarding the collection, processing, use, storage and disclosure of information, web browsing and geolocation data collection, data analytics, facial recognition, cyber security and breach response and notification procedures. Furthermore, existing laws and regulations are constantly evolving, and new laws and regulations that apply to our business are being introduced at every level of government in the United States, as well as internationally. As we seek to expand our business, we are, and may increasingly become subject to various laws, regulations, and standards, and may be subject to contractual obligations relating to data privacy and security in the jurisdictions in which we operate. Any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of personal information, or regarding the manner in which the express or implied consent of customers for the use and disclosure of personal information is obtained, could require us to modify our products and features, possibly in a material manner and subject to increased compliance costs, which may limit our ability to develop new products and features that make use of the personal information that our customers voluntarily share. Any failure, or perceived failure, by us to comply with any federal or state privacy or security laws, regulations, industry self-regulatory principles, or codes of conduct, regulatory guidance, orders to which we may be subject, or other legal obligations relating to data privacy or security could adversely affect our reputation, brand and business, and may result in claims, liabilities, proceedings or actions against us by governmental entities, customers or others. Any such claims, proceedings or actions could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings or actions, distract our management, increase our costs of doing business, result in a loss of customers and result in the imposition of monetary penalties.
In the United States, there are numerous federal and state data privacy and security laws, rules, and regulations governing the collection, use, disclosure, retention, security, transfer, storage, and other processing of personal data, including federal and state data privacy laws, data breach notification laws, and consumer protection laws. For example, the FTC and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. Such standards require us to publish statements that describe how we handle personal data and choices individuals may have about the way we handle their personal data. If such information that we publish is considered untrue or inaccurate, we may be subject to government claims of unfair or deceptive trade practices, which could lead to significant liabilities and consequences. Moreover, according to the FTC, violating consumers’ privacy rights or failing to take appropriate steps to keep consumers’ personal data secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. State consumer protection laws provide similar causes of action for unfair or deceptive practices.
In addition, many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security, and data breaches. Such legislation includes the California Consumer Privacy Act (“CCPA”), which came into effect in 2020, increases privacy rights for California consumers and imposes obligations on companies that process their personal information. Among other things, the CCPA gives California consumers expanded rights related to their personal information, including the right to access and delete their personal information and receive detailed information about how their personal information is used and shared. The CCPA also provides California consumers the right to opt-out of certain sales of personal information and may restrict the use of cookies and similar technologies for advertising purposes. The CCPA prohibits discrimination against individuals who exercise their privacy rights, and provides for civil penalties for violations enforceable by the California Attorney General as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. Many of the CCPA’s requirements as applied to personal information of a business’s personnel and related individuals are subject to a moratorium set to expire on January 1, 2023. The expiration of the moratorium may increase our compliance costs and our exposure to public and regulatory scrutiny, costly litigation, fines and penalties. Additionally, in November 2020, California passed the California Privacy Rights Act (the “CPRA”), which expands the CCPA significantly, including by expanding California consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Many of the CPRA’s provisions will become effective on January 1, 2023. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, and/or result in interruptions or delays in the availability of systems.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 18 |
In March 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”). The VCDPA creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. In addition, in July 2021, Colorado enacted the Colorado Privacy Act (“COCPA”), becoming the third comprehensive consumer privacy law to be passed in the United States (after the CCPA and VCDPA). The COCPA closely resembles the VCDPA, and both will be enforced by the respective states’ Attorney General and district attorneys, although the two differ in many ways. Once they become enforceable in 2023, we must comply with each if our operations fall within the scope of these newly enacted comprehensive mandates, which may increase our compliance costs and potential liability. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. This legislation may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, could impact strategies and availability of previously useful data, and could result in increased compliance costs and/or changes in business practices and policies.
In addition, some laws may require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information or other unauthorized or inadvertent access to or disclosure of such information. We may need to notify governmental authorities and affected individuals with respect to such incidents. For example, laws in all 50 U.S. states may require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach may be difficult and costly. We also may be contractually required to notify consumers or other counterparties of a security breach. Regardless of our contractual protections, any actual or perceived security breach or breach of our contractual obligations could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.
We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection to the extent possible. Because the interpretation and application of privacy and data protection laws are still uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or with our existing practices or the features of our products and may conflict with other rules or regulations, making enforcement, and thus compliance requirements, ambiguous, uncertain, and potentially inconsistent. Any failure or perceived failure by us to comply with our privacy policies, privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized access to or unintended release of personally identifiable information or other customer data, may result in governmental enforcement actions, litigation, or public statements against us by consumer advocacy groups or others. Any of these events could cause us to incur significant costs in investigating and defending such claims and, if found liable, pay significant damages. Further, these proceedings and any subsequent adverse outcomes may cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.
We may also be subject to claims of liability or responsibility for the actions of third parties with whom we interact or upon whom it relies in relation to various products, including but not limited to vendors and business partners. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our products, which could have an adverse effect on our business. Any inability to adequately address privacy and/or data concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 19 |
The costs of compliance with, and other burdens imposed by, the laws, rules, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our software. Even the perception of privacy concerns, whether or not valid, may harm our reputation, inhibit adoption of our products by current and future customers, or adversely impact our ability to attract and retain workforce talent. Our failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement action against us, including fines, imprisonment of our officials and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a material adverse effect on our operations, financial performance and business.
Our operating results may be harmed if we are required to collect taxes on our billings in jurisdictions where it has not historically done so.
Taxing jurisdictions, including state, local and federal taxing authorities, have differing rules and regulations governing taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, significant judgment is required in evaluating our tax positions and our provision for taxes. While we believe that we are in material compliance with our obligations under applicable taxing regimes, one or more states, localities or the federal government may seek to impose tax collection obligations on us. It is possible that we could face tax audits and that such audits could result in tax-related liabilities for which we have not accrued. A successful assertion that we should be collecting taxes in jurisdictions where it has not historically done so and do not accrue for taxes could result in substantial tax liabilities for past sales, discourage customers from purchasing from us or otherwise harm our business and operating results.
In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, jurisdictional mix of profits at varying statutory tax rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period or periods for which a determination is made.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features or enhance our products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to it, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to it when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.
As a result of being a public company, we are responsible for establishing and maintaining adequate internal control over financial reporting. We have identified material weaknesses in our internal control over financial reporting, and if we are unable to remediate the material weaknesses, or if we fail to develop and maintain effective disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate consolidated financial statements or comply with applicable laws and regulations could be impaired, which may adversely affect our business and stock price.
As a public company, we are required to furnish a report by management on the effectiveness of our internal control over financial reporting for each future Annual Report on Form 10-K to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in internal control over financial reporting. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 20 |
If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the trading price of our common stock to decline, and we may be subject to investigation and/or sanctions by the SEC.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, these material weaknesses could result in a material misstatement of our consolidated financial statements.
We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of personnel with an appropriate level of internal controls and accounting knowledge, training and experience commensurate with our financial reporting requirements. Additionally, the limited personnel resulted in our inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions. This material weakness contributed to the following additional material weaknesses:
(1) lack of a functioning audit committee and lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
(2) inadequate segregation of duties consistent with control objectives;
(3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and
(4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified and communicated to management in connection with the preparation and audit of our financial statements as of December 31, 2020 and the preparation of our 2021 quarterly financial statements.
While we are undertaking efforts to remediate these material weaknesses, the material weaknesses will not be considered remediated until our remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively. At this time, we cannot predict the success of such efforts or the outcome of our assessment of the remediation efforts. We can give no assurance that our efforts will remediate these material weaknesses in our internal control over financial reporting, or that additional material weaknesses will not be identified in the future.
The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately, and to prepare the consolidated financial statements within the time periods specified by the rules and regulations of the SEC, could be adversely affected which, in turn, may adversely affect our reputation and business and the trading price of our common stock. Our failure to design and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of our financial statements, and could cause us to fail to meet our reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our common stock. In addition, any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of our securities and harm to our reputation and financial condition, or diversion of financial and management resources from the operation of our business.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 21 |
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
U.S. generally accepted accounting principles (GAAP) are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and could affect the reporting of transactions already completed before the announcement of such change.
The continuation or worsening of the COVID-19 pandemic, or other similar public health developments, could have an adverse effect on business, results of operations, and financial condition.
We face various risks and uncertainties related to the global outbreak of COVID-19 and the new coronavirus strains or variants that have developed. The continued COVID-19 pandemic has led to disruption and volatility in the global economy and capital markets, which increases the cost of capital and adversely impacts access to capital. Government-enforced travel bans and business closures around the world have significantly impacted our ability to sell, install and service our products especially given the nature of the markets we serve. It has, and may continue to, disrupt third-party contract manufacturer and supply chain. We may also experience customer payment delays for our products which could negatively impact our results of operations. We may also experience some delays in installation of our products at customers’ facilities, which could lead to postponed revenue recognition for those transactions. Furthermore, if significant portions of the workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, remote working or other restrictions in connection with the COVID-19 pandemic, operations will likely be adversely impacted.
We have been experiencing supply chain challenges due to the COVID-19 pandemic. There is no guarantee that our operations will not be materially adversely affected in the future in the supply chain interruptions intensify. Furthermore, although in the long-term, we believe that the COVID 19 pandemic may encourage organizations to reassess their security screening processes and may continue to accelerate their adoption of solutions such as touchless security screening, which could create additional demand for our products, there is no guarantee that such organizations will choose to implement our solutions.
If the COVID-19 pandemic continues for a prolonged duration, we or our customers may be unable to perform fully on our contracts, which will likely result in increases in costs and reduction in revenue. These cost increases may not be fully recoverable or adequately covered by insurance. The long-term effects of COVID-19 to the global economy and to us are difficult to assess or predict and may include a further decline in the market prices of our products, risks to employee health and safety, risks for the deployment of our products and services and reduced sales in geographic locations impacted. Any prolonged restrictive measures put in place to control COVID-19 or other adverse public health developments in any of our targeted markets may have a material and adverse effect on our business operations and results of operations.
Risks Related to Our Common Stock
The market price of our Common Stock is likely to be highly volatile, and you may lose some or all of your investment.
The trading price of our common stock is likely to be highly volatile and may be subject to wide fluctuations in response to a variety of factors, including the following:
| ● | the impact of COVID-19 pandemic on our business; |
| ● | the inability to re-list our shares of Common Stock on the OTC Markets; |
| ● | changes in applicable laws or regulations; |
| Madison Technologies Inc. | Form 10-K - 2021 | Page 22 |
| ● | risks relating to the uncertainty of our projected financial information; and |
| ● | risks related to the organic and inorganic growth of our business and the timing of expected business milestones. |
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political, regulatory and market conditions, may negatively affect the market price of our common stock, regardless of our actual operating performance.
Volatility in our share price could subject us to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities or the completion of a merger. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
If securities or industry analysts do not publish research or reports about us, or publish negative reports, our stock price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us. We do not have any control over these analysts. If our financial performance fails to meet analyst estimates or one or more of the analysts who cover us downgrade our common stock, change their opinion, or reduce their target stock price on us, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Because we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of gain.
We currently anticipate that it will retain future earnings for the development, operation and expansion of our business and we do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of our common stock would be your sole source of gain on an investment in such shares for the foreseeable future.
A material portion of the outstanding shares of our common stock is currently restricted from resale but may be sold on a stock exchange in the near future. The number of shares eligible for public sale upon the lapse of such restrictions could depress the market price of our common stock.
In connection with the issuance of convertible notes to Arena Investors LP, we issued to them Warrants to purchase an aggregate of 192,073,017 shares of Common Stock.
In connection with the issuance of a promissory note to Z4 Management LLC, we issued to them Warrants to purchase 500,000 shares of our Common Stock.
We have 230,000 shares of Series D Preferred Stock that may be converted to 230,000,000 shares of Common Stock.
We have 1,152,500 shares of Series E-1 Preferred Stock that may be converted to 1,152,500,000 shares of Common Stock.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 23 |
We have 39,895 shares of Series H Preferred Stock that may be converted to 39,895,000 shares of Common Stock.
As of December 31, 2021, the outstanding principal balance, including accrued interest of the third-party convertible debt was convertible into 866,192,064 shares of Common Stock.
Sales of our Common Stock as restrictions end may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales could also cause the trading price of our common stock to fall and make it more difficult for us to sell shares of our Common Stock.
In addition, FFO 1 Trust delivered 48,405,000 shares of Restricted Common Stock the New York State as partial payment for outstanding personal taxes of Mr. Falcone. Any sale of this Common Stock could also cause the trading price our shares to fall.
Item 1B. Unresolved Staff Comments.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Item 2. Properties.
We are a remote-only company. Accordingly, we do not maintain a headquarters. Through four leases with remaining terms ranging from approximately 7 to 18 years, we lease TV production and broadcast transmission facilities in Los Angeles County, California, King County, Washington and Harris County, Texas.
Item 3. Legal Proceedings.
We are not a party to any pending legal proceedings and, to the best of our knowledge, none of our property or assets are the subject of any pending legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
Our Common Stock has been quoted on the NASD OTC Bulletin Board under the symbol “MDEX” since April 26, 2006 and as of July 17, is now quoted in the Expert Market. It is our objective to relist on the OTCQB or OTCQX, but there is no assurance of being successful in getting re-listed. The following table gives the high and low price information for each fiscal quarter our common stock has been quoted for the last two fiscal years and for the interim period ended March 31, 2022. The price information was obtained from OTC Markets Group Inc. and reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
| High & Low Prices(1) | ||||||||||
| Period ended | High | Low | Source | |||||||
| 31 March 2022 | $ | 0.250 | $ | 0.050 | OTC Markets Group Inc. | |||||
| 31 December 2021 | $ | 0.310 | $ | 0.034 | OTC Markets Group Inc. | |||||
| 30 September 2021 | $ | 0.690 | $ | 0.130 | OTC Markets Group Inc. | |||||
| 30 June 2021 | $ | 1.070 | $ | 0.300 | OTC Markets Group Inc. | |||||
| 31 March 2021 | $ | 0.940 | $ | 0.190 | OTC Markets Group Inc. | |||||
| 31 December 2020 | $ | 1.600 | $ | 0.160 | OTC Markets Group Inc. | |||||
| 30 September 2020 | $ | 0.430 | $ | 0.040 | OTC Markets Group Inc. | |||||
| 30 June 2020 | $ | 0.060 | $ | 0.024 | OTC Markets Group Inc. | |||||
| 31 March 2020 | $ | 0.080 | $ | 0.050 | OTC Markets Group Inc. | |||||
(1) All high & low price data for all periods reflect Madison’s 10:1 consolidation, which was effective March 11, 2015, by a majority vote of the shareholders, Madison consolidated its issued and outstanding shares of common stock, without correspondingly decreasing the number of authorized shares of common stock, on a 10 “old” shares for every one “new” share basis, resulting in a decrease of Madison’s issued and outstanding share capital from 113,020,000 shares to approximately 11,302,000 shares of common stock, not including any rounding up of fractional shares to be issued on consolidation.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 24 |
(b) Holders of Record
We have approximately 52 holders of record of our Common Stock as of December 31, 2021, according to a shareholders’ list provided by Madison’s transfer agent as of that date. The number of registered shareholders does not include any estimate by us of the number of beneficial owners of Common Stock held in street name. The transfer agent for our Common Stock is Pacific Stock Transfer, 4045 South Spencer Street, Suite 403, Las Vegas, Nevada 89119 and their telephone number is (702) 361-3033.
(c) Dividends
We have declared no dividends on our Common Stock, and we are not subject to any restrictions that limit its ability to pay dividends on its shares of Common Stock. Dividends are declared at the sole discretion of our Board of Directors (the “Board”).
(d) Securities Authorized for Issuance under Equity Compensation Plans
As of December 31, 2021, we have not adopted an equity compensation plan.
(e) Recent Sales of Unregistered Securities
There have been no sales of unregistered securities within the last three years that would be required to be disclosed pursuant to Item 701 of Regulation S-K., with the exception of the following:
On July 23, 2020, we issued 1,785,000 shares of Common Stock pursuant to the conversion of a note payable of $16,900 at $0.01 per share plus legal fees of $950, totaling $17,850.
On October 28, 2020, we issued 1,900,000 shares of Common Stock pursuant to the conversion of a note payable of $9,500 at $0.005 per share.
On November 2, 2020, we issued 1,730,000 shares of Common Stock pursuant the conversion of a note payable of $17,300 at $0.01 per share.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 25 |
On February 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”) pursuant to which we pursuant to which it issued convertible notes in an aggregate principal amount of $16,000,000 for an aggregate purchase price of $15,000,000 (collectively, the “Notes”). In connection with the issuance of the Notes, we issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of Common Stock (collectively, the “Warrants”) and 1,000 shares of Series F Preferred Stock (the “Series F Preferred Stock”).
On September 24, 2021, as part of our agreement with the Investors, we issued 192,073,016 Warrants.
On December 28, 2021, as part of our sale of a promissory note, we issued a Warrant to purchase up to 500,000 shares of our Common Stock at $0.025 per share.
On March 1, 2022, we granted a Warrant to Mr. Zenna, our Director, to purchase up to 500,000 shares of our Common Stock at $0.025 per share.
In 2022, we sold a total of $1,520,000 of notes payable, some of which are convertible into our Common Stock at fixed prices, and we issued certain noteholders Warrants to purchase an aggregate of 10,600,000 shares of our Common Stock, on a cashless exercise basis, at prices ranging from $0.02 to $0.025 per share.
(f) Penny Stock Rules
Trading in our Common Stock is subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our Common Stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. The application of the “penny stock” rules may affect your ability to resell our securities.
Item 6. [Reserved]
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and we are not required to provide the information required under this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING PRESENTATION OF OUR PLAN OF OPERATION OF SHOULD BE READ IN CONJUNCTION WITH THE AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED HEREIN.
RESULTS OF OPERATIONS
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 26 |
Year ended December 31, 2021 and December 31, 2020
Revenues
Net Revenues increased to $1,243,655 for the year ended December 31, 2021 from $1,374 for the year ended December 31, 2020. The increase resulted from the acquisitions of television stations in 2021 and the $1,243,655 revenues generated by the lease agreements held by those stations. We anticipate 2022 Net Revenues will increase compared to 2021 Net Revenues as a result a full year of operating the television stations acquired during 2021 and the launch of BLOCKCHAIN.TV in 2022.
Amortization
Amortization increased to $105,450 for the year ended December 31, 2021 from $0 for the year ended December 31, 2020. The increase resulted from the Sovryn acquisitions in 2021 of television stations that have amortizable tangible and intangible assets.
Selling, general and administrative fees
Selling, general and administrative fees increased to $350,770 for the year ended December 31, 2021 from $29,600 for the year ended December 31, 2020. The increase was primarily the result of selling and overhead expenses for our television stations that we started operating in 2021 following their acquisitions.
Television operations
Television operation expenses are $266,644 and $0 for the years ended December 31, 2021 and 2020. The expenses are direct costs of operating the television stations we acquired in 2021.
Professional Fees
Professional Fees increased to $1,850,041 for the year ended December 31, 2021 from $89,144 for the year ended December 31, 2020. The increase was primarily the result of an increase in the legal and accounting expense associated with the acquisitions of television stations, the financing associated with those acquisitions and, the expense associated with regulatory filings for the SEC, including the Form S1 Registration.
Goodwill impairment loss
Our goodwill impairment loss was $4,224,962 and $0 for the years ended December 31, 2021 and 2020. Due to a sustained decline in the market capitalization of our Common Stock during the fourth quarter of 2021, we performed an interim goodwill impairment test. Management considered that, along with other possible factors affecting the assessment of our operations for the purposes of performing a goodwill impairment assessment, including management assumptions about expected future revenue forecasts and discount rates, changes in the overall economy, trends in the stock price, estimated control premium, other operating conditions, and the effect of changes in estimates and assumptions that could materially affect the determination of fair value and goodwill. As a result of the significant decline in the current market capitalization despite any of the other positive factors contemplated and relatively little change in our ongoing business operations, the outcome of this goodwill impairment test resulted in a charge for the impairment of goodwill of $4,224,962 recorded in the consolidated financial statements for the year ended December 31, 2021.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 27 |
Loss on asset disposals
Our loss on asset disposals was $1,737,147 and $0 for the years ended December 31, 2021 and 2020. Our initial objective was to create one the largest, most comprehensive, state of the art OTA content distribution platforms to capitalize on the changing media and distribution landscape and on the growing OTA viewership in the U.S. We are exploring more capital efficient and technology centric alternatives to its planned station acquisition distribution platform. While there is no guarantee that it will be successful with this alternative approach, we have determined that it will postpone further capital expenditures on acquisitions and as a result, the planned acquisitions of W27EB-Chicago, KPHE-Phoenix, KVSD-San Diego, WANN-Atlanta and KDTL-St. Louis stations have been terminated and future acquisition plans have been put on hold while we evaluate this alternative approach. As a result, we recognized $1,737,147 of losses from disposition of OTA assets.
Interest Expense
Interest expense increased to $5,553,121 for the year ended December 31, 2021 from $237,417 for the year ended December 31, 2020. The increase resulted from financing associated with the acquisition of television stations.
Loss on Debt Extinguishment
Our loss on debt extinguishment was $5,553,121 for the year ended December 31, 2021 as compared to $0 for the year ended December 31, 2020. The increase was the result of non-cash charges we recognized when we amended the stock price conversion terms of our Notes held the Investors and by extinguishing notes payable by issuing shares of our Series D Preferred Stock.
Gain from derivative that is not designated in a hedging relationship
Our gain from derivative that is note designated in a hedging relationship was $10,065,713 and $0 for the years ended December 31, 2021 and 2020.
Discontinued Operations
Our loss from discontinued operations was $479,117 and $390,376 for the years ended December 31, 2021 and 2020, respectively. On November 15, 2021, we sold our subsidiary, CZJ License Inc., for $250,000 and designated its operations as discontinued. The previous year’s assets, liabilities and expenses have been similarly classified for comparative purposes.
Net Loss
Net Loss increased to $14,262,579 for the year ended December 31, 2021 from $910,163 for the year ended December 31, 2020. The increase was primarily the result of $5,553,141 of interest expense for debt instruments we issued in 2021, a $4,224,962 goodwill impairment loss, and $1,737,147 in losses from asset disposals, Net Loss on a basic and diluted basis of $.040 per share for the year ended December 31, 2021, based on 352,843,639 weighted average shares outstanding, as compared to a Net Loss of $0.047 per share for the year ended December 31, 2020, based on 19,453,890 weighted average shares outstanding. The increase in weighted average shares outstanding relates primarily to issuances of 192,073,017 shares to the Investors on October 11, 2021 in connection with the $16,500,000 Notes we sold, the 1,091,388,889 shares we issued on October 11, 2021 to Preferred Series E-1 holders in pursuant to an Exchange Agreement and the into 255,555,556 shares we issued on November 2, 2021 in exchange for shares of our Preferred Series Stock.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 28 |
Liquidity and Capital Resources
Cash and Working Capital
As at December 31, 2021, we had $55,656 in cash and a $4,373,271 working capital deficit, compared to cash of $9,491 and working capital deficit of $533,548 as at December 31, 2020.
We will require additional capital to meet our long-term operating requirements. We have not yet made the $0.4 million interest payments on the Notes held by Arena Partners LC that were due on April 1, 2022 and July 1, 2022, and as a result, under the Note terms, the interest rate is 20.0% per annum. We are currently in discussions with Arena Capital LP, on a plan of forbearance; however, there is no assurance that we will be successful in completion of a plan, which may disrupt our operations and result in a restructuring of obligations.
We expect to raise additional capital through the sale of equity and/or debt securities; however, there is no assurance that we will be successful at raising additional capital in the future. If our plans are not achieved and/or if significant unanticipated events occur, we may have to further modify our business plan, which may require us to raise additional capital. As of December 31, 2021, our principal source of liquidity was our cash, which totaled $55,656. Historically, our principal sources of cash have included proceeds from the sale of common stock and preferred stock and related party loans. Our principal uses of cash have included cash used in operations, to make acquisitions and to pay interest on our Notes. We expect that the principal uses of cash in the future will be for continuing operations associated with rolling out the business plan and for interest payments.
Net Cash Used in Operating Activities
We used cash of $6,203,200 in operating activities during fiscal 2021 compared to cash used of $489,325 in operating activities during the previous fiscal year. The increase was primarily the result of increase in expenses associated with the build out and roll out of our business plan.
Net Cash Used in Investing Activities
We used cash of $14,715,635 in investing activities during fiscal 2021 compared to cash used of $10,000 in investing activities during the previous fiscal year. The increase was the result of acquisitions and expenses associated with KNLA/KNET, KVVV, KYMU television stations, deposits associated with signed purchase agreements and loans made to Top Dog Productions Inc.
Net Cash Provided (Used in) by Financing Activities
Net cash flows provided by financing activities of $20,965,000 for fiscal 2021, were from the proceeds of the Arena financing in February 2021 and Share subscriptions received but not issued for our Series G preferred stock and proceeds from subordinated loans, compared to $507,450 of cash provided by financing activities during the previous fiscal year.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 29 |
Purchase of Significant Equipment
We do not intend to purchase any significant equipment during the next twelve months.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements including arrangements that would affect its liquidity, capital resources, market risk support and credit risk support or other benefits.
Material Commitments for Capital Expenditures
We had no contingencies or long-term commitments at December 31, 2021.
Going Concern
The independent auditors’ reports accompanying our December 31, 2021 and 2020 financial statements contain an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Tabular Disclosure of Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 30 |
Critical Accounting Policies
We follow certain significant accounting policies when preparing our consolidated financial statements. A complete summary of these policies is included in Note 1 of Notes to Consolidated Financial Statements. Certain of the policies require management to make significant and subjective estimates or assumptions that may deviate from actual results. In particular, management makes estimates regarding the useful life of long-lived assets related to depreciation and amortization expense, estimates regarding fair value of our reporting units and future cash flows with respect to assessing potential impairment of both long-lived assets and goodwill and estimates of expense related to our debt and equity instruments. Each of these estimates is discussed in greater detail in the following discussion.
Long-Lived Assets, Depreciation and Amortization Expense and Valuation
We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset, or related asset group, may not be recoverable from estimated future undiscounted cash flows. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. In 2021, we recognized that we would not complete the acquisition of the TV station assets of W27EB and KPHE TV and we wrote off $1,150,000 in deposits paid to sellers of those assets.
Goodwill Valuation
Management performed the annual goodwill and indefinite-lived intangible assets impairment assessments as of December 31, 2021 and concluded that our goodwill for the Sovryn acquisition was impaired as of that date. Goodwill and indefinite lived assets are tested annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We follow a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its implied fair value.
Derivative Liabilities
We have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all of our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Madison is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 31 |
Item 8. Financial Statements and Supplementary Data.
MADISON TECHNOLOGIES INC.
DECEMBER 31, 2021 AND 2020
TABLE OF Contents
| Independent Auditor’s ReportsPCAOB: |
F-1 to F-2 |
| CONSOLIDATED FINANCIAL STATEMENTS | |
| Balance Sheets | F-3 |
| Statements of Operations | F-4 |
| Statements of Stockholders’ Deficit | F-5 |
| Statements of Cash Flows | F-6 |
| Notes to the Financial Statements | F-7 to F-34 |
| Chartered Professional Accountant | |
| 313 East 5th Street | Tel: 604.220.7704 |
| North Vancouver BC, V7L 1M1 | Fax: 1.855.603.3228 |
| Canada |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Madison Technologies Inc.
Opinion on the financial statements
I have audited the accompanying balance sheets of Madison Technologies Inc. as of December 31, 2020 and 2019 and the related statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2020 and the related notes (collectively referred to as the “financial statements’). In my opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared using accounting principles generally accepted in the United States of America assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred operating losses since inception, and has a working capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to their planned financing and other matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits. My company is a public accounting firm registered with the Public Company Accounting Oversight Board (“PCAOB”) and is required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
I conducted my audits in accordance with the standards of the PCAOB. Those standards require that I plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. As part of my audits, I am required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, I express no such opinion.
My audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. My audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. I determined that there are no critical audit matters.
| I have served as the Company’s auditor since 2009. | |
| /s/ K. R. Margetson Ltd | |
| Chartered Professional Accountant | |
| Canada | |
| April 15, 2021 |
| F-1 |
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Madison Technologies Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Madison Technologies Inc. (the “Company”) as of December 31, 2021, the related statement of operations, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
| /s/ BF Borgers CPA PC | |
We have served as the Company’s auditor since 2022 |
|
PCAOB
ID |
|
| August 24, 2022 |
| F-2 |
MADISON TECHNOLOGIES INC.
CONSOLIDATED Balance Sheets
| December 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivables, net | ||||||||
| Note receivables | ||||||||
| Prepaid expenses and deposits | ||||||||
| Current assets held for sale | ||||||||
| Due from related party | ||||||||
| Total Current Assets | ||||||||
| Intangible assets, net | ||||||||
| Other assets held for sale | ||||||||
| Equipment, net | ||||||||
| Investments | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Derivative liability | ||||||||
| License fee payable held for sale | ||||||||
| Current portion of lease liabilities | ||||||||
| Demand notes and accrued interest payable | ||||||||
| Convertible notes payable | ||||||||
| Interest payable on convertible notes | ||||||||
| Total current liabilities | ||||||||
| Long term portion of lease liability obligations | ||||||||
| Long term convertible notes, net of discount | ||||||||
| Total liabilities | ||||||||
| Preferred Shares - Series C, $ par value; | ||||||||
| Preferred Shares - Series D, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series E, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series E-1, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series F, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series G, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares – Series H, $ par value; convertible, stated value $ | ||||||||
| Temporary equity value | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Capital Stock: | ||||||||
| Preferred Shares – shares authorized, $ par value Preferred Shares - Series A,
$ par value; | ||||||||
| Preferred Shares - Series B, $ par value; shares designated, shares issued and outstanding, December 31, 2021 and 2020, respectively | ||||||||
| Preferred Stock value | ||||||||
| Common Shares - $ par value; shares authorized and shares issued and outstanding, December 31, 2021 and 2020, respectively | ||||||||
| Additional Paid in Capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See Accompanying Notes to the Consolidated Financial Statements.
| F-3 |
MADISON TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS of Operations
| For the Year | For the Year | |||||||
| Ended | Ended | |||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Revenues | $ | $ | ||||||
| Operating Expenses | ||||||||
| Selling, general and administrative | ||||||||
| Television operations | ||||||||
| Amortization of intangible assets | ||||||||
| Professional fees | ||||||||
| Loss on asset disposals | ||||||||
| Goodwill impairment loss | ||||||||
| Total operating expenses | ||||||||
| Loss before other expense | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Gain on debt extinguishment | ||||||||
| Loss from derivative that is not designated in a hedging relationship | ( | ) | ||||||
| Write down of investments | ( | ) | ||||||
| Loss from change in value of warrants | ( | ) | ||||||
| Other income | ||||||||
| Total non operating expense | ( | ) | ( | ) | ||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share-Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Average number of shares of common stock outstanding | ||||||||
See Accompanying Notes to the Consolidated Financial Statements.
| F-4 |
MADISON TECHNOLOGIES INC.
CONSOLIDATED Statements of stockholders’ EQUITY (DEFICIT)
| For December 31, 2021 | Additional | |||||||||||||||||||||||
| Common | Preferred | Paid In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Cancellation of Series A Preferred | - | ( | ) | |||||||||||||||||||||
| Conversion of debt to Series D Preferred | - | |||||||||||||||||||||||
| Series E Preferred issued for acquisition of assets | - | |||||||||||||||||||||||
| Series F Preferred issued for convertible note | - | |||||||||||||||||||||||
| Equity portion of debts issued and extinguished | - | |||||||||||||||||||||||
| Common issued for Series B Preferred transfer | ( | ) | ||||||||||||||||||||||
| Series E Preferred exchanged for Series E-1 Preferred | ( | ) | ||||||||||||||||||||||
| Conversion of Series F Preferred to Common | ( | ) | ( | ) | ||||||||||||||||||||
| Sale of Preferred G and conversion to Common | ||||||||||||||||||||||||
| Common exchanged for Series H Preferred | ( | ) | ( | ) | ||||||||||||||||||||
| Conversion of Series D | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
MADISON TECHNOLOGIES INC.
CONSOLIDATED StatementS of stockholders’ DEFICIT
| For December 31, 2020 | Additional | |||||||||||||||||||||||
| Common | Preferred | Paid In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Conversion of debt at $ | ||||||||||||||||||||||||
| Issuance of shares for services | ||||||||||||||||||||||||
| Shares issued for license | - | |||||||||||||||||||||||
| Conversion of debt at $ | ||||||||||||||||||||||||
| Equity portion on convertible debt issued | - | |||||||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
See Accompanying Notes to the Consolidated Financial Statements.
| F-5 |
MADISON TECHNOLOGIES INC.
consolidated Statements of cash flows
| For the | For the | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortization of intangible and right-of-use assets | ||||||||
| Amortized interest | ||||||||
| Foreign exchange on notes payable | ||||||||
| Increase in allowance for doubtful accounts receivable | ||||||||
| Notes payable issued for services | ||||||||
| Loss on disposal of assets | ||||||||
| Loss on disposal of CZJ License | ||||||||
| Loss from goodwill impairment | ||||||||
| Changes in non-cash working capital items: | ||||||||
| Accounts receivables | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Due from related party | ( | ) | ||||||
| Accounts payable and accrued charges | ||||||||
| Interest payable | ||||||||
| Payment of lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of equipment, intangible assets and goodwill | ( | ) | ( | ) | ||||
| Funds advanced for note receivable | ( | ) | ||||||
| Disposal of assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible notes sold | ||||||||
| Proceeds from sales of Series G Preferred Stock | ||||||||
| Repayment of convertible note | ( | ) | ||||||
| Fees incurred in debt conversion | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of year | ||||||||
| Cash, quarter end | $ | $ | ||||||
| Note 22 Additional cash flow information | ||||||||
| SUPPLEMENTAL DISCLOSURE | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
During the year ended December 31, 2021, the following transaction did not involve cash:
| (a) | Demand
notes, convertible notes and interest with a carrying value of $ | |
| (b) | $ | |
| (c) |
shares of Series E Preferred Stock were issued for | |
| (d) | When the shares of Series E Preferred Stock were exchanged for shares of Series E-1 Preferred Stock and shares of Common Stock. |
The following is information pertaining to the year ended December 31, 2020:
| (1) | In
the transaction wherein we assigned the Casa Zeta- Jones License, $ | |
| (2) | $ | |
| (3) | A
retainer for legal fees for $ | |
| (4) | Convertible
debt of $ |
See Accompanying Notes to the Consolidated Financial Statements
| F-6 |
MADISON TECHNOLOGIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Note 1 Nature of Operations
Our
Company was incorporated on June 15, 1998 in the State of
We, through our wholly-owned subsidiary, Sovryn Holdings, Inc. (“Sovryn”) acquired three un-affiliated Class A/LPTV TV. Each licensed TV station can broadcast between 10 and 12 channels over-the-air, 24 hours per day/7 days per week. In 2021, we generated revenue by leasing channels to third parties on KNLA/KNET, a Class A television station in Los Angeles, KVVV, a low power television station in Houston and KYMU-LD, a low power television station in Seattle.
Until we abandoned the Tuffy Pack product line during the fourth quarter of 2020, our business generated revenue from the distribution of Tuffy Pack’s product line of custom inserts that provided a level of personal protection from ballistic threats similar to what law enforcement officers wear daily as bullet proof vests.
On
November 15, 2021, we sold our wholly owned subsidiary, CZJ License Inc. for $
During August 2021, our shareholders approved to amend and restate our Articles of Incorporation to increase our authorized common stock from shares to shares.
Note 2 Going Concern
The
accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the
recoverability of assets and the satisfaction of liabilities in the normal course of business. For the year ended December 31, 2021,
we incurred a net loss of $
Note 3 Summary of Significant Accounting Policies
Use of estimates
The preparation of the consolidated interim financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
| F-7 |
Consolidation
The accompanying consolidated financial statements include the accounts of our wholly owned subsidiaries, Sovryn Holdings Inc. and CZJ License Inc. CZJ License Inc. was consolidated up until it was sold on November 15, 2021. All the intercompany balances and transactions have been eliminated in the consolidation. During the year ended December 31, 2021, the operations of CZJ License Inc. were consolidated into our operation and were designated as discontinued.
Segment reporting
We use “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments. Our chief operating decision maker is our chief executive officer, who reviews operating results to make decisions about allocating resources and assessing our entire performance. We did not report any segment information since we primarily generates sales from its television stations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Revenue recognition
We adopted the ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). We recognize revenue when we transfer promised services to the customer. The performance obligation is the monthly services rendered. We have one main revenue source which is leasing of television station channels. Accordingly, we recognize revenue when services are provided as time passes the customers have access to utilize the channel. These revenues are billed in advance, arrears and/or are prepaid. The performance obligation is the monthly services rendered. At the moment, we have one main revenue source which is leasing of television channels. Where there is a leasing contract for channels, we bill monthly for our services as rendered. Where there is no contract, the revenue is recognized as provided.
We recognize revenue in accordance with ASC 606 using the following 5 steps to identify revenues:
| ● | identify the contract with a customer; |
| ● | identify the performance obligations in the contract; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to performance obligations in the contract; and |
| ● | recognize revenue as the performance obligation is satisfied. |
Advances from Client’s deposits are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund the amount received. Where possible, we obtain retainers to lessen our risk of non-payment by our customers. Advances from Client’s deposits are recognized as revenue as we meet specified performance obligations as detailed in the contract.
Accounts receivables
Trade
accounts receivable are stated at the amount we expect to collect. Management considers the following factors when determining the collectability
of specific customer accounts: customer credit worthiness, past transaction history, current economic industry trends and changes in
customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Based
on the management’s assessment, we provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation
allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the
valuation allowance and a credit to accounts receivable. As of December 31, 2021, our allowance for doubtful accounts receivable was
$
| F-8 |
Operating leases
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”). The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We adopted the new standard April 19, 2021. We have elected not to recognize lease assets and lease liabilities for leases with an initial term of 12 months or less.
Intangible assets
Intangible assets are non-monetary identifiable assets, controlled by us that will produce future economic benefits, based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. An intangible asset that does not meet these attributes will be recognized as an expense when it is incurred. Intangible assets that do, are capitalized and initially measured at cost. Those with a determinable life will be amortized on a systematic basis over their future economic life. Those with an indefinite useful life shall not be amortized until its useful life is determined to be longer indefinite. An intangible asset subject to amortization shall be periodically reviewed for impairment. A recoverability test will be performed and, if applicable, unscheduled amortization is considered.
License agreements have been capitalized, recorded at cost and amortized over the life of the contracts. They will be amortized over the life of the license to which it supports.
Equipment
Equipment represents purchases made for assets, whose useful life was determined to be greater than one year. The assets are initially recorded at cost and depreciated over their estimated useful lives.
Website development costs
We recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost”. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage.
Costs associated with the website consist primarily of website development costs paid to third party. These capitalized costs will be amortized based on their estimated useful life over three years upon the website becoming operational. Internal costs related to the development of website content will be charged to operations as incurred. Website development costs related to the customers are charged to cost of sales.
Impairment of Long-Lived Assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and intangible assets we hold and use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
| F-9 |
Concentration of credit risk
We place our cash and cash equivalents with a high credit quality financial institution. We maintain United States Dollars. We minimize its credit risks associated with cash by periodically evaluating the credit quality of its primary financial institution.
Financial instruments
Our financial instruments consist principally of cash, accounts payable, accrued liabilities and notes payable. The carrying amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively short-term nature or the underlying terms are consistent with market terms. It is the management’s opinion that we are not exposed to any significant currency or credit risks arising from these financial instruments.
Fair value measurements
We follow the guidelines in ASC Topic 820 “Fair Value Measurements and Disclosures”. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. All financial instruments approximate their fair value.
| Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. | ||
| Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities | ||
| Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. |
Convertible Notes with Fixed Rate Conversion Options
We may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. We record the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Derivative Liabilities
We have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
| F-10 |
Advertising and promotion costs
We follow ASC 720 “Advertising Costs” and expenses costs as incurred.
Stock based compensation
We follow the guideline under ASC 718, “Stock Compensation”. The standard provides that for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, which requires that all share-based payments to both employees and directors be recognized in the income statement based on their fair values. For non-employees stock-based compensation, We apply ASC 505 Equity-Based Payments to Non-employees. This standard provides that all stock-based compensation related to non-employees be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever can be most reliably be measured or determinable.
Comprehensive income
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Net Loss Per Share
Basic
loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for
the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in our earnings (loss). Diluted
loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the
period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of December
31, 2021, no options were outstanding and warrants were outstanding and exercisable. Additionally, as of December 31, 2021,
the outstanding principal balance, including accrued interest of the third-party convertible debt, totaled $
| December 31, 2021 | December 30, 2020 | |||||||
| Warrants | ||||||||
| Convertible Preferred Stock | ||||||||
| Convertible debt | ||||||||
| Total | ||||||||
| F-11 |
Business Combinations
In accordance with ASC 805-10, “Business Combinations”, we account for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that we hold in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in our results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.
Credit losses
In June 2016, the FASB issued ASU 326, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires us to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. We are currently assessing the impact of the adoption of this ASU on its financial statements.
Related Party Transactions
We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20, related parties include: a) our affiliates; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) our principal owners; e) our management; f) other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Material related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
| F-12 |
Discontinued operations
Discontinued operations are components of an entity that either have been disposed or abandoned or is classified as held for sale. Additionally, in order to qualify as a discontinued operation, the disposal or abandonment must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results.
Income taxes
We follow the guideline under ASC Topic 740 Income Taxes. “Accounting for Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding our future profitability, the future tax benefits of its losses have been fully reserved.
Recently Issued Accounting Pronouncements
We adopt new pronouncements relating to generally accepted accounting principles applicable to us as they are issued, which may be in advance of their effective date.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this new guidance will have on its financial statements
We do not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
Note 4 Notes Receivable
Schedule of Notes Receivable
| December 31, 2021 | December 31, 2020 | |||||||
| Secured note – Top Dog Productions Inc. | $ | $ | ||||||
| Convertible note – ZA Group | ||||||||
| Advances in escrow and prepaid expenses | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
On
September 9, 2021, we entered into a secured promissory note with Top Dog Productions Inc. We agreed to lend an aggregate principal sum
of up to $
| F-13 |
On
November 15, 2021, we entered into a $
Note 5 -Intangible Assets
Our
Federal Communication Commission Licenses (“FCC”) an domain name are considered indefinite-lived intangible assets that are
not amortized, but instead are tested at least annually for impairment. The Market Advantage intangible asset is being amortized on a
straight-line basis over 94 months from the acquisition date. Amortization expense for the years ended December 31, 2021 and 2020 was
$
Schedule of Intangible Assets
| December 31, 2021 | ||||||||||||
| Cost | Amortization | Net | ||||||||||
| Domain Name | $ | $ | $ | |||||||||
| Market Advantage | ||||||||||||
| FCC Licenses | ||||||||||||
| $ | $ | $ | ||||||||||
Future amortization expense of the intangible assets is as follows:
Schedule of Future Amortization Expenses of Intangible Assets
For the Years Ending December 31, | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note 6 Goodwill
Due
to a sustained decline in the market capitalization of our Common Stock during the fourth quarter of 2021, we performed an interim goodwill
impairment test. Management considered that, along with other possible factors affecting the assessment of our operations for the purposes
of performing a goodwill impairment assessment, including management assumptions about expected future revenue forecasts and discount
rates, changes in the overall economy, trends in the stock price, estimated control premium, other operating conditions, and the effect
of changes in estimates and assumptions that could materially affect the determination of fair value and goodwill. As a result of the
significant decline in the current market capitalization despite any of the other positive factors contemplated and relatively little
change in our ongoing business operations, the outcome of this goodwill impairment test resulted in a charge for the impairment of goodwill
of $
| F-14 |
As of December 31, 2021, we carry goodwill for the following television station asset purchases made in 2021:
Schedule of Goodwill Asset Purchase
| KNLA - KNET acquisition | $ | |||
| KVVV acquisition | ||||
| KYMU acquisition | ||||
| Total | $ |
Note 7 Equipment
Schedule of Equipment
Useful Life | Cost | Accumulated Depreciation | Net | |||||||||||
| Transmitter | $ | $ | ( | ) | $ | |||||||||
| Antenna | ( | ) | ||||||||||||
| Tech Equipment | ( | ) | ||||||||||||
| Office Equipment | ( | ) | ||||||||||||
| Microwave | ( | ) | ||||||||||||
| $ | $ | $ | ||||||||||||
Depreciation
expense was $
During the period, the following was disposed:
Schedule of Disposed of Assets
| Loss/Gain | ||||||||||||
| Cost | Depreciation | Disposition | ||||||||||
| Technical Equipment | $ | $ | $ | |||||||||
| F-15 |
K07AAJ and W05DK Acquisition
On
October 25, 2021, we entered into an asset purchase agreement (“Bakersfield and San Juan Asset Purchase Agreement”) with
Mako Communications, LLC, a Texas Limited Liability company (the “Bakersfield and San Juan Seller”). Upon the terms and subject
to the satisfaction of the conditions described in the Bakersfield and San Juan Asset Purchase Agreement, we agreed to acquire the licenses
and Federal Communications Commission (“FCC”) authorizations to the K07AAJ-D and W05DK-D low power television stations construction
permits owned by the Bakersfield and San Juan Seller (the “Bakersfield and San Juan Acquired Station”) in connection with
the Bakersfield and San Juan Acquired Station (the “Bakersfield and San Juan Asset Sale Transaction”). As consideration for
the Bakersfield and San Juan Asset Sale Transaction, we agreed to pay the Bakersfield and San Juan Seller $
The closing of the Bakersfield and San Juan Asset Sale Transaction (the “Bakersfield and San Juan Closing”) is subject to, among other things, consent by the FCC to the assignment of the construction permits pertaining to the Bakersfield and San Juan Acquired Station, from the Bakersfield and San Juan Seller to us (the “Bakersfield and San Juan FCC Consent”). The Bakersfield and San Juan Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the Bakersfield and San Juan FCC Consent has been granted and (ii) the other conditions to the Bakersfield and San Juan Closing set forth in the Bakersfield and San Juan Asset Purchase Agreement. At December 31, 2021, the transaction has not closed.
WANN Acquisition
On
November 3, 2021, we entered into an asset purchase agreement (“WANN Asset Purchase Agreement”) with Prism Broadcasting Network
Inc., a Georgia corporation (the “Atlanta Seller”). Upon the terms and subject to the satisfaction of the conditions described
in the WANN Asset Purchase Agreement, we agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations
to the WANN-CD low power television station owned by the Atlanta Seller (the “Atlanta Acquired Station”), certain tangible
personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain
assumed liabilities in connection with the Atlanta Acquired Station (the “WANN Asset Sale Transaction”). As consideration
for the WANN Asset Sale Transaction, We agreed to pay the Atlanta Seller $
The closing of the WANN Asset Sale Transaction (the “WANN Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Atlanta Acquired Station, from the Atlanta Seller to us (the “Atlanta FCC Consent”). The WANN Closing shall occur no more than the ten (10) business days following the later to occur of (i) the date on which the WANN FCC Consent has been granted and (ii) the other conditions to the WANN Closing set forth in the WANN Asset Purchase Agreement. As at December 31, 2021, the transaction has not closed.
KVSD Acquisition
On
August 31, 2021, we entered into an asset purchase agreement (the “KVSD Asset Purchase Agreement”) with D’Amico Brothers
Broadcasting Corp., a California company (the “San Diego Seller”). Upon the terms and subject to the satisfaction of the
conditions described in the KVSD Asset Purchase Agreement, we agreed to acquire the licenses and Federal Communications Commission (“FCC”)
authorizations to the KVSD-LD low power television station owned by the San Diego Seller (the “San Diego Acquired Station”),
certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together
with certain assumed liabilities in connection with the San Diego Acquired Station (the “KVSD Asset Sale Transaction”). As
consideration for the KVSD Asset Sale Transaction, we agreed to pay the San Diego Seller $
| F-16 |
The closing of the KVSD Asset Sale Transaction (the “KVSD Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the San Diego Acquired Station, from the San Diego Seller to us (the “San Diego FCC Consent”). The KVSD Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the San Diego FCC Consent has been granted and (ii) the other conditions to the KVSD Closing set forth in the KVSD Asset Purchase Agreement. As at December 31, 2021, the transaction has not closed. We are currently re-negotiating the agreement.
Note 8 Right of Use Assets
We
have
Schedule of Remaining Right of Use Assets
| Term | Accumulated | |||||||||||||||
| (in months) | Amount | Amortization | Net | |||||||||||||
| Tower Lease 1 | $ | $ | $ | |||||||||||||
| Tower lease - 2 | ||||||||||||||||
| Tower Lease - 3 | ||||||||||||||||
| Generator Lease | ||||||||||||||||
| Studio Lease - 1 | ||||||||||||||||
| Studio Lease - 2 | ||||||||||||||||
| $ | $ | $ | ||||||||||||||
The
remaining lease liability at December 31, 2021 was $
Schedule of Remaining Lease Liability
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Remaining | ||||
| Lease obligations, net | ||||
| Amount representing interest | ||||
| Less current portion | ||||
| Non-current lease obligation | $ |
Note 9 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of December 31 are summarized below:
Schedule of Accounts Payable and Accrued Liabilities
| 2021 | 2020 | |||||||
| Accounts payable | $ | $ | ||||||
| Customer deposits | ||||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Total | $ | $ | ||||||
| F-17 |
Note 10 Securities Exchange Agreements
Sovryn Holdings, Inc.
We entered into a Securities Exchange Agreement on February 16, 2021 with Sovryn, a Delaware corporation and acquire % of the shares of Sovryn in exchange for i) shares of our Series B Preferred Stock to be transferred by Jeffrey Canouse, our CEO at the time, to a designee of Sovryn and ii) shares of Series E Preferred Stock. Upon the effectiveness of an amendment to out Articles of Incorporation to increase our authorized common stock, from par value $ to par value $ per share, from shares to shares, all shares of Series E Preferred Stock issued to the shareholders shall automatically convert into approximately shares of our Common Stock. The Series E Preferred Stock votes on an as-converted basis with our Common Stock prior to their conversion. The Series E Preferred Stock represented approximately % of the fully diluted shares of our Common Stock after the closing of the transactions contemplated by the Securities Purchase Agreement. The valuation for the Preferred Series E shares was determined to be $ based on the market value of our shares we exchanged at the date the transaction. The transaction was recorded as an asset purchase and we recorded goodwill of $ which was based on the market value of our shares exchanged at the date of the transaction.
Note 11 Asset Purchase
On
April 19, 2021, pursuant to a February 17, 2021 an asset purchase agreement, Sovryn paid a total of $
The following table shows the estimated fair values of the Los Angeles Stations’ assets acquired and liabilities assumed at the April 19, 2021 purchase date:
Schedule of Asset Acquisitions
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | |||
| Technical equipment | ||||
| Antenna systems | ||||
| Microwave equipment | ||||
| Total tangible assets acquired | ||||
| Total liabilities assumed | ||||
| NET TANGIBLE ASSETS ACQUIRED | $ | |||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | ||||
| Transmitter site leasehold | ||||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| NET ASSETS ACQUIRED | $ | |||
| F-18 |
On
June 1, 2021, pursuant to a March 14, 2021 an asset purchase agreement, Sovryn paid a total of $
The following table shows the estimated fair values of the Houston Station’s assets acquired and liabilities assumed at the June 1, 2021 purchase date:
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | |||
| Technical equipment | ||||
| Antenna systems | ||||
| Furniture and equipment | ||||
| Total tangible assets acquired | ||||
| Total liabilities assumed | ||||
| NET TANGIBLE ASSETS ACQUIRED | $ | |||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | ||||
| Transmitter site leasehold | ||||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| NET ASSETS ACQUIRED | $ | |||
On
September 24, 2021, pursuant to a March 29, 2021 an asset purchase agreement, Sovryn paid a total of $
The following table shows the estimated fair values of the Seattle Station’s assets acquired and liabilities assumed at the September 24, 2021 purchase date:
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | |||
| Technical equipment | ||||
| Antenna systems | ||||
| Microwave equipment | ||||
| Total tangible assets acquired | ||||
| Total liabilities assumed | ||||
| NET TANGIBLE ASSETS ACQUIRED | $ | |||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | ||||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| NET ASSETS ACQUIRED | $ | |||
| F-19 |
W27EB Acquisition
On
June 9, 2021, we entered into an asset purchase agreement (the “W27EB Asset Purchase Agreement”) with Local Media TV Chicago,
LLC, a Delaware limited liability company (the “Chicago Seller”). As consideration for the W27EB Asset Sale Transaction,
we agreed to pay the Chicago Seller the amended price of $
KPHE Acquisition
On
July 13, 2021, we entered into an asset purchase agreement (the “KPHE Asset Purchase Agreement”) with Lotus TV of Phoenix
LLC, an Arizona limited liability company (the “Phoenix Seller”). As consideration for the KPHE Asset Sale Transaction, we
agreed to pay the Phoenix Seller $
K05NH Acquisition
On
August 20, 2021, we entered into an asset purchase agreement (the “K05NH Asset Purchase Agreement”) with Mako Communications,
LLC, a Texas Limited Liability Company (the “Boise” Seller). Upon the terms and subject to the satisfaction of the conditions
described in the Boise Asset Purchase Agreement, we agreed to acquire the licenses and Federal Communications Commission (“FCC”)
authorizations to the K05NH-D low power television station construction permit owned by the Boise Seller (the “Boise Acquired Station”)
in connection with the Boise Acquired Station (the “Boise Asset Sale Transaction”). As consideration for the Boise Asset
Sale Transaction, we paid the Boise Seller $
Note 12 Note Payable
Our notes payable as of December 31, both of which are current liabilities, are as follows:
Schedule of Notes Payable
| 2021 | 2020 | |||||||||
| Z4 Management LLC | [a] | $ | $ | |||||||
| Pan Consultants | [b] | |||||||||
| Total | $ | $ | ||||||||
| [a] | |
| [b] |
| F-20 |
Note 13 Convertible Notes Payable
Our convertible notes payable as of December 31 are as follows:
Schedule of Convertible Notes Payable
| 2021 | 2020 | |||||||||
| Arena | [a] | $ | $ | |||||||
| Equity Market Advisors | [b] | |||||||||
| JP Carey Limited Partners LP | [c] | |||||||||
| Trillium Partners | [d] | |||||||||
| Sapphire Holloway | [e] | |||||||||
| Joseph Ivancoe | [f] | |||||||||
| Apodaca Consulting | [g] | |||||||||
| Bellis Investments | [h] | |||||||||
| Bellis Investments | [i] | |||||||||
| Edward Johnson | [j] | |||||||||
| Equity Market Advisors | [k] | |||||||||
| Equity Market Advisors | [l] | |||||||||
| Gens Incognito Inc. | [m] | |||||||||
| Joe Gallo | [n] | |||||||||
| Levik Capital | [o] | |||||||||
| Mory and Partners | [p] | |||||||||
| NY Farms | [q] | |||||||||
| Oscaleta Partners | [r] | |||||||||
| Pale Face Holdings | [s] | |||||||||
| Sky Direct | [t] | |||||||||
| Stout Law | [u] | |||||||||
| Trillium | [v] | |||||||||
| Total | ||||||||||
| Less current portion | ||||||||||
| Long-term portion | $ | $ | ||||||||
| F-21 |
| [a] |
The
Notes have a term of thirty-six months and mature on February 17, 2023, unless earlier converted.
On September 24, 2021, the Company and the Investors amended the Notes and related closing documents, by executing the Limited Waiver and First Amendment the closing documents (“the amendment”). The amendment also waived specified events of default. The Notes are henceforth convertible at any time, at the holder’s option, into shares of our Common Stock at a price of $ per share, subject to default event adjustment. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion price in effect shall be equal to the alternate conversion price. If at any time the conversion price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the conversion price hereunder may equal such par value for such conversion and the conversion amount for such conversion may be increased to include Additional Principal, where Additional Principal means such additional amount to be added to the principal amount of this Note to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the conversion price not been adjusted by the Holder to the par value price, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of our Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. We may not redeem the Notes.
As
part of the agreement with the Investors, we issued
The
Series F Preferred Stock has no voting rights and shall convert into 4.9% of our issued and outstanding shares of our Common Stock on
a fully diluted basis upon Common Shareholder Approval. The Series F Preferred Stock was converted and
The Investors have contractually agreed to restrict their ability to exercise the Warrants and convert the Notes such that the number of shares of our Common Stock held by the Investors and their affiliates after such conversion or exercise does not exceed 9.99% of our then issued and outstanding shares of Common Stock.
| F-22 |
| [b] |
| [c] |
| [d] |
| [e] |
| [f] |
| [g] |
| [h] |
| [i] |
| [k] |
| [l] |
| [m] |
| [n] |
| [o] |
| [p] |
| [q] |
| [r] |
| [s] |
| F-23 |
| [t] |
| [u] |
| [v] |
| [w] |
Note 14 Related Party
We
entered into a consulting agreement with Warren Zenna of Zenna Consulting Group to provide oversight of marketing and communications
services. The agreement commenced March 1, 2021 and ended on July 31, 2021. We paid Zenna Consulting Group $
In
February 2021, we entered into consulting agreements with GreenRock LLC to provide us with chief executive officer services and in the
year ended December 31, 2021, we paid GreenRock LLC $
On
April 7, 2021, we issued shares of our Common Stock to Mr. Canouse in exchange for transferring his shares of our Series
B Preferred Stock to FFO1 Irrevocable Trust, an entity controlled by Mr. Falcone, our CEO and Chairman of our Board of Directors. The
shares were valued at $
Note 15 Mezzanine Equity
We account for certain of our Preferred Stock in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on this guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the various Series of Preferred Stock, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets
Preferred Shares
Series A Preferred Stock
There
are designated and authorized Series A Preferred Stock with a
| F-24 |
On
July 17, 2020, we issued Series A Preferred Stock at a value of $
On February 16, 2021, we cancelled all the Preferred Series A shares. In exchange, the holders of Series A Preferred shares received one-year option agreements to purchase shares of our wholly owned subsidiary at the time, CZJ License, Inc. at $ per share for up to shares. The option agreement expired without being exercised.
Series C Preferred Stock
There
are designated and authorized Series C Preferred Stock with a
Series D Preferred Stock
There
are designated and authorized Series D Preferred Stock with a
On
February 16, 2021, we settled $
Series E Preferred Stock
There are designated and authorized Series E Preferred Stock having a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series E are issued. Series E are ranked as a Senior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series E would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock.. To the extent that Series E votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series E shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series E shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series E are outstanding, we may not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series E or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
| F-25 |
On September 16, 2021,
On
February 16, 2021, we issued shares of Series E Preferred Stock to acquire Sovryn that we valued at $
On
September 16, 2021, the holders of our Series E Preferred Stock entered into an Exchange Agreement with us whereby on October 11, 2021,
the Series E Preferred shares were exchanged for Series E-1 Preferred shares and shares of Common Stock.
We valued the exchange at the same $
Series E-1 Preferred Stock
There are designated and authorized Series E-1 Preferred Stock. There is a stated value of $ per share. Shares of Series E-1Preferred Stock are senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents and pari passu to our other Preferred Stock designations.. It has votes equal to the number of shares of common stock into which the Series E-1 would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series E-1 would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series E-1 votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E-1, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E-1 are entitled to vote on matters with holders of shares of Common Stock and vote together as one class, each share of Series E-1 shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series E-1 shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series E-1 are outstanding, we shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series E-1, (a) alter or change adversely, the powers, preferences or rights given to the Series E-1 or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing. On October 11, 2021, the Series E-1 shares were issued. At December 31, 2021, preferred Series E-1 shares remains outstanding.
Each
share of Series E-1 Preferred Stock may be converted to
| F-26 |
Series F Preferred Stock
There are designated and authorized Series F Preferred Stock. There is a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series F are issued. Shares of Series F Preferred Stock are senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents and pari passu to our other Preferred Stock designations. It has voting rights equal to the number of shares of common stock into which the Series F would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series F would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series F votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series F, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series F are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series F shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series F shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series F are outstanding, we shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series F or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
On
February 17, 2021, we issued the Investors shares of Series F Preferred Stock that convert into shares of Common Stock,
which we valued at $
On
September 16, 2021,
On October 11, 2021, the shares of Series F Preferred Stock were converted into shares of Common Stock.
As at December 31, 2021, shares of Series F Preferred Stock are outstanding.
Series G Preferred Stock
On
August 20, 2021, the Series G Preferred Stock was amended. There are now designated and authorized Series G Preferred Stock with
a 4.99% conversion cap which may be increased to a maximum of
| F-27 |
On
September 16, 2021,
We
received $ in subscriptions for of Series G Preferred Shares that we valued at $
Series H Preferred Stock
On
November 5, 2021, we designated Series H Preferred Stock having a stated value of $ per share, subject to adjustment for stock
splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring
after the date which the Series H are issued.
On
November 11, 2021, pursuant to an Exchange Agreement that we entered into with the Investors, of our Common shares held by
the Investors were exchanged for shares of our Series H Preferred Stock and we cancelled the
Note 16 Shareholders’ Equity
Preferred Stock
As of December 31, 2021 and 2020, we are authorized to issue shares of $ par value Preferred Stock, with designations, voting, and other rights and preferences to be determined by our Board of Directors of which remain available for designation and issuance.
Series B Preferred Stock
There
are designated and authorized Series B Preferred Stock.
On
July 17, 2020, Series B Preferred Stock were issued pursuant to the License Agreement. The Series B Preferred Stock was valued at
par at $.
| F-28 |
On February 17, 2021, the Series B Preferred Stock were transferred from Mr. Canouse (our former director and CEO), to FFO1 Irrevocable Trust, a company Mr. Falcone (our director and CEO) is the trustee and has the voting and dispositive power.
At December 31, 2021 and 2020, there were and Series B Preferred shares outstanding, respectively.
Common Stock
In August 14, 2021, our shareholders approved an increase in authorized Common Stock to from , which became effective the same day. As of December 31, 2021 and 2020 there were , and , shares outstanding, respectively.
The following Common Stock transactions occurred during the year ended December 31, 2021:
On
April 7, 2021, we issued shares of our Common Stock to Mr. Canouse in exchange for transferring his shares of our Series
B Preferred Stock to FFO1 Irrevocable Trust, a company for which Mr. Falcone is the trustee and has the voting and dispositive power.
The shares were valued at $
On October 11, 2021, we issued shares of our Common Stock to Preferred Series E-1 holders in accordance to the Exchange Agreement.
On October 11, 2021, the Preferred Series F holders converted their shares into shares of our Common Stock.
On November 2, 2021, the Preferred Series G holders converted their shares into shares of Common Stock.
On
November 11, 2021,
On November 24, 2021, a holder with Preferred Series D shares converted into shares of Common Stock.
The following Common Stock transactions occurred during the year ended December 31, 2020:
On
July 23, 2020, we issued shares of Common Stock pursuant to the conversion of a note payable of $
On
October 28, 2020, we issued shares of Common Stock pursuant to the conversion of a note payable of $
On
November 2, 2020, we issued shares of Common Stock pursuant the conversion of a note payable of $
Warrants
On
February 17, 2021, we issued
On
December 28, 2021, we entered into a promissory note payable and provided
| F-29 |
The Warrants issued are loan incentives. The value was allocated to the warrants based on fair value on the date of the grant as determined using the Black-Scholes option pricing model. At December 31, 2021, the Warrant transactions are summarized below:
For the years ended December 31, 2021 and 2020, a summary of our warrant activity is as follows:
Schedule of Warrants Activity
| Number of Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Weighted- Average Grant-Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding and exercisable at January 1, 2020 | $ | $ | $ | |||||||||||||||||
| Issued | ||||||||||||||||||||
| Outstanding and exercisable at December 31, 2020 | $ | $ | ||||||||||||||||||
| Issued February 17, 2021 | ||||||||||||||||||||
| Issued December 28, 2021 | - | |||||||||||||||||||
| Outstanding and exercisable at December 31, 2021 | $ | - | $ | |||||||||||||||||
Note 17 Discontinued Operations
On February 16, 2021, we cancelled all the Series A Preferred Stock shares and offered their holders option agreements to purchase up to shares of CZJ License, Inc., our wholly owned subsidiary at the time, at an option price of $ per share. The option agreements are exercisable for a period of one year from the date of issuance and were not exercised.
On
November 15, 2021,
At November 15, 2021, CZJ License Inc.’s accounts were eliminated from the consolidated financial statements. All expenses incurred by CZJ License Inc. up to November 15, 2021 have been disclosed as discontinued operations. The previous year’s assets, liabilities and expenses have been similarly classified for comparative purposes.
Schedule of Previous Year Assets Liabilities and Expenses
| Assets | ||||||||
| Prepaid Expenses | $ | $ | ||||||
| Website | ||||||||
| Intangible Assets - License | ||||||||
| Assets | ||||||||
| Liabilities | ||||||||
| Accounts Payable & Accrued | ||||||||
| Liabilities | ||||||||
| Expenses | ||||||||
| Amortization | ||||||||
| Selling, general and administrative | ||||||||
| Professional fees | ||||||||
| - | ||||||||
| Expenses | $ | $ |
| F-30 |
Note 18 Commitments
We entered into a Securities Exchange Agreement on September 25, 2020 with Posto Del Sole Inc. (“PDS”) a New York corporation, to acquire % of the shares of PDS and issue shares of Series C Preferred Stock. PDS failed to provide the information required to close the transaction within the allotted timeframe and as a result, we wrote off $ in cash advances paid to PDS and terminated the transaction.
On
September 28, 2020, we entered into a one-year renewable employment agreement with Mr. Canouse, our Chief Executive Officer at the time.
In the years ended December 31, 2021 and 2020, Mr. Canouse earned $
On
September 29, 2020, we entered into a one-year renewable employment agreement with Walter Hoelzel, our Chief Marketing Officer at the
time. In the years ended December 31, 2021 and 2020, Mr. Canouse earned $
On
September 29, 2020, we entered into a one-year renewable employment agreement with Stuart Sher, our Chief Creative Officer at the time.
In the years ended December 31, 2021 and 2020, Mr. Canouse earned $
On November 15, 2021, in connection with the disposition of CZJ License Inc,, we terminated other consulting agreements with third parties and had no obligations for the agreements as of December 31, 2021.
On
February 17, 2021, we sold the Investors $
On
October 20, 2021we entered into a Stock Acquisition Agreement with Top Dog Productions Inc., Jay Blumefield and Anthony Marsh whereby
we will acquire all of the shares of Top Dog Productions Inc., and in exchange, we will pay the purchase price of $
On
October 25, 2021, we entered into an asset purchase agreement with Mako Communications, LLC, a Texas Limited Liability company to acquire
the licenses and Federal Communications Commission (“FCC”) authorizations to the K07AAJ-D and W05DK-D low power television
stations construction permits for the Bakersfield and San Juan. As consideration for the Bakersfield and San Juan Asset Sale Transaction,
we agreed to pay $
| F-31 |
On
November 3, 2021, we entered into an asset purchase agreement with Prism Broadcasting Network Inc, a Georgia corporation to acquire the
licenses and Federal Communications Commission (“FCC”) authorizations to the WANN-CD low power television station. As consideration
for the WANN Asset Sale Transaction, we agreed to pay $
Note 19 Income Taxes
Income tax recovery differs from that which would be expected from applying the effective tax rates to the net income (loss) as follows:
Schedule of Income Tax Expense
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Net loss for the year | $ | ( | ) | $ | ( | ) | ||
| Statutory and effective tax rates | % | % | ||||||
| Income taxes expenses (recovery) at the effective rate | $ | ( | ) | $ | ( | ) | ||
| Effect of change in tax rates | ||||||||
| Permanent differences | ||||||||
| Valuation allowance | ||||||||
| Income tax expense and income tax liability | $ | $ | ||||||
As at December 31, 2021 the tax effect of the temporary timing differences that give rise to significant components of deferred income tax asset are noted below. A valuation allowance has been recorded as management believes it is more likely than not that the deferred income tax asset will not be realized.
Schedule of Deferred Income Tax Asset
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Tax loss carried forward | $ | $ | ||||||
| Deferred tax assets | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred taxes recognized | $ | $ | ||||||
Tax
losses of approximately $
Note 20 Subsequent Events
Effective
January 1, 2022, we entered into a management consulting agreements with GreenRock LLC for a period of one year ending December 31, 2022
and provide monthly remuneration of $
Subsequent
to the year ended December 31, 2021, our CEO and Director paid back all the $
Our
Board of Directors and majority stockholder approved the decision to not move forward with a reverse stock split ratio of
Effective
January 1, 2022, we entered into a management consulting agreement with GreenRock LLC, a company controlled by Mr. Falcone, for a period
of one year ending December 31, 2022, under which we provide monthly remuneration of $
| F-32 |
On
March 1, 2022, we granted a Warrant to Mr. Zenna, our Director, to purchase up to shares of our Common Stock at $ per share,
on a cashless exercise basis, at any time beginning September 1, 2022 and ending September 1, 2026. We estimate the value the Warrant
to be approximately $
We
issued an aggregate of $
In
January 2022, we sold one of our shareholders a $
In
January 2022, we sold one of our shareholders a $
In
February 2022, we sold a $
In
February 2022, we issued two unsecured convertible notes payable having $
In February 2022, we entered into a consulting agreement to establish, launch, manage, operate and produce a 24/7 broadcast network devoted to cryptocurrency, NFT, Web3 and blockchain technology. In consideration for the wide range and scope of work, we agreed to pay the consultant a fee in the aggregate of $ which shall be payable as follows:
| i. | $ | |
| ii. | $ | |
| iii. | $ | |
| iv. | $ |
In
January 2022, we entered into a six-month consulting agreement with a third party to provide strategic and business services relating
to the blockchain project that we amended in February 2022. The first two months are payable at $
In
February 2022, we entered into a consulting agreement with a third party to provide corporate marketing strategy, creation and development
of content for distribution, market development, communications, products and growth. The agreement ends the earlier of June 30, 2022
or when an executed Employment Agreement is signed with us. Upon execution of the consulting agreement, we paid the consultant $
| F-33 |
On
January 12, 2022, we entered into a consulting agreement with EF Hutton as a lead underwriter. The agreement is for one year and we may
terminate the agreement on or after 270th day with 30-days written notice. EF Hutton may terminate the agreement on or after
120 days from execution of the agreement. EF Hutton agrees to provide underwriting the sale of up to $
In
March 2022, we entered into a six-month service agreement for press releases, campaigns and social media advertisings. The service fee
is $
In
April 2022, we sold unsecured convertible subordinate notes totaling $
In
May 2022, we sold a shareholder a convertible subordinate note totaling $
In
June 2022, we sold a convertible subordinate note totaling $
We
have not yet made the $
| F-34 |
| Madison Technologies Inc. | Form 10-K - 2021 | Page 32 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There are no disagreements with our accountants on accounting and financial disclosure. Our Independent Registered Public Accounting Firm since March 28, 2022, is BF Borgers CPA PC (“BFB”), 5400 W Cedar Ave, Lakewood, CO 80226.
From January 31, 2009 to March 27, 2022, our Independent Registered Public Accounting Firm was K. R. Margetson Ltd, Chartered Professional Accountant (“KRM”), 331 East 5th Street, North Vancouver, BC V7L 1M1, Canada. Our Board of Directors dismissed KRM on March 28, 2022. During the fiscal years ended December 31, 2020 and December 31, 2019, respectively, and the subsequent interim period through February 11, 2022, there were no disagreements between KRM and us on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KRM, would have caused KRM to make reference to the subject matter of the disagreement in their reports on our consolidated financial statements for such years.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
In connection with the preparation of this annual report on Form 10-K, an evaluation was carried out by our management, with the participation of our Chief Executive Officer, who also serves as our Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of December 31, 2021. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC rules and forms and that such information was accumulated or communicated to management to allow timely decisions regarding required disclosure. In particular, we identified material weaknesses in internal control over financial reporting, as discussed below.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 33 |
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management identified material weaknesses in internal control over financial reporting.
A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The matters involving internal controls and procedures that management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified and communicated to management in connection with the preparation and audit of our financial statements as of December 31, 2020 and the preparation of our 2021 quarterly financial statements.
As a result of the material weakness in internal control over financial reporting described above, management has concluded that, as of December 31, 2021, our internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework issued by COSO.
Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on our board of directors caused and continues to cause an ineffective oversight in the establishment and monitoring of the required internal controls over financial reporting.
We are committed to improving its financial organization. As part of this commitment and when funds are available, we will create a position to segregate duties consistent with control objectives and will increase its personnel resources and technical accounting expertise within the accounting function by: (i) appointing one or more outside directors to its board of directors who will also be appointed to our audit committee, resulting in a fully functioning audit committee that will undertake the oversight in the establishment and monitoring of required internal controls over financial reporting; and (ii) preparing and implementing sufficient written policies and checklists that will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
Management believes that the appointment of one or more outside directors, who will also be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses: (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support our internal controls if personnel turn-over issues within the department occur. This, coupled with the appointment of additional outside directors, is designed to greatly decrease any control and procedure issues we may encounter in the future.
Management will continue to monitor and evaluate the effectiveness of our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Our independent auditors have not issued an attestation report on management’s assessment of our internal control over financial reporting. As a result, this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We are not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 34 |
Changes in Internal Controls
There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the year ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
(a) Identify Directors and Executive Officers
Each director of Madison holds office until (i) the next annual meeting of the stockholders, (ii) his successor has been elected and qualified, or (iii) the director resigns.
Madison’s management team is listed below.
| Officer’s Name | Madison Technologies Inc. | |
| Philip Falcone | CEO, Director |
Mr. Falcone is the Chief Investment Officer and Chief Executive Officer of Harbinger Capital, and is the Chief Investment Officer of other Harbinger Capital-affiliated funds. Mr. Falcone co-founded the funds affiliated with Harbinger Capital in 2001. Mr. Falcone served as a director of HC2 Holdings, Inc. (NYSE: HCHC), a diversified holding company (“HC2”), from January 2014 until July 2020, as President and CEO of HC2 from May 2014 to June 2020 and as Chairman of the Board of HC2 from May 2014 until April 2020. Mr. Falcone served as a director, Chairman of the Board and Chief Executive Officer of HRG Group, Inc. (f/k/a Harbinger Group Inc., “HRG”) from July 2009 to November 2014. From July 2009 to July 2011, Mr. Falcone also served as the President of HRG. Mr. Falcone has over two decades of experience in leveraged finance, distressed debt and special situations. Prior to joining the predecessor of Harbinger Capital, Mr. Falcone served as Head of High Yield trading for Barclays Capital. From 1998 to 2000, he managed the Barclays High Yield and Distressed trading operations. Mr. Falcone held a similar position with Gleacher Natwest, Inc., from 1997 to 1998. Mr. Falcone began his career in 1985, trading high yield and distressed securities at Kidder, Peabody & Co. Mr. Falcone served as a member of the board of directors of Inseego Corp. (NASDAQ: INSG), a provider of intelligent wireless solutions for the worldwide mobile communications market from 1994 through August 2018, as its Chairman of the Board from May 2017 through August 2018, and as a member of its Audit Committee from June 2017 through August 2018. Mr. Falcone received an A.B. in Economics from Harvard University.
| Officer’s Name | Madison Technologies Inc. | |
| Henry Turner | Chief Technology Officer, Chief Operating Officer |
| Madison Technologies Inc. | Form 10-K - 2021 | Page 35 |
Mr. Turner, COO and CTO, is a broadcast engineer and operations specialist with over 35 years of experience in the industry in many capacities including construction, maintenance and operation of broadcast stations. Most recently Mr. Turner was the COO and director of engineering at Hc2 Broadcasting, prior to that he was the director of engineering at Dallas based Daystar Television Network. Mr. Turner is a graduate of the Texas A&M University system.
| Officer’s Name | Madison Technologies Inc. | |
| Warren Zenna | Director |
Mr. Zenna is the founder of Zenna Consulting Group a strategic advisory that develops and executes marketing strategies for B2B tech firms. Mr. Zenna is currently a revenue and marketing consultant for companies looking for insights into developing sales, marketing and business growth strategies, he current clients include Equinox, DailyPay, EngageDBR, Semcasting and Spectrum Media Services d/b/a Advanced Contextual.
(b) Identify Significant Employees
Other than the directors and officers, we have no significant employees.
(c) Family Relationships
There are no family relationships among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
(d) Involvement in Certain Legal Proceedings
| (1) | No bankruptcy petition has been filed by or against any business of which any director was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. | |
| (2) | No director has been convicted in a criminal proceeding and is not subject to a pending criminal proceeding (excluding traffic violations and other minor offences). | |
| (3) | No director has been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. | |
| (4) | No director has been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated. |
Certain Legal Proceedings involving Mr. Falcone
On September 16, 2013, the United States District Court for the Southern District of New York entered a final Judgment (the “Final Judgment”) approving a settlement between the SEC and Harbinger Capital, Harbinger Capital Partners Special Situations GP, LLC, Harbinger Capital Partners Offshore Manager, L.L.C., and Philip A. Falcone (collectively, the “HCP Parties”), in connection with two civil actions previously filed against the HCP Parties by the SEC. One civil action alleged that Harbinger Capital Partners Special Situations GP, LLC, Harbinger Capital Partners Offshore Manager, L.L.C., and Mr. Falcone violated the anti-fraud provisions of the federal securities laws by engaging in market manipulation in connection with the trading of the debt securities of a particular issuer from 2006 to 2008. The other civil action alleged that Harbinger Capital and Mr. Falcone violated the anti-fraud provisions of the federal securities laws in connection with a loan made by Harbinger Capital Partners Special Situations Fund, L.P. to Mr. Falcone in October 2009 and in connection with the circumstances and disclosure regarding alleged preferential treatment of, and agreements with, certain fund investors.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 36 |
The Final Judgment barred and enjoined Mr. Falcone for a period of five years (after which he may seek to have the bar and injunction lifted) from acting as or being an associated person of any “broker,” “dealer,” “investment adviser,” “municipal securities dealer,” “municipal adviser,” “transfer agent,” or “nationally recognized statistical rating organization.” During the period of the bar, Mr. Falcone may remain associated with Harbinger Capital and certain other Harbinger Capital-related entities; provided that, during such time, Mr. Falcone’s association will be limited as set forth in the Final Judgment. The HCP Parties must take all actions reasonably necessary to expeditiously satisfy all redemption requests of investors in the Harbinger Capital-related funds, which may include the orderly disposition of Harbinger Capital-related fund assets. In addition, during the bar period, the HCP Parties and certain Harbinger Capital-related entities may not raise new capital or make capital calls from existing investors. The Final Judgment required the HCP Parties to pay disgorgement, prejudgment interest, and civil penalties totaling approximately $18 million. In addition, certain of the activities of the HCP Parties at the Harbinger Capital-related funds were subject to the oversight of an independent monitor for two years.
Additionally, on October 7, 2013, HRG, Fidelity & Guaranty Life (f/k/a, Harbinger F&G, LLC, “FGL”), a subsidiary of HRG Group, Inc. (f/k/a Harbinger Group Inc.., an entity in which Mr. Falcone use to serve as CEO and a director, “HRG”), Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”), a subsidiary of FGL, and Mr. Falcone delivered a commitment (the “NYDFS Commitment”) to the New York State Department of Financial Services (“NYDFS”) pursuant to which Mr. Falcone agreed for a period of up to seven years that he will not, directly or indirectly, individually or through any person or entity, exercise control (within the meaning of New York Insurance Law Section 1501(a)(2)) over FGL NY Insurance or any other New York-licensed insurer. In connection with the NYDFS Commitment, neither Mr. Falcone nor any employee of Harbinger Capital, may (i) serve as a director or officer of FGL or (ii) be involved in making investment decisions for FGL’s portfolio of assets or any funds withheld account supporting credit for reinsurance for FGL. The NYDFS Commitment provides that: (i) Mr. Falcone may continue to own any direct or indirect interest in HRG and serve as an officer or director of HRG and (ii) HRG may continue to own any direct or indirect interest in FGL NY Insurance and any other New York-licensed insurer. Any other activities related solely to FGL (other than FGL NY Insurance) are not prohibited and HRG executives may continue to serve on FGL’s board of directors. In addition, in connection with its re-domestication to Iowa, on October 7, 2013, Fidelity & Guaranty Life Insurance Company (“FGL Insurance”), a subsidiary of FGL, agreed to the conditions set by the Iowa Insurance Commissioner that neither Mr. Falcone nor any employees of Harbinger Capital may serve as an officer or director of FGL Insurance or FGL (but FGL Insurance may request that the Iowa Insurance Division lift this restriction after five years) and neither Mr. Falcone nor Harbinger Capital will be involved in making investment decisions for FGL Insurance or any funds withheld account that supports credit for reinsurance for FGL Insurance for five years. Our Insurance Company is not licensed to operate in New York State, and does not currently operate in New York State; therefore, the ban does not apply to our Insurance Company.
In addition, Mr. Falcone is a named defendant in litigation in connection with certain personal financial matters. We understand that Mr. Falcone continues to vigorously pursue his defense in connection with these matters, which may be time consuming and may result in the loss of certain shares of his investment in us.
(e) Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Security Exchange Act of 1934 requires directors, executive officers and 10% or greater shareholders of us to file with the Securities and Exchange Commission initial reports of ownership (Form 3) and reports of changes in ownership of our equity securities (Form 4 and Form 5) and to provide copies of all such Forms as filed to us. Section 16(a) of the Securities Exchange Act requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of copies of the reports filed with the SEC and the written representations of our directors and executive officers, we believe that all reporting requirements for fiscal year 2021 were complied with by each person who at any time during the 2021 fiscal year was a director or an executive officer or held more than 10% of our common stock, except for the following: Korr Value LP, Mr. Canouse and Mr. Falcone. We expect that the aforementioned forms will be filed as soon as practicable following the filing of this Report on Form 10-K.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 37 |
(f) Nomination Procedure for Directors
We do not have a standing nominating committee; recommendations for candidates to stand for election as directors are made by the board of directors. We have not adopted a policy that permits shareholders to recommend candidates for election as directors or a process for shareholders to send communications to the board of directors.
(g) Audit Committee Financial Expert
We have no financial expert. Management believes the cost related to retaining a financial expert at this time is prohibitive. Our Board of Directors has determined that it does not presently need an audit committee financial expert on the Board of Directors to carry out the duties of the Audit Committee. Our Board of Directors has determined that the cost of hiring a financial expert to act as a director and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee.
(h) Identification of Audit Committee
We dos not have a separately-designated standing audit committee. Rather, our entire board of directors performs the required functions of an audit committee. See “Item 12. (c) Director independence” below for more information on independence.
Our audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditor and any outside advisors engaged by the audit committee.
As of December 31, 2021, we did not have a written audit committee charter or similar document.
(i) Code of Ethics
We adopted a financial code of ethics that applies to all its executive officers and employees, including its CEO and CFO. See Exhibit 14 – Code of Ethics for more information. We undertake to provide any person with a copy of its financial code of ethics free of charge. Please contact Madison at 212-339-5888 to request a copy ofour financial code of ethics. Management believes our financial code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 38 |
Item 11. Executive Compensation.
Madison has paid the following compensation to its named executive officers and managers during its fiscal year ended December 31, 2021 and 2020.
summary compensation table
| (a) Name and principal position | (b) Year | (c) Salary ($) | (d) Bonus ($) | (e) Stock Awards ($) | (f) Option Awards ($) | (g) Non- Equity Incentive Plan ($) | (h) Non-qualified Deferred Compensation Earnings ($) | (i) All other compensation ($) (3)(4) | (j) Total ($) (1)(2) | |||||||||||||||||
| Philip A. Falcone CEO | 2021 | nil | nil | nil | nil | nil | nil | nil | Nil | |||||||||||||||||
| 2020 | nil | nil | nil | nil | nil | nil | nil | Nil | ||||||||||||||||||
| Henry Turner CTO and COO | 2021 | 98,077 | nil | nil | nil | nil | nil | nil | 98,077 | |||||||||||||||||
| 2020 | nil | nil | nil | nil | nil | nil | nil | Nil | ||||||||||||||||||
| Warren Zenna Director | 2021 | nil | nil | nil | nil | nil | nil | nil | Nil | |||||||||||||||||
| 2020 | nil | nil | nil | nil | nil | nil | nil | Nil | ||||||||||||||||||
| Jeffrey Canouse Former CEO and Director | 2021 | nil | nil | nil | nil | nil | nil | 49,200 | 49,200 | |||||||||||||||||
| 2020 | 34,000 | nil | nil | nil | nil | nil | nil | 34,000 | ||||||||||||||||||
| Stuart Sher Creative Manager | 2021 | nil | nil | nil | nil | nil | nil | 55,000 | 55,000 | |||||||||||||||||
| 2020 | 25,000 | nil | nil | nil | nil | nil | nil | 25,000 | ||||||||||||||||||
| Walter Hoelzel Marketing Manager | 2021 | nil | nil | nil | nil | nil | nil | 55,000 | 55,000 | |||||||||||||||||
| 2020 | 25,000 | nil | nil | nil | nil | nil | nil | 25,000 | ||||||||||||||||||
| (1) | On February 15, 2021, we entered into a Consultant Agreement with GreenRock LLC, to retain Mr. Falcone, its Managing Member, to serve as a consultant to us and advise on all matters typically considered and decided upon by executive management and our board of directors, and additionally to serve as Chairman of the Board of Directors and Chief Executive Officer. We compensated GreenRock LLC $315,000 for its services provided in 2021. | |
| (2) | On March 3, 2021, we entered into a Consultant Agreement with Zenna Consulting Group, to retain Mr. Zenna to serve as a consultant to us and advise on all matters typically considered and decided upon by a chief marketing officer and a member of our board of directors, and additionally to serve as a member of the Board of Directors. We compensated Zenna Consulting Group $57,000 for its services provided in 2021. | |
| (3) | On February 16, 2021, Mr. Canouse resigned as CEO and was retained to serve as a consultant to us and advise on all matters typically considered and decided upon by a chief compliance officer and member of our Board of Directors. We compensated Mr. Canouse $49,200 for his consulting services provided in 2021. | |
| (4) | On November 15, 2021, our service agreements with Mr. Sher and Mr. Hoelzer were assumed by Forever Brands, Inc. in connection with the disposition of our CZJ products business. We compensated Mr. Sher and Mr. Hoelzer $55,000 for their consulting services provided in 2021, respectively. |
| Madison Technologies Inc. | Form 10-K - 2021 | Page 39 |
Since our inception, no stock options, stock appreciation rights, or long-term incentive plans have been granted, exercised or repriced.
Currently, there are no arrangements between us and any of its directors whereby such directors are compensated for any services provided as directors.
There are no employment agreements between us and any named executive officer, and there are no employment agreements or other compensating plans or arrangements with regard to any named executive officer which provide for specific compensation in the event of resignation, retirement, other termination of employment or from a change of control or from a change in a named executive officer’s responsibilities following a change in control.
Item 12. Security Ownership of Certain Beneficial Holders and Management and Related Stockholder Matters.
(a) Security Ownership of Certain Beneficial Owners (more than 5%)
(1) Title of Class | Name and Address of Beneficial Owner | (2)(3)
Beneficial Owner [1] | (4) Percent of Class [2] | |||||||
| Philip A. Falcone(6) | ||||||||||
| Common Stock | 22 E 67th Street New York, NY | 388,150,556 | 24.27 | % | ||||||
| Common Stock | Lisa M. Falcone(6) 22 E 67th Street New York, NY | 436,555,556 | 27.30 | % | ||||||
| Korr Value LP | ||||||||||
| 1400 Old Country Road | ||||||||||
| Common Stock | Westbury, NY | 218,277,777 | 13.7 | % | ||||||
| Arena Special Opportunities Partners 1, LP | ||||||||||
| 405 Lexington Avenue, 59th Floor | ||||||||||
| Common Stock | New York, NY | 102,416,140 | [3] | 6.4 | % | |||||
| Philip A. Falcone | ||||||||||
| Series E-1 Preferred | 22 E 67th Street | |||||||||
| Stock | New York, NY | 922,000 | [4] | 80.0 | % | |||||
| Philip A. Falcone | ||||||||||
| 22 E 67th Street | ||||||||||
| Series B Preferred Stock | New York, NY | 100 | [5] | 100.0 | % | |||||
| [1] | The listed beneficial owner has no right to acquire any shares within 60 days of the date of this Form 10-K from options, warrants, rights, conversion privileges or similar obligations excepted as otherwise noted. |
| Madison Technologies Inc. | Form 10-K - 2021 | Page 40 |
| [2] | Based on 1,599,095,027 shares of Common Stock issued and outstanding as of August 26, 2022. |
| [3] | Arena Special Opportunities Partners 1, LP owns a Common Stock Purchase Warrant to purchase 129,265,140 shares, which is in addition to the 49,761,877 shares of our Common Stock and a Common Stock Purchase Warrant to purchase 62,807,876 shares owned by Arena Special Opportunities Fund, LP |
| [4] | Each share of Series E-1 Preferred Stock may be converted to 1,000 common shares and has voting rights on the basis of its equivalent number of shares of our Common Stock. |
| [5] | Series B Convertible Preferred Stock has the right to vote together with the holders of our Common Stock, as a single class, upon all matters submitted to holders of our Common Stock for a vote. The shares of Series B Preferred Stock will carry a number of votes equal to 51% (representing majority voting power) of all voting shares of every class, including 51% of all of the issued and outstanding shares of Common Stock on the date of any shareholder vote, such that the holder of the Series B Preferred Stock shall always possess the majority of voting rights, and shall always out vote all holders of our Common Stock. |
| [6] | Based on (i) 436,555,556 shares and 388,150,556 shares of Common Stock held by FFO 1 Trust and FFO 2Trust respectively. Philip A. Falcone, our Chief Executive Officer and Chairman of our Board of Directors, as a trustee of the FFO I Trust, has the sole voting and shared dispositive power over our shares held by the FFO I Trust, and Lisa Falcone, the wife of Mr. Falcone as the trustee of the FFO 2 Trust, has shared voting and dispositive power over our shares held by the FFO 2 Trust. |
(b) Security Ownership of Management
(1) Title of Class | (2) Beneficial Owner | (3) Nature of Beneficial Owner | (4) Percent of Class [1] | |||||||
| Philip A. Falcone[2] | ||||||||||
| Common Stock | 22 E 67th Street New York, NY | 824,706,112 | 51.6 | % | ||||||
| Directors and | ||||||||||
| Common Stock | Executive Officers (as a group) | 824,706,112 | 51.6 | % | ||||||
| [1] | Based on 1,599,095,027 shares of Common Stock issued and outstanding as of August 26, 2022. |
| [2] | Includes (i) 436,555,556 shares and 388,150,556 shares of Common Stock held by FFO 1 Trust and FFO 2Trust respectively. Philip A. Falcone, our Chief Executive Officer and Chairman of our Board of Directors, as a trustee of the FFO I Trust, has the sole voting and shared dispositive power over our shares held by the FFO I Trust, and Lisa Falcone, the wife of Mr. Falcone as the trustee of the FFO 2 Trust, has shared voting and dispositive power over our shares held by the FFO 2 Trust. |
(c) Changes in Control
Management is not aware of any arrangement that may result in a change in control of Madison.
On February 16, 2021, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Sovryn and the holders (the “Sovryn Shareholders”) of Sovryn’s issued and outstanding shares of common stock, par value $0.0001 per share (“Sovryn Common Shares”), pursuant to which the Sovryn Shareholders exchanged 100% of the outstanding Sovryn Common Shares, for (i) 100 shares of our Series B Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”), which was transferred by Jeffrey Canouse, our controlling shareholder and Chief Executive Officer at the time (the “Controlling Shareholder”), to the designee of Sovryn and (ii) 1,000 shares of our Series E Preferred Stock, par value $0.001 per share of Sovryn (“Series E Preferred Stock,” and together with Series B Preferred Stock, the “Preferred Exchange Shares,” and the foregoing exchange of Sovryn Common Shares for Preferred Exchange Shares being the (“Equity Exchange”). See Form 8-K – Current Report filed February 23, 2021 for more details.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 41 |
As result of the issuance of the transfer of the Series B Preferred Stock and the issuance of the shares of Series E Preferred Stock pursuant to the Share Exchange Agreement, a change in control of the Company occurred on February 16, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
(a) Transactions with Related Persons
Since the beginning of our last fiscal year, no director, executive officer, security holder, or any immediate family of such director, executive officer, or security holder has had any direct or indirect material interest in any transaction or currently proposed transaction, which we were or are to be a participant, that exceeded the lesser of (1) $120,000 or (2) one percent of the average of our total assets at year-end for the last three completed fiscal years.
(b) Promoters and control persons
From July 2004 until June 2007, Kevin Stunder and Joel Haskins were promoters of our business. From June 2007 until July 2011, Joseph Gallo and Steven Cozine were promoters of our business. From July 2011 until September 2014 Joseph Gallo was the promoter of our business. From September 2014 until November 2014 Brent Inzer was the promoter of our business. From November 2014 until Jan 2015 Mr. Frank McEnulty was the promoter of our business. From January 2015 until September 2016 Mr. Joseph Gallo was the promoter of our business. From September 2016 until March 2018 Mr. Thomas Brady was the promoter of our business. Since March 3, 2018 until July 14, 2020 Joseph Gallo was the promoter of Madison’s business. From July 14, 2020 until July 1, 2022 Jeffrey Canouse had been the promoter of Madison,. From February 17, 2021 Philip Falcone, Warren Zenna and Henry Turner have been the promoters of our business, none of these promoters have received anything of value from us nor is any person entitled to receive anything of value from us for services provided as a promoter of our business.
(c) Director independence
Our board of directors currently consists of Philip Falcone and Warren Zenna. Pursuant to Item 407(a)(1)(ii) of Regulation S-K of the Securities Act, our board of directors has adopted the definition of “independent director” as set forth in Rule 4200(a)(15) of the NASDAQ Manual. In summary, an “independent director” means a person other than an executive officer or employee of Madison or any other individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and includes any director who accepted any compensation from us in excess of $200,000 during any period of twelve consecutive months with the three past fiscal years. Also, the ownership of our stock will not preclude a director from being independent.
In applying this definition, our Board of Directors has determined that none of our directors qualify as an “independent director” pursuant to Rule 4200(a)(15) of the NASDAQ Manual.
As of the date of the report, we did not maintain a separately designated audit, compensation or nominating committee. We also adopted this definition for the independence of the members of our audit committee.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 42 |
Item 14. Principal Accounting Fees and Services
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of our annual financial statements and for the review of financial statements included in our Form 10-Q’s or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:
2021 - $35,000 – BF Borgers PC
2020 - $8,900 – K. R. Margetson Ltd. – Chartered Professional Accountant
(2) Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:
2020 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant
(3) Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:
2020 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant
(4) All Other Fees
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:
2020 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant
(5) The percentage of hours expended on the principal accountant’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time, permanent employees was nil %.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Given the fact that we currently have three directors, as well as the limited financial resources and operational state of us, our Board acts as our Audit Committee. Our Board pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services, tax services and other services. Our Board approves these services on a case-by-case basis.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 43 |
Item 15. Exhibits, Financial Statement Schedules.
1. Financial Statements
Our consolidated financial statements have been included in Item 8 above.
2. Financial Statement Schedules
All schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted from this Item 15.
3. Exhibits
All Exhibits required to be filed with the Form 10-K are included in this annual report or incorporated by reference to our previous filings with the SEC, which can be found in their entirety at the SEC website at www.sec.gov under SEC File Number 000-51302.
Item 16. Form 10-K Summary
None.
| Madison Technologies Inc. | Form 10-K - 2021 | Page 44 |
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, Madison Technologies Inc. has caused this report to be signed on its behalf by the undersigned duly authorized person.
| Madison Technologies Inc. | ||
| By: | /s/ Philip Falcone | |
| Name: | Philip Falcone | |
| Title: | Director and CEO | |
| Dated: | August 26, 2022 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of Madison Technologies Inc. and in the capacities and on the dates indicated have signed this report below.
| Date: August 26, 2022 | /s/ Philip Falcone | |||
| By: | Philip Falcone | |||
| Title: | President, Chief Executive Officer, Principal Executive Officer, Treasurer, Corporate Secretary, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer, Director |
|||
| Date: August 26, 2022 | /s/ Warren Zenna | |||
| By: | Warraen Zenna | |||
| Title: Director |
EXHIBIT 2.1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, dated as of July 17, 2020 (this “Agreement”), is by and among MADISON TECHNOLOGIES, INC., a publicly traded Nevada corporation (“MDEX”), and LUXURIE LEGS, LLC, a Delaware limited liability company and holder of the Casa Zeta-Jones Brand Licensing Agreement (the “Seller”).
WHEREAS, The Seller desires to sell to MDEX and MDEX desires to purchase from the Seller, all of Seller’s right, title and interest in the Casa Zeta-Jones Brand Licensing Agreement (the “License Agreement”), as further described on the attached Schedule 1, solely in exchange for MDEX’s issuance to the Seller of MDEX Preferred Stock.
WHEREAS, the Seller, upon the terms and subject to the conditions of this Agreement and in accordance with Nevada Law, desires to make a capital contribution of the License Agreement to MDEX solely in exchange for MDEX Preferred Stock (the “Acquisition”);
WHEREAS, the respective boards of directors of MDEX and the Seller have determined that the Acquisition is fair to, and in the best interests of, it and its respective shareholders and/or members and have approved and adopted this Agreement and the transactions contemplated hereby;
WHEREAS, for federal, state and local income tax purposes, it is intended that the transfer of the License Agreement, constituting the Acquisition, to MDEX and the issuance of the MDEX Preferred Stock qualify as a tax-free contribution of property pursuant to the provisions of Section 351 of the United States Internal Revenue Code of 1986, as amended (the “Code”);
WHEREAS, MDEX and Company desire to make certain representations, warranties and agreements in connection with the Acquisition and also to prescribe various conditions to the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01. Rules of Construction. Unless the context otherwise requires, as used in this Agreement: (a) an accounting term not otherwise defined has the meaning ascribed to it in accordance with GAAP; (b) “or” is not exclusive; (c) “including” means “including, without limitation;” (d) words in the plural include the singular; (e) the terms “hereof,” “herein,” “hereby,” “hereto” and derivative or similar words refer to this entire Agreement; and (f) the terms “Article” or “Section” refer to the specified Article of Section of this Agreement.
ARTICLE II
THE ACQUISITION
2.01 The Acquisition. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Nevada Law, at the Effective Time (as defined in Section 2.02 of this Agreement), the Seller shall transfer the License Agreement to MDEX.
2.02. Purchase and Sale of Assets. At the Closing, upon the satisfaction or waiver of all conditions precedent: (a) the Seller shall sell, transfer, convey, assign and deliver the License Agreement to MDEX, free and clear of any and all Liens, and (b) MDEX shall issue the Issued Shares to the Seller, fully prepaid and non-assessable and free and clear of all Liens. The Seller’s delivery to MDEX of all right, title and interest in and to the License Agreement, shall be deemed to occur upon MDEX’s delivery to the Seller of a certificate evidencing the MDEX Preferred Stock, without the need of any further act by any Party. Notwithstanding the foregoing, at MDEX’s request, the Seller shall promptly execute one or more further Contracts to the extent MDEX deems such execution necessary or appropriate to effectuate the intent of this Agreement.
2.03. Closing; Closing Date; Effective Time. The consummation of the Acquisition and the closing of the transactions contemplated by this Agreement (the “Closing”) shall take place as soon as practicable after the satisfaction or, if permissible, waiver of the conditions set forth in Article VIII, or at such other date, time and place as MDEX and the Seller may agree in writing (the date of the Closing being the “Closing Date” and also known as the “Effective Time”).
2.04. Effect of the Acquisition. At the Effective Time, the effect of the Acquisition shall be as provided in the applicable provisions of Nevada Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all of Seller’s right, title and interest in the License Agreement shall continue with, or vest in, MDEX, and all of the debts, liabilities and duties of the Seller, shall continue to be the debts, liabilities and duties of the Seller, except for those of Seller’s debts which are being assumed by MDEX on the Closing Date, as expressly set forth on Schedule 2.
2.05. Officers and Directors of MDEX Post Closing. On the Closing Date, within four months of the Effective Time at the Seller’s request in order to facilitate the transition, Joseph Gallo, the existing officer and director of MDEX, shall resign and the persons listed herein on Schedule 5 shall be appointed to serve in his place.
2.06. Vend Out of Existing MDEX Operations Post Closing. Concurrent with the departure of Joseph Gallo following the Closing Date, and expected to be within approximately four months, the existing business and operations of MDEX shall be vended out to Mr. Gallo and/or his designees, with the anticipation that following the Closing Date, MDEX will focus its business model on the License Agreement.
ARTICLE III
ISSUANCE OF SECURITIES
3.01. Acquisition Consideration; Issuance of Securities. At the Effective Time, by virtue of the Acquisition, and in exchange for the License Agreement:
(a) MDEX shall issue to the Seller (and Seller’s Designees as set forth herein on Exhibit C), on the Closing Date, the preferred shares of MDEX (“MDEX Preferred Stock”) set forth below; provided, however, that in all cases the percentage of MDEX Preferred Stock issued to the Seller for the License Agreement shall constitute “control” as defined and set forth and defined in Code sections 351 and 368(c), respectively.
(b) The shares of MDEX Common Stock issued and outstanding immediately prior to the Effective Time shall be unaffected by the Acquisition and such shares shall remain issued and outstanding.
(c) Currently, MDEX has a total of 500,000,000 shares of capital stock authorized in the State of Nevada, all of which is classified as Common Stock. The MDEX Preferred Stock to be issued to the Seller on the Closing Date must first be approved by a majority of MDEX shareholders. Pursuant to that shareholder approval, MDEX intends to file a Schedule 14F demonstrating shareholder approval of the issuance of the required shares of Preferred Stock, of which a Certificate of Designation shall be filed to designate certain shares as Series A Preferred Stock and certain shares as Series B Preferred Stock.
(d) A copy of the proposed Certificates of Designation for such Series A and Series B Preferred Stock to be filed in the State of Nevada following shareholder approval shall be attached to the Schedule 14F filed by MDEX which will set for the respective rights, privileges of each, consistent with these terms:
Series A: The issuance of new Series A convertible Preferred Stock which are convertible into such shares of MDEX Common Stock equal to 95% of the issued and outstanding shares post-closing, with a 9.99% conversion cap and anti-dilution rights for twenty-four (24) months following closing to certain stakeholders of Seller to be identified by Seller prior to the Closing Date, and
Series B: The issuance of new Series B Super Preferred Stock with super voting rights issued to the incoming Officers and Directors, to be identified by Seller prior to the Closing Date.
(e) Prior to the Closing Date, MDEX shall satisfy all outstanding promissory notes and other liabilities via conversion into shares of MDEX Common Stock at $0.10 per share, such that MDEX shall have less than $50,000.00 in accounts payable on the Closing Date.
(f) On the Closing Date, MDEX will issue a Convertible Promissory Note in the principal amount of $65,000.00 and convertible into MDEX Common Stock at $0.05 per share, to a creditor of Seller to be identified by Seller prior to the Closing Date.
(g) Within 60 days of the Closing Date, MDEX agrees to file an S-1 Registration Statement in a form to be agreed upon prior to the Closing Date.
(h) For advisory services in connection with the Acquisition and S-1 Registration Statement, MDEX shall enter into an Advisory Agreement with [Southridge or its Assignee] on the Closing Date and as consideration therefore, MDEX shall issue a Convertible Promissory Note in the amount of $100,000.00 as an upfront payment and a $25,000.00 Convertible Promissory Note each month beginning 90 days from the Closing Date.
(i) Within [ ] days following the Closing Date, MDEX shall issue one or more Convertible Promissory Notes in order to raise $200,000.00 in working capital for the payment of its vendors, such as its Transfer Agent, Auditor, Accountant, Attorney, Edgar Agent, etc. and for the support of the License Agreement.
3.02. Issuance of Certificates for MDEX Preferred Stock.
(a) As soon as practicable after the Effective Time, the Seller shall be entitled to receive a certificate representing the number of whole shares of MDEX Preferred Stock that the Seller has a right to receive in accordance with Section 3.01 (or at MDEX’s discretion a book-entry confirmation of such MDEX Preferred Stock ownership), and a cash payment in lieu of fractional shares of MDEX Preferred Stock, if any, in accordance with Section 3.02(c).
(b) All shares of MDEX Preferred Stock issued in accordance with the terms hereof, including any cash paid in accordance with Section 3.02(c), shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to the License Agreement.
(c) No fraction of a share of MDEX Preferred Stock will be issued as a result of the Acquisition. In lieu of any such fractional shares that otherwise would have been issued in the Acquisition, MDEX will pay the Seller an amount in cash (without interest and rounded to the nearest cent) determined by multiplying (a) the [highest bid price on date of Closing] by (b) the fractional interest of a share of MDEX Preferred Stock to the Seller would otherwise be entitled (after taking into account the value of License Agreement at the Effective Time).
(d) MDEX shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to the Seller such amounts as MDEX (or any affiliate thereof) is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld by MDEX, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Seller in respect of which such deduction and withholding was made by MDEX (or any affiliate thereof).
(e) The certificates evidencing shares of MDEX Preferred Stock (or at MDEX’s discretion the book-entry confirmation of such MDEX Preferred Stock ownership) delivered pursuant to this Section 3.02 will bear a legend substantially in the form set forth below and containing such other information as MDEX may deem necessary or appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to MDEX that:
4.01. Organization and Standing. The Seller is a limited liability company duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Seller has all requisite corporate power and authority to own and operate its properties and assets, and to carry on its business. The Seller is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Company Material Adverse Effect.
4.02. Certificate of Formation and Seller’s Operating Agreement. The Seller has heretofore made available to MDEX a complete and correct copy of the Certificate of Formation and the Seller’s Operating Agreement, as amended to date, of the Seller (the “Seller’s Operating Agreement”). The Seller is not in violation in any material respect of any of the provisions of its Certificate of Formation or the Seller’s Operating Agreement.
4.03. Corporate Power. The Seller has, and will have at the Closing Date, all requisite legal and corporate power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement.
4.04. Reserved.
4.05. Authorization. All corporate action on the part of the Seller, its directors and Unitholders necessary for the authorization, execution, delivery and performance of this Agreement and the performance of all of the Seller’s obligations hereunder has been taken or will be taken prior to the Closing Date. This Agreement constitutes a valid and binding obligation of the Seller, enforceable in accordance with its terms, except (i) as the same may be limited by bankruptcy, insolvency or other laws relating to or affecting creditors’ rights generally or by general equitable principles and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
4.06. No Conflict; Required Filings and Consents.
(a) Assuming that the Approvals, filings and notifications described in Section 4.06(b) have been obtained or made, as the case may be, the execution and delivery of this Agreement by the Seller does not, and the consummation of the transactions contemplated hereby will not (i) conflict with or violate the Certificate of Formation or the Seller’s Operating Agreement, in each case as amended or restated, of the Seller, (ii) conflict with or violate any Laws applicable to the Seller or by which any of its assets or properties is bound or subject, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a lien or encumbrance on any of the properties or assets of the Seller pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Seller is a party or by or to which the Seller or any of its assets or properties is bound or subject, except for any such conflicts or violations described in clause (ii) or breaches, defaults, events, rights of termination, amendment, acceleration or cancellation, payment obligations or liens or encumbrances described in clause (iii) that would not reasonably be expected to have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Seller does not, and the consummation of the transactions contemplated hereby will not, require the Seller to obtain any Approvals of or from, or to make any filing with or notification to, any Governmental Entity or third Person.
4.07. Financial Statements. The Seller has delivered to MDEX such financial statements as requested by MDEX (the “Seller Financial Statements”). The Seller Financial Statements accurately set out and describe the financial condition of the Seller as of the dates, and during the periods, indicated therein.
4.08. Absence of Changes. Since June 20, 2020:
(a) the Seller has not entered into any transaction which was not in the ordinary course of business;
(b) there has been no event or occurrence that would have a Company Material Adverse Effect;
(c) there has been no damage to, destruction of or loss of physical property (whether or not covered by insurance) materially adversely affecting the business or operations of the Seller;
(d) the Seller has not declared, set aside or paid any dividend or made any distribution on its capital stock, or directly or indirectly redeemed, purchased or otherwise acquired any of its capital stock;
(e) the Seller has not increased the compensation of any of its officers, directors or agents, or the rate of pay of its employees as a group;
(f) there has been no resignation or termination of employment of any key officer or employee of the Seller, the Seller does not have a present intention to terminate the employment of any of the foregoing, and the Seller has no Knowledge of the impending resignation or termination of employment of any such officer or employee;
(g) there has been no labor dispute involving the Seller or its employees and none is pending or, to the Seller’s Knowledge, threatened;
(h) there has not been any change in the contingent obligations of the Seller, by way of guaranty, endorsement, indemnity, warranty or otherwise;
(i) there have not been any loans, advances or guarantees made by the Seller to any of its employees, officers or directors; and
(j) to the Seller’s Knowledge, there has been no other event or condition of any character pertaining to and materially adversely affecting the assets or business of the Seller.
4.09. Liabilities/Solvency. The Seller has no liabilities or obligations, absolute or contingent (individually or in the aggregate), except (i) the liabilities and obligations set forth in the Seller Financial Statements, (ii) liabilities and obligations which have been incurred subsequent to [______________] in the ordinary course of business which have not been in the aggregate, materially adverse, (iii) liabilities and obligations under the lease for its principal lab, and (iv) liabilities and obligations under licensing, sales, procurement and other contracts and arrangements entered into in the normal course of business. The Seller is able to meet all of its payment obligations as they come due. The fair market value of the Seller’s assets exceeds the fair market value of its obligations, whether contingent or otherwise.
4.10. Title to Properties and Assets; Liens. The Seller holds good and merchantable title to the License Agreement free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Seller’s ownership or use of such properties or assets, and on the Closing Date, upon the issuance to the Seller of the MDEX Preferred Stock, will have conveyed to MDEX, and MDEX shall have, good and merchantable title to the License Agreement, free and clear of all mortgages, liens, loans and encumbrances, except as disclosed herein. . With respect to the properties and assets it leases, the Seller, and to the Seller’s knowledge, the counterparty is in compliance with such leases and the Seller holds a valid leasehold interest free of any liens, claims or encumbrances. The Seller does not own any real property.
4.11. Seller’s Title to the License Agreement.
(a) The Seller owns or has the right or license to use the License Agreement in the conduct of its business as now conducted, free and clear of all claims, mortgages, liens, loans, and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Seller’s ownership or use of such intellectual property rights.
(b) The Seller has no actual knowledge, without any investigation, that the Seller is infringing upon or misappropriating any valid intellectual property rights of any Person (including without limitation, former employers of all current and former employees, consultants, officers, directors and unitholders of the Seller).
(c) Except as expressly set forth in the License Agreement, the Seller is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any patent, trademark, trade name, copyright or other intellectual property right, with respect to the use thereof or in connection with the conduct of its business or otherwise.
(d) The Term sheet dated June 17, 2020 as amended to date, is in full force and effect, and no default or event which with the lapse of time or the giving of notice would constitute a default, exists thereunder.
4.12. Litigation. There are no actions, suits, proceedings or investigations pending or, to the Seller’s Knowledge, threatened against the Seller or its properties before any Governmental Entity. The Seller is not subject to any continuing order, writ, injunction, consent decree or settlement agreement of, or similar written agreement with, or, to the Seller’s Knowledge, continuing investigation by, any Court or Governmental Entity.
4.13 Reserved.
4.14. Certain Transactions. The Seller is not indebted, directly or indirectly, to any of its officers, directors or stockholders or to their respective spouses or children, in any amount whatsoever; none of said officers, directors or, to the Seller’s Knowledge, stockholders, or any members of their immediate families, are indebted to the Seller or have any direct or indirect ownership interest in any firm, corporation or entity with which the Seller is affiliated or with which the Seller has a business relationship, or any firm or corporation which competes with the Seller except that officers, directors and/or stockholders of the Seller may own less than 1% of the stock of publicly traded companies which may compete with the Seller. No officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Seller. The Seller is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.
4.15. Material Contracts and Obligations. Attached as an exhibit a list of all agreements, contracts, indebtedness, liabilities and other obligations to which the Seller is a party or by which it is bound that are material to the conduct and operations of its business and properties, specifically including those which provide for payments in any fiscal year to or by the Seller in excess of $10,000, which obligate the Seller to share, license or develop any product or technology, which purports to restrict or limit the ability of the Seller from freely engaging in any line of business anywhere in the world or competing with any other Person, which provides for any joint venture or partnership involving the Seller, or which involve transactions or proposed transactions between the Seller and its officers, directors, affiliates or any affiliate thereof. Copies of such agreements and contracts and documentation evidencing such liabilities and other obligations have been made available for inspection by MDEX and its counsel. All of such agreements and contracts are valid, binding obligations of the Seller and are in full force and effect in all material respects, assuming due execution by the other parties to such agreements and contracts. The Seller has no Knowledge of any breach or anticipated breach by any other parties to any contract, agreement or instrument included in Section 4.15 of the Seller Disclosure Letter.
4.16. Private Placements. All securities issued by the Seller prior to the date hereof have been issued in transactions exempt from registration under the Securities Act and all applicable state securities or “blue sky” Laws, and the Seller has not violated the Securities Act or any applicable state securities or “blue sky” Laws in connection with the issuance of any such securities.
4.17. Brokers or Finders; Other Offers. The Seller has not incurred and will not incur, directly or indirectly, as a result of any action taken by the Seller, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement.
4.18. Reserved.
4.19. Environmental and Safety Laws. The Seller is not in violation of any applicable statute, Law or Regulation relating to the environment or occupational health and safety, which violation would have a Company Material Adverse Effect, nor are any material expenditures required in order to comply with any such existing statute, Law or Regulation.
4.20. Compliance with Laws; Permits. To the Seller’s Knowledge, the Seller is not in violation of any applicable statute, Regulation, order or restriction of any Governmental Entity in respect of the conduct of its business or the ownership of its properties, which violation would have a Company Material Adverse Effect. The Seller has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a Company Material Adverse Effect, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. The Seller is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.
4.22. Absence of Certain Events. To Seller’s knowledgeno executive officer, director or managing member or an officer of equivalent rank of the Seller has been within the past five (5) years, (i) a party to any bankruptcy petition against such person or against any business of which such person was affiliated; (ii) convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses; (iii) subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of business, securities or banking activities; or (iv) found by a court of competent jurisdiction in a civil action by the Securities and Exchange Commission or the Commodity Futures Trading Commission, to have violated a federal or state securities or commodities law and which judgment has not been reversed, suspended or vacated.
4.23. Certain Payments. Except as otherwise disclosed herein, to Seller’s knowledge, neither Seller’s nor any of its officers, employees or agents, nor any other person acting on behalf of Seller, has directly or indirectly, within the past five (5) years, given or agreed to give any gift or similar benefit to any person who is, or may be in a position to help or hinder Company’s business, or assist it in connection with any actual or proposed transaction, which (i) might be reasonably expected to subject it to any material damage or penalty in any action or to have a Company Material Adverse Effect on Company or its business, assets, properties, financial condition or results of operations (a “Material Adverse Effect”), (ii) if not given in the past, might have reasonably been expected to have had a Material Adverse Effect, or (iii) if not continued in the future, might be reasonably expected to have a Material Adverse Effect or to subject Company to material suit or penalty in any action.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MDEX
MDEX hereby represents and warrants to the Seller that:
5.01. Organization and Standing. MDEX is a corporation duly organized and existing under, and by virtue of, the laws of the State of Nevada and is in good standing under such laws. MDEX has all requisite corporate power and authority to own and operate its properties and assets, and to carry on its business. MDEX is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a MDEX Material Adverse Effect.
5.02. Charter and Bylaws. MDEX has heretofore made available to the Seller a complete and correct copy of the Articles of Incorporation and Bylaws, as amended or restated. MDEX is not in violation of any of the provisions of its Articles of Incorporation or any material provision of its Bylaws.
5.03. Corporate Power. MDEX have, and will have at the Closing Date, all requisite legal and corporate power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement. MDEX has, and will have at the Closing Date, all requisite legal and corporate power and authority to issue the Acquisition Shares and pay the other Acquisition Consideration hereunder.
5.04. Capitalization.
(a) The authorized capital of MDEX as of the Effective Time will consist of:
| (i) | 500,000,000 shares of MDEX Common Stock, 18,057,565 shares of which will be issued and outstanding, and |
| (ii) | [ ] shares of MDEX Preferred Stock, of which there shall be [ ] shares of Series A Preferred Stock and [ ] shares of Series B Preferred Stock issued and outstanding. |
(b) As of the date of this Agreement, no shares of capital stock or other equity securities of MDEX are issued or outstanding or reserved for any purpose. Each of the outstanding shares of capital stock of MDEX as of the date hereof is duly authorized, validly issued, and fully paid and nonassessable, and has not been issued in violation of any preemptive or similar rights created by statute, the Articles of Incorporation or Bylaws of MDEX, or any agreement to which MDEX is a party or bound. There is no outstanding subscription, contract, convertible or exchangeable security, option, warrant, call or other right obligating MDEX to issue, sell, exchange, or otherwise dispose of, or to purchase, redeem or otherwise acquire, shares of, or securities convertible into or exchangeable for, capital stock of MDEX. MDEX shall have 18,057,565 shares of common stock issued and outstanding at the Closing.
(c) There are no outstanding securities, options, warrants or other rights (including registration rights), agreements or commitments of any character to which MDEX is a party relating to the issued or unissued capital stock or other equity interests of MDEX or obligating MDEX to grant, issue, deliver or sell, or cause to be granted, issued, delivered or sold, any shares of the capital stock or other equity interests of MDEX, by sale, lease, license or otherwise.
5.05. Authorization. All corporate action on the part of MDEX, its directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement, the authorization, issuance and delivery of the Acquisition Shares and the performance of all of MDEX’s obligations hereunder has been taken or will be taken prior to the Closing Date. This Agreement constitutes a valid and binding obligation of MDEX, enforceable in accordance with its terms, except (i) as the same may be limited by bankruptcy, insolvency or other laws relating to or affecting creditors’ rights generally or by general equitable principles and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. The Acquisition Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable and will have the rights, preferences and privileges described in MDEX’s charter and the Acquisition Shares will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon the holders thereof through no action of MDEX; provided, however, that the Acquisition Shares will be subject to restrictions on transfer under state and/or federal securities laws. The issuance of the Acquisition Shares is not subject to any preemptive rights or rights of first refusal.
5.06. No Conflict; Required Filings and Consents.
(a) Assuming that the Approvals, filings and notifications described in Section 5.06(b) have been obtained or made, as the case may be, the execution and delivery of this Agreement by MDEX does not, and the consummation of the transactions contemplated hereby will not (i) conflict with or violate the charter or bylaws, in each case as amended or restated, of MDEX, (ii) conflict with or violate any Laws applicable to MDEX or by which any of its assets or properties is bound or subject, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment under, or result in the creation of a lien or encumbrance on any of the properties or assets of MDEX pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which MDEX is a party or by or to which MDEX or any of its assets or properties is bound or subject, except for any such conflicts or violations described in clause (ii) or breaches, defaults, events, rights of termination, amendment, acceleration or cancellation, payment obligations or liens or encumbrances described in clause (iii) that would not reasonably be expected to have a MDEX Material Adverse Effect.
(b) The execution and delivery of this Agreement by MDEX does not, and the consummation of the transactions contemplated hereby will not, require MDEX to obtain any Approvals of or from, or to make any filing with or notification to, any Governmental Entity or third Person, except for applicable requirements, if any, of the Securities Act, “blue sky” Laws and the filing and recordation of appropriate Acquisition documents as required by Nevada Law, and (iii) where the failure to obtain such Approvals, or to make such filings or notifications, would not have a MDEX Material Adverse Effect.
5.07 Reserved.
5.08. Title to Properties and Assets; Liens. MDEX owns its properties and assets, free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair MDEX’s ownership or use of such properties or assets. With respect to the properties and assets it leases, MDEX, and to MDEX’s Knowledge, the counterparty is in compliance with such leases and MDEX holds a valid leasehold interest free of any liens, claims or encumbrances.
5.09. Patents and Other Intangible Assets.
(a) MDEX owns or has the right or license to use all patents, trademarks, service marks, service names, trade names, trade secrets and copyrights used in the conduct of its business as now conducted, free and clear of all claims, mortgages, liens, loans, and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair MDEX’s ownership or use of such intellectual property rights.
(b) MDEX has no actual knowledge, without any investigation, that MDEX is infringing upon or misappropriating any valid intellectual property rights of any Person or entity (including without limitation, former employers of all current and former employees, consultants, officers, directors and stockholders of MDEX).
(c) Except as set forth in Section 5.09 of the MDEX Disclosure Letter, MDEX is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any patent, trademark, trade name, copyright or other intellectual property right, with respect to the use thereof or in connection with the conduct of its business or otherwise.
(d) MDEX has obtained from all employees and consultants of MDEX an invention assignment and confidentiality agreement (or substantially similar agreement), copies of which were previously made available to the Seller.
5.10. Litigation. There are no actions, suits, proceedings or investigations pending or, to MDEX’s Knowledge, threatened against MDEX or its properties before any Governmental Entity. MDEX is not subject to any continuing order, writ, injunction, consent decree or settlement agreement of, or similar written agreement with, or, to MDEX’s Knowledge, continuing investigation by, any Court or Governmental Entity.
5.11. Employees. To MDEX’s Knowledge, no employee of MDEX is in violation of any term of any employment contract, intellectual property disclosure agreement or any other contract or agreement relating to the relationship of such employee with MDEX or any other party because of the nature of the business conducted or to be conducted by MDEX. MDEX is in compliance in all material respects with the applicable provisions of ERISA, and no “reportable event,” as such term is defined in Section 4043 of ERISA, has occurred with respect to any plan subject to Title IV of ERISA or any other plan to which MDEX is required to contribute on behalf of its employees.
5.12. Certain Transactions. Except as set forth in its public securities filings, MDEX is not indebted, directly or indirectly, to any of its officers, directors or stockholders or to their respective spouses or children, in any amount whatsoever; none of said officers, directors or, to MDEX’s Knowledge, stockholders, or any members of their immediate families, are indebted to MDEX or have any direct or indirect ownership interest in any firm, corporation or entity with which MDEX is affiliated or with which MDEX has a business relationship, or any firm or corporation which competes with MDEX except that officers, directors and/or stockholders of MDEX may own less than 9.99% of the stock of publicly traded companies which may compete with MDEX. No officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with MDEX. MDEX is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.
5.13. Private Placement. All securities issued by MDEX prior to the date hereof have been issued in transactions exempt from registration under the Securities Act and all applicable state securities or “blue sky” Laws, or issued in transactions that resulted in the securities being registered under the Securities Act and MDEX has not violated the Securities Act or any applicable state securities or “blue sky” Laws in connection with the issuances of any such securities.
5.14. Brokers or Finders; Other Offers. MDEX has not incurred and will not incur, directly or indirectly, as a result of any action taken by MDEX, any liability for brokerage or finders’ fees or agents’ commissions in connection with this Agreement.
5.15. Environmental and Safety Laws. MDEX is not in violation of any applicable statute, Law or Regulation relating to the environment or occupational health and safety, which violation would have a MDEX Material Adverse Effect, nor are any material expenditures required in order to comply with any such existing statute, Law or Regulation.
5.16. Compliance with Laws; Permits. MDEX is not in violation of any applicable statute, Regulation, order or restriction of any Governmental Entity in respect of the conduct of its business or the ownership of its properties, which violation would have a MDEX Material Adverse Effect. MDEX has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a MDEX Material Adverse Effect, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. MDEX is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.
5.17. Specific Tax Representations.
(a) MDEX has no plan or intention to reacquire any of the MDEX Preferred Stock to be issued under or in connection with the Transactions;
(b) MDEX has no plans or intentions to sell or otherwise dispose of any of the License Agreement of the Seller, except for dispositions made in the ordinary course of business or as otherwise disclosed to the Seller in connection with a proposed disposition of certain intellectual property associated with the prior operations of MDEX;
(c) Following the transactions contemplated by this Agreement, MDEX will use the License Agreement of the Seller in the business of MDEX;
(d) MDEX does not own directly or indirectly, nor has it owned during the past five (5) years, directly or indirectly, any License Agreement or equity of the Seller;
(e) MDEX is not an investment company within the meaning of section 351(e) of the Code;
(f) The MDEX Preferred Stock to be issued in the transactions contemplated by the Agreement has the current right to vote in the election of corporate directors of MDEX.
(g) Other than the cash to be issued in lieu of fractional shares under Section 3.02(c) of this Agreement, the only consideration to be issued in exchange for the License Agreement of the Seller on the Closing Date will be MDEX Preferred Stock and the issuance of a Convertible Promissory Note to a creditor of Seller;
(h) MDEX currently is and as of the Closing Date will be classified as a corporation for U.S Federal income tax purposes;
(i) MDEX will pay its own expenses, if any, incurred in connection with the Acquisition.
ARTICLE VI
COVENANTS
6.01. Affirmative Covenants of MDEX and the Seller. Each of MDEX and the Seller hereby covenants and agrees that, prior to the Effective Time, unless otherwise expressly contemplated by this Agreement or consented to in writing by the other, it will:
(a) operate its business in all material respects in the usual and ordinary course consistent with past practices;
(b) use its reasonable best efforts to preserve substantially intact its business organization, maintain its material rights and franchises, retain the services of its respective officers and key employees and maintain its relationships and goodwill with its customers and suppliers;
(c) maintain and keep its material properties and assets in as good repair and condition as at present, ordinary wear and tear excepted, and maintain supplies and inventories in quantities consistent with its customary business practice; and
(d) with respect to the Seller, use its reasonable best efforts to keep in full force and effect insurance and bonds comparable in amount and scope of coverage to that currently maintained.
6.02. Negative Covenants of the Seller. Except as expressly contemplated by this Agreement or otherwise consented to in writing by MDEX, from the date of this Agreement until the Effective Time, the Seller will not take or cause to be taken any action that could reasonably be expected to materially delay, or materially and adversely affect, the consummation of the transactions contemplated hereby or undertake any action or make any election that would deprive the ability of the Acquisition to qualify as a tax-free contribution of property to the Seller pursuant to the provisions of section 351 of the Code, or agree in writing or otherwise to do any of the foregoing.
6.03. Negative Covenants of MDEX. Except as expressly contemplated by this Agreement or otherwise consented to in writing by the Seller, from the date of this Agreement until the Effective Time, MDEX will not take or cause to be taken any action that could reasonably be expected to materially delay, or materially and adversely affect, the consummation of the transactions contemplated hereby or undertake any action or make any election that would deprive the ability of the Acquisition to qualify as a tax-free contribution of property to the Seller pursuant to the provisions of section 351 of the Code, or agree in writing or otherwise to do any of the foregoing.
6.04. No Solicitation.
(a) From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement pursuant to Section 9.01, the Seller agrees that it will not, and will not authorize or permit any of its officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives (“Representatives”) to, directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate any inquiries regarding or the making or implementation of any Acquisition Proposal, (ii) engage in any discussions or negotiations with, or provide any information or data to, any Person relating to or that may reasonably be expected to lead to an Acquisition Proposal or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal, (iii) approve or recommend or propose publicly to approve or recommend any Acquisition Proposal or (iv) enter into any agreement, arrangement or understanding contemplating or relating to any Acquisition Proposal or requiring the Seller to abandon, terminate or fail to consummate the Acquisition or any other transactions contemplated by this Agreement.
(b) From and after the date of this Agreement, the Seller shall as promptly as possible after receipt (and in any event within 24 hours) notify MDEX in writing of any inquiries, proposals or offers, or any discussions or negotiations sought to be initiated or continued with, it or its Representatives relating to, constituting or which could reasonably be expected to lead to an Acquisition Proposal or any request for information relating to the Seller contemplating, relating to or which could reasonably be expected to lead to any Acquisition Proposal. Such notice will include the name of such Person and the material terms and conditions of any proposal, inquiry, offer or request, and the Seller will as soon as possible provide such other details of the Acquisition Proposal, inquiry, offer or request as MDEX may reasonably request. The Seller will keep MDEX fully informed on a prompt basis (and in any event within 24 hours) of the status and terms, including any material changes or adjustments made to or proposed to be made to the terms, of any such inquiry, proposal, offer or request. If the Seller or its Representatives receives a request for information from a Person who has made an unsolicited bona fide written Acquisition Proposal and the Seller is permitted, as contemplated under Section 6.04(b), to provide such Person with information, the Seller will provide to MDEX a copy of the confidentiality agreement with such Person promptly upon its execution and provide to MDEX a list of, and copies of, the information provided to such Person concurrently with delivery to such Person and immediately provide MDEX with access to all information to which such Person was provided access.
(c) The Seller will immediately cease and cause to be terminated all existing activities, discussions or negotiations by it and the other Persons referred to in Section 6.04(a) with any Person other than MDEX conducted heretofore with respect to any Acquisition Proposal. The Seller also agrees, if it has not already done so, to promptly request each Person, if any, that has heretofore executed a confidentiality agreement within the 12 months prior to the date hereof in connection with any Acquisition Proposal to return or destroy all confidential information heretofore furnished to such Person by or on behalf of it or its Subsidiaries and take commercially reasonable actions necessary to enforce the provisions of any continuing confidentiality, standstill or similar agreement. The Seller will take such action as is necessary to inform promptly the Persons referred to in Section 6.04(a) of the provisions of this Section 6.04 and will be responsible for any breach of this Section 6.04 by such Persons.
6.05. Notices of Certain Events; Consultation.
(a) The Seller shall as promptly as reasonably practicable notify MDEX of: (i) any notice or other communication of which the Seller has Knowledge from any Person alleging that the consent of such Person (or another Person) is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication of which the Seller has Knowledge from any Governmental Entity in connection with the transactions contemplated by this Agreement; (iii) any actions, suits, claims, investigations or proceedings commenced or, or to the Knowledge of the Seller, threatened against, relating to or involving or otherwise affecting the Seller that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.08 or which relate to the consummation of the transactions contemplated by this Agreement; and (iv) any fact or occurrence between the date of this Agreement and the Effective Time of which it has Knowledge which makes any of its representations contained in this Agreement untrue in any material respect or causes any material breach of its obligations under this Agreement.
(b) MDEX shall as promptly as reasonably practicable notify the Seller of: (i) any notice or other communication of which MDEX has Knowledge from any Person alleging that the consent of such Person (or other Person) is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication of which MDEX has Knowledge from any Governmental Entity in connection with the transactions contemplated by this Agreement; and (iii) any fact or occurrence between the date of this Agreement and the Effective Time of which it becomes aware which makes any of its representations contained in this Agreement untrue in any material respect or causes any material breach of its obligations under this Agreement.
6.06. Reserved.
6.07. Access and Information.
(a) Each of MDEX and the Seller shall (i) afford to the other party and such other party’s Representatives reasonable access at reasonable times, upon reasonable prior notice, to its officers, employees, agents, properties, offices and other facilities and to the books and records thereof and (ii) furnish promptly to the other party and its Representatives such information concerning its business, properties, contracts, records and personnel (including, without limitation, financial, operating and other data and information) as may be reasonably requested, from time to time, by such other party.
(b) Notwithstanding the foregoing provisions of this Section 6.06, neither party shall be required to grant access or furnish information to the other party to the extent that such access or the furnishing of such information is prohibited by Law. No investigation by the parties hereto made heretofore or hereafter shall affect the representations and warranties of the parties which are herein contained and each such representation and warranty shall survive such investigation.
(c) The information received pursuant to Section 6.06(a) that is non-public shall be deemed to be confidential information for purposes of this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01. Meetings of Stockholders.
(a) As promptly as practicable after the execution of this Agreement, MDEX and the Seller shall prepare an information statement (the “Information Statement”) containing such information regarding the Acquisition, the transactions contemplated by this Agreement and the issuance of the Acquisition Shares as necessary to satisfy the requirements of Rule 502 of Regulation D under the Securities Act. The information supplied by the Seller and MDEX for inclusion in the Information Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. If at any time prior to the Effective Time any event or circumstance relating to the Seller or MDEX, or any of their respective officers or directors, should be discovered by the Seller or MDEX that should be set forth in a supplement to the Information Statement, the Seller or MDEX, as the case may be, shall promptly inform the other party thereof in writing.
(b) MDEX will, as promptly as possible after the date of this Agreement, take all actions necessary in accordance with federal securities laws, Nevada Law and its charter and bylaws to either (i) call, give notice of, convene and hold a meeting of MDEX’s stockholders to be held on the earliest possible date determined in consultation with the Seller or (ii) prepare and distribute a written consent of stockholders in lieu thereof, in either case to consider and vote on approval of this Agreement and the Acquisition (the “MDEX Stockholders’ Meeting”).
7.02. Appropriate Action; Consents; Filings.
(a) The Seller and MDEX shall each use their reasonable best efforts to (i) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, (ii) obtain from any Governmental Entities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or make any filings with or notifications or submissions to any Governmental Entity (other than described in the following clause (iii)) required to be made by the Seller or MDEX in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, the Acquisition, (iii) make all necessary filings, and thereafter make any other required submissions, with respect to this Agreement and the Acquisition, required under (A) the Securities Act and any other applicable federal or state securities Laws, and (B) any other applicable Law; provided that the Seller and MDEX shall cooperate with each other in connection with the making of all such filings and submissions. Each of the Seller and MDEX, upon request, shall furnish to the other and to any Governmental Entity all information concerning itself and its subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary, advisable or required for any application or other filing or submission to be made pursuant to the rules and regulations of any applicable Law in connection with the transactions contemplated by this Agreement.
(b) The Seller and MDEX agree to cooperate with respect to and agree to use their reasonable best efforts to contest and resist, any action, including legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) of any Court or other Governmental Entity that is in effect and that restricts, prevents or prohibits the consummation of the Acquisition or any other transactions contemplated by this Agreement.
(c)
(i) Each of the Seller and MDEX shall give any notices to third Persons, and use their reasonable best efforts to obtain any third Persons consents (A) necessary, proper or advisable to consummate the transactions contemplated by this Agreement, (B) otherwise required under any contracts, licenses, leases or other agreements in connection with the consummation of the transactions contemplated hereby or (C) required to prevent a Company Material Adverse Effect or a MDEX Material Adverse Effect from occurring after the Effective Time.
(ii) In the event that any party shall fail to obtain any third Person consent described in subsection (c)(i) above, such party shall use its reasonable best efforts, and shall take any such actions reasonably requested by the other parties, to limit the adverse effect upon the Seller and MDEX and their respective businesses resulting, or which could reasonably be expected to result after the Effective Time, from the failure to obtain such consent.
(d) Nothing in this Agreement shall require MDEX to agree to, or permit the Seller to agree to, the imposition of conditions, the payment of any amounts or any requirement of divestiture to obtain any Approval, and in no event shall any party take, or be required to take, any action that would or could reasonably be expected to have a Company Material Adverse Effect or a MDEX Material Adverse Effect.
(e) Each of the Seller and MDEX shall promptly notify the other of (i) any material change in its current or future business, financial condition or results of operations, (ii) any complaints, investigations or hearings (or communications indicating that the same may be contemplated) of any Court or Governmental Entities with respect to the transactions contemplated hereby or its business, (iii) the institution or the threat of material litigation involving it, or (iv) any event or condition that might reasonably be expected to cause any of its representations, warranties, covenants or agreements set forth herein not to be true and correct at the Effective Time.
7.03. Tax Treatment. The parties hereto intend that the Acquisition shall qualify as a tax-free contribution of property solely for shares within the meaning of Section 351(a) of the Code and that this Agreement shall accordingly constitute an asset contribution agreement for the purposes of Section 351 of the Code and the Treasury Regulations promulgated thereunder. Each party hereto shall use its reasonable best efforts to cause the Acquisition to qualify, and shall not take, and shall use its reasonable best efforts to prevent any affiliate of such party from taking, any actions that could prevent the Acquisition from qualifying, as a tax-free contribution of property to MDEX under the provisions of Section 351(a) of the Code.
7.04. Public Announcements. MDEX shall be responsible for issuing any press release or otherwise making any public statements with respect to the Acquisition.
7.05. Employees. On or before the Closing Date, MDEX shall make offers of employment and enter into employment or consulting arrangements with Seller’s employees under the same terms and conditions as currently exist. Any such employment or consulting arrangement shall be effective at the Effective Time.
7.06. Indemnification.
(a) Indemnity Agreement of Seller. Subject to the provisions and limitations of this Section 7.06, the Seller, for itself, its successors and assigns, agrees to indemnify and hold harmless each of MDEX and Sub and its or their respective officers, directors, representatives, and agents from and against:
(i) Failure to Perform Obligations. Any Event of Loss (as defined below) or Loss (as defined below) arising as a result of Company’s failure to perform or discharge any of its duties or obligations to be performed by Company hereunder prior to the Closing Date; and
(ii) Breach of Representations, Warranties or Covenants. Any Event of Loss or Loss arising from any breach of a representation, warranty or covenant of Company set forth in this Agreement.
(b) Indemnity Agreement of MDEX. Subject to the provisions and limitations of this Section 7.06, MDEX for itself, its successors and assigns, agrees to indemnify and save harmless Company from and against:
(i) Failure to Perform Obligations. Any Event of Loss or Loss arising as a result of MDEX’s failure to discharge or perform any duties or obligations to be performed by MDEX hereunder prior to the Closing Date; and
(ii) Breach of Representations, Warranties or Covenants. Any Event of Loss or Loss arising from any breach of a representation, warranty or covenant of MDEX set forth in is Agreement.
(c) Definition of “Loss”. Any party to this Agreement against whom or which indemnification may be sought pursuant to this Section 7.06 shall be herein called an “Indemnifying Party,” and any person entitled to indemnification pursuant to this Section 7.06 shall be herein called an “Indemnified Party.” The occurrence of an event which may result in a loss, cost, expense or liability of an Indemnified Party hereunder as to which the Indemnifying Party shall have received notice from the Indemnified Party shall be herein called an “Event of Loss,” and the amount of any loss, cost, expense or liability of any kind whatsoever (including legal fees and disbursements incurred in connection therewith) incurred by an Indemnified Party shall be herein called a “Loss;” provided, however, that for purposes of computing the amount of Loss incurred by any Indemnified Party, there shall be deducted an amount equal to the amount of any insurance proceeds (other than self-insurance) directly or indirectly received by such Indemnified Party in connection with such Loss or the circumstances giving rise thereto.
Upon payment by an Indemnified Party of any Loss, the Indemnifying Party shall discharge its obligation to indemnify the Indemnified Party against such Loss by paying to the Indemnified Party an amount that, on an after-tax basis reflecting the hypothetical tax consequences, if any, of the receipt of such amount, shall be equal to the hypothetical after-tax amount of such Loss by taking into account the hypothetical tax consequences, if any, to the Indemnified Party of the payment of such Loss. For purposes of this Section 7.06, references to “after-tax basis,” “hypothetical” tax consequences and “hypothetical” after-tax amount refer to calculations of foreign, federal, state and local tax at the maximum statutory rate (or rates, in the case of an item of income or deduction taxable or deductible for purposes of more than one tax) applicable to the Indemnified Party for the relevant year, after taking into account, for example, the effect of deductions available for other taxes such as state and local income taxes, which effect would similarly be calculated on the basis of the maximum statutory rate (or rates) of the tax (or taxes) for which such deduction was available.
(d) Insurance Proceeds Received After Indemnification. Each party agrees that, if it receives any payments from the other party hereto with respect to any Loss pursuant to this Section 7.06 and subsequently such party receives any amount of insurance proceeds (other than from self-insurance) in connection with any such Loss or the circumstances giving rise thereto, such party agrees to promptly deliver or cause to be delivered the amount of such insurance proceeds to the party that made such indemnification payments pursuant to this Section 7.06; provided, however, a party shall not be required to pay (or cause to be paid) to the other party an amount of insurance proceeds in excess of the payment in respect of the related Loss paid by the Indemnifying Party.
(e) Deductible Amount and Time Period. An Indemnifying Party shall not be required to make any indemnification payments hereunder for which such Indemnifying Party would otherwise be liable under this Section 7.06 until (and then only to the extent that) the total of all amounts to which, but for the provisions of this sentence, the Indemnified Party would be entitled pursuant to this Section 7.06 with respect to all Losses actually exceeds $25,000; provided, however, that the limitations on liability set forth in this sentence shall not be applicable to (i) any claim against an Indemnifying Party alleging fraudulent misrepresentation or (ii) any payments to be made by the Indemnifying Party pursuant to any provision of this Agreement (other than those set forth in this Section 7.06) or any provision of the instruments of assumption referred to herein.
Notwithstanding anything in this Section 7.06 to the contrary, the Indemnifying Party shall have (i) no liability for any Loss arising out of claims of a person not a party or an affiliate of a party to this Agreement as to which the Indemnifying Party shall not have received notice within six years from the Closing Date and (ii) no liability for any Loss arising out of claims under this Agreement (other than those referred to in clause (i) of this sentence) as to which the Indemnifying Party shall not have received notice within four years from the Closing Date.
(f) Defense of Claims. In case any legal action shall be commenced or threatened (provided that in the case of a threatened legal action the Indemnified Party believes in good faith that an indemnifiable Loss is likely to occur) against an Indemnified Party which could result in a Loss, the Indemnified Party shall promptly notify the Indemnifying Party in writing. After receipt of any such notice, the Indemnifying Party shall have the right, exercisable by written notice of exercise to the Indemnified Party promptly after receipt of the notice provided for in the next preceding sentence, (A) to participate in and (B) assume (and control) the defense of such action, at its own expense and with its own counsel, provided such counsel is satisfactory to the Indemnified Party. If the Indemnifying Party elects to assume the defense of such action, the Indemnifying Party shall keep the Indemnified Party informed of all material developments and events relating to such action. The Indemnified Party shall have the right to participate in (but not control) the defense of any such action, but the fees and expenses of counsel for the Indemnified Party shall be at its own expense except as set forth in the following sentence. The Indemnifying Party shall bear the reasonable fees and expenses of counsel retained by the Indemnified Party if (i) the Indemnified Party shall have retained such counsel due to actual or potential conflicting interests between the Indemnified Party and the Indemnifying Party, (ii) the Indemnifying Party shall not elect to assume the defense of the action, (iii) the Indemnifying Party shall not have employed counsel satisfactory to the Indemnified Party to represent the Indemnifying Party in connection with its assumption of the defense of the action within a reasonable time after notice pursuant to the first sentence of this paragraph is delivered to the effect that such action has been commenced or is threatened, or (iv) the Indemnifying Party has authorized the employment of counsel for the Indemnified Party to handle the defense of the action at the expense of the Indemnifying Party. In no event will the Indemnifying Party be liable for any settlement or admission of liability with respect to any action without its prior written consent, which shall not be unreasonably withheld, but if settled with such consent, the Indemnifying Party shall be liable therefor, subject to the limitations set forth in this Section 7.06. The Indemnifying Party may not settle any liability or claim subject to indemnification pursuant to this Section 7.06 without the consent of the Indemnified Party and on any basis that does not provide for a full release of the Indemnified Party. Any participation in, or assumption of the defense of, any action by an Indemnifying Party shall be without prejudice to the right of the Indemnifying Party, and shall not be construed as a waiver of its right to deny the obligation to indemnify the Indemnified Party. The giving of notice, as above provided, of a loss, damage, cost or expense claimed to be indemnifiable hereunder, to exercise the right, as the same is provided (and limited) herein, to participate in and assume control of the defense against such claim, shall be a prerequisite to any obligation to indemnify; provided, however, that the Indemnified Party’s rights pursuant to this Section 7.06 shall not be forfeited by reason of a failure to give such notice or to cooperate in the defense to the extent such failure does not have a material and adverse effect on the defense of such matter. Notwithstanding any of the above, MDEX shall have control of any action arising from a tax claim to the extent such claim is reflected on MDEX’s tax returns.
(g) Payment of Loss; Subrogation. Any Loss for which an Indemnified Party is entitled to payment hereunder shall be paid by the Indemnifying Party upon written demand by the Indemnified Party. The Indemnifying Party shall be subrogated to any claims or rights of the Indemnified Party as against any other persons with respect to any Loss paid by the Indemnifying Party under this Section 7.06. The Indemnified Party shall cooperate with the Indemnifying Party to a reasonable extent, at the Indemnifying Party’s expense, in the assertion by the Indemnifying Party of any such claims against such other persons.
(h) Notice of Event of Loss. Each party agrees that it will give notice to the other party hereunder promptly, but in no event later than 30 days, after the receipt by one of its responsible officers of knowledge of a state of facts which, if not corrected, would be an Event of Loss hereunder. Each party shall make available to the other party and its counsel and accountants, at reasonable times and for reasonable periods, during normal business hours, all books and records of such party relating to any such possible Event of Loss, and each party will render to the other such assistance as it may reasonably require of the other in order to insure prompt and adequate prosecution of the defense of any suit, claim or proceeding based upon such state of facts.
ARTICLE VIII
CONDITIONS
8.01. Conditions to Obligations of Each Party. The respective obligations of each party to effect the Acquisition and the other transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of the following conditions:
(a) No Order. No Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, Regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and has the effect of making the Acquisition or the other transactions contemplated hereby illegal or otherwise prohibiting consummation of the Acquisition or the other transactions contemplated hereby.
(b) Government Consents. The applicable waiting period under any Approvals of any Governmental Entity the failure to obtain would constitute a criminal offense, or individually or in the aggregate would be reasonably expected to have a Seller Material Adverse Effect or a MDEX Material Adverse Effect after the Effective Time, shall have been obtained.
8.02. Additional Conditions to Obligations of MDEX. The obligations of MDEX to effect the Acquisition and the other transactions contemplated hereby are also subject to the satisfaction at or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and warranties of the Seller contained in this Agreement (which for purposes of this subparagraph (a) shall be read as though none of them contained any Company Material Adverse Effect or other materiality qualifications), except for the representations and warranties contained in Sections 4.01, 4.02, 4.03, 4.04 and 4.05, shall be true and correct in all respects on the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties specifically relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date) except where the failure of such representations and warranties in the aggregate to be true and correct in all respects has not had, and would not reasonably be expected to have, a Company Material Adverse Effect. Each of the representations and warranties of the Seller set forth in Sections 4.01, 4.02, 4.03, 4.04 and 4.05 of this Agreement shall be true and correct in all respects on the date of this Agreement and on the Closing Date as if made on and as of such date (except for such representations and warranties made as of a specified date, which shall be true and correct in all respects as of such specified date).
(b) Agreements and Covenants. The Seller shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) No Material Adverse Effect. No Company Material Adverse Effect shall have occurred since the date hereof and be continuing.
(d) Compliance Certificate. MDEX shall have received a certificate of the Chief Executive Officer, Manager or Managing Member of the Seller, dated the Closing Date, confirming that the conditions in Sections 8.02(a), (b) and (c) have been satisfied.
(e) No Pending Action. There shall not be any action taken, any Law, Regulation or order enacted (whether temporary, preliminary or permanent), issued, promulgated, enforced, entered or deemed applicable by any Governmental Entity or pending or threatened any Action by any Governmental Entity or other Person, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the consummation of the Acquisition, (ii) seeking to obtain material damages in connection with the transactions contemplated by this Agreement or (iii) imposing any condition or restriction that in the judgment of MDEX, acting reasonably, would be materially burdensome to the future operations or business of MDEX after the Effective Time.
(f) Consent, Waiver and Investment Agreement. Seller Unitholders representing the Required Seller Vote shall have executed and delivered a Consent in form and substance satisfactory to the Seller and MDEX.
(g) Unitholder Approval. This Agreement and the Acquisition shall have been approved and adopted by the Required Seller Vote.
8.03. Additional Conditions to Obligations of the Seller. The obligations of the Seller to effect the Acquisition and the other transactions contemplated hereby are also subject to the satisfaction at or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and warranties of MDEX contained in this Agreement (which for purposes of this subparagraph (a) shall be read as though none of them contained any MDEX Material Adverse Effect or other materiality qualification), except for the representations and warranties contained in Sections 5.01, 5.02, 5.03, 5.04 and 5.05, shall be true and correct in all respects on the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties specifically relate to a specified date, in which case such representations and warranties shall be true and correct as of such specified date) except where the failure of such representations and warranties in the aggregate to be true and correct in all respects has not had, and would not reasonably be expected to have, a MDEX Material Adverse Effect. Each of the representations and warranties of MDEX set forth in Sections 5.01, 5.02, 5.03, 5.04 and 5.05 of this Agreement shall be true and correct in all respects on the date of this Agreement and on the Closing Date as if made on and as of such date (except for such representations and warranties made as of a specified date, which shall be true and correct in all respects as of such specified date).
(b) Agreements and Covenants. MDEX shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date.
(c) No Material Adverse Effect. No MDEX Material Adverse Effect shall have occurred since the date hereof and be continuing.
(d) Compliance Certificate. The Seller shall have received a certificate of the President of MDEX, dated the Closing Date, confirming that the conditions in Sections 8.03(a), (b) and (c) have been satisfied.
(e) Stockholder Approval. This creation of Series A and Series B Preferred Stock referenced in this Agreement and the Acquisition shall have been approved and adopted by stockholders of MDEX.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.01. Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the stockholders of the Seller or MDEX of the Acquisition:
(a) by mutual written consent of the Seller and MDEX;
(b) by MDEX, upon a breach of any representation, warranty, covenant or agreement on the part of the Seller set forth in this Agreement, or if any representation or warranty of the Seller shall have become untrue, in either case only if the conditions set forth in Section 8.02(a), (b) or (c) of this Agreement, as the case may be, would be incapable of being satisfied; provided, that such breach or untruth has not been cured within 30 days following the earlier of receipt by MDEX of written notice of such breach or untruth from the Seller or receipt by the Seller of written notice of such breach or untruth from MDEX;
(c) by the Seller, upon a breach of any representation, warranty, covenant or agreement on the part of MDEX set forth in this Agreement, or if any representation or warranty of MDEX shall have become untrue, in either case only if the conditions set forth in Section 8.03(a), (b) or (c) of this Agreement, as the case may be, would be incapable of being satisfied; provided, that such breach or untruth has not been cured within 30 days following the earlier of receipt by the Seller of written notice of such breach or untruth from MDEX or receipt by MDEX of written notice of such breach or untruth from the Seller;
(d) by either MDEX or the Seller, if there shall be any Law, order, injunction or decree which is final and non-appealable preventing the consummation of the Acquisition;
(e) by either MDEX or the Seller, if the Acquisition shall not have been consummated before the 45th day after the date of this Agreement; provided, however, that the right to terminate this Agreement under this Section 9.01(e) shall not be available to any party whose failure or whose affiliates’ failure to perform any material covenant, agreement or obligation hereunder has been the cause of, or resulted in, the failure of the Acquisition to occur on or before such date;
(f) by either MDEX or the Seller if this Agreement and the Acquisition shall not be adopted and approved by the Required Seller Vote;
(g) by either MDEX or the Seller if this Agreement and the Acquisition shall not be adopted and approved by the requisite vote of the stockholders of MDEX.
9.02. Effect of Termination. Except as provided in Section 9.05 or Section 10.01 of this Agreement, in the event of the termination of this Agreement pursuant to Section 9.01, this Agreement shall forthwith become void, there shall be no liability on the part of MDEX or the Seller or their respective officers, directors, or stockholders and all rights and obligations of any party hereto shall cease, except that nothing herein shall relieve any party of any liability for any willful breach of such party’s representations or warranties contained in this Agreement. No termination of this Agreement shall affect the obligations of the parties under the Confidentiality Agreement.
9.03. Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after approval of the Acquisition by the Unitholders of the Seller, no amendment, which under applicable Law may not be made without the approval of the Unitholders of the Seller, may be made without such approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.
9.04. Waiver. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other party with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby.
9.05. Fees, Expenses and Other Payments.
(a) Except as provided in Section 9.02 of this Agreement, all expenses incurred by the parties hereto shall be borne solely and entirely by the party which has incurred such expenses whether or not the Acquisition is consummated.
ARTICLE X
GENERAL PROVISIONS
10.01. Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 10.01(b) of this Agreement, the representations, warranties and agreements of each party hereto shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any other party hereto, any person controlling any such party or any of their officers, directors, representatives or agents, whether prior to or after the execution of this Agreement.
(b) The representations and warranties in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Article IX. This Section 10.01(b) shall not limit any covenant or agreement of the parties hereto which by its terms contemplates performance after the Effective Time or after termination of this Agreement.
10.02. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given upon receipt, if delivered personally, mailed by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like changes of address) or sent by electronic transmission to the e-mail address specified below:
(a) If to MDEX, to:
(b) If to Seller to:
10.03. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section references herein are, unless the context otherwise requires, references to sections of this Agreement.
10.04. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.
10.05. Entire Agreement. This Agreement (together with the Exhibits constitute the entire agreement of the parties, and supersede all prior agreements and undertakings, both written and oral, among the parties or between any of them, with respect to the subject matter hereof.
10.06. Assignment. This Agreement shall not be assigned by any party prior to the Effective Time by operation of Law or otherwise.
10.07. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
10.08. Specific Performance. The parties hereby acknowledge and agree that the failure of any party to perform its agreements and covenants hereunder, including its failure to take all actions as are necessary on its part to the consummation of the Acquisition, will cause irreparable injury to the other parties for which damages, even if available, will not be an adequate remedy. Accordingly, each party hereby consents to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of such party’s obligations and to the granting by any court of the remedy of specific performance of its obligations hereunder.
10.09. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive to, and not exclusive of, any rights or remedies otherwise available.
10.10. Governing Law; Consent Jurisdiction; Venue.
(a) This Agreement, and the rights and obligations of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Nevada, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Law.
(b) Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the state courts of Nevada and to the jurisdiction of the United States District Court for Nevada, for the purpose of any action or proceeding arising out of or relating to this Agreement and each of the parties hereto irrevocably agrees that all claims in respect to such action or proceeding may be heard and determined exclusively in any Nevada state or federal court.. Each of the parties hereto agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.
(c) Each of the parties hereto irrevocably consents to the service of any summons and complaint and any other process in any other action or proceeding relating to the Acquisition, on behalf of itself or its property, by the personal delivery of copies of such process to such party. Nothing in this Section 10.10 shall affect the right of any party hereto to service legal process in any other manner permitted by Law.
10.11. Waiver of Trial by Jury. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
10.12. Counterparts. This Agreement may be executed in multiple counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
* * * * *
[Signature Page Follows]
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
| MADISON TECHNOLOGIES, INC. | ||
| By: | /s/ Joseph Gallo | |
| Name: | Joseph Gallo | |
| Title: | Chief Executive Officer | |
| LUXURIE LEGS, LLC | ||
| By: | /s/ Walter Hoelzel | |
| Name: | Walter Hoelzel | |
| Title: | President, Managing Member | |
MADISON TECHNOLOGIES, INC.
OFFICER’S CERTIFICATE
The undersigned, Joseph Gallo, Chief Executive Officer of MADISON TECHNOLOGIES, INC., a corporation organized under the laws of Nevada (the “Company”), hereby certify, pursuant to the Acquisition Agreement between the Company and Luxurie Legs, LLC, that:
| 1. | The representations and warranties set forth by the Company in the Acquisition Agreement are true and correct in all material respects on and as of the date hereof as though such representations and warranties had been made on and as of the date hereof. | |
| 2. | Since the date of the Letter of Intent through the date hereof, there has not been any Material Adverse Effect on the activities, business, operations, properties, assets, condition or results of operation of the Company. | |
| 3. | There has not been instituted, or to the knowledge of the Company, any threatened action or proceeding to restrict or prohibit the transactions contemplated by the Acquisition Agreement. | |
| 4. | The Acquisition Agreement, and the creation of Series A and Series B Preferred Stock to be issued as consideration thereof, has been approved by Written Consent of the Majority of Shareholders of Common Stock in Madison Technologies, Inc. |
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed as of July 17, 2020.
| MADISON TECHNOLOGIES, INC. | ||
| /s/ Joseph Gallo | ||
| By: | Joseph Gallo | |
| Title: | Chief Executive Officer | |
LUXURIE LEGS, LLC
OFFICER’S CERTIFICATE
As Manager of Luxurie Legs, LLC, I hereby certify, pursuant to the Acquisition Agreement between the Luxurie Legs, LLC and Madison Technologies, Inc., that:
| 1. | The representations and warranties set forth by the Luxurie Legs, LLC in the Acquisition Agreement are true and correct in all material respects on and as of the date hereof as though such representations and warranties had been made on and as of the date hereof. | |
| 2. | Since the date of the Letter of Intent through the date hereof, there has not been any Material Adverse Effect on the activities, business, operations, properties, assets, condition or results of operation of Luxurie Legs, LLC. | |
| 3. | There has not been instituted, or to the knowledge of Luxurie Legs, LLC, any threatened action or proceeding to restrict or prohibit the transactions contemplated by the Acquisition Agreement. | |
| 4. | The Acquisition Agreement itself, and the assignment of the Casa Zeta-Jones Brand License, pursuant to the terms of the Acquisition Agreement, has been reviewed and approved by the Members of Luxurie Legs, LLC and by the Licensor. |
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed as of July 17, 2020.
| LUXURIE LEGS, LLC | ||
| /s/ Walter Hoelzel | ||
| By: | Walter Hoelzel | |
| Title: | President, Managing Member | |
Exhibit 2.2
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (the “Agreement”), is made and entered into as of February 16, 2021, by and among Madison Technologies, Inc., a Nevada corporation (the “Buyer”), Sovryn Holdings, Inc., a Delaware corporation (the “Company”), and the shareholders of the Company identified on Exhibit A attached hereto (each a “Shareholder” and collectively, the “Shareholders”).Capitalized terms used in this Agreement are defined in Annex A attached hereto.
WHEREAS, the Company has 1,000,000 shares of common stock, par value $0.0001 per share (the “Company Shares”) issued and outstanding, all of which are held by the Shareholders.
WHEREAS, the Shareholders have agreed to exchange the Company Shares with Buyer in exchange for transfer of 100 shares of series B preferred stock, par value $0.001 per share of Buyer currently held by Jeff Canouse, the Buyer’s CEO, to the designee of the Company (the “Buyer Series B Preferred Stock”) and 1,000 shares of series E preferred stock, par value $0.001 per share of the Buyer, with such terms as set forth in the certificate of designations attached hereto as Exhibit B (the “Buyer Series E Preferred Stock” and collectively, the “Exchange Shares”) of the Buyer, on the terms and subject to the conditions set forth herein (the “Exchange”).
WHEREAS, the Exchange is intended to constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”), or such other tax free reorganization or restructuring provisions as may be available under the Code.
WHEREAS, the Board of Directors of each of the Buyer and the Company has determined that it is desirable and in the best interests of their respective shareholders of their respective companies to effect the Exchange.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
EXCHANGE OF SHARES
1.1. Exchange by the Shareholder. At the Closing, each Shareholder shall sell, transfer, convey, assign and deliver to the Buyer the Company Shares owned by the Shareholder free and clear of all Liens of in exchange for the Exchange Shares.
1.2. Closing. The closing (the “Closing”) of the transactions contemplated by this Agreement shall take place at the offices of the Buyer, commencing upon the satisfaction or waiver of all conditions and obligations of the parties to consummate the transactions contemplated hereby (other than conditions and obligations with respect to the actions that the respective parties will take at Closing) or such other date and time as the parties may mutually determine (the “Closing Date”).
ARTICLE II
REPRESENTATIONS OF THE SHAREHOLDERS
Each Shareholder represents and warrants to the Buyer, as follows:
2.1 Good Title. The Shareholder is the record and beneficial owner, and has good and marketable title to the Company Shares being exchanged by such Shareholder pursuant to this Agreement as set forth on Exhibit A, with the right and authority to sell and deliver such Company Shares to Buyer as provided herein. Upon registering of the Buyer as the new owner of such Company Shares in the share register of the Company, the Buyer will receive good title to such Company Shares, free and clear of all Liens.
2.2 Power and Authority. All acts required to be taken by the Shareholder to enter into this Agreement and to carry out the transactions contemplated by this Agreement have been properly taken. The obligations of the Shareholder under this Agreement constitute legal, valid and binding obligations of the Shareholder, enforceable against Shareholder in accordance with the terms hereof.
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2.3 No Conflicts. The execution and delivery of this Agreement by the Shareholder and the performance by the Shareholder of its obligations hereunder in accordance with the terms hereof: (i) will not require the consent of any Governmental Entity under any Laws; (ii) will not violate any Laws applicable to Shareholder; and (iii) will not violate or breach any contractual obligation to which Shareholder is a party.
2.4 No Finder’s Fee. The Shareholder has not created any obligation for any finder’s, investment banker’s or broker’s fee in connection with the transactions contemplated under this Agreement that the Company or the Buyer will be responsible for.
2.5 Purchase Entirely for Own Account. The Exchange Shares proposed to be acquired by the Shareholder hereunder will be acquired for investment for its own account, and not with a view to the resale or distribution of any part thereof, and the Shareholder has no present intention of selling or otherwise distributing the Exchange Shares, except in compliance with applicable securities laws.
2.6 Available Information. The Shareholder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Buyer. Shareholder acknowledges that an investment in the Buyer Common Stock involves a high degree of risk, is speculative and there can be no assurance of any return on any such investment.
2.7 Non-Registration. The Shareholder understands that the Exchange Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and, if issued in accordance with the provisions of this Agreement, will be issued by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Shareholder’s representations as expressed herein. The non-registration shall have no prejudice with respect to any rights, interests, benefits and entitlements attached to the Exchange Shares in accordance with the Buyer charter documents or the laws of its jurisdiction of incorporation.
2.8 Restricted Securities. The Shareholder understands that the Exchange Shares are characterized as “restricted securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Shareholder pursuant hereto, the Exchange Shares would be acquired in a transaction not involving a public offering. The Shareholder further acknowledges that if the Exchange Shares are issued to the Shareholder in accordance with the provisions of this Agreement, such Exchange Shares may not be resold without registration under the Securities Act or the existence of an exemption therefrom.
2.9 Legends. The Shareholder understands that the Exchange Shares will bear the following legend or another legend that is similar to the following:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
and any legend required by the “blue sky” laws of any state to the extent such laws are applicable to the securities represented by the certificate so legended.
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2.10 Accredited Investor. The Shareholder is an “accredited investor” within the meaning of Rule 501 under the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS
The Shareholders and the Company jointly and severally represent and warrant to Buyer that, except as set forth in the disclosure schedules delivered by the Company to Buyer (the “Company Disclosure Schedule”) which have been provided to Buyer prior to the date hereof:
3.1. Organization, Standing and Corporate Power. The Company is duly organized, validly existing and in good standing under the Laws of the State of Delaware and has the requisite corporate power and authority and all government licenses, authorizations, Permits, consents and approvals required to own, lease and operate its properties and carry on its business as now being conducted. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect.
3.2. Subsidiaries. The Company does not have any Subsidiaries and does not own directly or indirectly, any equity or ownership interest in any company, corporation, partnership, joint venture or otherwise.
3.3. Capital Structure of the Company. As of the date of this Agreement, the number of shares and type of all authorized, issued and outstanding capital stock of the Company or any Subsidiary, and all shares of capital stock reserved for issuance under the Company’s various option and incentive plans is specified on Schedule 3.3. No shares of capital stock or other equity securities of the Company are issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no outstanding bonds, debentures, notes or other indebtedness or other securities of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters. There are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any Subsidiary is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity or voting securities of the Company or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations, commitments, understandings or arrangements of the Company to repurchase, redeem or otherwise acquire or make any payment in respect of any shares of capital stock of the Company.
3.4. Corporate Authority; Noncontravention. The Company has all requisite corporate and other power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement contemplated hereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been (or at Closing will have been) duly authorized by all necessary corporate action on the part of the Company and the Shareholders. This Agreement has been duly executed and when delivered by the Company shall constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar Laws affecting the enforcement of creditors’ rights generally or by general principles of equity. The execution and delivery of this Agreement do not, and the consummation of the Exchange and compliance with the provisions hereof will not, conflict with, or result in any breach or violation of, or Default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of or “put” right with respect to any obligation or to a loss of a material benefit under, or result in the creation of any Lien upon any of the properties or Assets of the Company under, (i) the Certificate of Incorporation, Bylaws or other organizational or charter documents of the Company (copies of which have been provided to Buyer on or prior to the date of this Agreement) (the “Company Charter Documents”), (ii) any, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, Permit, concession, franchise or license applicable to the Company or the Shareholder, theirs properties or Assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, Order, decree, statute, Law, ordinance, rule, regulation or arbitration award applicable to the Company or the Shareholder, their properties or Assets, other than, in the case of clauses (ii) and (iii), any such conflicts, breaches, violations, Defaults, rights, losses or Liens that individually or in the aggregate could not have a Material Adverse Effect with respect to the Company or could not prevent, hinder or materially delay the ability of the Company to consummate the Exchange.
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3.6. Governmental Authorization. No consent, approval, Order or authorization of, or registration, declaration or filing with, or notice to, any Governmental Entity, is required by or with respect to the Company in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except, with respect to this Agreement, any filings under the Securities Act or Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”).
3.7. Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated by this Agreement.
3.8. Litigation; Compliance with Laws.
(a) There is no suit, action or proceeding or investigation pending or, to the Knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any basis for any such suit, action, proceeding or investigation that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect with respect to the Company or prevent, hinder or materially delay the ability of the Company to consummate the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or Order of any Governmental Entity or arbitrator outstanding against the Company having, or which, insofar as reasonably could be foreseen by the Company, in the future could have, any such effect. Except as set forth on Schedule 3.8, neither the Company, any Subsidiary nor to the Company’s Knowledge, any director or officer of the Company or any Subsidiary thereof, is or has been the subject of any Order involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company there is not pending or contemplated, any investigation by the SEC involving the Company.
(b) The conduct of the business of the Company complies with all statutes, Laws, regulations, ordinances, rules, judgments, Orders, decrees or arbitration awards applicable thereto, except as would not have a Material Adverse Effect with respect to the Company.
3.9. Tax Returns and Tax Payments.
(a) The Company was formed in December 2020 and has not filed with the appropriate taxing authorities any Tax Returns required to be filed by it (taking into account all applicable extensions). No claim has ever been made in writing or otherwise addressed to the Company or any Subsidiary by a taxing authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.
(b) No material claim for unpaid Taxes has been made or become a Lien against the property of the Company or is being asserted against the Company or any Subsidiary.
(c) As used herein, “Taxes” shall mean all taxes of any kind, including, without limitation, those on or measured by or referred to as income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority, domestic or foreign. As used herein, “Tax Return” shall mean any return, report or statement required to be filed with any governmental authority with respect to Taxes.
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3.10. Material Agreements.
(a) Schedule 3.10 lists the following contracts and other agreements (“Company Material Agreements”) to which the Company or any Subsidiary is a party: (i) any agreement (or group of related agreements) for the lease of real or personal property, including capital leases, to or from any person providing for annual lease payments in excess of $25,000; (ii) any licensing agreement, or any agreement forming a partnership, strategic alliances, profit sharing or joint venture; (iii) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money in excess of $10,000, or under which a security interest has been imposed on any of its Assets, tangible or intangible; (iv) any profit sharing, deferred compensation, severance, or other material plan or arrangement for the benefit of its current or former officers, directors and managers or any employees; (v) any employment or independent contractor agreement providing annual compensation in excess of $10,000 or providing post-termination or severance payments or benefits or that cannot be cancelled without more than thirty (30) days’ notice; (vi) any agreement with any current or former officer, director, shareholder, members, manager or affiliate; (vii) any agreements relating to the acquisition (by merger, purchase of units or assets or otherwise) of any operating business or material assets or the capital stock of any other person; (viii) any agreements for the sale of any of the assets, other than in the ordinary course of business; (ix) any outstanding agreements of guaranty, surety or indemnification, direct or indirect; (x) any royalty agreements, licenses or other agreements relating to Intellectual Property (excluding licenses pertaining to “off-the-shelf” commercially available software used pursuant to shrink-wrap or click-through license agreements on reasonable terms for a license fee of no more than $10,000); and (xi) any other agreement under which the consequences of a default or termination could reasonably be expected to have a Material Adverse Effect.
(b) The Company has made available to Buyer either an original or a correct and complete copy of each written Material Agreement. With respect to each Material Agreement to which the Company or any Subsidiary is a party thereto: (i) the agreement is the legal, valid, binding, enforceable obligation and is in full force and effect in all material respects, subject to bankruptcy and equitable remedies exceptions; (ii) (A) is not in material breach or default thereof and (B) no event has occurred which, with notice or lapse of time, would constitute a material breach or default of, or permit termination, modification, or acceleration under, the Material Agreement; and (iii) no material provision of the agreement has been repudiated.
3.11. Board Recommendation. The Board of Directors of the Company have determined that the terms of the Exchange is fair to and in the best interests of the respective shareholders of the Company.
3.13. No Registration of Securities. The Company understands and acknowledges that except as set forth in this Agreement, the offering, exchange and issuance of the Exchange Shares pursuant to this Agreement will not be registered under the Securities Act on the grounds that the offering, sale, exchange and issuance of securities contemplated by this Agreement are exempt from registration pursuant to Section 4(a)(2) of the Securities Act, and that Buyer’s reliance upon such exemption is predicated in part upon the Company’s and the Shareholders’ representations herein.
3.14. Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Company shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
3.15. Registration Rights. No Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
3.16. Bad Actor Disqualification. With respect to the Exchange Shares to be issued hereunder in reliance on Rule 506 under the Securities Act (“Regulation D Securities”), except as set forth on Schedule 3.16, none of the Shareholders, the Company, any of its predecessors, any affiliated issuer, any director, executive officer, any beneficial owner of 20% or more of the Shareholder’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Shareholder has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to Buyer a copy of any disclosures provided thereunder as set forth on Schedule 3.16.
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3.17. Full Disclosure. All of the representations and warranties made by the Company in this Agreement, including the Company Disclosure Schedules attached hereto, and all statements set forth in the certificates delivered by the Company at the Closing pursuant to this Agreement, are true, correct and complete in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make such representations, warranties or statements, in light of the circumstances under which they were made, misleading. The copies of all documents furnished by the Company pursuant to the terms of this Agreement are complete and accurate copies of the original documents. The schedules, certificates, and any and all other statements and information, whether furnished in written or electronic form, to Buyer or its representatives by or on behalf of any Company or its Affiliates in connection with the negotiation of this Agreement and the transactions contemplated hereby do not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading.
3.18 Other Representations or Warranties. Except for the representations and warranties contained in this ARTICLE III, the Company does not make any other express or implied representation or warranty on behalf of the Company in connection with this Agreement or the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and to the Shareholders that, except as set forth in Buyer Disclosure Schedule:
4.1. Organization, Standing, Corporate Power and Quotation of Common Stock. Buyer and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has the requisite corporate power and authority and all government licenses, authorizations, Permits, consents and approvals required to own, lease and operate its properties and carry on its business as now being conducted. Buyer and each of its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect with respect to Buyer. If the Buyer has no Subsidiaries, all other references to the Subsidiaries or any of them in this Agreement, shall be disregarded.
4.2. Subsidiaries. The Subsidiaries of the Buyer, and the authorized and outstanding capital stock of each are set forth on Schedule 4.2. All of the outstanding capital stock of the Buyer’s Subsidiaries are owned by Buyer free and clear of all Liens. Other than as set forth on Schedule 4.2, Buyer does not own directly or indirectly, any equity or other ownership interest in any company, corporation, partnership, joint venture or otherwise. Except as set forth on Schedule 4.2, there are no outstanding or authorized options, warrants, rights, agreements or commitments to which Buyer or any of its Subsidiaries is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary of Buyer. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary of Buyer. Except as set forth on Schedule 4.2, there are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of Buyer. Except as set forth on Schedule 4.2, (i) there are no ongoing obligations or costs that would be required to be borne by the Seller after the Closing Date related to any Subsidiary of the Buyer, (ii) neither Buyer nor Subsidiary is party to any contract, commitment, understanding or arrangement, whether written or oral, by which the Company or any Subsidiary is or may become bound related to any business and/or activities conducted by any Subsidiary, and (iii) there are no liability as of the Closing Date related to any Subsidiary.
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4.3. Capital Structure of Buyer.
Immediately prior to the issuance of the Exchange Shares at Closing, as of the date of this Agreement, the number of shares and type of all authorized, issued and outstanding capital stock of the Company, and all shares of capital stock reserved for issuance under the Company’s various option and incentive plans is specified on Schedule 4.3. No Shares of Buyer Common Stock or Buyer Preferred Stock will be issuable upon the exercise of outstanding warrants, convertible notes, options or otherwise (except as described below). All outstanding shares of capital stock of Buyer and its Subsidiaries are, and all shares which may be issued pursuant to this Agreement will be, when issued, duly authorized, validly issued, fully paid and nonassessable, not subject to preemptive rights, and issued in compliance with all applicable state and federal Laws concerning the issuance of securities. Except as set forth on Schedule 4.3, there are no outstanding bonds, debentures, notes or other indebtedness or other securities of Buyer having the right to vote (or convertible into, or exchangeable for, securities having the right to vote). Except as set forth on Schedule 4.3, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which Buyer or any of its Subsidiaries is a party or by which Buyer or any of its Subsidiaries is bound obligating Buyer or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity securities of Buyer or any of its Subsidiaries or obligating Buyer or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations, commitments, understandings or arrangements of Buyer or any of its Subsidiaries to repurchase, redeem or otherwise acquire or make any payment in respect of any shares of capital stock of Buyer or any of its Subsidiaries. There are no agreements or arrangements pursuant to which the Buyer is or could be required to register shares of Buyer Common Stock or other securities under the Securities Act or other agreements or arrangements with or among any security holders of the Buyer with respect to securities of the Buyer. The Buyer does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement.
4.4. Corporate Authority; Noncontravention. Buyer has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby have been (or at Closing will have been) duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and when delivered by Buyer, shall constitute a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar Laws affecting the enforcement of creditors’ rights generally or by general principles of equity.
4.5. No Conflicts. The execution, delivery and performance by the Buyer of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Exchange Shares and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Buyer’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Buyer or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Buyer or Subsidiary debt or otherwise) or other understanding to which the Buyer or any Subsidiary is a party or by which any property or asset of the Buyer or any Subsidiary is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Buyer or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Buyer or a Subsidiary is bound or affected.
4.6. SEC Filings; Financial Statements; Information Provided.
(a) Except as set forth on Schedule 4.6, Buyer has filed all forms, reports, certifications and other documents required to be filed by Buyer with the SEC since January 1, 2018. All such forms, reports and other documents, as amended prior to the date hereof are referred to herein as the “Buyer SEC Reports.” All of the Buyer SEC Reports (A) at the time filed (or if amended prior to the date hereof, when so amended), complied as to form in all material respects with the requirements of the Securities Act and the Exchange Act applicable to such Buyer SEC Reports and (B) did not at the time they were filed (or if amended prior to the date hereof, when so amended) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Buyer SEC Reports or necessary in order to make the statements in such Buyer SEC Reports, in the light of the circumstances under which they were made, not misleading, in any material respect.
(b) The consolidated financial statements of the Buyer (including, in each case, any related notes and schedules) contained in the Buyer SEC Reports at the time filed (or if amended prior to the date hereof, when so amended) (i) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved and at the dates involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim financial statements, as permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly presented in all material respects the consolidated financial position of Buyer and its Subsidiaries as of the dates indicated and the consolidated assets, liabilities, business, financial condition, results of its operations and cash flows for the periods indicated, consistent with the books and records of Buyer and its Subsidiaries, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments. The consolidated balance sheet of Buyer as of December 31, 2019 is referred to herein as the “Buyer Balance Sheet.”
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(c) K. R. Margetson Ltd., Buyer’s current auditors, is and has been at all times since its engagement by Buyer (i) “independent” with respect to Buyer within the meaning of Regulation S-X and (ii) in compliance with subsections (g) through (l) of Section 10A of the Exchange Act (to the extent applicable) and the related rules of the SEC and the Public Company Accounting Oversight Board.
(d) Buyer has established and maintains disclosure controls and procedures and internal control over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act. Buyer’s disclosure controls and procedures are reasonably designed to ensure that all material information required to be disclosed by Buyer in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such material information is accumulated and communicated to Buyer’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act. Since January 1, 2018, Buyer’s principal executive officer and its principal financial officer have disclosed to Buyer’s auditors and the audit committee of the Buyer Board all known (i) significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adverse and materially affect the Company’s ability to record, process, summarize and report financial information, (ii) material weaknesses in the design and operation of internal controls over financial reporting, and (iii) any fraud, whether or not material, that involves the management or other employees who have a significant role in the Buyer’s internal controls over financial reporting. Each of the Buyer and its Subsidiaries have materially complied with or substantially addressed such deficiencies, material weaknesses and/or fraud.
(e) Buyer is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Each required form, report and document containing financial statements that has been filed with or submitted to the SEC was accompanied by any certifications required to be filed or submitted by Buyer’s principal executive officer and principal financial officer pursuant to the Sarbanes-Oxley Act and, at the time of filing or submission of each such certification, any such certification complied in all material respects with the applicable provisions of the Sarbanes-Oxley Act. Neither Buyer nor any of its executive officers has received written notice from any Governmental Entity challenging or questioning the accuracy, completeness, form or manner of filing of such certifications.
(f) As of the date of this Agreement, the Buyer has timely responded to all comment letters of the staff of the SEC relating to the Buyer SEC Reports, and the SEC has not advised the Buyer that any final responses are inadequate, insufficient or otherwise non-responsive. The Buyer has made available to the Seller true, correct and complete copies of all comment letters, written inquiries and enforcement correspondence between the SEC, on the one hand, and the Buyer and any of its Subsidiaries, on the other hand, occurring since January 1, 2018 and will, reasonably promptly following the receipt thereof, make available to the Company any such correspondence sent or received after the date hereof. To the knowledge of the Buyer, as of the date of this Agreement, none of the Buyer SEC Reports is the subject of ongoing SEC review or outstanding SEC comment.
(h) Each of the principal executive officer of the Buyer and the principal financial officer of the Buyer (or each former principal executive officer of the Buyer and each former principal financial officer of the Buyer, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act or Sections 302 and 906 of the Sarbanes-Oxley Act and the rules and regulations of the SEC promulgated thereunder with respect to the Buyer SEC Reports, and the statements contained in such certifications were true and correct on the date such certifications were made. For purposes of this Section 4.02(h), “principal executive officer” and “principal financial officer” has the meanings given to such terms in the Sarbanes-Oxley Act.
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(i) Neither the Buyer, nor to the Knowledge of the Buyer, any of its Subsidiaries, directors, officers, employees, or the internal or external auditors of the Buyer or any of its Subsidiaries has received or otherwise had or obtained actual knowledge of any substantive material complaint, allegation, assertion or claim, whether written or oral, that the Buyer or any of its Subsidiaries has engaged in questionable accounting or auditing practices.
(j) Buyer is not currently an issuer identified in Rule 144(i)(1)(i) of the Securities Act. Buyer acknowledges that it was, prior to October 21, 2016, an issuer identified under Rule 144(i)(1)(i) of the Securities Act and it has satisfied the requirements under Rule 144(i)(2) for ceasing to be an issuer identified under Rule 144(i)(1)(i) of the Securities Act.
4.7. Absence of Certain Changes. Since the date of the latest audited financial statements included within the Buyer SEC Reports, except as specifically disclosed in a subsequent Buyer SEC Report filed prior to the date hereof or as set forth on Schedule 4.7, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Buyer has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Buyer’s Financial Statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, and (iv) the Buyer has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Buyer does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Purchased Shares contemplated by this Agreement or as set forth on Section 5.09 of the Disclosure Schedules, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Buyer or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Buyer under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.
4.8. Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by Buyer to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated by this Agreement.
4.9. Litigation; Labor Matters; Compliance with Laws.
(a) Except as set forth on Schedule 4.9 to this Agreement, there is no suit, action or proceeding or investigation pending or, to the Knowledge of Buyer, threatened against or affecting Buyer or any basis for any such suit, action, proceeding or investigation that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect with respect to Buyer or prevent, hinder or materially delay the ability of Buyer to consummate the Exchange, nor is there any judgment, decree, injunction, rule or Order of any Governmental Entity or arbitrator outstanding against Buyer having, or which, insofar as reasonably could be foreseen by Buyer, in the future could have, any such effect.
(b) Buyer is not a party to, or bound by, any collective bargaining agreement, Contract or other agreement or understanding with a labor union or labor organization, nor is it the subject of any proceeding asserting that it has committed an unfair labor practice or seeking to compel it to bargain with any labor organization as to wages or conditions of employment nor is there any strike, work stoppage or other labor dispute involving it pending or, to its Knowledge, threatened, any of which could have a Material Adverse Effect with respect to Buyer. As of the date of this Agreement, there are no employee grievances, complaints or charges pending against Buyer or, to Buyer’s Knowledge, otherwise related to the business under any employee dispute resolution procedure. Buyer is in compliance in all material respects with all applicable federal, state, local and all other applicable laws, regulations, ordinances or orders with respect to employment and employment practices, terms and conditions of employment and wages and hours. Except as would not result in a material liability, neither Buyer nor, to Buyer’s Knowledge, any of its Affiliates has misclassified any Employee as an independent contractor, temporary employee, leased employee, volunteer or any other servant or agent compensated other than through reportable wages as an employee (each a “Contingent Worker”) and no Contingent Worker has been improperly excluded from any benefit plan of the Buyer.
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(c) Buyer and each Subsidiary is and has been since January 1, 2018, in compliance in all material respects with all Laws and Governmental Orders applicable to the conduct of its business as described in the Buyer SEC Reports. Since January 1, 2018, neither Buyer nor any Subsidiary has received any written notice or other written communication from any Governmental Authority or any other person regarding any actual or alleged violation of or failure to comply with any term or requirement of any such Law or Governmental Order.
(d) Neither the Buyer nor to the best of Buyer’s Knowledge, any director or officer thereof, is or has been the subject of any Order involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the best knowledge of the Buyer, there is not pending or contemplated, any investigation by the SEC involving the Buyer or any current or former director or officer of the Buyer.
4.10. Benefit Plans. Buyer is not a party to any Benefit Plan under which Buyer currently has an obligation to provide benefits to any current or former employee, officer or director of Buyer.
4.11. Tax Returns and Tax Payments.
(a) Except as set forth on Schedule 4.11, Buyer has filed all Tax Returns required to be filed by it (taking into account all applicable extensions or agreed payment schedules). No claim has ever been made in writing or otherwise addressed to Buyer or any of its Subsidiaries by a taxing authority in a jurisdiction where Buyer does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. Since the Buyer Balance Sheet Date, Buyer has not incurred any liability for Taxes outside the ordinary course of business consistent with past custom and practice.
(b) No material claim for unpaid Taxes has been made or become a Lien against the property of Buyer or any of its Subsidiaries or is being asserted against Buyer or any of its Subsidiaries, no audit of any Tax Return of Buyer or any of its Subsidiaries is being conducted by a tax authority, and no extension of the statute of limitations on the assessment of any Taxes has been granted by Buyer or any of its Subsidiaries and is currently in effect. Buyer has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.
4.12. Environmental Matters. Buyer and each of its Subsidiaries is in compliance with all requisite Environmental Laws in all material respects. Neither Buyer nor any of its Subsidiaries has received any written notice regarding any violation of any Environmental Laws, including any investigatory, remedial or corrective obligations, which, if determined adversely to Buyer or any of its Subsidiaries, would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. Buyer and each its Subsidiaries holds all Permits and authorizations required under applicable Environmental Laws, unless the failure to hold such Permits and authorizations would not have a Material Adverse Effect on Buyer, and is compliance with all terms, conditions and provisions of all such Permits and authorizations in all material respects. No releases of Hazardous Materials have occurred at, from, in, to, on or under any real property currently or formerly owned, operated or leased by Buyer or any of its Subsidiaries or any predecessor thereof and no Hazardous Materials are present in, on, about or migrating to or from any such property which could result in any liability to Buyer or any of its Subsidiaries. Neither Buyer nor any of its Subsidiaries has transported or arranged for the treatment, storage, handling, disposal, or transportation of any Hazardous Material to any off-site location which could result in any liability to Buyer or any of its Subsidiaries. Neither Buyer nor any of its Subsidiaries has any liability, absolute or contingent, under any Environmental Law that if enforced or collected would have a Material Adverse Effect on Buyer or any of its Subsidiaries. There are no past, pending or threatened claims under Environmental Laws against Buyer or any of its Subsidiaries and neither Buyer nor any of its Subsidiaries is aware of any facts or circumstances that could reasonably be expected to result in a liability or claim against Buyer or any of its Subsidiaries pursuant to Environmental Laws.
4.13. Properties. Buyer and each of its Subsidiaries has valid land use rights for all real property that is material to its business and good, clear and marketable title to all the tangible properties and tangible Assets reflected in the latest balance sheet as being owned by Buyer or acquired after the date thereof which are, individually or in the aggregate, material to Buyer’s business (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business), free and clear of all Material Liens, encumbrances, claims, security interest, options and restrictions of any nature whatsoever. Any real property and facilities held under lease by Buyer or its Subsidiaries are held by them under valid, subsisting and enforceable leases of which Buyer and each of its Subsidiaries is in compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.
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4.14. Intellectual Property. The Buyer Intellectual Property is set forth on Schedule 4.14. Except as set forth in the Buyer SEC Reports Buyer and each of its Subsidiaries owns or has valid rights to use the trademarks, trade names, domain names, copyrights, patents, logos, licenses and computer software programs (including, without limitation, the source codes thereto) that are necessary for the conduct of its business as now being conducted. All of Buyer’s and its Subsidiaries’ licenses to use software programs are current and have been paid for the appropriate number of users. To the Knowledge of Buyer, none of Buyer’s or its Subsidiaries’ Intellectual Property infringe upon the rights of any third party that may give rise to a cause of action or claim against Buyer or each of its successors. Neither the Buyer nor any Subsidiary is not currently infringing or misappropriating the Intellectual Property of any other Person that would have a Material Adverse Effect. No licenses or rights from any third parties (or additional payments to any such persons resulting from the transactions contemplated by this Agreement) are required to use and exploit the Intellectual Property as currently used and exploited by Seller.
4.15. Board Determination. The Board of Directors of Buyer has determined as of the Closing Date that the terms of the transactions contemplated by this Agreement are fair to and in the best interests of Buyer and its stockholders.
4.16. Due Authorization. Buyer represents that the issuance of the Exchange Shares will be in compliance with Nevada law and the Articles of Incorporation and Bylaws of Buyer. The Exchange Shares have been duly and validly authorized and, upon issuance in accordance with this Agreement, will be duly issued, fully paid and non-assessable and free (and not issued or sold in violation) of statutory and contractual preemptive rights, resale rights, rights of first refusal and similar rights, taxes, claims, liens, charges, encumbrances or other restrictions (other than as provided herein and restrictions under federal and applicable state securities laws).
4.17. Compliance. Except as set forth on Schedule 4.17, neither the Buyer nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Buyer or any Subsidiary under), nor has the Buyer or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
4.18. Compliance with Anti-Corruption Laws. Neither Buyer nor to the knowledge of Buyer, any director, officer, agent, employee or other person acting on behalf of Buyer has, in the course of its actions for, or on behalf of, Buyer (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any applicable U.S. laws; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
4.19. OFAC; Illegal Payments. Neither Buyer, nor to the knowledge of Buyer, any director, officer, agent, employee, affiliate or person acting on behalf of Buyer, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department. Neither Buyer, nor any director, officer, member, manager, agent, employee or other Person acting on behalf of Buyer has, in the course of his actions for, or on behalf of, Buyer: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar foreign law or regulation; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
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4.20. Liabilities. Buyer has no liabilities or obligations of any nature (whether fixed or unfixed, secured or unsecured, known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities indebtedness or obligations disclosed to the Company in writing and set forth on Schedule 4.20.
4.21. transactions contemplated by this Agreement With Affiliates and Employees. No officer, director, employee or stockholder of the Buyer or any Affiliate of any such Person, has or has had, either directly or indirectly, an interest in any transaction with Buyer (other than for services as employees, officers and directors), including any contract or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Person or, to the knowledge of Buyer, any entity in which any such Person has an interest or is an officer, director, trustee or partner.
4.22. Bank Accounts and Safe Deposit Boxes. Buyer has such bank accounts at such banks and with such account numbers as set forth on Schedule 4.22.
4.23. Investment Company. Neither Buyer nor any subsidiary is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
4.24. Bankruptcy and Indebtedness. Buyer has not taken any steps to seek protection pursuant to any Law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does Buyer have any Knowledge or reason to believe that any of its respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. There is no outstanding secured and unsecured indebtedness of Buyer, or for which the Company has commitments except as set forth on Schedule 4.20. All indebtedness of the Buyer will be paid off on or prior to the Closing Date. Neither the Buyer nor any Subsidiary is in default with respect to any indebtedness.
4.25. Listing and Maintenance Requirements. Buyer’s common stock is currently quoted on the OTCQB Market tier maintained by OTC Markets Group, Inc. (“OTC”) under the symbol “MDEX”, and Buyer has not, in the 24 months preceding the date hereof, received any notice from the OTC or FINRA or any trading platform on which the common stock is or has been traded or quoted to the effect that Buyer is not in compliance with the quoting, listing or maintenance requirements of the OTC or such other trading market. Buyer is, and has no reason to believe that it will not, in the foreseeable future, continue to be in compliance with all such quoting, listing and maintenance requirements.
4.26. No SEC or FINRA Inquiries. Neither Buyer nor any of its present officers or directors is, or has ever been, the subject of any formal or informal inquiry or investigation by the SEC or FINRA.
4.27. DTC Eligible. The Buyer’s common stock is DTC eligible and DTC has not placed a “freeze” or a “chill” on such securities and the Company has no reason to believe that DTC has any intention to make its common stock not DTC eligible, or place a “freeze” or “chill” on such securities.
4.28. Promotional Stock Activities. Neither the Buyer, its officers, or any affiliates or agents of Buyer have engaged in any stock promotional activity that could give rise to a complaint or inquired by the SEC alleging (i) a violation of the anti-fraud provisions of the federal securities laws, (ii) violations of the anti-touting provisions, (iii) improper “gun-jumping; or (iv) promotion without proper disclosure of compensation.
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4.29. Material Contracts. Schedule 4.29 lists the following contracts and other agreements (“Material Agreements”) to which the Buyer is a party: (i) any agreement (or group of related agreements) for the lease of real or personal property, including capital leases, to or from any person providing for annual lease payments in excess of $25,000; (ii) any licensing agreement, or any agreement forming a partnership, strategic alliances, profit sharing or joint venture; (iii) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money in excess of $10,000, or under which a security interest has been imposed on any of its assets, tangible or intangible; (iv) any profit sharing, deferred compensation, severance, or other material plan or arrangement for the benefit of its current or former officers, directors and managers or any of the Buyer’s employees; (v) any employment or independent contractor agreement providing annual compensation in excess of $10,000 or providing post-termination or severance payments or benefits or that cannot be cancelled without more than thirty (30) days’ notice; (vi) any agreement with any current or former officer, director, shareholder, members, manager or affiliate of the Buyer; (vii) any agreements relating to the acquisition (by merger, purchase of units or assets or otherwise) by the Buyer of any operating business or material assets or the capital stock of any other person; (viii) any agreements for the sale of any of the assets of the Buyer, other than in the ordinary course of business; (ix) any outstanding agreements of guaranty, surety or indemnification, direct or indirect, by the Buyer; (x) any royalty agreements, licenses or other agreements relating to Intellectual Property (excluding licenses pertaining to “off-the-shelf” commercially available software used pursuant to shrink-wrap or click-through license agreements on reasonable terms for a license fee of no more than $10,000); and (xi) any other agreement under which the consequences of a default or termination could reasonably be expected to have a Material Adverse Effect on the Buyer including any customer agreements.
(a) The Buyer has made available to Company either an original or a correct and complete copy of each written Material Agreement. With respect to each Material Agreement to which the Company is a party thereto: (i) the agreement is the legal, valid, binding, enforceable obligation of the Company and is in full force and effect in all material respects, subject to bankruptcy and equitable remedies exceptions; (ii) (A) the Company is not in material breach or default thereof and (B) no event has occurred which, with notice or lapse of time, would constitute a material breach or default of, or permit termination, modification, or acceleration under, the Material Agreement; and (iii) the Company has not repudiated any material provision of the agreement.
4.30 Organizational Documents. Buyer has delivered in electronic form, hard copy or made available to the Company a true and correct copy of the Articles of Incorporation, as amended and Bylaws, as amended of Buyer and any other organizational documents of Buyer, each as amended, and each such instrument is in full force and effect as of the Closing Date (the “Organizational Documents”). Buyer is not in violation of any of the provisions of its Organizational Documents. Buyer has also delivered or made available to the Company a true and correct copy of the minute book as applicable of Buyer as is in full force and effect as of the Closing Date (the “Minute Book”). All information contained in the Minute Book has not been revoked as of the Closing Date.
4.31. Stock Option Plans. Except as set forth on Schedule 4.31, each stock option granted by the Buyer under any Buyer’s stock option or equity incentive plan was granted (i) in accordance with the terms of such plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Buyer’s stock option plan has been backdated. The Buyer has not knowingly granted, and there is no and has been no Buyer policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Buyer or its Subsidiaries or their financial results or prospects.
4.32 Solvency. Based on the consolidated financial condition of the Buyer as of the Closing Date: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Buyer’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Buyer’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Buyer, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Buyer, together with the proceeds the Buyer would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Buyer does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Buyer has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.
4.33. Registration Rights. No Person has any right to cause the Buyer or any Subsidiary to effect the registration under the Securities Act of any securities of the Buyer or any Subsidiary.
4.33. Full Disclosure. All of the representations and warranties made by Buyer in this Agreement, including the Buyer Disclosure Schedules attached hereto, and all statements set forth in the certificates delivered by Buyer at the Closing pursuant to this Agreement, are true, correct and complete in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make such representations, warranties or statements, in light of the circumstances under which they were made, misleading. The copies of all documents furnished by Buyer pursuant to the terms of this Agreement are complete and accurate copies of the original documents. The schedules, certificates, and any and all other statements and information, whether in written or electronic form, to the Company or its representatives by or on behalf of Buyer or their Affiliates in connection with the negotiation of this Agreement and the transactions contemplated hereby do not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading.
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ARTICLE V
COVENANTS OF THE COMPANY
5.1. Conduct of the Company Business. From the date of this Agreement and until the Closing Date, or until the prior termination of this Agreement, the Company shall not, unless agreed to in writing by Buyer:
(a) engage in any transaction, except in the normal and ordinary course of business, or create or suffer to exist any lien or other encumbrance upon any of its assets or which will not be discharged in full prior to the Closing Date;
(b) sell, assign or otherwise transfer any of its assets, or cancel or compromise any debts or claims relating to its assets, other than for fair value, in the ordinary course of business, and consistent with past practice;
(c) fail to use reasonable efforts to preserve intact its present business organizations, keep available the services of its employees and preserve its material relationships with customers, suppliers, licensors, licensees, distributors and others, to the end that its good will and ongoing business not be impaired prior to the Closing Date;
(d) intentionally permit any Material Adverse Effect to occur with respect to the Company;
(e) make any material change in its accounting or bookkeeping methods, principles or practices, except as required by GAAP; or
(f) authorize any, or commit or agree to take any of, the foregoing actions.
5.2. Satisfaction of Conditions Precedent. From and after the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, the Company will use its commercially reasonable efforts to satisfy or cause to be satisfied all the conditions precedent that are set forth in ARTICLE VIII, and the Company will use its commercially reasonable efforts to cause the transactions contemplated by this Agreement to be consummated.
5.3. No Other Negotiations. As of the date of this Agreement, the Company has not entered into any agreement or understanding with, and is not engaging in any discussions with any third party concerning an Alternative Acquisition including, without limitation, any agreement or understanding that would require the Buyer to notify any third party of the terms of this Agreement. From and after the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, neither the Buyer nor the Company shall, directly or indirectly, (a) initiate, solicit, encourage, negotiate, accept or discuss any transaction or series of transactions with any Person, other than Buyer and its Affiliates involving any Alternative Acquisition, (b) provide information with respect to either Party to any Person, other than in connection with this Agreement, relating to a possible Alternative Acquisition by any Person, (c) enter into an agreement with any Person providing for a possible Alternative Acquisition, or (d) make or authorize any statement, recommendation or solicitation in support of any possible Alternative Acquisition by any Person, other than by Buyer and its Affiliates.
If either party receives any unsolicited offer, inquiry or proposal to enter into discussions or negotiations relating to an Alternative Acquisition, or that could reasonably expected to lead to an Alternative Acquisition, or any request for nonpublic information relating to the Company, the Company shall promptly notify Buyer thereof, including information as to the identity of the party making any such offer, inquiry or proposal and the specific terms of such offer, inquiry or proposal, as the case may be, and shall keep Buyer promptly informed of any developments with respect to same.
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5.4. Access. The Company shall afford to Buyer, and to the officers, employees, accountants, counsel, financial advisors and other representatives of Buyer, reasonable access during normal business hours during the period prior to the Closing Date or the termination of this Agreement to all of the Company’s properties, books, contracts, commitments, personnel and records and, during such period, the Company shall furnish promptly to Buyer, (a) a copy of each report, schedule, and other documents filed by it during such period pursuant to the requirements of federal or state securities Laws and (b) all other information concerning its business, properties and personnel as Buyer or its representatives may reasonably request.
5.5. Notification of Certain Matters. The Company shall give prompt notice to Buyer of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would cause any Company representation or warranty contained in this Agreement to be untrue or inaccurate at or prior to the Closing Date and (ii) any failure of the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.5 shall not limit or otherwise affect the remedies available hereunder to Buyer.
5.6. Audit Requirement. The Company shall use commercially reasonable efforts to undertake an audit of its financial statements required to be included in the Buyer SEC Reports to be filed with the SEC after the Closing Date in accordance with the rules and regulations promulgated by the SEC (the “Audit Deadline”). Buyer and the Company shall act in good faith and take such further assurances as are necessary to comply with the requirements set forth in this Section to meet the Audit Deadline.
ARTICLE VI
COVENANTS OF THE BUYER
6.1. Conduct of the Buyer Business. From the date of this Agreement and until the Closing Date, or until the prior termination of this Agreement, the Buyer shall not, unless agreed to in writing by the Company:
(a) engage in any transaction, except in the normal and ordinary course of business, or create or suffer to exist any lien or other encumbrance upon any of its assets or which will not be discharged in full prior to the Closing Date;
(b) sell, assign or otherwise transfer any of its assets, or cancel or compromise any debts or claims relating to its assets, other than for fair value, in the ordinary course of business, and consistent with past practice;
(c) fail to use reasonable efforts to preserve intact its present business organizations, keep available the services of its employees and preserve its material relationships with customers, suppliers, licensors, licensees, distributors and others, to the end that its good will and ongoing business not be impaired prior to the Closing Date;
(d) intentionally permit any Material Adverse Effect to occur with respect to the Buyer;
(e) make any material change in its accounting or bookkeeping methods, principles or practices, except as required by GAAP; or
(f) authorize any, or commit or agree to take any of, the foregoing actions.
6.2 Access. Buyer shall afford to the Company and to the officers, employees, accountants, counsel, financial advisors and other representatives of the Company reasonable access during normal business hours during the period prior to the Closing Date or the termination of this Agreement to all of the Buyer’s properties, books, contracts, commitments, personnel and records and, during such period, the Buyer shall furnish promptly to the Company, (a) a copy of each report, schedule, registration statements and other documents filed by it during such period pursuant to the requirements of federal or state securities Laws and (b) all other information concerning its business, properties and personnel as the Company or its representatives may reasonably request.
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6.3. No Other Negotiations. As of the date of this Agreement, the Buyer has not entered into any agreement or understanding with, and is not engaging in any discussions with any third party concerning an Alternative Acquisition including, without limitation, any agreement or understanding that would require the Buyer to notify any third party of the terms of this Agreement. From and after the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, neither the Buyer nor the Company shall, directly or indirectly, (a) initiate, solicit, encourage, negotiate, accept or discuss any transaction or series of transactions with any Person, other than Buyer and its Affiliates involving any Alternative Acquisition, (b) provide information with respect to either Party to any Person, other than in connection with this Agreement, relating to a possible Alternative Acquisition by any Person, (c) enter into an agreement with any Person providing for a possible Alternative Acquisition, or (d) make or authorize any statement, recommendation or solicitation in support of any possible Alternative Acquisition by any Person, other than by Buyer and its Affiliates.
If either party receives any unsolicited offer, inquiry or proposal to enter into discussions or negotiations relating to an Alternative Acquisition, or that could reasonably expected to lead to an Alternative Acquisition, or any request for nonpublic information relating to the Company, the Company shall promptly notify Buyer thereof, including information as to the identity of the party making any such offer, inquiry or proposal and the specific terms of such offer, inquiry or proposal, as the case may be, and shall keep Buyer promptly informed of any developments with respect to same.
6.3. Notification of Certain Matters. The Buyer shall give prompt notice to the Company of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would cause any Buyer representation or warranty contained in this Agreement to be untrue or inaccurate at or prior to the Closing Date and (ii) any failure of the Buyer to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available hereunder to the Company.
6.4. Satisfaction of Conditions Precedent. During the term of this Agreement, Buyer will use its commercially reasonable efforts to satisfy or cause to be satisfied all the conditions precedent that are set forth in Article 8, and Buyer will use its commercially reasonable efforts to cause the transactions contemplated by this Agreement to be consummated.
6.5. Delivery of Certificates for Exchange Shares. As soon as practicable after the Closing Date, the Buyer shall deliver or cause to be delivered to the Shareholder certificates for the Exchange Shares.
6.6. Filing of Schedule 14f-1. Buyer shall as promptly as practicable after the Closing Date, file the Schedule 14f-1 with the SEC with respect to the transactions described in this Agreement. As soon as practicable on or after the Closing Date, Seller shall provide all information to Buyer as reasonably required in order to file the Schedule 14f-1 with the SEC.
6.7. Bank Accounts. On the Closing Date, Buyer shall take appropriate steps to transfer all cash on hand and maintained in the bank accounts identified in Schedule 4.22 to one bank account as identified on Schedule 4.22 and wire all cash to a bank account of the Company as designed in writing between the parties. Following execution of this Agreement, Buyer shall take all necessary steps, as soon as commercially practicable after the Closing Date, to close all bank accounts in the name of Buyer and shall provide evidence of such closures to the Company, in form and substance reasonably acceptable to the Company. In addition, following the execution of this Agreement, any check, withdrawal, wire or other deduction from any Buyer bank account shall require the approval and signature of Philip Falcone, or such other representative of the Company as may be identified on or after the date of this Agreement.
6.8. Effectiveness of Buyer Shareholder Approval. As soon as commercially practicable after Closing, Buyer shall file a Schedule 14C in connection with the approval by the majority shareholders of the Buyer of the increase in the amount of authorized Common Stock to 5,000,000,000 shares and the change in the corporation’s name to Sovryn TV Holdings, Inc.
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6.9 Post-Closing Actions. The Buyer shall execute and deliver the documents and complete the tasks set forth in this Section as soon as reasonably practicable and in each case no later than the time limit specified in this Section or such longer time as the Company may agree in its sole discretion:
(a) The Buyer and Jeffrey Canouse shall take all such further assurances and provide such further documentation not later than ten (10) calendar days after the Closing, in form and substance satisfactory to the Company, to transfer all shares of Series B Preferred Stock of Buyer currently held by Mr. Canouse into the such names and the Buyer shall designate. In addition, the Buyer and Jeffrey Canouse shall take all such further assurances and provide such further documentation not later than five (5) calendar days after the Closing, in form and substance satisfactory to the Company, to enter into an agreement, effective as of the Closing Date, for the provision of services to the Company as Chief Compliance Officer in consideration for the issuance of 1,500,000 shares of common stock of the Buyer.
(b) The Buyer shall take all such further assurances and provide such further documentation not later than ten (10) calendar days after the Closing, in form and substance satisfactory to the Company, showing evidence as to (i) the cancellation of the Series A Preferred Stock and (ii) the creation of the Buyer Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, including, but not limited to, the filing of the certificate of designations for the Buyer Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock with the Nevada Secretary of State.
ARTICLE VII
COVENANTS OF BUYER, THE SHAREHOLDERS AND THE COMPANY
7.1. Notices of Certain Events. The Company and Buyer shall promptly notify each party of:
(a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced or, to its Knowledge, threatened against, relating to or involving or otherwise affecting such party that, if pending on the date of this Agreement, would have been required to be disclosed pursuant to Articles 3 or 4 or that relate to the consummation of the transactions contemplated by this Agreement or any other development causing a breach of any representation or warranty made by a party hereunder. Delivery of notice pursuant to this Section 7.1 shall not limit or otherwise affect remedies available to any party hereunder.
7.2. Public Announcements. No party shall have the right to issue any press release or other public statement with respect to this Agreement or the transactions contemplated herein without the prior written consent of each other party (not to be unreasonably withheld, delayed, denied or conditioned), except as required by Law.
7.3. Transfer Taxes. Buyer and the Company shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the transactions contemplated hereby that are required or permitted to be filed on or before the Closing Date. Buyer and the Company agree that the Company will pay any real property, transfer or gains tax, stamp tax, stock transfer tax, or other similar tax imposed on the transactions contemplated by this Agreement or the surrender of the Shares pursuant thereto (collectively, “Transfer Taxes”), excluding any Transfer Taxes as may result from the transfer of beneficial interests in the Shares other than as a result of the transactions contemplated under this Agreement, and any penalties or interest with respect to the Transfer Taxes. The Company agrees to cooperate with Buyer in the filing of any returns with respect to the Transfer Taxes.
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7.4. Reasonable Efforts. The parties further agree to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, and to satisfy all conditions to, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including (i) the obtaining of all other necessary actions or nonactions, waivers, consents, licenses, Permits, authorizations, Orders and approvals from Governmental Entities and the making of all other necessary registrations and filings, (ii) the obtaining of all consents, approvals or waivers from third parties related to or required in connection with the transactions contemplated by this Agreement or required to prevent a Material Adverse Effect on the Company from occurring prior to or after the Closing Date, (iii) the satisfaction of all conditions precedent to the parties’ obligations hereunder, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement contemplated by, and to fully carry out the purposes of, this Agreement.
7.5. Fees and Expenses. Each party will be responsible for all of the legal, accounting and other expenses incurred by such party hereto in connection with the transactions contemplated by this Agreement.
7.6. Regulatory Matters and Approvals. Each of the Shareholder, the Company and the Buyer will give any notices to, make any filings with, and use its commercially reasonable efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters contemplated by this Agreement.
7.7 Post-Closing Financing. Within 30 days of the Closing Date, the parties will use commercially reasonable efforts to consummate an equity (or equity-linked) financing of the Buyer which results in aggregate gross proceeds of at least Three Million Dollars (US$3,000,000.00) (the “Financing”) on such terms as may be agreed upon between the parties. The Financing shall be based upon an enterprise value of not less than $45,000,000.00.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1. Condition to Obligation of Each Party to Effect the Exchange. The respective obligations of Buyer, each Shareholder and the Company to consummate the transactions contemplated herein are subject to the satisfaction or waiver in writing at or prior to the Closing Date of the following conditions.
(a) No Injunctions. No temporary restraining Order, preliminary or permanent injunction issued by any court of competent jurisdiction preventing or prohibiting the consummation of the transactions contemplated by this Agreement contemplated herein shall be in effect; provided, however, that each of Buyer and the Company shall have used its commercially reasonable efforts to prevent the entry of such Orders or injunctions and to appeal as promptly as possible any such Orders or injunctions and to appeal as promptly as possible any such Orders or injunctions that may be entered.
(b) Director and Officer Appointments. As of the Closing Date, the Company shall have received evidence showing that on or prior to the Closing Date, the current board of directors of the Buyer has adopted resolutions setting the number of directors at three (3) and appointing the persons identified on Annex B hereto and accepting the resignations of the persons identified on Schedule A hereto from the board of directors of the Buyer, which appointments and resignations will be effective on the later of (1) the Closing Date, or (2) the eleventh (11th) calendar day on which the Buyer meets its information obligations under the Exchange Act, including the filing and mailing of the Schedule 14f-1 set forth in Section 6.6 above;.
8.2. Additional Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement are also subject to the satisfaction or waiver in writing at or prior to the Closing Date of the following conditions.
(a) Representations and Warranties. The representations and warranties of the Company and each Shareholder contained in this Agreement and in any certificate or other writing delivered to Buyer pursuant hereto shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of the Closing Date, and Buyer shall have received a certificate to such effect signed by the President and the Chief Executive Officer of the Company.
(b) Agreements and Covenants. The Company and each Shareholder shall have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date, and Buyer shall have received a certificate to such effect signed by the President and Chief Executive Officer of the Company.
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(c) Consents Obtained. All consents, waivers, approvals, authorizations or Orders required to be obtained, and all filings required to be made, by the Company for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby shall have been obtained and made by the Company, except for such consents, waivers, approvals, authorizations and Orders, and such filings, which would not be reasonably likely to have a Material Adverse Effect on the Company.
(d) Absence of Material Adverse Effect. Since the date of this Agreement, there shall not have been any Material Adverse Effect on the Company other than any change that shall result from general economic conditions or conditions generally affecting the industry in which the Company conducts operations.
8.3. Additional Conditions to Obligations of the Company and the Shareholders. The obligations of the Company and each Shareholder to consummate the transactions contemplated by this Agreement are also subject to the satisfaction or waiver in writing at or prior to the Closing Date of the following conditions.
(a) Representations and Warranties. The representations and warranties of Buyer contained in this Agreement and in any certificate or other writing delivered to the Company pursuant hereto shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect signed by the President and the Chief Executive Officer of Buyer.
(b) Agreements and Covenants. Buyer shall have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date, and the Company shall have received a certificate to such effect signed by the President and Chief Executive Officer of Buyer.
(c) Exchange Indebtedness. Evidence satisfactory to the Company as to the exchange of all outstanding indebtedness of the Buyer identified on Schedule 4.22 and all shares of Series A Preferred Stock for up to 230,000 shares of Buyer Series D Preferred Stock on such terms as reasonably satisfactory to the Company.
(d) Consents Obtained. All consents, waivers, approvals, authorizations or Orders required to be obtained, and all filings required to be made, by Buyer for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby shall have been obtained and made by Buyer, except for such consents, waivers, approvals, authorizations and Orders, and such filings, which would not be reasonably likely to have a Material Adverse Effect on Buyer.
(e) Absence of Material Adverse Effect. Since the date of the this Agreement, there shall not have been any Material Adverse Effect on Buyer, other than any change that shall result from general economic conditions or conditions generally affecting the industry in which Buyer conducts operations.
(f) Resignations. The current officers and directors of Buyer shall submit written resignations from their respective positions with Buyer and Buyer shall provide copies of such resignations to the Company.
(g) Due Diligence. The Company and the Shareholders shall be satisfied with its due diligence investigations.
(h) Conversion of Series C Preferred Stock. Evidence satisfactory to the Company as to the conversion of all outstanding shares of Series C Preferred Stock into 1,000,000 shares of Buyer Common Stock.
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ARTICLE IX
TERMINATION; SURVIVAL
9.1. Termination. This Agreement may be terminated at any time prior to the Closing Date:
(a) by mutual written agreement of the Company and Buyer duly authorized by the Boards of Directors of the Company and Buyer;
(b) by either the Company or Buyer, if the other party (which, in the case of Company, shall mean Company or any Shareholder) has breached any representation, warranty, covenant or agreement of such other party set forth in this Agreement and such breach has resulted or can reasonably be expected to result in a Material Adverse Effect on such other party or would prevent or materially delay the consummation of the transactions contemplated by this Agreement;
(c) by any party, if all the conditions to the obligations of such party for Closing the transactions contemplated by this Agreement shall not have been satisfied or waived on or before the Final Date (as defined below) other than as a result of a breach of this Agreement by the terminating party; or
(d) by any party, if a permanent injunction or other Order by any Federal or state court which would make illegal or otherwise restrain or prohibit the consummation of the transactions contemplated by this Agreement shall have been issued and shall have become final and nonappealable.
As used herein, the “Final Date” shall be February 28, 2021.
9.2. Notice of Termination. Any termination of this Agreement under Section 9.1 above will be effective immediately upon by the delivery of written notice of the terminating party to the other parties hereto specifying with reasonable particularity the reason for such termination.
9.3. Effect of Termination. In the case of any termination of this Agreement as provided in this Section 9, this Agreement shall be of no further force and effect and nothing herein shall relieve any party from liability for any breach of this Agreement.
9.4. Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and agreements in this Agreement shall survive the Effective Time. This Section 9.4 shall have no effect upon any other obligations of the Parties hereto, whether to be performed before or after the consummation of the transactions contemplated by this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1. Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given (i) when delivered personally to the recipient, (ii) when sent by electronic mail, on the date of transmission to such recipient; provided, that such notice, request, demand, claim or other communication is also sent to the recipient pursuant to clauses (i), (iii) or (iv) of this Section, (iii) one Business Day after being sent to the recipient by reputable overnight courier service (charges prepaid), or (iv) four (4) Business Days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and, in each case, addressed to the intended recipient at its address specified on the signature page hereof or to such electronic mail address or address as subsequently modified by written notice given in accordance with this Section. A courtesy electronic copy of any notice sent by methods (i), (iii), or (iv) above shall also be sent to the recipient via electronic mail if provided in the applicable signature page hereof or to an electronic mail address as subsequently modified by written notice given in accordance with this Section. All communications shall be sent to the parties at the following information specified below (or at such other information for a party as shall be designated in advance written notice to the other parties hereto):
| (a) | If to Buyer: | |
Madison Technologies, Inc. 240 Vaughan Drive Suite 200 Alpharetta, GA 30009 Attention: Jeffrey Canouse, CEO Email: |
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with a copy to (which shall not constitute notice):
Stout Law Group, P.A. 201 International Circle, Suite 230 Hunt Valley, MD 21030 Attn: Matheau J. W. Stout, Esq. Email: mjwstout@gmail.com |
| (b) | If to the Company or Shareholders: | |
Sovryn Holdings, Inc. 450 Park Avenue New York, NY 10017 Attention: Philip Falcone, CEO Email:
with a copy to (which shall not constitute notice):
Sheppard, Mullin, Richter & Hampton LLP 30 Rockefeller Plaza, 39th Floor New York, New York 10112 Attn: Richard A. Friedman, Stephen Cohen Email: rafriedman@sheppardmullin.com, scohen@sheppardmullin.com |
10.2. Amendment. To the extent permitted by Law, this Agreement may be amended by a subsequent writing signed by each of the parties.
10.3. Waiver. At any time prior to the Closing, any party hereto may with respect to any other party hereto (a) extend the time for performance of any of the obligations or other acts, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.
10.4. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other rights. Except as otherwise provided hereunder, all rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
10.5. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
10.6. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible, in a mutually acceptable manner, to the end that transactions contemplated hereby are fulfilled to the extent possible.
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10.7. Entire Agreement. This Agreement (including the Company Disclosure Schedule and the Buyer Disclosure Schedule together with the Transaction Documents and the exhibits and schedules attached hereto and thereto and the certificates referenced herein) constitutes the entire agreement and supersedes all prior agreements and undertakings both oral and written, among the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein.
10.8. Assignment. No party may assign this Agreement or assign its respective rights or delegate their duties (by operation of Law or otherwise), without the prior written consent of the other parties, provided however the parties may assign this agreement to an Affiliate or successor-in-interest to all or substantially all of such respective party’s business provided such party agrees to be bound by the terms and conditions of this Agreement. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.
10.9. No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their permitted assigns and respective successors, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, including, without limitation, by way of subrogation.
10.10. Governing Law; Submission of Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Nevada without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF NEVADA IN EACH CASE LOCATED IN THE STATE OF NEVADA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.11. Counterparts. This Agreement may be executed and delivered in one or more counterparts (including by facsimile or electronic mail (including .pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method) and by different parties in separate counterparts, with the same effect as if all parties hereto had signed the same document. All counterparts so executed and delivered shall be construed together and shall constitute one and the same agreement.
10.12. Attorneys’ Fees. If any action or proceeding relating to this Agreement, or the enforcement of any provision of this Agreement is brought by a party hereto against any party hereto, the prevailing party shall be entitled to recover reasonable attorneys’ fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled).
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10.13. Representation. Each party to this Agreement, severally, and not jointly and only as to itself, represents that it: (a) has been represented in connection with the negotiation and preparation of this Agreement by counsel of that party’s choosing; (b) has authority to enter into and sign the Agreement; and (c) enters into and signs the same by its own free will.
10.14. Interpretation. For purposes of this Agreement, references to the masculine gender shall include feminine and neuter genders and entities. Where a reference in this Agreement is made to a Section, Exhibit or Disclosure Schedule, such reference shall be to a Section of, Exhibit to or Disclosure Schedule of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” References to a “party” or “parties” shall mean Buyer, the Company and/or Shareholder, as applicable. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to “this Agreement” shall include the Company Disclosure Schedule and the Buyer Disclosure Schedule.
10.15. Specific Performance. The parties hereto agree that irreparable damage may occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that monetary damages or other legal remedies would not be an adequate remedy for such damage. It is accordingly agreed that the parties hereto shall be entitled to seek equitable relief, including in the form of an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which such party is entitled at law, in equity, in contract, in tort or otherwise. The parties hereto acknowledge and agree that they shall be entitled to specifically enforce the provisions of this Agreement on the terms and subject to the conditions set forth herein. The parties hereto further acknowledge and agree: (x) to waive any requirement for the security or posting of any bond in connection with any such equitable remedy; (y) not to assert that a remedy of specific enforcement pursuant to this Section is unenforceable, invalid, contrary to applicable law or inequitable for any reason; and (z) to waive any defenses in any action for specific performance, including the defense that a remedy at law would be adequate.
10.16. Further Assurances. Each of the parties hereto will co-operate with the others and execute and deliver to the other parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purposes of this Agreement.
[Remainder of Page Intentionally Left Blank; Signature Pages to Follow]
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IN WITNESS WHEREOF, each of the parties has executed or caused this Share Exchange Agreement to be executed as of the date first written above.
| Buyer: | ||
| MADISON TECHNOLOGIES, INC., a Nevada corporation | ||
| By: | ||
| Name: | Jeffrey Canouse | |
| Title: | Chief Executive Officer | |
| Company: | ||
| SOVRYN HOLDINGS, INC., a Delaware corporation | ||
| By: | ||
| Name: | Philip Falcone | |
| Title: | Chief Executive Officer | |
[Signature Page to Share Exchange Agreement]
| KORR VALUE, LP | ||
| By: KORR Acquisitions Group, Inc, its general partner | ||
| Name: | Kenneth Orr | |
| Title: | President | |
| FFO 1 2021 IRREVOCABLE TRUST | ||
| Name: | Philip Falcone | |
| Title: | Trustee | |
| FFO 2 2021 IRREVOCABLE TRUST | ||
| Name: | Philip Falcone | |
| Title: | Trustee | |
EXHIBIT A
| Name of Shareholder | Ownership of Company Common Stock | Number of Shares of Series B Preferred Stock to be Issued | Number of Shares of Series E Preferred Stock to be Issued | |||||||||
| FFO 1 2021 Irrevocable Trust | 400,000 | 100 | 400 | |||||||||
| FFO 2 2021 Irrevocable Trust | 400,000 | 400 | ||||||||||
| KORR Value, LP | 200,000 | 200 | ||||||||||
| Total | 1,000,000 | 100 | 1,000 | |||||||||
[Exhibit A – Shareholder List]
ANNEX A
CERTAIN DEFINITIONS
The following terms, as used in the Agreement, have the following meanings:
“Affiliate(s)” shall have the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act.
“Alternative Acquisition” means any recapitalization, restructuring, financing, merger, consolidation, sale, license or encumbrance or other business combination transaction or extraordinary corporate transaction of the Company or the Buyer (as applicable) which would or could reasonably be expected to impede, interfere with, prevent or materially delay the transactions contemplated by this Agreement, including a firm proposal to make such an acquisition.
“Assets” of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person’s business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located.
“Buyer Disclosure Schedule” shall mean the written disclosure schedule delivered on or prior to the date hereof by Buyer to the Company that is arranged in paragraphs corresponding to the numbered and lettered paragraphs corresponding to the numbered and lettered paragraphs contained in the Agreement.
“Code” means the Internal Revenue Code of 1986, as amended.
“Contract” means any written or oral agreement, arrangement, commitment, contract, indenture, instrument, lease, obligation, plan, restriction, understanding or undertaking of any kind or character, or other document to which any Person is a party or by which such Person is bound or affecting such Person’s capital stock, Assets or business.
“Default” means (i) any breach or violation of or default under any Contract, Order or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of or default under any Contract, Order or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right to terminate or revoke, change the current terms.
“Environmental Laws” mean any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, Permits, concessions, grants, franchises, licenses, agreements and governmental restrictions, relating to human health, the environment or to emissions, discharges or releases of pollutants, contaminants or other Hazardous Material or wastes into the environment, including without limitation ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or other Hazardous Material or wastes or the clean-up or other remediation thereof.
“GAAP” means U.S. generally accepted accounting principles.
“Governmental Entity” shall mean any government or any agency, bureau, board, directorate, commission, court, department, official, political subdivision, tribunal, or other instrumentality of any government, whether federal, state or local, domestic or foreign.
“Knowledge” means the actual knowledge of the officers of a party, and knowledge that a reasonable person in such capacity should have after due inquiry.
“Law” means any code, law, ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, liabilities or business, including those promulgated, interpreted or enforced by any Governmental Entity.
[Annex A – Definitions]
“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect to such asset.
“Material” and “Materially” for purposes of this Agreement shall be determined in light of the facts and circumstances of the matter in question; provided that any specific monetary amount stated in this Agreement shall determine materiality in that instance.
“Material Adverse Effect” means, with respect to any Person, a material adverse effect on the condition (financial or otherwise), business, Assets, liabilities or the reported or reasonably anticipated future results or prospects of such Person and its Subsidiaries taken as a whole; to be free from doubt, any breach of any agreement between the Company and/or the Shareholders shall be considered a Material Adverse Effect; provided, however, that any adverse change, event, development or effect arising from or relating to any of the following shall not be taken into account in determining whether there has been a Material Adverse Effect: (a) general business or economic conditions, (b) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (c) financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (d) changes in United States generally accepted accounting principles, (e) changes in laws, rules, regulations, orders, or other binding directives issued by any Governmental Entity or (f) the taking of any action required by this Agreement and the other agreements contemplated hereby.
“Order” means any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency or Governmental Entity.
“Person” means an individual, a corporation, a partnership, an association, a trust, a limited liability company or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof.
“Permit” shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, consent, easement, filing, franchise, letter of good standing, license, notice, permit, qualification, registration or right of or from any Governmental Entity (or any extension, modification, amendment or waiver of any of these) to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets or business, or any notice, statement, filing or other communication to be filed with or delivered to any Governmental Entity.
‘SEC” means the Securities and Exchange Commission.
“Subsidiary” means, with respect to any Person, (i) any corporation, limited liability company, association or other business entity of which more than 50% of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof).
“Transaction Documents” means the Agreement, and any other document executed and delivered pursuant hereto together with any exhibits or schedules to such documents.
[Annex A – Definitions]
ANNEX B
Directors to be Appointed
Philip A. Falcone
Warren Zenna
Officers to be Appointed
Philip A. Falcone – CEO/Chairman
Henry Turner – CTO/COO
Resigning Officers and Directors
Jeffrey Canouse, will resign as CEO, but will be appointed
Chief Compliance Officer
[Annex B – Officers and Directors]
Exhibit 3.1
Exhibit 3.7
Exhibit 3.8
Exhibit 3.9
Exhibit 3.11
Exhibit 4.1
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: February 17, 2021
Original Principal Amount: ________
Purchase Price: ________
ORIGINAL ISSUE DISCOUNT SENIOR SECURED
CONVERTIBLE PROMISSORY NOTE
DUE February 17, 2024
THIS ORIGINAL ISSUE DISCOUNT SENIOR SECURED CONVERTIBLE PROMISSORY NOTE is a duly authorized and validly issued debt obligation of Madison Technologies, Inc., a Nevada corporation (the “Company” or the “Borrower”), having its principal place of business at 450 Park Avenue, New York, NY 10022, designated as its Original Issue Discount Senior Secured Convertible Promissory Note due February 17, 2024 (the “Note”).
FOR VALUE RECEIVED, the Company promises to pay to __________ or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of _______ and any other sums due hereunder on February 17, 2024 (the “Maturity Date”), or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
“Alternate Conversion Price” means 75% of the average VWAP of the Common Stock for the five (5) Trading Days on the Trading Market immediately preceding the date of conversion; provided, however, that the Alternate Conversion Price may not exceed $0.015 per share, as adjusted pursuant to the terms hereof.
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“Bankruptcy Event” means any of the following events: (a) any Obligor commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to such Obligor, (b) there is commenced against any Obligor any such case or proceeding that is not dismissed within 60 days after commencement, (c) any Obligor is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) any Obligor suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) any Obligor makes a general assignment for the benefit of creditors, (f) any Obligor calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) any Obligor, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Base Conversion Price” shall have the meaning set forth in Section 5(b).
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which the New York Federal Reserve Bank is closed.
“Buy-In” shall have the meaning set forth in Section 4(c)(v).
“Change of Control Transaction” means the occurrence after the date hereof of any of the following: (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent (50%) of the voting securities of the Company (other than by means of conversion or exercise of the Note), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than fifty-one percent (51%) of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than fifty-one percent (51%) of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.
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“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b). References to “Conversion Price” herein may refer to the Alternate Conversion Price and/or the Base Conversion Price, where appropriate, based on the terms set forth herein.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.
“Distribution” shall have the meaning set forth in Section 5(d).
“Event of Default” shall have the meaning set forth in Section 6(a).
“Late Fees” shall have the meaning set forth in Section 2(d).
“Mandatory Default Amount” means either, at the Holder’s discretion (i) the conversion of the outstanding principal amount of this Note, and, at the Holder’s election, all accrued and unpaid interest hereon, converted at the Alternate Conversion Price, or (ii) the payment of 100% of the outstanding principal amount of this Note and accrued and unpaid interest hereon, in addition to, for both (i) and (ii) above, the payment in cash of all other amounts, costs, expenses and liquidated damages due in respect of this Note and the other Transaction Documents. In the event the Holder makes the election described in (i) above but does not elect to receive Conversion Shares in respect of all accrued and unpaid interest on the Note, all accrued and unpaid interest shall be paid to the Holder in cash no later than the date the Conversion Shares are required to be delivered to the Holder.
“New York Courts” shall have the meaning set forth in Section 8(d).
“Note Register” shall have the meaning set forth in Section 2(c).
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“Original Issue Date” means the date of the first issuance of the Note, as set forth on the first page hereof, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Note.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of February 17, 2021, by and among the Company, the Holder and the other Purchasers from time to time party thereto, as amended, modified or supplemented from time to time in accordance with its terms.
“Purchase Rights” shall have the meaning set forth in Section 5(c).
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“Required Minimum” means, as of any date after receipt of the Shareholder Approval, the number of shares of Common Stock that equals the aggregate number of shares of Common Stock as shall be issuable (taking into account the adjustments of Section 5) upon the conversion of the then outstanding principal amount of the Notes and payment of interest hereunder and thereunder. The initial reserve shall be 1,165,800,000 shares of Common Stock.
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
Section 2. Interest, Prepayment, Redemption and Put Provisions.
a) Payment of Interest in Cash.
i. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of eleven percent (11%) per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Original Issue Date, on each Conversion Date (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash. Upon the occurrence of an Event of Default, the Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of twenty percent (20%) per annum (the “Default Rate”).
ii. Notwithstanding anything to the contrary contained in clause (i) above, at the Company’s election, interest payable on any Interest Payment Date may be paid in registered Common Stock of the Company (rather than cash) in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average VWAP of the Common Stock for the five (5) Trading Days on the Trading Market immediately preceding the date of conversion. Notwithstanding the foregoing, interest at the Default Rate shall not be permitted to be paid in registered Common Stock of the Company, but shall be paid exclusively in cash.
b) Intentionally Omitted.
c) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest shall cease to accrue with respect to any principal amount converted, provided that the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “Note Register”).
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d) All overdue accrued and unpaid interest to be paid hereunder shall incur a late fee at an interest rate equal to the lesser of 20% per annum (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.
e) Optional Redemption. The Company shall not be entitled to redeem the Note.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
b) Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.
c) Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. The Company shall update the Note Register to reflect permitted transferees and assignees of the Note.
Section 4. Conversion.
a) At any time after the Original Issue Date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Note, and amount of accrued and unpaid interest (if any), to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within two Business Days of delivery of such Notice of Conversion, stating the basis of such objection and citing the relevant Section of the Note upon which such objection is based. In the event of any dispute or discrepancy, the Company and the Holder shall work to resolve such dispute or discrepancy to the mutual satisfaction of both parties. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.
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b) Conversion Price. Except as expressly set forth herein, the conversion price in effect on any Conversion Date shall be equal to the lesser of: (i) the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities of the Company that are exercisable for or convertible into such equity securities of the Company) and (ii) $1.00, subject to adjustment herein (the “Conversion Price”). Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion Price in effect shall be equal to the Alternate Conversion Price. If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Price for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the principal amount of this Note to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price. In the event the Borrower has a DTC “Chill” on its shares, the Holder may convert the Note at the Alternate Conversion Price while that “Chill” is in effect. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such measuring period.
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares representing the number of Conversion Shares being acquired upon the conversion of this Note and (B) a bank check in the amount of accrued and unpaid interest (unless the Holder has elected to receive Conversion Shares for the accrued and unpaid interest).
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iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Notice of Conversion, ab initio, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Notice of Conversion.
iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted $5 per Trading Day (increasing to $10 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit the Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
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v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to 100% of the Required Minimum (to be adjusted monthly) for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Note). The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
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viii. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.
d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note or any portion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and the portion of principal amount (and accrued but unpaid interest) of this Note that is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and the portion of principal amount of this Note (and, if applicable, accrued and unpaid interest) that is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice delivered by the Company or the Company’s transfer agent to the Holder setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of the Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation.
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Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Note), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Equity Sales. If, at any time while this Note is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. For the avoidance of doubt, if the Company engages in an at-the-market offering, the Company shall be deemed to have issued Common Stock at the lowest sale price at which the Common Stock was sold in such offering. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price, exercise price or exchange rate (or other price) at which such securities may be converted into or exchangeable or exercised for. The Company shall notify the Holder in writing, no later than 1 Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price (as adjusted in accordance with Section 5)(a)) on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) and Section 5(b) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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d) Pro Rata Distributions. During such time as this Note is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
e) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note consistent with the foregoing provisions and evidencing the Holder’s right to convert such Note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
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f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
g) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified (or such shorter period as is reasonably possible, but not less than ten (10) calendar days, if twenty (20) calendar days is not reasonably possible), a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, or the date on which the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company was authorized, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon any such reclassification, consolidation, merger, sale, transfer, share exchange, or voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K or if it is not subject to the reporting requirements of the Commission, a press release. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
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Section 6. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of the Note or (B) interest, liquidated damages and other amounts owing to the Holder on the Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within five (5) Trading Days;
ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Note (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days after notice of such failure sent by the Holder to the Company and (B) ten (10) Trading Days after the Company has become or should have become aware of such failure;
iii. a breach, default, event of default or the failure observe or perform any covenant or agreement (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which any Obligor is obligated (and not covered by clause (v) below);
iv. any Obligor experiences a Material Adverse Effect;
v. any Person shall breach any agreement delivered to the initial Holder pursuant to Section 2.2 of the Purchase Agreement;
vi. any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect (or, to the extent such representation or warranty is qualified by materiality or Material Adverse Effect, in any respect) as of the date when made or deemed made;
vii. any Obligor shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $100,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being able to be declared to be due and payable prior to the date on which it would otherwise become due and payable;
viii. any Obligor shall be subject to a Bankruptcy Event;
ix. (A) the Common Stock shall not be eligible for listing or quotation for trading, or has been suspended from listing or quotation, on its Principal Market and shall not resume listing or quotation for trading thereon or on any other Trading Market (other than OTC Pink) within three (3) Trading Days, or (B) the transfer of shares of Common Stock through the Depository Trust Company System is no longer available or “chilled”;
x. the Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess of fifty percent (50%) of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);
xi. the Company shall fail for any reason to deliver certificates to the Holder prior to the fifth Trading Day after a Conversion Date or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of the Note in accordance with the terms hereof;
xii. the Company fails to be in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable);
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xiii. the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Borrower or any Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $100,000 individually or in the aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within forty-five (45) days after the date thereof;
xiv. any monetary judgment, writ or similar final process shall be entered or filed against any Obligor or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days;
xv. prior to the payment in full and satisfaction of all amounts owed under this Note, any security interest and Lien purported to be created by any Transaction Document shall cease to be in full force and effect, or shall cease to give the Secured Parties (as defined in the Security Agreement), the Liens, rights, powers and privileges purported to be created and granted under such Transaction Documents (including a perfected first priority security interest in and Lien on all of the Collateral thereunder (except as otherwise expressly provided in such Transaction Document)) in favor of the Secured Parties, or shall be asserted by any Obligor or any Affiliate(s) not to be a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or any such Transaction Document) security interest in or Lien on the Collateral covered thereby;
xvi. the Company shall enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(l0) of the Securities Act;
xvii. the Company shall enter into a Variable Rate Transaction;
xviii. any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s public disclosure of such information on that same date;
xix. the Initial Registration Statement (as defined in the Registration Rights Agreement) shall not have been filed by the Filing Date (as defined in the Registration Rights Agreement) or declared effective by the Commission on or prior to the Effectiveness Date (as defined in the Registration Rights Agreement);
xx. if, during the Effectiveness Period (as defined in the Registration Rights Agreement), either (a) the effectiveness of the Registration Statement lapses for any reason or (b) the Holder shall not be permitted to resell Registrable Securities (as defined in the Registration Rights Agreement) under the Registration Statement for a period of more than 20 consecutive Trading Days or 30 non-consecutive Trading Days during any 12 month period; provided, however, that if the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction and, in the written opinion of counsel to the Company, the Registration Statement would be required to be amended to include information concerning such pending transaction(s) or the parties thereto which information is not available or may not be publicly disclosed at the time, the Company shall be permitted an additional 10 consecutive Trading Days during any 12 month period pursuant to this Section;
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xxi. the closing of the Subsequent Equity Financing does not occur on or prior to the one (1)-month anniversary of the Closing Date;
xxii. the NRJ Acquisition Closing Date does not occur by May 15, 2021 in accordance with the terms of the NRJ Acquisition Agreement (without waiver or amendment of any of the terms thereof; provided, that no Event of Default will occur under this clause (xxii) if on or prior to such date, the Deposit and the Option Payment (each as defined in the NRJ Acquisition Agreement) are returned to the Company by such date and deposited into the Funding Account;
xxiii. any Individual Guarantor shall breach any provision of the Individual Guaranty or the Individual Pledge Agreement;
xxiv. any License shall be cancelled, terminated, rescinded, revoked, suspended, impaired, otherwise finally denied renewal, or otherwise modified in a manner that is adverse in any material respect to the Borrower and its Subsidiaries, or shall be renewed on terms that could, individually or in the aggregate, reasonably be expected to be adverse in any material respect to the Borrower and its Subsidiaries; or any License shall cease to be in full force and effect; or the grant of any License shall have been stayed, vacated or reversed, or modified by judicial or administrative proceedings; or any administrative law judge or other representative of the FCC shall have issued an initial decision in any non-comparative License renewal, License revocation or any comparative (multiple applicant) proceeding to the effect that any License should be revoked or not be renewed; or any other proceeding shall have been instituted by the FCC or shall have been commenced before any court, the FCC or any other regulatory body that could reasonably be expected to result in (A) cancellation, termination, rescission, revocation, impairment, suspension or denial of renewal of a License, (B) a modification of a License or a renewal thereof on terms that could, individually or in the aggregate, reasonably be expected to be adverse in any material respect to the Borrower and its Subsidiaries, or (C) a forfeiture (within the meaning of 47 C.F.R. Section 1.80 of the FCC Regulations) of any License;
xxv. any Operating Agreement shall be revoked or terminated or materially, adversely modified and not replaced by a substitute reasonably acceptable to the Agent within thirty (30) days of such revocation, termination or modification;
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xxvi. the Borrower’s on-the-air broadcast operations at any Station shall be interrupted at any time for more than forty-eight (48) hours, whether or not consecutive, during any period of five (5) consecutive days; or
xxvii. the Company does not receive the Shareholder Approval by May 15, 2021.
b) Remedies Upon Event of Default. If any Event of Default occurs, at the Holder’s election (i) the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become immediately due and payable in cash pursuant to clause (ii) of the definition of Mandatory Default Amount, or (ii) the outstanding principal amount of this Note, and, if elected by the Holder, all accrued and unpaid interest hereon, shall be converted into share of Common Stock at the Alternate Conversion Price pursuant to clause (i) of the definition of Mandatory Default Amount. In the event the Holder makes the election described in clause (ii) of this Section above, but does not elect to receive Conversion Shares in respect of all accrued and unpaid interest on the Note, all accrued and unpaid interest shall be paid to the Holder in cash no later than the date the Conversion Shares are required to be delivered to the Holder. Commencing on the occurrence of any Event of Default and for as long an Event of Default is not cured, the interest rate on this Note as set forth in Section 2 above shall accrue at a rate equal to 20% per annum. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 6(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon; and in addition to any other rights and remedies available to the Holder in an Event of Default, the Conversion Price in effect on any Conversion Date shall be equal to the Alternate Conversion Price, subject to adjustment herein, without any notice or any action taken by the Holder. The Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
Section 7 Negative Covenants. As long as any portion of this Note remains outstanding, unless the Holder shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:
a) except for Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
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b) except for Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, any documents with respect to its Indebtedness, or any contract or other agreement material to its business in any manner that materially and adversely affects any rights of the Holder or amend any provision of the NJR Acquisition Agreement;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire any shares of its Common Stock or Common Stock Equivalents or other equity interests other than as to (i) the Conversion Shares and the Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Note;
e) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Liabilities, and other than regularly scheduled principal and interest payments of Permitted Indebtedness as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;
f) pay cash dividends or distributions on any equity securities of the Company;
g) enter into any transaction with any Affiliate of the Company unless (i) such transaction (A) is in the ordinary course of such Person’s business, (B) is made on an arm’s-length basis on terms no less favorable to such Person than would be obtained in a transaction with a non-Affiliate, (C) expressly approved by a majority of the disinterested directors of the Company, and (D) does not involve the payment or receipt of consideration, or otherwise involve value, in excess of $250,000 and (ii) the Company provides 5 Trading Days prior written notice to the Purchasers thereof;
h) sell, lease or otherwise dispose of any of its assets on or after the Original Issue Date (i) for less than fair market value and at least 75% cash consideration or (ii) having a value in excess of $250,000 during any calendar year;
i) make or suffer to exist any Investments or acquire any assets or business on or after the Original Issue Date (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to become or remain a partner in any partnership or joint venture, except for: (i) Investments in cash equivalents made in the ordinary course of business; (ii) Investments in existing Subsidiaries that have guaranteed the Liabilities and joined the Security Agreement as a debtor pursuant to Section 4.24(b) of the Purchase Agreement; (iii) the acquisition contemplated by the NRJ Acquisition Agreement; and (iv) other Investments approved in writing by the Holder and the other Purchasers;
j) pay any compensation that may be due and payable and/or accrued, whether in cash, in kind or any combination thereof, to its executive officers other than with the proceeds from the issuance of Common Stock of the Company it being understood and agreed that all such compensation shall be on customary terms for companies of a similar size and stage of development);
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k) use any proceeds from the Holder or any other Purchaser to pay any liquidated damages, penalties, fees or other amounts that may be due and payable under the Note;
l) file any registration statement with respect to any securities issued pursuant to the Subsequent Equity Financing or any Indebtedness issued after the date hereof, or otherwise cause such securities to become registered with the SEC or under any state securities laws prior to the registration of the Commitment Shares, the Conversion Shares and the Warrant Shares (or that would have priority in right of sale over the Commitment Shares, the Conversion Shares or the Warrant Shares);
m) make any material change to the nature of its business (as in effect after giving effect to consummation of the transactions contemplated by the NRJ Acquisition Agreement);
n) wind-up, liquidate, or dissolve, or merge, consolidate or amalgamate with any Person;
o) enter into, incur or permit to exist, directly or indirectly, any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of the Company or any of its Subsidiaries to create, incur or permit to exist any Lien upon any of its property or revenues, or that requires the grant of any security for an obligation if security is granted for another obligation, except (i) this Agreement and the other Transaction Documents, and (ii) restrictions or conditions imposed by any agreement relating to Permitted Indebtedness described in clause (iii) of the definition thereof (so long as such restrictions or conditions apply only to the property or assets financed by such Indebtedness);
p) take any action that would cause it become subject to the registration requirements of the Investment Company Act of 1940, as amended; or
q) enter into any agreement with respect to any of the foregoing.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, electronic mail or sent by a nationally recognized overnight courier service, addressed to the Company, at the facsimile number, email address or mailing address set forth on its signature page hereto, or such other facsimile number, electronic mail or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 8(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by electronic mail, by facsimile, or sent by a nationally recognized overnight courier service addressed to the Holder at the email address, facsimile number or address of the Holder appearing on the books of the Company, or if no such email address or facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement, or such other facsimile number, electronic mail or address as the Holder may specify for such purposes by notice to the Company delivered in accordance with this Section 8(a). Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via electronic mail or facsimile prior to 5:30 p.m. (New York City time) on any Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via electronic mail or facsimile on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
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b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.
c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
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e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver by the Company or the Holder must be in writing.
f) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.
h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.
j) Secured Obligation. The obligations of the Company under this Note are secured by all assets of the Company and each Subsidiary pursuant to the Amended and Restated Security Agreement, dated as of February 17, 2021 between the Company, the Subsidiaries of the Company and the Secured Parties (as defined therein).
(Signature Pages Follow)
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.
| MADISON TECHNOLOGIES, Inc. | ||
| By: | ||
| Name: | ||
| Title: | ||
| Mailing Address for Notices: | ||
| Madison Technologies, Inc. | ||
| c/o Harbinger Capital | ||
| 450 Park Avenue | ||
| New York, NY 10022 | ||
| Attention: Phil Falcone | ||
| Email Address for delivery of Notices: | ||
| pfalcone@harbingercapital.com | ||
Signature Page to Note
ANNEX A - NOTICE OF CONVERSION
The undersigned hereby elects to convert principal (and, if applicable, accrued and unpaid interest) under the Original Issue Discount Senior Secured Convertible Promissory Note due February 17, 2024 of Madison Technologies, Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4(d) of this Note, as determined in accordance with such Section.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.
Conversion Information
Date to Effect Conversion: _____________________________________________________
Outstanding Principal Before Conversion: _____________________________________________________
Outstanding Interest Before Conversion: ______________________________________________________
Principal Amount of Note to be Converted: _________________________________________
Interest Amount of Note to be Converted: __________________________________________
Conversion Price Calculations:
Total Shares of Common Stock to be Issued:
Outstanding Principal After Conversion: ___________________________________________
Outstanding Interest After Conversion: ____________________________________________
DWAC Instructions
Broker:
DTC#:
Account:
Account Name: |
Physical Delivery
Issue to:
Address:
|
| Entity Name: | _______________________________ | |
| Signatory Name: | _______________________________ | |
| Title: | _______________________________ | |
| Signature: | _______________________________ |
Schedule 1
CONVERSION SCHEDULE
This Original Issue Discount Senior Secured Convertible Promissory Note due on February 17, 2024 in the original principal amount of _________ is issued by Madison Technologies, Inc., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.
Dated:
Date of Conversion (or
for first entry, |
Amount
of Conversion |
Aggregate
Principal |
Company Attest | |||
Exhibit 4.2
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
MADISON TECHNOLOGIES, INC.
| Warrant Shares: ______________ | Initial Exercise Date: May 17, 2021 |
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after May 17, 2021 (the “Initial Exercise Date”) and on or prior to the close of business at 5:00 p.m. (New York City time) on May 17, 2026 (the “Termination Date) but not thereafter, to subscribe for and purchase from Madison Technologies, Inc., a Nevada corporation (the “Company”), up to _________ shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated February 17, 2021, among the Company and the Purchasers from time to time party thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by electronic (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (“Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within two (2) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Days of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
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b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be equal to (i) 125%, times (ii) the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities of the Company that are exercisable for or convertible into such equity securities of the Company), subject to adjustment herein (the “Exercise Price”), which Exercise Price may be paid on a cashless basis.
c) Intentionally Omitted.
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. Subject to the requirements of applicable law, the Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) the earlier of (A) three (3) Trading Days after the delivery to the Company of the Notice of Exercise and (B) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after the first Business Day after the Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.
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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
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vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.
| -4- |
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. Notwithstanding the foregoing, the provisions of this Section shall not apply to the Reverse Stock Split.
b) Intentionally Omitted.
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (not to be unreasonably withheld, conditioned or delayed) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously publicly disseminate such notice. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
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Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of the Purchase Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
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Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity and/or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, after the consummation of the Reverse Stock Split, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
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j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| MADISON TECHNOLOGIES, INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
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NOTICE OF EXERCISE
To: MADISON TECHNOLOGIES, INC.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of lawful money of the United States.
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
| _______________________________ |
The Warrant Shares shall be delivered to the following DWAC Account Number:
| _______________________________ | ||
| _______________________________ | ||
| _______________________________ |
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
| Name of Investing Entity: ________________________________________________________________________ |
| Signature of Authorized Signatory of Investing Entity: _________________________________________________ |
| Name of Authorized Signatory: ___________________________________________________________________ |
| Title of Authorized Signatory: ____________________________________________________________________ |
| Date: ________________________________________________________________________________________ |
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ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | |
| (Please Print) | |
| Address: | |
| (Please Print) | |
| Phone Number: | |
| Email Address: | |
| Dated: _______________ __, ______ |
| Holder’s Signature: | ||
| Holder’s Address: |
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Exhibit 4.3
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
As of December 31, 2021, Madison Technologies, Inc. (“the Company”) had one class of security registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), its common stock, par value $0.001 per share (the “Common Stock”).
Description of Common Stock
The following description of the Company’s Common Stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”) and the Company’s Bylaws (the “Bylaws”), each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.3 is a part. The Company encourages you to read its Articles of Incorporation, Bylaws, and the applicable provisions of the Nevada Revised Statutes for additional information.
Authorized Capital Shares
As of December 31, 2021, the Company’s authorized capital shares consist of 6,000,000,000 shares of common stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, par value $0.001 per share (“Preferred Stock”), of which 100,000, 100, 10,000, 230,000, 1,000, 1,152,500, 1,000, 4,600 and 39,895 shares of Preferred Stock have been designated as Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock, respectively. As of December 31, 2021, there were 1,599,095,027 shares of Common Stock issued and outstanding and 0, 100, 0, 155,000, 0, 1,152,500, 0, 4,600 and 39,895 shares of Series A Preferred Stock, Series B Preferred Stock Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock, issued and outstanding, respectively.
Voting Rights
Holders of the Company’s Common Stock are entitled to one vote per share on all matters voted on by the Company’s shareholders, including the election of directors. The Company’s Articles of Incorporation and Bylaws do not provide for cumulative voting in the election of directors.
Dividend Rights
Holders of the Company’s Common Stock are entitled, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares ranking in priority to the Common Stock, to receive any dividend declared by the Company’s board of directors.
Liquidation Rights
If the Company is voluntarily or involuntarily liquidated, dissolved or wound-up, the holders of Common Stock will be entitled to receive, after distribution in full of the preferential amounts, if any, all of the remaining assets available for distribution ratably in proportion to the number of shares of Common Stock held by them.
Description of Preferred Stock
Series A Preferred Stock
Holders of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board out of funds legally available therefor, dividends at a rate of three percent (3%) per annum. Each share of Series A Preferred Stock shall be convertible, at the option of the Holder, into 3,420 shares of Common Stock, subject to anti-dilution adjustment if the Company has more than 360,000,000 shares outstanding on a fully diluted basis. Each Holder shall be entitled to the whole number of votes equal to the number of shares of Common Stock into which such holder’s Series A Preferred Stock would be convertible on the record date for the vote or consent of stockholders. The Series A Preferred Stock shall rank senior with respect to all other equity securities upon the liquidation, dissolution and winding up of the Company. At no time may any holder convert into common stock if such conversion would cause the holder to beneficially own more than 9.9% of the Company’s common stock.
Series B Preferred Stock
The Series B Preferred Stock are not entitled to any dividends (unless specifically declared by our Board), but will participate on an as-converted-to-common-stock basis in any dividends to the holders of our common stock. Each share of Series A Preferred Stock shall have the right to vote together with the holders of the Common Stock, as a single class, upon all matters submitted to holders of Common Stock for a vote. The shares of Series B preferred Stock will carry a number of votes equal to 51% of all voting shares of every class, including 51% of all of the issued and outstanding shares of common stock on the date of any shareholder vote, such that such Series B Preferred Stock shall always possess the majority of voting rights.. The Series B Preferred Stock does not have any redemption rights or any conversion rights.
Series C Preferred Stock
Holders of Series C Preferred Stock shall be entitled to receive, when and as declared by the Board out of funds legally available therefor, dividends at a rate of two percent (2%) per annum. Each share of Series A Preferred Stock shall be convertible, at the option of the Holder, into 100 shares of Common Stock. Each Holder shall be entitled to the whole number of votes equal to the number of shares of Common Stock into which such holder’s Series A Preferred Stock would be convertible on the record date for the vote or consent of stockholders. The Series C Preferred Stock shall rank senior with respect to all other equity securities except the Series A Preferred Stock upon the liquidation, dissolution and winding up of the Company. At no time may any holder convert into common stock if such conversion would cause the holder to beneficially own more than 9.9% of the Company’s common stock.
Series D Preferred Stock
The Series D Preferred Stock has a 4.99% conversion cap which may be increased to a maximum of 9.99% by holder by written notice to us. There is a stated value of $3.32 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series D are issued. Series D are ranked as a Senior Preferred Stock and have no voting rights. Each share of Series D Preferred Stock may be converted to 1,000 common shares.
Series E Preferred Stock
There Series E Preferred Stock has a stated value of $1,000 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series E are issued. Series E are ranked as a Senior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series E would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock.. To the extent that Series E votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series E shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series E shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series E are outstanding, we may not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series E or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
On September 16, 2021, the conversion rate for each share of Series E Preferred Stock was amended to equal (i)(a) 56.60% multiplied by, (b) the Fully-Diluted shares as of the Approval Date, divided by (ii) the total number of shares of Series E, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares shall be set as of, and shall not change after the Approval Date. Based on the current fully-diluted shares outstanding, this equates to 2,243,888,889 common shares. The Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all Options outstanding as of such date of exercise, divided by 0.4340.
Series E-1 Preferred Stock
The Series E-1 Preferred Stock has a stated value of $0.87 per share. Each share of Series E-1 Preferred Stock may be converted to 1,000 common shares.Shares of Series E-1Preferred Stock are senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents and pari passu to our other Preferred Stock designations.. It has votes equal to the number of shares of common stock into which the Series E-1 would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series E-1 would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series E-1 votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E-1, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E-1 are entitled to vote on matters with holders of shares of Common Stock and vote together as one class, each share of Series E-1 shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series E-1 shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series E-1 are outstanding, we shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series E-1, (a) alter or change adversely, the powers, preferences or rights given to the Series E-1 or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
Series F Preferred Stock
The Series F Preferred Stock has a stated value of $1 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series F are issued. Shares of Series F Preferred Stock are senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents and pari passu to our other Preferred Stock designations. It has voting rights equal to the number of shares of common stock into which the Series F would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series F would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series F votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series F, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series F are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series F shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series F shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series F are outstanding, we shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series F or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
On September 16, 2021, the conversion rate for each share of Series F Preferred Stock was amended to equal (i)(a) 4.84% multiplied by, (b) the Fully-Diluted shares as of the Approval Date, divided by (ii) the total number of shares of Series F, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares shall be set as of, and shall not change after the Approval Date. Based on the full-diluted shares outstanding, this equates to 192,073,017 shares of Common Stock on the Approval Date. The Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all Options outstanding as of such date of exercise, divided by 0.9516.
Series G Preferred Stock
The Series G Preferred Stock has a 4.99% conversion cap which may be increased to a maximum of 9.9% by holder by written notice to us. There is a stated value of $1,000 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series G are issued. Series G are ranked as a Junior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series G would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series G votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series G, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series G are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series G shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series G shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series G are outstanding, we shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series G, (a) alter or change adversely the powers, preferences or rights given to the Series G or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
On September 16, 2021, the conversion rate for each share of Series G Preferred Stock was amended to equal (i)(a) 6.45% multiplied by, (b) the Fully-Diluted shares as of the Approval Date, divided by (ii) the total number of shares of Series G, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares shall be set as of, and shall not change after the Approval Date. Based on the current fully-diluted shares outstanding, this equates to 255,555,556 shares of common stock on the Approval Date. The Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all Options outstanding as of such date of exercise, divided by 0.9355.
Series H Preferred Stock
The Series H Preferred Stock has a stated value of $1 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series H are issued. Shares of Series H Preferred Stock have no voting rights and are senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents and pari passu to our other Preferred Stock designations. Each share of Series H Preferred Stock may be converted to 1,000 common shares, subject to a maximum ownership limit of 9.99%.
Applicable Anti-Takeover Law
Set forth below is a summary of the provisions of the Company’s Articles of Incorporation and Bylaws that could have the effect of delaying or preventing a change in control of the Company. The following description is only a summary, and it is qualified by reference to the Articles of Incorporation, Bylaws and relevant provisions of the Nevada Revised Statutes.
Board of Directors Vacancies
The Company’s Bylaws authorize only its board of directors to fill vacant directorships. In addition, the number of directors constituting the Company’s board of directors may be set only by resolution of the majority of the incumbent directors.
Special Meeting of Shareholders
The Company’s Bylaws provide that special meetings of its shareholders may be called by the president of the Company, the board of directors, the Chairman of the Board or by shareholders holding not less than one-tenth (1/10) of the voting power of the Company.
Authorized but Unissued Share
The Company’s authorized but unissued shares of Common Stock and Preferred Stock are available for future issuance without shareholder approval and may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger or otherwise.
Transfer Agent and Registrar
The Company’s transfer agent and registrar is Action Stock Transfer whose address is 2469 E. Fort Union Blvd., Suite 214, Salt Lake City, Utah 84121.
Listing
The Company’s Common Stock is listed on OTCQB under the symbol “MDEX.”
Exhibit 10.4
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT (the “Agreement”), dated as of July 20, 2020, by and between Joseph Gallo (“Assignor”) and Jeffrey M. Canouse (“Assignee”).
The Seller is the holder of 6,177,000 shares of common stock (the “Shares”) issued by Madison Technologies, Inc. (the “Company”), in connection with Seller’s role as chief executive officer of the Company (the “Shares”).
Assignor desires to assign Shares to Assignee, and Assignee desires to receive Shares from Assignor. Parties are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the Securities Act of 1933, as amended (the “1933 Act”);
NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. ASSIGNMENT OF SHARES.
a. The date and time of the Assignment of the Shares pursuant to this Assignment shall be no later than July 20, 2020.
2. PARTIES REPRESENTATIONS AND WARRANTIES. The Parties represents and warrants that:
a. Accredited Purchaser; Assignee represents that it is an “Accredited Investor” as defined in Regulation D under the Securities Act of 1933. Assignee reserves the right to transfer the Shares at any time in accordance with Federal and state securities laws.
b. Governmental Review. Assignee understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Shares thereunder.
c. Title. Assignor has good and marketable title to the Shares.
Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL OR STATE COURTS LOCATED IN NEW YORK COUNTY, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT.
Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Assignment Agreement to be duly executed as of the date first above written.
| ASSIGNOR | |
| /s/Joseph Gallo | |
| Joseph Gallo | |
| ASSIGNEE | |
| /s/Jeffrey M. Canouse | |
| Jeffrey M. Canouse |
Exhibit 21
List of Subsidiaries of Madison Technologies, Inc.
| Name | State/Country of Organization or Incorporation | |
| Sovryn Holdings, Inc. | Delaware | |
| CZJ License, Inc. | Nevada |
Exhibit 31
Madison
Technologies Inc.
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Philip Falcone, certify that:
1. I have reviewed this annual report on Form 10-K for the year ending December 31, 2021 of Madison Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 26, 2022 | |
| /s/ Philip Falcone | |
Philip Falcone Chief Executive Officer |
Madison Technologies Inc.
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Philip Falcone, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ending December 31, 2021 of Madison Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 26, 2022 | |
| /s/ Philip Falcone | |
| Philip Falcone Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Madison Technologies Inc. (the “Company”) on Form 10-K for the year ending December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip Falcone, President and Chief Executive Officer of the Company and a member of the Board of Directors, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Philip Falcone | |
Philip Falcone Chief Executive Officer August 26, 2022 |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Madison Technologies Inc. (the “Company”) on Form 10-K for the year ending December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip Falcone, Treasurer and Chief Financial Officer of the Company and a member of the Board of Directors, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Philip Falcone | |
Philip Falcone Chief Financial Officer August 26, 2022 |