Item
1.01 Entry into a Material Definitive Agreement.
DNA
Holdings, LLC Asset Acquisition
Asset
Purchase Agreement
On
February 3, 2023 (the “Closing Date”), SRAX, Inc. (the “Company”) entered into and consummated the transactions
contemplated by the Asset Purchase Agreement (the “APA”) and the related Bill of Sale and Assignment and Assumption Agreement
(the “Assignment Agreement,” and together with the Assignment Agreement, the “Transaction Documents”) with DNA
Holdings, LLC, a limited liability company formed under the laws of the Commonwealth of Puerto Rico (the “Seller”), pursuant
to which, subject to the terms and conditions of the APA, the Seller sold certain assets from its advisory company that is engaged in
the business of, among other things, advising entrepreneurs in connection with capital structuring, marketing, developing decentralized
ecosystems and providing introductions to strategic investors (the “Business”). Specifically, pursuant to the Transaction
Documents, the Company acquired certain assets of the Business (the “Purchased Assets”), including $1,000,000 in cash, crypto
assets, equity investments into three private companies and a customer database from the Seller (the “Acquisition”).
The Seller is managed by The Roundtable LLC, which is managed by Brock Pierce, a member of the Company’s board of directors (the
“Board”). The Acquisition was approved on February 3, 2023, by the Audit Committee of the Board and the Board. Mr. Pierce
did not participate in discussions of the Board about whether to approve the Acquisition, and did not vote on the Acquisition at the
Board meeting. In each case, it was considered that Mr. Pierce is an interested director of the Company. In each case, it also was determined,
among other things, that, notwithstanding that Mr. Pierce is an interested director of the Company, the assets acquired in the Acquisition
constitute fair and adequate consideration for the securities to be issued pursuant to the APA.
Pursuant
to the terms of the APA, at the closing of the Acquisition (the “Closing”), in exchange for the Purchased Assets, which have
an aggregate value of approximately $4,000,000 (excluding the value of the customer database, as the Company is finalizing the valuation
of such asset), the Company issued and delivered to Seller (i) 1,313,127 shares of the Company’s Class A common stock, par
value $0.001 per share (the “Common Stock”), and (ii) 63,743 shares of the Company’s newly designated class of Series
B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”) convertible, subject to the receipt of Stockholder
Approval (as defined below), into an aggregate of 3,059,664 shares of Common Stock (collectively, the “Upfront Shares”).
In addition to the Upfront Shares, the Company delivered into escrow 54,908 shares of Series B Preferred Stock convertible, subject to
receipt of Stockholder Approval and the Deferred Payment (as defined below), into 2,635,591 shares of Common Stock (the “Escrow
Shares,” together with the Upfront Shares, the “Acquisition Shares”).
Pursuant
to the APA, the Upfront Shares were issued and delivered at the Closing Date, subject to the terms of the Lock-Up Agreement (as defined
below). The Escrow Shares were delivered to the Escrow Agent at the closing of the Acquisition, and the Seller received a book-entry
confirmation in its name evidencing the Escrow Shares.
In
accordance with applicable Nasdaq listing rules, the Company plans to obtain stockholder approval to issue the shares of Common Stock
underlying the Series B Preferred Stock so that it may issue shares of Common Stock to the Seller in excess of 1,313,127 shares of Common
Stock, the amount of shares equal to 4.99% of the issued and outstanding Common Stock on the Closing Date (“Stockholder Approval”).
Within thirty (30) days, but not earlier than fifteen (15) business days after Stockholder Approval is obtained, the Seller will prepare
and deliver to the Company a written determination, in the Seller’s sole and absolute discretion, of an amount equal to or less
than $2,000,000 to be paid to the Company, if any (such amount to be paid to the Company, the “Deferred Payment” and such
amount that will not be paid to the Company, the “Uncollected Deferred Payment”). Within five (5) business days of the delivery
of such written determination, subject and upon receipt of the Deferred Payment, the Company and the Seller will instruct the Escrow
Agent to release to the Company such number of Escrow Shares based upon the shares of Common Stock underlying the Series B Preferred
Stock multiplied by the quotient of (i) the outstanding Uncollected Deferred Payment divided by (ii) $2,000,000. The balance of the Escrow
Shares will then be released to the Seller (the “Post-Closing Adjustment”). In the event Stockholder Approval is not received
on or prior to the eighteen (18) month anniversary of the Closing, the Deferred Payment will lapse and the Escrow Shares will all be
released to the Company.
Subject
to certain limitations, the Company and the Seller have agreed to indemnify each other for losses arising from certain breaches of representations
and covenants contained in the APA and certain other Assumed Liabilities, as applicable.
The
APA also contains customary representations and warranties and covenants relating to the Acquisition. These representations, warranties,
covenants and agreements were made only for purposes of the APA and as of the specific dates set forth therein. The representations and
warranties have been qualified by disclosure schedules and are subject to the materiality standards set forth in the APA.
The
foregoing descriptions of the APA and Assignment Agreement are not complete and are qualified in their entirety by reference to the full
text of the APA and Assignment Agreement, copies of which are filed as Exhibits 2.1 and 10.1, respectively, to this Current Report on
Form 8-K and are incorporated herein by reference.
Series
B Preferred Stock Certificate of Designation
The
powers, designations, preferences and other rights of the shares of Series B Preferred Stock are set forth in the Certificate of Designation
establishing the Series B Preferred Stock (the “Certificate of Designations”), filed by the Company with the Delaware Secretary
of State on February 3, 2023, in connection with the Closing. Each share of Series B Preferred Stock shall have an initial Stated Value
of $48.00 per share.
Conversion.
Each share of Series B Preferred Stock is convertible at any time at the option of the holder into shares of Common Stock, provided,
however, that if the Company has not obtained Stockholder Approval, then the holder may not convert any shares of Series B Preferred
Stock. The initial conversion price is $1.00 per share of Common Stock, subject to appropriate adjustment in the event of certain stock
dividends and distributions, stock splits, stock combinations and reclassifications, and other similar events affecting the Common Stock.
Voting
Rights. Except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series B Preferred Stock
has no voting rights.
Fundamental
Transactions. In the event we effect certain mergers, consolidations, sales of substantially all of our assets, tender or exchange
offers, reclassifications or share exchanges in which our common stock is effectively converted into or exchanged for other securities,
cash or property, we consummate a business combination in which another person acquires 50% of the outstanding shares of our common stock,
or any person or group becomes the beneficial owner of 50% of the aggregate ordinary voting power represented by our issued and outstanding
common stock, then, upon any subsequent conversion of the Series B Preferred Stock, the holders of the Series B Preferred Stock will
have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it
had been a holder of the number of shares of Common Stock then issuable upon conversion in full of the Series B Preferred Stock.
Dividends.
Holders of Series B Preferred Stock shall be entitled to receive dividends (on an as-if-converted-to-Common-Stock basis, without regard
to any conversion limitations in the Certificate of Designation) in the same form as dividends actually paid on shares of the Common
Stock when, as and if such dividends are paid on shares of Common Stock.
The
foregoing descriptions of the Certificate of Designation does not purport to be complete and is qualified in its entirety by reference
to the full text of the Certificate of Designation, a copy of which is filed as Exhibit 3.1 to this Current Report on Form 8-K and is
incorporated herein by reference.
Lock-Up
Agreement
In
connection with the Acquisition, the Seller entered into a lock-up agreement (the “Lock-Up Agreement”), whereby the Seller
is restricted for a period of 540 days after the Closing from certain sales or dispositions (including any pledge) of all of the Series
B Preferred Stock and Common Stock held by the Seller or any securities convertible into or exercisable or exchangeable for such securities,
provided, however, that the Seller may sell, in one or a series of open-market transactions, one-third (1/3) of the shares of Common
Stock, including the shares of Common Stock issuable upon conversion of Series B Preferred Stock, received pursuant to the APA as of
February 3, 2023: (i) after 180 days, and (ii) after 360 days. The foregoing restrictions will not apply to certain other transfers customarily
excepted.
The
foregoing description of the Lock-Up Agreement does not purport to be complete and is qualified in its entirety by reference to the full
text of the Lock-Up Agreement, a copy of which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein
by reference.
Amendment
and Waiver Agreements
On
February 3, 2023, the Company entered into an amendment and waiver agreement (the “Amendment and Waiver Agreement”) with
the ATW Fund I, L.P., ATW Master Fund II, L.P. and ATW Opportunities Master Fund II, LP (each, a “Holder” and, collectively,
the “Holders”), pursuant to which the parties agreed to amend or modify certain outstanding agreements to permit the consummation
of the Acquisition and avoid any potential noncompliance or events of default relating to such prior agreements. Unless otherwise noted,
all capitalized terms used below but not defined herein shall have the meaning ascribed to such term in the Amendment and Waiver Agreement.
The
description below of the Amendment and Waiver Agreement is not complete and is qualified in its entirety by reference to the full text
of the Amendment and Waiver Agreement, a copy of which is filed as Exhibit 10.3 to this Current Report on Form 8-K and is incorporated
herein by reference.
Series
A Warrant
Pursuant
to the Amendment and Waiver Agreement, the Company and the Holder of Series A Common Stock Purchase Warrants, issued on October 27, 2017
(the “Series A Warrant”), agreed to amend the exercise price of such warrants from $3.00 per share to $1.00 per share.
The
foregoing description of the Series A Warrants is qualified in its entirety by reference to the full text of the Series A Warrants, a
copy of which is filed as Exhibit 4.02 of the Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”)
on October 27, 2017.
Series
B Warrant
On
November 29, 2018, the Company issued that certain Series B Common Stock Purchase Warrant (as amended, the “Series B Warrants”)
to one of the Holders.
Pursuant
to the Amendment and Waiver Agreement, the Company and the Holder of Series B Common Stock Purchase Warrants (as amended, the “Series
B Warrants”) agreed to amend the exercise price of such warrants from $3.00 per share to $1.00 per share.
The
foregoing description of the Series B Warrants is qualified in its entirety by reference to the full text of the Series B Warrants, a
copy of which is filed as Exhibit 4.01 of the Current Report on Form 8-K filed with the SEC on November 30, 2018.
Debentures
Pursuant
to the Amendment and Waiver Agreement, the Company and the Holder of that certain Original Issue Discount Senior Secured Convertible
Debenture, issued on June 30, 2020, (the “Debenture”) agreed to: (a) amend and restate the definition of “Maturity
Date” of the Debenture from June 30, 2023 to June 30, 2024; (b) amend and restate the definition of “Conversion Price”
in Section 4(b) of the Debenture from $2.69 to $1.00, subject to adjustment as provided for in the Debenture; and (c) waive Section 8(a)(viii)
of the Debenture to avoid an Event of Default, as defined in Section 8(a)(viii) of the Debenture.
The
foregoing description of the Debenture is qualified in its entirety by reference to the full text of the Debenture, a copy of which is
filed as Exhibit 4.01 of the Current Report on Form 8-K filed with SEC on June 30, 2020.
Purchase
Warrant
Pursuant
to the Amendment and Waiver Agreement, the Company and the Holder of that certain Common Stock Purchase Warrant, issued on June 30, 2020
(as amended, the “Purchase Warrant”) agreed to amend the exercise price of such warrants from $2.50 per share to $1.00
per share.
The
foregoing description of the Purchase Warrant is qualified in its entirety by reference to the full text of the Purchase Warrant, a copy
of which is filed as Exhibit 4.02 of the Current Report on Form 8-K filed with the SEC on June 30, 2020.
Revolving
Note
Pursuant
to the Amendment and Waiver Agreement, the Company and the Holder of that certain Revolving Note, issued on August 8, 2022 (the “Note”) agreed
to change the conversion price of such notes from $15.00 to $1.00, subject to adjustments as provided for in the Note.
The
foregoing description of the Note is qualified in its entirety by reference to the full text of the Note, a copy of which is filed as
Exhibit 4.01 of the Current Report on Form 8-K filed with the SEC on August 12, 2022.
Credit
Agreement
Pursuant
to the Amendment and Waiver Agreement, the Company and the Holder of that certain Senior Secured Revolving Credit Facility Agreement,
entered into on August 8, 2022 (the “Credit Agreement”) agreed to amend, modify and waive certain terms and conditions of
the Credit Agreement. Specifically, the Amendment and Waiver Agreement amends the Credit Agreement to, among other things, (i) remove
the obligation of the lender to advance up to an additional $3,870,000; (ii) change the due date of monthly revolving loan payments from
the first day of each month to the fifteenth day of each month; (iii) add the amount of interest payments made in connection with the
fourth and fifth revolving loan payment date to the balance of all amounts owed under the Credit Agreement; (iv) reduce the cash proceeds
amount owed in respect to the sixth monthly revolving loan payment to the Holder from the sale of any marketable securities by the Company
from 15% to 7.5% during the applicable period for such payment; (v) add that in respect to each succeeding monthly revolving loan payment
following the sixth monthly revolving loan payment, the Company shall deliver to Holder an amount of cash proceeds from the sale of any
marketable securities at an amount equal to the greater of (1) an amount equal to 20% of the cash proceeds from any sale of marketable
securities by the Company during the applicable period for such payment and (2) the outstanding principal balance owed under the Credit
Agreement as of the date of such monthly revolving loan payment, divided by the number of remaining monthly payments under the Credit
Agreement; (vi) add that a loan request approval pursuant to the Credit Agreement is further subject to the outstanding principal balance
under the Credit Agreement being less than $3,000,000; and (vii) add that the Company failing to become current with its filing obligations
with the SEC by April 30, 2023, and thereafter failing to comply with its SEC filing obligations for another sixty (60) days beyond any
filing deadline will constitute an Event of Default under the Credit Agreement.
In
addition to the amendments and modifications described above, to avoid the potential breach of a negative covenant set forth on Section
9.3 of the Credit Agreement, the Holder also agreed to waive Section 9.3 of the Credit Agreement pursuant to the Amendment and Waiver
Agreement.
The
foregoing description of the Credit Agreement is qualified in its entirety by reference to the full text of the Credit Agreement, a copy
of which is filed as Exhibit 10.01 of the Current Report on Form 8-K filed with the SEC
on August 12, 2022.