Item 1.01. Entry into a Material Definitive Agreement.
Share Exchange with Kicksend Holdings,
Inc.,
On April 26, 2016, Pocket Games, Inc. (“Pocket
Games” or the “Company”) entered into a securities exchange agreement dated as of April 21, 2016 (the “Exchange
Agreement”) with Kicksend Holdings, Inc., a Delaware corporation (“Kicksend”) and Marlborough Brothers Family
Trust (the “Trust”) regarding the acquisition by the Company from the Trust of 9,000,000 shares of common stock, par
value $0.0001 per share, of Kicksend (the “Kicksend Common Stock”), representing 100% of the issued and outstanding
shares of Kicksend Common Stock.
In exchange for the Kicksend Common Stock,
the Company issued to the Trust an aggregate of 270,000 shares of non-redeemable,
voting
convertible shares of
Series C preferred stock of the Company (the “Company Series C Preferred Stock”), and
a $3,960,000 principal amount of 10% OID convertible note of the Company due March 31, 2019 (the “Company Note” and
together with the 270,000 shares of Series C Preferred Stock, the “Exchange Securities”).
The Company has authorized for issuance an
aggregate of 300,000 shares of Company Series C Preferred Stock. The Company Series C Preferred Stock
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votes on an “as converted” basis with the Company’s
Series A Preferred Stock, Series B Preferred Stock and Common Stock;
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has a stated or liquidation value of ten ($20.00) dollars per share,
or $6,000,000 as to all shares of Company Series C Preferred Stock;
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upon liquidation or a sale of control of the Company ranks equally
with the Company’s existing 480,000 shares of Series B preferred stock, have a $4,800,000 liquidation value (the “Company
Series B Preferred Stock”) and ranks senior to the Company Common Stock; and
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provides that upon the occurrence of a “conversion event”,
the Company Series C Preferred Stock shall
automatically
convert into that number of shares of Company Common Stock
as shall represent 12% of the Company’s “fully-diluted Common Stock” (as defined) on the date of conversion.
Upon the occurrence of a “conversion
event,” the $3,960,000 Company Note issued to the Trust is convertible, at the option of the holder(s), into 7.2% of the
Company’s “fully-diluted common stock (as defined) on the date of conversion.
As applied to Pocket Games, a “conversion
event” is defined as such time as the “market valuation” of the Pocket Games’ Common Stock is equal to
or exceeds $10,000,000. The term “market valuation” is defined as either (a) the product of multiplying 100% of the
outstanding shares of Pocket Games Common Stock by the volume weighted average price per share of the Common Stock, as traded on
the OTC Markets or other national securities exchange, for any 20 consecutive trading days, or (b) as evaluated by an independent
third party investor, chartered financial analyst or investment group.
“Fully-Diluted
Common Stock” means shall mean as at the date that a conversion event shall occur, the sum of (i) all shares of Pocket Games
Common Stock issued and outstanding and (ii) all shares of Pocket Games Common Stock issuable upon conversion, exchange or exercise
of any Common Stock Equivalents of Pocket Games; in each case, immediately
after
giving effect to
the Conversion
Event, including, without limitation, all shares of Common Stock issuable upon full conversion of all of the shares of Pocket Games
Series B Preferred Stock, Pocket Games Series C Preferred Stock and Pocket Games Notes issued under the Exchange Agreement and
the “Merger Agreement” (described below);
provided, however
, that Pocket
Games Fully-Diluted
Common Stock shall
not
mean or include any Common Stock or Common Stock Equivalents of Pocket Games issued or issuable
in connection with (A) the Pocket Games Warrants issued under the Merger Agreement (B) the acquisition of the assets, capital stock
or other equity of any additional Person by Pocket Games, other than the Company, (C) any debt or equity financing provided to
Pocket Games or its subsidiaries prior or subsequent to a Conversion Event, (D) the issuance of Common Stock or Common Stock Equivalents
issued to any employees of Pocket Games or Kicksend or any consultant or other Person or employees thereof (excluding the Trust
or any Affiliates of Pocket Games), whether under an incentive stock option plan or otherwise, in exchange for rendering services
to Pocket Games or the Company; as a result of which the issuance(s) of any Common Stock or Common Stock Equivalents under clauses
(A), (B), (C) or (D) shall dilute the equity interests of all holders of Pocket Games Common Stock and all holders of Pocket Games
Series C Preferred Stock, Pocket Games Notes and Pocket Games Warrants on an equitable and pro-rata basis.
Pocket Games consummated its acquisition of
the 9,000,000 shares of Kicksend Common Stock and issued the Exchange Securities to the Trust on April 27, 2016.
In a related transaction, on April 26, 2016,
the Company and K-Send Acquisition Corp., a newly formed Delaware acquisition subsidiary, entered into an agreement and plan of
merger with Kicksend which contemplates the merger of K-Send Acquisition Corp. with and into Kicksend, with Kicksend as the surviving
corporation of the merger. As sole consideration for the merger, the former holders of 11% $800,000 of Kicksend installment notes
(the “Kicksend Notes”) received in the merger,
(a) 30,000 shares of Company Series C Preferred
Stock that automatically converts into an additional 1.2% of the Company’s fully-diluted Common Stock upon the occurrence
of a “conversion event” (as defined above),
(b) $440,000 in Pocket Games Notes, and
(c) a warrant to purchase that number of shares
of Company Common Stock equal to 11.1% of the number of shares of Company Common Stock issuable to the Trust upon conversion of
its Series C Preferred Stock and Pocket Games Notes issued under the Exchange Agreement at an exercise price of $0.0001 per share.
Upon the occurrence of a Pocket Games “conversion
event,” the $440,000 Pocket Games Notes issued to the former holders of Kicksend Notes are convertible, at the option of
the holder(s), into 0.8% of the Company’s “fully-diluted common stock (as defined) on the date of conversion.
On April 29, 2016, the merger was consummated
by filing a certificate of merger in the state of Delaware.
As a result of the above transactions,
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the Trust owns 270,000 shares of Company Series C Preferred Stock having
a liquidation value of $5,400,000, that automatically converts upon the occurrence of a Pocket Games conversion event into 10.8%
of the Company’s fully-diluted Common Stock,
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the Trust owns $3,960,000 principal amount of Pocket Games Notes convertible
into an additional 7.2% of the Company’s fully-diluted Common Stock;
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the former holders of Kicksend Notes own 30,000 shares of Company Series
C Preferred Stock, that automatically converts upon the occurrence of a Pocket Games conversion event into 1.2% of the Company’s
fully-diluted Common Stock,
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the former holders of Kicksend Notes own $440,000 principal amount
of Pocket Games Notes that is convertible following a Pocket Games conversion event into an additional 0.8% of the Company’s
fully-diluted Common Stock; and
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the former holders of Kicksend Notes own warrants exercisable at any
time prior to March 31, 2020 to purchase that number of shares of Company Common Stock equal to 11.1% of the number of shares of
Pocket Games Common Stock issuable to the Trust upon conversion of its Series C Preferred Stock and Pocket Games Notes issued under
the Exchange Agreement.
Pursuant to the terms of an asset purchase
agreement, dated as of March 31, 2015 among Receivd, Inc. (the former owner of the Kicksend assets and business), Kicksend and
its affiliate, Kicksend purchased all of the assets and business of Receivd, and assumed $800,000 of indebtedness of the seller
owed to Venture Lending & Leasing VI and Venture Lending & Leasing VII (collectively, the “Kicksend Lenders”);
which indebtedness was recast as two 11% $400,000 Kicksend Notes payable as to interest only through April 30, 2016 and thereafter
payable in 24 equal installments of principal and accrued interest. Under the terms of the asset purchase agreement, the Kicksend
Notes automatically converted into 1,000,000 shares of Kicksend Common Stock (or 10% of the outstanding Kicksend Common Stock)
upon the occurrence of a “conversion event;” which was defined to include Kicksend achieving a “Market Valuation”
of Kicksend Common Stock of $10,000,000 or more, as performed or evaluated by an independent third party investor, chartered financial
analyst or investment group. The term “Market Valuation” was defined to mean such amount equal to 100% of the outstanding
Kicksend Common Stock, as determined by multiplying either (x) the last per share price at which sales of Kicksend Common Stock
or other securities convertible into Kicksend Common Stock were sold or issued in a private transaction or financing, or (y) the
volume weighted average price per share of publicly traded Kicksend Common Stock, as traded on the over-the-counter markets (the
“OTC Markets”) or any other national securities exchange for any twenty day consecutive trading days.
The Kicksend Lenders also received a warrant
(the “Kicksend Warrant”) entitling them to purchase for $0.0001 per share, an aggregate of 1,111,111 shares of Kicksend
Common Stock representing an additional 10% of the fully-diluted Kicksend Common Stock.
Kicksend and the Trust believe that the sale
of 9,000,000 shares, or 90% of the outstanding Kicksend Common Stock, to Pocket Games for consideration aggregating $9,360,000
establishes a sale of Kicksend Common Stock in a private transaction at a per share Market Valuation of at least $10,000,000 and
triggers the automatic conversion provisions of the Kicksend Notes. As a result, upon consummation of the transactions under the
Exchange Agreement, such Kicksend Notes were automatically converted into 1,000,000 shares of Kicksend Common Stock, and were then
exchanged in the Merger for Pocket Games merger consideration equal to at least 10% of the Exchange Securities issued to the Trust
in the Exchange Agreement.
However, there can be no assurance that the
Kicksend Lenders will not contest the transactions contemplated by the Merger Agreement and may elect to continue to seek to foreclose
on the assets of Kicksend. See
Item 2.04
of this Form 8-K below.
The Exchange Agreement contains customary representations
and warranties regarding Kicksend, the Trust and the Company.
Kicksend is is
engaged
in, among other things, the business of file storage and sharing in real-time on digital platforms, including desktop, mobile and
webapps, to permit users to organize, download and send stored files
.
On April 27, 2016 the parties to the Exchange
Agreement executed a letter of waiver, pursuant to which all parties to the Exchange Agreement agreed to waive, as a condition
to the closing of the transactions contemplated by the Exchange Agreement and the exhibits thereto, the delivery of Kicksend disclosure
schedules and Company disclosure schedules. However, the parties agreed to undertake to prepare and deliver within 30 days to the
other parties their respective disclosure schedules to the Exchange Agreement.
The foregoing summary of certain terms of the
Exchange Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Exchange
Agreement, a copy of which is attached hereto as Exhibit 2.1 and is hereby incorporated into this Current Report on Form 8-K (“Form
8-K”) by reference. The foregoing summary of certain terms of the Merger Agreement does not purport to be complete and is
subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is attached hereto as Exhibit
2.2 and is hereby incorporated into this Form 8-K by reference. The foregoing summary of certain terms of the Waiver Letter does
not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Waiver Letter, a copy of which
is attached hereto as Exhibit 2.3 and is hereby incorporated into this Form 8-K by reference.