HMNY Helios and Matheson Analytics Inc (CE)

PROPOSAL 2

TO THE EXTENT REQUIRED BY NASDAQ LISTING RULE 5635, TO APPROVE THE ISSUANCE OF
SHARES OF COMMON STOCK OF THE COMPANY UPON CONVERSION OR
EXERCISE OR OTHERWISE PURSUANT TO THE TERMS OF THE NOTES TO INSTITUTIONAL INVESTORS
ISSUED ON NOVEMBER 7, 2017

Why we are seeking stockholder approval.

On December 11, 2017, we completed our acquisition of a majority interest in MoviePass Inc. (“MoviePass”), the nation’s premier movie theater subscription service (such acquisition, the “MoviePass Transaction”), pursuant to the previously announced Securities Purchase Agreement, dated as of August 15, 2017, between us and MoviePass (as amended, the “MoviePass SPA”), and the Investment Option Agreement, dated October 11, 2017, between us and MoviePass (the “MoviePass Option Agreement”). In order to (1) fund the MoviePass Transaction; (2) allow us to increase our ownership stake in MoviePass under the Movie Pass Option Agreement; (3) satisfy certain indebtedness; and (4) provide general working capital funds, on November 7, 2017 (the “Closing Date”), pursuant to the November 2017 SPA that we entered into on November 6, 2017 (the “Subscription Date”) with certain institutional investors (the “Buyers”), we sold and issued senior convertible notes (also referred to herein as the “Notes”) to the Buyers in the aggregate principal amount of $100,000,000, which are convertible into shares of our common stock (the “Conversion Shares”), of which $20.65 million has been funded to us as of December 14, 2017. Upon conversion of the Notes, the number of shares of common stock issuable will exceed 20% of the number of shares of common stock outstanding before the issuance of the Notes.

As more fully described below, because our common stock is listed on the Nasdaq Capital Market, we are subject to Nasdaq’s rules and regulations. In certain circumstances, if we issue common stock or securities convertible into common stock, that has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common stock, or the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the securities, we are required to obtain stockholder approval. As of December 14, 2017, the Buyers have funded an aggregate of $20.65 million in connection with the sale of the Notes, and the Buyers may fund up to an additional $79.35 million under the terms of the Notes.

If we receive approval from our stockholders of this Proposal 2, we will have the option, in our sole discretion, to use up to the entire remaining $79.35 million in proceeds that we may receive from prepayments under the terms of the Notes to increase our ownership of MoviePass or fund MoviePass operations. However, if we fail to receive approval from our stockholders of this Proposal 2, we will be limited to using a total of $22 million of the proceeds from the sale of the Notes and prepayments under the Investor Notes for this purpose. The Buyers are not required to provide additional funding under the current terms of the Notes, therefore, if we do not obtain stockholder approval for the issuance of the Conversion Shares under this Proposal 2, the Buyers may decide not to provide additional funding under the Notes. If we do not have not have access to the funds we need to maintain or increase our ownership interest in MoviePass, the market value of our common stock may be negatively affected and MoviePass may not have the access to capital that it needs to sustain or grow its business, which could negatively affect the value of MoviePass and thereby negatively affect the market value of our common stock.

Nasdaq Listing Rules

Nasdaq Listing Rule 5635(a)

Nasdaq Listing Rule 5635(a) requires stockholder approval prior to the issuance of securities in connection with the acquisition of the stock of another company if, as a result of that issuance of common stock or securities convertible into common stock, the common stock has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common stock, or the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the securities. In addition, Nasdaq Listing Rule 5635(a) limits the total amount of cash proceeds that we may use from the sale of the Notes towards funding the MoviePass Transaction or increasing our ownership stake to an amount which will result in no more than 19.99% of our common stock being issued upon conversion of the Notes unless stockholder approval is received. On November 5, 2017, the date immediately prior to the Subscription Date, we had 11,125,442 shares of common stock outstanding. The cash proceeds from the sale of the Notes equal to $22 million plus the maximum make whole interest amount of $4.4 million is equal to approximately $26.4 million of outstanding indebtedness evidenced by the Notes, which would be convertible into approximately 2,189,054 shares of our common stock at a conversion price of $12.06, representing approximately 19.7% of our outstanding shares of common stock on November 5, 2017. Accordingly, we cannot use more than $22 million of the cash proceeds from the sale of the Notes to increase our ownership of MoviePass or support its operations unless we obtain stockholder approval of the issuance of the Conversion Shares pursuant to the Notes. As of December 14, 2017, we used approximately $20.15 million of the proceeds from the sale of the Notes to increase our ownership of MoviePass.

Specifically, we used the net proceeds from the sale of the Notes (i) to pay the $5 million balance that we owed to MoviePass, subject to certain conditions, under a promissory note that we gave to MoviePass upon the closing of the transactions contemplated by the MoviePass SPA on December 11, 2017; (ii) to increase our ownership stake in MoviePass by paying MoviePass $15.15 million pursuant to that certain Investment Option Agreement, dated October 11, 2017; (iii) to satisfy certain indebtedness, including a demand note in the principal amount of $750,000 issued to one of the Buyers on November 2, 2017; and (iv) for general corporate purposes and transaction expenses. The Company may also use the proceeds to make other acquisitions, although a specific acquisition target has not yet been identified.

Nasdaq Listing Rule 5635(d)

Nasdaq Listing Rule 5635(d) also requires stockholder approval prior to the issuance of securities in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. The Notes have an initial conversion price of $12.06 per share, which was greater than the market value of our common stock as of November 5, 2017, the day before we entered into the November 2017 SPA. However, pursuant to the November 2017 SPA, we agreed to seek stockholder approval in accordance with Nasdaq Listing Rule 5635(d) to approve the issuance of our common stock at a conversion price per share as low as $1.928 following the occurrence of an event of default (the “Default Floor Price”). The Default Floor Price is lower than the market value of our common stock on November 5, 2017 and the conversion of the Notes could result in the issuance of 20% or more of our common stock outstanding on November 5, 2017. Without stockholder approval, the Default Floor Price is not effective.

If we do not obtain stockholder approval of the issuance of shares pursuant to the Notes at the Default Floor Price, the Buyers may be unwilling to further fund our business by making prepayments under the Investor Notes, which could materially and adversely affect our available operating capital. If we are unable to access other sources of capital on acceptable terms, our operating capital may be materially reduced, which could materially and adversely affect our results of operations, and in particular, the results of operations of MoviePass. Any negative impact on our results of operations or the results of operations of MoviePass due to our having reduced operating capital could negatively affect the market value of our common stock.

Moreover, pursuant to the terms of the November 2017 SPA, we are obligated to seek stockholder approval of the issuance of shares of common stock upon conversion or exercise or otherwise pursuant to the terms of the Notes at a special meeting of our stockholders to be held not later than February 5, 2018. If stockholder approval is not obtained at this Special Meeting, we will be required to call another special meeting to be held on or prior to March 31, 2018. If we again fail to obtain stockholder approval at that special meeting, we will be required to hold a special meeting semi-annually until stockholder approval is obtained. Calling and holding a special meeting, along with obtaining a brokers search and preparing, printing and mailing proxy statements and proxy cards, are expensive and time consuming.

Effect of approval of Proposal 2 on our stockholders.

Our ability to successfully implement our business plans and ultimately generate value for our stockholders is dependent on our ability to maximize capital raising opportunities. If Proposal 2 is approved, we will have the option to use any remaining cash proceeds that we may receive from prepayments under the Investor Notes to increase our ownership of MoviePass. In addition, if Proposal 2 is approved, the Buyers will be more likely to further fund our business by prepaying the principal amount remaining under the Investor Notes, which would maximize our potential to obtain up to $79.35 million in additional cash from the Note Financing. Such additional funding would provide us with significant working capital, strengthen our balance sheet (to the extent the Notes are converted) and provide us with additional capital for potential future business opportunities. If Proposal 2 is not approved, then we will need to hold another stockholder meeting on or prior to March 31, 2018. If stockholder approval is not obtained after such subsequent stockholder meetings, we will need to schedule stockholder meetings semi-annually thereafter until stockholder approval is obtained for this proposal. Any additional meetings and proxy solicitations will result in significant additional costs and distract our management and other employees from our business operations.

Notwithstanding what we to believe to be benefits that outweigh risks, there are certain risks involved with approval of Proposal 2. If an event of default occurs under the Notes, and assuming that the Buyers converted all of the principal and interest outstanding under the Notes at the Default Floor Price on November 7, 2019, the maturity date, excluding any interest that may accrue at a higher rate in connection with the continuance an event of default, we would be required to issue 50,721,783 shares of common stock to the Buyers. This issuance, together with additional issuances of common stock that could be made pursuant to the Notes, for example as a result of an increase in the interest rate of the Notes in connection with an event of default, may cause significant dilution to our stockholders’ ownership, voting power and right to participate in dividends or other payments from future earnings, if any, and may cause a decline in the market price of our common stock. A decline in our market price could impair our ability to raise funds in additional equity or debt financings.

In addition to the foregoing, the increase in the number of shares of common stock issued in connection with the conversion of the Notes may have an incidental anti-takeover effect in that the additional shares of common stock issued could dilute the stock ownership of parties seeking to obtain control of the Company. The increased number of issued shares could discourage the possibility of, or render more difficult, certain mergers, tender offers, proxy contests or other change of control or ownership transactions. However, we currently know of no specific effort to accumulate our securities or to gain control of the Company by means of a merger, tender offer, solicitation in opposition to management or otherwise.

Rule 144 and the Structure of the Note Financing

The Note Financing was structured in order to comply with the holding period requirements of Rule 144(d)(1)(i) and 144(d)(2) so that shares of common stock issuable upon conversion of the Notes could, absent registration, be resold pursuant to Rule 144(d)(1)(i) commencing six months after the issuance of the Notes, if the other requirements of Rule 144 are satisfied, including Rule 144(d)(1)(iii).

Rule 144(d)(1)(iii) provides that the holding period of purchased securities shall not begin until the full purchase price or other consideration is paid or given by the person acquiring the securities from the issuer.

Rule 144(d)(2) provides that giving the issuer a promissory note shall not be deemed full payment of the purchase price unless the promissory note (i) provides for full recourse against the purchaser of the securities, (ii) is secured by collateral, other than the securities purchased, having a fair market value at least equal to the purchase price of the securities purchased, and (iii) shall have been discharged by payment in full prior to the sale of the securities.

The Investor Notes (i) state at Section 8(a) that they are full recourse obligations of the Buyers; (ii) are secured by cash, cash equivalents, any Group of Ten (“G10”) currency and any notes or other securities issued by any G10 country held by each Buyer in a bank or brokerage account set forth on Schedule I of the Investor Note; and (iii) upon conversion of all or part of the principal amount of the Series B Notes into shares of common stock, the Buyer holding the Series B Note will pay the Company an equivalent amount of the balance of such Buyer’s Investor Note in cash, such that the Investor Note shall have been discharged by payment in full as to any shares of common stock to be sold by the Buyer prior to such sale. Therefore, pursuant to Rule 144(d)(2), the Buyer paid the full purchase price for the Notes on the Closing Date. Accordingly, the holding period of shares of common stock issuable upon conversion of the Notes will be deemed to have commenced on the Closing Date, pursuant to Rule 144(d)(3)(ii).

Assuming that we meet the requirements of a mandatory prepayment event as described below under the heading “Investor Notes”, we expect to receive the full $95,000,000 due under the Investor Notes.

Description of the Note Financing.

The following does not purport to be a complete description of the November 2017 SPA, the Notes, the Investor Notes, the Voting and Lockup Agreements, and the Placement Agent Warrant described in this proxy statement and each is qualified in its entirety by reference to the full text of such document, all of which are attached as exhibits to our Current Reports on Form 8-K that we filed with the Commission on November 6, 2017 and November 13, 2017, respectively.

The Notes

The Notes included (i) Series A Senior Bridge Convertible Notes in the aggregate principal amount of $5,000,000 (the “Series A Notes”) and (ii) Series B Senior Secured Bridge Convertible Notes in the aggregate principal amount of $95,000,000 (the “Series B Notes”). The consideration provided by the Buyers for the purchase of the Notes on the Closing Date consisted of (i) cash payments in the aggregate amount of $5,000,000, and (ii) secured promissory notes payable by the Buyers to us (each an “Investor Note” and collectively, the “Investor Notes”) in the aggregate principal amount of $95,000,000. We receive cash as each of the Buyers prepays its Investor Note.

On December 14, 2017, each Buyer provided to the Company a notification (the “Redemption Notification”) of the exercise of its right to require the Company to redeem, on or before December 20, 2017, the principal, interest and Make-Whole Amounts, as defined in the Notes, of the amounts advanced to the Company pursuant to the Investor Notes. Subsequent to the Company’s receipt of the Redemption Notifications, the Company elected to capitalize the Make-Whole Amounts attributable to the Series B Notes. As a result of the election by the Buyers, the Company paid to the Buyers, on a pro-rata basis, a total of $5,000,000 in principal of the Series A Notes, $59,722.22 in interest accrued on the Series A Notes, $940,277.78 in Make-Whole Amounts attributable to the Series A Notes, $15,649,999.98 in principal of the Series B Notes and $137,784.59 in interest accrued on the Series B Notes. The Company capitalized $2,943,069.44 in Make-Whole Amounts attributable to the Series B Notes, which amount has been added to the principal of the Series B Notes, on a pro-rata basis.

Series A Notes

On the Closing Date, we issued the Series A Notes to the Buyers upon the delivery of the $5 million aggregate payment from the Buyers. The aggregate principal amount of the Series A Notes was $5,000,000, bearing interest at a rate of 10% per annum. As noted above, we paid the Series A Notes in full on December 19, 2017. Therefore, the Series A Notes are no longer outstanding.

Series B Notes

On the Closing Date, we issued the Series B Notes to the Buyers in consideration of the Investor Notes. The aggregate principal amount of the Series B Notes is $95,000,000. Upon issuance, the Series B Notes consisted entirely of “Restricted Principal” which is defined as that portion of the principal amount of a Series B Note that equals the outstanding principal amount of a corresponding Investor Note. The principal amount of the Investor Notes is subject to reduction through prepayments by the applicable Buyer of the Investor Note given by the Buyer to the Company or, upon maturity or redemption of the Series B Notes, by netting the amount owed by the Buyer under such Investor Note against a corresponding amount of principal to be canceled under the Buyer’s Series B Note. Each prepayment under the Investor Notes will convert a corresponding amount of Restricted Principal under the Series B Notes into “Unrestricted Principal” that may be converted into common stock. The Investor Notes include a mandatory prepayment obligation in the aggregate amount of $15,650,000. The Buyers were obligated to make these prepayments on a pro rata basis in equal weekly installments over a period of seven weeks from the Closing Date beginning on November 13, 2017 and ending on December 26, 2017 (collectively, the “Note Financing”). The Buyers made all the mandatory prepayments prior to December 14, 2017, including the prepayments that they were obligated to make on December 18, 2017 and December 26, 2017.

The Series B Notes bear interest at a rate of (i) 5.25% per annum with respect to any Restricted Principal, and (ii) 10% per annum with respect to any Unrestricted Principal.

As noted above, the outstanding principal and accrued interest payable under the Series B Notes (excluding the Make-Whole Amounts) were paid on December 19, 2017 and the Make-Whole Amounts payable under the Series B Notes were capitalized.

Payment of Interest

Interest on the Notes will be capitalized on each quarterly interest payment date starting January 1, 2018 by adding the interest to the then outstanding principal amount of the Notes. Interest may also be paid by inclusion in the Outstanding Amount, which is defined in the Notes as the principal amount to be converted or redeemed, accrued and unpaid interest with respect to such principal amount, accrued and unpaid late charges, if any, and the “Make-Whole Amount.” The “Make-Whole Amount” is defined as the amount of any interest that, but for a conversion or redemption, would have accrued with respect to the Outstanding Amount of principal being redeemed or converted under the Series A Notes and Unrestricted Principal under the Series B Notes, for the period from the applicable date of conversion or redemption date through the maturity date of the Notes. No Make-Whole Amount will be payable under the Series B Notes with respect to any portion of Restricted Principal after the cancellation of such Restricted Principal pursuant to netting under the Series B Notes, the Investor Notes or the Master Netting Agreement (as defined below), as applicable. In the event of an event of default, interest under the Notes may be increased to 15% during the first 30 days following the occurrence and continuance of an event of default and to 18% thereafter.

Conversion of the Notes

The Buyers may, at any time, elect to convert the Notes into shares of the Company’s common stock at the Conversion Price, subject to certain beneficial ownership limitations described below. The “Conversion Price” is $12.06 per share (subject to anti-dilution adjustment as described in the Notes).

Beneficial Ownership Limitations on Conversion and Issuance

The Notes may not be converted and shares of the Company’s common stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the Buyer together with its affiliates would beneficially own in excess of 4.99% or 9.99%, as elected by the Buyer, of the Company’s outstanding shares of common stock. At a Buyer’s option, the ownership limitation blocker may be raised or lowered to any other percentage not in excess of 4.99% or 9.99%, as elected by the Buyer, except that any raise will only be effective upon 61-days’ prior notice to the Company.

Redemption of the Notes

Provided there has been no Equity Conditions Failure (as defined in the Notes) and, as to the Series A Notes, no Senior Secured Convertible Notes issued by the Company on August 16, 2017 (the “August Notes”) remain outstanding, and as to the Series B Notes, no August Notes, Series A Notes or Series B Notes with any Unrestricted Principal remain outstanding, the Company will have the right to redeem all, but not less than all, of the Outstanding Amount remaining unpaid under the Notes. The portion of the Notes subject to redemption can be redeemed by the Company in cash at a price equal to 115% of the amount being redeemed. Under the Series B Notes, the Company may reduce, on a dollar for dollar basis, the Restricted Principal by the surrender for cancellation of such portion of the corresponding Investor Note equal to the amount of Restricted Principal included in the redemption.

Each Buyer has the right to require the Company to redeem the Notes (i) at the option of the Buyer upon seven months following the Closing Date; (ii) if the Company completes a Subsequent Placement, as defined in the November 2017 SPA; (iii) upon the occurrence of an event of default, including a Bankruptcy Event of Default (as defined in the Notes); or (iv) in the event of a Change of Control. With the exception of a redemption required by an event of default, which may be paid with cash or shares of the Company’s common stock at the election of the Buyer, the Company will be required to redeem the Notes with cash.

Events of Default

The Notes contain customary events of default including but not limited to: (i) a suspension from trading or a failure to maintain the listing of the Company’s common stock for a period of 5 trading days; (ii) after a conversion by an Investor, the failure by the Company to deliver the common stock for a period of 5 trading days; (iii) the failure to reserve a number of shares of the Company’s common stock to permit a Buyer to fully convert the principal, interest, late charges, if any, and Make-Whole Amounts under the Notes; (iv) the failure by the Company or any subsidiary to make payments when due under the Notes; (v) upon a conversion by a Buyer, the failure by the Company to remove a restrictive legend from shares of the Company’s common stock if permitted by the applicable securities laws; (vi) breaches of covenants; (vii) bankruptcy or insolvency; (viii) the failure to pay indebtedness when due; and (ix) the failure of the grant of the security interest in the Investor Notes to create a first priority lien against the Investor Notes.

As indicated above, following an event of default, the Buyer may require the Company to redeem all or any portion of the Notes. The redemption amount may be paid in cash or with shares of the Company’s common stock, at the election of the Buyer, at a price equal to the Event of Default Redemption Price (as defined in the Notes).

The Company must immediately redeem the Notes in cash upon the occurrence of a Bankruptcy Event of Default (as defined in the Notes).

The Event of Default Redemption Price will be computed as a price equal to the greater of (i) 125% of the Outstanding Amount to be redeemed and (ii) the product of (X) the Outstanding Amount to be redeemed divided by the Conversion Price multiplied by (Y) the product of (1) 125% multiplied by (2) the greatest closing sale price of the Company’s common stock on any trading day during the period commencing on the date preceding such event of default and ending on the date the Company makes the entire payment required to be made under the Notes.

In addition, following an event of default, the Buyer will have the right to convert the Notes at the “Alternate Conversion Event of Default Price” which means, with respect to each such conversion, that price which shall be the lowest of (i) the applicable Conversion Price as in effect on the date of the conversion, and (ii) the greater of (A) the Default Floor Price (which means (i) at any time prior to the date the Financing Transaction is approved by our stockholders (the “Stockholder Approval Date”), the Floor Price (initially, $12.06) or (ii) at any time on or after the Stockholder Approval Date, $1.928 (or such lower price as mutually determined by the Company and the Buyer in writing, subject to the prior consent of the Nasdaq Stock Market)), and (B) 75% of the lowest volume weighted average price of the Company’s common stock for each of the 30 consecutive trading days ending and including the trading day of delivery or deemed delivery of the applicable notice of conversion.

Fundamental Transactions

The Notes will prohibit the Company from entering into specified transactions involving a change of control unless the successor entity, which must be a publicly traded corporation whose common stock is quoted on or listed for trading on an eligible market, assumes in writing all of the Company’s obligations under the Notes.

Rights Upon Issuance of Other Securities

After the six month anniversary of the Subscription Date, if and whenever the Company issues or sells, or is deemed to have issued or sold, any shares of common stock (including options and convertible securities but excluding any Excluded Securities, as defined in the November 2017 SPA) for a consideration per share less than a price equal to the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (the “New Issuance Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price, in no event less than the Floor Price (initially, $12.06, provided that the Floor Price will not apply from and after the Stockholder Approval Date).

Subsequent Placement Optional Redemption

Following a “Subsequent Placement,” as defined in the Notes, the Buyers may require the Company to redeem all or any portion of the outstanding amount of the Notes not in excess of the Buyer’s pro rata amount of the gross proceeds (less any reasonable placement agent, underwriter and/or legal fees and expenses) of the Subsequent Placement by delivering written notice to the Company of such election. On or about December 14, 2017, each Buyer provided notice to the Company of its election to require us to redeem all of the then outstanding unrestricted principal, interest and Make-Whole Amounts under the Notes as a result of the Subsequent Placement of $60 million of our common stock and warrants in an underwritten public offering that we announced on December 13, 2017.

Investor Notes

The Investor Notes will be payable in full on the second anniversary of the Closing Date, although each Buyer may prepay the Investor Note in whole or in part, without premium or penalty, at any time. The Investor Notes accrue interest at an annual rate of 0.61%. Each Investor’s obligation to pay the Company the principal amount of the Investor Note is to be secured with cash, cash equivalents, any G10 currency and any notes or other securities issued by any G10 country having a value equal to the principal amount of the Investor Note. The Investor Notes are also subject to mandatory prepayment, in whole or in part, upon the occurrence of the following mandatory prepayment events:

(1) Mandatory Prepayment upon Conversion of Notes – At any time (i) if the Company receives a conversion notice from the Buyer in which all or any part of the principal of the Series B Note to be converted includes any Restricted Principal and (ii) the Buyer receives a confirmation from the Company’s transfer agent that it has been irrevocably instructed by the Company to deliver to the Buyer the shares of the Company’s common stock to be issued pursuant to the conversion notice.

(2) Mandatory Prepayment on Certain Dates – Provided no event of default, as defined in the Series B Notes, has occurred or is continuing, each Buyer agreed to prepay its pro-rata portion of $2,235,714.29 on November 13, 20 and 27, 2017 and December 4, 11, 18 and 26, 2017 (each such date, a “Payment Date”, and such payments, “Mandatory Prepayments”); provided, however, if the Buyer has effected a prepayment by delivering a conversion notice to the Company, the Buyer may reduce all or any part of the prepayment due on such payment date on a dollar-for-dollar basis in an amount not to exceed the prior prepayments. All of the Mandatory Prepayments were made by December 14, 2017.

The Investor Note also contains certain optional “netting” rights of the Buyer which, if exercised, would reduce the amount outstanding under the Notes and the Investor Note by the same amount and, accordingly, the cash proceeds received by the Company from the Buyer pursuant to the Note Financing. These netting rights include (i) the right of the Buyer, on or after December 31, 2017, with respect to any portion of principal subject to Mandatory Prepayments under the Buyer’s Investor Note (“Mandatory Prepayment Principal), or, November 30, 2017, with respect to any other portion of principal under the Buyer’s Investor Note, if an Equity Conditions Failure exists, to net against any obligations of the Company remaining under the Series B Note an equal amount of the obligations of the Buyer remaining under the Buyer’s Investor Note, provided, that no netting will occur with respect to any Mandatory Prepayment Principal that the Buyer fails to properly prepay under the Buyer’s Investor Note; (ii) the right of the Buyer, on the maturity date of the Series B Note, to net against any obligations remaining under the Series B Note an equal amount of the obligations remaining under the Investor Note; (iii) the right of the Buyer to net against any obligations remaining under the Series B Note an equal amount of the obligations remaining under the Investor Note if an event of default occurs and is not cured; (iv) the right of the Buyer to net against the unpaid principal amount of the Series B Note an equal amount of the unpaid principal of the Investor Note upon a Bankruptcy Event of Default; and (v) an automatic netting of obligations under the Series B Note equal to 75% of the Restricted Principal in exchange for the cancellation of the principal amount of the Investor Note outstanding on the date of a transfer by the Company of the Investor Note to any person without the consent of the Buyer.

Guaranty

MoviePass provided a Guaranty to each of the Buyers pursuant to which it (i) guaranteed the punctual payment of all obligations under the Notes, including all interest, Make-Whole Amounts and other amounts that accrue after the commencement of any insolvency proceeding of the Company, whether or not the payment of such obligations are enforceable or allowable in the insolvency proceeding, and all fees, interest, premiums, penalties, causes of actions, costs, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under any of the Note Financing documents, and (ii) agreed to pay any and all costs and expenses (including counsel fees and expenses) incurred by any Investor in enforcing any rights under the Guaranty or any other Note Financing document.

Voting and Lockup Agreements

As a condition to closing the Note Financing, Theodore Farnsworth, our Chief Executive Officer and Chairman of our Board of Directors, and Helios and Matheson Information Technology Ltd. (“HMIT”), of which Muralikrishna Gadiyaram, a director of the Company, is the chief executive officer, and its wholly-owned subsidiary, Helios & Matheson Inc. (collectively, the “Principal Stockholders”), who collectively owned approximately 31.3% of the Company’s issued and outstanding common stock as of the Closing Date, executed voting and lockup agreements with the Company. Pursuant to the Voting and Lockup Agreements, the Principal Stockholders agreed to vote in favor of or consent to the Company’s issuance of the Notes at any meeting of stockholders or written consent of stockholders for such purpose. The Voting and Lockup Agreements also require that, for a period beginning on the Closing Date and ending on the initial date when all of the principal outstanding under the Notes issued to the Buyers consists of Restricted Principal thereunder, the Principal Stockholders will not (i) dispose of or agree to dispose of, directly or indirectly, any securities of the Company (except that shares underlying equity awards granted to Mr. Farnsworth may be sold between April 1 to April 15 of any given year, not to exceed a total of 262,500 shares, in connection with the full or partial payment of applicable taxes or tax withholding obligations arising from the issuance of an award of common stock or options to purchase common stock granted to Mr. Farnsworth pursuant to an Approved Stock Plan, as defined in the November 2017 SPA), or establish or increase a put equivalent position or liquidate or decrease a call equivalent position or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any securities of the Company owned directly by the Principal Stockholders (including holding as a custodian) or (iii) permit to exist any security interest, lien, claim, pledge, option, right of first refusal, agreement, or limitation on the Principal Stockholders’ voting rights, charge or other encumbrance of any nature with respect to the Principal Stockholders’ securities in the Company or (iv) engage in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Principal Stockholders’ securities in the Company or (v) directly or indirectly initiate, solicit or encourage any person to take actions which could reasonably be expected to lead to the occurrence of any of the foregoing, provided that 170,000 of shares formerly owned by HMIT were not subject to the restriction on transfer under its Voting and Lockup Agreement.

Financing Fees

Canaccord Genuity, Inc. acted as the placement agent for the Note Financing and (i) with respect to the initial $25 million raised in connection with the sale of the Notes was entitled to a cash fee equal to 4% of gross proceeds raised by one of the Buyers and 7% of gross proceeds raised from the remaining Buyers and (ii) with respect to any amounts received in excess of $25 million following each prepayment of the Investor Notes, 3.5% on such amount of aggregate gross proceeds received by the Company.

Palladium Capital Advisors LLC received a tail payment pursuant to its engagement agreement, dated August 2016, as amended, on the investment made by the Buyer that holds the August 2016 Notes equal to (i) 4% of the gross cash proceeds actually received by the Company pursuant to the Notes purchased by such Buyer, as and when received; plus (ii) a warrant to purchase 8% of the number of shares of common stock into which the Series A Notes purchased by such Buyer are initially convertible at the Conversion Price in effect as of the Closing Date and 8% of the number of shares of common stock into which any Unrestricted Principal of the Series B Notes purchased by such Buyer is initially convertible at the Conversion Price in effect as of the Closing Date, at an exercise price equal to the Conversion Price of the Notes in effect as of the Closing Date, without regard to any adjustment of the Conversion Price resulting from the anti-dilution provision of the Notes, other than proportionate adjustments to the Conversion Price resulting from stock splits or combinations or similar proportionately applied changes to the Company’s outstanding common stock.

Vote required to pass Proposal 2.

Proposal 2 will be approved if a quorum is present at the Special Meeting and a majority of the shares of common stock present or represented by proxy and entitled to vote at the Special Meeting are voted “for” such approval. Abstentions will have the effect of a vote against Proposal 2. Broker non-votes will not count as votes for or against Proposal 2 and will have no effect on the outcome.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2 TO APPROVE, TO THE EXTENT REQUIRED BY NASDAQ LISTING RULE 5635, the issuance of shares of our common stock upon conversion OR EXERCISE OR OTHERWISE PURSUANT TO THE TERMS of the Notes.