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Item 1.01
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Entry into a Definitive Material Agreement.
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On November 6,
2018, Limecom, Inc. (“Limecom” or “Seller”) , a wholly owned subsidiary of Cuentas Inc. (“CUEN”,
“Cuentas” or the “Company”) finalized a Factoring Agreement (the “Agreement”) with AEC YIELD
CAPITAL, LLC (“AEC” or “Purchaser”).
AEC agreed to
purchase Accounts (as defined herein) from Limecom, in AEC’s sole and absolute discretion, at a purchase price equal to the
gross face value of Accounts, less AEC’s Factoring Commission, as described in Section 2 of the Agreement, less returns,
credits, allowances, deductions, ‘finance points’ or other like charges and discounts; and less all other sums charged
or chargeable to Limecom’s Accounts (the “Purchase Price”).
All of Limecom’s
accounts receivable, related mechanics liens and contract rights which are presently or at any time hereafter assigned by Seller,
and accepted by AEC, are collectively referred to as (the “Accounts”). Limecom agreed to sell, transfer and assign
all of it’s right, title and interest in and to those specific accounts receivable and related rights owing to Seller by
Account Debtors as set forth on the assignment documents provided to AEC (the “Assignments”) together with all rights
of action and mechanics or other liens accrued or to accrue thereon, including without limitation, full power to collect, sue for,
compromise, assign or in any other manner enforce collection thereof in AEC’s name or otherwise. All Accounts purchased by
AEC will be insured on a collection basis with Euler Hermes North America Insurance Company.
In connection
with AEC’s purchase of the Accounts from Limecom, the Agreement provides that AEC will charge a factoring commission (the
“Factoring Commission”) which is deducted from the face value of each Account upon collection. The Factoring Commission
will be computed based upon the number of days an Account is outstanding from the date of such invoice issuance and shall be as
follows: (i) 1.19% of the face value of each invoice purchased under the facility (each, a “Purchased Account”) (Basic
Discount) computed on the Face Amount (ii) After the 20th day from the date of invoice issuance, 0.59% per 10 days or any part
thereof that an invoice remains outstanding, through the 90th day computed on the Face Amount.
Upon AEC’s
receipt and acceptance of each Assignment, AEC shall pay to Seller an amount corresponding to the category into which such Account
shall fall, as follows (in each case net of any advances received by Seller from any party including Purchaser):
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Eligible final, fully-verified receivables: 90% of the
Purchase Price – if such purchase is made within the first 90 days hereunder, or 87.5% if such purchase is made thereafter.
The foregoing includes final invoices featuring weekly billing and 53-day payment terms.
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Eligible earned but not yet billed receivables (usage confirmed
and verified by Purchaser to its satisfaction): 50% of the Purchase Price (net of other advances received by Seller from any party
including Purchaser)
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All of the advance
rates are computed as a percentage of the net face value (as described above) of the Accounts therein described (the “Advance”)
on an ongoing basis. The maximum outstanding balance of Seller to AEC shall initially be Four Million ($4,000,000) Dollars (the
“Initial Maximum Advance”), it being agreed that Seller may request increases in the Initial Maximum Advance of up
to One Million ($1,000,000) Dollars each 90 days after the commencement date hereunder, up to an advance of not greater than Eight
Million ($8,000,000) Dollars. Each requested increase above the Initial Maximum Advance shall be subject to AEC’s approval.
Additional terms of the Agreement provide
that AEC will hold in reserve the difference between the Purchase Price and the Advance (the “Reserve”) and, provided
there are no outstanding chargebacks or disputes, will pay to Seller, the Reserve, less any sums due AEC hereunder, in not more
than one (1) business day from the date on which the Accounts have been collected in full in good funds, or have been charged back
and/or deemed collected by AEC due to an Account debtor’s insolvency. Limecom and the Company have agreed to pledge all of
their assets to secure all payments due to AEC. Additionally, Limecom, Messrs. Orlando Taddeo International CEO of Limecom, and
Daniel Contreras, CFO of Limecom, have executed Validity Guarantees personally as well as Releases in favor of AEC. Further, Messrs.
Taddeo Contreras, and Limecom provided Confessions of Judgment in favor of AEC to be held in escrow by AEC.
This Agreement
will remain in effect for thirty-six (36) months from its effective date and will be automatically extended for successive periods
of one (1) year unless either party provides written notice of cancellation at least one-hundred fifty (150) days prior to the
expiration of the initial term or any renewal term; provided, however, AEC may cancel this Agreement at any time upon sixty (60)
days’ notice to Seller.
The Company agreed
to pay ThinkEquity, a division of Fordham Financial Management Inc. (“Think”), a 2.5% fee on the initial $4 million
factoring limit, equal to $100,000 in 4 installments for acting as a financial advisor to the Company with respect to the Agreement.
Think will be paid additional fees of 3% of any increase in the facility size above the $4,000,000 facility up to the $8,000,000
total amount of the factoring facility. Think will also receive a warrant, valid for 5 years, entitling it to purchase a number
of shares equal to 3.5% of the maximum facility size. The warrant shall have an exercise price equal to the five (5) day volume
weighted average price of common shares on the date of closing, or if the Company is not publicly traded, equal to the per share
price paid by investors in the Company’s most recent equity investment round prior to the execution of the Agreement. The
shares underlying the warrant shall entitle the holder to one-time “piggyback” registration rights (unless Rule 144 is
then available). The warrant may be exchanged without the payment of any additional consideration for the Company’s stock
based upon the values of the warrant and the stock at the time of the exchange.
In the event that Seller wishes to
terminate the Agreement prior to the expiration of the Term, as renewed or otherwise, then in addition to paying AEC all
other obligations due under this Agreement, Seller shall also pay AEC an early termination fee equal to the greater of (i)
the Monthly Minimum Volume multiplied by the number of calendar months (or part thereof) remaining from the termination date
until the end of the then existing Term, or (ii) the average monthly total volume purchased by AEC during the six (6)
calendar months (or part thereof if less than six (6) calendar months has elapsed from the effective date of the facility
through the termination date) immediately preceding the termination date, multiplied by the number of calendar months (or
part thereof) remaining from the termination date until the end of the then existing Term, multiplied by the average number
of days outstanding (rounded to the next highest month) multiplied by the greater of the average Factoring Commission over
the prior 90 days or the Factoring Commission due hereunder for an invoice paid by its obligor in 30 days.
Limecom will continue its Factoring Agreement
with VoIP Capital International (“VoIP”) on a limited basis for certain specific account debtors until all advances
due to VoIP have been paid. On Oct. 17, 2018 a Payment Letter was signed between Limecom et al and VoIP Capital International.
Effective Oct. 31, 2018 Limecom has established a new Insurance Policy with Euler.