Item
1.01 Entry into a Material Definitive Agreement.
Merger
Agreement
On
September 4, 2020, SRAX, Inc. (the “Company” or “Parent”) entered into an agreement and plan of merger
(the “Merger Agreement”) by and among (i) the Parent, (ii) Townsgate Merger Sub 1, Inc., a Delaware Corporation and
wholly-owned subsidiary of the Parent (“Merger Sub 1”), (iii) LD Micro, Inc., a Delaware Corporation and wholly-owned
subsidiary of the Parent (“Merger Sub 2”), (iv) LD Micro, Inc., a California corporation (“LD Micro”),
and (v) Christopher Lahiji, as the sole stockholder of LD Micro (the “Stockholder”), to acquire LD Micro, a leading
data and event company serving the small and micro-cap space.
Pursuant
to the terms of the Merger Agreement, Merger Sub 1 will merge with and into LD Micro, with LD Micro as the surviving corporation,
and then LD Micro will merge with and into Merger Sub 2, with Merger Sub 2 as the surviving corporation (the “Surviving
Corporation”) (collectively, the “Merger”). The Merger is anticipated to close on or about September
14, 2020, subject to customary closing conditions (the “Closing”).
As
consideration for the Merger, the Parent is paying the following compensation to the Stockholder and his designees (the “LD
Micro Recipients”): (i) four million dollars ($4,000,000) payable as follows (collectively, the “Cash Payment”):
(a) $1,000,000 at the Closing, (b) one million dollars ($1,000,000) on January 1, 2021, (c) one million dollars ($1,000,000) on
April 1, 2021, and (d) one million dollars ($1,000,000) on July 1, 2021; and (ii) one million six hundred thousand (1,600,000)
shares of Class A common stock of the Parent (“Payment Shares”) issued at the Closing.
If
the Parent fails to pay any portion of the Cash Payment when due, then, subject to a forty-five (45) day interest free cure period
from such due date, the total amount of the remaining unpaid Cash Payment will accelerate and become due immediately, and such
amount will accrue interest at a rate equal to the lesser of (i) 1.5% per month (18% per annum) and (ii) the maximum
rate permitted by law, accruing from the date following the end of such cure period until the date the total amount of the accelerated
Cash Payment and all accrued interest is paid in full.
Pursuant
to the terms of the Merger Agreement, Stockholder will have the right to manage the affairs of the Surviving Corporation until
September 30, 2020 (“Measurement Date”), after which the board of directors of the Parent (“Board”) will
control the financial affairs of the Surviving Corporation. On the Measurement Date, the Surviving Corporation will have a
target cash amount of $50,000 (“Adjustment Amount”) for the Surviving Corporation, and (i) in the event more than
the Adjustment Amount is available for the Surviving Corporation, the Parent will pay the excess to the Stockholder and (ii) in
the event less than the Adjustment Amount is available for the Surviving Corporation, the Parent will deduct such deficiency from
the next applicable Cash Payment.
Pursuant
to the terms of the Merger Agreement, the LD Micro Recipients will enter into lock-up agreements (each a “Lock-Up
Agreement”) with the Parent whereby the Payment Shares are subject to a lock-up and cannot be sold or transferred for thirty-six
(36) months following the Closing, subject to customary exceptions.
Pursuant
to the terms of the Merger Agreement, the Stockholder will enter into a voting proxy agreement (“Voting Agreement”)
with the Parent whereby the Stockholder will appoint Christopher Miglino (or any successor designated by the Parent’s
Board) to vote the Stockholder’s portion of the Payment Shares in accordance with the Board’s recommendations
until December 31, 2022.
Pursuant
to the terms of the Merger Agreement, the Stockholder will be subject to a non-compete provision with respect to the business
of in-person or virtual investor conferences for a period of five (5) years from the Closing.
Pursuant
to the Merger Agreement, the Parent and Stockholder will provide mutual indemnification to each other for certain third-party
claims exceeding (i) $100,000 with respect to certain alleged breaches and (ii) $25,0000 with respect to other enumerated matters
as more fully described in the Merger Agreement.
The
parties will also agree to representations, warranties and covenants customary of transactions of this type as more fully
contained in the Merger Agreement.
The
foregoing summaries of each of the Merger Agreement, Lock-Up Agreement, and the Voting Agreement are qualified in their entirety
by reference to the full text of each such document, each of which is attached hereto as Exhibits 10.01, 10.02, and 10.03, respectively,
and each of which is incorporated herein in its entirety by reference.