|
Item
1.01
|
Entry
into a Material Definitive Agreement
|
Merger
Agreement
This
section describes the material provisions of the Merger Agreement (as defined below) but does not purport to describe all of the
terms thereof. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a
copy of which is attached hereto as Exhibit 2.1. Unless otherwise defined herein, the capitalized terms used below are defined
in the Merger Agreement.
The
Merger
On
March 12, 2018, Spherix Incorporated, a Delaware corporation (“
Spherix
”), entered into an Agreement and Plan
of Merger (the “
Merger Agreement
”), by and among Spherix, Spherix Merger Subisdiary Inc., a Nevada corporation
and a wholly-owned Subsidiary of Spherix (“
Merger Sub
”), DatChat, Inc., a Nevada corporation (“
DatChat
”),
and Darin Myman in the capacity as the representative from and after the effective time of the Merger (the “
Effective
Time
”) for the stockholders of DatChat as of immediately prior to the Effective Time (the “
Stockholder Representative
”).
Pursuant
to the Merger Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated
by the Merger Agreement (the “
Closing
”), Merger Sub will merge with and into DatChat (the “
Merger
”),
with DatChat continuing as the surviving corporation in the Merger. Subject to the terms and conditions set forth in the Merger
Agreement, at the Effective Time: (i) all shares of capital stock of DatChat (the “
DatChat Stock
”) issued and
outstanding immediately prior to the Effective Time will be converted into the right to receive the Stockholder Merger Consideration
(as defined below).
Merger
Consideration
At
or prior to the Closing, Spherix, the Stockholder Representative, and a mutually agreeable escrow agent (the
“
Escrow Agent
”), shall enter into an Escrow Agreement, effective as of the Effective Time, in form
and substance reasonably satisfactory to the Parties (the “
Escrow Agreement
”), pursuant to which
Spherix shall deposit with the Escrow Agent from the Stockholder Merger Consideration (as defined below) the following
numbers of shares of Spherix common stock (the sum of such amounts, the “
Escrow Shares
”
): (i) a
number of shares Spherix common stock equal to 10% of the Stockholder Merger Consideration shares (including any equity
securities paid as dividends or distributions with respect to such shares or into which such shares are exchanged or
converted, the “
Indemnity Escrow Shares
”), to be held in a segregated escrow account (the
“
Indemnity Escrow Account
”) and disbursed by the Escrow Agent and (ii) a number of shares Spherix common
stock equal 90% of the Stockholder Merger Consideration shares (including any equity securities paid as dividends or
distributions with respect to such shares or into which such shares are exchanged or converted, the “
Distribution
Escrow Shares
”), to be held in a segregated escrow account (the “
Distribution Escrow Account)
and
disbursed by the Escrow Agent. Each stockholder of DatChat at the Effective Time (each, a “
DatChat
Stockholder
”) shall receive its pro rata share of the Stockholder Merger Consideration, less its pro rata portion
of the Escrow Shares held in the Escrow Account, based on the number of shares of DatChat Stock owned by such DatChat
Stockholder as compared to the total number of shares of DatChat Stock owned by all DatChat Stockholders as of immediately
prior to the Effective Time. The Indemnity Escrow Shares shall serve as a security for, and a source of payment of, the
indemnity rights of the Spherix indemnified parties’. The Distribution Escrow Shares will be released from escrow over
time in accordance with the schedule and restrictions as agreed upon by Spherix and the Stockholder Representative and set
forth in the Escrow Agreement. As consideration for the Merger, Spherix shall deliver to the stockholders of DatChat an
aggregate of 46,153,846 shares of Spherix common stock (the “
Stockholder Merger Consideration
”), with each
share of Spherix common stock valued at $1.30 per share.
Representations
and Warranties
The
Merger Agreement contains customary representations and warranties by each of Spherix, DatChat and Merger Sub. Many of the representations
and warranties are qualified by materiality or Material Adverse Effect. “
Material Adverse Effect
” as used in
the Merger Agreement means any fact, event, occurrence, change or effect that has had or would reasonably be expected to have
a material adverse effect on the business, properties, assets, liabilities, condition (financial or otherwise), operations, licenses
or other franchises or results of operations of DatChat, or materially diminish the value of DatChat’s capital stock, or
does or would reasonably be expected to materially impair or delay the ability of DatChat to perform its obligations under the
Merger Agreement or the ancillary documents or to consummate the transactions contemplated thereby, in each case subject to certain
customary exceptions. Certain of the representations are subject to specified exceptions and qualifications contained in the Merger
Agreement or in information provided pursuant to certain disclosure schedules to the Merger Agreement. The representations and
warranties made by Spherix, Merger Sub and DatChat survive the Closing for a period of 18 months.
Indemnification
From
and after the closing, DatChat Stockholders and their respective successors and assigns are required to severally indemnify Spherix,
and its affiliates and officers, directors, managers, employees, successors and permitted assigns from and against any losses
from (a) the breach of any of DatChat’s representations and warranties, (b) the breach of any of DatChat’s covenants,
(c) any actions by persons or entities who were holders of equity securities (including options, warrants, convertible securities
or other rights) of DatChat prior to the Closing arising out of the sale, purchase, termination, cancellation, expiration, redemption
or conversion of any such securities (d) any liabilities for taxes arising prior to the closing or (e) any liability of DatChat
incurred in the operation of the business on or prior to the closing
From
and after the closing, Spherix, Merger Sub and their respective successors and assigns are required to severally indemnify DatChat,
and its affiliates and officers, directors, managers, employees, successors and permitted assigns from and against any losses
from (a) the breach of any of Spherix and Merger Sub’s representations and warranties, and (b) the breach of any of Spherix
and Merger Sub’s covenants.
Except
for fraud-based claims, indemnification claims are subject to an aggregate basket of $100,000 before any indemnification claims
can be made, at which point all claims will be paid back to the first dollar. In any indemnification claim by a Spherix indemnified
party the Stockholder Representative will represent the DatChat Stockholders.
Indemnification
claims bay Spherix indemnified party will be limited to the escrow property in the Indemnity Escrow Account, first paid with the
Indemnity Escrow Shares and then with any other escrow Property. The aggregate maximum amount of indemnification is capped at
an amount equal to the value of 10% of the Stockholder Merger Consideration. The Indemnity Escrow Shares in the Escrow Account
will be released to the DatChat Stockholders, on a pro rata basis, after the 18 month anniversary of the Closing Date, except
for amounts withheld for unpaid or pending indemnification claims at that time. Such withheld amounts for unpaid or pending indemnification
claims, if any remain after payment of the related indemnification claims, will be released to the DatChat Stockholders, on a
pro rata basis, upon final resolution of all such pending indemnification claims.
Covenants
of the Parties
Each
party agreed in the Merger Agreement to use its commercially reasonable efforts to effect the Closing. The Merger Agreement also
contains certain customary covenants by each of the parties during the period between the signing of the Merger Agreement and
the earlier of the Closing or the termination of the Merger Agreement in accordance with its terms (the “
Interim Period
”).
The
Merger Agreement and the consummation of the transactions contemplated thereby requires the approval of both Spherix’s stockholders
and DatChat’s stockholders. Spherix agreed, as promptly as practicable after the date of the Merger Agreement, to prepare,
with the reasonable assistance of DatChat, and use its commercially reasonable efforts to file with the Securities and Exchange
Commission (the “
SEC
”), a registration statement on Form S-4 (as amended, the “
Registration Statement
”)
in connection with the registration under the Securities Act of 1933, as amended (the “
Securities Act
”) of
the issuance of shares of Spherix common stock to the DatChat stockholders, and containing a joint proxy statement/prospectus
for the purpose of (i) Spherix soliciting proxies from the stockholders of Spherix to approve the Merger Agreement, the transactions
contemplated thereby and related matters (the “
Spherix Stockholder Approval
”) at a special meeting of Spherix’s
stockholders (the “
Spherix Special Meeting
”) and (ii) DatChat soliciting proxies from the stockholders of DatChat
to approve the Merger Agreement, the transactions contemplated thereby and related matters (the “
DatChat Stockholder
Approval
”) at a special meeting of DatChat’s stockholders (the “
DatChat Special Meeting
”).
Conditions
to Consummation of the Merger
The
obligations of the parties to consummate the Merger is subject to various conditions, including the following mutual conditions
of the parties unless waived: (i) the effectiveness of the Registration Statement, (ii) the approval of the Merger Agreement and
the transactions contemplated thereby and related matters by the requisite vote of Spherix’s stockholders and DatChat’s
stockholders; (iii) receipt of requisite governmental approvals; (iv) no law or order preventing or prohibiting the Merger or
the other transactions contemplated by the Merger Agreement; and (v) no pending litigation to enjoin or restrict the consummation
of the Closing.
In
addition, unless waived by DatChat, the obligations of DatChat to consummate the Merger are subject to the satisfaction of the
following Closing conditions, in addition to customary certificates and other closing deliveries:
|
●
|
The
representations and warranties of Spherix being true and correct as of the date of the
Merger Agreement and as of the Closing (subject to Material Adverse Effect);
|
|
●
|
Spherix
having performed in all material respects its obligations and complied in all material
respects with its covenants and agreements under the Merger Agreement required to be
performed or complied with on or prior the date of the Closing; and
|
|
●
|
Absence
of any Material Adverse Effect with respect to Spherix since the date of the Merger Agreement
which is continuing and uncured.
|
Unless
waived by Spherix, the obligations of Spherix and the Merger Sub to consummate the Merger are subject to the satisfaction of the
following Closing conditions, in addition to customary certificates and other closing deliveries:
|
●
|
The
representations and warranties of DatChat being true and correct as of the date of the
Merger Agreement and as of the Closing (subject to Material Adverse Effect);
|
|
●
|
DatChat
having performed in all material respects its obligations and complied in all material
respects with its covenants and agreements under the Merger Agreement required to be
performed or complied with on or prior to the Closing Date; and
|
|
●
|
Absence
of any Material Adverse Effect with respect to DatChat since the date of the Merger Agreement
which is continuing and uncured.
|
Termination
The
Merger Agreement may be terminated under certain customary and limited circumstances at any time prior to the Closing, including:
|
●
|
by
mutual written consent of Spherix and DatChat;
|
|
●
|
by
written notice by either Spherix or DatChat if the Closing has not occurred on or prior
to November 15, 2018;
|
|
●
|
by
written notice by either Spherix or DatChat if a governmental authority of competent
jurisdiction shall have issued an order or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement,
and such order or other action has become final and non-appealable;
|
|
●
|
by
written notice by either party of the other party’s uncured breach (subject to
certain materiality qualifiers);
|
|
●
|
by
written notice by Spherix if there has been a Material Adverse Effect on DatChat since
the date of the Merger Agreement which is continuing and uncured;
|
|
●
|
by
written notice by Spherix or DatChat if Spherix holds the Spherix Special Meeting and
it does not receive the Spherix Stockholder Approval; or
|
|
●
|
by
written notice by Spherix or DatChat if DatChat holds the DatChat Special Meeting and
it does not receive the DatChat Stockholder Approval.
|
If
the Merger Agreement is terminated, all further obligations of the parties under the Merger Agreement will terminate and will
be of no further force and effect (except that certain obligations related to public announcements, confidentiality, and termination
and certain general provisions will continue in effect), and no party will have any further liability to any other party thereto
except for liability for any fraud claims or willful breach of the Merger Agreement prior to such termination.