UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 001-35561
IDEANOMICS, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or
organization)
20-1778374
(I.R.S. Employer Identification No.)
55 Broadway, 19th Floor, New York, NY 10006
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(212) 206-1216
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Exchange Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act
Large Accelerated Filer ☐
Non-Accelerated Filer ☐
Emerging growth company ☐
Accelerated Filer ☒
Smaller Reporting Company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 28, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter as of the original date of this filing), the market
value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing price of shares as reported by Nasdaq) was
approximately $207,000,565. Shares of the registrant’s common stock held by each executive officer and director and each by each person who owns 10%
or more of the outstanding common stock have excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This
determination affiliate status is not necessarily a conclusive determination for other purposes.
There were a total of 162,026,045 shares of the registrant’s common stock outstanding as of March 14.
DOCUMENTS INCORPORATED BY REFERENCE
None.
IDEANOMICS, INC.
Annual Report on FORM 10-K
For the Fiscal Year Ended December 31, 2019
TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
ITEM 6.
SELECTED FINANCIAL DATA
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
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Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act (as defined
below), and Section 21E of the Exchange Act (as defined below). We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,”
“optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among
others, those concerning our transition to become a next-generation financial technology company; our expectations regarding the market for our new and
existing products and industry segment growth; our expectations regarding demand for and acceptance of our new and existing products or services; our
expectations regarding our partnerships and joint ventures, acquisitions, investments; our beliefs regarding the potential benefits and opportunities from
integrating digital artificial intelligence and blockchain technology as part of our product and services offerings; our business strategies and goals; any
projections of sales, earnings, revenue, margins or other financial items; any statements regarding the plans, strategies and objectives of management for
future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in the PRC; and all
assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including, and without limitation, those identified in Item 1A—“Risk Factors”
included herein, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ
materially from those expressed or implied by such forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity,
performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-
looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements included herein
are made as of the date of this report. We undertake no obligation to update any of these forward-looking statements, whether written or oral, that may be
made, from time to time, after the date of this report to conform our prior statements to actual results or revised expectations.
Use of Terms
Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” “the Company,” “IDEX,” or “Ideanomics,” are
to the business of Ideanomics, Inc. (formerly known as “Seven Star Cloud Group, Inc.,” “SSC” and “Wecast Network, Inc.”), a Nevada corporation, and its
consolidated subsidiaries and variable interest entities.
In addition, unless the context otherwise requires and for the purposes of this report only:
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“CB Cayman” refers to our wholly-owned subsidiary China Broadband, Ltd., a Cayman Islands company;
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
“EV” refers to Electric Vehicles, particularly battery operated electric vehicles
“FINRA” refers to the Financial Industry Regulatory Authority;
“HK SAR” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
“Hua Cheng” refers to Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd., a PRC company that is 39% owned by Sinotop
Beijing and is a 20% owner of Zhong Hai Media;
“Intelligenta” refers to the BDCG joint venture which was rebranded as Intelligenta. As part of the rebranding, Intelligenta’s strategy will now include
AI solutions to enhance corporation services, index services and products, and capital market services and products.
“Legacy YOD” business refers to the premium content and integrated value-added service solutions for the delivery of VOD (defined below) and paid
video programing to digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile
manufacturers and operators, as well as direct customers.
“MEG” refers to Mobile Energy Global the subsidiary that holds all of the Company’s Electronic Vehicles investments
“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China;
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“Renminbi” and “RMB” refer to the legal currency of the PRC;
“SEC” refers to the United States Securities and Exchange Commission;
“Securities Act” refers to the Securities Act of 1933, as amended;
“SSF” refers to Tianjin Sevenstarflix Network Technology Limited, a PRC company controlled by YOD Hong Kong through contractual
arrangements;
“Shandong Broadcast” refers to Shandong Broadcast & TV Weekly Press, a PRC company;
“Shandong Media” refers to Shandong Lushi Media Co., Ltd., a PRC company and a joint venture with respect to which we previously directly owned
50%; effective July 1, 2012, our interest in Shandong Media was reduced to a 30% stake held by Sinotop Beijing, which we indirectly control;
“Sinotop Beijing” refers to Beijing Sino Top Scope Technology Co., Ltd., a PRC company controlled by YOD Hong Kong through contractual
arrangements;
“U.S. dollars,” “dollars,” “USD,” “US$,” and “$” refer to the legal currency of the United States;
“U.S. Tax Reform” refers to the Tax Cuts and Jobs Act, enacted by the United States of America on December 22, 2017;
“VIEs” refers to our current variable interest entities Sinotop Beijing, and SSF;
“VOD” refers to video on demand, which includes near video on demand (“NVOD”), subscription video on demand (“SVOD”), and transactional
video on demand (“TVOD”);
“Mobile Energy Group Services” business unit refers to all other operations other than Legacy YOD business;
“WSG” refers to our wholly-owned subsidiary Wecast Services Group Limited (formerly known as Sun Video Group Hong Kong Limited), a Hong
Kong company;
“Wecast SH” refers to Shanghai Wecast Supply Chain Management Limited, a PRC company that is 51% owned by the Company;
“WFOE” refers to Beijing China Broadband Network Technology Co., Ltd., a PRC company and a “wholly foreign-owned enterprise,” which we
previously wholly owned and which was sold during the quarter ended March 31, 2014;
“Wide Angle” refers to Wide Angle Group Limited, a Hong Kong company that is 55% owned by the Company;
“YOD Hong Kong” refers to YOU On Demand (Asia) Limited, formerly Sinotop Group Limited, a Hong Kong company, which is wholly- owned by
CB Cayman;
“YOD WFOE” refers to YOU On Demand (Beijing) Technology Co., Ltd., a PRC company and a “wholly foreign-owned enterprise,” which is
wholly-owned by YOD Hong Kong; and
“Zhong Hai Media” refers to Zhong Hai Shi Xun Media Co., Ltd., a PRC company that was 80% owned by Sinotop Beijing until June 30, 2017.
“SSSIG” refers to Sun Seven Stars Investment Group Limited, a British Virgin Islands corporation, an affiliate of Dr. Wu.
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ITEM 1.
BUSINESS
Overview
PART I
Ideanomics, Inc. (Nasdaq: IDEX) was incorporated in the State of Nevada on October 19, 2004. From 2010 through 2017, our primary business activities
were providing premium content video on demand (“VOD”) services, with primary operations in the PRC, through our subsidiaries and variable interest
entities under the brand name You-on-Demand (“YOD”). We closed the YOD business during 2019.
Starting in early 2017, the Company transitioned its business model to become a next-generation financial technology (“fintech”) company. The Company
built a network of businesses, operating principally in the trading of petroleum products and electronic component that the Company believed had
significant potential to recognize benefits from blockchain and AI technologies including, for example, enhancing operations, addressing cost
inefficiencies, improving documentation and standardization, unlocking asset value and improving customer engagement. During 2018 the Company
ceased operations in the petroleum products and electronic components trading businesses and disposed of the businesses during 2019. Fintech continues to
be a priority for us as we look to invest in and develop businesses that can improve the financial services industry, particularly as it relates to deploying
blockchain and AI technologies. As we looked to deploy fintech solutions in late 2018 and into 2019, we found a unique opportunity in the Chinese
Electric Vehicle (EV) industry to facilitate large scale conversion of fleet vehicles from internal combustion engines to EV. This led us to establish our
Mobile Energy Global (MEG) business unit.
Principal Products or services and their markets
The Company operates in one segment which has two business units, the Mobile Energy Global and Ideanomics Capital.
Mobile Energy Group (MEG)
MEG’s mission is to use EV and EV battery sales and financing to attract commercial fleet operators that will generate large scale demand for energy,
Energy Storage Systems (ESS) and Energy Management Contracts (EMC). Additionally, MEG will become a key player in the supply chain of crucial
metals required for EV batteries, which are the center piece of mobile energy. The MEG business operates as an end-to-end solutions provider for the
procurement, financing, charging and energy management needs for fleet operators of commercial Electronic Vehicles (EV). MEG operates through a series
of joint ventures with the leading companies in the commercial EV space, principally in China, and earns fees for every transaction completed based on the
spread for group buying of vehicles and fees derived from the arrangement of financing and energy management such as commercial purchasing of pre-
paid electricity credits. MEG focuses on commercial EV rather than passenger personal EV, as commercial EV is on an accelerated adoption path when
compared to consumer EV adoption – which is expected to take between ten to fifteen years. We focus on four distinct commercial vehicles types with
supporting income streams: 1) Closed-area heavy commercial, in areas such as Mining, Airports, and Sea Ports; 2) Last-mile delivery light commercial; 3)
Buses and Coaches; 4) Taxis. The purchase and financing of vehicles provides for one-time fees and the charging and energy management provides for
recurring revenue streams.
In May 2019, the Company signed an agreement with iUnicorn (also known as Shenma Zhuanche) to form a strategic joint venture (“JV”) that will focus
on green finance and integrated marketing services for new energy taxi vehicles as part of Ideanomics’ Mobile Energy Group (“MEG”). The Company
agreed to contribute advisory and sales resources which include arranging ABS-based auto financing with its bank partners, and will have 50.01%
ownership interest in the JV and will have control of the board. iUnicorn, which will own 49.99% of the JV, agreed to contribute its vehicles sales orders in
Sichuan province. The JV will generate revenues from commissions on vehicle sales order and ABS fees related to the financing, which will vary
accordingly to manufacturer and vehicle model.
In July 2019 the Company made an equity investment in Glory Connection Snd. Bhd, (“Glory”) a vehicle manufacturer located in Malaysia. Glory’s
principal operating entity is Tree Manufacturing which holds the only license granted so far to a domestic entity for the manufacture of electric vehicles in
Malaysia and is in the process of setting up its manufacturing and assembly capabilities.
In September 2019, the Company entered into a revenue sharing agreement with First Auto Loan, one of the leading taxi finance companies in the PRC
under which the Company’s MEG business unit would assist First Auto secure a funding pool for taxi finance and in return MEG will receive a
commission on each loan written by First Auto Loan. The funding pool is led by Dasheng Licheng Lease Financing with additional funding provided by a
consortium of large Chinese insurance companies.
The Company has preferred purchasing agreements with a number of EV manufacturers including Jianghuai Automobile Group Co. (frequently known as
JAC), Geely Auto Group and Beijing Foton Motor Company and EV battery manufacturers including Contemporary Amperex Technology (frequently
known as CATL) and Yinlong Energy Co Ltd. Under the terms of these preferred purchasing agreements the Company receives preferred pricing and
volume discounts for EV and EV batteries purchased through these partners
In November 2019, the Company announced an agreement with China’s Yunnan province under the terms of which Yunnan, in its capacity as the PRC’s
province responsible for China’s Belt and Road initiative in the ASEAN countries, will make an investment into the Company’s Malaysian headquartered
Tree Technologies subsidiary. The terms of this investment are under negotiation.
The Company has entered into a sales referral agreement with Zhitong 3000 (Zhitong) an operator of a SaaS platform for the management of commercial
truck fleets. This agreement will enable to Zhitong to broaden the services offered to its customers by providing access to MEG’s vehicle purchasing and
financing platform. MEG will earn is normal fees for any business transacted by customers of Zhitong on the MEG platform
In September 2019, the company entered into a framework agreement with the China National Petroleum Corporation Nanjing (PetroChina), one of the
world largest oil companies. The Company and PetroChina will negotiate an agreement under which the Company will earn a commission for each charge
at a EV fast charging station financed by investment from the Company’s EV financing consortium which includes Three Georges, Tianda Energy, Ding
Fang and Palcan Energy.
In August 2018, the Company and agreement with National Transport Capacity (also known as National Transport of Shenzhen) under which the Company
receives an origination fee for any ABS transactions for any assets that the Company originates through its platform.
In August 2019 the Company entered into a joint venture agreement with Golden Concord Holdings Limited (GCL) thru which GCL took a 49.9% equity
interest in logistical vehicle unit of the Company’s MEG subsidiary. As consideration for the 49.9% interest, GCL made an exclusive commitment to
introduce sales of 500,000 EVs to MEG over three years. The transaction includes performance criteria with share-based claw back formula in the event
that GCL does not meet its committed targets
1
In December 2019 the Company purchased a controlling interest in Tree Technologies Sdn Bhd (“Tree Technologies”) a company that holds the
distribution license for the EV’s manufactured by Glory’s Tree Manufacturing subsidiary. In addition to the distribution license, Tree Technologies has a 99
year lease on 250 acres of vacant land zoned for industrial development in the Gebeng Industrial Area adjacent to Kuantan Port. Kuantan is the capital city
of the state of Pahang on the east coast of Peninsular Malaysia. The Company intends to develop this land and lease it to Tree Manufacturing for the
manufacture of EVs.
Ideanomics Capital
The Company’s Ideanomics Capital business unit consists of the Delaware Board of Trade (DBOT), Intelligenta and EKAR.
The Delaware Board of Trade is a broker dealer that also operates an Alternative Trading System (ATS) focused on the trading of traditional OTC
securities. The Company purchased DBOT in July 2019 and has been implementing a new trading platform to improve its competitive position in the
trading of traditional OTC securities and provide enhanced functionality to allow for the trading of digital securities when all necessary regulatory
approvals have been obtained.
Intelligenta (formerly BDCG)
Intelligenta is a pre-revenue company focused on delivering AI driven solutions for the financial services industry. Intelligenta has a license from BBD to
adapt BBD’s solutions for use in the US market.
Between December 2017 and April 2018, we formed BBD Digital Capital Group Ltd., a New York corporation (“BDCG”), as a joint venture with
management partner Seasail, an affiliate of Big Business Data (“BBD”). In April 2019 the Company rebranded the name BDCG to Intelligenta. We hold
approximately 60% of the equity interest of Inteligenta and have the power to appoint three of the five directors of the board of Intelligenta. Intelligenta
focuses on developing AI-driven financial data services as well as building transactional platforms for index, futures and derivative trading, for both global
commodity and energy clients. Planned financial data services also include risk management solutions, platforms for trading derivatives and indices, and
debt and credit product offerings, with the primary objective being enhancing trading and risk management strategies.
We believe we can leverage Intelligenta’s AI services for the creation of financial products, risk ratings and indexing, and selection and recommendation
systems on behalf of key stakeholders. By using AI technology to analyze the digital securitized assets we intend to develop, we aim to elevate not only the
quality of the financial product, but also interactions among stakeholders. We also intend to design the digital securitized assets we develop to have data
attributes that can be integrated into INTELLIGENTA’s approach for processing financial data.
EKAR – Exchange Traded Fund (ETF)
EKAR is an ETF listed on the NY Stock Exchange under the symbol EKAR. EKAR tracks the Innovation Labs Next Generation Vehicles Index, which is
comprised of a basket of global stocks that have exposure to the theme of electric and self driving/autonomous vehicles. As at December 31, 2019 the total
assets under management for EKAR stood at $1.7 million.
FinTalk
In September 2018, we entered into an agreement for the acquisition of FinTalk, a secure mobile messaging, collaboration and information services
platform that delivers encrypted text and media messaging, with high performance large file transfer capabilities. The Company has determined through
analysis that the technology is rapidly changing and the cost of maintaining this does not meet further investment. The Company recorded an impairment
loss of $5.7 million related to Fintalk in the year ended December 31, 2019.
Blockchain And AI Technologies
The Company considers deploying blockchain & AI technologies, where appropriate, to be an important part of its strategy of building new businesses and
disrupting established businesses and processes. The Company does not develop proprietary blockchain or AI technologies, the company will license the
necessary technology.
Non-Core Assets
The company has identified a number of business units that it considers non-core and is evaluating strategies for divesting these assets. The non-core assets
are Grapevine, a marketing and ecommerce platform focused on influencer marketing, and FinTech Village a 58-acre development site in West Hartford,
Connecticut.
Sources and availability of raw materials
The Company does not directly manufacture any products, consequently it is not dependent on a reliable source of materials to operate its business.
However, the Company’s partners that manufacture EVs and batteries do depend on a ready supply of raw materials and consequently a shortage of raw
materials would adversely impact their manufacturing process and, potentially, indirectly impact the Company’s revenues as it may not be able to complete
orders that it had received.
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Seasonality
The Company’s MEG division operates in the market for fleet sales of commercial EVs and the Company expects that orders and sales will be influenced
by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the year when
companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the
new budget cycle commences. The Company’s MEG division is building out its network and has not generated sufficient orders to allow it to establish with
any degree of certainty an expected pattern of seasonality.
Working Capital requirements
The Company’s MEG division is still in the development stage and its business model continues to evolve, however, management does not believe that the
MEG divisions anticipated business model will require substantial amounts of working capital as it does not anticipate holding material amounts of
inventory or offering customers extended payment terms. The Company’s Tree Technologies subsidiary will require substantial amounts of investment to
build out its distribution business. It is the Company’s intention to fund this with borrowings secured against Tree Technologies assets, however the
Company may need to fund all, or a material portion of the investment if the Tree Technologies is not able to raise the required capital to set-up and operate
the business. The Company will continue to raise funds to support its US based Head Office functions and its US based operating subsidiaries until such
time as the operations become cash flow positive.
Trade marks, patents and licenses
The Company’s Intelligenta business operates under a license granted by Seasail Ventures. The license does not have a stated term.
Customer Concentration
The Company is in the process of building out its Mobile Energy Group subsidiary and has not yet reached a stage of development where the loss of any
single customer would have a material adverse effect on the Company
3
Reliance on government contracts
The Company does not contract directly with the government of the PRC, however it does have joint ventures, partnerships and agreements with the State
Own Entities (SOE) described above. Additionally, the rate at which commercial fleets convert to EV is heavily influenced by federal and provincial
policies in the PRC as they relate to clean air and adoption of EV technology. Consequently, the Company’s results may be adversely impacted by changes
in regulations in the PRC.
Competitive business conditions, competitive position in the industry and methods of competition
Mobile Energy Group
The Company’s MEG business unit is focused on the PRC and the ASEAN Region. The most important drivers for the development of the commercial
fleet EV market in the PRC are federal and provincial regulations relating to clean air and electronic vehicles including subsidies and incentives to help
owners of fleets of commercial vehicles to convert from combustion engines to EV. The government of the PRC has a stated policy of converting all taxis
and buses to EV by the end of 2022. The speed at which fleet operators convert to EV is highly correlated with government regulations, targets and related
subsidies and incentives. If the government of the PRC, or a municipality, changes the regulations, targets, incentives or subsidies then the rate at which
fleet operators convert their vehicles to EV could slow down which in turn may lead to lower revenues for the Company. Additionally, the rate, and form in
which, the commercial fleet EV market develops is dependent upon the development of new financing and lending structures that address the different
collateral and resale values of the battery and vehicle. For vehicles with Internal Combustion Engines the power source, i.e. the engine, and the car body are
one integrated unit, however EVs are designed with the intention of the battery being easily removed from the vehicle to enable fast recharging through
“swapping’ of batteries. Additionally, the EV market is still developing and there is a very limited history of resale values for lenders to use when
calculating resale values when evaluating a financing application.
The Company operates through a network of joint ventures, partnerships and formal and informal alliances; consequently, its competitive position could be
adversely impacted if one of the members of the alliance was not able to meet the demand for its products or goes out of business.
Ideanomics Capital
The Company’s Ideanomics Capital business unit operates in sectors that are undergoing rapid change.
The Delaware Board of Trade is a broker dealer that also operates an Alternative Trading System for the trading of OTC equities, this is market which is
undergoing rapid change as retail focused stock brokers introduce zero commission trading for their clients and the industry continues to consolidate as
large financial firms acquire national stock brokers. These changes make for a very difficult competitive environment. The Company has applied for
regulatory approval to broker digital securities and tokens, this is a nascent market which the Company believes has good long term potential.
Intelligenta is developing a platform for AI driven decision making and risk management for financial data. The company is developing proof of concepts.
The Company manages the EKAR ETF listed on the New York Stock Exchange under the symbol EKAR.
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Corporate Structure
The following chart depicts our corporate structure as of December 31, 2019:
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(2).
(3).
(4)
(5)
On December 26, 2019, the Company completed the acquisition of a 51% interest in Tree Technologies, a Malaysian company engaged in the EV
market. (Refer to Note 6 for the detail information)
In 2019, the Company entered into two purchase agreements to increase the ownership in Delaware Board of Trade Holdings, Inc. to 97.5%.
(Refer to Note 6 for the detail information).
In 2019, the Company formed the joint venture (“JV”) with iUnicorn that will focus on green finance and integrated marketing services for new
energy taxi vehicles as part of Ideanomics’ Mobile Energy Group (“MEG”).
In 2019, the Company renamed the China Broadband, Ltd. to Mobile Energy Global Limited.
In 2019, the Company cancelled the VIE agreements and deconsolidated Sinotop BJ and SSF.
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VIE Structure and Arrangements
Prior to December 31, 2019, the Company consolidated certain VIEs located in the PRC in which it held variable interests and was the primary beneficiary
through contractual agreements. The Company was the primary beneficiary because it had the power to direct activities that most significantly affected
their economic performance and had the obligation to absorb or right to receive the majority of their losses or benefits. The results of operations and
financial position of these VIEs are included in the consolidated financial statements for the years ended December 31, 2019 and 2018, and as of December
31, 2018. A shareholder in one of the VIEs is the spouse of Bruno Wu (“Dr. Wu”), the Chairman of the Company.
The contractual agreements listed below, which collectively granted the Company the power to direct the VIEs activities that most significantly affected
their economic performance, as well to cause the Company to have the obligation to absorb or right to receive the majority of their losses or benefits, were
terminated by all parties on December 31, 2019. As a result, the Company deconsolidated the VIEs as of December 31, 2019. The deconsolidation resulted
in a net loss of $2.0 million recorded in “Loss on disposal of subsidiaries, net” in the consolidated statements of operations, and a statutory income tax of
$0.2 million.
For these consolidated VIEs, their assets were not available to the Company and their creditors did not have recourse to the Company. As of December 31,
2018, assets (mainly long-term investments) that could only be used to settle obligations of these VIEs were $3.5 million, and the Company was the major
creditor for the VIEs.
In order to operate certain legacy YOD business in the PRC and to comply with PRC laws and regulations that prohibit or restrict foreign ownership of
companies that provides value-added telecommunication services, the Company entered into a series of contractual agreements with two VIEs: Beijing
Sinotop Scope Technology Co., Ltd (“Sinotop Beijing”) and Tianjin Sevenstarflix Network Technology Limited (“SSF”). These contractual agreements
were initially set to expire in March 2030 and April 2036, respectively, and could not be terminated by the VIEs, except with the consent of, or a material
breach by the Company. The contractual VIE agreements were terminated by the parties on December 31, 2019. A shareholder in SSF is the spouse of Dr.
Wu, the Chairman of the Company.
The key terms of the VIE Agreements are summarized as follows:
Equity Pledge Agreement
The VIEs’ Shareholders pledged all of their equity interests in the VIEs (the “Collateral”) to YOD On Demand (Beijing) Technology Co., Ltd (“YOD
WFOE”), the Company’s wholly-owned subsidiary in the PRC, as security for the performance of the obligations to make all the required technical service
fee payments pursuant to the Technical Services Agreement and for performance of the VIEs’ Shareholders’ obligation under the Call Option Agreement.
The terms of the Equity Pledge Agreement were set to expire upon satisfaction of all obligations under the Technical Services Agreement and Call Option
Agreement.
The Equity Pledge Agreement was terminated by all parties on December 31, 2019.
Call Option Agreement
The VIEs’ Shareholders granted an exclusive option to YOD WFOE, or its designee, to purchase, at any time and from time to time, to the extent permitted
under PRC law, all or any portion of the VIEs’ Shareholders’ equity in VIEs. The exercise price of the option was to be determined by YOD WFOE at its
sole discretion, subject to any restrictions imposed by PRC law. The term of the agreement was until all of the equity interest in the VIEs held by the VIEs’
Shareholders were transferred to YOD WFOE, or its designee and could not be terminated by any part to the agreement without consent of the other
parties.
The Call Option Agreement was terminated by all parties on December 31, 2019.
Power of Attorney
The VIEs’ Shareholders granted YOD WFOE the irrevocable right, for the maximum period permitted by law, all of its voting rights as shareholders of
VIEs. The VIEs’ Shareholders could not transfer any of its equity interest in VIEs to any party other than YOD WFOE. The Power of Attorney agreements
could not be terminated except until all of the equity in VIEs had been transferred to YOD WFOE or its designee.
The Power of Attorney agreements were terminated by all parties on December 31, 2019.
Technical Service Agreement
YOD WFOE had the exclusive right to provide technical service, marketing and management consulting service, financial support service and human
resource support services to the VIEs, and the VIEs were required to take all commercially reasonable efforts to permit and facilitate the provision of the
services by YOD WFOE. As compensation for providing the services, YOD WFOE was entitled to receive service fees from the VIEs equivalent to YOD
WFOE’s cost plus 20.0 to 30.0% of such costs as calculated on accounting policies generally accepted in the PRC. YOD WFOE and the VIEs agreed to
periodically review the service fee and make adjustments as deemed appropriate. The term of the Technical Services Agreement was perpetual, and could
only be terminated upon written consent of both parties.
The Technical Services Agreement was terminated by all parties on December 31, 2019.
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Spousal Consent
Pursuant to the Spousal Consent, undersigned by the respective spouse of the VIEs’ Shareholders, the spouses unconditionally and irrevocably agreed to
the execution of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The spouses agreed to not make any assertions in
connection with the equity interest of the VIEs and to waive consent on further amendment or termination of the Equity Pledge Agreement, Call Option
Agreement and Power of Attorney agreement. The spouses further pledged to execute all necessary documents and take all necessary actions to ensure
appropriate performance under these agreements upon YOD WFOE’s request. In the event the spouses obtained any equity interests of the VIEs which
were held by the VIEs’ Shareholders, the spouses agreed to be bound by the VIE agreements, including the Technical Services Agreement, and comply
with the obligations thereunder, including signing a series of written documents in substantially the same format and content as the VIE agreements.
The Spousal Consents were terminated by all parties on December 31, 2019.
Letter of Indemnification
Pursuant to the Letter of Indemnification among YOD WFOE and each nominee shareholder, YOD WFOE agreed to indemnify such nominee shareholder
against any personal, tax or other liabilities incurred in connection with their role in equity transfer to the greatest extent permitted under PRC law. YOD
WFOE further waived and released the VIEs’ Shareholders from any claims arising from, or related to, their role as the legal shareholder of the VIE,
provided that their actions as a nominee shareholder were taken in good faith and were not opposed to YOD WFOE’s best interests. The VIEs’
Shareholders were not entitled to dividends or other benefits generated therefrom, or to receive any compensation in connection with this arrangement. The
Letter of Indemnification was to remain valid until either the nominee shareholder or YOD WFOE terminates the agreement by giving the other party
hereto 60 days’ prior written notice.
The Letter of Indemnification was terminated by all parties on December 31, 2019.
Management Services Agreement
In addition to VIE agreements described above, the Company’s subsidiary and the parent company of YOD WFOE, YOU On Demand (Asia) Limited, a
company incorporated under the laws of Hong Kong (“YOD Hong Kong”) entered into a Management Services Agreement with each VIE.
Pursuant to such Management Services Agreement, YOD Hong Kong had the exclusive right to provide to the VIE management, financial and other
services related to the operation of the VIE’s business, and the VIE was required to take all commercially reasonable efforts to permit and facilitate the
provision of the services by YOD Hong Kong. As compensation for providing the services, YOD Hong Kong was entitled to receive a fee from the VIE,
upon demand, equal to 100.0% of the annual net profits as calculated on accounting policies generally accepted in the PRC of the VIE during the term of
the Management Services Agreement. YOD Hong Kong could also request ad hoc quarterly payments of the aggregate fee, which payments would be
credited against the VIE’s future payment obligations.
In addition, at the sole discretion of YOD Hong Kong, the VIE was obligated to transfer to YOD Hong Kong, or its designee, any part or all of the
business, personnel, assets and operations of the VIE which could be lawfully conducted, employed, owned or operated by YOD Hong Kong, including:
(a) business opportunities presented to, or available to the VIE could be pursued and contracted for in the name of YOD Hong Kong rather than the
VIE, and at its discretion, YOD Hong Kong could employ the resources of the VIE to secure such opportunities;
(b) any tangible or intangible property of the VIE, any contractual rights, any personnel, and any other items or things of value held by the VIE could
be transferred to YOD Hong Kong at book value;
8
(c)
real property, personal or intangible property, personnel, services, equipment, supplies and any other items useful for the conduct of the business
could be obtained by YOD Hong Kong by acquisition, lease, license or otherwise, and made available to the VIE on terms to be determined by
agreement between YOD Hong Kong and the VIE;
(d) contracts entered into in the name of the VIE could be transferred to YOD Hong Kong, or the work under such contracts may be subcontracted, in
whole or in part, to YOD Hong Kong, on terms to be determined by agreement between YOD Hong Kong and the VIE; and
(e) any changes to, or any expansion or contraction of, the business could be carried out in the exercise of the sole discretion of YOD Hong Kong, and
in the name of and at the expense of, YOD Hong Kong;
(f) provided, however, that none of the foregoing may cause or have the effect of terminating (without being substantially replaced under the name of
YOD Hong Kong) or adversely affecting any license, permit or regulatory status of the VIE.
The Management Services Agreement was terminated by all parties on December 31, 2019.
Loan Agreement
Pursuant to the Loan Agreement dated April 5, 2016, YOD WFOE agreed to lend RMB 19.8 million and RMB 0.2 million, respectively, to the VIEs’
Shareholders, one of whom is the spouse of Dr. Wu, the Company’s Chairman, for the purpose of establishing SSF and for development of its business. As
of December 31, 2018, RMB27.6 million ($4.2 million) had been lent to VIEs’ Shareholders which had contributed all of the RMB27.6 million ($4.2
million) in the form of capital contribution to SSF. The loan could only be repaid by a transfer by the VIEs’ Shareholders of their equity interests in SSF to
YOD WOFE or YOD WOFE’s designated persons, through (1) YOD WOFE having the right, but not the obligation to at any time purchase, or authorize a
designated person to purchase, all or part of the VIEs’ Shareholders’ equity interests in SSF at such price as YOD WOFE shall determine (the “Transfer
Price”), (2) all monies received by the VIEs’ Shareholders through the payment of the Transfer Price being used solely to repay YOD WOFE for the loans,
and (3) if the Transfer Price exceeds the principal amount of the loans, the amount in excess of the principal amount of the loans being deemed as interest
payable on the loans, and to be payable to YOD WOFE in cash. Otherwise, the loans were deemed to be interest free. The term of the Loan Agreement was
perpetual, and could only be terminated upon the VIEs’ Shareholders receiving repayment notice, or upon the occurrence of an event of default under the
terms of the agreement. The loan extended to the Nominee Shareholders and the capital of SSF are fully eliminated in the consolidated financial statements.
The Loan Agreement was terminated by all parties on December 31, 2019. The termination of the Loan Agreement resulted in a loss of $5.1 million.
Therefore, the Company considers that there was no asset of the VIEs that could be used only to settle obligation of the Company, except for the registered
capital of VIEs amounting to RMB38.2 million ($5.8 million) as of December 31, 2018.
Our Unconsolidated Equity Investments
We hold a 34% ownership interest in Glory, which through its subsidiary Tree Manufacturing, holds a domestic EV manufacturing license in Malaysia.
Tree Manufacturing has entered into a product supply and a product distribution arrangement for EVs with Tree Technologies, a consolidated subsidiary of
the Company.
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In 2018, we signed a joint venture agreement to establish Intelligenta located in the United States for providing services for financial or energy industries
by utilizing AI and big data technology in the United States. We hold a 60.0% ownership and Seasail ventures limited (“Seasail”) holds 40% of
Intelligenta. BDCG is currently in the process of ramping up its operations.
Our investments in Glory and BDCG where we may exercise significant influence, but not control, are classified as a long-term equity investment and
accounted for using the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for our share of undistributed
earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that we do not guarantee the
investee’s obligations or we are committed to provide additional funding.
Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K for further information.
Our Competition
Mobile Energy Group Services Business Unit
The Company’s EV business operates in the market for fleet commercial vehicles, this market is still in its development stage. The Company could face
competition for other companies that develop and operate a similar integrated platform for the procurement, purchase, financing, charging and energy
management needs of fleet EV operators. The company could also face competition from companies that only operate in one part of the vehicle purchase
and operation cycle, for example, an EV vehicle or battery manufacturer may sell directly to EV fleet operators while also participating in the MEG
platform.
Delaware Board of Trade (DBOT) operates an ATS in the highly competitive market for trading Over-the-Counter (OTC) equities. The market that DBOT
operates in is dominated by the OTC Markets group.
Grapevine competes in the consumer marketing sector and specializes in designing and managing “influencer” led social media campaigns for brands and
advertising agencies that do not have a capability to manage influencer marketing campaigns directly. This is a very competitive sector with multiple
competitors.
Seasonality Variations in Business
The Company’s MEG division operates in the market for fleet sales of commercial EVs and the Company expects that orders and sales will be influenced
by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the year when
companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the
new budget cycle commences. The Company’s MEG division is building out its network and has not generated sufficient orders to allow it to establish with
any degree of certainty an expected pattern of seasonality.
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Revenue Recognition
The Company records and reports revenues in accordance with US GAAP particularly ASC 606 Revenue from Contracts with Customers which provides
guidance on how revenues should be reported and the timing of when revenues should be reported. ASC 606 includes guidance on when revenue should be
recognized on a Gross (Principal) or Net (Agent) basis, the Company’s contracts are typically with large enterprises and consequently are heavily
negotiated as to the services to be provided; consequently the accounting treatment for the reporting of revenues may vary materially between contracts
including whether the revenue is reported on a Gross or Net basis.
Regulation
General Regulation of Businesses in the PRC
We are required to obtain government approval from the Ministry of Commerce of the PRC (“MOFCOM”), and other government agencies in the PRC for
transactions, such as our acquisition or disposition of business entities in the PRC. Additionally, foreign ownership of business and assets in the PRC is not
permitted without specific government approval.
Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the
Catalogue, which was promulgated and is amended from time to time by the MOFCOM and the National Development and Reform Commission. The
Catalogue sets forth the industries in which foreign investments are “encouraged”, “restricted”, or “prohibited”. Industries that are not listed in any of the
above three categories are permitted areas for foreign investments and are generally open to foreign investment unless specifically restricted by other PRC
regulations. Establishment of wholly foreign owned enterprises is generally allowed in encouraged and permitted industries. Foreign investors are not
allowed to invest in industries in the prohibited category.
Under PRC law, the establishment of a wholly foreign owned enterprise is subject to the approval of or filing with the MOFCOM or its local counterparts
and the wholly foreign owned enterprise must register with the competent industry and commerce bureau. Our significant PRC subsidiaries have duly
obtained all material approvals required for their business operations.
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In addition, the transportation sector is subject to regulation at the federal and provincial level. The PRC government may issue from time to time new laws
or new interpretations on existing laws, some of which are not published on a timely basis or may have retroactive effect. For example, there is substantial
uncertainty regarding the Draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and
effective date of the final form of the law. Administrative and court proceedings in the PRC may also be protracted, resulting in substantial costs and
diversion of resources and management attention. While such uncertainty exists, we cannot assure that the new laws, when it is adopted and becomes
effective, and potential related administrative proceedings will not have a material and adverse effect on our ability to control the affiliated entities through
the contractual arrangements. Regulatory risk also encompasses the interpretation by the tax authorities of current tax laws, and our legal structure and
scope of operations in the PRC, which could be subject to further restrictions resulting in limitations on our ability to conduct business in the PRC.
Chinese regulations will also significantly impact our Mobile Energy Group Services business unit. For example, in September 2017, reports were
published that the PRC may begin prohibiting the practice of using digital assets for capital fundraising. In 2018, reports surfaced that the PRC had banned
local digital asset exchanges from operating within the country. Until there is greater regulatory clarity and acceptance of digital token and blockchain-
based financial products in the PRC, we may not be able to provide services under our Mobile Energy Group Services business unit in the PRC.
Taxation
On March 16, 2007, the National People’s Congress of the PRC passed the EIT Law, and on November 28, 2007, the State Council of China passed its
implementing rules which took effect on January 1, 2008. The EIT Law and its implementing rules impose a unified earned income tax (“EIT”) rate of
25.0% on all domestic-invested enterprises and foreign invested enterprises (“FIEs”) unless they qualify under certain limited exceptions. In addition, under
the EIT Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will
normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment
that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC
tax authorities subsequently determine that we should be classified as a resident enterprise, then our organization’s global income will be subject to PRC
income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status, see Part I—Item 1A—“Risk Factors—Risks Related to
Doing Business in the PRC and to Our Legacy YOD Business —Under the New Enterprise Income Tax Law, we may be classified as a “resident
enterprise” of the PRC.” Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.”
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Foreign Currency Exchange
Under the PRC foreign currency exchange regulations applicable to us, RMB is convertible for current account items, including the distribution of
dividends, interest payments, trade and service-related foreign exchange transactions. Currently, our PRC operating entities may purchase foreign
currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the PRC State Administration of
Foreign Exchange (“SAFE”), by complying with certain procedural requirements. Conversion of RMB for capital account items, such as direct investment,
loan, security investment and repatriation of investment, however, is still subject to the approval of SAFE. In particular, if our PRC operating entities
borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by
means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the MOFCOM, or their
respective local branches. These limitations could affect our PRC operating entities’ ability to obtain foreign exchange through debt or equity financing.
Dividend Distributions
PRC regulations restrict the ability of our PRC entities to make dividends and other payments to their offshore parent company. PRC legal restrictions
permit payments of dividends by our PRC entities only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting
standards and regulations. Each of our PRC subsidiaries is also required under PRC laws and regulations to allocate at least 10% of our annual after-tax
profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in such fund reaches 50% of its registered capital.
These reserves are not distributable as cash dividends. Our PRC subsidiaries have the discretion to allocate a portion of their after-tax profits to staff
welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
In addition, under the new EIT law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates (Notice
112), which was issued on January 29, 2008, and the Notice of the State Administration of Taxation Regarding Interpretation and Recognition of Beneficial
Owners under Tax Treaties (Notice 601), which became effective on October 27, 2009, dividends from our PRC operating subsidiaries paid to us through
our entities will be subject to a withholding tax at a rate of 10%. Furthermore, the ultimate tax rate will be determined by treaty between the PRC and the
tax residence of the holder of the PRC subsidiary. Dividends declared and paid from before January 1, 2008 on distributable profits are grandfathered under
the EIT Law and are not subject to withholding tax.
We intend to reinvest profits, if any, and do not intend on making cash distributions of dividends in the near future.
Regulation Regarding our Fintech Businesses
Blockchain and distributed ledger platforms are recent technological innovations, and the regulatory schemes to which digital assets may be subject have
not been fully explored or developed. Regulation of digital assets varies from country to country as well as within countries. In some cases, existing laws
have been interpreted to apply to blockchain based technologies and digital assets, and in other cases, jurisdictions have adopted laws, regulations or
directives that specifically affect digital assets, and some jurisdictions have not taken any regulatory stance on digital assets and or have explicitly declined
to apply regulation. Accordingly, there is no clear regulatory framework applicable to blockchain platforms or digital asset products, and laws that do apply
at times may overlap.
As both the regulatory landscape develops and journalistic familiarity with digital assets increase, mainstream media’s understanding of such digital assets
and the regulation thereof may improve. An increase in the regulation of digital assets may affect our proposed business by increasing compliance costs or
prohibiting certain or all of our proposed activities.
Securities and Commodities Laws
Actions taken by securities regulators in the United States and internationally have confirmed that certain digital assets may be securities under the laws of
applicable jurisdictions, as a result of which we will face government regulation and oversight. For example, under U.S. federal law, an instrument is
generally considered to be an “investment contract,” and therefore a security, where there is (1) an investment of money; (2) money is made in a common
enterprise; (3) with an expectation of profits; (4) to be derived from the efforts of others. We anticipate that all of the securitized digital assets we develop
will be securities under U.S. federal law, as well as the securities laws of some overseas jurisdictions, such as Canada, Australia and Japan, which
accordingly will trigger registration or qualification requirements with the SEC, or potentially, certain foreign jurisdiction where we may market such
securitized digital assets, or require us to rely on any available exemptions.
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Platforms for the exchange and trading of digital assets that qualify as securities under applicable laws, such as the four platforms we expect to offer, may
also be subject to regulatory requirements and approvals. In order for a securities exchange to allow U.S. investors to participate on its platform, it must
register as a broker-dealer with the SEC, become a member of FINRA, file a Form ATS with the SEC and comply with Regulation ATS. Depending on a
securities exchange’s activities, it may be required to also register as a broker dealer on the state level. DBOT, one of our joint venture investments, has
filed a Form ATS with the SEC. We, or our joint ventures, may also be required to comply with laws applicable to securities exchanges to the extent our
exchange platforms are made available in jurisdictions where the securitized digital assets that trade on those platforms are treated as securities.
In addition, the U.S. Commodity Futures Trading Commission (“CFTC”) has defined “virtual currencies” as a digital representation of value that functions
as a medium of exchange, a unit of account, and/or a store of value, but does not have legal tender status in any jurisdiction. The CFTC has considered
digital assets as commodities or derivatives, depending on the facts of the offering. We do not plan to facilitate borrowing transactions that permit the
trading of the securitized digital assets we develop on a “leveraged, margined or financed basis.”
Money Services and Transmitter Laws
FinCEN, a bureau of the U.S. Department of the Treasury responsible for the federal regulation of currency market participants, has issued interpretive
guidance relating to the application of the Bank Secrecy Act to distributing, exchanging and transmitting “virtual currencies.” As a result of this guidance,
some companies that act as an administrator or exchanger of digital assets may be considered a money service businesses (“MSB”). MSBs are required to
register as an MSB under FinCEN’s money transmitter regulations, be subject to reporting requirements and perform recordkeeping functions. As a result,
digital asset exchanges that offer services to U.S. residents or otherwise fall under U.S. jurisdiction are required to obtain licenses and comply with FinCEN
regulations. FinCEN released additional guidance clarifying that most miners, software developers, hardware manufacturers, escrow service providers and
investors in certain digital assets would not be required to register with FinCEN on the basis of such activity alone, but that digital asset exchanges,
payment processors and convertible digital asset administrators would likely be required to register with FinCEN. We are currently evaluating whether our
planned operations may be require our registration as an MSB.
In addition, various U.S. state regulators, including the California Department of Financial Institutions, the New York State Department of Financial
Services, the Virginia Corporation Commission, the Idaho Department of Financial Services, and the Washington State Department of Financial
Institutions, have released interpretations or mandates that digital asset exchanges and similar service providers register on a state-level as money
transmitters (“MTs”) or MSBs. Many of the states have their own application and process to apply for an MT license.
Financial Crimes and Sanctions Compliance
The jurisdictions in which we operate and intend to operate generally have adopted laws to prevent money laundering, terrorist financing, fraud and other
financial crime, as well as to ensure compliance with applicable sanctions regimes. Various aspects of our business require us to develop and implement
policies and procedures that confirm the identity of customers, detect suspicious activities and ensure we do not do business with blocked persons.
Accordingly, we have already implemented specific anti-money laundering (“AML”) and “know your customer” policies for the SSE oil trading operations
and Amer consumer electronics operations through each entity’s bank.
Laws or Regulations Directed at Digital Assets
Certain jurisdictions may require specific licensees for companies operating blockchain and digital asset based businesses. Some jurisdictions, such as the
PRC, Ecuador, Russia, South Korea and India, have prohibited or severely restricted the trading of digital assets and/or operation of exchanges that trade in
such digital assets, which may prevent us from marketing the securitized digital assets we plan to develop in those countries, or from making the exchanges
we are designing available in those countries.
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European regulators generally have generally not yet implemented specific laws or regulations directed at digital assets, but reports suggest they may do so
in the future. For example, in October 2012, the European Central Bank issued a report on “virtual currency” schemes indicating that digital assets may
become the subject of regulatory interest in the European Union, in July 2016, the European Commission released a draft directive that proposed applying
counter-terrorism and AML regulations to digital currencies, and in September 2016, the European Banking authority advised the European Commission to
institute new regulation specific to digital currencies, with amendments to existing regulation as a stopgap measure. Australian lawmakers have also
introduced legislation to regulate digital asset exchanges and increase AML policies. We intend to monitor the extent to which any such regulations are
adopted and will apply to our business.
Environmental Disclosures
As part of the acquisition of the Fintech Village property (see Part I—Item 2—“Properties”), we agreed to assume responsibility for completing
environmental remediation, previously initiated by the prior owner, relating to the cleanup of asbestos and polychlorinated biphenyls (“PCBs”) from
building materials on the property and any contamination of soil and groundwater on the land, an existing condition cited by the Department of Energy and
Environmental Protection for the State of Connecticut (“DEEP”). We were required, as part of the purchase of the land, to post an $8 million surety bond
($3.6 million of which was cash collateral), the approximate cost of previous remediation costs. The surety bond will serve either serve as collateral to the
state if we do not complete the environmental remediation to state and federal requirements or be returned to us in full if remediation efforts are successful
and completed.
Our remediation efforts are ongoing and are currently in the initial testing stage. We plan to remove or renovate the contaminated buildings on the property
and, through a third party, are currently testing levels of contaminants in the groundwater in some of the wetlands and ponds on the property. DEEP and the
Environmental Protection Agency continue to monitor our remediation efforts. Although there can be no assurance, based upon the information available,
we do not expect expenses associated with these activities to be material. If we elect to sell, transfer or change the use of the facility, additional
environmental testing may be required. We cannot assure that we will not discover further environmental contamination, that any planned timeline for
remediation will not be delayed, that we would not be required by DEEP or the EPA to incur significant expenditures for environmental remediation in the
future.
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Our Employees
As of December 31, 2019, we had a total of 60 full-time employees, including 30 located in the United States. The following table sets forth the number of
our employees by function on December 31, 2019.
Function
Business Development
Project Management and Operations
Technology
Finance and Legal
Administrative
TOTAL
Number of Employees
22
7
1
16
14
60
Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.
We are required under PRC law to make contributions to employee benefit plans at specified percentages of employee salary. In addition, we are required
by the PRC law to cover employees in the PRC with various types of social insurance. We believe that we are in compliance with the relevant PRC laws.
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ITEM 1A. RISK FACTORS
The business, financial condition and operating results of the Company may be affected by a number of factors, whether currently known or unknown,
including but not limited to those described below. Any one or more of such factors could directly or indirectly cause the Company’s actual results of
operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in
whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and stock price. The following
information should be read in conjunction with Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the consolidated financial statements and related notes in Part II—Item 8—“Financial Statements and Supplementary Data” of this
Annual Report.
RISKS RELATED TO OUR BUSINESS AND STRATEGY
Substantial doubt about our ability to continue as a going concern.
This Annual Report on Form 10-K for the year ended December 31, 2019 includes disclosures and an opinion from our independent registered public
accounting firm stating that our recurring losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going
concern. Our consolidated financial statements as of December 31, 2019 were prepared under the assumption that we will continue as a going concern and
do not include any adjustments that might result from the outcome of this uncertainty. As of December 31, 2019, we had an accumulated deficit of $249.0
million, with liabilities of $67.0 million and cash on hand of $2.6 million.
We will need to rely on proceeds from debt and equity issuances to pay for ongoing operating expenses in order to execute its business plan. Management
has taken several actions to ensure that the Company will continue as a going concern, including debit financings and reductions in business related
expenses and discretionary expenditures.
Although the Company may attempt to raise funds by issuing debt or equity instruments, in the future additional financing may not be available to the
Company on terms acceptable to the Company or at all or such resources may not be received in a timely manner. If the Company is unable to raise
additional capital when required or on acceptable terms, the Company may be required to scale back or to discontinue certain operations, scale back or
discontinue the development of new business lines, reduce headcount, sell assets, file for bankruptcy, reorganize, merge with another entity, or cease
operations.
We expect to require additional financing in the future to meet our business requirements. Such capital raising may be costly, difficult or not possible to
obtain and, if obtained, could significantly dilute current stockholders’ equity interests
We must continue to rely on proceeds from debt and equity issuances to pay for ongoing operating expenses and repay existing debt in order to execute our
business plan. Although we may attempt to raise funds by issuing debt or equity instruments, additional financing may not be available to us on terms
acceptable us or at all or such resources may not be received in a timely manner. If we are unable to raise additional capital when required or on acceptable
terms, we may be required to scale back or to discontinue certain operations, scale back or discontinue the development of new business lines, reduce
headcount, sell assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.
We are in the process of transforming our business model, such that there is only a limited basis to evaluate our business and prospects. This
transformation may continue to evolve, and ultimately may not be successful.
We are in the process of transforming our business model to develop a platform for the procurement, purchase, financing battery charging and energy
management for commercial fleets of Electric Vehicles. In connection with this transformation, we are in the process of considerable changes, including
initiatives to assemble a new management team, reconfigure the business structure, and expand our mission and business lines. It is uncertain whether these
efforts will prove beneficial or whether we will be able to develop the necessary business models, infrastructure and systems to support the business. This
includes having or hiring the right talent to execute our business strategy, and building a team with the technological capability and know-how to build the
products and provide the services we envision. Market acceptance of new product and service offerings will be dependent in part on our ability to include
functionality and usability that address customer requirements, and optimally price our products and services to meet customer demand and cover our costs.
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Even if we implement our plan in accordance with our expectations, our assumptions regarding costs and growth of revenue may differ substantially from
reality. Furthermore, even if the anticipated benefits and savings are realized in part, there may be consequences, internal control issues, or business
impacts that were not expected. Additionally, as a result of our restructuring efforts in connection with our business transformation plan, we may
experience a loss of continuity, loss of accumulated knowledge or loss of efficiency during transitional periods. Reorganization and restructuring can
require a significant amount of management and other employees’ time and focus, which may divert attention from operating activities and growing our
business. If we fail to achieve some or all of the expected benefits of these activities, it could have a material adverse effect on our competitive position,
business, financial condition, results of operations and cash flows.
The success of the Company’s efforts to develop its MEG business unit is highly dependent upon suitable financing structures being developed.
The market for commercial fleets of Electric Vehicles (EV) is in the early stage of development and provides unique challenges to fleet owners trying to
finance the purchase of fleets of EV. Unlike vehicles powered by Internal Combustion Engines, the power source in an EV, the battery, can be separated
from the vehicle which creates unique challenges for lenders in valuing the collateral for any loan. Additionally, the market for commercial EVs is very
new and consequently there is no reliable history of resale values to support lending decisions. The Company is working with banks and insurance
companies to create lending structures and pools of capital that can be used to finance fleet purchases of commercial EVs. Even if the Company can create
the necessary pools of capital and lending structures there is no guarantee that any regulatory approvals required for these new structures will be obtained.
If the Company is not able to develop a solution for the funding of fleet purchases then the companies MEG business may not be successful and generate
minimal revenues and incur substantial losses.
Our operating results are likely to fluctuate significantly and may differ from market expectations.
Our annual and quarterly operating results have varied significantly in the past, and may vary significantly in the future, due to a number of factors which
could have an adverse impact on our business. Our revenue may fluctuate as we expect a disproportionate amount of our revenues generated from our
Mobile Energy Group Services business unit quarter over quarter due to the customers’ seasonal demand, as normally holiday demand for consumer
electronics would increase our revenue. Furthermore, as the launch dates of our new products may not be the same as what we have planned, we expect the
financial performance might fluctuate significantly depending on timing, quantity and outcome of such product launches.
The transformation of our business will put added pressure on our management and operational infrastructure, impeding our ability to meet any
potential increased demand for our services and possibly hurting our future operating results.
Our business plan is to significantly grow our operations to meet anticipated growth in demand for the services that we offer, and by the introduction of
new goods or services. Growth in our businesses will place a significant strain on our personnel, management, financial systems and other resources. The
evolution of our business also presents numerous risks and challenges, including:
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our ability to successfully and rapidly expand sales to potential new distributors in response to potentially increasing demand;
the costs associated with such growth, which are difficult to quantify, but could be significant; and
rapid technological change.
To accommodate any such growth and compete effectively, we will need to obtain additional funding to improve information systems, procedures and
controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities, if at all. If we are not able
to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.
The success of our business is dependent on our ability to retain our existing key employees and to add and retain senior officers to our management.
We depend on the services of our key employees. Our success will largely depend on our ability to retain these key employees and to attract and retain
qualified senior and middle level managers to our management team.
We have recruited executives and management both in the United States and the PRC to assist in our ability to manage the business and to recruit and
oversee employees. While we believe we offer compensation packages that are consistent with market practice, we cannot be certain that we will be able to
hire and retain sufficient personnel to support our business. In addition, severe capital constraints have limited our ability to attract specialized personnel.
Moreover, our budget limitations will restrict our ability to hire qualified personnel. The loss of any of our key employees, or failure to find a suitable
successor, would significantly harm our business. Our future success will also depend on our ability to identify, hire, develop and retain skilled key
employees. We do not maintain key person life insurance on any of our employees. Future sales or acquisitions by us may also cause uncertainty among
our current employees and employees of an acquired entity, which could lead to the departure of key employees. Such departures could have an adverse
impact on our business and the anticipated benefits of a sale or acquisition.
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Changes in our management team may adversely affect our operations.
While we expect to engage in an orderly transition process as we integrate newly appointed officers and managers, we face a variety of risks and
uncertainties relating to management transition, including diversion of management attention from business concerns, failure to retain other key personnel
or loss of institutional knowledge. These risks and uncertainties could result in operational and administrative inefficiencies and added costs, which could
adversely impact our results of operations, stock price and research and development of our products.
We are highly dependent on the services of Dr. Bruno Wu, our Chairman.
We are highly dependent on the services of Dr. Bruno Wu, our Chairman and largest stockholder, particularly as it relates to our operations in the PRC and
Asia. Although Dr. Wu spends significant time with Ideanomics and is highly active in our management, he does not devote his full time and attention to
Ideanomics. Dr. Wu also currently serves as CEO of Sun Seven Stars Investment Group.
Our international operations expose us to a number of risks.
Our international activities are significant to our revenues and profits, and we plan to further expand internationally. In certain international market
segments, we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It is costly to
establish, develop, and maintain international operations and platforms, and promote our brand internationally.
Our international sales and operations are subject to a number of risks, including:
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local economic and political conditions;
government regulation of e-commerce and other services, electronic devices, and competition, and restrictive governmental actions (such as trade
protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership;
restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including
uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices
regarding the physical and digital distribution of media products and enforcement of IP rights;
limitations on the repatriation and investment of funds and foreign currency exchange restrictions;
limited technology infrastructure;
environmental and health and safety liabilities and expenditures relating to the disposal and remediation of hazardous substances into the air, water
and ground;
shorter payable and longer receivable cycles and the resultant negative impact on cash flow;
laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or
discounts;
geopolitical events, including war and terrorism.
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We may face challenges in expanding our international and cross-border businesses and operations.
As we expand our international and cross-border businesses into an increasing number of international markets, we will face risks associated with
expanding into markets in which we have limited or no experience and in which we may be less well-known. We may be unable to attract a sufficient
number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively in these new markets. The
expansion of our international and cross-border businesses will also expose us to risks inherent in operating businesses globally, including:
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inability to recruit international and local talent and challenges in replicating or adapting our Company policies and procedures to operating
environments different than that of the PRC;
lack of acceptance of our product and service offerings;
challenges and increased expenses associated with staffing and managing international and cross-border operations and managing an organization
spread over multiple jurisdictions;
trade barriers, such as import and export restrictions, customs duties and other taxes, competition law regimes and other trade restrictions, as well
as other protectionist policies;
differing and potentially adverse tax consequences;
increased and conflicting regulatory compliance requirements;
challenges caused by distance, language and cultural differences;
increased costs to protect the security and stability of our information technology systems, IP and personal data, including compliance costs
related to data localization laws;
availability and reliability of international and cross-border payment systems and logistics infrastructure;
exchange rate fluctuations; and
political instability and general economic or political conditions in particular countries or regions.
As we expand further into new regions and markets, these risks could intensify, and efforts we make to expand our international and cross-border
businesses and operations may not be successful. Failure to expand our international and cross-border businesses and operations could materially and
adversely affect our business, financial condition and results of operations.
Transactions conducted through our international and cross-border platforms may be subject to different customs, taxes and rules and regulations, and we
may be adversely affected by the complexity of and developments in customs and import/export laws, rules and regulations in the PRC and other
jurisdictions. For example, effective as of April 8, 2016, the Notice on Tax Policies of Cross-Border E-Commerce Retail Importation, or the New Cross-
Border E-commerce Tax Notice, replaced the previous system for taxing consumer goods imported into the PRC and introduced a 16% value-added tax, or
VAT, on most products sold through e-commerce platforms and consumption tax on high-end cosmetics.
We may also have operations in various markets with volatile economic or political environments and may pursue growth opportunities in a number of
newly developed and emerging markets. These investments may expose us to heightened risks of economic, geopolitical, or other events, including
governmental takeover (i.e., nationalization) of our manufacturing facilities or IP, restrictive exchange or import controls, disruption of operations as a
result of systemic political or economic instability, outbreak of war or expansion of hostilities, and acts of terrorism, each of which could have a substantial
adverse effect on our financial condition and results of operations. Further, the U.S. government, other governments, and international organizations could
impose additional sanctions that could restrict us from doing business directly or indirectly in or with certain countries or parties, which could include
affiliates.
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As we acquire, dispose of or restructure our businesses, product lines, and technologies, we may encounter unforeseen costs and difficulties that could
impair our financial performance
An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market
coverage and distribution ability, or enhance our capabilities. As a result, we may seek to make acquisitions of companies, products, or technologies, or we
may reduce or dispose of certain product lines or technologies that no longer fit our business strategies. For regulatory or other reasons, we may not be
successful in our attempts to acquire or dispose of businesses, products, or technologies, resulting in significant financial costs, reduced or lost
opportunities, and diversion of management’s attention. Managing an acquired business, disposing of product technologies, or reducing personnel entails
numerous operational and financial risks, including, among other things, (i) difficulties in assimilating acquired operations and new personnel or separating
existing business or product groups, (ii) diversion of management’s attention away from other business concerns, (iii) amortization of acquired intangible
assets, (iv) adverse customer reaction to our decision to cease support for a product, and (v) potential loss of key employees or customers of acquired or
disposed operations. There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions,
disposition of product lines or technologies, or reduction in personnel or that our management, personnel, or systems will be adequate to support continued
operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, financial condition, and/or cash
flows.
In addition, any acquisition could result in changes, such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities, the amortization of related intangible assets, and goodwill impairment charges, any of which could materially adversely affect our business,
financial condition, results of operations, cash flows, and/or the price of our common stock.
Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to IP claims may cause us to incur significant expenses, and could distract our
technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial
adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources
available for development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such
litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because
of their greater financial resources. Uncertainties resulting from the initiation and continuation of IP litigation or other proceedings could have a material
adverse effect on our ability to compete in the marketplace.
Our ability to conduct our businesses may be materially adversely impacted by catastrophic events, including natural disasters, pandemics and other
international health emergencies, weather-related events, terrorist attacks, and other disruptions.
We may encounter disruptions involving power, communications, transportation or other utilities or essential services depended on by us or by third parties
with whom we conduct business. This could include disruptions as the result of natural disasters, pandemics, other international health emergencies, or
weather-related or similar events (such as fires, hurricanes, earthquakes, floods, landslides and other natural conditions including the effects of climate
change), political instability, labor strikes or turmoil, or terrorist attacks. In 2020, China and other countries have experienced the spread of the coronavirus
pandemic. At a minimum, we believe this pandemic has a significant chance of effecting the timing and amount of our revenue for 2020. Similar potential
disruptions may occur in any of the locations in which we, our counterparties or our customers do business. We continue to assess the potential impact on
our counterparties and customers of such events, and what impact, if any, these events could have on our businesses, financial condition, results of
operations and prospects.
If we fail to develop and maintain effective disclosure controls and an effective system of internal control over financial reporting, our ability to
accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and market price of our shares
may be adversely impacted.
Our reporting obligations as a public company place a significant strain on our management and our operational and financial resources and systems and
will continue to do so for the foreseeable future. We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”),
which requires us to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Material weaknesses
and significant deficiencies may be identified during the audit process or at other times. In 2016, a material weakness was identified in the internal control
over financial reporting related to the design, documentation and implementation of effective internal controls for the review of the cash flow forecasts
used in the accounting for licensed content recoverability. Specifically, we did not design and maintain effective internal controls related to management’s
review of the data inputs and assumptions used in our cash flow forecasts for licensed content recoverability, However, the condition of this material
weakness does not exist as of the date of this report as the licensed content was sold in March 2019. As of December 31, 2019, management concluded that
our internal control over financial reporting was effective.
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If we fail to develop and maintain effective internal control over financial reporting, our management may not be able to conclude that we have effective
internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our
financial statements. If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce
reliable financial reports. Any failure to improve and maintain the effectiveness of our internal controls over financial reporting could lead to future errors
in our financial statements that could require a restatement or untimely filings, which could cause investors to lose confidence in our reported financial
information, and result in a decline in our stock price.
The Sarbanes-Oxley Act also requires that we maintain effective disclosure controls and procedures. As a publicly traded company, we are required to file
periodic reports containing our consolidated financial statements with the SEC within a specified time following the completion of quarterly and annual
periods. Maintaining effective disclosure controls and procedures is necessary to identify information we must disclose in our periodic reports. Our
disclosure controls and procedures have been ineffective in the past, and to the extent that our disclosure controls and procedures are found to be ineffective
in the future, such finding could result in the loss of investor confidence in the reliability of our disclosures, harm our business, and negatively impact the
trading price of our common stock.
RISKS RELATED TO OUR MOBILE ENERGY GROUP SERVICES BUSINESS UNIT
We experience significant competitive pressure in the Mobile Energy Group Services business unit, which may negatively impact our business,
financial condition, and results of operations.
The Company’s Mobile Energy Group business unit is operating in the fleet commercial Electric Vehicle (EV) market primarily in the PRC and the
ASEAN region. The commercial EV market is still in its development stage and the rate at which the operators of fleets of commercial vehicles replace
their internal combustion engine (ICE) vehicles with EV is very dependent upon (i) environmental and clean air regulations that mandate conversion to EV,
(ii) the subsidies that government bodies make available to cover the cost of conversion and (iii) the availability of financing to cover some or all of the
cost of conversion.
Environmental and clean air regulations drive the timing and rate at which fleet operators convert to EV and by extension the size of the market and the
type of vehicles that are in demand at any time. The company’s revenues and profits may be adversely impacted if demand for EV is lower than expected
due to a change in regulation or regulations favor conversion of vehicle types that have lower profit margins.
Converting fleets to EV is very capital intensive and most operators require substantial amounts of funding in the form of PRC and provincial subsidies and
bank financing. The amount and form of PRC and provincial subsidies are subject to change from time to time as the government bodies adjust subsidies to
influence consumer behavior. The mechanisms for financing of EV are still being developed and large scale conversion from internal combustion engines
to EV is highly dependent upon the amount and terms of financing available for the conversion to EV.
We will face significant competition with respect to the products and services we may offer in the blockchain- and AI-enabled fintech business we are
building, and we currently face significant competition with respect to the businesses we operate that generate revenue for our Company.
One of the Company’s long term strategic goals is to leverage blockchain- and AI-based fintech solutions to offer products and services that will bring
transparency, efficiency and cost savings to various markets, including logistics management and finance, consumer products, media, and financial
services. We therefore face significant competitive pressure not only with other developers of blockchain and AI technologies in the fintech space, but also
in the markets for the products and services we offer or plan to offer, which are very competitive and subject to rapid technological advances, new market
entrants, non-traditional competitors, changes in industry standards and changes in customer needs and consumption models.
The blockchain industry is densely populated by companies touting blockchain capabilities, including Smart Valor, Polymath, tZero and Consensys, among
others. Our competitors, both in the fintech space and in the markets we plan to service, may introduce new platforms and solutions that are superior to
ours, or may offer additional, vertically integrated products and services that we do not yet plan to provide. Certain competitors may have entered these
spaces much earlier than us, may be better capitalized, may have more industry connections, and may be able to adapt more quickly to new technologies or
may be able to devote greater resources to the development, marketing and sale of their products than we can. In addition, we are competing not only with
respect to potential business, but with respect to the acquisition of novel and effective technologies, receipt of required regulatory approvals and retention
of human capital and talent.
In addition, the fintech market in general is seeing myriad new capabilities and solutions introduced by large established companies, such as IBM, Google
and Amazon, as well as smaller emerging companies. These technologies may rely on blockchain technology or AI, as well as other innovative
technologies such as machine learning or big data. As we apply our blockchain-and AI-based fintech solutions to the finance industry, we will compete
with private and public financial institutions, investment banks, broker-dealers and financial consulting firms, among other institutions, that may have their
own proprietary solutions (including trading platforms, web based and mobile algorithm trading platforms, social trading platforms, high-frequency trading
platforms, back office solutions, risk management tools, and other software), and that may offer regulated services that we do not at this time plan to offer
(including underwriting services, advisory services, and investment management services). Other potential competitors include national securities
exchanges that may be developing blockchain-based solutions and other regulated securities exchange industry participants, including ATSs, market
makers and other execution venues.
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Our failure to maintain and enhance our competitive position could adversely affect our business and prospects. Furthermore, our efforts to compete in the
marketplace could cause deterioration of gross profit margins and, thus, overall profitability.
There can be no assurance that we will ever develop, issue or support the trading of securitized digital assets, or that we or our partners will build
blockchain-based trading and logistics management platforms, or that any such products will be well received.
We intend to securitize assets that may be owned by third parties or owned by our Company, to encode such securitized assets as digital tokens using
blockchain technology, and to support the issuance and trading of such securitized digital assets. As part of our larger blockchain strategy, we also intend to
enter into joint ventures, strategic investments and partnerships to explore the application of blockchain technologies to logistics management. There can be
no assurance that we will ever develop, issue or support the trading of any securitized digital assets, whatsoever, or that we will ever develop a blockchain
or AI enabled logistics management platform. Should we fail to do so, our financial position may be adversely affected.
Even if we do succeed in developing digital securitized assets, there can be no assurance that investors will be interested in purchasing such digital
securitized assets, or that a robust ecosystem for their trading on our platforms will develop. For example, established financial institutions may refuse to
process the digital assets for these transactions, process wire transfers, or maintain accounts for entities transacting in our digital assets. Conversely, a
significant portion of demand for any digital securitized assets we develop may be generated by speculators and investors seeking to profit from the short-
or long-term holding of our digital assets. Price volatility undermines the exchange of these digital assets and the liquidity of the digital assets we original
may always be low, further fueling price volatility. Increased volatility may lead to a reduction in the value of the digital securitized assets we develop,
which could adversely impact the value of any digital securitized assets we originate based on our own assets, and which could reduce demands for our
digital financial services by reducing interest in using digital assets as a mean of creating liquidity from others’ owned assets.
In addition, the blockchain-enabled platforms and software upon which our products and services will be based, are in their early stages. Despite the efforts
of our strategic partners and joint ventures to develop and complete the launch of, and subsequently to maintain, blockchain platforms for digital token
trading and logistics management, it is possible that they will experience malfunctions or otherwise fail to be adequately secured and maintained. We may
not have or may not be able to obtain the technical skills, expertise, or regulatory approvals needed to successfully develop blockchain platforms and
products, including digital assets, and progress them to a successful launch. In addition, there are significant legal and regulatory considerations that will
need to be addressed in order to develop and maintain a blockchain, and addressing such considerations will require significant time and resources. There
can be no assurance that we will be able to develop the blockchain platform in such a way that achieves all of the features we anticipate that it will provide,
or that the features provided will be sufficient to attract a significant number of users such that the blockchain platform will be widely adopted.
Blockchain technology and tokenized assets are subject to a number of inherent risks that may impact our ability to provide the services we are
developing and adversely affect an investment in us.
Blockchain technology and tokenized assets are subject to a number of inherent risks, including reliability risks, security risks, and risks associated with
human error, that may impact our ability to provide the services we are developing. For example, a blockchain platform’s functionality depends on the
Internet, and a significant disruption in Internet connectivity could disrupt a platform’s operations until the disruption is resolved; such disruption may have
an adverse effect on the value of the digital assets traded on a platform. In addition, a hacking or service attack on a platform may cause temporary delays
in block creation on the blockchain and in the transfer of digital assets recorded on the chain. Any disruptions, attacks or other security breaches, or the
perception that our blockchain technology is unreliable for any reason, may have a material adverse effect on the value of the digital assets, investment in
the digital assets and the operations and success of our business operations and financial results.
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In addition, tokenized digital assets based on blockchain technology can only be transferred with the private key associated with a platform’s address in
which the digital assets are held. We intend to safeguard and securely store the private keys associated with a platform’s addresses by engaging a custodian.
To the extent a private key is lost, destroyed, or otherwise compromised and no backup of the private key is accessible, the custodian will be unable to
transfer the digital assets held in a platform’s addresses associated with that private key. Consequently, the digital assets associated with such address will
effectively be lost, which would adversely affect an investment in digital assets.
We and our digital asset customers may be subject to the risks encountered by the digital asset exchanges we partner with, including a malicious hacking,
sale of a digital asset exchange, loss of the digital assets by the exchange, and other risks. Many digital asset exchanges do not provide insurance and may
lack the resources to protect against hacking and theft. If a material amount of our digital assets or the digital assets of our customers are held by
exchanges, we and our customers may be materially and adversely affected if an exchange suffers a cyberattack or incurs financial problems
Further, the recording of digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the
recipient of the transaction or, in theory, control or consent of a majority of the processing power on a certain blockchain platform. Once a transaction has
been verified and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of such digital assets generally will not
be reversible. We, our customers and our partners may not be capable of seeking compensation for any such transfer or theft. It is possible that, through
computer or human error, or through theft or criminal action, digital assets could be transferred in incorrect amounts or to unauthorized third parties. To the
extent that we, our customers or our partners are unable to seek a corrective transaction with such third party or are incapable of identifying the third party
that has received the digital assets through error or theft, we, our customers or our partners will be unable to revert or otherwise recover incorrectly
transferred digital assets. To the extent that we, our customers and our partners are unable to seek redress for such error or theft, such loss could adversely
affect our reputation and our business.
The growth of the blockchain industry in general, as well as the blockchain networks, is subject to a high degree of uncertainty.
The factors affecting the further development of the digital asset industries, as well as blockchain networks, include uncertainty regarding:
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worldwide growth in the adoption and use of digital assets, and other blockchain technologies;
government and quasi-government regulation of digital assets and other blockchain assets and their use, or restrictions on or regulation of access
to and operation of blockchain networks or similar systems;
the maintenance and development of the open-source software protocol of the blockchain networks;
changes in consumer demographics and public tastes and preferences;
the availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means of using
traditional currencies or existing networks;
general economic conditions and the regulatory environment relating to digital assets; and
The popularity or acceptance of blockchain-enabled tokens.
The digital assets industries as a whole have been characterized by rapid changes and innovations and are continually evolving. Although blockchain
networks and blockchain assets have experienced significant growth in recent years, the slowing or stopping of the development, general acceptance and
adoption and usage of these networks and assets may materially adversely affect our business plans and results of operations.
We currently have limited intellectual property rights related to our new Mobile Energy Group Services business unit, and primarily rely on third
parties through joint ventures to conduct research and development activities and protect proprietary information.
Although we believe our success will depend in part on our ability to acquire, invest in or develop proprietary technology to effectively compete with our
competitors, we currently have, and for the foreseeable future will have, limited direct IP rights related to our new Mobile Energy Group Services business
unit. The IP relevant to the products and services we plan to provide is held primarily by joint ventures and our strategic partners. Accordingly, we will rely
on these third parties for research and development activities, which will present certain risks. For example, we will have limited control over the research
and development activities of the business of our joint ventures, and may require licenses from these third parties if we wish to develop products directly. If
our joint venture businesses are unable to effectively maintain a competitive edge relative to the market with their technologies and IP, it may adversely
affect our business and financial position.
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Our reliance on third parties also presents risks related to ownership, use and protection of proprietary information. We are required to rely on the terms of
the joint venture and partnership agreements to protect our interests, as well as our joint ventures’ and partners’ trade secret protections, non-disclosure
agreements, and invention assignment agreements to protect confidential and proprietary information. If the IP and other confidential information of our
joint ventures and strategic partners are not adequately protected, competitors may be able to use their proprietary technologies and information, thereby
eroding any competitive advantages that IP provides to us.
Domestic and international regulatory regimes governing blockchain technologies, digital assets, distribution and utilization of digital assets is
uncertain, and new regulations or policies may materially adversely affect the development and the value of certain digital assets.
Blockchain and distributed ledger platforms are recent technological innovations, and the regulatory schemes to which digital assets may be subject have
not been fully explored or developed. Regulation of digital assets varies from country to country as well as within countries. In some cases, existing laws
have been interpreted to apply to blockchain-based technologies and digital assets, and in other cases, jurisdictions have adopted laws, regulations or
directives that specifically affect digital assets, and some jurisdictions have not taken any regulatory stance on digital assets and or have explicitly declined
to apply regulation. Accordingly, there is no clear regulatory framework applicable to blockchain platforms or digital asset products, and laws that do apply
at times may overlap or change. Regulation in these areas is likely to rapidly evolve as government agencies take regulatory action to monitor companies
and their activities with respect to these areas.
Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other
actions, which may severely impact the operability of blockchain platforms and the permissibility of digital assets generally, the technology behind the
assets, or the means of transacting or in transferring such assets. Failure by us to comply with any laws, rules and regulations, some of which may not yet
exist or are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines.
Digital assets are novel and the application of U.S. federal and state securities laws is unclear in many respects. Digital assets are not traditional investment
securities and issues that might be resolved with traditional securities may not be resolved with digital assets if the offer or sale of such digital assets is not
made in full compliance with applicable registration exemptions or the federal securities laws, the token issuer may be in violation of such laws. It is
possible that regulators may interpret laws in a manner that adversely affects a digital asset’s value.
Blockchain-enabled networks and distributed ledger technologies also face an uncertain regulatory landscape in many foreign jurisdictions, including the
PRC. Various foreign jurisdictions may, in the near future, adopt laws, regulations or directives that may conflict with those of the United States or may
directly and negatively impact our business. The effect of any future regulatory change is impossible to predict, but such change could be substantial and
materially adverse to our business.
The further development and acceptance of blockchain platforms, which represent a new and rapidly changing industry, are subject to a variety of factors
that are difficult to evaluate. The slowing or stopping of the development or acceptance of blockchain platforms and blockchain assets would have a
material adverse effect on our business plans and could have a material adverse effect on us.
Regulatory authorities may never permit a trading system or ATS on which digital assets could trade to become operational.
In order for a securities exchange to allow U.S. investors to participate on its platform, it must register as a broker-dealer with the SEC, become a member
of FINRA, file a Form ATS with the SEC and comply with Regulation ATS. DBOT, one of our joint venture investments, has filed an initial operations
report on Form ATS to give notice of operations of DBOT ATS. Our investment in DBOT’s ATS is not approved by the SEC or FINRA. If FINRA, the
SEC or any other regulatory authority objected to such system, such regulatory authorities could prevent the system from ever becoming operational.
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If the digital assets we develop are considered to be derivatives or commodities, we may be subject to the provisions of the Commodities Exchange Act
and the CFTC regulations.
The CFTC has defined “virtual currencies” as a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of
value, but does not have legal tender status in any jurisdiction. The CFTC has considered digital assets as commodities or derivatives, depending on the
facts of the offering. If we facilitate borrowing transactions that permit the trading of the securitized digital assets we develop on a “leveraged, margined or
financed basis,” we must comply with the provisions of the Commodities Exchange Act and CFTC regulations. Any regulatory issues encountered with
respect to compliance with these regulations and laws would have a material adverse impact on our financial position.
In addition, the Federal Energy Regulatory Commission, the CFTC and the Federal Trade Commission hold statutory authority to monitor certain segments
of the physical energy commodities markets. The trading of digital assets linked to such energy commodities may be subject to such regulations. To the
extent that any digital asset is deemed to fall within the definition of a commodity future, such as those represented by oil or energy assets, pursuant to
subsequent rulemaking by the CFTC, we and/or the issuer of such digital asset may be required to register and comply with additional regulation under the
CEA. Moreover, we or the issuer may be required to register as a commodity pool operator and register the platform, or such other entity created to hold
the digital assets, as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary
expenses to us, and adversely impact the value of our common stock.
If regulatory changes or interpretations of our activities require the registration as a MSB under the regulations promulgated by FinCEN under the
authority of the U.S. Bank Secrecy Act, or licensing as a MT (or equivalent designation) under state law in any state in which we operate, compliance
with these requirements would result in extraordinary expenses to us or the termination of our Company.
To the extent that our activities cause our Company to be deemed a MSB under the regulations promulgated by FinCEN under the authority of the U.S.
Bank Secrecy Act, we may be required to comply with FinCEN regulations, including those that would mandate us to implement AML programs, make
certain reports to FinCEN and maintain certain records.
To the extent that our activities cause our Company to be deemed a MT (or equivalent designation) under state law in any state in which we operates, we
may be required to seek a license or otherwise register with a state regulator and comply with state regulations that may including the implementation of
AML programs, maintenance of certain records and other operational requirements.
Such additional federal or state regulatory obligations may cause us to incur extraordinary expenses, possibly affecting an investment in our common stock
in a material and adverse manner. Furthermore, our Company and our service providers may not be capable of complying with certain federal or state
regulatory obligations applicable to MSBs and MTs. Such noncompliance or extraordinary expense to comply with regulations may have an adverse effect
on the value of our common stock and affect the financial position of the business.
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RISKS RELATED TO DOING BUSINESS IN THE PRC
U.S. financial regulatory and law enforcement agencies, including without limitation the SEC, U.S. Department of Justice and U.S. national securities
exchanges, have limited ability, and in fact may have no ability, to conduct investigations within the PRC concerning our Company, our PRC-based
officers, directors, market research services or other professional services or experts.
A substantial part of our assets and our current operations are conducted in the PRC, and some of our officers, directors and other professional service
providers are nationals and residents of the PRC. U.S. financial regulatory and law enforcement agencies, including without limitation the SEC, U.S.
Department of Justice and U.S. national securities exchanges, have limited ability, and in fact may have no ability, to conduct investigations within the PRC
concerning our Company, and the PRC may have limited or no agreements in place to facilitate cooperation with the SEC’s Division of Enforcement for
investigations within its jurisdiction.
Adverse changes in political, economic and other policies of the Chinese government could have a material adverse effect on the overall economic
growth of the PRC, which could materially and adversely affect the growth of our business and our competitive position.
Our business operations are conducted in the PRC. Accordingly, our business, financial condition, results of operations and prospects are affected
significantly by economic, political and legal developments in the PRC. The Chinese economy differs from the economies of most developed countries in
many respects, including:
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the degree of government involvement;
the level of development;
the growth rate;
the control of foreign exchange;
the allocation of resources;
an evolving and rapidly changing regulatory system; and
a lack of sufficient transparency in the regulatory process.
While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and across various
sectors of the economy. The Chinese economy has also experienced certain adverse effects due to the global financial crisis. In addition, the growth rate of
the PRC’s gross domestic product has slowed in recent years to 6.6% in 2018, according to the National Bureau of Statistics of China. The Chinese
government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the
overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely
affected by government control over capital investments, foreign currency exchange restrictions or changes in tax regulations that are applicable to us.
The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese
government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in the PRC is still owned
by the Chinese government. The continued control of these assets and other aspects of the national economy by the Chinese government could materially
and adversely affect our business. The Chinese government also exercises significant control over Chinese economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular
industries or companies.
Any adverse change in the economic conditions or government policies in the PRC could have a material adverse effect on overall economic growth, which
in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.
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Uncertainties with respect to the PRC legal system could limit the legal protections available to you and to us, which could cause material adverse
effects to our business operations.
We conduct part of our business through our subsidiaries in the PRC. Our subsidiaries are generally subject to laws and regulations applicable to foreign
investments in the PRC and, in particular, laws applicable to FIEs. The PRC legal system is based on written statutes, and prior court decisions may be
cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections
afforded to various forms of foreign investments in the PRC. For example, on January 19, 2015, MOFCOM published a draft of the PRC law on Foreign
Investment (Draft for Comment), of the Draft Foreign Investment Law, which was open for public comments until February 17, 2015. At the same time,
MOFCOM published an accompanying explanatory note of the Draft Foreign Investment Law, or the Explanatory Note, which contains important
information about the Draft Foreign Investment Law, including its drafting philosophy and principles, main content, plans to transition to the new legal
regime and treatment of business in the PRC controlled by FIEs. The Draft Foreign Investment Law is intended to replace the current foreign investment
legal regime consisting of three laws: the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law
and the Wholly Foreign-Invested Enterprise Law, as well as detailed implementing rules. The Draft Foreign Investment Law proposes significant changes
to the PRC foreign investment legal regime and may have a material impact on Chinese companies listed or to be listed overseas. The proposed Draft
Foreign Investment Law is to regulate FIEs the same way as PRC domestic entities, except for those FIEs that operate in industries deemed to be either
“restricted” or “prohibited” in a “Negative List.” As the Negative List has yet to be published, it is unclear whether it will differ from the current list of
industries subject to restrictions or prohibitions on foreign investment. The Draft Foreign Investment Law also provides that only FIEs operating in
industries on the Negative List will require entry clearance and other approvals that are not required of PRC domestic entities. As a result of the entry
clearance and approvals, certain FIEs operating in industries on the Negative List may not be able to continue to conduct their operations through
contractual arrangements. Moreover, it is uncertain whether business industries in which our VIEs operate will be subject to the foreign investment
restrictions or prohibitions set forth in the Negative List to be issued.
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Although the overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign
investment in the PRC, the PRC has not developed a fully integrated legal system. Recently enacted laws, rules and regulations may not sufficiently cover
all aspects of economic activities in the PRC or may be subject to significant degree of interpretation by PRC regulatory agencies and courts. Since the
PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these
laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and to us. In addition, the PRC legal system is based in
part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a
result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.
In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management’s attention. In addition,
some of our executive officers and directors are residents of the PRC and not of the United States, and substantially all the assets of these persons are
located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment
obtained in the United States against our Chinese operations and entities.
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You may have difficulty enforcing judgments against us.
Most of our assets are located outside of the United States and a substantial part of our current operations are conducted in the PRC. In addition, some of
our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located
outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be
difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and
directors, that are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is
uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Recognition and enforcement of foreign judgments
are provided for under the PRC Civil Procedures Law. Courts in the PRC may recognize and enforce foreign judgments in accordance with the
requirements of the PRC Civil Procedures Law based on treaties between the PRC and the country where the judgment is made or on reciprocity between
jurisdictions. The PRC does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments
with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our
directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest. So it is
uncertain whether a PRC court would enforce a judgment rendered against us by a court in the United States.
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The PRC government exerts substantial influence over the manner in which we must conduct our business activities.
The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and
state ownership. Our ability to operate in the PRC may be harmed by changes in its laws and regulations, including those relating to taxation, import and
export tariffs, environmental regulations, land use rights, property, and other matters. We believe that our operations in the PRC are in material compliance
with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new,
stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.
Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally
planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in the
PRC or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.
Our results could be adversely affected by the trade tensions between the United States and the PRC.
With the increasing interconnectedness of global economic and financial systems and our business related to the PRC, trade tensions between the United
States and the PRC can have an immediate and material adverse impact on our business. Changes to trade policies, treaties and tariffs in the jurisdictions in
which we operate, or the perception that these changes could occur, could adversely affect our international and cross-border operations, our financial
condition and results of operations. For example, the U.S. administration under President Donald Trump has advocated greater restrictions on trade
generally and significant increases on tariffs on goods imported into the United States, particularly from the PRC. Such trade restrictions or tariffs could
cause U.S. companies to respond by minimizing their use of Chinese suppliers, thereby moving the supply chain away from China and limiting our
competitive advantage in developing our logistics management and financing business. Further, the U.S. or the PRC could impose additional sanctions that
could restrict us from doing business directly or indirectly in either country. Such actions could have material adverse impact on our profitability and
operations.
The enforcement of the PRC labor contract law may materially increase our costs and decrease our net income.
The PRC adopted a new Labor Contract Law, effective on January 1, 2008, issued its implementation rules and regulations, effective on September 18,
2008, and amended the Labor Contract Law, effective on July 1, 2013. The Labor Contract Law and related rules and regulations impose more stringent
requirements on employers with regard to, among other things, minimum wages, severance payment and non-fixed-term employment contracts, time limits
for probation periods, as well as the duration and the times that an employee can be placed on a fixed-term employment contract. Due to the limited period
of effectiveness of the Labor Contract Law, its implementation rules and regulations and its amendment, and the lack of clarity with respect to its
implementation and the potential penalties and fines, it is uncertain how it will impact our current employment policies and practices. In particular,
compliance with the Labor Contract Law and its implementation rules and regulations may increase our operating expenses. In the event that we decide to
terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules and
regulations may also limit our ability to effect those changes in a manner that we believe to be cost-effective or desirable, and could result in a material
decrease in our profitability.
Future inflation in the PRC may inhibit our ability to conduct business in the PRC.
In recent years, the Chinese economy has experienced periods of rapid expansion, significant stock market volatility and highly fluctuating rates of
inflation. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. In 2010 and 2011, for example, the Chinese economy experienced high inflation and to curb
the accelerating inflation, the People’s Bank of China (“PBOC”), the PRC central bank, raised benchmark interest rates three times in 2011. High inflation
may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in
the PRC, and thereby harm the market for our products and services and our company.
Restrictions on currency exchange may limit our ability to use cash generated from sales in the PRC to fund our business activities outside of the PRC
At present, a substantial part of our sales will be settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside the PRC or to make dividend or other payments in U.S. dollars. Although the Chinese
government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain,
including primarily the restriction that FIEs may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in
the PRC authorized to conduct foreign exchange business. In addition, foreign exchange transactions under the capital account remain subject to limitations
and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities and companies are required to open and maintain
separate foreign exchange accounts for capital account items. This could affect our ability to obtain foreign currency through debt or equity financing for
our subsidiaries and the VIEs. Recent volatility in the RMB foreign exchange rate as well as capital flight out of the PRC may lead to further foreign
exchange restrictions and policies or practices which adversely affect our operations and ability to convert RMB. We cannot be certain that the Chinese
regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.
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Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability
to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.
At present, part of our sales are earned by our PRC operating entities. However, PRC regulations restrict the ability of our PRC subsidiaries to make
dividends and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of
their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required
under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general
reserve fund until the amounts in said fund reaches 50% of their registered capital. Allocations to these statutory reserve funds can only be used for specific
purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer
funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay
dividends and otherwise fund and conduct our business.
Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC
resident shareholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC
subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.
SAFE has promulgated several regulations, including the Notice Concerning Foreign Exchange Controls on Domestic Residents’ Financing and Roundtrip
Investment Through Offshore Special Purpose Vehicles (“Circular 75”), effective on November 1, 2005, and the Circular on Issues Concerning Foreign
Exchange Administration Over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents Via Special Purpose Vehicles
(“Circular 37”), effective on July 4, 2015, which replaced Circular 75. Under Circular 37, PRC residents must register with local branches of SAFE in
connection with their direct establishment or indirect control of an offshore entity for the purpose of holding domestic or offshore assets or interests,
referred to as a “special purpose vehicle” in Circular 37. In addition, amendments to the registration must be made in the event of any material change, such
as an increase or decrease in share capital contributed by the individual PRC resident shareholder, share transfer or exchange, merger, division or other
material event. Failure to comply with the specified registration procedures may result in restrictions being imposed on the foreign exchange activities of
the relevant PRC entity, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from the
offshore entity to the PRC entity. Further, failure to comply with the SAFE registration requirements may result in penalties under PRC law for evasion of
foreign exchange regulations.
We have asked our shareholders who are PRC residents as defined in Circular 37 and related rules to register with the relevant branch of SAFE, as
currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries. However, we cannot
provide any assurances that they can obtain the above SAFE registrations required by Circular 37 and related rules. Moreover, because Circular 37 is newly
issued, there is uncertainty over how Circular 37 and related rules will be interpreted and implemented and how or whether SAFE will apply it to us, and
we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ ability to
conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with
Circular 37 and related rules by our PRC resident beneficial holders. In addition, such PRC residents may not always be able to complete the necessary
registration procedures required by Circular 37 and related rules. We have little control over either our present or prospective direct or indirect shareholders
or the outcome of such registration procedures.
We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition
regulations which became effective on September 8, 2006.
On August 8, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission (the “CSRC”), promulgated the Regulation on
Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006 and was amended in June 2009.
This regulation, among other things, governs the approval process by which a PRC company may participate in an acquisition of assets or equity interests.
Depending on the structure of the transaction, the regulation will require the PRC parties to make a series of applications and supplemental applications to
the government agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including
appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government
approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the regulation is
likely to be more time consuming and expensive than in the past and the government can now exert more control over the combination of two businesses.
Accordingly, due to the regulation, our ability to engage in business combination transactions has become significantly more complicated, time consuming
and expensive, and we may not be able to negotiate a transaction that is acceptable to our shareholders or sufficiently protect their interests in a transaction.
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The regulation allows PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination
transaction may have to submit to MOFCOM and other relevant government agencies an appraisal report, an evaluation report and the acquisition
agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulation also prohibits a transaction
at an acquisition price obviously lower than the appraised value of the PRC business or assets, and in certain transaction structures, may require that
consideration be paid within defined periods, generally not in excess of a year. The regulation also limits our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating
to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore,
such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and
protect our shareholders’ economic interests.
The Security Review Rules may make it more difficult for us to make future acquisitions or dispositions of our business operations or assets in the
PRC.
The Security Review Rules, effective as of September 1, 2011, provide that when deciding whether a specific merger or acquisition of a domestic enterprise
by foreign investors is subject to the national security review by MOFCOM, the principle of substance-over-form should be applied. Foreign investors are
prohibited from circumventing the national security review requirement by structuring transactions through proxies, trusts, indirect investments, leases,
loans, control through contractual arrangements or offshore transactions. If the business of any target company that we plan to acquire falls within the scope
of national security review, we may not be able to successfully acquire such company by equity or asset acquisition, capital increase or even through any
contractual arrangement.
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Under the Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in dividends
payable to our foreign investor and gains on sale of our common stock by our foreign investors may become subject to PRC taxation.
On March 16, 2007, the National People’s Congress of China passed a new Enterprise Income Tax law (the “EIT Law”), and on November 28, 2007, the
State Council of China passed its implementing rules, which took effect on January 1, 2008. Under the EIT Law, an enterprise established outside of the
PRC with “de facto management bodies” within the PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a
Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall
management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment
Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies (the “Notice”), further
interpreting the application of the EIT Law and its implementation non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an
enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated
resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in the PRC; (ii) its financial or personnel
decisions are made or approved by bodies or persons in the PRC; (iii) its substantial assets and properties, accounting books, corporate chops, board and
shareholder minutes are kept in the PRC; and (iv) at least half of its directors with voting rights or senior management often reside in the PRC. A resident
enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying
dividends to its non-PRC shareholders that do not have an establishment or place of business in the PRC or which have such establishment or place of
business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources
within the PRC. Similarly, any gains realized on the transfer of our shares by such investors is also subject to PRC tax at a current rate of 10%, subject to
any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. However, it remains
unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Detailed measures on the imposition of
tax from non-domestically incorporated resident enterprises are not readily available. Therefore, it is unclear how tax authorities will determine tax
residency based on the facts of each case.
We may be deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC
enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate
of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as
interest on financing proceeds and non-PRC source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the
EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such
dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet
issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax
purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a
10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived by our non-PRC shareholders from
transferring our shares.
If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the United States and the PRC, and our PRC
tax may not be creditable against our U.S. tax.
Heightened scrutiny of acquisition transactions by PRC tax authorities may have a negative impact on our business operations or the value of your
investment in us.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (“SAT Circular
698”), effective on January 1, 2008, and the Announcement on Several Issues Related to Enterprise Income Tax for Indirect Asset Transfer by Non-PRC
Resident Enterprises (“SAT Announcement 7”), effective on February 3, 2015, issued by the SAT, if a non-resident enterprise transfers the equity interests
of or similar rights or interests in overseas companies which directly or indirectly own PRC taxable assets through an arrangement without a reasonable
commercial purpose resulting in the avoidance of PRC corporate income taxes, such a transaction may be re-characterized and treated as a direct transfer of
PRC taxable assets subject to PRC corporate income tax. SAT Announcement 7 specifies certain factors that should be considered in determining whether
an indirect transfer has a reasonable commercial purpose. However, as SAT Announcement 7 is newly issued, there is uncertainty as to its application and
the interpretation of the term “reasonable commercial purpose.” In addition, under SAT Announcement 7, the entity which has the obligation to pay the
consideration for the transfer to the transferring shareholders has the obligation to withhold any PRC corporate income tax that is due. If the transferring
shareholders do not pay corporate income tax that is due for a transfer and the entity which has the obligation to pay the consideration does not withhold
the tax due, the PRC tax authorities may impose a penalty on the entity that so fails to withhold, which may be relieved or exempted from the withholding
obligation and any resulting penalty under certain circumstances if it reports such transfer to the PRC tax authorities.
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As SAT Circular 698 and SAT Announcement 7 are relatively new and there is uncertainty over their application, we and our non-PRC resident investors
may be subject to being taxed under Circular 698 and SAT Announcement 7 and may be required to expend valuable resources to comply with Circular 698
and SAT Announcement 7 or to establish that we or our non-PRC resident investors should not be taxed under Circular 698 and SAT Announcement 7,
which could have a material adverse effect on our financial condition and results of operations.
We may be subject to fines and legal sanctions if we or our employees who are PRC citizens fail to comply with PRC regulations relating to employee
share options.
Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC and the related Implementation Rules issued by the
SAFE, all foreign exchange transactions involving an employee share incentive plan, share option plan or similar plan participated in by PRC citizens may
be conducted only with the approval of the SAFE. Under the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals
Participating in Stock Incentive Plan of Overseas Listed Company (“Offshore Share Incentives Rule”), issued by the SAFE on February 15, 2012, PRC
citizens who are granted share options, restricted share units or restricted shares by an overseas publicly listed company are required to register with the
SAFE or its authorized branch and comply with a series of other requirements. The Offshore Share Incentives Rule also provides procedures for
registration of incentive plans, the opening and use of special accounts for the purpose of participation in incentive plans, and the remittance of funds for
exercising options and gains realized from such exercises and sales of such options or the underlying shares, both outside and inside the PRC. We, and any
of our PRC employees or members of our Board who have been granted share options, restricted share units or restricted shares, are subject to the
Administration Measures on Individual Foreign Exchange Control, the related Implementation Rules, and the Offshore Share Incentives Rule. If we, or any
of our PRC employees or members of our Board who receive or hold options, restricted share units or restricted shares in us or any of our subsidiaries, fail
to comply with these registration and other procedural requirements, we may be subject to fines and other legal or administrative sanctions.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated
these laws could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments
and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have
operations and agreements with third parties, and make most of our sales in the PRC. The PRC also strictly prohibits bribery of government officials. Our
activities in the PRC create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our
Company, which may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees.
However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or
distributors of our company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may
result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and
financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies
in which we invest or that we acquire.
Our operations in foreign countries are subject to risks that could adversely impact our financial results, such as economic or political volatility, foreign
legal and regulatory requirements, international trade factors (export controls, trade sanctions, duties, tariff barriers and other restrictions), protection of our
proprietary technology in certain countries, potentially burdensome taxes, crime, employee turnover, staffing, managing personnel in diverse culture, labor
instability, transportation delays, and foreign currency fluctuations.
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If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend
significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a
loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.
Over the past several years, U.S. public companies that have substantially all of their operations in the PRC, particularly companies like ours which have
completed so-called reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial
commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity is in connection with financial and
accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of
adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many
U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now
subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what
affect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and our stock price. If we become the subject of
any unfavorable allegations, whether such allegations are proven to be true or not, we will have to expend significant resources to investigate such
allegations and/or defend our Company. This situation will be costly and time consuming and distract our management from growing our Company.
The disclosures in our reports and other filings with the SEC and our other public announcements are not subject to the scrutiny of any regulatory
bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is located in the PRC,
where part of our operations and business are located, has conducted any due diligence on our operations or reviewed or cleared any of our disclosure.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations
promulgated by the SEC under the Securities Act and the Exchange Act. Unlike public reporting companies whose operations are located primarily in the
United States, however, substantially all of our operations are located in the PRC, Hong Kong and Singapore. Since substantially all of our operations and
business takes place outside of United States, it may be more difficult for the staff of the SEC to overcome the geographic and cultural obstacles that are
present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or business take place entirely or
primarily in the United States. Furthermore, our SEC reports and other disclosure and public announcements are not subject to the review or scrutiny of any
PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review of the CSRC. Accordingly, you
should review our SEC reports, filings and our other public announcements with the understanding that no local regulator has done any due diligence on
our Company and with the understanding that none of our SEC reports, other filings or any of our other public announcements has been reviewed or
otherwise been scrutinized by any local regulator.
36
RISKS RELATED TO OUR STOCK
The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you may want to sell your
holdings.
The market price of our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control or are not
discernible or determinable by our Company, may cause the market price of our common stock to fluctuate significantly. In addition to market and industry
factors, the price and trading volume for our common stock may be highly volatile for specific business reasons. Factors such as variations in our revenues,
earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our products
could cause the market price for our shares to change substantially.
Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result
in substantial costs to us and divert our management’s attention and resources.
Moreover, the trading market for our common stock will be influenced by research or reports that industry or securities analysts publish about us or our
business. If one or more analysts who cover us downgrade our common stock, the market price for our common stock would likely decline. If one or more
of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause
the market price for our common stock or trading volume to decline.
The market price of our common stock could be also subject to volatility if the value of our business and common stock is viewed as being linked to the
price and value of digital assets. If investors view our business and the value of our common stock as dependent upon or linked to the value or growth of
digital assets, whether or not tokenized on our blockchain platforms, the price of such digital assets may influence significantly the market price of shares
of our common stock.
Furthermore, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance
of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when
you want to sell your interest in us.
37
Although publicly traded, the trading market in our common stock has been substantially less liquid than the average trading market for a stock quoted
on the Nasdaq Stock Market and this low trading volume may adversely affect the price of our common stock.
Our common stock trades on the Nasdaq Capital Market. The trading volume of our common stock has been comparatively low compared to other
companies listed on Nasdaq. Limited trading volume will subject our shares of common stock to greater price volatility and may make it difficult for you to
sell your shares of common stock at a price that is attractive to you.
Provisions in our articles of incorporation and bylaws or Nevada law might discourage, delay or prevent a change of control of us or changes in our
management and, therefore, depress the trading price of our common stock.
Our articles of incorporation authorize our Board to issue up to 50,000,000 shares of preferred stock. The preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the Board without further action by the shareholders. These terms may include
preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could
diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to
future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our Board to issue preferred
stock could make it more difficult, delay, discourage, prevent or make it costlier to acquire or effect a change-in-control, which in turn could prevent our
shareholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our
common stock.
In addition, Section 78.438 of the Nevada Revised Statutes prohibits a publicly-held Nevada corporation from engaging in a business combination with an
interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 10% of our voting
stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is
approved in a prescribed manner. The existence of the foregoing provisions and other potential anti-takeover measures could limit the price that investors
might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the
likelihood that you could receive a premium for your common stock in an acquisition.
Certain of our shareholders hold a significant percentage of our outstanding voting securities.
As of March 11, 2020, Our Chairman, Dr. Wu, is the beneficial owners of approximately 18.8% of our outstanding voting securities (through their
ownership of the Common Stock and 100% our Series A Preferred Stock, which entitle the holder to cast ten votes for every share of common stock that is
issuable upon conversion of a share of Series A Preferred Stock (each share of Series A Preferred Stock is convertible into 0.1333333 shares of common
stock), or a total of 9,333,330 votes). Mr. Shane McMahon, our Vice Chairman, is the beneficial owner of approximately 3.4% of our outstanding voting
securities. As a result, each possesses significant influence over the election of our directors and the authorization of any proposed significant corporate
transactions. Their respective ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger,
consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.
We do not intend to pay dividends for the foreseeable future.
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock or Series A preferred stock. Accordingly, investors must be prepared to rely on sales of their common stock after
price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any
determination to pay dividends in the future will be made at the discretion of our Board and will depend on our results of operations, financial condition,
contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant. In addition, our ability to declare and pay
dividends is dependent on our ability to declare dividends and profits in our PRC subsidiaries. PRC rules greatly restrict and limit the ability of our
subsidiaries to declare dividends to us which, in addition to restricting our cash flow, limits our ability to pay dividends to our shareholders. See “—Risks
Related to Doing Business in the PRC—Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could
materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise
fund and conduct our business.”
38
Even if we are able to pay dividends on our common stock or Series A preferred stock, our Board may choose not to declare dividends on our capital
stock. In addition, financing agreements that we may enter into in the future may limit our ability to pay cash dividends. Fluctuations in exchange rates
could adversely affect our business and the value of our securities.
The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies
and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect
our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the
exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars, as well as earnings from, and the value
of, any U.S. dollar-denominated investments we make in the future.
Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the PBOC regularly intervenes in the foreign exchange market to prevent
significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium
to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen
intervention in the foreign exchange market.
Very limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any
hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited,
and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert RMB into foreign currencies.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
The Company has no unresolved Staff Comments
ITEM 2.
PROPERTIES
In 2018, we relocated our principal executive office from Beijing, China to New York, New York. We lease our principal executive office, which is located
at 55 Broadway, 19th Floor, New York, NY 10006. We lease an approximately 6,085 square foot office space in Beijing, China, which is used by both our
Mobile Energy Group Services business unit and legacy YOD business for our PRC-based operations. In October 2018, we completed the $5.2 million
acquisition of a 58-acre property located at 1700 & 1800 Asylum Avenue in West Hartford, Connecticut, which was formerly part of the University of
Connecticut campus and will be the site of our new “Fintech Village.”
Except for FinTech Village, the Company believes that all its properties have been adequately maintained, are generally in good condition, and are suitable
and adequate for our business.
ITEM 3.
LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 19 of the Notes to Consolidated Financial Statements under Item 8, which is incorporated
herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
39
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market Price Information
The Company’s common stock is quoted on the Nasdaq Capital Market under the symbol “IDEX.” Trading of the Company’s common stock is sometimes
limited and sporadic. The following table sets forth, for the periods indicated, the high and low closing bid prices of the Company’s common stock.
Year Ended December 31, 2019
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year Ended December 31, 2018
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Closing Bid Prices
High
Low
2.07 $
2.46 $
2.80 $
1.59 $
4.97 $
3.15 $
5.42 $
3.93 $
1.13
1.28
1.46
0.66
1.46
1.79
1.78
1.14
$
$
$
$
$
$
$
$
Approximate Number of Holders of Our Common Stock
As of March 12, 2020, there were approximately 393 holders of record of the Company’s common stock. This number excludes the shares of the
Company’s common stock beneficially owned by shareholders holding stock in securities trading accounts through DTC, or under nominee security
position listings.
Dividend Policy
The Company has never declared or paid a cash dividend. Any future decisions regarding dividends will be made by the Company’s Board. The Company
currently intends to retain and use any future earnings for the development and expansion of the business and does not anticipate paying any cash dividends
in the foreseeable future. The Company’s Board has complete discretion on whether to pay dividends, subject to the approval of the Company’s
shareholders. Even if the Company’s Board decides to pay dividends, the form, frequency and amount will depend upon future operations and earnings,
capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board may deem relevant. In addition, the
Company’s ability to declare and pay dividends is dependent on the Company’s ability to declare dividends and profits in the PRC subsidiaries. PRC rules
greatly restrict and limit the ability of the Company’s subsidiaries to declare dividends which, in addition to restricting the Company’s cash flow, limits its
ability to pay dividends to its shareholders.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III—Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters—“Securities Authorized for
Issuance Under Equity Compensation Plans.”
Recent Sales of Unregistered Securities
The Company did not sell any equity securities during the fiscal year ended December 31, 2019 that were not previously disclosed in a quarterly report on
Form 10-Q or a current report on Form 8-K that was filed during the 2019 fiscal year.
Purchases of Equity Securities
No repurchases of the Company’s common stock were made in the year ended December 31, 2019.
ITEM 6.
SELECTED FINANCIAL DATA
Not Applicable.
40
PART II
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis is presented in five sections as below and should be read in conjunction with our consolidated
financial statements and the notes thereto and the other financial information appearing elsewhere in this report on Form 10-K. In addition to historical
information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward Looking Statements” above for
certain information concerning those forward-looking statements.
·
·
·
·
·
Overview
Results of Operations
Liquidity and Capital Resources
Outlook
Critical Accounting Policies and Estimates
OVERVIEW
Ideanomics, Inc. (Nasdaq: IDEX) was incorporated in the State of Nevada on October 19, 2004. From 2010 through 2017, our primary business activities
were providing premium content video on demand (“VOD”) services, with primary operations in the PRC, through our subsidiaries and variable interest
entities under the brand name You-on-Demand (“YOD”). We closed the YOD business during 2019.
Starting in early 2017, the Company transitioned its business model to become a next-generation financial technology (“fintech”) company. The Company
built a network of businesses, operating principally in the trading of petroleum products and electronic component that the Company believed had
significant potential to recognize benefits from blockchain and AI technologies including, for example, enhancing operations, addressing cost
inefficiencies, improving documentation and standardization, unlocking asset value and improving customer engagement. During 2018 the Company
ceased operations in the petroleum products and electronic components trading businesses and disposed of the businesses during 2019. Fintech continues to
be a priority for us as we look to invest in and develop businesses that can improve the financial services industry, particularly as it relates to deploying
blockchain and AI technologies. As we looked to deploy fintech solutions in late 2018 and into 2019, we found a unique opportunity in the Chinese
Electric Vehicle (EV) industry to facilitate large scale conversion of fleet vehicles from internal combustion engines to EV. This led us to establish our
Mobile Energy Global (MEG) business unit.
Principal Factors Affecting Our Financial Performance
Our business is expected to be impacted by both macroeconomic and Ideanomics-specific factors. The following factors have been part of the
transformation of the Company which affected the results of our operations in 2019:
41
·
·
·
Our ability to transform our business and to meet internal or external expectations of future performance. In connection with this
transformation, we are in the process of considerable changes, which include assembling a new management team in the United States and
overseas, reconfiguring our business structure, continuing to further enhance our controls, procedures, and oversight during this transformation,
and expanding our mission and business lines for continued growth. It is uncertain whether these efforts will prove beneficial or whether we will
be able to develop the necessary business models, infrastructure and systems to support our businesses. To succeed, among other things, we will
need to have or hire the right talent to execute our business strategy. Market acceptance of new product and service offerings will be dependent in
part on our ability to include functionality and usability that address customer requirements, and optimally price our products and services to meet
customer demand and cover our costs.
Our ability to remain competitive. We will continue to face intense competition: these new technologies are constantly evolving, and our
competitors may introduce new platforms and solutions that are superior to ours. In addition, our competitors may be able to adapt more quickly to
new technologies or may be able to devote greater resources to the development, marketing and sale of their products than we can. We may never
establish and maintain a competitive position in the hybrid financing and logistics management businesses.
The fluctuation in earnings from the deployment of the Mobile Energy Group Services business unit through acquisitions, strategic equity
investments, the formation of joint ventures, and in-licenses of technology. Our results of operations may fluctuate from period to period based
on our entry into new transactions to expand our business. In addition, while we intend to contribute cash and other assets to our joint ventures, we
do not intend for our holding company to conduct significant research and development activities. We intend research and development activities
to be conducted by our technology partners and licensors. These fluctuations in growth or costs and in our joint ventures and partnerships may
contribute to significant fluctuations in the results of our operations.
Information about segments
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions
about allocating resources and assessing performance of the Company. Therefore, the Company operates in one segment with two business units: MEG and
Ideanomics Capital. As the chief executive officer previously reviewed two operating segments separately for this purpose, the Company has changed its
presentation accordingly, from two reportable segments to one reportable segment.
The segment reporting changes were retrospectively applied to all periods presented.
42
Our Unconsolidated Equity Investments
The investments where the Company exercises significant influence, but not control, are classified as long-term equity investments and accounted for using
the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for our share of undistributed earnings or losses of the
investee. Investment losses are recognized until the investment is written down to nil, provided that we do not guarantee the investee’s obligations or we
are committed to provide additional funding. Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual
Report on Form 10-K for further information.
Taxation
United States
Ideanomics, Inc., M.Y. Products, LLC, Grapevine Logic, Inc., Delaware Board of Trade Holdings, Inc., Fintech Village, LLC and Red Rock Global Capital
Ltd. are United States companies subject to the provisions of the Internal Revenue Code. No provision for income taxes has been provided as none of the
companies had taxable profit since inception. At the acquisition of Grapevine Logic, Inc.in 2018, deferred tax liabilities were recorded relating to intangible
assets recorded for financial reporting purposes but not recognized for income tax purposes. The intangible assets consequently could not provide
deductible amortization expense for income tax purposes. The deferred tax liabilities were recorded on the acquisition to the extent that they could not be
offset by usable net operating loss carryforwards acquired in the acquisition. These deferred tax liabilities were reduced, providing an income tax benefit, to
the extent that the intangible assets were reduced by amortization expense and additional net operating loss carry forwards were created to offset the
liabilities. These benefits amounted to $56,305 in 2018 and $152, 875 in 2019. The 2019 amount related to activities in the first two quarters of 2019.
Ideanomics, Inc. increased its ownership in Grapevine Logic, Inc. such that beginning with the third quarter of 2019, the result of which was that Grapevine
Logic, Inc. activities would be included in the consolidated tax return of Ideanomics, Inc. As a result, the valuation allowance provided against Ideanomics,
Inc.’s deferred tax assets were reduced by $361,059, the amount of Grapevine Logic, Inc.’s remaining deferred tax liabilities as that portion of Ideanomics
Inc.’s net operating loss carryovers could now be utilized to offset these liabilities
The Tax Cut and Jobs Act (TCJA) of 2017 includes provision for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are
imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries. TCJA also enacted the Base Erosion and Anti-Abuse Tax
(BEAT) under which taxes are imposed on certain base eroding payments to related foreign companies, subject to certain requirements.
Based on current year financial results, the company has determined that there is no GILTI nor BEAT tax liability.
In addition, the TCJA now entitles US companies that owns 10% or more of a foreign corporation a 100% dividends-received deduction for the foreign-
source portion of dividends paid by such foreign corporation. Also, net operating losses (NOLs) arising after December 31, 2017 are deductible only to the
extent of 80% of the taxpayer’s taxable income, and may be carried forward indefinitely but generally not allowed to be carried back.
43
Cayman Islands and the British Virgin Islands
Under current laws of the Cayman Islands and the British Virgin Islands, the company is not subject to tax on its income or capital gains. In addition,
dividend payments are not subject to withholding tax in the Cayman Islands or British Virgin Islands.
Hong Kong
The company’s subsidiaries incorporated in Hong Kong are subject to Profits Tax of 16.5%. $84,574 tax expense was recorded in 2019 relating to the
income on one Hong Kong subsidiary relating to a gain recorded on the sale of VIE related assets. All other Hong Kong subsidiaries had losses for 2019
and the resulting deferred tax assets relating to the loss carryovers were fully offset by a valuation allowance.
The People’s Republic of China
Under the PRC’s Enterprise Income Tax Law, the company’s Chinese subsidiaries and VIEs are subject to an EIT of 25.0%.
The company’s future effective income tax rate depends on various factors, such as tax legislation, geographic composition of its pre-tax income and non-
tax deductible expenses incurred. The company’s management regularly monitors these legislative developments to determine if there are changes in the
statutory income tax rate.
During 2019, one of the Company’s PRC subsidiaries incurred a tax obligation of $622,608 tax expense relating to its electric vehicle sales. The entity did
not have operating loss carryovers and is not able to utilize the loss carryovers of other subsidiaries. The transactions under which the VIE agreements were
terminated resulted in gains to one VIE entity, prior to deconsolidation, that triggered a tax expense pf $224,206. Other PRC entities either had losses that
created additional operating loss carryovers, where the related deferred tax assets were offset a valuation allowance, or had income that would have resulted
in a current tax liability, except that they were able to offset those liabilities with operating loss carryovers from prior years. The use of prior year
carryovers, in all cases for which the related deferred tax assets all had previously been offset by a valuation allowance, avoided $176,107 of income tax
expense.
44
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 2019 and 2018
For the years ended December 31,
Revenue
Cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative expenses
Research and development expense
Professional fees
Depreciation and amortization
Impairment of assets
Acquisition earn-out expense
Total operating expenses
$
2019
44,566,955 $
1,457,773
43,109,182
2018
Amount Change % Change
377,742,872 $
374,575,038
3,167,834
(333,175,917)
(373,117,265)
39,941,348
(88)%
(100)%
1,261%
24,862,208
-
5,828,385
2,228,653
73,668,525
5,094,095
111,681,866
22,471,976
1,654,491
4,749,799
352,332
134,290
-
29,362,888
2,390,232
(1,654,491)
1,078,586
1,876,321
73,534,235
5,094,095
82,318,978
Loss from operations
(68,572,684)
(26,195,054)
(42,377,630)
Interest and other income (expense):
Interest expense, net
Loss on extinguishment of debt
Impairment of and equity in loss of equity method investees
Loss on disposal of subsidiaries, net
Loss on remeasurement of DBOT investment
Other
Loss before income taxes and non-controlling interest
(5,616,282)
(3,940,196)
(13,718,280)
(951,594)
(3,178,702)
(433,184)
(96,410,922)
(804,595)
-
(180,625)
(1,183,289)
-
(99,765)
(28,463,328)
(4,811,687)
(3,940,196)
(13,537,655)
231,695
(3,178,702)
(333,419)
(67,947,594)
Income tax (expense) benefit
(417,453)
40,244
(457,697)
Net loss
(96,828,375)
(28,423,084)
(68,405,291)
Deemed dividend related to warrant repricing
(826,909)
-
(826,909)
Net loss attributable to common shareholders
(97,655,284)
(28,423,084)
(69,232,200)
Net (income) loss attributable to non-controlling interest
(852,240)
996,728
(1,848,968)
Net loss attributable to IDEX common shareholders
$
(98,507,524) $
(27,426,356)
(71,081,168)
Basic and diluted loss per share
$
(0.82) $
(0.35)
Revenues
For the years ended December 31,
Crude oil
Consumer electronics
Digital asset management services
Electric vehicles
Other
Total
n/m = Not Meaningful
2019
- $
-
40,700,000
2,693,891
1,173,064
44,566,955 $
$
$
2018
Amount Change % Change
260,034,401 $
116,723,251
-
-
985,220
377,742,872 $
(260,034,401)
(116,723,251)
40,700,000
2,693,891
187,844
(333,175,917)
n/m
n/m
n/m
n/m
19
(88)
Revenue for the year ended December 31, 2019 was $44.6 million as compared to $377.7 million for the same period in 2018, a decrease of approximately
$333.2 million, or 88%. The decrease was mainly due to a change to our business focus from logistics management to digital business consulting services
and electric vehicle businesses. Our business strategy and the primary goal for entering the crude oil and electronic trading businesses was to learn about
the needs of buyers and sellers in these industries that rely heavily on the shipment of goods. Our activities in the crude oil trading and electronic trading
business have been successful in various aspects in 2018, and for strategic reasons we have now phased out of our crude oil trading business and
electronics trading business so that we can work towards enabling the application of our Fintech Ecosystem and the operation of MEG as well.
45
11%
(100)%
23%
n/m
n/m
n/m
n/m
n/m
n/m
0
n/m
(20)%
0
n/m
n/m
n/m
n/m
n/m
n/m
n/m
n/m
Cost of revenue
For the years ended December 31,
Crude oil
Consumer electronics
Digital asset management services
Electric vehicles
Other
Total
n/m = Not Meaningful
2019
2018
Amount Change % Change
$
$
- $
-
466,894
-
990,879
1,457,773 $
260,006,382 $
114,477,226
-
-
91,430
374,575,038 $
(260,006,382)
(114,477,226)
466,894
-
899,449
(373,117,265)
n/m
n/m
n/m
n/m
n/m
Cost of revenues was $ 1.5 million for the year ended December 31, 2019, as compared to $374.6 million for the year ended December 31, 2018. Our cost
of revenues decreased by $373.1 million, or 100%. From a comparability perspective, the cost of revenue during 2018 is not indicative of the new business
in 2019. The cost of revenue during 2018 was primarily associated with the logistics management business (oil trading and electronics trading), which
traditionally has a very high cost of revenue and low gross margin, while the cost of revenue during 2019 primarily include the personnel cost associated
with our digital asset management services and creator payments from the Grapevine business. Majority of the cost associated with the development of the
master plan services have already been incurred in 2018. In 2018, due to the uncertainty associated with the future economic benefits when such costs were
incurred, the Company expensed those costs during 2018.
Gross profit
For the years ended December 31,
Crude oil
Consumer electronics
Digital asset management services
Electric vehicles
Other
Total
n/m = Not Meaningful
2019
- $
-
40,233,106
2,693,891
182,185
43,109,182 $
$
$
46
2018
Amount Change % Change
(28,019)
(2,246,025)
40,233,106
2,693,891
(711,605)
39,941,348
28,019 $
2,246,025
-
-
893,790
3,167,834 $
n/m
n/m
n/m
n/m
n/m
n/m
Gross profit ratio
For the years ended December 31,
-Mobile Energy Group Service
Crude oil
Consumer electronics
Digital asset management services
Electric Vehicles (“EV”)
Other
Total
2019
2018
0%
0%
99%
100%
16%
97%
0%
2%
-
-
91%
1%
Our gross profit for the year ended December 31, 2019 was approximately $43.1 million, as compared to $3.2 million during the same period in 2018. The
increase was mainly due to: 1) the Company recorded service revenue from digital asset management services in 2019 and 2) the low cost of revenue with
our digital asset management services, which resulted in higher gross profit margin in 2019 compared to the low gross profit margin of the logistics
management business in 2018; 3) the revenue from EV is commission revenue and no cost associated with this.
Selling, general and administrative expenses
Our selling, general and administrative expense for the year ended December 31, 2019 was $24.9 million as compared to $22.5 million for the same period
in 2018, an increase of $2.4 million or 11%. The majority of the increase was due to
·
·
·
an increase of $5.7 million in share based compensation that were paid to our employees
an increase of $0.8 million in severance payments to the former Chief Executive Officer, former Chief Investment Officer and former Chief
Strategy Officer; partially offset by
a decrease of $3.3 million in salary and employee benefits expenses due to the headcount reduction in China operation.
Research and development expense
Research and development expense decreased to zero for the year ended December 31, 2019 from $1.7 million in the same period in 2018. The majority of
the expense in 2018 was related to the early stage technology development.
Professional fees
Professional fees for the year ended December 31, 2019 was $5.8 million as compared to $4.7 million for the same period in 2018, an increase of
approximately $1.1 million. The increase was related to an increase in legal, valuation, audit and tax as well as fees associated with establishing the MEG
operation, continuing to build out our technology ecosystem and Ideanomics Capital, and also establishing strategic partnerships and merger and
acquisition activity for these business units.
47
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2019 was $2.2 million as compared to $0.4 million for the same period in 2018, an increase
of approximately $1.8 million. The increase was mainly due to the increase in amortization expense from intangible assets acquired during 2019.
Impairment of assets
The following table summarizes the impairment losses recorded in the year ended December 31, 2019. The Company did not record any material
impairment losses in the year ended December 31, 2018.
The following table summarizes the impairment losses recorded in the year ended December 31, 2019:
Asset Impaired
GTB – digital currency
Note
Note 9 – Goodwill and Intangible Assets
Caption
Impairment of assets
Amount
$
61,124,406
Glory – equity method investment
Note 10 Long-term Investments
Impairment of and equity in loss of equity
method investments
FinTalk assets – other assets
Note 9 – Goodwill and Intangible Assets
Impairment of assets
Cost method investments
Note 10 Long-term Investments
Impairment of assets
Fintech buildings
Note 8 Property and Equipment, net
Impairment of assets
Fintech buildings asset retirement cost
Total
Note 8 Property and Equipment, net
Impairment of assets
Additional information related to the impairment losses recorded in the year ended December 31, 2019 is as follows:
13,061,844
5,715,000
3,026,347
2,298,887
1,503,885
86,730,369
$
·
·
·
·
·
The Company recorded an impairment loss of $61.1 million in the fourth quarter of 2019 related to GTB of $61.1 million which the Company had
received in connections with a services agreement and an asset purchase agreement with GT Dollar Pte, a minority shareholder at the time of the
transaction. On October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84. This decline continued
through the fourth quarter of 2019, and on December 31, 2019 the quoted price was $0.23. As a result of this decline in quoted price, and its
inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment analysis
and recorded an impairment loss.
The Company recorded a $13.1 million impairment loss in Glory, an equity method investment, in the fourth quarter of 2019, when it became
apparent that Glory’s subsidiary, Tree Manufacturing, would not receive the land use rights to 250 acres of vacant land and other assets.
The Company recorded a $5.7 million impairment loss related to a secure mobile financial information, social, and messaging platform that has
been designed for streamlining financial-based communication for professional and retail users. Management determined these assets had no
future use and recorded an impairment loss.
The Company recorded impairment losses of $3.0 million in two non-marketable equity investments after management evaluated their
performance.
The Company recorded an impairment loss of $2.3 million in the third quarter of 2019 in connection with four buildings in Fintech Village, which
were later demolished, and recorded an impairment loss of $1.5 million for the related asset retirement cost.
Acquisition earn-out expense
The acquisition earn-out expense of $5.1 million represents the remeasurement of the contingent consideration payable to the former DBOT shareholders
due to the decline in Ideanomics’ stock price.
Loss from operations
Our loss from operations was increased by $42.3 million to $68.5 million for the year ended December 31, 2019, from $26.2 million during 2018. This was
mostly due to the impairment losses land acquisition earn-out expense losses incurred in 2019, partly offset by the gross profit from the MEG operation.
48
Interest expense, net
Our interest expense increased $4.8 million to $5.6 million for the year ended December 31, 2019, from $0.8 million during 2018. The interest expense
increase during 2019 was primarily due to the amortization of beneficial conversion features and the interest associated with convertible notes issued in
2019. The following table summarizes the breakdown of the interest expense:
Interest, net
Amortization of beneficial conversion feature
Total
Loss on extinguishment of debts
Year ended December 31,
2019
Year ended December 31,
2018
$
$
1,380,838 $
4,235,444
5,616,282 $
577,004
227,591
804,595
The loss on extinguishment of debt of $3.9 million results from modifications made to various convertible notes in the year ended December 31, 2019.
Impairment of and equity in loss of equity method investees
Impairment of and equity in loss of equity method investments increased by $13.5 million to $13.7 million in the year ended December 31, 2019 from $0.2
million in the year ended December 31, 2018. The most significant increases are due to the losses recorded due to DBOT of $3.7 million, which was an
equity-method investee for part of 2019, and an impairment loss of $13.1 million for Glory. Refer to “Impairment of assets” above.
Loss on disposal of subsidiaries, net
The following table summarizes (gains) and losses recorded in “Loss on disposal of subsidiaries, net” in the years ended December 31, 2019 and 2018:
Subsidiary
Wide Angle and Shanghai Huicang Supplychain Management Ltd.
Red Rock Global Capital LTD
Amer Global Technology Limited
Deconsolidation of VIEs
Total
Year ended December 31,
2019
Year ended December 31,
2018
$
$
- $
(552,215)
(505,148)
2,008,957
951,594 $
1,183,289
-
-
-
1,183,289
Loss on disposal of subsidiaries increased $2.0 million for year ended December 31, 2019 comparing to the same period in 2018 was due to the disposal of
the entities listed above.
Net gain/(loss) attributable to non-controlling interest
Net gain/(loss) attributable to non-controlling interests was $0.8 million gain in 2019 compared to a net loss of $1.0 million in 2018. The gain in 2019 is
primarily due to net gain of taxi revenue from JV with iUnicorn .
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2019, we had cash of $2.6 million. Approximately $2.4 million was held in our Hong Kong, US and Singapore entities and $0.2
million was held in our PRC entities.
As discussed in Note 3 to the consolidated financial statements included in this report for going concern and management’s plan, the Company has incurred
significant continuing losses in 2019 and 2018, and the total accumulated deficits were $249.0 million and $150.0 million as of December 31, 2019 and
2018, respectively. The Company also used cash for operations of $13.8 million and $20.2 million for the year ended December 31, 2019 and 2018,
respectively. The Company’s ability to continue operating is highly dependent upon continued funding from the debt and equity markets. Based on past
experience, the Company believes that it will be able to raise the necessary capital to continue operations. We must continue to rely on proceeds from debt
and equity issuances to fund ongoing operating expenses to date, which could raise substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements included in this report have been prepared assuming that the Company will continue as a going concern and,
accordingly, do not include any adjustments that may result from the outcome of this uncertainty. Due to the strict regulations governing the transfer of
funds held in the PRC to other jurisdictions, the Company does not consider funds held in its PRC entities to be available to fund operations and investment
outside of the PRC and consequently does not include them when evaluating the liquidity needs of its businesses operating outside of the PRC.
49
The following table provides a summary of our net cash flows from operating, investing, and financing activities.
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase/(decrease) in cash, cash equivalents and restricted cash
Total cash, cash equivalents and restricted cash at beginning of period
Cash and cash equivalents at end of period
Operating Activities
Year Ended
December 31,
December 31,
2019
(13,783,980) $
(1,794,856)
15,114,864
(9,386)
(473,358)
3,106,244
2,632,886 $
2018
(20,160,210)
(19,140,641)
34,898,919
(69,141)
(4,471,073
7,577,317
3,106,244
$
$
Cash used in operating activities decreased by $6.4 million for the year ended December 31, 2019 compared to 2018, primarily due to (1) an increase in net
loss from $28.4 million in 2018 to $96.8 million in 2019, (2) total non-cash adjustments to net loss was $67.9 million and $6.0 million for the years ended
December 31, 2019 and 2018, respectively; and (3) total changes in operating assets and liabilities resulted in an increase of $15.1 million and $2.5 million
in cash used in operations activities for the years ended December 31, 2019 and 2018, respectively .
Investing Activities
Cash used in investing activities decreased by $17.4 million, primarily because the acquisition of Fintech Village, the related costs and surety bond
(approximately $10.7 million) and acquisitions of subsidiaries and long-term investments ($8.0 million) during 2018.
Financing Activities
The Company received $9.1 million from the issuance of convertible notes and $6 million in proceeds in a private placement from the issuance of common
shares, warrant and options for the year ended December 31, 2019, to certain investors, including officers, directors and other affiliates. While in the same
period in 2018, the Company received $34.9 million.
Effects of Inflation
Inflation and changing prices have had an effect on our business and we expect that inflation or changing prices could materially affect our business in the
foreseeable future. Our management will closely monitor the price change and make efforts to maintain effective cost control in operations.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual
arrangements. The Company holds variable interests in joint ventures accounted for under the equity method of accounting. The Company is not the
primary beneficiary of these joint ventures and therefore is not required to consolidate these entities (see Note 8 to the Consolidated Financial Statements).
50
We do not have other off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our
securities.
Contractual Obligations
The tabular presentation of contractual obligations is not required for Smaller Reporting Companies.
Seasonality
The Company’s MEG division operates in the market for fleet sales of commercial EVs and the Company expects that orders and sales will be influenced
by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the year when
companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the
new budget cycle commences. The Company’s MEG division is building out its network and has not generated sufficient orders to allow it to establish with
any degree of certainty an expected pattern of seasonality.
OUTLOOK
The Company anticipates that its Mobile Energy Group business unit will be the largest contributor to revenues in 2020. The rate at which the MEG
division grows is highly correlated with the development of financing structures for fleet purchases of commercial EV.
The Company will continue to seek ways to deploy its Delaware Board of Trade (DBOT) ATS as a platform for the issuance of digital securities and
tokens, trading of commodities and origination and distribution of private placements. The Company does not anticipate that DBOT will generate material
amounts of revenue in 2020 due to the developmental stage the business is in.
51
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, environmental contamination
and the protection of the environment. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot
predict the full amount of such future expenditures. We may also incur fines and penalties from time to time associated with noncompliance with such laws
and regulations. Starting from year 2018, we had $8 million accrued for Asset Retirement Obligations. The increase is related to our legal contractual
obligation in connection with the acquisition of Fintech Village.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s
management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of
commitments and contingencies, if any. Company management has identified certain accounting policies that are significant to the preparation of its
financial statements. These accounting policies are important for an understanding of the Company’s financial condition and results of operations. Critical
accounting policies are those that are most important to the portrayal of its financial condition and results of operations and require management’s difficult,
subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in
subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the
possibility that future events affecting the estimate may differ significantly from management’s current judgments. Company management believes the
following critical accounting policies involve the most significant estimates and judgments used in the preparation of its financial statements. Company
management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with Financial Accounting Standards Boards (“FASB”) Accounting Standards
Codification (“ASC”) Topic 810, Consolidation. Management evaluates the relationships between the Company and the various VIEs and the economic
benefit flow of the contractual arrangement with the VIEs. In connection with such evaluation, management also considers whether or not, as a result of
such contractual arrangements, the Company controls the legal shareholders’ voting interests and has power of attorney in the VIEs, and therefore which
counterparty is able to direct all business activities of the VIEs. As a result of such evaluation, management concluded that the Company is the primary
beneficiary of certain VIEs, which are consolidated, and that the Company is not the primary beneficiary of one investment in which the Company holds a
60.0% interest, and of one investment in which the Company holds a 34.0% investment and which has a supply agreement with a consolidated entity. Both
of these investments are accounted for as an equity method investment.
Management has consulted the Company’s PRC legal counsel in assessing the ability to control the Company’s PRC VIEs. As of December 31, 2019, the
Company has terminated the agreements with the PRC VIEs and will not consolidate them beyond that date.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of the promised goods or services in an amount that reflects the consideration which
the Company expects to receive in exchange for those goods or services. To determine the amount and timing of revenue recognition for the arrangements
that the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company performs the
following five steps: (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction
price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the Company satisfies the
respective performance obligations.
Additionally, an analysis is performed in order to evaluate whether the Company is acting as a principal, in which case revenue is reported on a gross basis,
or as an agent, in which case revenue is reported on a net basis. This analysis considers whether or not the Company obtains control of the specified goods
or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and
discretion in establishing price.
The Company’s contracts are typically with large enterprises and consequently are heavily negotiated as to the services to be provided; consequently the
accounting treatment for the reporting of revenues may vary materially between contracts including whether the revenue is reported on a gross or net basis.
Long-lived Assets
Long-lived assets, including property and equipment and intangible assets, excluding goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation is performed at the lowest level of identifiable cash
flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future cash flows generated from the assets are
less than their carrying amount.
Factors which could result in the Company performing an impairment review include significant underperformance relative to historical or projected future
operating results, significant changes in the manner of use of the assets or the strategy for our business, and significant negative industry or economic
trends.
52
The Company received a specific type of digital currency, GTB, as a result of two transactions in the three months ended March 31, 2019, and recorded the
GTB currency as indefinite-lived intangible assets. On October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84.
This decline continued through the fourth quarter of 2019, and on December 31, 2019 the quoted price was $0.23. As a result of this decline in quoted
price, and its inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment
analysis in the fourth quarter of 2019 and recorded an impairment loss of $61.1 million.
The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and
subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in
our business strategy and our forecasts for future expansion development. Based on the impairment analyses performed, the Company recorded an
impairment loss related to a secure mobile financial information, social and messaging platform of $5.7 million, in the year ended December 31, 2019. No
impairment losses were recorded in the year ended December 31, 2018.
Asset Retirement Obligations
Asset retirement obligations generally apply to legal obligations associated with the retirement of a tangible long-lived asset that result from the
acquisition, construction or development and the normal operation of a long-lived asset. If a reasonable estimate of fair value can be made, the fair value of
a liability for an asset retirement obligation is recognized in the period in which it is incurred or a change in estimate occurs. The estimate of the liability
for asset retirement obligations is dependent upon many factors, including the type of remediation which is required, the magnitude of the required
remediation, and the time frame for the required steps. Asset retirement costs associated with asset retirement obligations are capitalized with the carrying
amount of the related long-lived assets and will be depreciated over the related asset’s estimated useful life. The Company’s asset retirement obligations as
of December 31, 2019 and 2018 are associated with the acquisition of Fintech Village, in which the Company is contractually obligated to remediate
certain existing environmental conditions. The asset retirement cost is included in construction in progress and asset retirement obligation (long-term) in
the consolidated balance sheets. The Company will start to amortize the asset retirement costs when the related assets are completed, put into use, and their
depreciation commences. In the year ended December 31, 2019, the Company impaired buildings with a carrying amount of $2.3 million, and impaired
related asset retirement costs of $1.5 million.
Goodwill
Goodwill represents the excess of cost over fair value of identifiable net assets acquired and liabilities assumed in a business combination. Application of
goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and
goodwill to reporting units and determination of fair value of each reporting unit. The Company performs goodwill impairment testing at the reporting unit
level which is defined as the operating segment or one level below the operating segment. One level below the operating segment, or component, is a
business for which discrete financial information is available and regularly reviewed by segment management. The Company tests goodwill for impairment
annually (during the fourth quarter), or more frequently when events or changes in circumstances indicate it is more-likely-than-not that the fair value of a
reporting unit has declined below its carrying amount. Goodwill is evaluated for impairment using qualitative and/or quantitative testing procedures.
The Company has the option to first perform qualitative testing to determine whether it is more-likely-than-not that the fair value of a reporting unit is less
than its carrying amount. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market
conditions, overall financial performance of the reporting unit, composition, personnel or strategy changes affecting the reporting unit and recoverability of
asset groups within a reporting unit. If, after assessing the totality of events and circumstances, the Company determines it is not more-likely-than-not that
the fair value of a reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary. However, if the
Company concludes otherwise, then it is required to perform the quantitative impairment test by calculating the fair value of the reporting unit and
comparing the fair value of the reporting unit to its carrying amount.
The fair value of a reporting unit may be determined using externally quoted prices (if available), a discounted cash flow model, or a market approach.
Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates and making
other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each reporting unit.
An impairment loss, if any, is recorded when the fair value of a reporting unit has declined below its carrying amount. The Company has not recorded
goodwill impairment charges in the years ended December 31, 2019 and 2018.
Long-term Investments
The Company accounts for equity investments through which management exercises significant influence but does not have control over the investee under
the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for the Company’s share of undistributed earnings or
losses of the investee. The Company’s share of losses is not recognized when the investment is reduced to zero since the Company does not guarantee the
investees’ obligations nor is the Company committed to providing additional funding.
Beginning on January 1, 2018, the equity investments which are not consolidated or accounted for under the equity method are either carried at fair value
or under the measurement alternative upon the adoption of the Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments – Overall
(Subtopic 825-10) (“ASU No 2016-01”).
53
The Company utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments
at cost less impairment plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer.
Management periodically reviews long-term investments for impairment whenever events or changes in business circumstances indicate that the carrying
amount of the investment may not be fully recoverable. Management considers impairment indicators such as negative changes in industry and market
conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist, further analysis must be performed in order
to determine if the impairment, if any, is other-than-temporary. If the impairment is deemed to be other-than-temporary, the fair value of the investment
must be determined. In the absence of quoted market prices, management must use judgement to determine the fair value of the investment, considering
such factors as current economic and market conditions, the operating performance of the entities, including current earnings trends and forecasted cash
flows, and other company and industry specific information. If the fair value of the investment is below the carrying amount, an impairment loss is
recorded to record the investment at fair value. The Company recorded impairment losses of $3.0 million and $0 in the years ended December 31, 2019 and
2018, respectively, for equity investments accounted for under the measurement alternative, and recorded impairment losses of $13.1 million and $0 in the
years ended December 31, 2019 and 2018, respectively, for investments accounted for as equity method investments.
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 2 to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This Item 7A is not required for Smaller Reporting Companies.
54
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
55
IDEANOMICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019 and 2018
Consolidated Statements of Equity for the years ended December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Ideanomics, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ideanomics Inc. (the "Company") as of December 31, 2019 and 2018, and the related
consolidated statements of operations, comprehensive income, equity, and cash flows for each of the two years in the period ended December 31, 2019, and
the related notes (collectively referred to as the "financial statements"). We also have audited the Company's internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2019 and 2018, and the results of the its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by
COSO.
Going concern uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company incurred recurring losses from operations, has net current liabilities and an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company's internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Emphasis of Matters
The Company has significant transactions and relationships with related parties, which are described in Note 15 to the financial statements. Transactions
involving related parties cannot be presumed to be carried out on an arm's length basis, as the requisite conditions of competitive, free market dealings may
not exist.
/s/ B F Borgers CPA PC
We have served as the Company’s auditor since 2018.
Lakewood, Colorado
March 16, 2020
F-2
IDEANOMICS, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Licensed content
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Long-term investments
Operating lease right of use assets
Other non-current assets
Total assets
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY
Current liabilities: (including amounts of the consolidated VIEs without recourse to Ideanomics, Inc. See
note 5)
Accounts payable
Deferred revenue
Accrued salaries
Amount due to related parties
Other current liabilities
Current portion of operating lease liabilities
Current acquisition earn-out liability
Promissory note-short term
Convertible promissory note due to third-parties
Convertible promissory note due to related parties
Total current liabilities
Deferred tax liabilities
Asset retirement obligations
Convertible promissory note due to third parties-long term
Convertible promissory note due to related parties-long term
Operating lease liability-long term
Non-current acquisition earn-out liability
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 19)
Convertible redeemable preferred stock:
$
$
$
2019
2018
2,632,886 $
2,404,869
-
572,346
1,841,720
7,451,821
12,939,480
52,770,639
23,344,299
22,621,497
6,933,582
883,126
126,944,444 $
3,380,482 $
476,716
923,323
3,962,061
6,466,007
1,112,733
12,421,399
3,000,000
1,752,790
3,260,055
36,755,566
-
5,094,200
5,088,854
1,550,657
6,222,420
12,234,830
-
66,946,527
3,106,244
19,370,665
16,958,149
2,042,041
3,594,942
45,072,041
15,029,427
3,036,352
704,884
26,408,609
-
3,983,799
94,235,112
19,265,094
405,929
706,351
800,822
4,615,346
-
-
-
4,140,055
29,933,597
513,935
8,000,000
11,313,770
-
-
-
49,761,302
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of
$3,500,000 as of December 31, 2019 and 2018, respectively
1,261,995
1,261,995
Equity:
Common stock - $0.001 par value; 1,500,000,000 shares authorized, 149,692,953 and 102,766,006 shares
issued and outstanding as of December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total IDEX shareholder’s equity
Non-controlling interest
Total equity
Total liabilities, convertible redeemable preferred stock and equity
149,692
282,553,877
(248,482,826)
(663,579)
33,557,164
25,178,758
58,735,922
126,944,444 $
102,765
195,779,576
(149,975,302)
(1,664,598)
44,242,441
(1,030,626)
43,211,815
94,235,112
$
* The above consolidated balance sheets include Shanghai Guang Ming Investment Management Limited (“Guang Ming”). The acquisition of Guang Ming
was completed on April 4, 2018 and accounted for as a reorganization of entities under common control and as if it had been owned by the Company since
November 10, 2016 in accordance with ASC Subtopic 805-50 (See Note 6 “Acquisitions and Divestitures”)
The accompanying notes are an integral part of these consolidated financial statements.
F-3
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
Revenue from third-parties
Revenue from related parties
Total revenue
Cost of revenue from third-parties
Cost of revenue from related parties
Gross profit
Operating expenses:
Selling, general and administrative expenses
Research and development expense
Professional fees
Depreciation and amortization
Acquisition earn-out expense
Impairment of assets
Total operating expenses
Loss from operations
Interest and other income (expense):
Interest expense, net
Loss on extinguishment of debt
Impairment of and equity in loss of equity method investees
Loss on disposal of subsidiaries, net
Loss on remeasurement of DBOT investment
Other
Loss before income taxes and non-controlling interest
Income tax (expense) benefit
Net loss
Deemed dividend related to warrant repricing
Net loss attributable to common stockholders
Net (income) loss attributable to non-controlling interest
Net loss attributable to IDEX common shareholders
Basic and diluted loss per share
Weighted average shares outstanding:
Basic and diluted
$
2019
1,295,486 $
43,271,469
44,566,955
990,879
466,894
43,109,182
2018
278,024,867
99,718,005
377,742,872
130,464,906
244,110,132
3,167,834
24,862,208
-
5,828,385
2,228,653
5,094,095
73,668,525
111,681,866
22,471,976
1,654,491
4,749,799
352,332
-
134,290
29,362,888
(68,572,684)
(26,195,054)
(5,616,282)
(3,940,196)
(13,718,280)
(951,594)
(3,178,702)
(433,184)
(96,410,922)
(804,595)
-
(180,625)
(1,183,289)
-
(99,765)
(28,463,328)
(417,453)
40,244
(96,828,375)
(28,423,084)
(826,909)
-
(97,655,284)
(28,423,084)
(852,240)
996,728
$
(98,507,524) $
(27,426,356)
$
(0.82) $
(0.35)
119,766,859
78,386,116
*The above consolidated statements of operations include Guang Ming. The acquisition of Guang Ming was completed on April 4, 2018 and accounted for
as a reorganization of entities under common control and as if it had been owned by the Company since November 10, 2016 in accordance with ASC
Subtopic 805-50 (See Note 6 “Acquisitions and Divestitures”)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31,
Net loss
Other comprehensive loss, net of nil tax
Foreign currency translation adjustments
Comprehensive loss
Deemed dividend related to warrant repricing
Comprehensive loss attributable to non-controlling interest
Comprehensive loss attributable to IDEX common shareholders
2019
(96,828,375) $
2018
(28,423,084)
$
407,288
(96,421,087)
(826,909)
(844,050)
(98,092,046) $
(882,516)
(29,305,600)
-
978,282
(28,327,318)
$
* The above consolidated statements of cash flows include Guang Ming. The acquisition of Guang Ming was completed on April 4, 2018 and accounted
for as a reorganization of entities under common control and as if it had been owned by the Company since November 10, 2016 in accordance with ASC
Subtopic 805-50 (See Note 6 “Acquisitions and Divestitures”)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the years ended December 31, 2019 and 2018
Balance, December 31, 2017 (As adjusted*)
Share-based compensation
Common stock issuance (GTD)
Common stock to be issued (SSSIG)
Common stock issuance (STAR)
Common stock issuance for option exercised
Common stock issued for warrant exercised
Common stock issuance for RSU vested
Common stock issuance for acquisition (BDCG)
Common stock issuance for acquisition (DBOT)
Beneficial conversion feature of convertible note-
long term
Earnout shares to SSSIG
Acquisition resulting in non-controlling interest
(Grapevine)
Disposal of subsidiaries
Net loss
Foreign currency translation adjustments, net of
nil tax
Balance, December 31, 2018
Share-based compensation
Common stock issuance for convertible note (ID
Venturas)
Common stock issuance for convertible note (YA
II)
Common stock issuance for convertible note
conversion (ID Venturas)
Common stock issuance for debt
Common stock issuance for RSU vested
Common stock issuance for assets (SolidOpinion)
Common stock issuance for assets (Fintalk)
Common stock issuance for acquisition
(Grapevine)
Common stock issuance for investment
Common stock issuance for investment (Glory)
Common stock issuance for acquisition (DBOT)
Common stock issuance for investment
Common stock issuance for acquisition (Tree
Technologies)
Investment from SSSIG
Capital contribution from noncontrolling interest
shareholder
Convertible note reset conversion price
(Advantech)
Deconsolidation of Amer
Deconsolidation of VIEs
Net loss
Foreign currency translation adjustments, net of
nil tax
Balance, December 31, 2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Accumulated
Other
Comprehensive
Loss
Series E
Preferred
Stock
Series E
Par
Value
Additional
Paid-in
Capital
-
-
-
-
Common
Stock
Accumulated
Deficit
Par
Value
- $ - 68,509,090 $ 68,509 $ 158,449,544 $(126,693,022) $
-
-
-
-
-
-
-
-
-
3,412,977
9,994,506
1,177,585
9,194,973
27,960
1,125,856
(1,241)
7,797,000
6,724,078
-
5,494,505
-
5,027,324
82,797
643,714
1,240,707
3,000,000
2,267,869
-
5,494
-
5,027
82
644
1,241
3,000
2,268
-
-
-
-
-
-
-
-
-
-
-
-
Total
Equity
Non-
controlling
Interest
Ideanomics
Shareholders'
equity
31,042,957 $ (1,289,367) $ 29,753,590
3,412,977
3,412,977
-
- 10,000,000
10,000,000
1,177,585
-
1,177,585
9,200,000
-
9,200,000
-
28,042
28,042
1,126,500
-
1,126,500
-
-
-
7,800,000
-
7,800,000
6,726,346
-
6,726,346
(782,074) $
-
-
-
-
-
-
-
-
-
-
-
- 16,500,000 16,500
-
1,384,615
(16,500)
-
-
-
-
1,384,615
-
-
-
1,384,615
-
-
-
-
-
-
-
-
-
-
(3,491,777)
-
-
4,144,076
(27,426,356)
-
18,438
-
670,737
(27,426,356)
678,651
678,651
1,229,109
558,372
(996,728) (28,423,084)
-
-
-
- 102,766,006 102,765 195,779,576 (149,975,302)
-
-
9,112,633
-
-
-
-
(900,962)
(1,664,598)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,446
(900,962)
(882,516)
44,242,441 (1,030,626) 43,211,815
9,112,633
9,112,633
-
9,644,337
-
9,644,337
1,545,396
-
1,545,396
1,200,011
110,000
-
7,155,000
5,350,000
-
-
-
-
-
1,200,011
110,000
-
7,155,000
5,350,000
491,618
1,500,290
19,991,600
9,714,038
1,227,088
-
(491,618)
-
1,500,290
- 19,991,600
9,818,686
1,227,088
104,648
-
7,790,000 24,985,086 32,775,086
-
-
-
-
321,324
321,324
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,838,399
4,838
9,639,499
2,136,987
2,137
1,543,259
-
-
-
-
-
1,211,504
67,878
129,840
4,500,000
2,860,963
1,211
68
130
4,500
2,861
1,198,800
109,932
(130)
7,150,500
5,347,139
591
815
590,671
815,217
491,027
-
-
1,499,475
- 12,190,000 12,190 19,979,410
9,708,186
-
1,225,430
-
5,851,830
1,658,227
5,852
1,658
9,500,000
575,431
9,500
576
7,780,500
(576)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 10,615,385
-
-
1,373,832
-
-
-
-
-
-
(98,507,524)
-
-
585,540
-
10,615,385
-
1,959,372
(98,507,524)
445,894
-
- 10,615,385
445,894
1,959,372
852,240 (97,655,284)
-
-
- 149,692,953 $149,692 $ 282,553,877 $(248,482,826) $
-
-
-
415,479
(663,579) $
415,479
407,288
33,557,164 $25,178,758 $ 58,735,922
(8,191)
* The above consolidated statements of equity include Guang Min. The acquisition of Guang Min was completed on April 4, 2018 and accounted for as a reorganization of entities under common control and as if it had
been owned by the Company since November 10, 2016 in accordance with ASC Subtopic 805-50 (See Note 6 “Acquisitions and Divestitures”)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
IDEANOMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Share-based compensation expense
Depreciation and amortization
Non-cash interest expense
Impairment of and equity in losses of equity method investees
Loss on impairment of intangible assets
Loss on disposal of subsidiaries
Loss on remeasurement of DBOT investment
Digital tokens received as payment for services
Impairment of property and equipment
Disposal of equity method investments
Impairment of cost method investment
Change in assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable
Deferred revenue
Amount due to related parties (interest)
Accrued expenses, salary and other current liabilities
Net cash used in operating activities
Cash flows from investing activities:
Acquisition of property and equipment
Disposal of subsidiaries, VIEs, net of cash disposed
Acquisition of subsidiaries, net of cash acquired
Investments in intangible assets
Payments for long term investments
Deposit for surety bond and other
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of convertible notes
Proceeds from issuance of shares, stock options and warrant
Proceeds from amounts due to related parties
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of the year
2019
2018
$
(96,828,375) $
(28,423,084)
9,112,633
2,228,653
5,510,604
13,718,280
66,839,406
951,579
3,178,702
(40,700,000)
3,802,772
245,139
3,026,347
(2,277,822)
2,880,674
2,861,561
167,545
(1,256,382)
12,754,704
(13,783,980)
(1,816,390)
644,712
(623,178)
-
-
-
(1,794,856)
3,412,977
352,332
698,385
180,625
134,290
1,183,289
-
-
-
-
7,591,420
216,453
(1,296,872)
(7,564,499)
183,579
120,000
3,050,895
(20,160,210)
(6,762,248)
(41,976)
(2,784,243)
(301,495)
(5,266,880)
(3,983,799)
(19,140,641)
9,132,300
2,821,323
3,161,241
15,114,864
(9,386)
(473,358)
13,000,000
21,532,127
366,792
34,898,919
(69,141)
(4,471,073)
3,106,244
7,577,317
Cash, cash equivalents and restricted cash at the end of the year
$
2,632,886 $
3,106,244
Supplemental disclosure of cash flow information:
Cash paid for income tax
Cash paid for interest
Disposal of assets in exchange of GTB
Service revenue received in GTB
Issuance of shares for acquisition of intangible assets
Issuance of shares for acquisition of long-term investments
Issuance of earn-out shares
Asset retirement obligations acquired
$
- $
72,889
-
-
20,218,920
40,700,000
10,005,000
40,714,634
-
-
-
-
-
14,526,346
16,500
8,000,000
* The above consolidated statements of cash flows include Guang Ming. The acquisition of Guang Ming was completed on April 4, 2018 and accounted
for as a reorganization of entities under common control and as if it had been owned by the Company since November 10, 2016 in accordance with ASC
Subtopic 805-50 (See Note 6 “Acquisitions and Divestitures”)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Note 1. Organization and Principal Activities
IDEANOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ideanomics, Inc. (Nasdaq: IDEX) is a Nevada corporation that primarily operates in Asia and the United States through its subsidiaries and variable interest
entities (“VIEs”). Unless the context otherwise requires, the use of the terms "we," "us", "our" and the “Company” in these notes to consolidated financial
statements refers to Ideanomics, Inc, its consolidated subsidiaries and variable interest entities (“VIEs.”)
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions
about allocating resources and assessing performance of the Company. Therefore, the Company operates in one segment with two business units, the
Mobile Energy Group (“MEG”), and Ideanomics Capital. As the chief executive officer previously reviewed two operating segments separately for this
purpose, the Company has changed its presentation accordingly, from two reportable segments to one reportable segment.
The segment reporting changes were retrospectively applied to all periods presented.
MEG’s mission is to use electronic vehicles (“EVs”) and EV battery sales and financing to attract commercial fleet operators that will generate large scale
demand for energy, energy storage systems, and energy management contracts. MEG operates as an end-to-end solutions provider for the procurement,
financing, charging and energy management needs for fleet operators of commercial EVs.
Ideanomics Capital is focused on the trading of traditional over the counter (“OTC”) securities, and is implementing a new trading platform to improve its
competitive position in the trading of traditional OTC securities and provide enhanced functionality to allow for the trading of digital securities when all
necessary regulatory approvals have been obtained.
The Company also seeks to identify industries and business processes where blockchain and AI technologies can be profitably deployed to disrupt
established industries and business processes.
Note 2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements of Ideanomics, Inc., its subsidiaries and VIEs were prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of the subsidiaries over which the
Company exercises control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary.
Intercompany transactions and balances are eliminated in consolidation.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
On an ongoing basis, the Company evaluates its estimates, including those related to the bad debt allowance, sales returns, fair values of financial
instruments, equity investments, stock-based compensation, intangible assets and goodwill, useful lives of intangible assets and property and equipment,
asset retirement obligations, income taxes, and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and
forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying amounts of assets and
liabilities.
(c) Cash and Cash Equivalents
Cash consists of cash on hand and demand deposits with an original maturity of three months or less when purchased. Refer to Note 20 (d) and (e) for
additional information on our credit and foreign currency risks.
F-8
(d) Accounts Receivable, net
Accounts receivable are recognized at invoiced amounts and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments. The Company reviews its allowance for doubtful accounts receivable on an
ongoing basis. In establishing the required allowance, management considers any historical losses, the customer’s financial condition, the accounts
receivable aging, and the customer’s payment patterns. After all attempts to collect a receivable have failed and the potential for recovery is remote, the
receivable is written off against the allowance.
(e) Licensed Content
The Company previously obtained content through content license agreements with studios and distributors. The Company recognized licensed content
when the license fee and the specified content titles were known or reasonably determinable. Prepaid license fees were classified as an asset (licensed
content) and accrued license fees payable were classified as a liability on the consolidated balance sheets.
The Company amortized licensed content in cost of revenues over the contents’ contractual availability based on the expected revenue derived from the
licensed content, beginning with the month of first availability, such that our revenues bore a representative amount of the cost of the licensed content.
Management reviewed factors that impacted the amortization of licensed content at each reporting date, including factors that may bear direct impact on
expected revenue from specific content titles. Changes in the expected revenue from licensed content could have had a significant impact on the
amortization pattern.
Management evaluated the recoverability of the licensed content whenever events or changes in circumstances indicated that its carrying amount may not
have been recoverable. No impairment losses were recorded in the years ended December 31, 2019 and 2018. The Company sold the entire licensed
content in March 2019.
(f) Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation. Expenditures for major renewals and improvements, which extend the original
estimated economic useful lives of applicable assets, are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred.
The costs and related accumulated depreciation of assets sold or retired are removed from the accounts and any gain or loss thereon is recognized in the
consolidated statement of operations. Depreciation is provided for on a straight-line basis over the estimated useful lives of the respective assets. The
estimated useful life is 5 years for furniture, 3 years for electronic equipment, 5 years for vehicles and lesser of lease terms or the estimated useful lives of
the assets for leasehold improvements.
Construction in progress is stated at cost, which includes the cost of construction and other direct costs attributable to the construction. No provision for
depreciation is made on construction in progress until such time as the relevant assets are completed and put into use. Construction in progress at December
31, 2019 and 2018 represents Fintech Village under construction. Refer to Note 8 for additional information.
Asset Retirement Obligations
Asset retirement obligations generally apply to legal obligations associated with the retirement of a tangible long-lived asset that result from the
acquisition, construction or development and the normal operation of a long-lived asset. If a reasonable estimate of fair value can be made, the fair value of
a liability for an asset retirement obligation is recognized in the period in which it is incurred or a change in estimate occurs. Asset retirement costs
associated with asset retirement obligations are capitalized with the carrying amount of the related long-lived assets and depreciated over the related asset’s
estimated useful life. The Company’s asset retirement obligations as of December 31, 2019 and 2018 are associated with the acquisition of Fintech Village,
in which the Company is contractually obligated to remediate certain existing environmental conditions. The Company will start to amortize the asset
retirement costs if and when the related assets are completed, put into use and depreciation commences. In the year ended December 31, 2019, the
Company impaired buildings with a carrying amount of $2.3 million, and impaired related asset retirement costs of $1.5 million. Refer to Note 8 for more
information.
(g) Business Combinations
The Company includes the results of operations of the businesses that are acquired as of the acquisition date. The Company allocates the purchase price of
the acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of
identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are
expensed as incurred.
(h) Intangible Assets and Goodwill
The Company accounts for intangible assets and goodwill in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and
Other (“ASC 350”). ASC 350 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be evaluated for
impairment at least annually. In accordance with ASC 350, goodwill is allocated to reporting units, which are either the operating segment or one reporting
level below the operating segment. On an annual basis, in the fourth quarter of the fiscal year, management reviews goodwill for impairment by first
assessing qualitative factors to determine whether the existence of events or circumstances makes it more-likely-than-not that the fair value of a reporting
unit is less than its carrying amount. If it is determined that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount,
goodwill is further tested for impairment by comparing the carrying amount to the estimated fair value of its reporting units, determined using externally
quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach. Goodwill impairment, if any, is measured as
the amount by which a reporting unit’s carrying amount exceeds its fair value.
F-9
Application of goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets,
liabilities and goodwill to reporting units and determination of fair value of each reporting unit. Judgment applied when performing the qualitative analysis
includes consideration of macroeconomic, industry and market conditions, overall financial performance of the reporting unit, composition, personnel or
strategy changes affecting the reporting unit and recoverability of asset groups within a reporting unit. Judgments applied when performing the quantitative
analysis includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these judgments,
estimates and assumptions could materially affect the determination of fair value for each reporting unit.
The Company has other intangible assets, not including goodwill, which consist primarily of customer relationships and contracts, trademarks and
tradenames and other intellectual property, which are generally recorded in connection with acquisitions at their fair value. Intangible assets with estimable
lives are amortized, generally on a straight-line basis, over their respective estimated useful lives to their estimated residual values and reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company recorded an impairment
loss related to a secure mobile financial information, social and messaging platform of $5.7 million in the year ended December 31, 2019. No impairment
losses were recorded in the year ended December 31, 2018. Refer to Note 9(b) for additional information.
(i) Digital Currency
The Company may, from time to time, enter into transactions denominated in digital currency, which may consist of GTDollar Coins (“GTB”), Bitcoin,
Ethereum and/or other types of digital currency.
Digital currency is a type of digital asset that is not a fiat currency and is not backed by hard assets or other financial instruments. As a result, the value of
digital currency is determined by the value that various market participants place on the respective digital currencies through their transactions. Holders of
digital currency make or lose money from buying and selling digital currency.
Given that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital currencies under current GAAP, the
Company has determined to account for these currencies as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other
(“ASC 350”) until further guidance is issued by the Financial Accounting Standards Board (“FASB”).
In the year ended December 31, 2019, the Company entered into transactions in which it received 8.3 million GTB, valued at the time at $61.1 million. On
October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84. This decline continued through the fourth quarter of
2019, and on December 31, 2019 the quoted price was $0.23. As a result of this decline in quoted price, and its inability to convert GTB into other digital
currencies which were more liquid, or fiat currency, the Company performed an impairment analysis in the fourth quarter of 2019 and recorded an
impairment loss of $61.1 million. Refer to Note 9(g) for additional information.
(j) Long-term Investments
The Company accounts for equity investments through which management exercises significant influence but does not have control over the investee under
the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for the Company’s share of undistributed earnings or
losses of the investee. The Company’s share of losses is not recognized when the investment is reduced to zero since the Company does not guarantee the
investees’ obligations nor is the Company committed to providing additional funding.
Beginning on January 1, 2018, the equity investments which are not consolidated or accounted for under the equity method are either carried at fair value
or under the measurement alternative upon the adoption of the Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments – Overall
(Subtopic 825-10) (“ASU No 2016-01”).
The Company utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments
at cost less impairment plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer.
The Company classifies its long-term investments as non-current assets on the consolidated balance sheets.
Impairment of Investments
Management periodically reviews long-term investments for impairment whenever events or changes in business circumstances indicate that the carrying
amount of the investment may not be fully recoverable. Management considers impairment indicators such as negative changes in industry and market
conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist and the fair value of the investment is below
the carrying amount, an impairment loss is recorded to record the investment at fair value. The Company recorded impairment losses of $3.0 million and $0
in the years ended December 31, 2019 and 2018, respectively, for equity investments accounted for under the measurement alternative, and recorded
impairment losses of $13.1 million and $0 in the years ended December 31, 2019 and 2018, respectively, for investments accounted for as equity method
investments. Refer to Note 10 for additional information on impairment losses.
F-10
(k) Leases
The Company adopted ASU No. 2016-02 (“ASU 2016-02”) as of January 1, using a modified retrospective method. The Company leases certain office
space and equipment from third-parties. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense is
recognized on a straight-line basis over the lease term. For leases beginning in 2019 and later, at the inception of a contract management assesses whether
the contract is, or contains, a lease. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the right
to substantially all the economic benefit from the use of the asset throughout the period is obtained, and (3) whether the Company has the right to direct the
use of the asset. At the inception of a lease, management allocates the consideration in the contract to each lease component based on its relative stand-
alone price to determine the lease payments. Leases entered into prior to January 1, 2019, are accounted for under ASC 840, Leases (“ASC 840”) and were
not reassessed. The Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the
nonlease components (e.g., common-area maintenance costs).
Most leases include one or more options to renew, with renewal terms that can extend the lease term from one year or more. The exercise of lease renewal
options is at the Company’s sole discretion. Renewal periods are included in the lease term only when renewal is reasonably certain, which is a high
threshold and requires management to apply judgment to determine the appropriate lease term. The Company’s leases do not include options to purchase
the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Certain lease agreements include
rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material
restrictive covenants. All of the Company’s leases are classified as operating leases. The Company has elected not to recognize right-of-use assets and lease
liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases and initial direct costs on our right-of-use asset and
lease liability was not material.
ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement
includes a lease, determining the term of a lease when the contract has renewal or cancellation provisions, and determining the discount rate.
As the rate implicit in the lease is not usually available, the Company used an incremental borrowing rate based on the information available at the adoption
date of ASC 842 in determining the present value of lease payments for existing leases. The Company will use information available at the lease
commencement date to determine the discount rate for any new leases.
Refer to Note 11 for additional information.
(l) Convertible Promissory Notes
The Company accounts for its convertible notes at issuance by allocating the proceeds received from a convertible note among freestanding instruments
according to ASC 470, Debt, based upon their relative fair values. The fair value of debt and common stock is determined based on the closing price of the
common stock on the date of the transaction, and the fair value of warrants, if any, is determined using the Black-Scholes option-pricing model.
Convertible notes are subsequently carried at amortized cost. The fair value of the warrants is recorded as additional paid-in capital, with a corresponding
as a debt discount from the face amount of the convertible note. Each convertible note is analyzed for the existence of a beneficial conversion feature
(“BCF”), defined as the fair value of the common stock at the commitment date for the convertible note, less the effective conversion price. Beneficial
conversion features are recognized at their intrinsic value, and recorded as an increase to additional paid-in capital, with a corresponding reduction in the
carrying amount of the convertible note (as a debt discount from the face amount of the convertible note). The discounts on the convertible notes,
consisting of amounts ascribed to warrants and beneficial conversion features, are amortized to interest expense, using the effective interest method, over
the terms of the related convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the
contingency is resolved.
The Company also analyzes the features of its convertible notes which, when triggered, mandate a downward adjustment to the instrument’s strike price (or
conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s
then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more
favorable price.
(m) Fair Value Measurements
U. S. GAAP requires the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value
hierarchy. The various levels of the fair value hierarchy are described as follows:
·
·
·
Level 1 - Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
Level 2 - Quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
Level 3 - Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value.
The Company reviews the valuation techniques used to determine if the fair value measurements are still appropriate on an annual basis, and evaluates and
adjusts the unobservable inputs used in the fair value measurements based on current market conditions and third-party information.
Our financial assets and liabilities that are measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, accounts
payable, accrued other expenses, other current liabilities and convertible notes. The fair values of these assets and liabilities approximate carrying amounts
because of the short-term nature of these instruments.
Our financial and non-financial assets and liabilities that are measured at fair value on a nonrecurring basis include goodwill and other intangible assets,
asset retirement obligations, and adjustment in carrying amount of equity securities for which the measurement alternative of cost less impairment plus or
minus observable price changes is used. Refer to Notes 2(f), 2(h), 2(i) and 2(j) for additional information on impairment losses.
F-11
(n) Assets and Liabilities Held for Sale
The Company classifies assets and liabilities (disposal group) to be sold as held for sale in the period in which all of the following criteria are met: (1)
management, having the authority to approve the action, commits to a plan to sell the disposal groups; (2) the disposal group is available for immediate sale
in its present condition subject only to terms that are usual and customary for sales of such disposal group; (3) an active program to locate a buyer and other
actions required to complete the plan to sell the disposal group have been initiated; (4) the sale of the disposal group is probable, and (5) transfer of the
disposal group is expected to qualify as a completed sale within one year, except if events or circumstances beyond the Company’s control extend the
period of time required to sell the disposal group beyond one year; (6) the disposal group is being actively marketed for sale at a price that is reasonable in
relation to its current fair value; and (7) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or
that the plan will be withdrawn.
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying amount or fair value less any costs to sell.
Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Gains are not recognized on the sale of a
disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains
classified as held for sale and reports any subsequent losses as an adjustment to the carrying amount of the disposal group.
As part of this assessment, the Company also evaluates the criteria for reporting the disposal group as a discontinued operation. Factors which the
Company considers includes, but is not limited to, the level of continuing involvement, if any, whether the disposal constitutes a strategic shift, and the
relative magnitude of revenue, net income or loss, and total assets.
(o) Foreign Currency Translation
The Company uses the United States dollar (“$” or “USD”) as its reporting currency. The Company’s worldwide operations utilize the local currency or
USD as the functional currency, where applicable. For certain foreign subsidiaries, USD is used as the functional currency, and the local records are
maintained in USD. This occurs when the subsidiary is considered an extension of the parent. The functional currency of certain subsidiaries and VIEs
located in the Peoples Republic of China (“PRC” or “China”) and Hong Kong is either the Renminbi (“RMB”) or Hong Kong dollars (“HKD”). In the
consolidated financial statements, the financial information of the entities which use RMB and HKD as their functional currency has been translated into
USD: assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at the historical exchange rates, and
revenues, expenses, gains and losses are translated using the average rate for the period. Translation adjustments arising from these are reported as foreign
currency translation adjustments and are shown as a component as a component of “Accumulated other comprehensive loss” in the equity section of the
consolidated balance sheets.
Transactions denominated in currencies other than functional currency are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated in the functional currency
at the applicable rates of exchange in effect at the balance sheet date. The resulting exchange differences are recorded in “Other” in the consolidated
statements of operations.
(p) Revenue Recognition
The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, and other related ASUs (collectively, ASC 606, Revenue from
Contracts with Customers) (“ASC 606”) as of January 1, 2018 using the modified retrospective transition approach. The Company recognizes revenue
when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in
exchange for those goods or services. For most of the Company’s customer arrangements, control transfers to customers at a point in time, as that is
generally when legal title, physical possession and risk and rewards of goods/services transfer to the customer. In certain arrangements, control transfers
over time as the customer simultaneously receives and consumes the benefits as the Company completes the performance obligations.
Our contracts with customers may include multiple performance obligations. For such arrangements, revenue is allocated to each performance obligation
based on its relative standalone selling price. Standalone selling prices are based on the observable prices charged to customers or adjusted market
assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives
taking into consideration market conditions and entity specific factors.
Certain customers may receive discounts, which are accounted for as variable consideration. Variable consideration is estimated based on the expected
amount to be provided to customers, and reduces revenues recognized.
The Company records deferred revenues when cash payments are received or due in advance of performance, including amounts which are refundable.
Substantially all of the deferred revenue as of December 31, 2018 was recognized as revenue in the year ended December 31, 2019.
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
(q) Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred. Advertising and marketing costs were $24,394 and $0.2 million in the years ended December
31, 2019 and 2018, respectively.
F-12
(r) Research and Development Costs
The Company expenses research and development costs, including costs to develop software products or the software component of products to be sold,
leased, or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of
such products and as a result, development costs that meet the criteria for capitalization were not material for the periods presented.
Research and development costs also include costs to develop software to be used solely to meet internal needs and -based applications used to deliver our
services. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is
probable that the project will be completed and the software will be used to perform the function intended. The Company ceased research and development
activities during the year ended December 31, 2018. All the software developed in the year ended December 31, 2018 did not reach technological
feasibility and therefore no costs were capitalized.
(s) Share-Based Compensation
The Company awards share options and other equity-based instruments to its employees, directors and consultants (collectively “share-based payments”).
Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date. The Company recognizes the
compensation cost over the period the employee is required to provide service in exchange for the award, which generally is the vesting period. The amount
of cost recognized is adjusted to reflect the expected forfeiture prior to vesting. When no future services are required to be performed by the employee in
exchange for an award of equity instruments, and if such award does not contain a performance or market condition, the cost of the award is expensed on
the grant date. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line
basis over the requisite service period for the entire award, provided that the cumulative amount of compensation cost recognized at any date at least equals
the portion of the grant-date value of such award that is vested at that date.
(t) Income Taxes
The Company accounts for income taxes in accordance with the asset and liability method. Deferred taxes are recognized for the future tax consequences
attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using
enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is established, as needed, to reduce the amount of deferred tax assets if it is
considered more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes the effect of uncertain income tax positions only if those positions are more-likely-than-not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs. The Company’s policy is to record interest and penalties related to uncertain tax positions as
a component of income tax expense. There were no such interest or penalty for the years ended December 31, 2019 and 2018.
On December 22, 2017 the Tax Cut and Jobs Act of 2017 (“the Tax Act”) was signed into law, which among other effects, reduces the U.S. federal
corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, and requires companies to pay a one-time transition tax on certain
unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years. No tax was due under this provision. The Tax Act also makes the receipt
of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S.
subsidiaries relating to the parent’s deductions for payments to the subsidiaries.
(u) Net Loss Per Share Attributable to IDEX Shareholders
Net loss per share attributable to our shareholders is computed in accordance with ASC 260, Earnings Per Share (Topic 260) (“ASC 260”). The two-class
method is used for computing earnings per share. Under the two-class method, net income is allocated between common shares and participating securities
based on dividends declared (or accumulated) and participating rights in undistributed earnings as if all the earnings for the reporting period had been
distributed. The Company’s convertible redeemable preferred shares are participating securities because the holders are entitled to receive dividends or
distributions on an as converted basis. For the years presented herein, the computation of basic loss per share using the two-class method is not applicable
as the Company is in a net loss position and net loss is not allocated to other participating securities, since these securities are not obligated to share the
losses in accordance with the contractual terms.
Basic net loss per share is computed by dividing net loss attributable to IDEX common shareholders by the weighted average number of common shares
outstanding during the period. Options and warrants are not considered outstanding in computation of basic earnings per share. Diluted net loss per share is
computed by dividing net loss attributable to IDEX common shareholders by the weighted average number of common shares and potential common shares
outstanding during the period under the treasury stock method. Potential common shares include options and warrants to purchase common shares,
preferred shares and convertible promissory notes, unless they were anti-dilutive. The computation of diluted net loss per share does not assume
conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts or a decrease
in loss per share amounts) on net loss per share.
F-13
(v) Reclassifications of a General Nature
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These
reclassifications have no effect on previously reported net income.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) “Leases (Topic 842),” which requires lessees to recognize a right-of-use asset and
lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a
finance or operating lease. The Company adopted ASU 2016-02 as of January 1, 2019, using a modified retrospective transition method. As a result, the
consolidated balance sheet prior to January 1, 2019 was not restated, and continues to be reported under ASC Topic 840, “Leases.”
The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 842, discounted using the Company’s
incremental borrowing rate at the effective date of January 1, 2019, using the original lease term as the tenor. As permitted under the transition guidance,
the Company elected several practical expedients that permit the Company to not reassess (1) whether a contract is or contains a lease, (2) the classification
of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did
not have a significant impact on the measurement of the operating lease liability. The adoption of ASU 2016-02 resulted in the recording of operating right-
of-use assets and the related lease liabilities of $3.6 million and $3.7 million, respectively, as of January 1, 2019. The difference between the additional
right-of-use assets and lease liabilities was immaterial. The adoption of ASU 2016-02 did not materially impact the consolidated statement of operations
and had no impact on the consolidated statement of cash flows. Refer to Note 10 for additional information.
In July 2017, the FASB issued ASU No. 2017-11 (“ASU 2017-11”) “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception,” which applies to issuers of financial instruments with down round features. A down round feature is a term in an equity-
linked financial instrument (i.e. a freestanding warrant contract or an equity conversion feature embedded within a host debt or equity contract) that triggers
a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial
instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the
instrument’s counterparty from future issuances of equity shares at a more favorable price. ASU 2017-11 amends (1) the classification of such instruments
as liabilities or equity by revising the certain guidance relative to evaluating if they must be accounted for as derivative instruments, and (2) the guidance
on recognition and measurement of freestanding equity-classified instruments. The Company adopted ASU 2017-11 as of January 2019 on a prospective
basis. Refer to Note 13 for additional information.
In June 2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”) “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting,” which largely aligns the measurement and classification guidance for share-based payments to nonemployees with the
guidance for share-based payments to employees. ASU 2018-07 also clarifies that any share-based payment issued to a customer should be evaluated under
Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” The Company adopted ASU 2018-07 as of January 1, 2019
on a modified retrospective basis. There was no impact to the consolidated financial statements because the Company did not have material payments in the
year ended December 31, 2019.
In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”) “Revenue from Contracts with Customers (Topic 606),” which relates to how an entity
recognizes the revenue it expects to be entitled to for the transfer of promised goods and services to customers. The Company adopted ASU 2014-09 as of
January 1, 2018 using the modified retrospective method applied to those contracts/sales orders which were not completed as of January 1, 2018. The effect
from the adoption of ASU 2014-09 was not material to the consolidated financial statements. Refer to Note 2 (p) above and Note 4 for additional
information.
In January 2016, the FASB issued ASU No. 2016-01 (“ASU 2016-01”) "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities," which amends various aspects of the recognition, measurement, presentation, and disclosure of financial
instruments. The Company adopted ASU 2016-01 as of January 1, 2018 on a prospective basis and elected to use the measurement alternative for the non-
marketable equity securities, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less
impairment. The adoption of ASU 2016-01 did not have a material impact on the consolidated financial statements. Refer to Note 10 for additional
information.
In November 2016, the FASB issued ASU No. 2016-18 (“ASU 2016-18”) "Statement of Cash Flows (Topic 230): Restricted Cash," which clarifies how
entities should present restricted cash and restricted cash equivalents in the statements of cash flows, and as a result, entities will no longer present transfers
between cash and cash equivalents and restricted cash and restricted cash equivalents in the statements of cash flows. An entity with a material balance of
restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. The Company adopted ASU 2016-18 as of
January 1, 2018 on a retrospective basis. The new guidance changed the presentation of restricted cash in the consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”) “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU
2017-01 affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a
business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is intended to help companies and
other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 provides a
more robust framework to use in determining when a set of assets and activities is a business, provides more consistency in applying the guidance, reduces
the costs of application, and makes the definition of a business more operable. The Company adopted ASU 2017-01 as of January 1, 2018 on a prospective
basis. The adoption of ASU 2017-01 did not have a material impact on the consolidated financial statements. Refer to Note 6 for additional information.
F-14
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) "Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses
on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-
13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate
credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt
securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will
result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842)” (“ASC 2019-10”), which defers the effective date of ASU 2016-13 to fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years, for public entities which meet the definition of a smaller reporting company.
The Company will adopt ASU 2016-13 effective January 1, 2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on the
consolidated financial statements. The effect will largely depend on the composition and credit quality of our investment portfolio and the economic
conditions at the time of adoption.
In December 2019, the FASB issued ASU No. 2019-12 (“ASU 2019-12”) “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.” ASU
2019-12 will simplify the accounting for income taxes by removing certain exceptions currently provided for in ASC 740, “Income Taxes” (“ASC 740”),
and by amending certain other requirements of ASC 740. The changes resulting from ASU 2019-12 will be made on a retrospective or modified
retrospective basis, depending on the specific exception or amendment. For public business entities, the amendments in ASU 2019-12 are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company will adopt ASU 2019-12 effective January 1,
2021. Management is currently evaluating the effect of the adoption of ASU 2019-12 on the consolidated financial statements.
Note 3. Going Concern and Management’s Plans
As of December 31, 2019, the Company had cash and cash equivalents of approximately $2.6 million and an accumulated deficit of approximately $248.5
million. Additionally, the Company has incurred losses since its inception and must continue to rely on proceeds from debt and equity issuances to pay for
ongoing operating expenses in order to execute its business plan.
The Company expects to continue to raise both equity and debt finance to support the Company’s investment plans and operations.
Although the Company may attempt to raise funds by issuing debt or equity instruments, in the future additional financing may not be available to the
Company on terms acceptable to the Company or at all or such resources may not be received in a timely manner. If the Company is unable to raise
additional capital when required or on acceptable terms, the Company may be required to scale back or to discontinue certain operations, scale back or
discontinue the development of new business lines, reduce headcount, sell assets, file for bankruptcy, reorganize, merge with another entity, or cease
operations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been
prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome
of this uncertainty. If the Company is in fact unable to continue as a going concern, the shareholders may lose their entire investment in the Company.
F-15
Note 4. Revenue
The following table summarizes the Company’s revenues disaggregated by revenue source and geography. Refer to Note 2 for additional information on
revenue recognition.
Geographic Markets
Singapore
USA
Hong Kong
PRC
Product or Service
Crude oil
Consumer electronics
Digital asset management services
Electronic Vehicles
Other
Total
Timing of Revenue Recognition
Products and services transferred at a point in time
Services provided over time
Total
Note 5. VIE Structure and Arrangements
2019
2018
- $
41,873,064
-
2,693,891
44,566,955 $
260,034,401
638,412
117,070,059
-
377,742,872
- $
-
40,700,000
2,693,891
1,173,064
44,566,955 $
260,034,401
116,723,251
-
-
985,220
377,742,872
3,866,955 $
40,700,000
44,566,955 $
377,742,872
-
377,742,872
$
$
$
$
$
$
The Company consolidated certain VIEs located in the PRC in which it held variable interests and was the primary beneficiary through contractual
agreements. The Company was the primary beneficiary because it had the power to direct activities that most significantly affected their economic
performance and had the obligation to absorb or right to receive the majority of their losses or benefits. The results of operations and financial position of
these VIEs are included in the consolidated financial statements for the years ended December 31, 2019 and 2018, and as of December 31, 2018. A
shareholder in one of the VIEs is the spouse of Bruno Wu (“Dr. Wu”), the Chairman of the Company.
Refer to Note 10 for information on an additional VIE.
The contractual agreements listed below, which collectively granted the Company the power to direct the VIEs activities that most significantly affected
their economic performance, as well to cause the Company to have the obligation to absorb or right to receive the majority of their losses or benefits, were
terminated by all parties on December 31, 2019. As a result, the Company deconsolidated the VIEs as of December 31, 2019. The deconsolidation resulted
in a net loss of $2.0 million recorded in “Loss on disposal of subsidiaries, net” in the consolidated statements of operations, and a statutory income tax of
$0.2 million.
For these consolidated VIEs, their assets were not available to the Company and their creditors did not have recourse to the Company. As of December 31,
2018, assets (mainly long-term investments) that could only be used to settle obligations of these VIEs were $3.5 million, and the Company was the major
creditor for the VIEs.
Prior to December 31, 2019, in order to operate certain legacy YOD business in the PRC and to comply with PRC laws and regulations that prohibit or
restrict foreign ownership of companies that provides value-added telecommunication services, the Company entered into a series of contractual
agreements with two VIEs: Beijing Sinotop Scope Technology Co., Ltd (“Sinotop Beijing”) and Tianjin Sevenstarflix Network Technology Limited
(“SSF”). These contractual agreements were initially set to expire in March 2030 and April 2036, respectively, and could not be terminated by the VIEs,
except with the consent of, or a material breach by the Company. A shareholder in SSF is the spouse of Dr. Wu, the Chairman of the Company.
F-16
The key terms of the VIE Agreements are summarized as follows:
Equity Pledge Agreement
The VIEs’ Shareholders pledged all of their equity interests in the VIEs (the “Collateral”) to YOD On Demand (Beijing) Technology Co., Ltd (“YOD
WFOE”), the Company’s wholly-owned subsidiary in the PRC, as security for the performance of the obligations to make all the required technical service
fee payments pursuant to the Technical Services Agreement and for performance of the VIEs’ Shareholders’ obligation under the Call Option Agreement.
The terms of the Equity Pledge Agreement were set to expire upon satisfaction of all obligations under the Technical Services Agreement and Call Option
Agreement.
The Equity Pledge Agreement was terminated by all parties on December 31, 2019.
Call Option Agreement
The VIEs’ Shareholders granted an exclusive option to YOD WFOE, or its designee, to purchase, at any time and from time to time, to the extent permitted
under PRC law, all or any portion of the VIEs’ Shareholders’ equity in VIEs. The exercise price of the option was to be determined by YOD WFOE at its
sole discretion, subject to any restrictions imposed by PRC law. The term of the agreement was until all of the equity interest in the VIEs held by the VIEs’
Shareholders were transferred to YOD WFOE, or its designee and could not be terminated by any part to the agreement without consent of the other
parties.
The Call Option Agreement was terminated by all parties on December 31, 2019.
Power of Attorney
The VIEs’ Shareholders granted YOD WFOE the irrevocable right, for the maximum period permitted by law, all of its voting rights as shareholders of
VIEs. The VIEs’ Shareholders could not transfer any of its equity interest in VIEs to any party other than YOD WFOE. The Power of Attorney agreements
could not be terminated except until all of the equity in VIEs had been transferred to YOD WFOE or its designee.
The Power of Attorney agreements were terminated by all parties on December 31, 2019.
Technical Service Agreement
YOD WFOE had the exclusive right to provide technical service, marketing and management consulting service, financial support service and human
resource support services to the VIEs, and the VIEs were required to take all commercially reasonable efforts to permit and facilitate the provision of the
services by YOD WFOE. As compensation for providing the services, YOD WFOE was entitled to receive service fees from the VIEs equivalent to YOD
WFOE’s cost plus 20.0 to 30.0% of such costs as calculated on accounting policies generally accepted in the PRC. YOD WFOE and the VIEs agreed to
periodically review the service fee and make adjustments as deemed appropriate. The term of the Technical Services Agreement was perpetual, and could
only be terminated upon written consent of both parties.
The Technical Services Agreement was terminated by all parties on December 31, 2019.
F-17
Spousal Consent
Pursuant to the Spousal Consent, undersigned by the respective spouse of the VIEs’ Shareholders, the spouses unconditionally and irrevocably agreed to
the execution of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The spouses agreed to not make any assertions in
connection with the equity interest of the VIEs and to waive consent on further amendment or termination of the Equity Pledge Agreement, Call Option
Agreement and Power of Attorney agreement. The spouses further pledged to execute all necessary documents and take all necessary actions to ensure
appropriate performance under these agreements upon YOD WFOE’s request. In the event the spouses obtained any equity interests of the VIEs which
were held by the VIEs’ Shareholders, the spouses agreed to be bound by the VIE agreements, including the Technical Services Agreement, and comply
with the obligations thereunder, including signing a series of written documents in substantially the same format and content as the VIE agreements.
The Spousal Consents were terminated by all parties on December 31, 2019.
Letter of Indemnification
Pursuant to the Letter of Indemnification among YOD WFOE and each nominee shareholder, YOD WFOE agreed to indemnify such nominee shareholder
against any personal, tax or other liabilities incurred in connection with their role in equity transfer to the greatest extent permitted under PRC law. YOD
WFOE further waived and released the VIEs’ Shareholders from any claims arising from, or related to, their role as the legal shareholder of the VIE,
provided that their actions as a nominee shareholder were taken in good faith and were not opposed to YOD WFOE’s best interests. The VIEs’
Shareholders were not entitled to dividends or other benefits generated therefrom, or to receive any compensation in connection with this arrangement. The
Letter of Indemnification was to remain valid until either the nominee shareholder or YOD WFOE terminates the agreement by giving the other party
hereto 60 days’ prior written notice.
The Letter of Indemnification was terminated by all parties on December 31, 2019.
Management Services Agreement
In addition to VIE agreements described above, the Company’s subsidiary and the parent company of YOD WFOE, YOU On Demand (Asia) Limited, a
company incorporated under the laws of Hong Kong (“YOD Hong Kong”) entered into a Management Services Agreement with each VIE.
Pursuant to such Management Services Agreement, YOD Hong Kong had the exclusive right to provide to the VIE management, financial and other
services related to the operation of the VIE’s business, and the VIE was required to take all commercially reasonable efforts to permit and facilitate the
provision of the services by YOD Hong Kong. As compensation for providing the services, YOD Hong Kong was entitled to receive a fee from the VIE,
upon demand, equal to 100.0% of the annual net profits as calculated on accounting policies generally accepted in the PRC of the VIE during the term of
the Management Services Agreement. YOD Hong Kong could also request ad hoc quarterly payments of the aggregate fee, which payments would be
credited against the VIE’s future payment obligations.
In addition, at the sole discretion of YOD Hong Kong, the VIE was obligated to transfer to YOD Hong Kong, or its designee, any part or all of the
business, personnel, assets and operations of the VIE which could be lawfully conducted, employed, owned or operated by YOD Hong Kong, including:
(a) business opportunities presented to, or available to the VIE could be pursued and contracted for in the name of YOD Hong Kong rather than the
VIE, and at its discretion, YOD Hong Kong could employ the resources of the VIE to secure such opportunities;
(b) any tangible or intangible property of the VIE, any contractual rights, any personnel, and any other items or things of value held by the VIE could
be transferred to YOD Hong Kong at book value;
(c)
real property, personal or intangible property, personnel, services, equipment, supplies and any other items useful for the conduct of the business
could be obtained by YOD Hong Kong by acquisition, lease, license or otherwise, and made available to the VIE on terms to be determined by
agreement between YOD Hong Kong and the VIE;
(d) contracts entered into in the name of the VIE could be transferred to YOD Hong Kong, or the work under such contracts may be subcontracted, in
whole or in part, to YOD Hong Kong, on terms to be determined by agreement between YOD Hong Kong and the VIE; and
(e) any changes to, or any expansion or contraction of, the business could be carried out in the exercise of the sole discretion of YOD Hong Kong, and
in the name of and at the expense of, YOD Hong Kong;
(f) provided, however, that none of the foregoing may cause or have the effect of terminating (without being substantially replaced under the name of
YOD Hong Kong) or adversely affecting any license, permit or regulatory status of the VIE.
The Management Services Agreement was terminated by all parties on December 31, 2019.
F-18
Loan Agreement
Pursuant to the Loan Agreement dated April 5, 2016, YOD WFOE agreed to lend RMB 19.8 million and RMB 0.2 million, respectively, to the VIEs’
Shareholders, one of whom is the spouse of Dr. Wu, the Company’s Chairman, for the purpose of establishing SSF and for development of its business. As
of December 31, 2018, RMB27.6 million ($4.2 million) had been lent to VIEs’ Shareholders which had contributed all of the RMB27.6 million ($4.2
million) in the form of capital contribution to SSF. The loan could only be repaid by a transfer by the VIEs’ Shareholders of their equity interests in SSF to
YOD WOFE or YOD WOFE’s designated persons, through (1) YOD WOFE having the right, but not the obligation to at any time purchase, or authorize a
designated person to purchase, all or part of the VIEs’ Shareholders’ equity interests in SSF at such price as YOD WOFE shall determine (the “Transfer
Price”), (2) all monies received by the VIEs’ Shareholders through the payment of the Transfer Price being used solely to repay YOD WOFE for the loans,
and (3) if the Transfer Price exceeds the principal amount of the loans, the amount in excess of the principal amount of the loans being deemed as interest
payable on the loans, and to be payable to YOD WOFE in cash. Otherwise, the loans were deemed to be interest free. The term of the Loan Agreement was
perpetual, and could only be terminated upon the VIEs’ Shareholders receiving repayment notice, or upon the occurrence of an event of default under the
terms of the agreement. The loan extended to the Nominee Shareholders and the capital of SSF are fully eliminated in the consolidated financial statements.
The Loan Agreement was terminated by all parties on December 31, 2019. The termination of the Loan Agreement resulted in a loss of $5.1 million.
Therefore, the Company considers that there was no asset of the VIEs that could be used only to settle obligation of the Company, except for the registered
capital of VIEs amounting to RMB38.2 million ($5.8 million) as of December 31, 2018.
Note 6. Acquisitions and Divestitures
2019 Acquisitions
(a) Acquisition of Tree Technologies Sdn. Bhd. (“Tree Technologies”)
On December 26, 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market.
The acquisition price was comprised of (1) $0.9 million in cash, (2) 9,500,000 shares of Ideanomics common stock, and (3) earnout payments (the
”Earnout”) of up to $32.0 million over three years, to be paid in cash or Ideanomics common shares at the election of the Company. The Earnout is based
upon revenue targets over three 12 month periods beginning in Q4 2019.
The fair value of the Ideanomics stock was based upon the closing price of $0.82 on December 26, 2019, and the preliminary fair value of the Earnout was
estimated to be $17.3 million, and was recorded as a liability on the date of acquisition. The Company estimated the fair value of the Earnout using a
scenario based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and
other factors. This fair value measurement is based on significant Level 3 inputs. The resulting probability-weighted cash flows were discounted using the
Company’s estimated weighted average cost of capital of 30.0%
Tree Technologies holds the land use rights for 250 acres of vacant land zoned for industrial development in the Begeng Industrial Area adjacent to
Kuantan Port. Kuantan is the capital city of the state of Pahang on the east coast of Peninsular Malaysia. The Company intends to develop this land and
lease it to Tree Manufacturing for the manufacture of EVs. Tree Technologies holds an exclusive right to market and distribute the EVs manufactured by
Tree Manufacturing. The goodwill arising from the acquisition consists largely of the synergies expected from the fulfillment of these contracts. None of
the goodwill recognized is expected to be deductible for tax purposes.
The following table summarizes the acquisition-date preliminary fair value of assets acquired and liabilities assumed, as well as the fair value of the non-
controlling interest in Tree Technologies recognized. The Company has recorded provisional amounts for these items as well as for the Earnout mentioned
above. The Company expects to finalize the fair value analysis of the assets acquired, liabilities assumed, the noncontrolling interest, and the Earnout
within one year subsequent to the acquisition, and therefore adjustments to assets and liabilities will occur and may be significant.
Cash
Land use rights
Accounts payable
Noncontrolling interest
Goodwill
Marketing and distribution agreement
$
229
27,078,944
(743,250)
(24,985,292)
13,316,226
11,332,473
$ 25,999,330
F-19
The accounts payable above of $0.7 million primarily represents the transfer tax payable for the land use rights for the 250 acres of vacant land; should the
Company fail to fulfill its obligations to pay the transfer tax payable it would forfeit its land use rights.
Tree Technologies had not commenced operations as of the acquisition date, therefore pro forma results as if the acquisition had occurred as of January 1,
2018, and related information, are not presented.
(b) Acquisition of Grapevine Logic, Inc. (“Grapevine”)
Refer to Note 6(d) for additional information on the acquisition of Grapevine, and the initial terms of the agreement and the Option Agreement (as
subsequently defined).
In May 2019, the Company entered into two amendments to the Option Agreement. The aggregate exercise price for the Option was amended to the greater
of: (1) fair market value of the Fomalhaut Interest in Grapevine as of the close of business on the date preceding the date upon which the option is
exercised; and (2) $1.84 per share of the Company’s common stock. It was also agreed that the full amount of the exercise price shall be paid in the form of
common stock of the Company.
In June 2019, the Company issued 0.6 million shares in exchange for a 34.3% ownership in Grapevine as a result of the exercise of the Option. At the
completion of this transaction the Company owned 100.0% of Grapevine. At the date of the transaction, the carrying amount of the non-controlling interest
in Grapevine was $0.5 million. The difference between the value of the consideration exchanged of $1.1 million and the carrying amount of the non-
controlling interest in Grapevine is recorded as a debit to Additional paid-in capital based on ASC 810-10-45-23.
(c) Acquisition of Delaware Board of Trade Holdings, Inc. (“DBOT”)
In April 2019, the Company entered into a securities purchase agreement to acquire 6.9 million shares in DBOT in exchange for 4.4 million shares of the
Company’s common stock at $2.11 per share. In July 2019, the Company entered into another securities purchase agreement to acquire an additional 2.2
million shares in DBOT in exchange for 1.4 million shares of the Company’s common stock at $2.11 per share. The two transactions, which increased the
Company’s ownership in DBOT to 99.0%, were completed in July 2019. The securities purchase agreements required the Company to issue additional
shares of the Company’s common stock (“True-Up Common Stock”) in the event the stock price of the common stock falls below $2.11 at the close of
trading on the date immediately preceding the lock-up date, which is 9 months from the closing date. The Company accounted for the additional True-Up
Common Stock consideration as a liability in accordance with ASC 480. The Company recorded this liability at fair value of $2.2 million on the date of
acquisition. As of December 31, 2019, the Company remeasured this liability to $7.3 million and the remeasurement loss of $5.1 million was recorded in
“Acquisition earn-out expense” in the consolidated statements of operations.
Immediately prior to the consummation of the transaction, the Company’s investment in DBOT had a fair value of $3.1 million, and the Company recorded
a loss of $3.2 million to record the investment in DBOT to its fair value. This loss was recorded in “Loss on remeasurement of DBOT investment” in the
consolidated statements of operations. The fair value of the investment in DBOT immediately prior to the consummation of the transaction was determined
in conjunction with the overall fair value determination of the DBOT assets acquired and liabilities assumed.
DBOT operates three companies: (1) DBOT ATS LLC, an SEC recognized Alternative Trading System (“ATS”); (2) DBOT Issuer Services LLC, focused
on setting and maintaining issuer standards, as well as the provision of issuer services to DBOT designated issuers; and (3) DBOT Technology Services
LLC, focused on the provision of market data and marketplace connectivity. The goodwill arising from the acquisition consists largely of the synergies and
economies of scale expected from combining the operations of the Company and DBOT, as the Company executes its business plan of selling digital tokens
and digital assets and other commodities on an approved ATS.
The consolidated statements of operation for the year ended December 31, 2019 include the results of DBOT from July 2019 to December 31, 2019. For
the time period from July 2019 through December 31, 2019, DBOT contributed $15,838 and $1.9 million to the Company’s revenue and net loss,
respectively.
The following table summarizes supplemental information on an unaudited pro forma basis, as if the acquisition had been consummated as of January 1,
2018:
Revenue
Net loss attributable to IDEX common shareholders
December 31, 2019 December 31, 2018
378,242,165
$
(30,164,664)
44,675,864 $
(99,417,257)
The unaudited pro forma results of operations do not purport to represent what the Company’s results of operations would actually have been had the
acquisition occurred on January 1, 2018. Actual future results may vary considerably based on a variety of factors beyond the Company’s control.
F-20
The following table summarizes the acquisition-date fair value of assets acquired and liabilities assumed, as well as the fair value of the non-controlling
interest in DBOT recognized:
Cash
Other financial assets
Financial liabilities
Noncontrolling interest
Goodwill
Intangible asset – continuing membership agreement
Intangible asset – customer list
$
246,929
1,686,464
(4,411,140)
(104,649)
9,323,189
8,255,440
58,830
$ 15,055,063
The excess of the consideration over the fair value of the net assets acquired has been recorded as goodwill, of which none is expected to be deductible for
tax purposes. For all intangible assets acquired, continuing membership agreements have useful life of 20 years and the customer list has useful life of 3
years.
2018 Acquisitions
(d) Grapevine Logic, Inc. (“Grapevine”)
On September 4, 2018, the Company completed the acquisition of 65.7% share of Grapevine for $2.4 million in cash. Grapevine is an end-to-end
influencer marketing platform that facilitates collaboration between advertisers and brands with video based social influencers and content creators. The
goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and
Grapevine. None of the goodwill recognized is expected to be deductible for income tax purposes. The transaction was accounted for as a business
combination.
The following table summarizes the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the
acquisition date of the non-controlling interest in Grapevine:
Cash
Other financial assets
Financial liabilities
Noncontrolling interest
Goodwill
Influencer network
Customer contracts
Trade name
Technology platform
Deferred tax liabilities
$
508,000
388,000
(747,000)
(679,000)
705,000
1,980,000
500,000
110,000
290,000
(570,000)
$ 2,485,000
Pro forma results of operations for Grapevine have not been presented because it is not material to the consolidated results of operations. For all intangible
assets acquired and purchased during the year ended December 31, 2018, the influencer network has a weighted-average useful life of 10 years, customer
contracts have a weighted-average useful life of 3 years, the trade name has a weighted-average useful life of 15 years and technology platform has a
weighted-average useful life of 7 years.
Fomalhaut Limited (“Fomalhaut”), a British Virgin Islands company and an affiliate of Dr. Wu, is the non-controlling equity holder of 34.4% in Grapevine
(the “Fomalhaut Interest”). Fomalhaut entered into an option agreement, effective as of August 31, 2018 (the “Option Agreement”), with the Company
pursuant to which the Company provided Fomalhaut with the option to sell the Fomalhaut Interest to the Company. The aggregate sale price for the
Fomalhaut Interest is the fair market value of the Fomalhaut Interest as of the close of business on the date preceding the date upon which the right to sell
the Fomalhaut Interest to the Company is exercised by Fomalhaut. If the option is exercised, the sale price for the Fomalhaut Interest is payable in a
combination of 1/3 in cash and 2/3 in the Company’s shares of common stock at the then market value on the exercise date. The Option Agreement will
expire on August 31, 2021. Refer to Note 6(b) for additional information on the amendment and exercise of the Option Agreement.
(e) Shanghai Guang Ming Investment Management (“Guang Ming”)
On April 24, 2018, the Company completed the acquisition of 100.0% equity ownership in Guang Ming, a PRC limited liability company, for a total
purchase price of $0.4 million in cash. One of the two selling shareholders is a related party, an affiliate of Dr. Wu. Guang Ming holds a special fund
management license. The acquisition will help the Company develop a fund management platform. Under ASC 805-50-05-5 and ASC 805-50-30-5, the
transaction was accounted for as a reorganization of entities under common control, in a manner similar to a pooling of interest, using historical costs. As a
result of the reorganization, the net assets of Guang Ming were transferred to the Company, and the accompanying consolidated financial statements have
been prepared as if the current corporate structure had been in place at the beginning of periods presented in which the common control existed.
F-21
2019 Divestitures
The Company may divest certain businesses from time to time based upon review of the Company’s portfolio considering, among other items, factors
relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses
results in the greatest value creation for the Company and for shareholders.
(f) Red Rock Global Capital LTD (“Red Rock”)
In May 2019, the Company determined to sell the Red Rock business and entered into an agreement with Redrock Capital Group Limited, an affiliate of
Dr. Wu, to sell its entire interest in Red Rock for consideration of $0.7 million. The Company decided to sell Red Rock primarily because it has incurred
operating losses and its business is no longer needed based on the Company’s business plan. The transaction was completed in July 2019 and the Company
recorded a disposal gain of $0.6 million recorded in “Loss on disposal of subsidiaries, net” in the consolidated statements of operations.
(g) Amer Global Technology Limited (“Amer”)
On June 30, 2019, the Company entered into an agreement with BCC Technology Company Limited (“BCC”) and Tekang Holdings Technology Co., Ltd
(“Tekang ”) pursuant to which Tekang will inject certain assets in the robotics and electronic internet industry and Internet of Things business consisting of
manufacturing data, supply chain management and financing, and lease financing of industrial robotics into Amer in exchange for 71.8% of ownership
interest in Amer. The parties subsequently entered into several amendments including (1) changing the name of Amer to Logistorm Technology Limited,
(2) issuing 39,500 new shares in Amer or 71.8% ownership interest to BCC instead of Tekang, (3) issuing 5,500 new shares in Amer or 10.0% ownership
interest to Merry Heart Technology Limited (“MHT”) and (4) the Company is responsible for 20.0% of any potential tax obligation associated with Amer,
if Amer fails to be publicly listed in 36 months from the closing date of this transaction. The Company concluded that it’s not probable that this contingent
liability would be incurred. As a result of this transaction, the Company’s ownership interest in Amer was diluted from 55.0% to 10.0%. The transaction
was completed on August 31, 2019.
The Company recognized a disposal gain of $0.5 million as a result of the deconsolidating Amer, and such gain was recorded in “Loss on disposal of
subsidiaries, net” in the consolidated statements of operations. $0.1 million of the gain is attributable to the 10.0% ownership interest retained in Amer. In
addition, on the date Amer was deconsolidated, the Company recorded a bad debt expense of $0.6 million relating to a receivable due from Amer to a
subsidiary of the Company, which was recorded in “Selling, general and administrative expense” in the consolidated statements of operations.
The following table summarizes the consolidated statement of operations for the year ended December 31, 2018, on an unaudited pro forma basis, as if the
dilution of the Company’s interest in Amer had been consummated as of January 1, 2018:
Revenue
Net loss from operations
Net loss
Net loss attributable to IDEX common shareholders
December 31, 2018
261,026,833
$
(25,031,090)
(27,243,059)
(26,246,331)
Pro forma results of operations for the year ended December 31, 2019 have not been presented because they are not material to the consolidated results of
operations. Amer had no revenue and minimal operating expenses in the year ended December 31, 2019.
2018 Divestitures
(h) Wide Angle and Shanghai Huicang Supplychain Management Ltd.
In December 2018, the Company entered into an agreement with Hooxi, an entity listed on the TSX venture exchange in Canada, and completed the sale of
its investment (55.0% interest) in Wide Angle and Shanghai Huicang Supplychain Management Ltd., whose operations mainly focus on magazines
printing, for a nominal amount. This business had annual sales of $0.3 million and continued to incur losses with minimal net assets. The transaction
resulted in a loss of $1.2 million and was recorded in “Loss on disposal of subsidiaries, net” in the consolidated statements of operations.
F-22
Note 7. Accounts Receivable
The following table summarizes the Company’s accounts receivable:
Accounts receivable, gross
Less: allowance for doubtful accounts
Accounts receivable, net
December 31,
2019
December 31,
2018
$
$
2,404,972 $
(103)
2,404,869 $
19,370,665
-
19,370,665
The following table summarizes the movement of the allowance for doubtful accounts:
Balance at the beginning of the year
Disposal of Zhong Hai Shi Xun
Acquisition of DBOT
Balance at the end of the year
December 31,
2019
December 31,
2018
$
$
- $
-
(103)
(103) $
3,646
(3,646)
-
-
F-23
Note 8. Property and Equipment, net
The following table summarizes the Company’s property and equipment:
Furniture and office equipment
Vehicle
Leasehold improvements
Total property and equipment
Less: accumulated depreciation
Land
Building
Assets retirement obligations – environmental remediation
Capitalized direct development cost
Construction in progress (Fintech Village)
Property and Equipment, net
$
December 31,
2019
December 31,
2018
441,283 $
62,052
242,627
745,962
(367,509)
3,042,777
308,779
6,496,115
2,713,356
12,561,026
12,939,480 $
357,064
63,135
200,435
620,634
(186,514)
3,042,777
2,607,666
8,000,000
944,864
14,595,307
15,029,427
The Company recorded depreciation expense of $0.1 million and $0.1 million in the years ended December 31, 2019 and 2018, respectively.
Global Headquarters for Technology and Innovation in Connecticut (“Fintech Village”)
On October 10, 2018, the Company purchased a 58-acre former University of Connecticut campus in West Hartford from the State of Connecticut for $5.2
million in cash and also assumed responsibility of the environmental remediation. The Company obtained a surety bond in favor of the University of
Connecticut and the State of Connecticut (the “Seller”) in connection with the Company’s environmental remediation obligations. In order to obtain the
surety bond, the Company was required to post $3.6 million in cash collateral with the bonding company and recorded in “Other non-current assets” in the
consolidated balance sheet as of December 31, 2018. The Company recorded asset retirement obligations in the amount of $8.0 million as of December 31,
2018 which was the estimates performed by the Seller and at a discount to the purchase price, therefore, the Company considered it a reasonable estimate
of fair value of its asset retirement obligation pursuant to ASC 410-20-25-6. The Company will assess asset retirement obligations periodically as
assessment and remediation efforts progress or as additional technical or legal information becomes available.
The following table summarizes the activity in the asset retirement obligation for the year ended December 31, 2019:
Asset retirement obligation
January 1,
2019
8,000,000 $
$
Liabilities
Incurred
Remediation
Performed
Accretion
Expense
- $
2,905,800 $ - $
Revisions
- $
December 31,
2019
5,094,200
In connection with the acquisition, the Company also entered into an Assistance Agreement by and between the State of Connecticut, acting by the
Department of Economic and Community Development (the “Assistance Agreement"), pursuant to which the State of Connecticut may provide up to $10.0
million of financial assistance (the “Funding”) which in such case shall be evidenced by a promissory note, provided, however, that the aggregate principal
of the funding shall not exceed 50% of the cost of the project. The Company will provide security for its obligation to repay the Funding to the State of
Connecticut in the form of a first position mortgage. The Company agrees that in exchange for the Funding it will provide a minimum number of jobs at a
minimum annual amount of compensation by December 31, 2021. Failure of the Company to do so will subject it to certain cash penalties for each
employee below the minimum employment threshold. If the Company meets the employment obligations it is eligible for forgiveness of up to $10.0 million
of the Funding. The Company will agree to certain covenants with respect to the Funding and such Funding may become immediately due and payable
upon the occurrence of certain standard events of default. There were no borrowings from the Funding as of December 31, 2019 and 2018.
F-24
The Company capitalized direct costs incurred on Fintech Village and the capitalized cost is recorded as part of Construction in progress. Capitalized costs
were $2.7 million and $0.9 million as of December 31, 2019 and 2018, respectively, and are primarily related to the legal and architect costs.
In the year ended December 31, 2019, the Company impaired buildings with a carrying amount of $2.3 million, which were subsequently demolished, and
impaired related asset retirement costs of $1.5 million.
The Company has identified Fintech Village as a non-core asset and is evaluating its strategies for divesting of this asset.
Note 9. Goodwill and Intangible Assets
Goodwill
The following table summarizes changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2018:
Balance as of January 1, 2018
Acquisitions
Balance as of December 31, 2018
Acquisitions
Balance as of December 31, 2019
Intangible Assets
$
-
704,884
704,884
22,639,415
$ 23,344,299
The following table summarizes information regarding amortizing and indefinite lived intangible assets:
December 31, 2019
December 31, 2018
Amortizing Intangible Assets
Animation Copyright
Software and licenses
Solid Opinion IP (a)
Fintalk intangible assets (b)
Influencer network (c)
Customer contract (c)
Continuing membership agreement (d)
Customer list
Trade name (c)
Technology platform (c)
Land use rights (e)
Marketing and distribution agreement (e)
Total
Indefinite lived intangible assets
Website name (f)
Patent
GTB (g)
Total
Weight
Average
Remaining
Useful
Life
$
-
4.2
-
8.7
1.7
19.5
2.5
13.7
5.7
99
5
Gross
Carrying
Amount
-
97,308
4,655,000
6,350,000
1,980,000
500,000
8,255,440
58,830
110,000
290,000
27,078,944
11,332,473
60,707,995
159,504
28,000
61,124,407
$ 122,019,906 $
Accumulated
Amortization
Impairment
Loss
Net
Balance
-
(97,308)
(775,833)
(635,000)
(264,000)
(222,222)
(206,386)
(9,805)
(9,778)
(55,238)
-
-
(2,275,570)
-
-
-
(5,715,000)
-
-
3,879,167
-
1,716,000
277,778
8,049,054
49,025
100,222
234,762
27,078,944
11,332,473
(5,715,000) 52,717,425
-
-
-
-
-
-
-
-
-
-
-
(134,290)
-
(61,124,407)
25,214
28,000
-
Gross
Carrying
Amount
301,495
97,308
-
-
1,980,000
500,000
-
-
110,000
290,000
-
-
3,278,803
159,504
28,000
-
Accumulated
Amortization
Impairment
Loss
Net
Balance
(64,606)
(93,251)
-
-
(66,000)
(55,556)
-
-
(2,444)
(13,808)
-
-
(295,665)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
236,889
4,057
-
-
1,914,000
444,444
-
-
107,556
276,192
-
-
2,983,138
(134,290)
25,214
28,000
-
(134,290) $ 3,036,352
-
-
(2,275,570) $ (66,973,697) $ 52,770,639 $ 3,466,307 $
(295,665) $
a)
b)
During the first quarter of 2019, the Company completed the acquisition of certain assets from SolidOpinion in exchange for 4.5 million shares of the Company’s common stock with a
fair value of $7.2 million. The assets acquired included cash of $2.5 million and intellectual property (“IP”) which is complementary to the IP of Grapevine. The parties agreed that 0.5
million of such shares of common stock (“Escrow Shares”) will be held in escrow until February 19, 2020 in connection with SolidOpinion’s indemnity obligations pursuant to the
agreement. SolidOpinion has the rights to vote and receive the dividends paid with respect to the Escrow Shares. The Escrow Shares were scheduled to be released on February 19,
2020, and the Company has commenced the necessary steps to release the shares from escrow.
In September 2018, the Company entered into an agreement to purchase Fintalk Assets from Sun Seven Star International Limited, a Hong Kong company and an affiliate of Dr. Wu.
FinTalk Assets include the rights, titles and interest in a secure mobile financial information, social, and messaging platform that has been designed for streamlining financial-based
communication for professional and retail users. The initial purchase price for the Fintalk Assets was $7.0 million payable with $1.0 million in cash and shares of the Company’s
common stock with a fair market value of $6.0 million. The Company paid $1.0 million in October 2018 and recorded this amount in prepaid expenses as of December 31, 2018
because the transaction had not closed. The purchase price was later amended to $6.4 million, payable with $1.0 million in cash and shares of the Company’s common stock with a
value of $5.4 million. The Company issued 2.9 million common shares in June 2019 and completed the transaction. In the fourth quarter of 2019, management determined these
assets had no future use and recorded an impairment loss of $5.7 million.
During the third quarter of 2018, the Company completed the acquisition of 65.7% share of Grapevine. Refer to Note 6(b) and 6(d).
c)
d) During the third quarter of 2019, the Company completed the acquisition of additional shares in DBOT, which increased its ownership to 90.0 %. Intangible assets of $8.3 million were
e)
recognized on the date of acquisition. Refer to Note 6(c)
During the fourth quarter of 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. Refer to Note
6(a) for additional information.
The Company recorded an impairment loss for the YOD website in the amount of $0.1 million in the year ended December 31, 2018 since the website was no longer in use.
f)
g) During the first quarter of 2019, the Company completed the sale of certain intangible assets to GTD, and entered into a service agreement with GTD, a minority shareholder, in
exchange for GTB. As a result of these transactions, the Company received 8.3 million GTB. On October 29, 2019, GTB had an unexpected significant decline in quoted price, from
$17.00 to $1.84. This decline continued through the fourth quarter of 2019, and on December 31, 2019 the quoted price was $0.23. As a result of this decline in quoted price, and its
inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment analysis in the fourth quarter of 2019 and
recorded an impairment loss of $61.1 million. Refer to Note 15(b) for additional information.
Amortization expense, excluding impairment losses of $66.8 million and $0.1 million mentioned above, relating to intangible assets was $2.1 million and
$0.2 million for the years ended December 31, 2019, and 2018, respectively.
F-25
The following table summarizes future expected amortization expense:
Years ending December 31,
2020
2021
2022
2023
2024 and thereafter
Total
Amortization to
be recognized
4,316,830
4,261,274
4,140,358
4,130,553
35,868,410
52,717,425
$
$
The above table assumes that the amortization commences on the Land use rights and Marketing and distribution agreement on January 1, 2020; however,
actual amortization may commence at a later date as EV production commences.
Note 10. Long-term Investments
The following table summarizes the composition of long-term investments:
Non-marketable equity investment
Equity method investment
Total
Non-marketable equity investment
December 31,
2019
December 31,
2018
$
$
5,967,911 $
16,653,586
22,621,497 $
9,452,103
16,956,506
26,408,609
Our non-marketable equity investments are investments in privately held companies without readily determinable fair values are carried at cost minus
impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the
same issuer.
The Company reviews its equity securities without readily determinable fair values on a regular basis to determine if the investment is impaired. For
purposes of this assessment, the Company considers the investee’s cash position, earnings and revenue outlook, liquidity and management ownership,
among other factors, in its review. If management’s assessment indicates that an impairment exists, the Company estimates the fair value of the equity
investment and recognizes in current earnings an impairment loss that is equal to the difference between the fair value of the equity investment and its
carrying amount. Based on management’s analysis of certain investment’s performance, impairment losses of $3.0 million and $0 were recorded in the
years ended December 31, 2019 and 2018 and are recorded in “Impairment of assets” in the consolidated statements of operations.
The Company sold one non-marketable equity investment with a carrying amount of $3.2 million for GTB and recognized no gain or loss on the sale. Refer
to Note 15(b) for additional information.
F-26
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting:
(a) $
(b)
(c)
(d)
(e)
January 1, 2019
4,114
308,666
9,800,000
6,843,726
-
16,956,506
$
Wecast Internet
Hua Cheng
BDCG
DBOT
Glory
Total
Wecast Internet
Hua Cheng
BDCG
DBOT
Total
December 31, 2019
Addition
-
-
-
-
19,991,600
19,991,600
$
$
$
$
Income (loss)
on
investment
4
(33,189)
-
(3,719,735)
(76,170)
(3,829,090)
$
Reclassification
to subsidiaries
-
-
-
$
(3,123,991)
-
$
(3,123,991) $
Impairment
losses
(6,048) $
-
-
-
(13,061,844)
(13,067,892) $
Disposal
-
(245,138)
-
-
-
(245,138)
$
$
December 31, 2018
(a)
(b)
(c)
(d)
January 1, 2018
6,044
$
353,498
-
-
359,542
$
$
$
Addition
-
-
9,800,000
6,976,346
16,776,346
$
$
Loss on
investment
Impairment
loss
(1,935) $
(46,070)
-
(132,620)
(180,625) $
-
-
-
-
-
$
$
Foreign
currency
translation
adjustments
December 31,
2019
1,930
(30,339)
-
-
-
(28,409)
$
$
-
-
9,800,000
-
6,853,586
16,653,586
Foreign
currency
translation
adjustments
December 31,
2018
5
1,238
-
-
1,243
$
$
4,114
308,666
9,800,000
6,843,726
16,956,506
All the investments above are privately held companies; therefore, quoted market prices are not available. The Company has received no dividends from
equity method investees in the years ended December 31, 2019 and 2018.
a) Wecast Internet
As of December 31, 2019 and 2018, the Company has a 50.0% interest in Wecast Internet Limited (“Wecast Internet”). Wecast Internet is in the process of
liquidation and the remaining carrying amount of $6,048 was impaired.
b) Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd. (“Hua Cheng”)
As of December 31, 2018, the Company held a 39.0% equity ownership in Hua Cheng, a company established to provide integrated value-added service
solutions for the delivery of video on demand and enhanced content for cable providers. This investment was held by a PRC VIE and was deconsolidated
on December 31, 2019. Refer to Note 5 for additional information on the PRC VIEs.
c) BBD Digital Capital Group Ltd. (“BDCG”)
In 2018, the Company signed a joint venture agreement with two unrelated parties, to establish BDCG located in the United States for providing block
chain services for financial or energy industries by utilizing artificial intelligence and big data technology in the United States. On April 24, 2018, the
Company acquired 20.0% equity ownership in BDCG from one noncontrolling party for total consideration of $9.8 million which consisted of $2.0 million
in cash and $7.8 million paid in the form of the Company’s capital stock (valued at $2.60 per share and equal to 3.0 million shares of the Company’s
common stock), increasing the Company’s ownership to 60.0%. The remaining 40.0% of BDCG are held by Seasail Ventures Limited (“Seasail”). The
accounting treatment of the joint venture is based on the equity method due to variable substantive participating rights (in accordance with ASC 810-10-25-
11) granted to Seasail. The new entity is currently in the process of ramping up its operations. Intelligenta has yet to record revenue or earnings or losses,
and therefore its statement of operations and balance sheet data are not material.
F-27
As of December 31, 2019 and 2018, the excess of the Company’s investment over its proportionate share of Intelligenta’s net assets was $9.8 million and
$9.8 million, respectively. The difference represents goodwill and is not being amortized.
d) Delaware Board of Trade Holdings, Inc. (“DBOT”)
DBOT is an approved and licensed FINRA- and SEC-regulated electronic trading platform with operations in Delaware. One of the Company’s
subsidiaries is powered by DBOT’s platform, trading system and technology. The Company previously accounted for this investment using the cost method
as the Company then owned less than 4.0% of the common shares and the Company did not have significant influence over DBOT.
In October 2018, the Company issued 2.3 million shares of the Company’s common stock to acquire additional shares in DBOT, thereby increasing its
holdings to 36.9%. As a result, the Company changed its method of accounting for this investment to the equity method. The effect of the change from cost
method to equity method was immaterial.
In July 2019, the Company issued 6.7 million shares of the Company’s common stock to acquire additional shares in DBOT, thereby increasing its holdings
to 99.0%. As a result, the Company began to consolidate DBOT. Refer to Note 6(c) for additional information on the acquisition and consolidation of
DBOT.
e) Glory Connection Sdn. Bhd (“Glory”)
On July 18, 2019, the Company entered into an acquisition agreement to purchase a 34.0% interest in Glory, a Malaysian company, from its shareholder
Beijing Financial Holding Limited, a Hong Kong registered company, for the consideration of 12.2 million restricted common shares of the Company,
initially representing $24.4 million at $2.00 per share, the contract price, and subsequently revised to $20.0 million at $1.64 per share, the closing price on
the date of acquisition. As part of this transaction, the Company was also granted an option to purchase a 40.0% interest in Bigfair Holdings Limited
(“Bigfair”) from its shareholder Beijing Financial Holding Limited for an exercise price of $13.2 million in the form of common shares of the Company.
Bigfair currently holds a 51.0% ownership stake in Glory. The option is exercisable from July 18, 2020 to July 19, 2021. If the option is exercised, the
Company would have 20.4% indirect ownership in Glory in addition to the 34.0% direct ownership it already has.
Upon the initial investment, the Company performed a valuation analysis and allocated $23.0 million and $1.4 million of the consideration transferred to
the equity method investment and the call option, respectively, which was subsequently revised to $20.0 million and $0, respectively. Glory is currently in
the process of ramping up its operations.
As initially contemplated, Glory, through its subsidiary Tree Manufacturing, would hold a domestic EV manufacturing license in Malaysia, a marketing
and distribution agreement for EVs in the ASEAN region, as well as the land use rights for 250 acres of vacant land zoned for industrial development in the
Begeng Industrial Area adjacent to Kuantan Port. Kuantan is the capital city of the state of Pahang on the east coast of Peninsular Malaysia, which was to
be the site of the manufacturing operations.
In December 2019, the Company acquired a 51.0% ownership interest in Tree Technologies. Tree Technologies had previously been granted the land use
rights to the 250 acres of vacant land mentioned above, which was previously anticipated would be owned by Glory. As Glory would no longer receive the
land use rights to the 250 acres of vacant land, the Company evaluated its investment in Glory for impairment, and recorded an impairment loss of $13.1
million in “Impairment of and equity in loss of equity method investees” in the consolidated statements of operations.
Tree Technologies has also entered into a product supply arrangement and a product distribution arrangement with a subsidiary of Glory. The Company
performed an assessment of these arrangements, and determined that Glory is a variable interest entity, but that the Company is not the prime beneficiary.
As of December 31, 2019, the Company accounts for Glory as an equity method investment. Refer to Note 6(a) for additional information on the
acquisition of Tree Technologies.
The Company has advanced $1.0 million to Glory in order to fund its operations, although it had no obligation to do so. The Company’s maximum
exposure to Glory is $7.8 million, the sum of its investment and advances.
As of December 31, 2019, the excess of the Company’s investment over its proportionate share of Glory’s net assets was $6.6 million. The difference
represents an amortizing intangible asset.
The following table summarizes the income statement information of Glory for the year ended December 31, 2019:
December 31, 2019
Revenue
Gross profit
Net loss from operations
Net loss
Net loss attributable to Glory
33,352
10,020
(596,671)
(585,981)
(323,673)
$
F-28
Note 11. Leases
As of December 31, 2019, the Company’s operating lease right of use assets and operating lease liability are $6.9 million and $7.3 million, respectively.
The weighted-average remaining lease term is 6.2 years and the weighted-average discount rate is 7.5%.
The following table summarizes the components of lease expense:
$
$
$
Year Ended
December 31, 2019
1,707,893
316,905
(42,420)
1,982,378
Year Ended
December 31, 2019
1,406,611
935,242
Operating lease cost
Short-term lease cost
Sublease income
Total
The following table summarizes supplemental information related to leases:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
The following table summarizes the maturity of operating lease liabilities
Years ending December 31
2020
2021
2022
2023
2024
2025 and Thereafter
Total lease payment
Less: Interest
Total
Note 12. Supplementary Information
Other Current Assets
Leased Property
Costs
$
$
1,512,025
1,434,657
1,422,965
1,474,391
1,503,859
1,873,794
9,221,691
(1,886,538)
7,335,153
“Other current assets” were $1.8 million and $3.6 million as of December 31, 2019 and 2018, respectively. Components of "Other current assets" as of
December 31, 2019 and 2018 that were more than 5 percent of total current assets were “Other receivables” due from related parties of $1.3 million and
$3.3 million, including operations deposits receivable from a non-controlling shareholder ($0.9 million), respectively.
Other Current Liabilities
“Other current liabilities” were $6.5 million and $4.6 million as of December 31, 2019 and 2018, respectively. Components of "Other current liabilities"
that were more than 5 percent of total current liabilities were other payables to third parties in the amount of $5.9 million and $4.6 million respectively.
Three suppliers individually accounted for more than 10% of the “Other current liabilities” balance as of December 31, 2019. Two suppliers individually
accounted for more than 10% of the “Other current liabilities” balance as of December 31, 2018.
F-29
Note 13. Promissory Notes
The following is the summary of outstanding promissory notes as of December 31, 2019 and 2018:
December 31,
2019
December 31,
2018
Principal
Amount
Carrying
Amount*
Principal
Amount
Carrying
Amount*
Maturity Date
Convertible Note-Mr. McMahon(Note 15 (a))
Convertible Note -SSSIG (Note 15 (a))
Convertible Note-SSSIG (Note 15 (a))
Convertible Note-Advantech (a)
Senior Secured Convertible Note (b)
Senior Secured Convertible Note (c)
Senior Secured Convertible Note (d)
Promissory Note (e)
Total
Less: Current portion
Long-term Note, less current portion
$
Interest rate
4%
4%
4%
8%
10%
10%
4%
6%
3,000,000 $
1,252,300
250,000
12,000,000
850,000
3,580,000
3,000,000
3,000,000
26,932,300
3,000,000
1,000,000
-
12,000,000
-
-
-
-
16,000,000
3,260,055 $
1,300,657
250,000
3,192,896
347,763
1,895,958
1,405,027
3,000,000
14,652,356
8,012,845
6,639,511 $
$
$
15,453,825
4,140,055
$ 11,313,770
3,140,055 December 31, 2020
1,000,000 February 8, 2020, in process of renewal
- November 25 2020
11,313,770 June 28, 2021
- August 22, 2020
- March 27, 2021
- December 2020
- November 2020
*Carrying amount includes the accrued interest.
The following table summarizes future maturities of long-term debt, contractual obligations for interest, as well as projected interest expense resulting from
the amortization of debt discounts as of December 31, 2019:
2020
2021
2022
2023
2024
Thereafter
Principal
9,850,000 $
17,082,300
-
-
-
-
26,932,300 $
$
$
Interest
12,211,919
4,302,643
16,514,562
As of December 31, 2019, the Company was in compliance with all ratios and covenants.
(a) $12 million Convertible Note - Advantech
On June 28, 2018, the Company entered into a convertible note purchase agreement with Advantech Capital Investment II Limited (“Advantech”) in the
aggregate principal amount of $12.0 million (the Notes). The Notes bear interest at a rate of 8.0%, mature on June 28, 2021, and are convertible into the
shares of the Company’s common stock at a conversion price of $ 1.82 per share and subsequently reset conversion price to $1.00 in October 2019 (See
Note 13 (c) below) due to the down round provision included in the convertible note purchase agreement. The initial difference between the conversion
price and the fair market value of the common stock on the commitment date (transaction date) resulted in a BCF recorded of $1.4 million and increased by
$10.6 million due to down round provision adjustment in October 2019.
For the years ended December 31, 2019 and 2018, total interest expense recognized relating to the BCF and accrued expense was $1.5 million and $0.7
million, respectively. The carrying amounts as of December 31, 2019 and 2018, are reflected net of discounts of $10.2 million and $1.2 million,
respectively, associated with the BCF of the convertible notes. This amount is being amortized based on the effective yield method through the first
demand redemption date as applicable.
F-30
The agreement also requires the Company to comply with certain covenants, including restrictions on the use of the proceeds and other convertible note
offering.
(b) $2.05 million Senior Secured Convertible Debenture due in August 2020 - ID Ventura 7
On February 22, 2019, the Company executed a security purchase agreement with ID Venturas 7, LLC (“IDV”), whereby the Company issued $2.1 million
of senior secured convertible note (“February IDV Note”). The note bears interest at a rate of 10.0% per year payable either in cash or in kind at the option
of the Company on a quarterly basis and matures on August 22, 2020. In addition, IDV is entitled to the following: (1) the convertible note is senior
secured; (2) convertible at an adjusted $1.00 (original $1.84) per share of Company common stock at the option of IDV, subject to adjustments if
subsequent equity shares have a lower conversion price (“down round provision”), (3) 1,166,113 shares of common stock of the Company and (4) a
warrant exercisable for 150% of the number of shares of common stock which the note is convertible into at an exercise price of $1.00 (original $1.84) per
share and will expire 7 years (extended from 5 years: See (d) below) after issuance.
The Company received aggregate gross proceeds of $2.0 million, net of $50,000 for the issuance expenses paid by IDV. Total funds received were allocated
to convertible note, common stocks and warrants based on their relative fair values in accordance with ASC 470-20-30. The value of the convertible note
and common stocks was based on the closing price on February 22, 2019. The fair value of the warrants was determined using the Black-Scholes option-
pricing model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 111.83% and an interest rate of 2.48%.
The relative fair value of the warrants was recorded as additional paid-in capital and reduced (discount on) the carrying amount of the convertible note. The
Company recognized a BCF of $0.6 million as an increase in additional paid in capital and reduced (discount on) the carrying amount of the convertible
note, which was the fair value of the common stock at the commitment date for convertible note, less the effective conversion price..
Interest on the convertible note is payable quarterly starting from April 1, 2019. The convertible note is redeemable at the option of the Company in whole
at an initial redemption price of the principal amount of the convertible note plus additional warrants and accrued and unpaid interest to the date of
redemption.
IDV has registration rights that require the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the
exercise of the warrants, within 180 days following the closing of the transaction.
The Company is also subject to penalty fee at 8.0% per annum for late payments of interests and compensation for the loss of IDV on failure to timely
deliver conversion shares upon conversion.
The security purchase agreement contains customary representations, warranties and covenants. The convertible note is collateralized by the Company’s
equity interest in Grapevine and the Company has the right to request for the removal of the guarantee and collateral by issuance of additional 250,000
shares of common stock.
Modification/Extinguishment
On September 27, 2019, the Company issued 250,000 shares of common stock to IDV in exchange for the release of Grapevine as collateral. The issuance
of the shares in exchange for the removal of collateral was treated as a modification of existing convertible note pursuant to the guidance of ASC 470-50
“Debt – Modifications and Extinguishments” (“ASC 470-50”). The Company concluded that the convertible note qualified for debt extinguishment as the
10% cash flow test was met. As a result, the $2.05 million secured convertible note was written off (carrying amount: $813,254) and the amended note was
recorded at fair value (approximately $1.7 million). The Company recognized a non-cash loss on extinguishment of debt in the amount of $1,236,746 and
the intrinsic value of reacquisition of BCF is zero as of September 27, 2019.
F-31
Down round price adjustment on October 30, 2019
Under the down round provision included in the debenture agreement and warrant agreement, if at any time while the debenture and warrants outstanding,
the Company sells or grants any options or warrants with respect to the purchase and sale of Common Stock (collectively, “ Additional Securities”) of the
Company resulting in a price per share of such Additional Securities of less than the then conversion price (such lower price, the “Base
Conversion/Exercise Price”), then, simultaneously with the closing of such subsequent equity sales, the conversion price and/or exercise price shall be
reduced to equal the Base Conversion/Exercise Price.
As a result of our additional financing on October 30, 2019 (See (c) below), the Company entered into a letter agreement with IDV pursuant to which the
Company agreed to reduce the conversion price of the Debentures and the exercise price of the Warrants from $1.84 to $1.00. The Company recognized
approximately $1.4 million of remeasured BCF as an increase in additional paid in capital and reduced (discount on) the carrying amount of the convertible
note and $0.2 million of deemed dividend on warrant repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants.
The fair value of the adjusted warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: (1) volatility
rate of 112%, (2) interest rate of 2.48%, (3) zero expected dividend yield, and (4) expected life of 5 year.
Conversion
During the fourth quarter ended December 31, 2019, $1.2 million of the convertible notes, plus interest, were converted into 1,2 million shares of common
stock of the Company. As a result of the conversions, the Company recognized interest expenses of $ 1.0 million with an offset to debt discount.
The discounts on the convertible note for the warrants and BCF are being amortized to interest expense, using the effective interest method over the term of
the convertible note. As of December 31, 2019, the carrying amount as of December 31, 2019 is reflected net of discounts of $538,000. Total interest
expense recognized relating to the discount and accrued interest was $1.2 million for year ended December 31, 2019.
(c) $3.58 million Senior Secured Convertible Debenture due in March 2021 - ID Ventura 7
On September 27, 2019, the Company executed a security purchase agreement with IDV (“IDV September Agreement”), whereby the Company issued
$2,500,000 of senior secured convertible note in September (“September IDV Notes”) and issued additional $1,080,000 of secured convertible notes
subsequently based on additional investment rights in IDV September Agreement. The notes bear interest at a rate of 10% per year payable either in cash or
in kind at the option of the Company on a quarterly basis and mature on March 27, 2021. In addition, IDV is entitled to the following: (i) the convertible
note is senior secured; (ii) convertible at an adjusted $1.00 (original $1.84) per share of Company common stock at the option of IDV, subject to down
round provision, (ii) 1.5 million shares of common stock of the Company and (iii) a warrant exercisable for 150% of the number of shares of common
stock which the note is convertible into at an exercise price of $1.00 (original $1.84) per share and will expire in 7 years (extended from 5 years: See (c)
below) after issuance.
The Company received net proceeds of $3.5 million (aggregate gross proceeds of $3.6 million, net of $65,000 for the issuance expenses paid to IDV). Total
gross proceeds were allocated to convertible note, common stocks and warrants based on their relative fair values in accordance with ASC 470-20-30. The
value of the convertible note and common stocks was based on the closing price on September 27, 2019. The fair value of the warrants was determined
using the Black-Scholes option-pricing model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of
122.44% and an average interest rate of 1.66%. The relative fair value of the warrants was recorded as additional paid-in capital and reduced (discount on)
the carrying amount of the convertible note. The Company recognized a BCF as a discount on convertible note at its intrinsic value, which was the fair
value of the common stock at the commitment date for convertible note, less the effective conversion price. The Company recognized approximately $1.3
million of BCF in total as an increase in additional paid in capital and reduced (discount on) the carrying amount of the convertible note in the
accompanying consolidated balance sheet.
The convertible note is redeemable at the option of the Company in whole at an initial redemption price of the principal amount of the convertible note plus
additional warrants and accrued and unpaid interest to the date of redemption.
F-32
The security purchase agreement contains customary representations, warranties and covenants. The convertible note is collateralized by the Company’s
equity interest in DBOT.
IDV has registration rights that require the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the
exercise of the warrants, within 120 days following the closing of the transaction.
The Company is also subject to penalty fee at 8.0% per annum for late payments of interests and compensation for the loss of IDV on failure to timely
deliver conversion shares upon conversion.
Down round price adjustment on October 30, 2019
On October 29, 2019 the Company entered into a letter agreement (the “Agreement”) with IDV pursuant to which the Company agreed to reduce the
conversion price of the Debentures and the exercise price of the Warrants from $1.84 to $1.00 for February IDV Note and September IDV Note due to the
lower conversion price and exercise price agreed in the additional issuance in October. The Company recognized $150,000 of remeasured BCF as an
increase in additional paid in capital and reduced (discount on) the carrying amount of the convertible note and $149,000 of deemed dividend on warrant
repricing for the difference between the fair value of the unadjusted warrants and adjusted warrants.
The discounts on the convertible note for the warrants and BCF are being amortized to interest expense, using the effective interest method over the term of
the convertible note. As of December 31, 2019, the carrying amount as of December 31, 2019 is reflected net of discounts of $1,779,000. Total interest
expense recognized relating to the discount and accrued interest was $ 0.7 million for year ended December 31, 2019.
Additional Issuance for no additional consideration-Consent of YA II PN convertible notes
On December 19, 2019, the Company executed an additional issuance agreement with IDV. pursuant to which the Company obtained a consent from IDV
for subsequent financing with YA II PN (see (d) below) in exchange for (1) 2.0 million shares of the Company’s common stock; (2) the warrant to purchase
1.0 million shares of the Company’s common stock at an exercise price of $1 with a 7-year term in the form of prior warrants issued to IDV; (3) a 2 year
extension of the exercise period for all outstanding warrants held by IDV.
The additional issuance above and the exercise period extension in exchange for the consent was treated as a modification of existing convertible note
pursuant to the guidance of ASC 470-50. The Company concluded that the convertible notes issued based on IDV September Agreement qualified for debt
extinguishment as the 10.0% cash flow test was met. As a result, the $3.6 million secured convertible note was written off (carrying amount $0.4 million)
and the amended note was recorded at fair value ($2.2 million) along with a BCF at intrinsic value ($0.5 million). The Company measured and recognized
the intrinsic value of the BCF (reacquisition price $0.5 million) on December 19, 2019 and recognized a non-cash loss on extinguishment of debt in the
amount of $2.7 million in accordance with ASC 470-20-40-3. In addition, the Company recognized deemed dividend of approximately $0.5 million for the
extension of exercise period for all applicable warrants issued to IDV.
(d) $5 million Senior Secured Convertible Debenture due in December 2020 - YA II PN
On December 19, 2019, the Company completed the initial closing with respect to a securities purchase agreement with YA II PN, Ltd, a company
incorporated under the laws of the Cayman Islands (“YA II PN”), where YA II PN has agreed to purchase from the Company up to $5.0 million (with 4%
discount) in units consisting of secured convertible debentures (the “Convertible Debentures”), which shall be convertible into shares of the Company’s
common stock at lower of (1) $1.50 per share or (2) 90% of the lowest 10 day volume weighted average price (“VWAP”) with a floor price at $1.00,
subject to adjustments if subsequent equity shares have a lower conversion price, and shares of the Company’s Common Stock. The purchase and sale of
the units shall take place in three closings:
1. First Closing: $2.0 million of Convertible Debentures and 1,4 million shares of Common Stock closed on December 19, 2019;
2. Second Closing $1.0 million of Convertible Debentures and 0.7million shares of Common Stock closed on December 31, 2019 upon filing the
registration statement; and
3. Third Closing: $2.0 million of Convertible Debentures and 1.4 million shares of Common Stock closed on February 13, 2020 when such
registration statement was declared effective by the SEC.
F-33
The Convertible Note matures on December 19, 2020 and accrues at an 4.0% interest rate. YA II PN also received (i) a warrant (the “Warrant I”)
exercisable for 1.7 million shares of common stock at $1.50 with an expiration date 60 months from the date of the agreement, and (ii) a warrant (the
“Warrant II”) exercisable for 1.0 million shares of common stock at $1.00 with an expiration date of 12 months from the date of the agreement.
The Company received aggregate gross proceeds of $2.9 million (net of $0.1 million discount) as of December 31, 2019 and received $2.0 million in
February 2020. Total funds received were allocated to Convertible Debentures, common stocks and warrants based on their relative fair values in
accordance with ASC 470-20-30. The value of the Convertible Debentures and common stocks was based on the closing price on December 19, 2019. The
fair value of the warrants was determined using the Black-Scholes option-pricing model, with the following assumptions: expected life of 5 years (1 year
for Warrant II), expected dividend rate of 0%, volatility of 122.44% and an interest rate of 1.66% (1.54% for Warrant II). The relative fair value of the
warrants was recorded as additional paid-in capital and reduced (discount on) the carrying amount of the convertible note. There was no BCF because its
intrinsic value is zero since the stock price of the common stock at the commitment date for convertible note is greater than the effective conversion price.
The convertible note is redeemable at the option of the Company in whole or in part at an initial redemption price of the principal amount of the convertible
note plus a redemption premium equal to 15% of the amount being redeemed and accrued and unpaid interest to the date of redemption. YA II PN also has
registration rights that demand the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the
exercise of the warrants. The security purchase agreement contains customary representations, warranties and covenants.
The discounts on the convertible note for the warrants and BCF are being amortized to interest expense, using the effective interest method over the term of
the convertible note. As of December 31, 2019, the unamortized discount on the convertible note is $1.0 million. Total interest expense recognized relating
to the discount and accrued interest was approximately $70,000 for year ended December 31, 2019.
(e) $3 million Promissory Note due in November 2020 – New Castle County
On November 25, 2015, DBOT, the subsidiary which the Company acquired in 2019 (note 6 (c)) , entered into a promissory note with New Castle County,
a political subdivision of the State of Delaware in the aggregate principal amount of $3.0 million (the Notes). The Notes bear interest at a rate of 6%,
mature on November 25, 2020. For the year ended December 31, 2019, the Company recorded interest expense of $180,000 related to the Note. The
agreement also requires the Company to comply with certain covenants, including restrictions on new indebtedness offering and liens.
Note 14. Stockholders’ Equity
Convertible Preferred Stock
Our Board of Directors has authorized 50.0 million shares of convertible preferred stock, $0.001 par value, issuable in series. As of December 31, 2019 and
2018, 7.0 million shares of Series A preferred stock were issued and outstanding. The Series A preferred stock shall be entitled to one vote per common
stock on an as-converted basis and is only entitled to receive dividends when and if declared by the Board.
Common Stock
Our Board of Directors has authorized 1,500 million shares of common stock, $0.001 par value.
2019 Equity Transactions
In the year ended December 31, 2019, the Company issued 8.2 million shares of common stock related to the issuance of convertible notes. Refer to Note
13 for additional information. The Company issued 15.9 million shares of common stock related to business acquisitions. Refer to Notes 6(a), 6(b), and
6(c) for additional information. The Company issued 7.4 million shares of common stock related to asset acquisitions. Refer to Notes 9(a) and 9(b) for
additional information. The Company issued 14.7 million shares of common stock related to a long-term investment. Refer to Note 10(e) for additional
information.
F-34
2018 Equity Transactions
In March and June 2018, the Company entered into a subscription agreement with GT Dollar Ptd. Ltd. (“GTD”) for a private placement which was
subsequently amended to reduce the amount of the investment to from $40.0 million to $10.0 million. In October 2018, the Company received $10.0
million and issued an aggregate of 5.5 million shares of the common stock of the Company, for $1.82 per share, to GTD.
In June and December 2018, the Company entered into a subscription agreement and amended agreements with Sun Seven Stars Investment Group
Limited, a British Virgin Islands corporation (“SSSIG”), an affiliate of Dr. Wu, to purchase $1.1 million of common stock at the then market price. The
Company has received $1.1 million in total as of December 31, 2018. The Company issued 0.6 million shares of common stock in June 2019.
In July and December, 2018, the Company entered into a share purchase and option agreement and amended agreement with Star Thrive Group Limited
(“Star”), a British Virgin Islands corporation, pursuant to which Star purchased 5.0 million shares of the Company’s common stock, for $9.2 million (the
“Investment”). The Company also granted to Star a share purchase option (the “Call Option”) pursuant to which Star may, within 24 months after July 24,
2018, purchase from the Company such number of shares of common stock that would bring Star’s total ownership of the Company’s issued and
outstanding shares up to 19.5% on a fully diluted basis, at a price equal to 95.0% of the weighted average trading price of the common stock within 3
months prior to the exercise date of the Call Option. As of December 31, 2018, the Company has received $9.2 million and 5.0 million shares have been
issued. The fair value of the call option is $8.0 million using the Black-Sholes valuation model using the following assumptions: expected terms 1.81 years;
volatility 132.55%; dividend yield: zero and risk free interest rate 2.81%. The management determined that the call options is classified within
shareholders’ equity as “Additional paid-in capital” upon the issuance in accordance with ASC 815-40 and the proceeds from the investment are allocated
to common stock and call options based on the relative fair value of the securities in accordance with ASC 470-20-30.
F-35
Note 15. Related Party Transactions
(a) Convertible Note
$3.0 Million Convertible Note with Mr. Shane McMahon (“Mr. McMahon”)
On May 10, 2012, Mr. McMahon, our Vice Chairman, made a loan to the Company in the amount of $3.0 million. In consideration for the loan, the
Company issued a convertible note to Mr. McMahon in the aggregate principal amount of $3.0 million (the “Note”) at a 4.0% interest rate computed on the
basis of a 365-day year. The Company entered several amendments with respect to the effective conversion price (changed from $1.75 to $1.50),
convertible stocks (changed from of Series E Preferred Stock to Common Stock) and extension of the maturity date to December 31, 2020.
The accumulated interest payable as of December 31, 2019 and 2018 was $0.3 million and $0.1 million, respectively. For the years ended December 31,
2019 and 2018, the Company recorded interest expense of $0.1 million and $0.1 million related to the Note. The Company did not pay such interest to Mr.
McMahon in years ended December 31, 2019 and 2018.
$2.5 Million Convertible Promissory Note with SSSIG
On February 8, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal
amount of $2.5 million. The convertible promissory note bears interest at a rate of 4.0%, was scheduled to mature on February 8, 2020, and is convertible
into shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of SSSIG. The Company is in the process of
negotiating an extended due date, and believes it has the ability to do so.
As of December 31, 2019, the Company received $1.3 million from SSSIG. The Company has not received the remaining $1.2 million as of the date of this
report. For the year ended December 31, 2019, the Company recorded interest expense of $48,357 related to the Note. The Company has not paid the
interest yet.
$1.0 Million Convertible Promissory Note with SSSIG
On November 25, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal
amount of $2.5 million. The convertible promissory note bears interest at a rate of 4.0%, matures on November 25, 2021, and is convertible into the shares
of the Company’s common stock at a conversion price of $1.25 per share anytime at the option of SSSIG. As of December 31, 2019, the Company received
$0.25 million from SSSIG.
(b) Transactions with GTD
Disposal of Assets in exchange of GTB
In March 2019, the Company completed the sale of the following assets (with total carrying amount of $20.4 million) to GTD, a minority shareholder
based in Singapore, in exchange for 1.3 million GTB. The Company considers the arrangement as a nonmonetary transaction and the fair values of GTB
are not reasonably determinable due to the reasons described below. Therefore, GTB received are recorded at the carrying amount of the assets exchanged
and the Company did not recognize any gain or loss based on ASC 845-10-30.
·
·
·
License content (net carrying amount $17.0 million)
13% ownership interest in Nanjing Shengyi Network Technology Co., Ltd (“Topsgame”)
(carrying amount of $3.2 million which was included in long-term investment as a non-marketable equity investment)
Animation copy right (net carrying amount $0.2 million which was included in intangible assets.)
Digital asset management services
The Company recognized revenue for the master plan development services over the contract period based on the progress of the services provided towards
completed satisfaction. Based on ASC 606-10-32, at contract inception, the Company considered the following factors to estimate the value of GTB
(noncash consideration): 1) it only trades in one exchange, which operations have been less than one year; 2) its historical volatility is high; and 3) the
Company’s intention at the time to hold the majority of GTB, as part of its digital asset management services; and 4) associated risks related to holding
GTB. Therefore, the value of 7.1 million GTB using Level 2 measurement was $40.7 million with a 76% discount to the fixed contract price agreed upon
by both parties when signing the contract. The Company considered similar assets exchanges in Singapore and considered the volatility of the quoted prices
and determined a discount of 76%. The estimated value of GTB is calculated using the Black-Scholes valuation model using the following assumptions:
expected terms 3.0 years; volatility 155%; dividend yield: zero and risk-free interest rate 2.25%. As of December 31, 2019, all performance obligations
associated with the development of the master plan for GTD’s assets had been satisfied. Accordingly, the Company recognized revenue of $40.7 million in
the year ended December 31, 2019. The Company does not anticipate recording any revenue related to the provision of Digital Asset Management Services
in 2020.
Refer to Note 9(f) for information concerning the impairment loss of $61.1 million recorded related to GTB in the year ended December 31, 2019.
(c) Crude Oil Trading
For the year ended December 31, 2018, the Company purchased crude oil in the amount of $244.1 million from three suppliers that a minority shareholder
of the Company has significant influence upon because this minority shareholder has significant influence on both our Singapore joint venture and these
three suppliers. The Company has recorded the purchase in “Cost of revenue from related parties” in its consolidated statements of operations. No such
related party transactions occurred in the year ended December 31, 2019.
F-36
(d) Severance payments
On February 20, 2019, the Company accepted the resignation of former Chief Executive Officer, former Chief Investment Officer and former Chief
Strategy Officer and agreed to pay $0.8 million in total for salary, severance and expenses. The Company paid $0.6 million in the first quarter of 2019 and
recorded $0.2 million in “Other current liabilities” on its consolidated balance sheet as of December 31, 2019. The $0.8 million severance expenses were
recorded in “Selling, general and administrative expenses” in the consolidated statements of operations.
(e) Borrowing from Dr. Wu. and his affiliates
In the year ended December 31, 2019, the Company’s net borrowings from Dr. Wu and his affiliates increased by $3.3 million. The Company recorded
these borrowings in “Amount due to related parties” in its consolidated balance sheet as of December 31, 2019. These borrowings bear no interest.
(f) Acquisition of Fintalk Assets
Refer to Note 9(b) for additional information.
(g) Sale of Red Rock Global Capital LTD (“Red Rock”)
Refer to Note 6(f) for additional information.
(h) Acquisition of Grapevine Logic. (“Grapevine”)
Refer to Notes 6(b) and 6(d) for additional information.
(i) Sale of Amer Global Technology Limited (“Amer”)
Refer to Note 6(g) for additional information.
(j) Taxis commission revenue from Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. (“Qianxi”)
During the second quarter of 2019, the Company signed an agreement with iUnicorn (also known as Shenma Zhuanche) to form a strategic joint venture
that will focus on green finance and integrated marketing services for new energy taxi vehicles as part of Ideanomics’ Mobile Energy Group (“MEG”). The
Company agreed to contribute advisory and sales resources which include arranging ABS-based auto financing with its bank partners, and will have
50.01% ownership interest in the joint venture and will have control of the board. iUnicorn, which will own 49.99% of the of the joint venture, agreed to
contribute its vehicles sales orders in Sichuan province. The joint venture will generate revenues from commissions on vehicle sales order and ABS fees
related to the financing, which will vary accordingly to manufacturer and vehicle model.
During the third quarter of 2019, the joint venture took over an order of 4,172 EV taxis from a third-party and helped facilitate the completion of the order
in that quarter 2019. As part of the transaction, Qianxi agreed to pay a commission of $2.7 million to the joint venture for facilitating the completion of this
order. There is no other remaining performance obligation relating to this commission. In addition, the commission revenue is considered revenue from a
related party as the minority shareholder of the joint venture is an affiliate of our customer, Qianxi.
(j) Long Term Investment to Qianxi
In November 2019, the Company entered into a share transfer agreement with Sichuan Shenma Zhixing Technology Co.(“Shenma”) to acquire its 1.72%
ownership in Qianxi with the consideration of $4.9 million, which will be paid in six installments. Shenma need to complete the share transfer registration
prior to May 31, 2020, otherwise it will return the investment payment to the Company. The Company has paid $0.5 million as of December 31, 2019 and
recorded it on the “Other Non-Current Assets” since the share transfer registration is not completed yet.
F-37
Note 16. Share-Based Payments
As of December 31, 2019, the Company had 14.9 million options, 0.1 million restricted shares and 9.0 million warrants outstanding.
The Company awards common stock and stock options to employees and directors as compensation for their services, and accounts for its stock option
awards to employees and directors pursuant to the provisions of ASC 718, Stock Compensation. The fair value of each option award is estimated on the
date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably
using the straight-line attribution method over the service period, which is generally the vesting period.
Effective as of December 3, 2010 and amended on August 3, 2018, our Board of Directors approved the 2010 Stock Incentive Plan (“the 2010 Plan”)
pursuant to which options or other similar securities may be granted. As of December 31, 2019, the maximum aggregate number of shares of our common
stock that may be issued under the 2010 Plan increased from 4.0 million shares to 31.5 million shares. As of December 31, 2019, options available for
issuance are 14.1 million shares.
For the years ended December 31, 2019 and 2018, total share-based payments expense was $9.1 million and $3.4 million, respectively.
(a) Stock Options
The following table summarizes stock option activity for the year ended December 31, 2019:
Outstanding at January 1, 2019
Granted
Exercised
Expired
Forfeited
Outstanding at December 31, 2019
Vested and expected to be vested as of December 31, 2019
Options exercisable at December 31, 2019 (vested)
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregated
Intrinsic
Value
1,706,431 $
14,325,000
0
(83,333)
(1,011,372)
14,936,726
14,936,726
7,163,814
3.28
1.98
0
1.98
1.98
2.13
2.13
2.29
4.08 $
9.15
8.48
8.48
7.75
-
-
-
-
-
-
-
-
As of December 31, 2019, $11.7 million of total unrecognized compensation expense related to non-vested share options is expected to be recognized over
a weighted average period of 1.15 years. The total fair value of shares vested in the years ended December 31, 2019 and 2018 was $8.5 million and $0.4
million respectively. Cash received from options exercised in the years ended December 31, 2019 and 2018 was $0 and $28,000.
The following table summarizes the assumptions used to estimate the fair values of the share options granted in the year ended December 31, 2019. There
were no options granted in the year ended December 31, 2018.
Expected term
Expected volatility
Expected dividend yield
Risk free interest rate
(b) Warrants
December 31,
2019
5.52 years
98%
0%
2.51%
In connection with certain of the Company’s financings and service agreements, the Company issued warrants to service providers to purchase common
stock of the Company. The warrants issued to Warner Brother were expired without exercise on January 31, 2019. The Company issued warrants to IDV
and YA II PN, Ltd. in connection with senior secured convertible notes (See Note 13) and the weighted average exercise price was $1.09 and the weighted
average remaining life was 5.67 years.
F-38
2019
Number of
Warrants
2018
Number of
Warrants
Outstanding and Outstanding and
Warrants Outstanding
Exercisable
Exercisable
Exercise
Price
Expiration
Date
2014 Broker Warrants (Series E Financing)
2018 IDV (Senior secured convertible note)
2019 IDV (Senior secured convertible note)
2019 YA II PN, Ltd. (Senior secured convertible
debenture)
2019 YA II PN, Ltd. (Senior secured convertible
debenture)
-
1,671,196
4,658,043
60,000 $
-
-
1.75
1.00
1.00
01/31/2019
2/22/2026
9/27/2026
1,666,667
-
1.50
12/13/2024
1,000,000
8,995,906
-
60,000
1.00
12/13/2020
On September 24, 2018, the Company entered into an employment agreements with three executives and subsequently resigned in February 2019 (see Note
22). As part of their employment agreements, they were entitled to warrants for an aggregate of 8,000,000 shares at an exercise price of $5.375 per share,
which is a 25% premium to the $4.30 per share closing market price of the Company’s common stock on September 7, 2018. As a result of the resignation,
all the warrants were forfeited.
(c) Restricted Shares
In January 2019, the Company granted 0.2 million restricted shares to the three independent directors under the “2010 Plan” which was approved as part of
the 2018 independent board compensation plan by the Board of Directors. The restricted shares were all vested immediately since commencement date.
The aggregated grant date fair value of all those restricted shares was $0.3 million.
A summary of the unvested restricted shares is as follows:
Non-vested restricted shares outstanding at January 1, 2019
Granted
Forfeited
Vested
Non-vested restricted shares outstanding at December 31, 2019
Shares
Weighted-average
fair value
87,586 $
220,163
(3,500)
(249,163)
55,086
2.46
1.24
2.60
1.40
2.38
As of December 31, 2019, there was $16,575 of unrecognized compensation cost related to unvested restricted shares. This amount is expected to be
recognized over a weighted-average period of 0.23 years.
F-39
Note 17. Loss Per Common Share
Net loss attributable to IDEX common stockholders
Basic
Basic weighted average common shares outstanding
Diluted
Diluted weighted average common shares outstanding
Net loss per share:
Basic
Diluted
2019
(98,507,524) $
2018
(27,426,356)
119,766,859
78,386,116
119,766,859
78,386,116
(0.82) $
(0.82) $
(0.35)
(0.35)
$
$
$
Basic loss per common share attributable to our shareholders is calculated by dividing the net loss attributable to our shareholders by the weighted average
number of outstanding common shares during the period.
Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share
equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive.
The following table includes the number of shares that may be dilutive potential common shares in the future. The holders of these shares do not have a
contractual obligation to share in our losses and thus these shares were not included in the computation of diluted loss per share because the effect was
either antidilutive.
Warrants
Options
Series A Preferred Stock
DBOT Contingent Shares
Convertible promissory note and interest
Total
Note 18. Income Taxes
(a) Corporate Income Tax (“CIT”)
December 31,
2019
December 31,
2018
8,995,906
14,936,726
933,333
8,501,313
21,678,482
55,045,760
60,000
1,706,431
933,333
10,407,233
13,106,997
Ideanomics, Inc., M.Y. Products LLC, Grapevine Logic, Inc., Delaware Board of Trade Holdings, Inc., Fintech Village, LLC and Red Rock Global Capital
Ltd. are subject to U.S. federal and state income tax.
CB Cayman was incorporated in Cayman Islands as an exempted company and is not subject to income tax under the current laws of Cayman Islands.
Most of the Company’s income is generated in Hong Kong in 2018. The statutory income tax rate in HK is 16.5%.
Seven Stars Energy is incorporated in Singapore in late 2017 which is conducting crude oil trading business. The statutory income tax rate in Singapore is
17%.
YOD WFOE, Sinotop Beijing, and Sevenstarflix are PRC entities. The income tax provision of these entities is calculated at the applicable tax rates on the
taxable income for the periods based on existing legislation, interpretations and practices in the PRC.
In accordance with the Corporate Income Tax Law of the PRC (“CIT Law”), effective beginning on January 1, 2008, enterprises established under the laws
of foreign countries or regions and whose “place of effective management” is located within the PRC territory are considered PRC resident enterprises and
subject to the PRC income tax at the rate of 25% on worldwide income. The definition of “place of effective management” refers to an establishment that
exercises, in substance, and among other items, overall management and control over the production and business, personnel, accounting, and properties of
an enterprise. If the Company’s non-PRC incorporated entities are deemed PRC tax residents, such entities would be subject to PRC tax under the CIT
Law. Since our non-PRC entities have accumulated losses, the application of this tax rule will not result in any PRC tax liability, if our non-PRC
incorporated entities are deemed PRC tax residents.
The CIT Law imposes a 10% withholding income tax, subject to reduction based on tax treaty where applicable, for dividends distributed by a foreign
invested enterprise to its immediate holding company outside China. Under the PRC-HK tax treaty, the withholding tax on dividends is 5% provided that a
HK holding company qualifies as a HK tax resident as defined in the tax treaty. No provision was made for the withholding income tax liability as the
Company’s foreign subsidiaries were in accumulated loss.
F-40
Loss before tax and the provision for income tax benefit consists of the following components:
Loss before tax
United States
PRC/Hong Kong/Singapore
Deferred tax benefit of net operating loss
United States
PRC/Hong Kong/Singapore
Deferred tax expense (benefit) other than benefit of net operating loss
United States
PRC/Hong Kong
Total deferred income tax expense (benefit)
Current tax expense (benefit) other than benefit of net operating loss
United States
PRC/Hong Kong
Total current tax expense (benefit)
Total income tax expense (benefit)
2019
2018
$(88,688,205) $(13,139,622)
(7,722,717) (15,323,706)
$(96,410,922) $(28,463,328)
$
$
$
$
$
$
$
$
- $
(176,107)
(176,107) $
-
-
-
(513,935) $
-
(513,935) $
(40,244)
-
(40,244)
- $
931,388 $
931,388 $
-
-
-
417,453 $
(40,244)
A reconciliation of the expected income tax derived by the application of the U.S. corporate income tax rate to the Company’s loss before income tax
benefit is as follows:
U. S. statutory income tax rate
Non-deductible expenses:
Non-deductible stock awards
Non-deductible loss on contingent consideration
Others
Non-deductible interest expenses
Increase in valuation allowance
Tax rate differential
Effective income tax rate
2019
2018
21%
21%
(1.9)%
(1.1)%
(0.3)%
(1.2)%
(16.4)%
(0.5)%
(0.4)%
(1.2)%
0.0%
(0.9)%
(0.6)%
(18.4)%
0.1%
0.0%
Deferred income taxes are recognized for future tax consequences attributable to temporary differences between the carrying amounts of assets and
liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled.
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2019 and 2018 are as follows:
U.S. NOL
Foreign NOL
U.S. capital loss carryover
Accrued payroll and expense
Nonqualified options
Convertible notes
Impaired assets
Others
Total deferred tax assets
Less: valuation allowance
Property and equipment
Intangible assets
Total deferred tax liabilities
Net deferred tax assets
2019
2018
$ 17,470,708 $ 7,977,213
6,406,052
-
131,867
780,800
-
-
171,819
6,846,645
4,376,715
171,580
772,365
751,625
1,436,065
114,819
31,940,522 $ 15,467,751
(30,274,655) $(15,467,751)
(36,368)
(1,629,499)
(1,665,867)
-
$
-
-
-
-
-
F-41
As of December 31, 2019, the Company had $83.1 million U.S domestic cumulative tax loss carryforwards and $28.3 million foreign cumulative tax loss
carryforwards, which may be available to reduce future income tax liabilities in certain jurisdictions. $26.8 million of the U.S. carryforwards expire in the
years 2027 through 2037. The remaining U.S. tax loss is not subject to expiration under the new Tax Law. These PRC tax loss carryforwards will expire
beginning year 2020 to year 2024. The Company also has a U.S. capital loss carryover, available to offset future capital gains, of $20.8 million , $20.4
million of which expires in 2025 and the rest in 2024. Utilization of net operating losses may be subject to an annual limitation due to ownership change
limitations provided in the Internal Revenue Code and similar state and foreign provisions. This annual limitation may result in the expiration of net
operating losses before utilization.
Realization of the Company’s net deferred tax assets is dependent upon the Company’s ability to generate future taxable income in appropriate tax
jurisdictions to obtain benefit from the reversal of temporary differences and net operating loss carryforwards. The valuation allowance increased by $14.8
million in the year ended December 31, 2019, which consists of $14.5 million resulting from operations and $0.3 million resulting from deferred tax
liabilities acquired in the DBOT acquisition. The valuation allowance increased by $3.0 million in the year ended December 31, 2018, which consists of
$2.3 million resulting from operations and $0.7 million resulting from deferred tax liabilities acquired in the Grapevine acquisition.
(b) Uncertain Tax Positions
Accounting guidance for recognizing and measuring uncertain tax positions prescribes a threshold condition that a tax position must meet for any of the
benefit of uncertain tax position to be recognized in the financial statements. There was no identified unrecognized tax benefit as of December 31, 2019 and
2018.
As of December 31, 2019 and 2018, the Company did not accrue any material interest and penalties.
The Company’s United States income tax returns are subject to examination by the Internal Revenue Service for at least 2010 and later years. Due to the
uncertainty regarding the filing of tax returns for years before 2007, it is possible that the Company is subject to examination by the IRS for earlier years.
All of the PRC tax returns for the PRC operating companies are subject to examination by the PRC tax authorities for all periods from the companies’
inceptions in 2009 through 2019 as applicable.
(c) U.S. Tax Reform
On December 22, 2017 the U.S. enacted the “Tax Cuts and Jobs Act” (“U.S. Tax Reform”) which made significant changes to corporate income tax law.
One significant change was to decrease the general corporate income tax rate from 34% to 21%. This change in the rate reduced the Company’s deferred
tax assets at December 31, 2017 by $4.4 million. This reduction had no effect on the Company’s income tax expense as the reduction in deferred tax assets
was offset by an equivalent reduction in the valuation allowance.
Another significant change resulting from U.S. Tax Reform is that any future remittances to the parent company from business income earned by its
subsidiaries outside of the U.S. will no longer to taxable to the Company under U.S. tax law. The Company would be liable for payment of income tax, or
reduction of the net operating loss carryover, at a reduced rate for any accumulated earnings and profits of its non-U.S. subsidiaries at December 31, 2017.
The Company determined that its non-U.S. subsidiaries had no accumulated earnings and profits as of December 31, 2017.
U.S. Tax Reform includes provisions for Global Intangible Low-Taxed Income (“GILTI”) under which taxes on foreign income are imposed on the excess
of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax (“BEAT”) under which taxes are imposed on
certain base eroding payments to affiliated foreign companies. Consistent with accounting guidance, we treat BEAT as a period tax charge in the period the
tax is incurred and have made an accounting policy election to treat GILTI taxes in a similar manner.
F-42
Note 19. Contingencies and Commitments
Lawsuits and Legal Proceedings
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the business.
Shareholder Class Action
On July 19, 2019, a purported class action, captioned Jose Pinto Claro Da Fonseca Miranda v. Ideanomics, Inc., was filed in the United States District
Court for the Southern District of New York against the Company and certain of its current and former officers. While the Company believes that the Class
Action is without merit and plans to vigorously defend itself against these claims, there can be no assurance that the Company will prevail in the lawsuits.
The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with these litigations.
Note 20. Concentration, Credit and Other Risks
a) PRC Regulations
The PRC market in which the Company operates poses certain macro-economic and regulatory risks and uncertainties. These uncertainties
extended to the ability of the Company to conduct wireless telecommunication services through contractual arrangements in the PRC since the
industry remains highly regulated. The Company conducted legacy YOD business in China through a series of contractual arrangements, which
were terminated as of December 31, 2019. Refer to Note 5 for additional information. The Company believed that these contractual arrangements
were in compliance with PRC law and were legally enforceable, or their respective legal shareholders failed to perform their obligations under the
contractual arrangements or any dispute relating to these contracts remained unresolved, the Company could enforce its rights under the VIE
contracts through PRC law and courts. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these
contractual arrangements. In particular, the interpretation and enforcement of these laws, rules and regulations involve uncertainties.
b) Major Customers
For the year ended December 31, 2019, one customers individually accounted for more than 10.0% of the Company’s revenue (91% of revenue).
One customer individually accounted for more than 10.0% of the Company’s net accounts receivable as of December 31, 2019 (95% of accounts
receivable).
For the year ended December 31, 2018, two customers individually accounted for more than 10.0% of the Company’s revenue (91% of revenue).
Two customers individually accounted for more than 10.0% of the Company’s net accounts receivable as of December 31, 2018 (39% of accounts
receivable).
c) Major Suppliers
For the year ended December 31, 2019, no suppliers individually accounted for more than 10.0% of the Company’s cost of revenues. Two
suppliers individually accounted for more than 10.0% of the Company’s accounts payable as of December 31, 2019.
For the year ended December 31, 2018, three suppliers (two of whom are related parties) individually accounted for more than 10.0% of the
Company’s cost of revenues. Two suppliers individually accounted for more than 10.0% of the Company’s accounts payable as of December 31,
2018.
F-43
(d) Concentration of Credit Risks
Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash and accounts receivable. As
of December 31, 2019 and 2018, the Company’s cash was held by financial institutions (located in the PRC, Hong Kong, the United States and Singapore)
that management believes have acceptable credit. Accounts receivable are typically unsecured. The risk with respect to accounts receivable is mitigated by
regular credit evaluations that the Company performs on its distribution partners and its ongoing monitoring of outstanding balances.
(e) Foreign Currency Risks
A majority of the Company’s operating transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities is
denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies
and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by
authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the
Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in
order to complete the remittance.
Cash consist of cash on hand and demand deposits at banks, which are unrestricted as to withdrawal.
Time deposits, which mature within one year as of the balance sheet date, represent interest-bearing certificates of deposit with an initial term of greater
than three months when purchased. Time deposits which mature over one year as of the balance sheet date are included in non-current assets.
The following table summarizes the Company’s cash and time deposits maintained at banks:
December 31,
RMB denominated bank deposits with financial institutions in the PRC
US dollar denominated bank deposits with financial institutions in the PRC
HKD denominated bank deposits with financial institutions in Hong Kong Special
Administrative Region (“HK SAR”)
US dollar denominated bank deposits with financial institutions in HK SAR
US dollar denominated bank deposits with financial institutions in Singapore
US dollar denominated bank deposits with financial institutions in
the United States of America (“USA”)
Ringgit denominated bank deposits with financial institutions in Malaysia
SGD denominated bank deposits with financial institutions in Singapore
Total
$
2018
2019
135,899 $ 1,523,622
133,053
24,459
7
51,240
570,373
13,133
44,182
697,099
1,804,124
229
45,635
695,155
-
-
$ 2,631,966 $ 3,106,244
As of December 31, 2019 and December 31, 2018 deposits of $0.4 million and $0.0 million were insured, respectively. To limit exposure to credit risk
relating to bank deposits, the Company primarily places bank deposits only with large financial institutions in the PRC, HK SAR, USA, Singapore and
Cayman with acceptable credit rating.
F-44
Note 21. Defined Contribution Plan
For U.S. employees, during 2011, the Company began sponsoring a 401(k) defined contribution plan ("401(k) Plan") that provides for a 100.0% employer
matching contribution of the first 4.0% of eligible pay that the employee contributed to the plan. Employees are immediately 100.0% vested in the
Company’s non-discretionary contribution to the 401(k) Plan. Company 401(k) matching contributions were $27,244 and $3,242 in the years ended
December 31, 2019 and 2018, respectively.
Full time employees in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care,
unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to
make contributions based on certain percentages of the employees’ basic salaries. Other than such contributions, there is no further obligation under these
plans. The total contribution for such PRC employee benefits was $0.4 million and $0.5 million in the years ended December 31, 2019 and 2018,
respectively.
Note 22. Geographic Areas
The following table summarizes geographic information for long-lived assets:
United States
Malaysia
British Virgin Islands
Other
Total
Note 23. Fair Value Measurement
December 31, December 31,
$
2019
64,360,287 $
51,733,413
3,000,000
510,741
$ 119,604,441 $
2018
42,220,799
-
3,000,000
3,942,270
49,163,069
The following table summarizes information about the Company’s financial instruments measured at fair value on a recurring basis, grouped into Level 1 to
3 based on the degree to which the input to fair value is observable:
Acquisition earn-out liability1
December 31, 2019
Level I
Level II
Level III
Total
-
-
7,311,129
7,311,129
Note
1 This represents the liability incurred in connection with the acquisition of DBOT shares during the third quarter of 2019 and as subsequently remeasured
as of December 31, 2019 as disclosed in Note 6(c).
The fair value of the acquisition earn-out liability as of December 31, 2019 was valued using the Black-Scholes Merton method.
The following table summarizes the significant inputs and assumptions used in the model:
Risk-free interest rate
Expected volatility
Expected term
Expected dividend yield
December
31, 2019
1.6%
30%
0.25 year
0%
The significant unobservable inputs used in the fair value measurement of the acquisition earn-out liability includes the risk-free interest rate, expected
volatility, expected term and expected dividend yield. Significant increases or decreases in any of those inputs in isolation would result in a significantly
different fair value measurement.
The following table summarizes the reconciliation of Level 3 fair value measurements:
F-45
January 1, 2019
Addition
Remeasurement (loss)/gain recognized in the income statement
December 31, 2019
Note 24. Subsequent Events
Acquisition
Earn-out
Liability
$
-
(2,217,034)
(5,094,095)
$ (7,311,129)
On January 24, 2020, the Company entered into an agreement (the “Agreement”) with Qingdao Xingyang City Investment (“Qingdao”) in which Qingdao
agreed to invest, pursuant to an installment plan, in the Company’s subsidiary, Qingdao Mobile New Energy Vehicle Sales Co. Ltd. (“Mobile”), an
aggregate of potentially 200 million RMB as registered capital with an initial investment of 50 million RMB ($7.2 million). The Company and Qingdao
also agreed to jointly establish Mobile to engage in electric commercial vehicle sales. Pursuant to the Agreement Qingdao agreed that within 10 days after
the completion of the establishment of Mobile Qingdao would invest 50 million RMB as the first installment and, once Mobile starts operation, an
additional 50 million RMB as registered capital for each 10 billion RMB sales revenue realized by Mobile or for each 10 billion RMB increase in the
market value of Mobile. Once Mobile achieves 30 billion RMB or its market value reaches 30 billion RMB, Qingdao will pay the 200 million RMB in full
as registered capital. Qingdao will receive a 10% equity interest in Mobile for the full investment of 200 million RMB.
On January 31, 2020 the Company issued 10.9 million shares of the Company’s common stock pursuant to the terms of the True-Up provisions of the
securities purchase agreement for the Company’s acquisition of DBOT. The securities purchase agreements required the Company to issue additional
shares of the Company’s common stock (“True-Up Common Stock”) in the event the stock price of the common stock was below $2.11 at the close of
trading on January 30, 2020, the day immediately preceding the lock-up date. The common stock issuance is subject to the restrictions of Rule 144A of the
Securities Act of 1933.
F-46
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with the Company’s accountants in the year ended December 31, 2019.
On February 16, 2018, the Audit Committee approved the dismissal of Grant Thornton (“GT”). Since the commencement of GT’s engagement in April
2017 through February 16, 2018, there were no: (1) disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) with GT
on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements if not resolved to
their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, or (2) reportable
events requiring disclosures (as described in Item 304(a)(1)(v) of Regulation S-K), except that GT advised the Company of a material weakness in the
Company’s internal control of financial reporting related to the design, documentation and implementation of effective internal controls over the review of
the cash flow forecasts used in assessing the recoverability of licensed content. GT has not issued any audit report on the consolidated financial statements
of the Company for any prior fiscal year, including as of and for the years ended December 31, 2017 and 2016 and therefore GT has not issued an audit
report containing an adverse opinion or a disclaimer of opinion, nor has any audit report been qualified or modified as to uncertainty, audit scope or
accounting principles.
On February 16, 2018, the Company appointed BF Borgers CPA PC (“BFB”) as its new independent registered public accounting firm to audit the
Company’s financial statements as of and for the years ended December 31, 2017 and 2016. The decision to retain BFB was approved by the Audit
Committee. During the Company’s fiscal periods prior to February 16, 2018, neither the Company nor anyone on its behalf has consulted with BFB
regarding (i) the application of accounting principles to a specific transaction, either completed or proposed or (ii) the type of audit opinion that might be
rendered on the Company’s financial statements and, neither a written report nor oral advice was provided to the Company that BFB concluded was an
important factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issues, or (iii) any matter that was the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions), or (iv) any “reportable event” (as described in
Item 304(a)(1)(v) of Regulation S-K).
56
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that
would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to our management, including to our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including our chief executive officer and chief financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2019. Based on that evaluation, our chief executive
officer and chief financial officer concluded that as of December 31, 2019, and as of the date that the evaluation of the effectiveness of our disclosure
controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, our
principal executive and principal financial officers and effected by our Board, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America and includes those policies and procedures that:
·
·
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the
Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and Directors;
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have
a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed
the effectiveness of our internal control over financial reporting as of December 31, 2019, using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessment, we have concluded
that our internal control over financial reporting was effective as of December 31, 2019. During our assessment, we did not identify any material
weaknesses in our internal control over financial reporting. B F Borgers CPA PC, the independent registered public accounting firm that audited our
consolidated financial statements for the year ended December 31, 2019, included in Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K, has issued an unqualified attestation report on our internal control over financial reporting as of December 31, 2019.
Attestation Report of the Independent Registered Public Accounting Firm
The attestation report of B F Borgers CPA PC, our independent registered public accounting firm, on the effectiveness of our internal control over financial
reporting is included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
57
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal year that have materially affected or are
reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B.
None.
OTHER INFORMATION
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
PART III
The following sets forth the name and position of each of our current executive officers and directors as of March 29, 2019.
NAME
Bruno Wu
Shane McMahon
Alf Poor
Conor McCarthy
James Cassano
Jerry Fan
Steven Fadem
John Wallace
Harry Edelson
Chao Yang
AGE
53
47
49
62
71
51
69
69
86
69
Chairman
Vice Chairman
Chief Executive Officer, Director
Chief Financial Officer
Director
Director
Director
Director
Director
Director
POSITION
Bruno Wu. Dr. Wu has served as our Chairman since January 12, 2016. Dr. Wu is the founder, co-chairman and CEO of Sun Seven Stars Media Group
Limited, a private media and investment company in China, since 2007. Its predecessor is Sun Media Group Holdings Limited, which was established by
Dr. Wu and his spouse in 1999. Dr. Wu served as chairman of Sun Media Group from 1999 to 2007 and was former director of Shanda Group, a private
investment group, from 2006 to 2009 and as former co-chairman of Sina Corporation (NASDAQ: SINA), a Chinese media and Internet services company,
from 2001 to 2002. Additionally, Dr. Wu served as the chief operating officer for ATV, a free-to-air television broadcaster in Hong Kong, from 1998 to
1999. Dr. Wu served as a director of Seven Star Works Co Ltd (KOSDAQ:121800) between 2015 to 2017, and served as a director of Semir Garment Co.
Ltd (SHE:00256) between 2008 and 2012. Dr. Wu received a Ph.D. from the School of International Relations and Public Affairs at Fudan University in
2001 and prior to that received an M.A. in International Relations from Washington University, a B.A. in Business Management from Culver-Stockton
College of Missouri and a diploma in Superior Studies in French Literature from the School of French Language and Literature at the University of Savoie
in Chambery, France.
Shane McMahon. Mr. McMahon was appointed Vice Chairman as of January 12, 2016 and was previously our Chairman from July 2010 to January 2016.
Prior to joining us, from 2000 to December 31, 2009, Mr. McMahon served in various executive level positions with World Wrestling Entertainment, Inc.
(NYSE: WWE). Mr. McMahon also sits on the Boards of Directors of International Sports Management (USA) Inc., a Delaware corporation, and Global
Power of Literacy, a New York not-for-profit corporation.
Mr. Alf Poor. Our Chief Executive Officer and President of the Connecticut Fintech Village is a former Chief Operating Officer at Global Data Sentinel, a
cybersecurity company that specializes in identity management, file access control, protected sharing, reporting and tracking, AI and thread response, and
backup and recovery. He is the former President and Chief Operating Officer of Agendize Services Inc., a company with an integrated suite of applications
that help businesses generate higher quality leads, improve business efficiency and customer engagement. Mr. Poor is a client-focused and profitability-
driven management executive with a track record of success at both rapidly-growing technology companies and large, multi-national, organizations.
Mr. Conor McCarthy. Mr. McCarthy was appointed as our Chief Financial Officer on September 9, 2019. Mr. McCarthy has over 30 years of experience
as a Chief Financial Officer in areas such as corporate strategy and corporate finance including capital raising and M&A. Mr. McCarthy most recently
served as the Chief Financial Officer of OS33, a private equity backed FinTech SaaS platform for compliance and productivity enablement for the wealth
management industry with 200 employee from July 2018 to May 2019. Prior to that, Mr. McCarthy served as the (i) Chief Financial Officer of Intent from
May 2016 to July 2018; (ii) the Chief Financial Officer of Convergex Group from June 2014 to July 2015 and (iii) the Chief Financial Officer and Finance
Director of the Americas for GFI Group, Inc., a NYSE-listed fintech wholesale money broker with revenues of almost $1Billion (now part of BGC
Partners, Nasdaq: BGCP), from March 2005 to June 2014. Mr.McCarthy, holds a CA from the Institute of Chartered Accountants in Ireland. Mr. McCarthy
started his career as an auditor with KPMG in Ireland. Mr. McCarthy then transitioned into financial services, working as CFO, Treasurer, and in other
executive finance roles, with trading and brokerage firms, as well as high growth fintech partners supporting the financial services industry.
58
James S. Cassano. Mr. Cassano was appointed as director of the Company effective as of January 11, 2008. Mr. Cassano is currently a Partner & Chief
Financial Officer of CoActive Health Solutions, LLC, a worldwide contract research organization, supporting the pharmaceutical and biotechnology
industries. Mr. Cassano has served as executive vice president, chief financial officer, secretary and director of Jaguar Acquisition Corporation a Delaware
corporation (OTCBB: JGAC), a blank check company, since its formation in June 2005. Mr. Cassano has served as a managing director of Katalyst LLC, a
company which provides certain administrative services to Jaguar Acquisition Corporation, since January 2005. In June 1998, Mr. Cassano founded New
Forum Publishers, an electronic publisher of educational material for secondary schools, and served as its chairman of the Board and chief executive officer
until it was sold to Apex Learning, Inc., a company controlled by Warburg Pincus, in August 2003. He remained with Apex until November 2003 in
transition as vice president business development and served as a consultant to the company through February 2004. In June 1995, Mr. Cassano co-founded
Advantix, Inc., a high volume electronic ticketing software and transaction services company which handled event related client and customer payments,
that was renamed Tickets.com and went public through an IPO in 1999. From March 1987 to June 1995, Mr. Cassano served as senior vice president and
chief financial officer of the Hill Group, Inc., a privately-held engineering and consulting organization, and from February 1986 to March 1987, Mr.
Cassano served as vice president of investments and acquisitions for Safeguard Scientifics, Inc., a public venture development company. From May 1973 to
February 1986, Mr. Cassano served as partner and director of strategic management services (Europe) for the strategic management group of Hay
Associates. Mr. Cassano received a B.S. in Aeronautics and Astronautics from Purdue University and an M.B.A. from Wharton Graduate School at the
University of Pennsylvania.
Jerry Fan. Mr. Fan was appointed as director of the Company on January 12, 2016. Mr. Fan has served as Managing Director and Country Manager for the
Greater China region at Analog Devices, Inc. (NASDAQ: ADI), a global semiconductor company since November, 2012. Prior to ADI, Mr. Fan worked for
Cisco Systems, Inc. (NASDAQ: CSCO) for 15 years between 1997 and 2012 in a number of senior management roles, including Sales Managing Director
for Cisco China, Sale Director for Cisco Australia and Senior Manager for Operations and Strategy for the Cisco Service Provider business based in Hong
Kong. Mr. Fan started his career in 1998 working at Fudan University as a faculty member in both teaching and research roles. He graduated from Fudan
University with a Computer Science Bachelor degree and an Executive MBA degree from CEIBS (China European International Business School) in 1999.
Steven Fadem. Mr. Fadem was appointed as director of the Company effective as of August 14, 2019. He is an innovative executive and thought leader
with substantial experience building media, entertainment, technology, information services, big data and cybersecurity companies with experience in the
digital transformation of traditional businesses. Mr. Fadem has successfully launched start-ups; turnarounded and revitalized complex corporate businesses
and created long-term-value for professional services organizations. Mr. Fadem was the Chairman of Global Data Sentinel, a cybersecurity firm he co-
founded in 2014. In his capacity as Chairman, he has led the company’s strategic development and client acquisition efforts. Previously, Mr. Fadem ran
several private equity-backed companies in media, energy, information services and financial services; the business side of a top-five Am Law firm,
Kirkland & Ellis; and a major financial services firm, Geller & Co. which, among other things, possesses a major multifamily office servicing the ultra-
high net worth community and is the outsourced CFO for Bloomberg L.P. Mr. Fadem received his JD from Emory University School of Law and a B.S. in
Economics from the Wharton School of the University of Pennsylvania .
Harry Edelson. Mr. Edelson was appointed as director of the Company effective as of September 15, 2019, CFA, CCP, CDP, is the Founder of Edelson
Technology Partners, and President since 1980 of Edelson Technology, Inc., a company involved in consulting, fundraising, M&A, and investments. From
1984 until 2005 Mr. Edelson was an advisor and consultant for 10 multinational corporations (AT&T, Viacom, 3M, Ford Motor, Cincinnati Bell, Colgate-
Palmolive, Reed Elsevier, Imation, Asea Brown Boveri and UPS). During this time he managed four technology-oriented strategic venture capital funds for
the aforementioned 10 companies using corporate rather than pension money. He has served on over 150 boards of directors, 12 as chairman. At some time
in the past five years, Harry Edelson served as a director of four private companies, Airwire, PogoTec, eChinaCash, Pathway Genomics, and one public
company, China Gerui. Executive positions in industry include Senior Systems Computer Engineer for Unisys, Transmission Engineer for AT&T (1962-
1967), CTO for Cities Service (1967-1970) and Director of Marketing for a terminal manufacturer serving the nascent internet industry (1971-1973). His
experience in technology led him to a 12 year career as a securities analyst on Wall Street covering telecommunications, computers, and office equipment
for three leading investment banking firms in the 1970s and 1980s. Harry obtained a BS in Physics from Brooklyn College in 1962, MBA from New York
University Graduate School of Business in 1965, and completed a Graduate Program in Telecommunications Engineering at the Cornell Graduate School
of Electrical Engineering in 1966. In 2007, Harry served as Chairman and Chief Executive Officer for China Opportunity Acquisition Corp., a SPAC that
raised $40 million and merged with China Gerui in 2009. Mr. Edelson was a Council member of The Julliard School of Music Dance & Drama, and is the
founder and still Chairman of the China Investment Group; and the founder and current member of the Chinese Cultural Foundation. Harry’s qualifications
to serve as a director include decades of experience on Wall Street and various venture capital ventures. He has SPAC experience, vast board experience,
and participated in numerous M&A transactions.
John Wallace. Mr. Wallace is a seasoned executive with experience across a range of industries. For the majority of his career, John was a senior executive
& officer of the Philadelphia Stock Exchange ("PHLX"). John started at the PHLX in 1964 and became a member of the PHLX in 1971. John served as a
member of the PHLX Board of Governors from 1984 until August 2008. During his tenure at the PHLX John held several senior positions including
Chairman, Vice Chairman and Chief Executive Officer. He traded on all floors of the exchange in the capacity of a specialist/market maker on the options
and equity floors, and as a floor broker for equities, options, and currencies. In addition to his service as Chairman of the PHLX Options Committee and
member of the PHLX Executive Committee, John served on virtually every PHLX Committee and chaired the following PHLX committees: Admissions,
Allocation, Arbitration, Elections, Evaluation and Securities, Finance, Long Range Strategic Planning, Marketing, New Product Development and
Nominating. John also served as Chairman of the Board of the Stock Clearing Corporation of Philadelphia, Chairman of the Board of the Philadelphia
Board of Trade, Chairman of the Board of the Philadelphia Depository Corporation and as a board member of the PHLX's technology subsidiary, and
Advanced Tech Source Company. Over the course of his career in the securities industry, John has also been a member of the Toronto Stock Exchange, a
seat owner of the New York Mercantile Exchange as well as registered with the National Futures Association as a floor broker.
59
Chao Yang. Mr. Yang was appointed as a director of the Company on August 7, 2018. Mr. Yang has been an Independent Non-Executive Director of Fosun
International Limited since December 2014. Mr. Yang was the chairman of China Life Insurance Company Limited (listed on the Hong Kong Stock
Exchange with stock code: 02628) from July 2005 to June 2011, the president and secretary of party committee of China Life Insurance (Group) Company
from May 2005 to May 2011 and an independent non-executive director of SRE Group Limited (listed on the Hong Kong Stock Exchange with stock code:
01207) from November 2013 to December 2015. As at 31 December 2017, Mr. Yang has been a member of the 12th National Committee of the Chinese
People’s Political Consultative Conference and its Social and Legislative Committee. Mr. Yang, a Senior Economist, has more than 40 years of experience
in the insurance and banking industries, and was awarded special allowance by the State Council. Mr. Yang graduated from Shanghai International Studies
University and Middlesex University in the United Kingdom, majoring in English and business administration respectively, and received a master’s degree
in business administration.
Mr. Yang has significant senior management experience, including service as chairman, president and director. In light of our business and structure,
Mr. Yang’s extensive executive experience and his educational background led us to the conclusion that he should serve as a director of our Company.
There are no agreements or understandings between any of our executive officers or directors and any other persons to resign at the request of another such
other person and to act on behalf of or at the direction of any such other person.
Directors are elected for one-year term and until their successors are duly elected and qualified.
Corporate Governance
Our current corporate governance practices and policies are designed to promote shareholder value and we are committed to the highest standards of
corporate ethics and diligent compliance with financial accounting and reporting rules. Our Board provides independent leadership in the exercise of its
responsibilities. Our management oversees a system of internal controls and compliance with corporate policies and applicable laws and regulations, and
our employees operate in a climate of responsibility, candor and integrity.
Corporate Governance Guidelines
We and our Board are committed to high standards of corporate governance as an important component in building and maintaining shareholder value. To
this end, we regularly review our corporate governance policies and practices to ensure that they are consistent with the high standards of other companies.
We also closely monitor guidance issued or proposed by the SEC and the provisions of the Sarbanes-Oxley Act, as well as the emerging best practices of
other companies. The current corporate governance guidelines are available on the Company’s website www.ideanomics.com. Printed copies of our
corporate governance guidelines may be obtained, without charge, by contacting our Corporate Secretary at No.4 Drive-in Movie Theater Park, No. 21
Liangmaqiao Road, Chaoyang District, Beijing, 100125, China.
60
The Board and Committees of the Board
The Company is governed by the Board that currently consists of nine members: Bruno Wu, Shane McMahon, Alfred Poor, James Cassano, Jerry Fan,
Chao Yang, John Wallace, Steven Fadem, and Harry Edelson. The Board has established three Committees: the Audit Committee, the Compensation
Committee and the Nominating and Governance Committee. Each of the Audit Committee, Compensation Committee and Nominating and Governance
Committee are comprised entirely of independent directors. From time to time, the Board may establish other committees. The Board has adopted a written
charter for each of the Committees which are available on the Company’s website www.ideanomics.com. Printed copies of these charters may be obtained,
without charge, by contacting our Corporate Secretary at No.4 Drive-in Movie Theater Park, No. 21 Liangmaqiao Road, Chaoyang District, Beijing,
100125, China.
Governance Structure
Our Board of Directors is responsible for corporate governance in compliance with reporting laws and for representing the interests of our shareholders. As
of the date of this Annual report, the Board was composed of nine members, five of whom are considered independent, non-executive directors. Details on
Board membership, oversight and activity are reported below.
We encourage our shareholders to learn more about our Company’s governance practices at our website, www.ideanomics.com.
The Board’s Role in Risk Oversight
The Board oversees that the assets of the Company are properly safeguarded, that the appropriate financial and other controls are maintained, and that the
Company’s business is conducted wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities
is the Board of Directors’ oversight of the various risks facing the Company. In this regard, the Board seeks to understand and oversee critical business
risks. The Board does not view risk in isolation. Risks are considered in virtually every business decision and as part of the Company’s business strategy.
The Board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for the Company
to be competitive on a global basis and to achieve its objectives.
While the Board oversees risk management, Company management is charged with managing risk. The Company has robust internal processes and a
strong internal control environment to identify and manage risks and to communicate with the Board. The Board and the Audit Committee monitor and
evaluate the effectiveness of the internal controls and the risk management program at least annually. Management communicates routinely with the Board,
Board committees and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed often do,
communicate directly with senior management.
The Board implements its risk oversight function both as a whole and through Committees. Much of the work is delegated to various Committees, which
meet regularly and report back to the full Board. All Committees play significant roles in carrying out the risk oversight function. In particular:
·
·
The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, accounting and legal matters. The
Audit Committee members meet separately with representatives of the independent auditing firm.
The Compensation Committee evaluates the risks and rewards associated with the Company’s compensation philosophy and programs. The
Compensation Committee reviews and approves compensation programs with features that mitigate risk without diminishing the incentive nature of
the compensation. Management discusses with the Compensation Committee the procedures that have been put in place to identify and mitigate
potential risks in compensation.
61
Independent Directors
In considering and making decisions as to the independence of each of the directors of the Company, the Board considered transactions and relationships
between the Company (and its subsidiaries) and each director (and each member of such director’s immediate family and any entity with which the director
or family member has an affiliation such that the director or family member may have a material direct or indirect interest in a transaction or relationship
with such entity). The Board has determined that James Cassano, Shane McMahon, Jerry Fan, Chao Yang and Kang Zhao are independent as defined in
applicable SEC and NASDAQ rules and regulations, and that each constitutes an “Independent Director” as defined in NASDAQ Listing Rule 5605.
Audit Committee
Our Audit Committee consists of James Cassano, Jerry Fan and Steven Fadem with Mr. Cassano acting as Chair. The Audit Committee oversees our
accounting and financial reporting processes and the audits of the financial statements of our company. Mr. Cassano serves as our Audit Committee
financial experts as that term is defined by the applicable SEC rules. The Audit Committee is responsible for, among other things:
·
·
·
·
·
·
·
·
selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;
reviewing with our independent auditors any audit problems or difficulties and management’s response;
reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act of 1933, as
amended;
discussing the annual audited financial statements with management and our independent auditors;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control
deficiencies;
annually reviewing and reassessing the adequacy of our Audit Committee charter;
overseeing the work of our independent auditor, including resolution of disagreements between management and the independent auditor regarding
financial reporting;
reporting regularly to and reviewing with the full Board any issues that arise with respect to the quality or integrity of the Company’s financial
statements, the performance and independence of the independent auditors and any other matters that the Audit Committee deems appropriate or is
requested to review for the benefit of the Board.
The Audit Committee may engage independent counsel and such other advisors it deems necessary to carry out its responsibilities and powers, and, if such
counsel or other advisors are engaged, shall determine the compensation or fees payable to such counsel or other advisors. The Audit Committee may form
and delegate authority to subcommittees consisting of one or more of its members as the Audit Committee deems appropriate to carry out its
responsibilities and exercise its powers.
Compensation Committee
Our Compensation Committee consists of Steven Fadem and James Cassano with Mr. Fadem acting as Chair. Our Compensation Committee assists the
Board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to
our directors and executive officers. The Compensation Committee is responsible for, among other things:
·
·
·
·
reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our
chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation;
reviewing and making recommendations to the Board with regard to the compensation of other executive officers;
reviewing and making recommendations to the Board with respect to the compensation of our directors; and
reviewing and making recommendations to the Board regarding all incentive-based compensation plans and equity-based plans.
The Compensation Committee has sole authority to retain and terminate any consulting firm or other outside advisor to assist the committee in the
evaluation of director, chief executive officer or senior executive compensation and other compensation-related matters, including sole authority to approve
the firms’ fees and other retention terms. The Compensation Committee may also form and delegate authority to subcommittees consisting of one or more
members of the Compensation Committee.
62
Governance and Nominating Committee
Our Governance and Nominating Committee consists of Jerry Fan and Harry Edelson with Harry Edelson acting as Chair. The Governance and
Nominating Committee assists the Board of Directors in identifying individuals qualified to become our directors and in determining the composition of the
Board and its committees. The Governance and Nominating Committee is responsible for, among other things:
·
·
·
identifying and recommending to the Board nominees for election or re-election to the Board, or for appointment to fill any vacancy;
selecting directors for appointment to committees of the Board; and
overseeing annual evaluation of the Board and its committees for the prior fiscal year
The Governance and Nominating Committee has sole authority to retain and terminate any search firm that is to be used by the Company to assist in
identifying director candidates, including sole authority to approve the firms’ fees and other retention terms. The Governance and Nominating Committee
may also form and delegate authority to subcommittees consisting of one or more members of the Governance and Nominating Committee.
Director Qualifications
Directors are responsible for overseeing the Company’s business consistent with their fiduciary duty to shareholders. This significant responsibility requires
highly-skilled individuals with various qualities, attributes and professional experience. The Board believes that there are general requirements for service
on the Company’s Board of Directors that are applicable to all directors and that there are other skills and experience that should be represented on the
Board as a whole but not necessarily by each director. The Board and the Governance and Nominating Committee of the Board consider the qualifications
of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.
Qualifications for All Directors
In its assessment of each potential director candidate, including those recommended by shareholders, the Governance and Nominating Committee considers
the nominee’s judgment, integrity, experience, independence, understanding of the Company’s business or other related industries and such other factors
the Governance and Nominating Committee determines are pertinent in light of the current needs of the Board. The Governance and Nominating
Committee also takes into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities to the Company.
The Board and the Governance and Nominating Committee require that each director be a recognized person of high integrity with a proven record of
success in his or her field. Each director must demonstrate innovative thinking, familiarity with and respect for corporate governance requirements and
practices, an appreciation of multiple cultures and a commitment to sustainability and to dealing responsibly with social issues. In addition to the
qualifications required of all directors, the Board assesses intangible qualities including the individual’s ability to ask difficult questions and,
simultaneously, to work collegially.
The Board does not have a specific diversity policy, but considers diversity of race, ethnicity, gender, age, cultural background and professional experiences
in evaluating candidates for Board membership. Diversity is important because a variety of points of view contribute to a more effective decision-making
process.
Qualifications, Attributes, Skills and Experience to be represented on the Board as a Whole
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of
the Company’s current needs and business priorities. The Company’s services are performed in areas of future growth located outside of the United States.
Accordingly, the Board believes that international experience or specific knowledge of key geographic growth areas and diversity of professional
experiences should be represented on the Board. In addition, the Company’s business is multifaceted and involves complex financial transactions.
Therefore, the Board believes that the Board should include some directors with a high level of financial literacy and some directors who possess relevant
business experience as a Chief Executive Officer or President. Our business involves complex technologies in a highly specialized industry. Therefore, the
Board believes that extensive knowledge of the Company’s business and industry should be represented on the Board.
63
Summary of Qualifications of Current Directors
Set forth below is a narrative disclosure that summarizes some of the specific qualifications, attributes, skills and experiences of our directors. For more
detailed information, please refer to the biographical information for each director set forth above.
Bruno Wu. Dr. Wu is a leading media investor and entrepreneur with experience in helping Chinese media companies achieve business transformation,
operational and financial performance improvement and sustainable business growth. In light of our business and structure, Dr. Wu’s extensive executive,
industry and management experience led us to the conclusion that he should serve as a director of our Company.
Shane McMahon. Mr. McMahon has significant marketing and promotion experience and has been instrumental in exploiting pay-per-view programming
on a global basis. In light of our business and structure, Mr. McMahon’s extensive executive and industry experience led us to the conclusion that he should
serve as a director of our Company.
Alfred Poor. Mr. Poor is a client-focused and profitability-driven management executive with a track record of success at both rapidly-growing technology
companies and large, multi-national, organizations. In light of our business and structure, Mr. Poor’s extensive executive experience and his educational
background led us to the conclusion that he should serve as a director of our Company.
James S. Cassano. Mr. Cassano has substantial experience as a senior executive in management consulting, corporate development, mergers and
acquisitions and start up enterprises across a numerous different industries. In light of our business and structure, Mr. Cassano’s extensive executive
experience and his educational background led us to the conclusion that he should serve as a director of our Company.
John Wallace. Mr. Wallace as a senior executive in the US financial markets. Mr. Wallace was a senior executive & officer of the Philadelphia Stock
Exchange ("PHLX") holding variously the positions of Chairman, Vice Chairman and Chief Executive Officer of the exchange. In light of our business and
structure, Mr. Wallace’s extensive executive experience and his educational background led us to the conclusion that he should serve as a director of our
Company.
Steven Fadem. Mr. Fadem is an innovative executive and thought leader with substantial experience building media, entertainment, technology,
information services, big data and cybersecurity companies with experience in the digital transformation and turnaround of traditional businesses. In light
of our business and structure, Mr. Fadem’s extensive executive experience and his educational background led us to the conclusion that he should serve as a
director of our Company.
Harry Edelson. Mr. Edelson is the Founder of Edelson Technology Partners, and President since 1980 of Edelson Technology, Inc., a company involved in
consulting, fundraising, M&A, and investments. In light of our business and structure, Mr. Edelson’s extensive executive experience and his educational
background led us to the conclusion that he should serve as a director of our Company.
64
Jerry Fan. Mr. Fan has more than 20 years of experience in top management positions in China and the Asia Pacific region, working for several
multinational technology companies. He also has served in senior management positions of several U.S. public companies. In light of our business and
structure, Mr. Fan’s extensive industry and business experience and his educational background led us to the conclusion that he should serve as a director of
our Company.
Chao Yang. Mr. Yang has significant senior management experience, including service as chairman, president and director. In light of our business and
structure, Mr. Yang’s extensive executive experience and his educational background led us to the conclusion that he should serve as a director of our
Company.
Family Relationships
There are no family relationships among our directors and officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
·
·
·
·
·
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of
which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or
state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities,
futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed,
suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state
securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to,
a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or
removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
65
·
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as
defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity
Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or
persons associated with a member.
Except as set forth in our discussion below in Item 13 - Certain Relationships and Related Transactions, and Director Independence - Transactions with
Related Persons, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors,
executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Section 16(A) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial
ownership of the common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based solely
on our review of copies of such reports filed with the SEC by and representations of our directors and executive officers, except for the Form 3 Initial
Statement of Beneficial Ownership to be filed by our directors Alf Poor, and Kang Zhao, and the Form 4 in connection with grants of stock options to be
filed by our directors Jim Cassano, Shane McMahon, Jin Shi and Jerry Fan.
Code of Ethics
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers, employees and advisors, which became effective
in January 2015. We have posted a copy of our code of business conduct and ethics on our website at www.ideanomics.com.
66
ITEM 11.
EXECUTIVE COMPENSATION
Summary Compensation Table (2019 and 2018)
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons (our “named
executive officers”) for services rendered in all capacities during the noted periods.
Name and Principal Position
Bruno Wu (Former Chief Executive Officer)(1)
Alf Poor (Chief Executive Officer )
Conor McCarthy (Chief Financial Officer)(2)
Carla Oiong Zhou (Chief Revenue Officer)
Year
2018
2019
2018
2019
2018
2019
2018
2019
Salary
($)
312,500
250,000
133,333
300,000
-
116,667
250,000
250,000
Bonus
($)
125,000
0
-
50,000
-
50,000
-
-
Stock
awards
(3)
($)
415,332
-
-
-
-
-
Option
awards
(#)
-
2,500,000
-
2,000,000
-
1,500,000
1,000,000
Nonequity
incentive
plan
compensation
($)
Nonqualified
deferred
compensation
earnings
($)
All other
compensation
($)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
($)
852,832
250,000
133,333
350,000
-
166,667
250,000
250,000
(1) On November 12, 2018 , Bruno Wu resigned from his position as a Chief Executive Officer of the Company. On February 22, 2019 Bruno Wu rejoined
the Company as Executive Chairman
(2) Mr.McCarthy joined The Company on September 9, 2019, the salary represents a prorated amount for the year.
(3) Reflects the aggregate grant date fair value of option or restricted stock units determined in accordance with FASB ASC Topic 718.
67
Employment Agreements
Alfred Poor
Employment Agreement
Effective on August 1st, 2018, we entered into employment agreement with Mr. Poor for a term of 1 year pursuant to which Mr. Poor will receive an annual
base salary of $200,000 and will be entitled to participate in all employment benefit plan and policies of the Company generally available. Effective Feb
15, 2019, the Board appointed Mr. Poor as the CEO. Mr. Poor will receive an annual base salary of $300,000. If the Company achieves two consecutive
quarters in profits from operations, the base salary shall immediately be raised to $400,000. Mr. Poor will be entitled to stock options up to 2,000,000
shares.
68
We have not provided retirement benefits (other than a state pension scheme in which all of our employees in China participate) or change of control
benefits to our named executive officers.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth the equity awards of our named executive officers outstanding at December 31, 2019.
Option awards
Name
Bruno Wu
Alf Poor
Conor McCarthy (1)
Carla Qiong Zhou
Number of
securities
underlying
unexercised
options
(#) exercisable
1,041,666
Number of
securities
underlying
unexercised
options
(#)
unexercisable
1,458,334
833,333
416,666
1,166,667
1,500,000
583,334
Equity
incentive
plan awards:
Number
of
securities
underlying
unexercised
unearned
options
(#)
-
-
-
-
69
Option
exercise
price
($)
1.98
Option
expiration
date
February 20, 2029
Number of
shares or
units of
stock that
have not
vested
(#)
1,041,666
Market value
of shares of
units of stock
that have not
vested
($)
739,582
$
1.98
1.97
1.98
February 20, 2029
September 20, 2029
February 20, 2029
833,333
1,500,000
416,666
591,666
1,065,000
295,832
Compensation of Directors
The following table sets forth certain information concerning the compensation paid to our directors for services rendered to us during the fiscal year ended
December 31, 2019.
Name
Bruno Wu
Shane McMahon
Alf Poor
James Cassano
Jerry Fan
John Wallace
Steven Fadem
Harry Edelson
Jin Shi
Kang Zhao
Chao Yang
Richard Frankel (3)
Brett McGonegal (4)
Fees
earned or
paid in
cash
($)
250,000
36,000
300,000
81,504
36,000
-
19,894
13,473
49,500
-
-
18,000
-
Stock
awards(1)
($)
Option
awards(2)
(#)
- 2,500,000
-
-
- 2,000,000
-
-
250,000
500,000
250,000
-
-
-
-
-
80,501
-
-
-
-
80,501
-
-
-
-
Non-equity
incentive
plan
compensation
($)
Nonqualified
deferred
compensation
earnings
($)
All other
compensation
($)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
50,000
-
-
-
-
-
-
-
-
-
Total
($)
250,000
36,000
350,000
212,005
36,000
-
19,894
13,473
130,001
-
-
18,000
-
(1) Reflects the aggregate grant date fair value of restricted stock determined in accordance with FASB ASC Topic 718.
(2) Reflects the number of stock options grant in 2019.
(3) Mr. Frankel resigned from the Board on July 2, 2019.
(4) Mr. McGonegal resigned from the Board on February 20, 2019.
70
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership of our common stock as of March 15, 2020 (i) by each person who is known by
us to beneficially own more than 5% of our common stock; (ii) by each of our executive officers and directors as a group; and (iii) by all of our executive
officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of Ideanomics, Inc., at No.4
Drive-in Movie Theater Park, No. 21 Liangmaqiao Road, Chaoyang District, Beijing, 100125, China.
71
Common Stock(2)
Office, If
Any
Shares
% of
Class
Series A Preferred Stock (3)
% of
Class
Shares
Combined Common Stock and
Series A(4)
Votes
Percentage
Chairman
Vice Chairman
Director
Director
Director
Director (Former)
Director
CFO (Former)
24,394,044
6,090,589(6)
258,993(7)
340,000(14)
159,569(9)
86,923(11)
26,923(12)
60,000(10)
15.2%
3.8%
*
*
*
*
*
*
7,000,000
0
0
0
0
0
0
*
*
*
*
*
*
33,682,374
6,101,767
296,990
340,000
159,569
86,923
26,923
60,000
21.0%
3.8%
*%
*
*
*
*
31,417,041
19.6%
40,754,546
25.4%
Name and
Address of
Beneficial
Owner
Directors and Officers
Bruno Wu
Shane McMahon
James Cassano
John Wallace
Jerry Fan
Kang Zhao
Chao Yang
Federico Tovar
All officers and directors
as a group (8 persons
named above)
5% Securities Holders
*
Less than 1%.
72
(1) Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to
securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to our
securities. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator.
(2) After this offering a total of 160,301,387 shares of our Common Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of
February 5, 2020.
(3) Based on 7,000,000 shares of Series A Preferred Stock issued and outstanding as of March 25, 2019, with the holders thereof being entitled to cast ten
(10) votes for every share of Common Stock that is issuable upon conversion of a share of Series A Preferred Stock (each share of Series A Preferred
Stock is convertible into 0.1333333 shares of Common Stock), or a total of 9,333,330 votes.
(4) Represents total voting power with respect to all shares of our Common Stock and Series A Preferred Stock.
(5) Includes (i) 7,000,000 shares of Series A Preferred Stock, (ii) 22,584,038 shares of Common Stock, (iii) 174,536 shares of Common Stock are
beneficially owned directly by Bruno Wu and 189,091 shares of Common Stock are beneficially owned by Lan Yang, the spouse of Bruno Wu.
7,000,000 shares of Series A Preferred Stock are beneficially owned directly by Wecast Media Investment Management Limited, a Hong Kong
Company (“WMIML”) a wholly–owned subsidiary of Shanghai Sun Seven Stars Cultural Development Limited, a PRC company (“SSSSCD”) a
wholly– owned subsidiary of Tianjin Sun Seven Stars Culture Development Limited, a PRC company (“TSSSCD”) a wholly–owned subsidiary of
Beijing Sun Seven Stars Culture Development Limited, a PRC company (“SSS”) a directly controlled subsidiary of Tianjin Sun Seven Stars
Partnership Management Co., Ltd., a PRC company (“TSSS”). Lan Yang, who is the direct controlling shareholder and the Chairperson of TSSS, is the
spouse of the Company’s director Bruno Wu, who serves as the Chairman, Chief Executive Officer and as a director of SSS. 20,584,038 shares of
Common Stock are beneficially owned directly by Sun Seven Stars Investment Group Limited, a British Virgin Islands Company (“SSSMG”) a
wholly-owned entity of Lan Yang. Dr. Wu disclaims beneficial ownership of 1,421,052 shares of common stock owned by Tiger Sports- BDCG,
however, Dr. Wu has the right to vote such shares on behalf of Tiger Sports- BDCG.
(6) Includes (i) 3,081,462 shares of Common Stock, (ii) 533,333 shares of Common Stock underlying options exercisable within 60 days at $3.00 per
share, (iii) 40,000 shares of Common Stock underlying options exercisable within 60 days at $4.50 per share; (iv) 166,666 shares of Common Stock
underlying options exercisable within 60 days at $2.00 per share, (v) 75,800 shares of Common Stock underlying options exercisable within 60 days at
$5.57 per share, and (vi) 91,411 vested restricted shares units. In addition, Mr. McMahon’s shares of Common Stock includes 2,101,917 shares of
Common Stock, issuable within 60 days, upon conversion of a promissory note which is convertible into Common Stock at a conversion price of
$1.50, until December 31, 2019.
(7) Includes (i) 133,963 shares of Common Stock, (ii)13,333 shares underlying options exercisable within 60 days at $2.00 per share, (iii) 8,974 shares
underlying options exercisable within 60 days at $2.91 per share, (iv)75,800 shares underlying options exercisable within 60 days at $5.57 and (v)
26,923 vested restricted shares units.
(8) Includes (i) 123,963 shares of Common Stock, (ii)75,800 shares underlying options exercisable within 60 days at $5.57 and (iii) 26,923 vested
restricted shares units.
(9) Includes (i) 83,769 shares of Common Stock, (ii)75,800 shares underlying options exercisable within 60 days at $5.57 and (iii) vested 26,923 restricted
shares units.
(10) Includes (i) 60,000 shares of Common Stock.
(11) Includes (i) 60,000 shares of Common Stock, (ii) vested 26,923 restricted shares units.
(12) Includes (i) vested 26,923 restricted shares units.
(13) Includes (i) 70,000 shares of Common Stock.
(14) Includes (i) 340,000 shares of Common Stock
73
Changes in Control
There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a
change in control of the Company.
Securities Authorized for Issuance under Equity Compensation Plans
The following table includes the information as of December 31, 2019 for each category of our equity compensation plan:
Plan category
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders
Total
Number of securities remaining
Number of securities to Weighted-average available for future issuance
under equity compensation
be issued upon exercise
plans (excluding securities
of outstanding options outstanding options
reflected in column (a)) (c)
exercise price of
and rights (b)
and rights (a)
1,706,431 $
-
1,706,431 $
3.28
-
3.28
27,635,499
-
27,635,499
(1) On August 3, 2018, our Board of Directors approved and on August 28, 2018 our shareholders approved the Ideanomics Amended and Restated 2010
Equity Incentive Plan (the “Plan”) to increase the number of shares authorized for issuance under the Plan to 31,500,000 pursuant to which incentive
stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares
may be granted to employees, directors and consultants of the Company and its subsidiaries.
74
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review and Approval of Related Party Transactions
We have adopted a written policy with respect to the review, approval and ratification of related person transactions. The Audit Committee has primary
responsibility for reviewing all related party transactions involving the Company’s directors, officers and directors’ and officers’ immediate family
members. The Board may determine to permit or prohibit the Related Party Transaction. For any ongoing relationships, the Board shall annually review
and assess the relationships with the Related Party and whether the Related Party Transaction should continue.
Under the policy, a “related party transaction” means any transaction directly or indirectly involving any Related Party that would need to be disclosed
under Item 404 of Regulation S-K. Under Item 404, the Company is required to disclose any transaction occurring since the beginning of the Company’s
last fiscal year, or any currently proposed transaction, in which the Company was or is a participant and the amount involved exceeds $120,000, and in
which any related party had or will have a direct or indirect material interest. “Related Party Transaction” also includes any material amendment or
modification to an existing Related Party Transaction. For the purposes of this policy, a “Related Party” means (A) a director, including any director
nominee, (B) an executive officer; (C) a person known by the Company to be the beneficial owner of more than 5% of the Company’s common stock; or
(D) a person known by the Company to be an immediate family member of any of the foregoing. “Immediate family member” means a child, stepchild,
parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such director, executive
officer, nominee for director, or beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive
officer, nominee for director, or beneficial owner.
The following is a summary of transactions since the beginning of the 2018 fiscal year, or any currently proposed transaction, in which we were or are to be
a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last
two completed years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under Item
11—“Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the
transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Related Party Transactions with Bruno Wu, Chairman
On November 25, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal
amount of $2.5 million. The convertible promissory note bears interest at a rate of 4.0%, matures on November 25, 2021, and is convertible into the shares
of the Company’s common stock at a conversion price of $1.25 per share anytime at the option of SSSIG. As of December 31, 2019, the Company received
$0.25 million from SSSIG.
On February 8, 2019, the Company entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal
amount of $2.5 million. The convertible promissory note bears interest at a rate of 4.0%, was scheduled to mature on February 8, 2020, and is convertible
into shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of SSSIG. The Company is in the process of
negotiating an extended due date, and believes it has the ability to do so. As of December 31, 2019, the Company received $1.3 million from SSSIG. The
Company has not received the remaining $1.2 million as of the date of this report. For the year ended December 31, 2019, the Company recorded interest
expense of $48,357 related to the Note. The Company has not paid the interest yet.
75
In connection with our acquisition with Grapevine on September 4, 2018, Fomalhaut Limited (“Fomalhaut”), a British Virgin Islands company and an
affiliate of Bruno Wu (“Dr. Wu”), the Chairman of the Company, is the non-controlling equity holder of 34.35% in Grapevine (the “Fomalhaut Interest”).
Fomalhaut entered into an option agreement, effective as of August 31, 2018 (the “Option Agreement”), with the Company pursuant to which the Company
provided Fomalhaut with the option to sell the Fomalhaut Interest to the Company. In May 2019, the Company entered into two amendments to the Option
Agreement. The aggregate exercise price for the Option was amended to the greater of: (1) fair market value of the Fomalhaut Interest in Grapevine as of
the close of business on the date preceding the date upon which the option is exercised; and (2) $1.84 per share of the Company’s common stock. It was
also agreed that the full amount of the exercise price shall be paid in the form of common stock of the Company. In June 2019, the Company issued 0.6
million shares in exchange for a 34.3% ownership in Grapevine as a result of the exercise of the Option.
On September 7, 2018, the Company entered into an agreement to purchase FinTalk Assets with Sun Seven Star International Limited, a Hong Kong
company and an affiliate of Dr. Wu. FinTalk Assets are the rights, titles and interest in a secure mobile financial information, social, and messaging
platform that has been designed for streamlining financial-based communication for professional and retail users. The purchase price for Fintalk Assets is
$7.0 million payable with $1.0 million in cash and shares of the Company’s common stock with a fair market value of $6.0 million. The Company paid
$1.0 million in October 2018 and recorded in prepaid expense because the transaction had not closed. The purchase price was later amended to $6.4
million, payable with $1.0 million in cash and shares of the Company’s common stock with a value of $5.4 million. The Company issued 2.9 million
common shares in June 2019 and completed the transaction.
In May 2019, the Company determined to sell the Red Rock business and entered into an agreement with Redrock Capital Group Limited, an affiliate of
Dr. Wu, to sell its entire interest in Red Rock for consideration of $0.7 million. The Company decided to sell Red Rock primarily because it has incurred
operating losses and its business is no longer needed based on the Company’s business plan. The transaction was completed in July 2019 and the Company
recorded a disposal gain of $0.6 million recorded in “Loss on disposal of subsidiaries, net” in the consolidated statements of operations.
Other Related Party Transactions
On May 10, 2012, at the Company’s request, our then Chairman and Chief Executive Officer and current Vice Chairman, Shane McMahon, made a loan to
the Company in the amount of $3,000,000. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in the aggregate principal
amount of $3,000,000 at an annual interest rate of 4% (the “McMahon Note”). Effective on January 31, 2014, the Company and Mr. McMahon entered into
an amendment to the McMahon Note pursuant to which the McMahon Note will be, at Mr. McMahon’s option, payable on demand or convertible on
demand into shares of Series E Preferred Stock at a conversion price of $1.75, until December 31, 2015. On December 30, 2014, the Company and Mr.
McMahon entered into an amendment extending the maturity date of the McMahon Note to December 31, 2016. On December 31, 2016, the Company and
Mr. McMahon entered into an amendment pursuant to which the McMahon Note will be, at Mr. McMahon’s option, payable on demand or convertible on
demand into shares of the Company’s Series E Preferred Stock, provided that the McMahon Note will no longer be convertible into Series E Preferred
Stock upon the conversion of the Series E Preferred stock owned by C Media Limited into the Company’s Common Stock (pursuant to which all Series E
Preferred Stock will be automatically converted) but then convertible only into Common Stock at a conversion price of $1.50, until December 31, 2018. C
Media Limited converted all Series E Preferred Stock owned by it to Common Stock on March 8, 2017, and as a result, the McMahon Note is currently
convertible solely into the Company’s Common Stock. the Company and Mr. McMahon entered into an amendment extending the maturity date of the
McMahon Note to December 31, 2019 On November 9, 2017, then further extending the maturity date to December 31, 2020 on May 7, 2019.
76
Except as set forth in our discussion above, none of our directors or executive officers has been involved in any transactions with us or any of our directors,
executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Promoters and Certain Control Persons
We did not have any promoters at any time during the past five fiscal years.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Auditor’s Fees
The following is a summary of the fees billed to the Company by its principal accountants for professional services rendered for the years ended December
31, 2019 and 2018:
Audit Fees:
BF Borgers (BFB)
TOTAL
Year Ended December 31,
2019
2018
$
$
856,090 $
856,090 $
500,000
500,000
* “Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements and the reviews of
the financial statements included in our Forms 10-Q and for any other services that were normally provided in connection with our statutory and regulatory
filings or engagements.
On February 16, 2018, the Audit Committee approved the change in the Company’s independent registered public accounting firm from Grant Thornton to
BFB.
Pre-Approval Policies and Procedures
Under the Sarbanes-Oxley Act, all audit and non-audit services performed by our auditors must be approved in advance by our Audit Committee to assure
that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our Audit Committee pre-approved the
audit services performed by BFB for our consolidated financial statements as of and for the year ended December 31, 2019 and 2018.
77
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Schedules
PART IV
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are
either not required, not applicable, or the information is otherwise included.
Exhibit List
See the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K, which is incorporated by reference here.
ITEM 16.
FORM 10-K SUMMARY
None.
78
Exhibit Index
Exhibit
No.
Description
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.2
4.4
4.5†
4.6†
4.7†
4.8
Articles of Incorporation of the Company, as amended to date [incorporated by reference to Exhibit 3.1 to the Company’s Annual Report
on Form 10-K (File No. 001-35561) filed on March 30, 2012].
Second Amended and Restated Bylaws, adopted on January 31, 2014 [incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K (File No. 001-35561) filed on February 6, 2014].
Amendment No. 1 to the Second Amended and Restated Bylaws, adopted on March 26, 2015 [incorporated by reference to Exhibit 3.3 to
the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2015].
Amendment No. 2 to the Second Amended and Restated Bylaws, adopted on November 20, 2015. [incorporated by reference to Exhibit
3.3 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on November 24, 2015]
Certificate of Designation of Series A Preferred Stock [incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on
Form 10-Q (File No. 001-35561) filed on August 23, 2010].
Certificate of Designation of Series C Preferred Stock [incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form
8-K (File No. 001-35561) filed on August 31, 2012].
Certificate of Designation of Series D 4% Convertible Preferred Stock [incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K (File No. 001-35561) filed on July 11, 2013].
Certificate of Designation of Series E Convertible Preferred Stock [incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K (File No. 001-35561) filed on February 6, 2014].
Form of Warrant issued on July 30, 2010 to Shane McMahon [incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report
on Form 10-Q (File No. 001-35561) filed August 23, 2010].
Form of Warrant issued pursuant to the Securities Purchase Agreement, dated August 30, 2012 [incorporated by reference to exhibit 4.1 to
the Company’s Current Report on Form 8-K (File No. 001-35561) filed on August 31, 2012].
YOU On Demand Holdings, Inc. 2010 Equity Incentive Plan [incorporated by reference to Exhibit 4.3 to the Company’s Registration
Statement on Form S-8 (File No. 001-35561) filed on June 16, 2015]
Forms of Stock Option Agreement [incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (File
No. 001-35561) filed on June 16, 2015]
Form of Restricted Stock Grant Agreement [incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-
8 (File No. 001-35561) filed on June 16, 2015]
Warrant issued on December 21, 2015 to Beijing Sun Seven Stars Culture Development Limited [incorporated by reference to Exhibit 4.8
to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.1
Management Services Agreement, dated March 9, 2010, by and between Sinotop Beijing and Sinotop Hong Kong [incorporated by
reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 31, 2014].
10.2†
Employment Agreement, dated January 31, 2014 between the Company and Shane McMahon [incorporated by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on February 6, 2014].
10.3
Form of Securities Purchase Agreement, dated August 30, 2012, by and among the Company, the Investors and Chardan Capital
Management [incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on
August 31, 2012].
79
10.4
10.5
10.6
10.7
10.8
10.9
Form of Registration Rights Agreement, dated August 30, 2012, by and between the Company and the Investors [incorporated by
reference to exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on August 31, 2012].
Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon [incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on May 15, 2012].
Amendment No. 1 to Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon [incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on May 21, 2012].
Amendment No. 2 to Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon [incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on October 23, 2012].
Amendment No. 3 to Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon [incorporated by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on May 15, 2013].
Amendment No. 4 to Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon [incorporated by reference
to Exhibit 10.6 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on February 6, 2014].
10.10
Amendment No. 5 to Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon [incorporated by reference
to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on January 2, 2015].
10.11
Amendment No. 6 to the Convertible Promissory Note, dated December 31, 2016 [incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 001-35561) filed on January 6, 2017].
10.12
Amendment No. 7 to the Convertible Promissory Note, dated November 9, 2017 [incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 10-Q (File No. 001-35561) filed on November 13, 2017].
10.13
Waiver, dated November 4, 2013, between Shane McMahon and the Company [incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K (File No. 001-35561) filed on November 8, 2013].
10.14
Form of Series E Preferred Stock Purchase Agreement, dated as of January 31, 2014, between the Company and certain investors
[incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on February 6,
2014].
10.15
Voting Agreement, dated as of November 23, 2015, by and between the Company and certain stockholders [incorporated by reference to
Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on November 24, 2015].
10.16
10.17
Amended and Restated Securities Purchase Agreement, dated as of December 21, 2015, between the Company and Beijing Sun Seven
Stars Culture Development Limited [incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K (File No.
001-35561) filed on March 30, 2016].
Content License Agreement, dated as of December 21, 2015, by and between the Company and Beijing Sun Seven Stars Culture
Development Limited [incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K (File No. 001-35561)
filed on March 30, 2016].
80
10.18
Amended and Restated Share Purchase Agreement, dated as of December 21, 2015, by and between the Company and Tianjin Enternet
Network Technology Limited [incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K (File No. 001-
35561) filed on March 30, 2016].
10.19
Convertible Promissory Note issued to Beijing Sun Seven Stars Culture Development Limited, dated December 21, 2015 [incorporated by
reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.20†
Employment Agreement, dated as of March 28, 2016 by and between the Company and Mei Chen [incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on March 30, 2016]
10.21†
Employment Agreement, dated as of March 28, 2016 by and between the Company and Bing Yang [incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K (File No. 001-35561) filed on March 30, 2016]
10.22
Termination Agreement among Sinotop Beijing, YOD WFOE and Zhang Yan, dated January 22, 2016 [incorporated by reference to
Exhibit 10.33 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.23
Call Option Agreement among YOD WFOE, Sinotop Beijing, Bing Wu and Yun Zhu, dated as of January 25, 2016 [incorporated by
reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.24
Equity Pledge Agreement among YOD WFOE, Sinotop Beijing, Bing Wu and Yun Zhu, dated as of January 25, 2016 [incorporated by
reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.25
Power of Attorney agreements among YOD WFOE, Sinotop Beijing, Bing Wu and Yun Zhu, dated as of January 25, 2016 [incorporated
by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.26
Technical Services Agreement among YOD WFOE and Sinotop Beijing, dated as of January 25, 2016 [incorporated by reference to
Exhibit 10.37 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.27
Spousal Consents, dated January 25, 2016 [incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K
(File No. 001-35561) filed on March 30, 2016].
10.28
Letter of Indemnification among YOD WFOE, Bing Wu and Yun Zhu, dated as of January 25, 2016 [incorporated by reference to Exhibit
10.39 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2016].
10.29
Equity Pledge Agreement among YOD WFOE, Lan Yang and Yun Zhu, dated April 5, 2016 [incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on May 16, 2016].
10.30
10.31
10.32
Call Option Agreement among YOD WFOE, Tianjin Sevenstarflix Network Technology Limited, Lan Yang and Yun Zhu, dated April 5,
2016 [incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on May 16,
2016].
Amendment No. 1 to Convertible Promissory Note issued to Beijing Sun Seven Stars Culture Development Limited, dated May 12, 2016
[incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on May 16,
2016].
Joint Venture Agreement by and between YOU on Demand (Asia) Limited, and Megtron Hongkong Investment Group Co., Limited,
dated May 30, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561)
filed on August 15, 2016].
81
10.33
Common Stock Purchase Agreement by and between the Company and Seven Stars Works Co., Ltd., dated July 6, 2016 [incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on August 15, 2016].
10.34
10.35
Common Stock Purchase Agreement by and between the Company and Harvest Alternative Investment Opportunities SPC, dated August
11, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on
August 15, 2016].
Common Stock Purchase Agreement by and between the Company and Sun Seven Stars Hong Kong Cultural Development Limited,
dated November 11, 2016 [incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K (File No. 001-
35561) filed on March 31, 2017].
10.36
Securities Purchase Agreement by and between the Company and BT Capital Global Limited, dated January 30, 2017 [incorporated by
reference to Exhibit 10.54 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 31, 2017].
10.37
Convertible Promissory Note issued BT Capital Global Limited, dated January 30, 2017 [incorporated by reference to Exhibit 10.55 to the
Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 31, 2017].
10.38
10.39
10.40
Securities Purchase Agreement by and between the Company, BT Capital Global Limited and Sun Seven Stars Media Group Limited,
dated January 31, 2017 [incorporated by reference to Exhibit 10.56 to the Company’s Annual Report on Form 10-K (File No. 001-35561)
filed on March 31, 2017].
English translation of Equity Agreement, dated March 31, 2017, by and between Shanghai Blue World Investment Management
Consulting Limited and Shanghai Pulse Consulting Company Limited [incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-35561) filed on May 15, 2017].
Form of Subscription Agreement, dated May 19, 2017, by and between Company and its certain investors, including officers, directors
and other affiliates of the Company [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.
001-35561) filed on August 14, 2017].
10.41
Securities Purchase Agreement, dated June 9, 2017, by and between the Company and Redrock Capital Group Limited [incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on August 14, 2017].
10.42
Securities Purchase Agreement, dated June 30, 2017, by and between the Company and BT Capital Global Limited [incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on August 14, 2017].
10.43
Form of Stockholder Proxy and Lock-Up Agreement, by and between Ideanomic, Inc., Bruno Wu and certain stockholders [incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 13, 2017].
10.44
10.45
10.46
License Agreement, dated October 17, 2017, by and between Wecast Services Group Limited and Guangxi Dragon Coin Network
Technology Co., Ltd [incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561)
filed on November 13, 2017].
Securities Purchase Agreement, dated October 23, 2017, by and between Ideanomic, Inc., and Hong Kong Guo Yuan Capital Holdings
Limited [incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on
November 13, 2017].
Amendment to Securities Purchase Agreement dated of June 30, 2017, by and between the Company and BT Capital Global Limited
[incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30,
2018].
10.47
Securities Purchase Agreement, dated December 7, 2017, by and between Ideanomic, Inc., and Tiger Sports Media Limited [incorporated
by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
82
10.48
10.49
10.50
10.51
10.52
Securities Purchase Agreement, dated December 7, 2017, by and among Ideanomic, Inc., Tianjin Sun Seven Stars Culture Development
Co. Ltd., Beijing Nanbei Huijin Investment Co., Ltd. And Shanghai Guangming Investment Management Limited [incorporated by
reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
Stock Purchase Agreement, dated December 18, 2017, by and among Ideanomic, Inc., Certain existing DBOT shareholders, and Delaware
Board of Trade Holdings, Inc. (“DBOT”) [incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K
(File No. 001-35561) filed on March 30, 2018]
First Addendum to Stock Purchase Agreement, dated December 18, 2017, by and among Ideanomic, Inc., Certain existing DBOT
shareholders, and Delaware Board of Trade Holdings, Inc. [incorporated by reference to Exhibit 10.49 to the Company’s Annual Report
on Form 10-K (File No. 001-35561) filed on March 30, 2018].
Second Addendum to Stock Purchase Agreement, dated December 18, 2017, by and among Ideanomic, Inc., Certain existing DBOT
shareholders, and Delaware Board of Trade Holdings, Inc. [incorporated by reference to Exhibit 10.50 to the Company’s Annual Report
on Form 10-K (File No. 001-35561) filed on March 30, 2018].
Stock Purchase Agreement, dated January 12, 2018, by and among Ideanomic, Inc., Certain existing DBOT shareholders, and Delaware
Board of Trade Holdings, Inc. [incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K (File No. 001-
35561) filed on March 30, 2018].
10.53
Amendment No. 1 to Convertible Promissory Note issued BT Capital Global Limited [incorporated by reference to Exhibit 10.52 to the
Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
10.54
Stock Purchase Agreement, dated February 28, 2018, by and among Ideanomic, Inc., Certain existing DBOT shareholders, and Delaware
Board of Trade Holdings, Inc. [incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K (File No. 001-
35561) filed on March 30, 2018].
10.55†
Employment Agreement, dated March 14, 2017 between the Company and Mr. Simon Wang[incorporated by reference to Exhibit 10.54 to
the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
10.56†
Employment Agreement, dated November 1, 2017 between the Company and Mr. Robert Benya [incorporated by reference to Exhibit
10.55 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
10.57
Subscription Agreement, dated March 17, 2018, by and between Ideanomic, Inc., and GT Dollar Pte. Ltd. [incorporated by reference to
Exhibit 10.56 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
10.58
Form of Convertible Promissory Note issued to GT Dollar Pte, Ltd. In the amount of U.S. $10 million [incorporated by reference to
Exhibit 10.57 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
10.59
Form of Convertible Promissory Note issued to GT Dollar Pte, Ltd. In the amount of U.S. $4,933,121.80 [incorporated by reference to
Exhibit 10.58 to the Company’s Annual Report on Form 10-K (File No. 001-35561) filed on March 30, 2018].
10.60
Employment Agreement, dated as of June 1, 2018, by and between Ideanomics, Inc. and Mr. Federico Tovar [incorporated by reference to
Exhibit 10.1 to the Company’s Report on Form 8-K (File No. 001-35561) filed on June 7, 2018]
10.61
Purchase and Sale Agreement, dated July 11, 2018, by and between Seven Stars Cloud Group, Inc. and the State of Connecticut
[incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 14,
2018].
10.62
Assistance Agreement, dated July 11, 2018, y and between Seven Stars Cloud Group, Inc. and the State of Connecticut [incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 14, 2018].
10.63
10.64
Share Purchase & Option Agreement, dated July 24, 2018, by and between Seven Stars Cloud Group, Inc. and Star Thrive Group Limited
[incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 14,
2018].
Agreement and Plan of Merger, dated July 18, 2018, by and among Seven Stars Cloud Group, Inc., Grapevine Logic, Inc., GLI
Acquisition Corp., and Mr. Grant Deken, as the representative of the holders of capital stock of Grapevine Logic, Inc. [incorporated by
reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 14, 2018].
10.65
Stock Option Agreement, effective August 31,2018, by and among Seven Stars Cloud Group, Inc. and Formalhut Limited [incorporated
by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 14, 2018].
83
10.66
Employment Agreement, dated September 24, 2018, by and between Ideanomics, Inc. and Mr. Brett McGonegal [incorporated by
reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 14, 2018].
10.67
10.68
Amended and Restated Convertible Note Purchase Agreement, dated June 28, 2018, by and between Seven Stars Cloud Group, Inc. and
Advantech Capital Investment II Limited [incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q
(File No. 001-35561) filed on November 14, 2018].
Convertible Bond Agreement, dated June 28, 2018, by and between Seven Stars Cloud Group, Inc. and Advantech Capital Investment II
Limited [incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q (File No. 001-35561) filed on
November 14, 2018].
10.69
Amended and Restated 2010 Equity Incentive Plan, dated August 28, 2018 [incorporated by reference to Exhibit 10.9 to the Company’s
Quarterly Report on Form 10-Q (File No. 001-35561) filed on November 14, 2018].
10.70
10.71
10.72
Amended and Restated Subscription Agreement, dated June 21, 2018, by and between Seven Stars Cloud Group, Inc. and GT Dollar PTE
Ltd. [incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 8-K (File No. 001-35561) filed on August 20, 2018].
Registration Rights Agreement, dated June 28, 2018, by and between Seven Stars Cloud Group, Inc. and Advantech Capital Investment II
Limited [incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 8-K (File No. 001-35561) filed on August 20,
2018].
Supplementary Financial Advisory Agreement, dated December 24, 2018, by and among Ideanomics, Inc., Shenzhen National Transport
Service Co., Ltd. and Shanghai Blue Investment Management Consulting Co. Ltd [incorporated by reference to Exhibit 10.72 to the
Company’s Report on Form 10-K (File No. 001-35561) filed on April 1, 2019]
10.73
Financial Advisory Service Agreement, dated October 18, 2018, by and between Ideanomics, Inc. and Zhonjinhuifu Resources Co., Ltd.
[incorporated by reference to Exhibit 10.73 to the Company’s Report on Form 10-K (File No. 001-35561) filed on April 1, 2019]
10.74
Trade Finance Services Agreement, dated January 9, 2019, by and among the Company, Ningbo Free Trade Zone Cross-Border Supply
Chain Management and Settlement Technology Co., Ltd. [incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-
Q (File No. 001-35561) filed on March 31, 2019]
10.75
Asset Purchase Agreement, dated February 19, 2019, by and between the Company and Solid Opinion, Inc [incorporated by reference to
Exhibit 10.2 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.76
Registration Rights Agreement, dated February 19, 2019, by and between the Company and Solid Opinion, Inc. [incorporated by
reference to Exhibit 10.3 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.77
Convertible Note Purchase Agreement, dated February 22, 2019, by and between the Company and ID Venturas 7, LLC[incorporated by
reference to Exhibit 10.4 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.78
Convertible Note, dated February 22, 2019, by and between the Company and ID Venturas 7, LLC[incorporated by reference to Exhibit
10.5 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.79
Warrant, dated February 22, 2019, by and between the Company and ID Venturas 7, LLC [incorporated by reference to Exhibit 10.6 to the
Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
84
10.80
Registration Rights Agreement, dated February 22, 2019, by and between the Company and ID Venturas, LLC [incorporated by reference
to Exhibit 10.7 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.81
Acquisition Agreement, dated March 5, 2019, by and between the Company and Tree Motion Sdn. Bhd. [incorporated by reference to
Exhibit 10.8 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.82
Asset Purchase Agreement, March 14, 2019, by and between the Company and GT Dollar PTE Ltd [incorporated by reference to Exhibit
10.9 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.83
Employment Agreement, dated February 15, 2019, by and between the Company and Mr. Alfred Poor [incorporated by reference to
Exhibit 10.10 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.84
Termination Agreement, dated February 12, 2019 by and between the Company and Brett McGonegal [incorporated by reference to
Exhibit 10.11 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.85
Termination Agreement, dated February 12, 2019 by and between the Company and Evangelos Kalimtgis [incorporated by reference to
Exhibit 10.12 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.86
Termination Agreement, dated February 12, 2019 by and between the Company and Uwe Henke [incorporated by reference to Exhibit
10.13 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.87
GT Dollar Service Agreement, dated March 14, 2019 by and between the Company, Thai Setakij Insurance Plc and GT Dollar Ltd
[incorporated by reference to Exhibit 10.14 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on March 31, 2019]
10.88
Stock Purchase Agreement, dated May 3, 2019, by and between Redrock Capital Group Limited and Ideanomics, Inc. [incorporated by
reference to Exhibit 10.1 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on August 14, 2019]
10.89
1st Amendment to Stock Option Agreement, dated May 7, 2019, by and between Ideanomics, Inc. and Fomalhaut Limited [incorporated
by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on August 14, 2019]
10.90
10.91
2nd Amendment to Stock Option Agreement, dated May 30, 2019, by and between Ideanomics, Inc. and Fomalhaut Limited [incorporated
by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on August 14, 2019]
1st Amendment to Intellectual Property Purchase and Assignment Agreement, dated June 11, 2019, by and between Ideanomics, Inc. and
Sun Seven Star International Limited. [incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 10-Q (File No. 001-
35561) filed on August 14, 2019]
10.92
Share Transfer Agreement, dated July 18, 2019, by and between Ideanomics, Inc. and Beijing Financial Holdings Limited. [incorporated
by reference to Exhibit 10.5 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on August 14, 2019]
10.93
Convertible Note Purchase Agreement, dated September 27, 2019, by and between the Company and ID Venturas 7, LLC
[incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on November 14, 2019]
10.94
Convertible Note, dated September 27, 2019, by and between the Company and ID Venturas 7, LLC [incorporated by reference to Exhibit
10.2 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on November 14, 2019]
85
10.95
Warrant, dated September 27, 2019, by and between the Company and ID Venturas 7, LLC [incorporated by reference to Exhibit 10.3 to
the Company’s Report on Form 10-Q (File No. 001-35561) filed on November 14, 2019]
10.96
Registration Rights Agreement, dated September 27, 2019, by and between the Company and ID Venturas, LLC [incorporated by
reference to Exhibit 10.4 to the Company’s Report on Form 10-Q (File No. 001-35561) filed on November 14, 2019]
10.97
Employment Agreement, dated September 5, 2019, by and between the Company and Mr. Conor McCarthy
10.98*
Tree Technology Acquisition Agreement
10.99*
Additional Issuance Agreement, dated October 29, 2019, by and between the Company and ID Venturas 7, LLC
10.100*
Convertible Note, dated October 29, 2019, by and between the Company and ID Venturas 7, LLC
10.101*
Warrant, dated October 29, 2019, by and between the Company and ID Venturas 7, LLC
10.102*
Additional Issuance Agreement, dated November 8, 2019, by and between the Company and ID Venturas 7, LLC
10.103*
Convertible Note, dated November 8, 2019, by and between the Company and ID Venturas 7, LLC
10.104*
Warrant, dated November 8, 2019, by and between the Company and ID Venturas 7, LLC
10.105*
Additional Issuance Agreement, dated November 13, 2019, by and between the Company and ID Venturas 7, LLC
10.106*
Convertible Note, dated November 13, 2019, by and between the Company and ID Venturas 7, LLC
10.107*
Warrant, dated November 13, 2019, by and between the Company and ID Venturas 7, LLC
10.108*
Additional Issuance Agreement, dated November 27, 2019, by and between the Company and ID Venturas 7, LLC
10.109*
Convertible Note, dated November 27, 2019, by and between the Company and ID Venturas 7, LLC
10.110*
Warrant, dated November 27, 2019, by and between the Company and ID Venturas 7, LLC
10.111*
Additional Issuance Agreement, dated December 19, 2019, by and between the Company and ID Venturas 7, LLC
10.112*
Amendment to Transaction Documents, dated October 30, 2019, by and between the Company and ID Venturas 7, LLC
10.113*
Securities Purchase Agreement, dated December 19, 2019, with YA II PN, Ltd.
10.114*
Convertible Note, dated December 19, 2019, in the amount of $2,000,000 with YA II PN, Ltd.
10.115*
Warrant, dated December 19, 2019, with YA II PN, Ltd. exercisable for 1,666,667 shares of common stock
10.116*
Warrant, dated December 19, 2019, with YA II PN, Ltd. Exercisable for 1,000,000 shares of common stock
10.117*
Subsidiary Guarantee, dated September 27, 2019, from certain of the Company’s subsidiaries (the “Sub-Guarantee”) to ID Venturas 7,
LLC
10.118*
Registration Rights Agreement, dated December 19, 2019, with ID YA II PN, Ltd.
10.119*
Warrant, dated December 19, 2019, by and between the Company and ID Venturas 7, LLC
21*
23.1*
31.1*
31.2*
32.1*
32.2*
List of subsidiaries of the registrant
Consent of BF Borgers CPA PC.
Certifications of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*
†
Filed herewith.
Indicates management contract or compensatory plan, contract, or agreement.
86
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
Date: March 16, 2020
SIGNATURES
By:
By:
IDEANOMICS, INC.
/s/ Alf Poor
Alf Poor
Chief Executive Officer
/s/ Conor McCarthy
Conor McCarthy
Chief Financial Officer
87
ACQUISITION AGREEMENT
Exhibit 10.98
This agreement is signed by the following parties on October 25, 2019.
Buyer: IDEANOMICS, INC.
Address: 55 Broadway, 19th Floor, New York, NY 10022
Shareholder A: TREE MOVEMENT MALAYSIA SDN. BHD. (1160152-X)
Address: No. 8 Jalan Taming Jaya 1, Taman Taming Jaya, Balakong , 43300 Cheras, Selangor, Malaysia.
Shareholder B: GADING SARI HOLDINGS SDN. BHD. (206808-H)
Address: B 172, 2nd Floor, Jalan Lim Hoe Lek, 25200 Kuantan, Pahang, Malaysia.
Shareholder C: DATO’ MAJID MANJIT BIN ABDULLAH, a natural person of Malaysia.
Address: No. 3, Jalan Se 2, Sunway Eastwood @ Equine Park, 43300 Seri Kembangan, Selangor, Malaysia.
Shareholder A, Shareholder B, and Shareholder C are collectively referred to as the “Shareholders” and each individually as a “Shareholder”.
The Buyer and the Shareholders above are collectively referred to as the “Parties”, each referred to as a “Party”.
Whereas:
1. The Buyer is a company established and valid under the laws of Nevada, United States. It is quoted on the Nasdaq Stock Market, an American
stock exchange, under the ticker symbol IDEX. As at the date of signature, the total number of outstanding common shares of the Buyer is
131,446,071 common shares and 7,000,000 preferred shares.
2. As at the date of signature, the Shareholders hold 100 shares in the Target Company, representing 100 percent of shares issued by the target
company. The shareholding structure of the Shareholder and the Target Company is in Exhibit C.
3. The Target Company is a company established and valid under the laws of Malaysia. As at the date of signature, the total number of shares issued
by the Target Company is 100, all of which are held directly by the Shareholders.
4. The Buyer intends to acquire the Shares of the Target Company from the Shareholders at the price and on the terms and subject to the conditions
set forth below. The Shareholders intend to sell the Shares of the Target Company to the Buyer at the price and on the terms and subject to the
conditions set forth below.
NOW THEREFORE, in consideration of the representation, warranties and commitments set forth herein, the Parties agree as follows:
1. Definition
1.1.
Words underlined in this Agreement, unless otherwise stated, shall have the meaning referred to in Exhibit A.
2. Purchase and Sale of Shares
2.1.
The Buyer shall purchase from the Shareholders 51 shares of the Target Company (the “Underlying Shares”) and a lease for land rights on a
one (1) square kilometer of land in Malaysia-China Kuantan Industrial Park (MCKIP) for at least 90 years (the “Purchased Land”).The
number of Underlying Shares to be purchased from each Shareholder are shown in the schedule in Exhibit C. The 51 shares represent 51% of
the total number of shares issued by the Target Company.
3. Target Company
3.1.
3.2.
Tree Technologies Sdn. Bhd., Company Registration number (1294851-M).
Registered Address: No. 24C, Jalan 2/137B, Resource Industrial Centre, Jalan Kelang Lama, 58200 Kuala Lumpur W.P. Kuala Lumpur,
Malaysia.
3.3.
As of the signature date, the Shareholders own 100 shares of the Target Company, 100% of the Target Shares.
4. Transaction Considerations and Payments
4.1.
4.2.
Subject to the terms and conditions herein, at the Closing, Shareholders shall sell to Buyer, and Buyer shall purchase from Shareholders all of
the Seller’s right, title, and interest in and to the Underlying Shares and Purchased Land, free and clear of all encumbrances, for the
consideration specified in Section 4.2.
The aggregate consideration delivered to Shareholder by Buyer in exchange for the Underlying Shares and Purchased Land shall be as
follows:
4.2.1.
US$870,000 in cash which has been prepaid by Buyer prior to Closing (the “Cash Consideration”).
4.2.2.
9,500,000 shares of Buyer’s common stock (the “Stock Consideration”) to be issued upon closing.
4.2.3.
Up to $32,000,000 in earnout payments over 3 years (the “Earnout”) as set forth in, and subject to the adjustments of, Section 4.3.
4.3.
The Earnout shall be based on Target performance over three 12-month periods (each an “Earnout Period”). The amount of the Earnout issued
to Shareholders will be determined based on achievement of certain performance metrics as described in Exhibit B.
4.3.1.
Each 12-month period shall include four full quarters as defined by Buyer’s SEC reporting schedule starting with the first full quarter
following Closing Date. The periods are as follows: (i) the first Earnout Period will begin on the first day of Buyer’s 4th Quarter of
2019 and end on the last day of Buyer’s 3rd Quarter of 2020 (“Earnout Period One”); (ii) the second Earnout Period will begin on the
first day of Buyer’s 4th Quarter of 2020 and end on the last day of Buyer’s 3rd Quarter of 2021 (“Earnout Period Two”); and (iii) the
third Earnout Period will begin on the first day of Buyer’s 4th Quarter of 2021 and end on the last day of Buyer’s 3rd Quarter of 2022
(“Earnout Period Three”).
4.3.2.
Earned Consideration shall be paid in either (i) United States Dollars (USD) via certified check or wire transfer, or (ii) Buyer’s common
stock with ticker symbol “IDEX” (the “IDEX Stock”), or any combination thereof at the sole discretion of the Buyer.
4.4.
Procedures Applicable to Determination of the Earnout:
4.4.1.
4.4.2.
4.4.3.
On or before the date which is thirty (30) days after the filing of the Buyer’s final 10-Q, or equivalent for the applicable Earnout Period,
the Buyer shall issue to Shareholder either (i) the Earned Consideration payable in cash or Buyer’s Common Stock in an amount based
on the terms of Section 4.3; or (ii) a notice to Shareholder that Buyer is requesting an audit of the Target (the “Audit Notice”).
Following the delivery of the Audit Notice, Buyer and its accountants or representatives shall have sixty (60) days (the “Audit Period”)
to inspect the Target’s books and records during normal business hours at the Target’s offices, upon reasonable prior notice and solely
for purposes reasonably related to the determination of the Earned Consideration. If Buyer and Shareholders are unable to agree on the
Earned Consideration within thirty (30) days following the Audit Period, all unresolved disputed items shall be referred to Deloitte, or
other internationally recognized accounting firm as mutually agreed for dispute resolution. If agreement cannot be reached in 30 days
regarding the choice of accounting firm, the issue will be referred to the Hong Kong International Arbitration Centre as described in
Section 17.2.
If Buyer elects to make pay the Earned Consideration in IDEX Stock, the share price used to determine the number of shares to issue
will be the trailing 30-day average closing share price as quoted by NASDAQ.
Each Earnout Target and Earnout Period is independent of the other Earnout Periods. Once an Earned Consideration has been
determined in accordance with Sections 4.3 and 4.4.1, there is no further obligation on behalf of the Buyer for that Earnout Period. The
difference between the Maximum Earnout and the Earned Consideration each year (the “Un-Earned Consideration”) shall be forfeited
by the Shareholders. Shareholders have no rights to Un-Earned Consideration.
4.5.
All Earned Consideration shall be allotted separately and effectively deposited in the bank account designated by the Shareholders.
5. Closing
5.1.
5.2.
5.3.
5.4.
5.5.
5.6.
Within 30 working days after the closing of this Agreement, the Shareholders shall transfer the Underlying Shares to the Buyer and complete
the registration of the changes in the Target Company.
Prior to Closing, Target Company shall sign the exclusive sales agreement listed in Exhibit E with Tree Manufacturing Sdn. Bhd. Any
competing distributorship agreements must be terminated.
Prior to Closing, Target Company shall be assigned Land Use Rights in accordance with Section 7.5.
The parties shall be obliged to cooperate with the other parties in the completion of the closing of this section, including but not limited to, the
signing of all documents required, forms and authorizations, and providing the other parties with proof of delivery, tax payment vouchers, etc.
If, at any time prior to the Closing Date, the Shareholders or the Target Company violates any of their respective representations and
warranties under this Agreement, the Buyer shall have the right to suspend the closing immediately.
Each Party agrees that after the completion of the Closing, the Shareholders collectively shall have the right to nominate two (2) directors to
the board of directors of the Target Company, which shall have no less than 5 total directors.
6. Representations and Warranties of the Target Company
The Target Company and the Shareholders pledged jointly and severally on the Signing Date and the Closing Date:
6.1.
6.2.
The Target Company is a company established and in existence under the laws of Malaysia, and has provided to the Buyer a true and
complete copy of its Articles of Association and Company Registration files.
All the shares of the Target Company have been legally registered and all the issued shares have been paid in full. There are no collateral,
pledge or other rights restrictions on the entire shares of the Target Company and there is no preferential transfer right or similar rights.
6.3.
6.4.
6.5.
6.6.
6.7.
The Target Company legally holds all licenses, filings, and qualifications required to operate the business as shown in Exhibit 1, and such
licenses, filings, and qualifications shall remain valid on the Signing Day and the Closing Day.
The business of the Target Company complies with the provisions of all respective laws, there are no major violations.
The Target Company has submitted to the Buyer its true audited financial statements (as shown in Exhibit D), which are true, accurate and
complete, without material omissions nor misleading statements.
The Target Company does not have any undisclosed investment or financial activities.
The Target Company does not have the following circumstances:
6.7.1.
The existence or potential existent risk of dissolution or inability to operate normally under any applicable laws;
6.7.2.
6.7.3.
Due to any applicable laws, court judgements, government orders, national policies, and the Articles of Association of the Target
Company, the shares of the Target Company may not be transferred to the Buyer;
Have been or may be liable to any person(s) for any payment obligations, potential obligation to pay, compensate, or similar liabilities
which have not been disclosed to the Buyer;
6.7.4.
Any guarantee or warranty for others that have not been disclosed to the Buyer;
6.7.5.
6.7.6.
6.7.7.
Any property that has not been disclosed to the Buyer will be frozen, preserved, or restricted by the government, courts, or regulatory
authorities, or by the rights of a third party;
Any injunctions, punishments or fines that have been or will be subject to orders, decrees, judgements made by any government, court,
or regulatory authority that have not been disclosed to the Buyer;
Claims or demands that have been or could be brought by a relevant authority or any third party against the Target Company that have
not been disclosed to the Buyer.
6.8.
In addition to the conditions set forth in this Agreement, the Shareholder can transfer to the Buyer the Underlying Shares, sign, submit any
relevant documents, and fulfill its obligations under this Agreement, without the consent of any other relevant authority or third party, order,
record, license, notice, statement or registration.
6.9.
6.10.
6.11.
The signature and execution of this Agreement by the Target Company will not contravene or violate any of the following provisions, nor will
it constitute a breach of contract or breach of any of the following: The company’s Articles of Association, Certificate of Registration or other
similar organizational documents; any documents, agreements thereof that are binding on them as a Party; or any law, or judgements, orders,
rulings or decrees issued by any government agency that has jurisdiction over the Target Company or any Target Company shares or its
shareholder or any assets owned by its shareholder.
The Target Company has fully disclosed to the Buyer all documents, information and data of the Target Company, including but not limited to
assets, liabilities, history, related warrants, business conditions, related parties, personnel, etc. All documents, data and information provided
in connection with this agreement are true, accurate and valid, and there is no factual or legal obstacles known or supposed to disclose to the
Buyer that affect the signing of this Agreement.
The Target Company has signed an exclusive sales agreement with Tree Manufacturing Sdn Bhd and has obtained the exclusive right to sell
all the electric vehicles and electric motorcycles produced by the Tree Manufacturing Sdn Bhd, the exclusive sales agreement is listed in
Exhibit E of this Agreement.
7. Representations and Warranties of the Shareholders
Shareholders jointly and severally undertake on the Signing Date and Closing Date:
7.1.
7.2.
7.3.
7.4.
7.5.
The Shareholders have the legal authority under the laws of Malaysia and have the full capacity to sign, submit and perform this Agreement.
The Shareholders legitimately own the Target shares, and the equity interests of the Target Company they hold have been paid in full. The
Shareholder has the right to sell the Target shares.
The signing, submission and execution of this Agreement by the Shareholders will not contravene or contradict any of the following
provisions, nor will it constitute a breach or contravene any of the following: Any relevant Articles of Association, business licenses or other
similar organizational documents; any documents, agreements that are binding on them as a party; Or any law, or any judgement, order, ruling
or decree issued by any government department having jurisdiction over the Shareholder or any assets owned by them.
The Shareholders have obtained all the necessary approvals and authorizations to sign, submit and fulfill this Agreement.
The Shareholders have obtained a Land Use Right, and have transferred said Land Use Rights to Target Company, for a period of not less than
90 years to manufacture all electric powered vehicles and the land is located at Kawasan Perindustrian Gebeng, Mukim Sungai Land Use
Right to the Target. The Land Use Rights are provided in Exhibit F to this Agreement.
7.6.
7.7.
Tree Manufacturing Sdn. Bhd. has granted the Target Company exclusive license to distribute electric vehicle products. Tree Movement
Malaysia Sdn. Bhd. is currently the sole holder of the Malaysian electric vehicle manufacturing license and has assigned the exclusive
manufacturing rights to Tree Manufacturing Sdn Bhd. A copy of said manufacturing license and assignment are listed in Exhibit G of this
Agreement.
The Shareholders have signed and will sign various contracts with governments, main bus locomotive factories, motorcycle factories, electric
motorcycle factories, financial leasing companies, banks, financial institutions and travel agencies, including but not limited to 1) Shareholder
and relevant Malaysian departments’ for the use of new energy vehicle service for the police; 2) Shareholder and relevant Malaysian and
ASEAN government departments’ and private companies to use no less than 60,000 new energy buses and relevant services for all the
individual ASEAN countries; 3) Shareholder will reach strategy cooperation with relevant government departments in Malaysia and ASEAN
countries (Including but not limited to Ministry of Environmental Protection, Ministry of Science and Technology, Ministry of Industry); 4)
Shareholder and China Hi-Tech New Energy Auto Co. Ltd. reached corresponding resources cooperation; 5) Other resources. A complete
copy of the aforementioned cooperation and resources has been submitted to the Buyer, i.e. Exhibit H.
8. Commitment of Key Person(s)
Mr. Michael Yap, Dato’ Steven Thor, Datuk Menon and Michelle Khoo commit(s):
8.1.
8.2.
8.3.
8.3.
To be employed in the Target Company for at least 48 months after the Closing Date;
During the period of office in the Target Company’s and within one year after leaving the Company, no matter what the circumstances, shall
he be employed or carried on in any manner whatsoever worldwide in any business which is in direct competition or in conflict of the interest
with the business of the Target Company, i.e., it is impossible to work part-time or full-time with other employer(s) who operate(s) the same
kind of products or provide similar services or have a competitive relationship with the target company; Nor shall he establish, invest or hold
on his own or in the name of any third party to engage in any similar enterprise or business unit having any competitive relationship or
conflict of interest with the business of the Target Company, or to engage in a business which is competitive with the business of the Target
Company; And promise to strictly abide by the trade secrets of the Target Company, do not divulge the Know-How of the Target Company
that he knows or masters.
Shall not cause others to leave the Target Company for any reason or by any means (including, but not limited to, persuasion, solicitation,
employment) during and within one year after the expiration of the term of office in the Target Company. At the same time, the Key Person
shall not cooperate in any name or form with any Key person(s) of the Target trade secrets of the Target Company, do not divulge the Know-
How of the Target Company that he knows or masters.
Shall not cause others to leave the Target Company for any reason or by any means (including, but not limited to, persuasion, solicitation,
employment) during and within one year after the expiration of the term of office in the Target Company. At the same time, the Key Person
shall not cooperate in any name or form with any Key person(s) of the Target Company who leave(s) the Target Company during his or her
term of office and within one year after the expiration of his or her term of office or invest in a business that is the same or competitive with
the business, nor an employee(s) of the Target Company who leave(s) the company during his or her term of office or within one year after
the expiration of his term of office be employed in the same or competitive business as or to the Target Company.
8.4.
During the term of office in the Target Company, may not harm or infringe on the interests of the Target Company by any illegal means and
means (including but not limited to encroachment, bribery, fraud, theft, misappropriation, etc.)
9. Transitional Period Arrangements
Shareholder undertakes on the Signing Date and the Closing Date:
9.1.
9.2.
9.3.
The shareholder shall make the Target Company to continue to operate normally in accordance with its status before the Signing Date.
The Shareholder and its affiliates will continue to perform all the contracts listed in Exhibit H during the Transition Period and thereafter in
accordance with their usual practices and will actively reclaim the sums associated with such contracts without prejudice to the interests of the
Target Company.
During the Transition Period, the Target Company shall not set or agree to any others to set up collateral, pledge, guarantee, warranty, priority,
or any other right or responsibility to restrict Land Use Rights on the Land; nor may it be allowed to sign or submit any documents to waive
or transfer Land Use Rights, or to sign or submit any documents to shorten the period of Land Use Rights or reduce the area of Land Use
Rights.
9.4.
During the Transition Period, except with the written consent of Parties, the Shareholder shall not, nor shall it cause the Target Company to:
9.4.1.
9.4.2.
Agree, sign, submit or modify any documents so that the business of the Target Company cannot operate normally in accordance with
its status before the Signing Date.
Terminate, dismiss, or modify the business contract already signed by the Target Company, or cease the normal performance of the
foregoing contract in accordance with its past status.
9.4.3.
Give up and waive claims, accounts receivable or any rights of the Target Company of more than $100,000.
9.4.4.
Engage in or agree to any act that results in, or will result in, a change in the number of shares or the amount of share capital of the
Target Company.
9.4.5.
Conduct or agree to a merger or consolidated statement of entities other than the Target Company and the Buyer.
9.4.6.
Conduct or agree to the liquidation, dissolution, reorganization, and bankruptcy of the Target Company.
9.5.
9.6.
During the Transition Period, the Target Company can borrow funds, provide guarantees, provide loans in any single amount of more than
$100,000 or in a cumulative amount of more than $200,000 with the written consent of the Parties.
During the Transition Period, the Target Company shall obtain prior written consent of the Parties for hiring an employee or consultant whose
annual salary (including compensation) exceeds US$100,000.
10. Fees and Taxes
10.1.
10.2.
Each Party shall be responsible for its respective tax liabilities and fees in relation to the signing, submission, execution of this Agreement and
their respective obligations under this Agreement (including but not limited to all transaction taxes, stamp duty, income tax), and fees
(including but not limited to attorney fees, consultant fees, registration fees). Each party shall be responsible for the completion of their
respective tax declarations relating to this Agreement.
The parties shall be obliged to cooperate with the other party in its tax declaration relating to this Agreement, to receive inquiries from the
relevant authorities, and to provide reasonable personnel information, records or books of account when requested by the competent
authorities.
11. Termination and Release
11.1.
This Agreement may be terminated or rescinded by written consent of Parties.
11.2. Within 60 working days after the effective date of this Agreement, the Shareholder fails to complete the closing as stipulated in Article 5.1 of
this Agreement, the Buyer may terminate this Agreement by written notice to the Shareholder.
11.3.
If the closing of the Target Shares is suspended for reasons under Article 5.3 of this Agreement and, within 120 days from the date of the
suspension, the parties are unable to reach agreement through consultation, the buyer may terminate this Agreement by written notice to the
Shareholder.
11.4.
11.5.
12. Default
12.1.
12.2.
12.3.
12.4.
12.5.
12.6.
If any competent court or government agency makes a final, non-appealable injunction prohibiting the transaction agreed upon in this
Agreement, the party receiving the injunction may terminate this Agreement by written notice to the other party.
The effect of termination. In the event of termination of this Agreement, in addition to the obligations set forth in Article 13.4 of this
Agreement, each Party shall use commercially reasonable efforts to restore itself and other parties to the original state (with the exception of
Article 15 in this Agreement). All documents, materials and other materials relating to the transactions agreed upon in this Agreement shall be
returned to the other Party, either before or after the signing of this Agreement.
Any breach of this Agreement constitutes the default of contract and the defaulting Party shall be liable in full for losses incurred by the
defaulting Party in breach of this Agreement (including attorneys’ fees).
If this Agreement is terminated in accordance with Article 11.2 due to the reason of the Shareholder, the Shareholder shall pay compensation
of US$100,000 to the Buyer.
If this Agreement is terminated in accordance with Article 11.3 due to the reason of the Shareholder, the Shareholder shall pay compensation
of US$100,000 compensation to the Buyer.
From the Date of Closing and thereafter, due to any breach of its representations or warranties under this Agreement, whereby the
Shareholders cause any losses to the Buyer and the shareholders, directors, employees, agents, heirs and assignees of the Buyer, the
Shareholders shall be fully liable for any damages (including attorneys’ fees).
From the Date of Closing and thereafter, due to any breach of any representations or warranties under this Agreement by the Key Personnel,
causing any losses to the Buyer and the shareholder, directors, employees, agents, successors and assignees of the Buyer, the Shareholder and
Key person should be fully liable for any damages (including attorneys’ fees).
From the Date of Closing and thereafter, the Buyer shall be fully liable (including attorneys’ fees) for any losses incurred by the Buyer as a
result of any breach by the Buyer of any representations or warranties made under this Agreement by the Buyer and the shareholders,
directors, employees, agents, successors and assignees of the Buyer.
13. Force Majeure
13.1.
Force majeure. Events that cannot be foreseen, avoided, and overcome, including, but not limited to, natural disasters, strikes, riots, wars and
applicable laws and policies (including the respective countries or regions of the parties) and changes in their application. The parties agree
that it is also force majeure if the applicable laws and policies are subject to retroactive adjustment.
13.2.
If, due to Force Majeure, any Party is unable to perform or is unable to fully perform according to this Agreement, such Party shall
immediately inform the other Party of such circumstance in written notice, and within 7 working days from the date of the occurrence of
such circumstance or within 7 working days from the date of the resumption of communication (whichever is later); and provide detailed
written facts and valid proof that the Agreement cannot be performed or partially failed, or the reasons for the extension are required. In
accordance with the extent of the impact of the event on the performance of this agreement, the parties shall decide whether to terminate
this Agreement, or partially waive the responsibility of performing this Agreement, or postpone the performance of this Agreement.
14. Confidentiality
14.1.
14.2.
The following information received by the parties as a result of the signing and performance of this Agreement shall constitute
confidential information and shall be strictly confidential: 1) the terms and conditions constituting the integrity of this Agreement; 2)
negotiations of this Agreement; 3) the subject matter and consideration of this Agreement; 4) the know-hows of the Parties.
The Parties may disclose confidential information only in the following circumstances. Otherwise, neither Party may disclose the
confidential information in any way under any conditions:
14.2.1.
Disclosure to its own employees, directors, and professional advisors with equal confidentiality obligations to the Party involved
in the entrustment.
14.2.2.
Information that is already known to the public for reasons other than those of the disclosure Party;
14.2.3.
There is documentary evidence of information that was in possession of the other Party at the time of disclosure;
14.2.4.
14.2.5.
There is documentary evidence that a third Party has disclosed the information to the receiving Party and that the third Party is
not under a duty of confidentiality and has the right to make the disclosure.
Disclosures to be made in accordance with the laws in force at the time, or as required by the exchange or government
regulatory authorities.
14.3.
Article 15 of this Agreement shall not be terminated after the termination or release of this Agreement, and the parties shall continue to
perform their promised obligation of confidentiality until the other parties agree in writing to their discharge of this obligation, or in fact
does not cause any form of damage to other parties as a result of a violation of this provision.
15. Change, Release
15.1.
15.2.
15.3.
15.4.
Unless otherwise agreed in this Agreement, any modification, addition or deletion of the contents of this Agreement shall be made by the
parties in writing.
If the Agreement needs to be amended due to the requirements of the jurisdiction law of the buyer or the rules of the NASDAQ
Exchange, the parties shall, in good faith, do their best to cooperate in the revision of this Agreement
without affecting the true purpose of the contract.
Unless otherwise agreed in this Agreement, the parties may, by consensus, terminate this Agreement.
16. Notification and Delivery
16.1.
Unless otherwise provided in this Agreement, any notice or written communication from any Party in this Agreement shall be sent by
personal delivery, registered mail or express mail (or by equivalent international mail). All notices and written communications shall be
sent to the following addresses until written notice is given to the other party to this Agreement to change that address:
Buyer
Shareholder A
Shareholder B
Shareholder C
Contact: Drew Colvin
Address: 55 Broadway, 19th Floor, New York, NY 10022
Phone: +1 646-859-7682
Email: dcolvin@ideanomics.com
Contact: Dato’ Steven Thor
Address: No. 8, Jalan Taming Jaya 1, Taman Taming Jaya, Balakong,
Cheras, 43300 Selangor, Malaysia
Phone: +6012 306 2630
Email: steventhor@treeletrik.com
Contact: Dato’ Ahmad Najmi Bin Abdul Razak
Address: No. 13, Jalan IM 10/4, Bukit Istana, Bandar Indera Mahkota,
25200 Kuantan, Pahang, Malaysia
Phone: +60 19-231 3813
Email: najmi.razak@gmail.com
Contact: Dato’ Majid Manjit Bin Abdullah
Address: No. 3, Jalan Se 2, Sunway Eastwood @ Equine Park, 43300
Seri Kembangan, Selangor, Malaysia.
Phone: +6012 722 2130
Email: manjitrjcc@gmail.com
16.2.
If any Party changes its address or other contact information, it shall give prior written notice to the other.
17. Applicable Law, Dispute Resolution
17.1.
17.2.
18. Others
18.1.
This Agreement is entered into, construed and enforced in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of laws thereunder.
Any dispute arising out of or in connection with this Agreement shall be submitted to the Hong Kong International Arbitration Centre for
arbitration in accordance with its arbitration rules in force at that time. The arbitral award is final and binding on all parties. Arbitration
fees and reasonable attorney fees shall be borne by the losing Party unless otherwise specified.
This agreement constitutes the entire and exclusive agreement between the parties with respect to the Target Shares of the transaction. If
any oral or written commitment, understanding, arrangement or agreement between the parties is inconsistent with this agreement, this
Agreement shall prevail.
18.2.
This Agreement shall enter into force upon completion of the following conditions:
18.2.1. Signed by the authorized representatives of the Parties.
18.2.3. Approval of the shareholders and directors of the Buyer in accordance with the procedures prescribed by the NASDAQ Exchange.
18.3.
18.4.
18.5.
If any provision of this Agreement is deemed or becomes invalid or unenforceable, the other provisions and terms of this Agreement will not
be affected.
This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same agreement.
This Agreement has been executed in English. Any translations of this agreement are for convenience, and if there are discrepancies between
the two, the English version shall prevail.
[REMAINDER OF THIS PAGE IS LEFT BLANK]
Buyer: IDEANOMICS, INC.
By:
Name: Alfred Poor
Title:
Chief Executive Officer
Target Company: TREE TECHNOLOGIES SDN. BHD. (1294851-M)
By:
Name: Dato’ Majid Manjit Bin Abdullah
Title: Director
Shareholder A: TREE MOVEMENT MALAYSIA SDN. BHD. (1160152-X)
By:
Name: Dato’ Steven Thor
Title: Managing Director
Shareholder B: GADING SARI HOLDINGS SDN. BHD. (206808-H)
By:
Name: Tengku Amir Nasser Ibni Tengku Ibrahim
Title: Director
Shareholder C: DATO’ MAJID MANJIT BIN ABDULLAH
Signed:
Name: Dato’ Majid Manjit Bin Abdullah
EXHIBIT A
DEFINITIONS
TERM
Buyer
Shareholders
Target Company
Target Shares
Cash Consideration
Stock Consideration
Earned Consideration
Closing Date
Signing Date
Escrow Account
NASDAQ Exchange
Business
Land Use Right
Key Personnel
Transition Period
Force Majeure
Confidential Information
DEFINITION
Ideanomics, Inc.
See Exhibit C
Tree Technologies Sdn. Bhd.
51% shares of the Target Company
Meaning as stated in Article 4.2 of this Agreement.
Meaning as stated in Article 4.2 of this Agreement
The amount of consideration that is to be granted to Shareholders based on the pro-rata performance towards
the Earnout Target described in Section 4.3 and Exhibit B.
Date of completion of registration of change of shareholder of the Target Company
The date of signature of the parties set out at the beginning of this agreement.
A stock account designated separately by the Shareholder for receiving the consideration for the transaction to
be allotted by the Buyer.
National Association of Securities Dealers Automated Quotation
The continuing business of the Target Company, included, but not limited to, marketing and sales, and co-
ordination of government relations of electric vehicle products.
The stockholder undertakes to acquire a land use right for a period of not less than 90 years in the
Kuantan/Malaysia “Malaysia-China Kuantan Industrial Park (MCKIP)” with an area of 99.9521 Hectares.
Michael Yap, Dato’ Steven Thor, Datuk Menon, Michelle Khoo
From the date of signing to the date of termination.
Meaning as stated in Article 14.1 of this Agreement
Meaning as stated in Article 15.1 of this Agreement
EXHIBIT C
SHAREHOLDERS OF TARGET COMPANY
Shareholder
Pre-Transaction Shares
of Target
Shares Sold to Buyer
per this Agreement
Tree Movement Malaysia Sdn. Bhd.
Gading Sari Holdings Sdn. Bhd.
Dato’ Majid Manjit Bin Abdullah
Ideanomics, Inc.
Total
70
20
10
0
100
36
10
5
0
51
Post-Closing
Ownership in
Target
34
10
5
51
100
TREE TECHNOLOGIES SDN BHD
Balance Sheet As At 31/08/2019
EXHIBIT D
TARGET AUDITED FINANCIALS
FIXED ASSETS
Fixed Assets
CURRENT ASSETS
Current Assets
CURRENT LIABILITIES
Loan Due to Tree Manufacturing S/B
NET CURRENT ASSETS
FINANCED BY
CAPITAL
Ordinary Share Capital
RETAINED EARNING
PROFIT/(LOSS)
This Year
0.00
0.00
0.00
0.00
2,298.00
2,298.00
-2,298.00
-2,298.00
100.00
-2,398.00
-2,298.00
EXHIBIT E
EXCLUSIVE SALES AGREEMENT
See Attached.
EXHIBIT F
LAND USE RIGHTS
See Attached.
EXHIBIT G
TREE MOVEMENT LICENSE AND ASSIGNMENT
See Attached.
EXHIBIT H
CONTRACTS & PIPELINE
A) Concluded Sales
a. DHL Malaysia – Delivery Bikes Test Order 5 units (Upon completion of testing, there will be another 500 units order)
b. Sarawak Energy Berhad – E-Bikes Test Order 14 units (upon conclusion of testing, there will be another 200 unit order)
c. Prolintas (Urban Highway Toll Road Concession) – Patrol Bikes Test Order 18 units (Upon conclusion of order, there will be another 200
unit order)
d. Municipal Council Ampang – Test order 4 units (Upon completion of testing, there will be another 100 unit order)
e.
IOI City Mall – Patrol Bikes Test Order 9 units (Upon completion of testing, there will be another 200 unit order)
f. E-Delivery Services – 10,000 units of E-Bikes
g. E-Hailing/Electric Micro Car – 6,000 Units
h. Food Truck/E-Truck – 3,500 units
i. Distributor Sales – 138 units
j.
Zublin Precast – Patrol Bikes Test order 2 units (upon completion of order, there will be another 50 unit order)
B) Potential Sales
State District Office – E-bikes
a. Pos Malaysia (Courier Company) – 7,500 units E-bikes, 500 units Electric Van
b. GdEx Express – Delivery Bike 500 units
c. Nationwide Courier Services – Delivery Bike 500 units
d. Citylink Courier Services – Delivery Bike 500 units
e. Malaysia National Co-Operative Society – Delivery Bikes 5,000 units
f. Asean Co-operative Organization
g. University Islamic Malaysia (IIUM) – 2,000 units
h. Police Malaysia – Patrol Bikes 500 units
i. Malaysia Federal Ministry – E-Bikes 1,000 units
j.
k. Malaysia Municipal Council (total 39) – Patrol Bikes 800 units
l. Malaysia City Council – Patrol Bikes 350 units
m. McDonalds – Delivery Bikes 500 units
n. Pizza Hut – Delivery Bikes 2,000 units
o. KFC – Delivery Bikes 3,000 units
p. Melaka Tourism Board – T-Commuter (Electric Micro Truck) – 100 units
q.
r.
s. Honest Bee – Delivery Bikes 200 units
t. Ministry of Agriculture – Electric Micro Truck (T-MV7) 50 units
u. Alam Flora – Electric Micro Truck (T-MV7) 100 units
IKEA – Electric Micro Trucks 150 units
Food Panda – Delivery Bikes 2,000 units
PLUS Highway Concession – 400 units Patrol Bikes
v.
w. Genting Highland – E-bikes 200 units, Electric Car 200 units
x. Sunway Resort – E-Bikes 500 units
y. Lazada – Electric Micro Truck 300 units
11th Street – Delivery Bikes 500 units
z.
aa. MBE (Mail Box Express) – Delivery Bikes 5,000 units
bb. Eco World (Property Developer) – Patrol Bikes 1,000 units
C) Public Transportation / Public Transit 60,000 units
a. City Transit Buses
Inter City Buses
b.
c.
Inter States Coaches (Long Haul)
d. City to Airport Buses
e. City to Federal Administration (Putrajaya & Cyberjaya)
*We will be making proposal to the government with regards to the electric buses.
D) MOU
a. China High-Tech MOU
EXHIBIT I
CORPORATE CHARTER AND BUSINESS LICENSES
See Attached.
ADDITIONAL ISSUANCE AGREEMENT
Exhibit 10.99
This Additional Issuance Agreement (this “Agreement”), dated as of October 29, 2019, is made pursuant to Section 4.13 of that certain Securities
Purchase Agreement, dated as of September 27, 2019 (the “Purchase Agreement”), as amended, by and between Ideanomics, Inc. (the “Company”) and ID
Ventures 7, LLC (the “Purchaser”) for the purchase of the Company’s 10% Senior Secured Convertible Debentures due March 27, 2021 (the “Additional
Debenture”) and Common Stock Purchase Warrants (“Additional Warrants” and together with the Additional Debentures, the “Additional Securities”).
Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement.
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Issuance of Additional Debenture and Additional Warrants. The Company hereby agrees to issue to the Purchaser, and the Purchaser hereby
agrees to purchase, an Additional Debenture in the aggregate principal amount of $400,000, which Additional Debenture shall otherwise be in the form of
the Debenture along with Additional Warrants to purchase up to 600,000 shares of Common Stock, which Additional Warrant shall otherwise be in the
form of the Warrant. The Company shall promptly deliver to the Purchaser the Additional Securities.
2. Documents. The rights and obligations of the Purchaser and of the Company with respect to the Additional Securities and the shares of
Common Stock issuable under the Additional Securities (the “New Underlying Shares”) shall be identical in all respects to the rights and obligations of
such Purchaser and of the Company with respect to the Debentures, the Warrants and the Underlying Shares issued and issuable pursuant to the Purchase
Agreement. Any rights of a Purchaser or covenants of the Company which are dependent on such Purchaser holding securities of the Company or which
are determined in magnitude by such Purchaser’s purchase of securities pursuant to the Purchase Agreement shall be deemed to include any securities
purchased or issuable hereunder. The Purchase Agreement is hereby amended so that the term “Debentures” includes the Additional Debenture, the term
“Warrant” includes the Additional Warrant and the term “Underlying Shares” includes the New Underlying Shares.
3. Security Interest. Company hereby acknowledges and agrees that the security interests granted to the holders of the Existing Debentures and
Debentures pursuant to the Existing Security Agreement applies to and covers the obligations of the Company to the Purchasers evidenced by the
Additional Debentures and (b) the Additional Debentures rank pari passu to the Existing Debentures and the Debentures.
4. Subsidiary Guarantee. The Additional Debenture constitutes an “Obligation” under the Subsidiary Guarantee as if the Additional
Debentures were Debentures issued pursuant to the Purchase Agreement
5. Representations and Warranties of the Company. The Company hereby makes to the Purchaser the following representations and warranties:
(a) Authorization; Enforcement. The Company has the reqms1te corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in
connection therewith. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or
articles of incorporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the creation of any Lien (except as contemplated by the Security
Documents) upon any of the properties or assets of the Company in connection with, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material
instrument (evidencing Company debt or otherwise) or other material understanding to which such Company is a party or by which any property
or asset of the Company is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected, except, in the
case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(c) Issuance of the Additional Securities. The Additional Securities are duly authorized and, upon the execution of this Agreement by
a Purchaser, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Additional Underlying Shares, when issued in accordance with the terms
of the Additional Securities, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Additional Underlying
Shares at least equal to the Required Minimum on the date hereof.
2
(d) Affirmation of Prior Representations and Warranties. Except as set forth on Schedule 4(d) hereto, the Company hereby represents
and warrants to each Purchaser that the Company’s representations and warranties listed in Section 3.1 of the Purchase Agreement are true and
correct as of the date hereof.
4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof to the Company as
follows:
(a) Authority. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate or similar action on the part of such Purchaser. This Agreement has been duly executed by such
Purchaser and, when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser (i) understands that the Additional Securities are “restricted security” and have not been registered
under the Securities Act or any applicable state securities law, (ii) is acquiring the Additional Securities as principal for its own account and not
with a view to or for distributing or reselling such Additional Securities or any part thereof in violation of the Securities Act or any applicable state
securities law, (iii) has no present intention of distributing any of such securities in violation of the Securities Act or any applicable state securities
law and (iv) has no arrangement or understanding with any other persons regarding the distribution of such Additional Securities (this
representation and warranty not limiting such Purchaser’s right to sell the Additional Underlying Shares pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Additional Securities hereunder in the ordinary course of its business. Such Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to distribute any of the Additional Securities or Additional Underlying Shares.
(c) Purchaser Status. Such Purchaser is an “accredited investor” as defined in Rule 501under the Securities Act.
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(d) General Solicitation. Such Purchaser is not purchasing the Additional Securities as a result of any advertisement, article, notice or
other communication regarding the Additional Securities published in any newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or any other general solicitation or general advertisement.
5. Public Disclosure. The Company shall, on or before 9 am ET on the Trading Day immediately following the date hereof, issue a Current Report on
Form 8-K, reasonably acceptable to the Purchaser, disclosing the material terms of the transactions contemplated hereby and attaching this
Agreement as an exhibit thereto. The Company shall consult with the Purchaser in issuing any other press releases with respect to the transactions
contemplated hereby.
6. Delivery of Opinion. Concurrently herewith, the Company shall deliver to the Purchaser an opinion of counsel regarding this Agreement and the
issuance of the Additional Securities in form and substance reasonably acceptable to the Purchaser.
7. Effect on Transaction Documents. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall continue
in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth
herein, including, but not limited to, any other obligations the Company may have to the Purchaser under the Transaction Documents.
Notwithstanding the foregoing, this Agreement shall be deemed for all purposes as an amendment to any Transaction Document as required to
serve the purposes hereof, and in the event of any conflict between the terms and provisions of the Debentures or any other Transaction Document,
on the one hand, and the terms and provisions of this Agreement, on the other hand, the terms and provisions of this Agreement shall prevail.
8. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed
by the Company and each Purchaser.
9. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in
the Purchase Agreement.
10. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Purchaser. The Company may not assign (except by merger) its rights or obligations hereunder
without the prior written consent of the Purchaser of the then-outstanding Securities. The Purchaser may assign their rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
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11. Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by
e-mail delivery of a “.pdf’ format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or “.pdf’ signature page were an original thereof.
12. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.
13. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
14. Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
15. Fees and expenses. At the closing, the Company has agreed to reimburse the Purchaser $10,000 for its fees and expenses. The Company shall
deliver to each Purchaser, prior to closing, a completed and executed copy of a closing statement, for the closing of the purchase and sale of the
Additional Securities, otherwise in the form attached to the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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Executed as of the first date written above by the undersigned duly authorized representatives of the Company and the Purchaser:
IDEANOMICS, INC.
By:
Name: Conor McCarthy
Title: CFO
Name of Purchaser: ID Venturas 7, LLC
Signature of Authorized Signatory:
Name of Authorized Signatory:
Antonio Ruiz-Gimenez
Title of Authorized Signatory:
Managing Director
Subscription Amount: $400,000
Principal Amount: $400,000
Warrant Shares: 600,000
6
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 , AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.100
Original Issue Date: October 29, 2019
Original Conversion Price (subject to adjustment herein): $1.00
10% SENIOR SECURED CONVERTIBLE DEBENTURE DUE MARCH 27, 2021
$
THIS l0% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 10% Senior Secured
Convertible Debentures of Ideanomics, Inc., a Nevada corporation (the "Company"), having its principal place of business at 55 Broadway, 19th Floor,
New York, New York 10006 , designated as its 10% Senior Secured Convertible Debenture due March 27, 2021 (this debenture, the "Debenture" and,
collectively with the other debentures of such series, the " Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ID VENTURAS 7 LLC or its registered assigns (the "Holder"), or shall have paid
pursuant to the terms hereunder, the principal sum of $400,000 on March 27, 2021 (the "Maturity Date") or such earlier date as this Debenture is required
or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not
otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
"Bankruptcy Event" means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule l-
02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors , dissolution , insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary
thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed
within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days
after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the
Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring
of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due,
or (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
"Base Conversion Price" shall have the meaning set forth in Section 5(b).
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"Beneficial Ownership Limitation" shall have the meaning set forth in Section 4(d).
"Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
"Buy-In" shall have the meaning set forth in Section 4(c)(v).
"Change of Control Transaction" means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through
legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), including,
without limitation, through a purchase offer, tender offer or exchange offer (whether by the Company or another Person) or a stock or share
purchase agreement or other business combination (including, without limitation, a reorganization , recapitalization, spin-off or scheme of
arrangement), in one or more related transactions, (b) the Company merges into or consolidates with any other Person, or any Person merges into
or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or
transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less
than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.
"Common Stock" means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed.
"Conversion" shall have the meaning ascribed to such term in Section 4.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Schedule" means the Conversion Schedule in the form of Schedule 1 attached hereto.
"Conversion Shares" means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the
terms hereof.
"Debenture Register" shall have the meaning set forth in Section 2(c).
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in Section 5(b).
"Effectiveness Period" shall have the meaning set forth in the Registration Rights Agreement.
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"Equity Conditions" means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all
liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c) with respect to Section 2 only, (i) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock
issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash
payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information
requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock
on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there
is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default,
(g) the issuance of the shares in question (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional
Redemption Amount) to the Holder would not violate the limitations set forth in Section 4(d) and Section 4(e) herein, (h) there has been no public
announcement of a pending or proposed Change of Control Transaction that has not been consummated, and (i) the applicable Holder is not in
possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates,
that constitutes, or may constitute, material non-public information.
"Event of Default" shall have the meaning set forth in Section 8(a).
"Interest Conversion Rate" means 85% of the lesser of (i) the average of the VWAPs for the 5 consecutive Trading Days ending on the
Trading Day that is immediately prior to the applicable Interest Payment Date or (ii) the average of the VWAPs for the 5 consecutive Trading
Days ending on the Trading Day that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such
delivery is after the Interest Payment Date.
"Interest Conversion Shares" shall have the meaning set forth in Section 2(a).
"Interest Notice Period" shall have the meaning set forth in Section 2(a).
"Interest Payment Date" shall have the meaning set forth in Section 2(a).
"Interest Share Amount" shall have the meaning set forth in Section 2(a).
"Issuable Maximum" shall have the meaning set forth in Section 4(e).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued
and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the
VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or
(ii) 110% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs,
expenses and liquidated damages due in respect of this Debenture.
"New York Courts" shall have the meaning set forth in Section 9(e).
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"Notice of Conversion" shall have the meaning set forth in Section 4(a).
"Optional Redemption" shall have the meaning set forth in Section 6(a).
"Optional Redemption Amount" means the sum of (a) the then outstanding principal amount of the Debenture, (b) accrued but unpaid
interest and (c) all liquidated damages and other amounts due in respect of the Debenture.
"Optional Redemption Date" shall have the meaning set forth in Section 6(a).
"Optional Redemption Notice" shall have the meaning set forth in Section 6(a).
"Optional Redemption Notice Date" shall have the meaning set forth in Section 6(a).
"Optional Redemption Period" shall have the meaning set forth in Section 6(a).
"Original Issue Date" means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debentures.
"Permitted Indebtedness" means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue
Date and set forth on Schedule 3.1(p) attached to the Purchase Agreement, (c) indebtedness resulting from a bank or other financial institution
honoring a check, draft or similar instrument in the ordinary course of business, (d) indebtedness arising under or in connection with cash
management services in the ordinary course of business, (e) equipment lease obligations and purchase money indebtedness of up to $1,000,000, in
the aggregate, incurred in connection with the acquisition of fixed or capital assets and equipment lease obligations with respect to newly acquired
or leased assets, (f) indebtedness under bank lines of credit up to $5,000,000 in the aggregate, at any time outstanding, (g) up to an aggregate of
$5,000,000 of indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers
that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the ninety first (91st) day following the
Maturity Date, and (h) obligations existing or arising under any swap or hedge contract; provided that such obligations are (or were) entered into
by the Company in the ordinary course of business for the purpose of mitigating risks associated with liabilities, commitments , investments,
assets or property held or reasonably anticipated by the Company, or changes in the value of securities issued by the Company, and not for
speculative purposes.
4
"Permitted Lien" means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company's business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and other similar Liens arising in the ordinary course of the Company's
business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the
use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset
subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (b) thereunder, (d) Liens incurred in
connection with Permitted Indebtedness under clause (e) thereunder, provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased, (e) any interest or title of a lessor, sublessor, licensor or sublicensor under leases or
licenses that are entered into in the ordinary course of business, (f) leases, licenses, subleases, or sublicenses granted to others in the ordinary
course of business that do not (i) interfere in any material respect with the ordinary conduct of the business of the Company or (ii) secure any
indebtedness, or (g) Liens securing judgments against the Company for the payment of money that does not constitute an Event of Default.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of October 29, 2019 among the Company and the original
Holders, as amended, modified or supplemented from time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights Agreement, dated on or about the date of the Purchase Agreement,
among the Company and the original Holders, in the form of Exhibit B to the Purchase Agreement.
"Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Series B Warrant" shall have the meaning set forth in Section 6(a).
"Share Delivery Date" shall have the meaning set forth in Section 4(c)(ii).
"Trading Day" means a day on which the principal Trading Market is open for trading.
"Trading Market" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the
date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York
Stock Exchange (or any successors to any of the foregoing).
"VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the "Pink Sheets" published by
OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported.
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Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 10% per annum, payable quarterly in arrears on January 1, April 1, July1 and October
1, beginning on the first such date after the Original Issue Date, on each Conversion Date (as to that principal amount then being converted), on
each Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an " Interest
Payment Date") (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business
Day), in cash or, at the Company's option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at the Interest
Conversion Rate (the dollar amount to be paid in shares, the "Interest Share Amount") or a combination thereof; provided, however, that payment
in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in writing) during the
ten (10) Trading Days immediately prior to the applicable Interest Payment Date (the "Interest Notice Period") and through and including the date
such shares of Common Stock are actually issued to the Holder, (ii) the Company shall have given the Holder notice in accordance with the notice
requirements set forth below, and (iii) as to such Interest Payment Date, prior to such Interest Notice Period (but not more than five (5) Trading
Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder's account with The Depository
Trust Company a number of shares of Common Stock due such Holder to be applied against such Interest Share Amount equal to the quotient of
(x) the applicable Interest Share Amount divided by (y) the Interest Conversion Rate assuming for such purposes that the Interest Payment Date is
the Trading Day immediately prior to the commencement of the Interest Notice Period (the "Interest Conversion Shares").
b) Company's Election to Pay Interest in Cash or Kind. Subject to the terms and conditions herein, the decision whether to pay
interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. If the Company elects
to pay any interest hereunder in shares of Common Stock, the Company shall deliver to the Holder a written notice of its election to pay interest
hereunder ten (10) Trading Days prior to the applicable Interest Payment Date either in shares of Common Stock or a combination of Common
Stock and cash, and the Interest Share Amount as to the applicable Interest Payment Date and the Interest Notice Period with respect to such
payment shall commence as of the date of such notice, provided that the Company may indicate in such notice that the election contained in such
notice shall also apply to future Interest Payment Dates until revised by a subsequent notice. After the first five (5) Trading Days of any Interest
Notice Period, the Company's election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by
the Company to pay the interest on such Interest Payment Date in cash. At any time that the Company delivers a notice to the Holder of its
election to pay the interest in shares of Common Stock, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing
such election if at such time the Company has an effective Registration Statement that does not otherwise disclosure such election. The aggregate
number of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest
Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.
c) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve (12) thirty (30)
calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together
with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Payment of interest
in shares of Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise occur pursuant to
Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion
Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of this Debenture (the "Debenture Register"). Except as otherwise
provided herein, if at any time the Company pays inter est partially in cash and partially in shares of Common Stock to the holders of the
Debentures, then such payment of cash shall be distributed ratably among the holders of the then-outstanding Debentures based on their (or their
predecessor's) initial purchases of Debentures pursuant to the Purchase Agreement.
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d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the
lesser of 8% per annum or the maximum rate permitted by applicable law (the "Late Fees") which shall accrue daily from the date such interest is
due hereunder through and including the date of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any
Interest Payment Date the Company has elected to pay accrued interest in the form of Common Stock but the Company is not permitted to pay
accrued interest in Common Stock because it fails to satisfy the conditions for payment in Common Stock set forth in Section 2(a) herein, then, at
the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly
scheduled interest payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal
to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on
such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing five (5) Trading Days after the Interest Payment
Date and ending on the Trading Day prior to the date such payment is actually made. If any Interest Conversion Shares are issued to the Holder in
connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly return such excess
shares to the Company.
e) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of
transfer or exchange.
b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable
federal and state securities laws and regulations.
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Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this
Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time
(subject to the conversion limitations set forth in Section 4(d) and Section 4(e) hereof). The Holder shall effect conversions by delivering to the
Company a properly completed Notice of Conversion, the form of which is attached hereto as Annex A (each, a "Notice of Conversion"),
specifying therein the principal amount of this Debenture, and any accrued but unpaid interest , to be converted and the date on which such
conversion shall be effected (such date, the "Conversion Date"). If no Conversion Date is specified in a Notice of Conversion, the Conversion
Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor
shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions
hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this
Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly
as is reasonably practicable after such conversion without delaying the Company's obligation to deliver the shares on the Share Delivery Date.
Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).
The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of receipt of such Notice of Conversion. In the
event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder,
and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount
stated on the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $1.00, subject to adjustment
herein (the "ConversionPrice").
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a
conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to
be converted by (y) the Conversion Price.
ii. Delivery of Conversion Shares Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the
"Share Delivery Date"), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after
the six (6) month anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of Conversion Shares being issued upon the conversion
of this Debenture (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of
Common Stock at least ten (10) Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of
Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest
Notice Period is the ten (10) Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the
Company and excluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment
prior to the commencement of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the
Company has elected or is required to pay accrued interest in cash). On or after the six (6) month anniversary of the Original Issue Date,
the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through
the Depository Trust Company or another established clearing corporation performing similar functions.
8
iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not
delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to
the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company
shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the
Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
iv. Obligation Absolute. The Company's obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the
Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert
any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or
anyone associated or affiliated with the Holder has been engaged in any violation of law or any agreement (except if, upon the Holder's
election to convert any principal amount here, the Company's delivery of Conversion Shares in connection therewith constitutes a
violation of law by the Company, evidenced by a written opinion of counsel to the Company), unless an injunction from a court, on
notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of 125% of the outstanding principal amount of this Debenture,
which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute
and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the
Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason
to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day
after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit
a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company's failure to deliver
Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation , a decree of specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
9
v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other
rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery
Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a "Buy-In"), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available
to or elected by the Holder) the amount, if any, by which (x) the Holder's total purchase price (including any brokerage commissions) for
the Common Stock so purchased exceeds (y) the product of (I) the aggregate number of shares of Common Stock that the Holder was
entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this
Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be
deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had
timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual
sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation , a decree of specific performance and/or injunctive relief with respect to the
Company's failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.
vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture
and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall
be registered for public resale in accordance with such Registration Statement (subject to such Holder's compliance with its obligations
under the Registration Rights Agreement).
vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of
this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the
Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.
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viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of
such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this
Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or
Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation
performing similar functions) required for same-day electronic delivery of the Conversion Shares.
d) Holder's Conversion Limitations. The Company shall not any conversion of this Debenture, and a Holder shall not have the
right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder's Affiliates, and any other Persons acting as a group together with the Holder or any of the
Holder's Affiliates (such Persons, "Attribution Parties")) would beneficially own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and
Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the
Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the
extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible
shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder's determination of
whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties)
and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance
with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of
the following: (i) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public
announcement by the Company, or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written request of a Holder, the Company shall within one Trading Day confirm in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as
of which such number of outstanding shares of Common Stock was reported. The "Beneficial Ownership Limitation" shall be 4.99% of the
number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture
held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial
Ownership Limitation will not be effective until the sixty first (61st) day after such notice is delivered to the Company. The Beneficial Ownership
Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this
Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership
Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations
contained in this paragraph shall apply to a successor holder of this Debenture.
11
e) Issuance Limitations. Notwithstanding anything herein to the contrary, if the Company has not obtained Shareholder
Approval, then the Company may not issue, upon conversion of this Debenture, a number of shares of Common Stock which, when aggregated
with any shares of Common Stock issued on or after the Original Issue Date and prior to such Conversion Date (i) in connection with the
conversion of any Debentures issued pursuant to the Purchase Agreement, (ii) in connection with the exercise of any Warrants issued pursuant to
the Purchase Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement, would exceed 25,874,400 shares of
Common Stock (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (such number of shares, the "Issuable
Maximum"). Each Holder shall be entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the original
principal amount of the Holder's Debenture by (y) the aggregate original principal amount of all Debentures issued on the Original Issue Date to
all Holders. In addition, each Holder may allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares and Warrants held by it
in its sole discretion. Such portion shall be adjusted upward ratably in the event a Holder no longer holds any Debentures or Warrants and the
amount of shares issued to the Holder pursuant to the Holder's Debentures, Shares and Warrants was less than the Holder's pro-rata share of the
Issuable Maximum.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend
or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or
payment of interest on, the Debentures or upon exercise of the Warrants), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable,
sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any
option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common
Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the "Base Conversion Price" and such
issuances, collectively, a "Dilutive Issuance") (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price
on such date of the Dilutive Issuance), then simultaneously with the consummation of each Dilutive Issuance the Conversion Price shall be
reduced to equal the Base Conversion Price. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or
Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price,
conversion price and other pricing terms (such notice, the "Dilutive Issuance Notice"). For purposes of clarification , whether or not the Company
provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the
Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
12
c) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
d) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section
5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the
Debenture Register, at least five (5) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend, distribution, redemption , rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such reclassification, consolidation , merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent
that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The
Holder shall remain entitled to convert this Debenture during the 5-day period commencing on the date of such notice through the
effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 6. Redemptions.
a) Optional Redemption at Election of Company. Subject to the provisions of this Section 6(a), at any time after the Original
Issue Date, the Company may deliver a notice to the Holder (an "Optional Redemption Notice" and the date such notice is deemed delivered
hereunder, the "Optional Redemption Notice Date") of its irrevocable election to redeem all, but not less than all, of the then outstanding principal
amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the tenth (10th) Trading Day following the Optional
Redemption Notice Date (such date, the "Optional Redemption Date", such ten (10) Trading Day period, the "Optional Redemption Period" and
such redemption, the "Optional Redemption"). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The
Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder)
on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and
through and including the date on which payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions
shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within three (3) Trading Days after the first day on which any such Equity Condition has not been met (provided
that if, by a provision of the Transaction Documents , the Company is obligated to notify the Holder of the non-existence of an Equity Condition ,
such notice period shall) be extended to the third (3rd )Trading Day after proper notice from the Company) in which case the Optional Redemption
Notice shall be null and void,ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company's determination to
pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their
predecessor' s) initial purchases of Debentures pursuant to the Purchase Agreement. In addition, in the event of any Optional Redemption, the
Company shall issue to the Holder Series B Warrants to purchase a number of shares of Common Stock equal to 50% of the Conversion Shares
issuable on an as-converted basis of the principal amount of the Holder's Debenture redeemed in the Optional Redemption (for purposes of clarity,
not including any principal amount of this Debenture that is converted by the Holder during the Optional Redemption Period) as if such principal
amount of this Debenture was converted immediately prior to such Optional Redemption , in the form of Series A Warrant issued on the Closing
Date, exercisable for a period of five (5) years from the Optional Redemption Date (the "Series B Warrant"). The Company shall deliver the Series
B Warrants on the Optional Redemption Date. The purchase price of one share of Common Stock under this Series B Warrant shall be equal to the
Conversion Price of the Debenture on the Optional Redemption Date.
13
b) Redemption Procedure. The payment of cash and the issuance of the Series B Warrant pursuant to an Optional Redemption
shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the
Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 10% per annum or the maximum rate
permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the
Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company' s failure to honor the Optional Redemption, the
Company shall have no further right to exercise such Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the
Company's determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Debentures. The
Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any
redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least a majority
in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur , assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to
any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness (other than Indebtedness under clauses
(c) and (d) in the definition of Permitted Indebtedness), other than the Debentures if on a pro-rata basis; or
e) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
a) "Event of Default" means, wherever used herein, any of the following events (whatever the reason for such event and
whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or
any order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other
amounts owing to a Holder under any Debenture, as and when the same shall become due and payable (whether on a Conversion Date,
Optional Redemption Date, or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under
clause (B) above, is not cured within three (3) Trading Days;
14
ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than
a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed
in clause (ix) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) ten
(10) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) fifteen (15) Trading
Days after the Company has become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument
to which the Company is obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement
pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall
be untrue or incorrect in any material respect as of the date when made or deemed made;
v. the Company or any Significant Subsidiary (as such term is defined m Rule l-02(w) of Regulation S-X) shall be subject
to a Bankruptcy Event;
vi. the Company shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation
greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible
to resume listing or quotation for trading thereon within five (5) Trading Days;
viii. the Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess
of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control
Transaction);
ix. the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth (5th) Trading Day
after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company's intention to not honor requests for conversions of any Debentures in accordance with the terms
hereof;
x. any monetary judgment, writ or similar final process shall be entered or filed against the Company or any of its
property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of sixty (60) calendar days, unless such judgment, writ or similar final process is covered by an independent third
party insurer which insurer has been notified of such judgement or order and has acknowledged in writing coverage of the judgment, writ
or final process within such 60 day period; or
xi. a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity
Conditions are satisfied or that there has been no Equity Conditions failure or as to whether any Event of Default has occurred.
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b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus
accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the
Holder's election, immediately due and payable in cash at the Mandatory Default Amount. Commencing five (5) days after the occurrence of any
Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal
to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount,
the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the
Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall
have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such
rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including,
without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a
nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email
address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and
all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by
facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number,
email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address
appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or
other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages
attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages
attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such
notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this
Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company.
This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.
c) Transferability. Subject to compliance with any applicable securities laws, this Debenture, and the provisions of Section 4.1
of the Purchase Agreement, this Debenture and all rights hereunder (including, without limitation, any registration rights) are transferable, in
whole or in part, upon surrender of this Debenture at the principal office of the Company or its designated agent, together with a written
assignment of this Debenture substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to
pay any transfer taxes payable upon the making of such transfer.
16
d) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss , theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company, together with
such instruments of indemnity (which in no event shall include the posting of any bond) as the Company may reasonably request.
e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall
be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of
conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the
"New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents) , and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable and documented attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of
such action or proceeding.
f) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any
waiver by the Company or the Holder must be in writing.
g) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall
remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances . If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury,
the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.
The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
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h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture
shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in
equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual
and consequential damages for any failure by the Company to comply with the terms of this Debenture. To the fullest extent permitted by
applicable law, no party hereto shall assert, and each party hereby waives, and acknowledges that no other Person shall have, any claim against
any other party hereto, on any theory of liability, for special or punitive damages arising out of, in connection with, or as a result of, this
Debenture, any other Transaction Document or any agreement or instrument contemplated hereby and thereby or the transactions contemplated
hereby and thereby. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable
harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such
breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The
Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the
Company's compliance with the terms and conditions of this Debenture.
i) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day,
such payment shall be made on the next succeeding Business Day.
j) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not
be deemed to limit or affect any of the provisions hereof.
k) Amendment. This Debenture may be modified or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
l) Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company
pursuant to the Security Agreement, dated as of February 22, 2019 between the Company and the Secured Parties (as defined in the Security
Agreement).
m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors
and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the
Holder (other than by merger). The Holder may assign any or all of its rights under this Agreement to any Person with the prior written consent of
the Company and provided that such transferee shall agrees in writing to be bound, with respect to the transferred Securities, by the provisions of
the Transaction Documents that apply to the "Holder"; provided, however, that, in connection with any transfer in whole or in part of this
Debenture to an Affiliate of the Holder, such transfer shall not require the prior written consent of the Company and, in connection with such
transfer to an Affiliate of the Holder, the Holder shall not be required to physically surrender this Debenture to the Company.
*********************
(Signature Page Follows)
18
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above
indicated.
IDEANOMICS, INC.
By:
Name:
Title:
Facsimile No. for delivery of Notices:
Email address for delivery of Notices:
19
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the l0% Senior Secured Convertible Debenture due March 27, 2021 of Ideanomics, Inc.,
a Nevada corporation (the "Company"), into shares of common stock (the "Common Stock"), of the Company according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock
does not exceed the amounts specified under Section 4(d) of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer
of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock _ yes _ no
If yes, $ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker No:
Account No:
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Schedule 1
CONVERSION SCHEDULE
The 10% Senior Secured Convertible Debentures due on March 27, 2021 in the aggregate principal amount of $ are issued by Ideanomics,
Inc., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.
Date of Conversion
(or for first entry,
Original Issue Date)
Amount of
Conversion
Company Attest
Dated:
Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion
(or original
Principal
Amount)
21
Schedule 2
ASSIGNMENT FORM
(To assign the foregoing Debenture, execute this form and supply required information. Do not use this form to convert the Debenture.)
FOR VALUE RECEIVED, the foregoing Debenture and all rights evidenced thereby are hereby assigned to
Name:
Address:
Phone Number:
Email Address:
Dated: ,
Holder's Signature:
Holder's Address:
(Please Print)
(Please Print)
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NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.101
SERIES A-3 COMMON STOCK PURCHASE WARRANT
IDEANOMICS, INC.
Warrant Shares:600,000
Initial Exercise Date: October 29, 2019
THIS SERIES A-3 COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ID VENTURAS 7
LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on September 27, 2024 (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Ideanomics, Inc., a Nevada corporation (the “Company”), up to 600,000 shares (as subject to
adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the
Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the “Purchase Agreement”), dated October 29, 2019, among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time
or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy
or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within
the two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified
in the applicable Notice of Exercise by wire transfer in immediately available funds unless the cashless exercise procedure specified in
Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for
cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this
Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The
Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company
shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a
portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less
than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $1.00, subject to adjustment
hereunder (the “Exercise Price”).
c) Cashless Exercise. If at any time after the six-month anniversary of the Closing Date, there is no effective registration statement
registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in
whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal
to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such
Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both
executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined
in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the
Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid
Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s delivery
of the applicable Notice of Exercise if such Notice of Exercise is delivered during “regular trading hours” on a Trading Day
(including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or
(iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such
Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such
Trading Day;
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(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if
such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares
being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not then listed or
quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets
Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by
OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share
of the Common Stock so reported.
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder
to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account
with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then
a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant
Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without
volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the
Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is
entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is two
(2) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”).
Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the
Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received
within two (2) Trading Days following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the
Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on
the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per
Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain
a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable.
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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company
shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares,
deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for
by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant
Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such
exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any
other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant
Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share
Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of
the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in
cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (I) the number of Warrant Shares
that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the
sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise
shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation of $ 10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the
amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such
exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to
such fraction multiplied by the Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and
expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for
same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing
corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
5
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have
the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons
acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own
in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a
limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates
or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To
the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s
determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and
Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any
group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic
or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more
recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the
written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or
Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or
decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any
increase in the Beneficial Ownership Limitation will not be effective until the sixty first (6151) day after such notice is delivered to the
Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the
terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to
such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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t) Issuance Restrictions. If the Company has not obtained Shareholder Approval, then the Company may not issue upon exercise
of this Warrant a number of shares of Common Stock, which, when aggregated with any shares of Common Stock issued (i) pursuant to
the conversion of any Debentures issued pursuant to the Purchase Agreement, (ii) upon prior exercise of this or any other Warrant issued
pursuant to the Purchase Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement, would exceed 1
shares of Common Stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of the Purchase Agreement (such number of shares, the “Issuable
Maximum”). The Holder and the holders of the other Warrants issued pursuant to the Purchase Agreement shall be entitled to a portion of
the Issuable Maximum equal to the quotient obtained by dividing (x) the Holder’s original Subscription Amount by (y) the aggregate
original Subscription Amount of all holders pursuant to the Purchase Agreement. In addition, the Holder may allocate its pro-rata portion
of the Issuable Maximum among Debentures, Shares and Warrants held by it in its sole discretion. Such portion shall be adjusted upward
ratably in the event a Purchaser no longer holds any Debentures or Warrants and the amount of shares issued to such Purchaser pursuant
to its Debentures, Shares and Warrants was less than such Purchaser’s pro-rata share of the Issuable Maximum.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares
of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this
Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged . Any adjustment made
pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-
classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding,
shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or
any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the
Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood
and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than
the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such
effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to
equal the Base Share Price. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an
Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of
any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.
1l9.99% of l/O on date of SPA.
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c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or
more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property
and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more
related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby
such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held
by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), the Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(c) pursuant to written
agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding
number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the value of the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise
price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental
Transaction). Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as
defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the
Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from
the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of
this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on
the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of
consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the
Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying
price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any
non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the
public announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental
Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds
within ten (10) Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction).
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d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
e) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after
such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts
requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the
Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall
appear upon the Warrant Register of the Company, at least five (5) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as
of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The Holder shall remain entitled to exercise this Warrant
during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may
otherwise be expressly set forth herein.
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Transfer of Warrant.
Section 4.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and
to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. In connection with an assignment of this Warrant, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning
some or all of this Warrant; provided, however, that, in connection with any assignment of this Warrant to an Affiliate of the Holder, the Holder
shall not be required to physically surrender this Warrant to the Company. The Warrant, if properly assigned to an Affiliate of the Holder in
accordance herewith, may be exercised by such Affiliate for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this
Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the
“Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer
of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state
securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case
may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
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e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant
and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except
pursuant to sales registered or exempted under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and
in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant
Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges
created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such
issue).
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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use
commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may
be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and
the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this
Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase Agreement.
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i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the
Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any
action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of
Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable
by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
********************
(Signature Page Follows)
13
first above indicated.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date
IDEANOMICS, INC.
Name: Conor McCarthy
Title: CFO
By:
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TO: IDEANOMICS, INC.
NOTICE OF EXERCISE
(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached
Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[] if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
(4) Accredited Investor. The undersigned is an “accredited investor” as defined m Regulation D promulgated under the Securities Act
of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
ASSIGNMENT FORM
EXHIBIT B
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
(Please Print)
(Please Print)
Name:
Address:
Phone Number:
Email Address:
Dated:
Holder’s Signature:
Holder’s Address:
ADDITIONAL ISSUANCE AGREEMENT
Exhibit 10.102
This Additional Issuance Agreement (this “Agreement”), dated as of November 8, 2019, is made pursuant to Section 4.13 of that certain Securities
Purchase Agreement, dated as of September 27, 2019 (the “Purchase Agreement”), as amended, by and between Ideanomics, Inc. (the “Company”) and ID
Ventures 7, LLC (the “Purchaser”) for the purchase of the Company’s 10% Senior Secured Convertible Debentures due March 27, 2021 (the “Additional
Debenture”), shares of Common Stock (“Additional Shares”) and Common Stock Purchase Warrants (“Additional Warrants” and together with the
Additional Debentures and Additional Shares, the “Additional Securities”). Capitalized terms used and not otherwise defined herein that are defined
in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Issuance of Additional Debenture, Additional Shares and Additional Warrants. The Company hereby agrees to issue to the Purchaser, and
the Purchaser hereby agrees to purchase, an Additional Debenture in the aggregate principal amount of $250,000, which Additional Debenture shall
otherwise be in the form of the Debenture along with Additional Warrants to purchase up to 375,000 shares of Common Stock, which Additional Warrant
shall otherwise be in the form of the Warrant and 260,000 Additional Shares (100,000 Additional Shares pursuant to this Agreement and 160,000 shares
pursuant to the Additional Issuance Agreement dated October 29, 2019). The Company shall promptly deliver to the Purchaser the Additional Securities.
2. Documents. The rights and obligations of the Purchaser and of the Company with respect to the Additional Securities, Additional Shares
and the shares of Common Stock issuable under the Additional Securities (the “New Underlying Shares”) shall be identical in all respects to the rights and
obligations of such Purchaser and of the Company with respect to the Debentures, the Warrants and the Underlying Shares issued and issuable pursuant to
the Purchase Agreement. Any rights of a Purchaser or covenants of the Company which are dependent on such Purchaser holding securities of the
Company or which are determined in magnitude by such Purchaser’s purchase of securities pursuant to the Purchase Agreement shall be deemed to include
any securities purchased or issuable hereunder. The Purchase Agreement is hereby amended so that the term “Debentures” includes the Additional
Debenture, the term “Warrant” includes the Additional Warrant, the term “Shares” includes the “Additional Shares” and the term “Underlying Shares”
includes the New Underlying Shares.
3. Security Interest. Company hereby acknowledges and agrees that the security interests granted to the holders of the Existing Debentures and
Debentures pursuant to the Existing Security Agreement applies to and covers the obligations of the Company to the Purchasers evidenced by the
Additional Debentures and (b) the Additional Debentures rank pari passu to the Existing Debentures and the Debentures.
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4. Subsidiary Guarantee. The Additional Debenture constitutes an “Obligation” under the Subsidiary Guarantee as if the Additional
Debentures were Debentures issued pursuant to the Purchase Agreement.
5. Representations and Warranties of the Company. The Company hereby makes to the Purchaser the following representations and warranties:
(a) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in
connection therewith. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or
articles of incorporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the creation of any Lien (except as contemplated by the Security
Documents) upon any of the properties or assets of the Company in connection with, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material
instrument (evidencing Company debt or otherwise) or other material understanding to which such Company is a party or by which any property
or asset of the Company is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected, except, in the
case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
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(c) Issuance of the Additional Securities. The Additional Securities are duly authorized and, upon the execution of this Agreement by
a Purchaser, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Additional Underlying Shares, when issued in accordance with the terms
of the Additional Securities, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Additional Underlying
Shares at least equal to the Required Minimum on the date hereof.
(d) Affirmation of Prior Representations and Warranties. Except as set forth on Schedule 4(d) hereto, the Company hereby represents
and warrants to each Purchaser that the Company’s representations and warranties listed in Section 3.1 of the Purchase Agreement are true and
correct as of the date hereof.
4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof to the Company as
follows:
(a) Authority. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part of such Purchaser. This Agreement has been duly executed by such
Purchaser and, when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser (i) understands that the Additional Securities are “restricted security” and have not been registered
under the Securities Act or any applicable state securities law, (ii) is acquiring the Additional Securities as principal for its own account and not
with a view to or for distributing or reselling such Additional Securities or any part thereof in violation of the Securities Act or any applicable state
securities law, (iii) has no present intention of distributing any of such securities in violation of the Securities Act or any applicable state securities
law and (iv) has no arrangement or understanding with any other persons regarding the distribution of such Additional Securities (this
representation and warranty not limiting such Purchaser’s right to sell the Additional Underlying Shares pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Additional Securities hereunder in the ordinary course of its business. Such Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to distribute any of the Additional Securities or Additional Underlying Shares.
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(c) Purchaser Status. Such Purchaser is an “accredited investor” as defined in Rule 501 under the Securities Act.
(d) General Solicitation. Such Purchaser is not purchasing the Additional Securities as a result of any advertisement, article, notice or
other communication regarding the Additional Securities published in any newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or any other general solicitation or general advertisement.
5. Public Disclosure. The Company shall, on or before 9 am ET on the Trading Day immediately following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to the Purchaser, disclosing the material terms of the transactions contemplated hereby and attaching this
Agreement as an exhibit thereto. The Company shall consult with the Purchaser in issuing any other press releases with respect to the transactions
contemplated hereby.
6. Delivery of Opinion. Concurrently herewith, the Company shall deliver to the Purchaser an opinion of counsel regarding this Agreement
and the issuance of the Additional Securities in form and substance reasonably acceptable to the Purchaser.
7. Effect on Transaction Documents. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall
continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth
herein, including, but not limited to, any other obligations the Company may have to the Purchaser under the Transaction Documents. Notwithstanding the
foregoing, this Agreement shall be deemed for all purposes as an amendment to any Transaction Document as required to serve the purposes hereof, and in
the event of any conflict between the terms and provisions of the Debentures or any other Transaction Document, on the one hand, and the terms and
provisions of this Agreement, on the other hand, the terms and provisions of this Agreement shall prevail.
8. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the
Company and each Purchaser.
9. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set
forth in the Purchase Agreement.
10. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Purchaser. The Company may not assign (except by merger) its rights or obligations hereunder without the
prior written consent of the Purchaser of the then-outstanding Securities. The Purchaser may assign their rights hereunder in the manner and to the Persons
as permitted under the Purchase Agreement.
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11. Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail
delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
12. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined
in accordance with the provisions of the Purchase Agreement.
13. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
14. Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
15. Fees and expenses. At the closing, the Company has agreed to reimburse the Purchaser $5,000 for its fees and expenses. The Company
shall deliver to each Purchaser, prior to closing, a completed and executed copy of a closing statement, for the closing of the purchase and sale of the
Additional Securities, otherwise in the form attached to the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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Executed as of the first date written above by the undersigned duly authorized representatives of the Company and the Purchaser:
NOVEMBER 8th 2019 Issuance
IDEANOMICS, INC.
By:
Name: Conor McCarthy
Title: CFO
Name of Purchaser:
ID Ventures 7, LLC
Signature of Authorized Signatory:
Name of Authorized
Signatory:
Antonio Ruiz-Gimenez
Title of Authorized Signatory: Managing Partner
Subscription Amount: $250,000
Principal Amount: $250,000
Warrant Shares: 375,000
Shares: 260,000
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NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.103
Original Issue Date: November 8, 2019
Original Conversion Price (subject to adjustment herein): $1.00
10% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE MARCH 27, 2021
$250,000.00
THIS 10% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 10% Senior Secured
Convertible Debentures of Ideanomics, Inc., a Nevada corporation (the “Company”), having its principal place of business at 55 Broadway, 19th Floor,
New York, New York 10006, designated as its 10% Senior Secured Convertible Debenture due March 27, 2021 (this debenture, the “Debenture” and,
collectively with the other debentures of such series, the “Debentures”).
FOR VALUE RECEIVED, the Company promises to pay to ID VENTURAS 7 LLC or its registered assigns (the “Holder”), or shall have paid
pursuant to the terms hereunder, the principal sum of $250,000 on March 27, 2021 (the “Maturity Date”) or such earlier date as this Debenture is required
or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
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“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule l-
02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization. arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary
thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed
within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days
after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the
Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring
of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due,
or (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Base Conversion Price” shall have the meaning set forth in Section 5(b).
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Buy-In” shall have the meaning set forth in Section 4(c)(v).
“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through
legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), including,
without limitation, through a purchase offer, tender offer or exchange offer (whether by the Company or another Person) or a stock or share
purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement), in one or more related transactions, (b) the Company merges into or consolidates with any other Person, or any Person merges into
or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or
transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less
than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.
2
“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed.
“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the
terms hereof.
“Debenture Register” shall have the meaning set forth in Section 2(c).
“Dilutive Issuance” shall have the meaning set forth in Section 5(b).
“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).
“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.
“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all
liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c) with respect to Section 2 only, (i) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock
issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash
payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information
requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock
on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there
is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default,
(g) the issuance of the shares in question (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional
Redemption Amount) to the Holder would not violate the limitations set forth in Section 4(d) and Section 4(e) herein, (h) there has been no public
announcement of a pending or proposed Change of Control Transaction that has not been consummated, and (i) the applicable Holder is not in
possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates,
that constitutes, or may constitute, material non-public information.
3
“Event of Default” shall have the meaning set forth in Section 8(a).
“Interest Conversion Rate” means 85% of the lesser of (i) the average of the VWAPs for the 5 consecutive Trading Days ending on the
Trading Day that is immediately prior to the applicable Interest Payment Date or (ii) the average of the VWAPs for the 5 consecutive Trading
Days ending on the Trading Day that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such
delivery is after the Interest Payment Date.
“Interest Conversion Shares” shall have the meaning set forth in Section 2(a).
“Interest Notice Period” shall have the meaning set forth in Section 2(a).
“Interest Payment Date” shall have the meaning set forth in Section 2(a).
“Interest Share Amount” shall have the meaning set forth in Section 2(a).
“Issuable Maximum” shall have the meaning set forth in Section 4(e).
“Late Fees” shall have the meaning set forth in Section 2(d).
“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued
and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the
VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or
(ii) 110% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs,
expenses and liquidated damages due in respect of this Debenture.
4
“New York Courts” shall have the meaning set forth in Section 9(e).
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“Optional Redemption” shall have the meaning set forth in Section 6(a).
“Optional Redemption Amount” means the sum of (a) the then outstanding principal amount of the Debenture, (b) accrued but unpaid
interest and (c) all liquidated damages and other amounts due in respect of the Debenture.
“Optional Redemption Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption Period” shall have the meaning set forth in Section 6(a).
“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debentures.
“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue
Date and set forth on Schedule 3.1(p) attached to the Purchase Agreement, (c) indebtedness resulting from a bank or other financial institution
honoring a check, draft or similar instrument in the ordinary course of business, (d) indebtedness arising under or in connection with cash
management services in the ordinary course of business, (e) equipment lease obligations and purchase money indebtedness of up to $1,000,000, in
the aggregate, incurred in connection with the acquisition of fixed or capital assets and equipment lease obligations with respect to newly acquired
or leased assets, (f) indebtedness under bank lines of credit up to $5,000,000 in the aggregate, at any time outstanding, (g) up to an aggregate of
$5,000,000 of indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers
that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the ninety first (91st) day following the
Maturity Date, and (h) obligations existing or arising under any swap or hedge contract; provided that such obligations are (or were) entered into
by the Company in the ordinary course of business for the purpose of mitigating risks associated with liabilities, commitments, investments, assets
or property held or reasonably anticipated by the Company, or changes in the value of securities issued by the Company, and not for speculative
purposes.
5
“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory’ landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s
business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the
use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset
subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (b) thereunder, (d) Liens incurred in
connection with Permitted Indebtedness under clause (e) thereunder, provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased, (e) any interest or title of a lessor, sublessor, licensor or sublicensor under leases or
licenses that are entered into in the ordinary course of business, (f) leases, licenses, subleases, or sublicenses granted to others in the ordinary
course of business that do not (i) interfere in any material respect with the ordinary conduct of the business of the Company or (ii) secure any
indebtedness, or (g) Liens securing judgments against the Company for the payment of money that does not constitute an Event of Default.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of September 27, 2019, as amended, among the Company and
the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Registration Rights Agreement” means the Registration Rights Agreement, dated on or about the date of the Purchase Agreement,
among the Company and the original Holders, in the form of Exhibit B to the Purchase Agreement.
“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Series B Warrant” shall have the meaning set forth in Section 6(a).
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the
date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York
Stock Exchange (or any successors to any of the foregoing).
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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by
OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported.
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 10% per annum, payable quarterly in arrears on January 1, April 1, July 1 and
October 1, beginning on the first such date alter the Original Issue Date, on each Conversion Date (as to that principal amount then being
converted), on each Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an
“Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding
Business Day), in cash or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at
the Interest Conversion Rate (the dollar amount to be paid in shares, the “Interest Share Amount”) or a combination thereof: provided, however,
that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in
writing) during the ten (10) Trading Days immediately prior to the applicable Interest Payment Date (the “Interest Notice Period”) and through
and including the date such shares of Common Stock are actually issued to the Holder, (ii) the Company shall have given the Holder notice in
accordance with the notice requirements set forth below, and (iii) as to such Interest Payment Date, prior to such Interest Notice Period (but not
more than five (5) Trading Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder’s
account with The Depository Trust Company a number of shares of Common Stock due such Holder to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount divided by (y) the Interest Conversion Rate assuming for such purposes
that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice Period (the “Interest Conversion
Shares”).
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b) Company’s Election to Pay Interest in Cash or Kind. Subject to the terms and conditions herein, the decision whether to pay
interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. If the Company elects
to pay any interest hereunder in shares of Common Stock, the Company shall deliver to the Holder a written notice of its election to pay interest
hereunder ten (10) Trading Days prior to the applicable Interest Payment Date either in shares of Common Stock or a combination of Common
Stock and cash, and the Interest Share Amount as to the applicable Interest Payment Date and the Interest Notice Period with respect to such
payment shall commence as of the date of such notice, provided that the Company may indicate in such notice that the election contained in such
notice shall also apply to future Interest Payment Dates until revised by a subsequent notice. After the first five (5) Trading Days of any Interest
Notice Period, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by
the Company to pay the interest on such Interest Payment Date in cash. At any time that the Company delivers a notice to the Holder of its
election to pay the interest in shares of Common Stock, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing
such election if at such time the Company has an effective Registration Statement that does not otherwise disclosure such election. The aggregate
number of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest
Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.
c) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve (12) thirty (30) calendar
day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all
accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Payment of interest in
shares of Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise occur pursuant to
Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion
Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of this Debenture (the “Debenture Register”). Except as otherwise
provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock to the holders of the
Debentures, then such payment of cash shall be distributed ratably among the holders of the then-outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement.
d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the
lesser of 8% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is
due hereunder through and including the date of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any
Interest Payment Date the Company has elected to pay accrued interest in the form of Common Stock but the Company is not permitted to pay
accrued interest in Common Stock because it fails to satisfy the conditions for payment in Common Stock set forth in Section 2(a) herein, then, at
the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly
scheduled interest payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal
to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on
such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing five (5) Trading Days after the Interest Payment
Date and ending on the Trading Day prior to the date such payment is actually made. If any Interest Conversion Shares are issued to the Holder in
connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly return such excess
shares to the Company.
8
e) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount
of this Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or
exchange.
b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture
shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the
conversion limitations set forth in Section 4(d) and Section 4(e) hereof). The Holder shall effect conversions by delivering to the Company a
properly completed Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein
the principal amount of this Debenture, and any accrued but unpaid interest, to be converted and the date on which such conversion shall be
effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date
that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued
and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably
practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.
The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company
may deliver an objection to any Notice of Conversion within one (1) Business Day of receipt of such Notice of Conversion. In the event of any
dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any
assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the
face hereof.
9
b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $1.00, subject to adjustment herein
(the “Conversion Price”).
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a
conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to
be converted by (y) the Conversion Price.
ii. Delivery of Conversion Shares Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the
“Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after
the six (6) month anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of Conversion Shares being issued upon the conversion
of this Debenture (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of
Common Stock at least ten (10) Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of
Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest
Notice Period is the ten (10) Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the
Company and excluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment
prior to the commencement of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the
Company has elected or is required to pay accrued interest in cash). On or after the six (6) month anniversary of the Original Issue Date,
the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through
the Depository Trust Company or another established clearing corporation performing similar functions.
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iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not
delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to
the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company
shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the
Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
iv. Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the
Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert
any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or
anyone associated or affiliated with the Holder has been engaged in any violation of law or any agreement (except if, upon the Holder’s
election to convert any principal amount here, the Company’s delivery of Conversion Shares in connection therewith constitutes a
violation of law by the Company, evidenced by a written opinion of counsel to the Company), unless an injunction from a court, on
notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of 125% of the outstanding principal amount of this Debenture,
which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute
and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the
Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason
to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day
after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit
a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other
rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery
Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available
to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for
the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was
entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this
Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be
deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had
timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual
sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.
vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture
and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall
be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations
under the Registration Rights Agreement).
vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of
this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the
Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.
viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of
such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this
Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or
Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation
performing similar functions) required for same-day electronic delivery of the Conversion Shares.
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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have
the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the
Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and
Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the
Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the
extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible
shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of
whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties)
and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance
with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most
recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent
public announcement by the Company, or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written request of a Holder, the Company shall within one Trading Day confirm in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be
4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock
issuable upon conversion of this Debenture held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number
of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this
Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the
Beneficial Ownership Limitation will not be effective until the sixty first (61st) day after such notice is delivered to the Company. The Beneficial
Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the
terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor holder of this Debenture.
13
e) Issuance Limitations. Notwithstanding anything herein to the contrary, if the Company has not obtained Shareholder Approval,
then the Company may not issue, upon conversion of this Debenture, a number of shares of Common Stock which, when aggregated with any
shares of Common Stock issued on or after the Original Issue Date and prior to such Conversion Date (i) in connection with the conversion of any
Debentures issued pursuant to the Purchase Agreement, (ii) in connection with the exercise of any Warrants issued pursuant to the Purchase
Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement, would exceed 25,874,400 shares of Common Stock
(subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (such number of shares, the “Issuable Maximum”). Each
Holder shall be entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the original principal amount of the
Holder’s Debenture by (y) the aggregate original principal amount of all Debentures issued on the Original Issue Date to all Holders. In addition,
each Holder may allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares and Warrants held by it in its sole discretion.
Such portion shall be adjusted upward ratably in the event a Holder no longer holds any Debentures or Warrants and the amount of shares issued
to the Holder pursuant to the Holder’s Debentures, Shares and Warrants was less than the Holder’s pro-rata share of the Issuable Maximum.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or
payment of interest on, the Debentures or upon exercise of the Warrants), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
14
b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable,
sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any
option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common
Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such
issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price
on such date of the Dilutive Issuance), then simultaneously with the consummation of each Dilutive Issuance the Conversion Price shall be
reduced to equal the Base Conversion Price. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or
Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price,
conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company
provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the
Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
c) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
15
d) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5,
the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the
Debenture Register, at least five (5) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent
that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The
Holder shall remain entitled to convert this Debenture during the 5-day period commencing on the dale of such notice through the
effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
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Section 6. Redemptions.
a) Optional Redemption at Election of Company. Subject to the provisions of this Section 6(a), at any time after the Original Issue
Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder,
the “Optional Redemption Notice Date”) of its irrevocable election to redeem all, but not less than all, of the then outstanding principal amount of
this Debenture for cash in an amount equal to the Optional Redemption Amount on the tenth (10th) Trading Day following the Optional
Redemption Notice Date (such date, the “Optional Redemption Date”, such ten (10) Trading Day period, the “Optional Redemption Period” and
such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The
Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder)
on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and
through and including the date on which payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions
shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within three (3) Trading Days after the first day on which any such Equity Condition has not been met (provided
that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition,
such notice period shall be extended to the third (3rd) Trading Day after proper notice from the Company) in which case the Optional Redemption
Notice shall be null and void, abinitio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to
pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. In addition, in the event of any Optional Redemption, the
Company shall issue to the Holder Series B Warrants to purchase a number of shares of Common Stock equal to 50% of the Conversion Shares
issuable on an as-converted basis of the principal amount of the Holder’s Debenture redeemed in the Optional Redemption (for purposes of clarity,
not including any principal amount of this Debenture that is converted by the Holder during the Optional Redemption Period) as if such principal
amount of this Debenture was converted immediately prior to such Optional Redemption, in the form of Series A Warrant issued on the Closing
Date, exercisable for a period of five (5) years from the Optional Redemption Date (the “Series B Warrant”). The Company shall deliver the
Series B Warrants on the Optional Redemption Date. The purchase price of one share of Common Stock under this Series B Warrant shall be equal
to the Conversion Price of the Debenture on the Optional Redemption Date.
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b) Redemption Procedure. The payment of cash and the issuance of the Series B Warrant pursuant to an Optional Redemption
shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the
Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 10% per annum or the maximum rate
permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the
Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any lime
thereafter, to invalidate such Optional Redemption, abinitio, and, with respect to the Company’s failure to honor the Optional Redemption, the
Company shall have no further right to exercise such Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the
Company’s determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Debentures. The
Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any
redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least a majority in
principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed
money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness (other than Indebtedness under clauses
(c) and (d) in the definition of Permitted Indebtedness), other than the Debentures if on a pro-rata basis; or
e) enter into any agreement with respect to any of the foregoing.
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Section 8. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether
such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other
amounts owing to a Holder under any Debenture, as and when the same shall become due and payable (whether on a Conversion Date,
Optional Redemption Date, or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under
clause (B) above, is not cured within three (3) Trading Days;
ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than
a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed
in clause (ix) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) ten
(10) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) fifteen (15) Trading
Days after the Company has become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument
to which the Company is obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement
pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall
be untrue or incorrect in any material respect as of the date when made or deemed made;
v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be
subject to a Bankruptcy Event;
vi. the Company shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation
greater than $500,000, whether such indebtedness now exists or shall
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hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;
vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be
eligible to resume listing or quotation for trading thereon within five (5) Trading Days;
viii. the Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess
of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control
Transaction);
ix. the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth (5th) Trading Day
after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms
hereof;
x. any monetary judgment, writ or similar final process shall be entered or filed against the Company or any of its
property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of sixty (60) calendar days, unless such judgment, writ or similar final process is covered by an independent third
party insurer which insurer has been notified of such judgement or order and has acknowledged in writing coverage of the judgment, writ
or final process within such 60 day period; or
xi. a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity
Conditions are satisfied or that there has been no Equity Conditions failure or as to whether any Event of Default has occurred.
b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus
accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the
Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing five (5) days after the occurrence of any
Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal
to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount,
the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the
Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall
have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such
rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
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Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or
address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices
or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by
email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or
address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books
of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this
Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company.
This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.
22
c) Transferability. Subject to compliance with any applicable securities laws, this Debenture, and the provisions of Section 4.1 of
the Purchase Agreement, this Debenture and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole
or in part, upon surrender of this Debenture at the principal office of the Company or its designated agent, together with a written assignment of
this Debenture substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer.
d) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company, together with
such instruments of indemnity (which in no event shall include the posting of any bond) as the Company may reasonably request.
e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict
of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the
“New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable and documented attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of
such action or proceeding.
23
f) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any
waiver by the Company or the Holder must be in writing.
g) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The
Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or
any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall
be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms of this Debenture. To the fullest extent permitted by applicable
law, no party hereto shall assert, and each party hereby waives, and acknowledges that no other Person shall have, any claim against any other
party hereto, on any theory of liability, for special or punitive damages arising out of, in connection with, or as a result of, this Debenture, any
other Transaction Document or any agreement or instrument contemplated hereby and thereby or the transactions contemplated hereby and
thereby. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened
breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the
terms and conditions of this Debenture.
24
i) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
j) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
k) Amendment. This Debenture may be modified or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
l) Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company pursuant to
the Security Agreement, dated as of February 22, 2019 between the Company and the Secured Parties (as defined in the Security Agreement).
m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the
Holder (other than by merger). The Holder may assign any or all of its rights under this Agreement to any Person with the prior written consent of
the Company and provided that such transferee shall agrees in writing to be bound, with respect to the transferred Securities, by the provisions of
the Transaction Documents that apply to the “Holder”; provided, however, that, in connection with any transfer in whole or in part of this
Debenture to an Affiliate of the Holder, such transfer shall not require the prior written consent of the Company and, in connection with such
transfer to an Affiliate of the Holder, the Holder shall not be required to physically surrender this Debenture to the Company.
*********************
(Signature Page Follows)
25
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above
indicated.
IDEANOMICS, INC.
By:/s/ Conor McCarthy
Name: Conor McCarthy
Title: CFO
Facsimile No. for delivery of
Notices:
Email address for delivery of
Notices:
[ILLEGIBLE]
[ILLEGIBLE]
26
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 10% Senior Secured Convertible Debenture due March 27, 2021 of Ideanomics, Inc.,
a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock
does not exceed the amounts specified under Section 4(d) of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer
of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock ___yes ___no
If yes, $______ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker
No:
Account
No:
Schedule 1
CONVERSION SCHEDULE
The 10% Senior Secured Convertible Debentures due on March 27, 2021 in the aggregate principal amount of $______________ are issued by
Ideanomics, Inc., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.
Date of Conversion
(or for first entry,
Original Issue Date)
Amount of
Conversion
Dated:
Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion
(or original
Principal
Amount)
Company Attest
Schedule 2
ASSIGNMENT FORM
(To assign the foregoing Debenture, execute this form and supply required information. Do not use this form to convert the Debenture.)
FOR VALUE RECEIVED, the foregoing Debenture and all rights evidenced thereby are hereby assigned to
Name:
Address:
Phone Number:
Email Address:
Dated:
Holder’s Signature:
Holder’s Address:
(Please Print)
(Please Print)
,
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.104
SERIES A-4 COMMON STOCK PURCHASE WARRANT
IDEANOMICS, INC.
Warrant Shares:375,000
Initial Exercise Date: November 8, 2019
THIS SERIES A-4 COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ID VENTURAS 7
LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on September 27, 2024 (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Ideanomics, Inc., a Nevada corporation (the “Company”), up to 375,000 shares (as subject to
adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the
Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the “Purchase Agreement”), dated September 27, 2019, as amended, among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or
times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or
PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the
two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in
the applicable Notice of Exercise by wire transfer in immediately available funds unless the cashless exercise procedure specified in
Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for
cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this
Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The
Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company
shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a
portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less
than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $1.00, subject to adjustment hereunder (the
“Exercise Price”).
c) Cashless Exercise. If at any time after the six-month anniversary of the Closing Date, there is no effective registration statement registering,
or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such
time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of
Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and
delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of
Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on
the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the
principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s delivery of the applicable Notice of Exercise if such
Notice of Exercise is delivered during “regular trading hours” on a Trading Day (including until two (2) hours after the close of “regular
trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date
of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after
the close of “regular trading hours” on such Trading Day;
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(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such
exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being
issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if
prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time)
to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not then listed or quoted for trading on OTCQB or
OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group. Inc. (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported.
3
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be
transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The
Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in
such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the
Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale
limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the
name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the
address specified by the Holder in the Notice of Exercise by the date that is two (2) Trading Days after the delivery to the Company of the
Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed
for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in
the case of a cashless exercise) is received within two (2) Trading Days following delivery of the Notice of Exercise. If the Company fails
for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such
exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to
$20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer
agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the
request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a
new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant
to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
4
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights
available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with
the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the
Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the
amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection
with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not
honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of
shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $ 10,000, under clause (A) of the
immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely
deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company
shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the
Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by
the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this
Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and
the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository
Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of
the Warrant Shares.
5
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set
forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with
the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect
to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of
the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise
or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other
Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the
Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation
contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the
Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in
relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is
exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the
Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or
Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of
Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number
of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this
Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation
will not be effective until the sixty first (61st) day after such notice is delivered to the Company. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor
holder of this Warrant.
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f) Issuance Restrictions. If the Company has not obtained Shareholder Approval, then the Company may not issue upon exercise of
this Warrant a number of shares of Common Stock, which, when aggregated with any shares of Common Stock issued (i) pursuant to the
conversion of any Debentures issued pursuant to the Purchase Agreement, (ii) upon prior exercise of this or any other Warrant issued pursuant to
the Purchase Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement, would exceed 26,000,000 shares of
Common Stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of
the Common Stock that occur after the date of the Purchase Agreement (such number of shares, the ‘‘Issuable Maximum”). The Holder and the
holders of the other Warrants issued pursuant to the Purchase Agreement shall be entitled to a portion of the Issuable Maximum equal to the
quotient obtained by dividing (x) the Holder’s original Subscription Amount by (y) the aggregate original Subscription Amount of all holders
pursuant to the Purchase Agreement. In addition, the Holder may allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares
and Warrants held by it in its sole discretion. Such portion shall be adjusted upward ratably in the event a Purchaser no longer holds any
Debentures or Warrants and the amount of shares issued to such Purchaser pursuant to its Debentures, Shares and Warrants was less than such
Purchaser’s pro-rata share of the Issuable Maximum.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which,
for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into
a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case
the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of
this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.
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b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or
grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect
(such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the
Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation of each
Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price. Notwithstanding the foregoing, no adjustments shall
be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading
Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the
applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).
For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder
accurately refers to the Base Share Price in the Notice of Exercise.
c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct
or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the
outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase
agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with
another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons
making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), the Company shall cause
any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the
obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(c) pursuant to
written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the value of the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this Warrant) with an exercise price which applies the exercise price hereunder to such
shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value
of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this
Warrant immediately prior to the consummation of such Fundamental Transaction). Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with,
or within thirty (30) days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable
Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined
below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value”
means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg. L.P. (“Bloomberg”)
determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per
share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash
consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the public
announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental Transaction and (D) a
remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date.
The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within ten (10) Business Days of the Holder’s
election (or, if later, on the effective date of the Fundamental Transaction).
8
d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number
of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
e) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the
Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and
any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the
Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least five (5) calendar
days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder shall remain entitled to exercise this Warrant during the period
commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set
forth herein.
9
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written
assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. In connection with an assignment of this Warrant, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the
date on which the Holder delivers an assignment form to the Company assigning some or all of this Warrant; provided, however, that, in connection with
any assignment of this Warrant to an Affiliate of the Holder, the Holder shall not be required to physically surrender this Warrant to the Company. The
Warrant, if properly assigned to an Affiliate of the Holder in accordance herewith, may be exercised by such Affiliate for the purchase of Warrant Shares
without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent
or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants
issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares
issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the
contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this
Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue
sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the
Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the
provisions of Section 5.7 of the Purchase Agreement.
10
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any
exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such
Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted
under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a
stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the
duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
11
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase
the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value,
(ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations
under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any
public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder
does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as
a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase
Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable
attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
12
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific
performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of
this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the
Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above
indicated.
IDEANOMICS, INC.
By: /s/ Conor McCarthy
Name: Conor McCarthy
Title: CFO
14
TO: IDEANOMICS, INC.
NOTICE OF EXERCISE
(only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
______________________________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
______________________________________________
______________________________________________
______________________________________________
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act
of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
ASSIGNMENT FORM
EXHIBIT B
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
(Please Print)
(Please Print)
Name:
Address:
Phone Number:
Email Address:
Dated:
Holder’s Signature:
Holder’s Address:
ADDITIONAL ISSUANCE AGREEMENT
Exhibit 10.105
This Additional Issuance Agreement (this “Agreement”), dated as of November 13, 2019, is made pursuant to Section 4.13 of that certain
Securities Purchase Agreement, dated as of September 27, 2019 (the “Purchase Agreement”), as amended, by and between Ideanomics, Inc. (the
“Company”) and ID Ventures 7, LLC (the “Purchaser”) for the purchase of the Company’s 10% Senior Secured Convertible Debentures due March 27,
2021 (the “Additional Debenture”), shares of Common Stock (“Additional Shares”) and Common Stock Purchase Warrants (“Additional Warrants” and
together with the Additional Debentures and Additional Shares, the “Additional Securities”). Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Issuance of Additional Debenture, Additional Shares and Additional Warrants. The Company hereby agrees to issue to the Purchaser, and
the Purchaser hereby agrees to purchase, an Additional Debenture in the aggregate principal amount of $200,000, which Additional Debenture shall
otherwise be in the form of the Debenture along with Additional Warrants to purchase up to 300,000 shares of Common Stock, which Additional Warrant
shall otherwise be in the form of the Warrant and 80,000 Additional Shares. The Company shall promptly deliver to the Purchaser the Additional
Securities.
2. Documents. The rights and obligations of the Purchaser and of the Company with respect to the Additional Securities, Additional Shares
and the shares of Common Stock issuable under the Additional Securities (the “New Underlying Shares”) shall be identical in all respects to the rights and
obligations of such Purchaser and of the Company with respect to the Debentures, the Warrants and the Underlying Shares issued and issuable pursuant to
the Purchase Agreement. Any rights of a Purchaser or covenants of the Company which are dependent on such Purchaser holding securities of the
Company or which are determined in magnitude by such Purchaser’s purchase of securities pursuant to the Purchase Agreement shall be deemed to include
any securities purchased or issuable hereunder. The Purchase Agreement is hereby amended so that the term “Debentures” includes the Additional
Debenture, the term “Warrant” includes the Additional Warrant, the term “Shares” includes the “Additional Shares” and the term “Underlying Shares”
includes the New Underlying Shares.
3. Security Interest. Company hereby acknowledges and agrees that the security interests granted to the holders of the Existing Debentures and
Debentures pursuant to the Existing Security Agreement applies to and covers the obligations of the Company to the Purchasers evidenced by the
Additional Debentures and (b) the Additional Debentures rank pari passu to the Existing Debentures and the Debentures.
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4. Subsidiary Guarantee. The Additional Debenture constitutes an “Obligation” under the Subsidiary Guarantee as if the Additional
Debentures were Debentures issued pursuant to the Purchase Agreement.
5. Representations and Warranties of the Company. The Company hereby makes to the Purchaser the following representations and warranties:
(a) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in
connection therewith. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or
articles of incorporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the creation of any Lien (except as contemplated by the Security
Documents) upon any of the properties or assets of the Company in connection with, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material
instrument (evidencing Company debt or otherwise) or other material understanding to which such Company is a party or by which any property
or asset of the Company is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected, except, in the
case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
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(c) Issuance of the Additional Securities. The Additional Securities are duly authorized and, upon the execution of this Agreement by
a Purchaser, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Additional Underlying Shares, when issued in accordance with the terms
of the Additional Securities, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Additional Underlying
Shares at least equal to the Required Minimum on the date hereof.
(d) Affirmation of Prior Representations and Warranties. Except as set forth on Schedule 4(d) hereto, the Company hereby represents
and warrants to each Purchaser that the Company’s representations and warranties listed in Section 3.1 of the Purchase Agreement are true and
correct as of the date hereof.
4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof to the Company as
follows:
(a) Authority. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate or similar action on the part of such Purchaser. This Agreement has been duly executed by such
Purchaser and, when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser (i) understands that the Additional Securities are “restricted security” and have not been registered
under the Securities Act or any applicable state securities law, (ii) is acquiring the Additional Securities as principal for its own account and not
with a view to or for distributing or reselling such Additional Securities or any part thereof in violation of the Securities Act or any applicable state
securities law, (iii) has no present intention of distributing any of such securities in violation of the Securities Act or any applicable state securities
law and (iv) has no arrangement or understanding with any other persons regarding the distribution of such Additional Securities (this
representation and warranty not limiting such Purchaser’s right to sell the Additional Underlying Shares pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Additional Securities hereunder in the ordinary course of its business. Such Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to distribute any of the Additional Securities or Additional Underlying Shares.
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(c) Purchaser Status. Such Purchaser is an “accredited investor” as defined in Rule 501 under the Securities Act.
(d) General Solicitation. Such Purchaser is not purchasing the Additional Securities as a result of any advertisement, article, notice or
other communication regarding the Additional Securities published in any newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or any other general solicitation or general advertisement.
5. Public Disclosure. The Company shall, on or before 9 am ET on the Trading Day immediately following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to the Purchaser, disclosing the material terms of the transactions contemplated hereby and attaching this
Agreement as an exhibit thereto. The Company shall consult with the Purchaser in issuing any other press releases with respect to the transactions
contemplated hereby.
6. Delivery of Opinion. Concurrently herewith, the Company shall deliver to the Purchaser an opinion of counsel regarding this Agreement
and the issuance of the Additional Securities in form and substance reasonably acceptable to the Purchaser.
7. Effect on Transaction Documents. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall
continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth
herein, including, but not limited to, any other obligations the Company may have to the Purchaser under the Transaction Documents. Notwithstanding the
foregoing, this Agreement shall be deemed for all purposes as an amendment to any Transaction Document as required to serve the purposes hereof, and in
the event of any conflict between the terms and provisions of the Debentures or any other Transaction Document, on the one hand, and the terms and
provisions of this Agreement, on the other hand, the terms and provisions of this Agreement shall prevail.
8. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the
Company and each Purchaser.
9. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set
forth in the Purchase Agreement.
10. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Purchaser. The Company may not assign (except by merger) its rights or obligations hereunder without the
prior written consent of the Purchaser of the then-outstanding Securities. The Purchaser may assign their rights hereunder in the manner and to the Persons
as permitted under the Purchase Agreement.
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11. Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail
delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
12. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined
in accordance with the provisions of the Purchase Agreement.
13. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
14. Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
15. Fees and expenses. At the closing, the Company has agreed to reimburse the Purchaser $5,000 for its fees and expenses. The Company
shall deliver to each Purchaser, prior to closing, a completed and executed copy of a closing statement, for the closing of the purchase and sale of the
Additional Securities, otherwise in the form attached to the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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Executed as of the first date written above by the undersigned duly authorized representatives of the Company and the Purchaser:
IDEANOMICS, INC.
By: /s/ Conor McCarthy
Name: Conor McCARTHY
Title: CFO
Name of
Purchaser:
Signature of Authorized Signatory:
Name of Authorized Signatory:
Title of Authorized Signatory:
Subscription Amount: $200,000
Principal Amount: $200,000
Warrant Shares: 300,000
Shares: 80,000
NOVEMBER 13, 2019 Issuance
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NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.106
Original Issue Date: November 13, 2019
Original Conversion Price (subject to adjustment herein): $1.00
10% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE MARCH 27, 2021
$200,000.00
THIS 10% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 10% Senior Secured
Convertible Debentures of Ideanomics, Inc., a Nevada corporation (the “Company”), having its principal place of business at 55 Broadway, 19th Floor,
New York, New York 10006, designated as its 10% Senior Secured Convertible Debenture due March 27, 2021 (this debenture, the “Debenture” and,
collectively with the other debentures of such series, the “Debentures”).
FOR VALUE RECEIVED, the Company promises to pay to ID VENTURAS 7 LLC or its registered assigns (the “Holder”), or shall have paid
pursuant to the terms hereunder, the principal sum of $200,000 on March 27, 2021 (the “Maturity Date”) or such earlier date as this Debenture is required
or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule l-
02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary
thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed
within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days
after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the
Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring
of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due,
or (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
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“Base Conversion Price” shall have the meaning set forth in Section 5(b).
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Buy-In” shall have the meaning set forth in Section 4(c)(v).
“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through
legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), including,
without limitation, through a purchase offer, tender offer or exchange offer (whether by the Company or another Person) or a stock or share
purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement), in one or more related transactions, (b) the Company merges into or consolidates with any other Person, or any Person merges into
or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or
transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less
than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.
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“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed.
“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the
terms hereof.
“Debenture Register” shall have the meaning set forth in Section 2(c).
“Dilutive Issuance” shall have the meaning set forth in Section 5(b).
“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).
“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.
“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all
liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c) with respect to Section 2 only, (i) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock
issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash
payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information
requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock
on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there
is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default,
(g) the issuance of the shares in question (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional
Redemption Amount) to the Holder would not violate the limitations set forth in Section 4(d) and Section 4(e) herein, (h) there has been no public
announcement of a pending or proposed Change of Control Transaction that has not been consummated, and (i) the applicable Holder is not in
possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates,
that constitutes, or may constitute, material non-public information.
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“Event of Default” shall have the meaning set forth in Section 8(a).
“Interest Conversion Rate” means 85% of the lesser of (i) the average of the VWAPs for the 5 consecutive Trading Days ending on the
Trading Day that is immediately prior to the applicable Interest Payment Date or (ii) the average of the VWAPs for the 5 consecutive Trading
Days ending on the Trading Day that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such
delivery is after the Interest Payment Date.
“Interest Conversion Shares” shall have the meaning set forth in Section 2(a).
“Interest Notice Period” shall have the meaning set forth in Section 2(a).
“Interest Payment Date” shall have the meaning set forth in Section 2(a).
“Interest Share Amount” shall have the meaning set forth in Section 2(a).
“Issuable Maximum” shall have the meaning set forth in Section 4(e).
“Late Fees” shall have the meaning set forth in Section 2(d).
“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued
and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the
VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or
(ii) 110% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs,
expenses and liquidated damages due in respect of this Debenture.
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“New York Courts” shall have the meaning set forth in Section 9(e).
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“Optional Redemption” shall have the meaning set forth in Section 6(a).
“Optional Redemption Amount” means the sum of (a) the then outstanding principal amount of the Debenture, (b) accrued but unpaid
interest and (c) all liquidated damages and other amounts due in respect of the Debenture.
“Optional Redemption Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption Period” shall have the meaning set forth in Section 6(a).
“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debentures.
“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue
Date and set forth on Schedule 3.1(p) attached to the Purchase Agreement, (c) indebtedness resulting from a bank or other financial institution
honoring a check, draft or similar instrument in the ordinary course of business, (d) indebtedness arising under or in connection with cash
management services in the ordinary course of business, (e) equipment lease obligations and purchase money indebtedness of up to $1,000,000, in
the aggregate, incurred in connection with the acquisition of fixed or capital assets and equipment lease obligations with respect to newly acquired
or leased assets, (f) indebtedness under bank lines of credit up to $5,000,000 in the aggregate, at any time outstanding, (g) up to an aggregate of
$5,000,000 of indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers
that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the ninety first (91st) day following the
Maturity Date, and (h) obligations existing or arising under any swap or hedge contract; provided that such obligations are (or were) entered into
by the Company in the ordinary course of business for the purpose of mitigating risks associated with liabilities, commitments, investments, assets
or property held or reasonably anticipated by the Company, or changes in the value of securities issued by the Company, and not for speculative
purposes.
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“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s
business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the
use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset
subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (b) thereunder, (d) Liens incurred in
connection with Permitted Indebtedness under clause (e) thereunder, provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased, (e) any interest or title of a lessor, sublessor, licensor or sublicensor under leases or
licenses that are entered into in the ordinary course of business, (f) leases, licenses, subleases, or sublicenses granted to others in the ordinary
course of business that do not (i) interfere in any material respect with the ordinary conduct of the business of the Company or (ii) secure any
indebtedness, or (g) Liens securing judgments against the Company for the payment of money that does not constitute an Event of Default.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of September 27, 2019, as amended, among the Company and
the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Registration Rights Agreement” means the Registration Rights Agreement, dated on or about the date of the Purchase Agreement,
among the Company and the original Holders, in the form of Exhibit B to the Purchase Agreement.
“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Series B Warrant” shall have the meaning set forth in Section 6(a).
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the
date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York
Stock Exchange (or any successors to any of the foregoing).
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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by
OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported.
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 10% per annum, payable quarterly in arrears on January 1, April 1, July 1 and
October 1, beginning on the first such date after the Original Issue Date, on each Conversion Date (as to that principal amount then being
converted), on each Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an
“Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding
Business Day), in cash or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at
the Interest Conversion Rate (the dollar amount to be paid in shares, the “Interest Share Amount”) or a combination thereof; provided, however,
that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in
writing) during the ten (10) Trading Days immediately prior to the applicable Interest Payment Date (the “Interest Notice Period”) and through
and including the date such shares of Common Stock are actually issued to the Holder, (ii) the Company shall have given the Holder notice in
accordance with the notice requirements set forth below, and (iii) as to such Interest Payment Date, prior to such Interest Notice Period (but not
more than five (5) Trading Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder’s
account with The Depository Trust Company a number of shares of Common Stock due such Holder to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount divided by (y) the Interest Conversion Rate assuming for such purposes
that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice Period (the “Interest Conversion
Shares”).
7
b) Company’s Election to Pay Interest in Cash or Kind. Subject to the terms and conditions herein, the decision whether to pay
interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. If the Company elects
to pay any interest hereunder in shares of Common Stock, the Company shall deliver to the Holder a written notice of its election to pay interest
hereunder ten (10) Trading Days prior to the applicable Interest Payment Date either in shares of Common Stock or a combination of Common
Stock and cash, and the Interest Share Amount as to the applicable Interest Payment Date and the Interest Notice Period with respect to such
payment shall commence as of the date of such notice, provided that the Company may indicate in such notice that the election contained in such
notice shall also apply to future Interest Payment Dates until revised by a subsequent notice. After the first five (5) Trading Days of any Interest
Notice Period, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by
the Company to pay the interest on such Interest Payment Date in cash. At any time that the Company delivers a notice to the Holder of its
election to pay the interest in shares of Common Stock, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing
such election if at such time the Company has an effective Registration Statement that does not otherwise disclosure such election. The aggregate
number of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest
Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.
c) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve (12) thirty (30) calendar day
periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued
and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Payment of interest in shares of
Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise occur pursuant to Section 4(c)
(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion Date. Interest
shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion Shares within
the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of this Debenture (the “Debenture Register”). Except as otherwise provided herein, if
at any time the Company pays interest partially in cash and partially in shares of Common Stock to the holders of the Debentures, then such
payment of cash shall be distributed ratably among the holders of the then-outstanding Debentures based on their (or their predecessor’s) initial
purchases of Debentures pursuant to the Purchase Agreement.
8
d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of
8% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due
hereunder through and including the date of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any Interest
Payment Date the Company has elected to pay accrued interest in the form of Common Stock but the Company is not permitted to pay accrued
interest in Common Stock because it fails to satisfy the conditions for payment in Common Stock set forth in Section 2(a) herein, then, at the
option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly
scheduled interest payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal
to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on
such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing five (5) Trading Days after the Interest Payment
Date and ending on the Trading Day prior to the date such payment is actually made. If any Interest Conversion Shares are issued to the Holder in
connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly return such excess
shares to the Company.
e) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of
this Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or
exchange.
b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set
forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall
be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the
conversion limitations set forth in Section 4(d) and Section 4(e) hereof). The Holder shall effect conversions by delivering to the Company a
properly completed Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein
the principal amount of this Debenture, and any accrued but unpaid interest, to be converted and the date on which such conversion shall be
effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date
that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued
and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably
practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.
The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company
may deliver an objection to any Notice of Conversion within one (1) Business Day of receipt of such Notice of Conversion. In the event of any
dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any
assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the
face hereof.
9
b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $1.00, subject to adjustment herein (the
“Conversion Price”).
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a
conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to
be converted by (y) the Conversion Price.
ii. Delivery of Conversion Shares Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the
“Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after
the six (6) month anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of Conversion Shares being issued upon the conversion
of this Debenture (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of
Common Stock at least ten (10) Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of
Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest
Notice Period is the ten (10) Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the
Company and excluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment
prior to the commencement of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the
Company has elected or is required to pay accrued interest in cash). On or after the six (6) month anniversary of the Original Issue Date,
the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through
the Depository Trust Company or another established clearing corporation performing similar functions.
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iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not
delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to
the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company
shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the
Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
iv. Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the
Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert
any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or
anyone associated or affiliated with the Holder has been engaged in any violation of law or any agreement (except if, upon the Holder’s
election to convert any principal amount here, the Company’s delivery of Conversion Shares in connection therewith constitutes a
violation of law by the Company, evidenced by a written opinion of counsel to the Company), unless an injunction from a court, on
notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of 125% of the outstanding principal amount of this Debenture,
which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute
and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the
Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason
to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day
after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit
a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
11
v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other
rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery
Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available
to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for
the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was
entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this
Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be
deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had
timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual
sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.
vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture
and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall
be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations
under the Registration Rights Agreement).
vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this
Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company
shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the
Conversion Price or round up to the next whole share.
12
viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of
such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this
Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or
Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation
performing similar functions) required for same-day electronic delivery of the Conversion Shares.
d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the
right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the
Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and
Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the
Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the
extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible
shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of
whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties)
and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance
with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of
the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public
announcement by the Company, or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written request of a Holder, the Company shall within one Trading Day confirm in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as
of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the
number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture
held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial
Ownership Limitation will not be effective until the sixty first (61st) day after such notice is delivered to the Company. The Beneficial Ownership
Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this
Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership
Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations
contained in this paragraph shall apply to a successor holder of this Debenture.
13
e) Issuance Limitations. Notwithstanding anything herein to the contrary, if the Company has not obtained Shareholder Approval,
then the Company may not issue, upon conversion of this Debenture, a number of shares of Common Stock which, when aggregated with any
shares of Common Stock issued on or after the Original Issue Date and prior to such Conversion Date (i) in connection with the conversion of any
Debentures issued pursuant to the Purchase Agreement, (ii) in connection with the exercise of any Warrants issued pursuant to the Purchase
Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement, would exceed 25,874,400 shares of Common Stock
(subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (such number of shares, the “Issuable Maximum”). Each
Holder shall be entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the original principal amount of the
Holder’s Debenture by (y) the aggregate original principal amount of all Debentures issued on the Original Issue Date to all Holders. In addition,
each Holder may allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares and Warrants held by it in its sole discretion.
Such portion shall be adjusted upward ratably in the event a Holder no longer holds any Debentures or Warrants and the amount of shares issued
to the Holder pursuant to the Holder’s Debentures, Shares and Warrants was less than the Holder’s pro-rata share of the Issuable Maximum.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or
payment of interest on, the Debentures or upon exercise of the Warrants), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or
grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option
to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at
an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances,
collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date
of the Dilutive Issuance), then simultaneously with the consummation of each Dilutive Issuance the Conversion Price shall be reduced to equal the
Base Conversion Price. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. The
Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price
and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of
Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of Conversion.
14
c) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
d) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the
Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the
Debenture Register, at least five (5) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent
that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The
Holder shall remain entitled to convert this Debenture during the 5-day period commencing on the date of such notice through the
effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
15
Section 6. Redemptions.
a) Optional Redemption at Election of Company. Subject to the provisions of this Section 6(a), at any time after the Original Issue
Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder,
the “Optional Redemption Notice Date”) of its irrevocable election to redeem all, but not less than all, of the then outstanding principal amount of
this Debenture for cash in an amount equal to the Optional Redemption Amount on the tenth (10th) Trading Day following the Optional
Redemption Notice Date (such date, the “Optional Redemption Date”, such ten (10) Trading Day period, the “Optional Redemption Period” and
such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The
Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder)
on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and
through and including the date on which payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions
shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within three (3) Trading Days after the first day on which any such Equity Condition has not been met (provided
that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition,
such notice period shall be extended to the third (3rd) Trading Day after proper notice from the Company) in which case the Optional Redemption
Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to
pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. In addition, in the event of any Optional Redemption, the
Company shall issue to the Holder Series B Warrants to purchase a number of shares of Common Stock equal to 50% of the Conversion Shares
issuable on an as-converted basis of the principal amount of the Holder’s Debenture redeemed in the Optional Redemption (for purposes of clarity,
not including any principal amount of this Debenture that is converted by the Holder during the Optional Redemption Period) as if such principal
amount of this Debenture was converted immediately prior to such Optional Redemption, in the form of Series A Warrant issued on the Closing
Date, exercisable for a period of five (5) years from the Optional Redemption Date (the “Series B Warrant”). The Company shall deliver the Series
B Warrants on the Optional Redemption Date. The purchase price of one share of Common Stock under this Series B Warrant shall be equal to the
Conversion Price of the Debenture on the Optional Redemption Date.
b) Redemption Procedure. The payment of cash and the issuance of the Series B Warrant pursuant to an Optional Redemption shall be
payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company
by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 10% per annum or the maximum rate permitted by
applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional
Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to
invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall
have no further right to exercise such Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the Company’s
determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Debentures. The Holder may
elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under
this Section 6 by the delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least a majority in
principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed
money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
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c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness (other than Indebtedness under clauses (c)
and (d) in the definition of Permitted Indebtedness), other than the Debentures if on a pro-rata basis; or
e) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such
event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule
or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other
amounts owing to a Holder under any Debenture, as and when the same shall become due and payable (whether on a Conversion Date,
Optional Redemption Date, or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under
clause (B) above, is not cured within three (3) Trading Days;
ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a
breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed
in clause (ix) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) ten
(10) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) fifteen (15) Trading
Days after the Company has become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument
to which the Company is obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant
hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue
or incorrect in any material respect as of the date when made or deemed made;
v. the Company or any Significant Subsidiary (as such term is defined in Rule l-02(w) of Regulation S-X) shall be subject to
a Bankruptcy Event;
vi. the Company shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation
greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise become due and payable;
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vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to
resume listing or quotation for trading thereon within five (5) Trading Days;
viii. the Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess of
50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control
Transaction);
ix. the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth (5th) Trading Day after a
Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public
announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;
x. any monetary judgment, writ or similar final process shall be entered or filed against the Company or any of its property
or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed
for a period of sixty (60) calendar days, unless such judgment, writ or similar final process is covered by an independent third party
insurer which insurer has been notified of such judgement or order and has acknowledged in writing coverage of the judgment, writ or
final process within such 60 day period; or
xi. a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity
Conditions are satisfied or that there has been no Equity Conditions failure or as to whether any Event of Default has occurred.
b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued
but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s
election, immediately due and payable in cash at the Mandatory Default Amount. Commencing five (5) days after the occurrence of any Event of
Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the
lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the
Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall
have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such
rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
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Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or
address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices
or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by
email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or
address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books
of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.
19
c) Transferability. Subject to compliance with any applicable securities laws, this Debenture, and the provisions of Section 4.1 of the
Purchase Agreement, this Debenture and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in
part, upon surrender of this Debenture at the principal office of the Company or its designated agent, together with a written assignment of this
Debenture substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer.
d) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company, together with such
instruments of indemnity (which in no event shall include the posting of any bond) as the Company may reasonably request.
e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict
of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the
“New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable and documented attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of
such action or proceeding.
20
f) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any
waiver by the Company or the Holder must be in writing.
g) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The
Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or
any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be
cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms of this Debenture. To the fullest extent permitted by applicable
law, no party hereto shall assert, and each party hereby waives, and acknowledges that no other Person shall have, any claim against any other
party hereto, on any theory of liability, for special or punitive damages arising out of, in connection with, or as a result of, this Debenture, any
other Transaction Document or any agreement or instrument contemplated hereby and thereby or the transactions contemplated hereby and
thereby. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened
breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the
terms and conditions of this Debenture.
21
i) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
j) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
k) Amendment. This Debenture may be modified or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
l) Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company pursuant to the
Security Agreement, dated as of February 22, 2019 between the Company and the Secured Parties (as defined in the Security Agreement).
m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the
Holder (other than by merger). The Holder may assign any or all of its rights under this Agreement to any Person with the prior written consent of
the Company and provided that such transferee shall agrees in writing to be bound, with respect to the transferred Securities, by the provisions of
the Transaction Documents that apply to the “Holder”; provided, however, that, in connection with any transfer in whole or in part of this
Debenture to an Affiliate of the Holder, such transfer shall not require the prior written consent of the Company and, in connection with such
transfer to an Affiliate of the Holder, the Holder shall not be required to physically surrender this Debenture to the Company.
*********************
(Signature Page Follows)
22
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above
indicated.
IDEANOMICS, INC.
/s/Conor McCarthy
By:
Name: Conor McCarthy
Title: CFO
Facsimile No. for delivery of Notices:
Email address for delivery of Notices:
$200,000 issue date November 13, 2019
23
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 10% Senior Secured Convertible Debenture due March 27, 2021 of Ideanomics, Inc.,
a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock
does not exceed the amounts specified under Section 4(d) of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer
of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock yes no
If yes, $ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker No:
Account No:
24
Schedule 1
CONVERSION SCHEDULE
The 10% Senior Secured Convertible Debentures due on March 27, 2021 in the aggregate principal amount of $ are issued by Ideanomics,
Inc., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.
Date of Conversion
(or for first entry,
Original Issue Date)
Amount of
Conversion
Dated:
Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion
(or original
Principal
Amount)
Company Attest
25
Schedule 2
ASSIGNMENT FORM
(To assign the foregoing Debenture, execute this form and supply required information. Do not use this form to convert the Debenture.)
FOR VALUE RECEIVED, the foregoing Debenture and all rights evidenced thereby are hereby assigned to
Name:
Address:
Phone Number:
Email Address:
Dated:
,
Holder’s Signature:
Holder’s Address:
(Please Print)
(Please Print)
26
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.107
SERIES A-5 COMMON STOCK PURCHASE WARRANT
IDEANOMICS, INC.
Warrant Shares: 300,000
Initial Exercise Date: November 13, 2019
THIS SERIES A-5 COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ID VENTURAS 7
LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date’”) and on or prior to 5:00 p.m. (New York City time) on September 27, 2024 (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Ideanomics, Inc., a Nevada corporation (the “Company”), up to 300,000 shares (as subject to
adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the
Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the “Purchase Agreement”), dated September 27, 2019, as amended, among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or
times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or
PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the
two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in
the applicable Notice of Exercise by wire transfer in immediately available funds unless the cashless exercise procedure specified in Section 2(c)
below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or
other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall
not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder
and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3)
Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases
of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares
purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice
of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the
number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
1
b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $1.00, subject to adjustment hereunder
(the “Exercise Price”).
c) Cashless Exercise. If at any time after the six-month anniversary of the Closing Date, there is no effective registration statement
registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in
whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal
to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice
of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both
executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined
in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the
Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid
Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s delivery
of the applicable Notice of Exercise if such Notice of Exercise is delivered during “regular trading hours” on a Trading Day
(including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii)
the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice
of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such
Trading Day;
2
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if
such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares
being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not then listed or
quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets
Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by
OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share
of the Common Stock so reported.
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to
be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account
with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is
then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the
Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder
without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate,
registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to
which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the
date that is two (2) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share
Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the
date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a
cashless exercise) is received within two (2) Trading Days following delivery of the Notice of Exercise. If the Company fails
for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date,
the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per
Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for
each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such
exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant
remains outstanding and exercisable.
3
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall,
at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver
to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares
pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other
rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in
accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the
Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in
cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant
Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at
which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case
such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of
shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of
the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
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v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such
exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to
such fraction multiplied by the Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and
expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for
same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing
corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
5
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents
the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the
right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting
as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a
limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates
or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d)
of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that
the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable
shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination
of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution
Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the
Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder
may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report
filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written
notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties
since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation”
shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of
Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of
the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon
exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial
Ownership Limitation will not be effective until the sixty first (61st) day after such notice is delivered to the Company. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to
correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations
contained in this paragraph shall apply to a successor holder of this Warrant.
6
f) Issuance Restrictions. If the Company has not obtained Shareholder Approval, then the Company may not issue upon
exercise of this Warrant a number of shares of Common Stock, which, when aggregated with any shares of Common Stock issued (i)
pursuant to the conversion of any Debentures issued pursuant to the Purchase Agreement, (ii) upon prior exercise of this or any other
Warrant issued pursuant to the Purchase Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement,
would exceed 26,000,000 shares of Common Stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the date of the Purchase Agreement (such number of
shares, the “Issuable Maximum”). The Holder and the holders of the other Warrants issued pursuant to the Purchase Agreement shall be
entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the Holder’s original Subscription Amount
by (y) the aggregate original Subscription Amount of all holders pursuant to the Purchase Agreement. In addition, the Holder may
allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares and Warrants held by it in its sole discretion. Such
portion shall be adjusted upward ratably in the event a Purchaser no longer holds any Debentures or Warrants and the amount of shares
issued to such Purchaser pursuant to its Debentures, Shares and Warrants was less than such Purchaser’s pro-rata share of the Issuable
Maximum.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of
Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this
Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made
pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-
classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding,
shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or
any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the
Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood
and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than
the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such
effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to
equal the Base Share Price. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an
Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of
any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.
7
c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more
related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property
and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more
related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby
such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held
by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), the Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(c) pursuant to written
agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding
number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the value of the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise
price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental
Transaction). Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as
defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the
Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from
the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of
this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on
the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of
consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the
Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying
price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any
non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the
public announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental
Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds
within ten (10) Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction).
d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
e) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3,
the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such
adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts
requiring such adjustment.
8
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the
Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall
appear upon the Warrant Register of the Company, at least five (5) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as
of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The Holder shall remain entitled to exercise this Warrant
during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may
otherwise be expressly set forth herein.
11
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. In connection with an assignment of this Warrant, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning
some or all of this Warrant; provided, however, that, in connection with any assignment of this Warrant to an Affiliate of the Holder, the Holder
shall not be required to physically surrender this Warrant to the Company. The Warrant, if properly assigned to an Affiliate of the Holder in
accordance herewith, may be exercised by such Affiliate for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of
the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this
Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the
“Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state
securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case
may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and,
upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except
pursuant to sales registered or exempted under the Securities Act.
12
Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as
a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss. Theft. Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and
in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays. Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.
The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant
will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the
foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as
may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined
in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the
Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this
Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall
be delivered in accordance with the notice provisions of the Purchase Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the
Company.
14
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any
action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall
inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of
Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable
by the Holder or holder of Warrant Shares.
1) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company
and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
********************
(Signature Page Follows)
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first above indicated.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date
IDEANOMICS, INC.
By:
Name: Conor McCarthy
Title: CFO
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300,000 WARRANTS - NOVEMBER 13, 2019
TO: IDEANOMICS, INC.
NOTICE OF EXERCISE
(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
☐ in lawful money of the United States; or
☐ if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
(4) Accredited Investor. The undersigned is an “accredited investor’” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
ASSIGNMENT FORM
EXHIBIT B
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
(Please Print)
(Please Print)
Name:
Address:
Phone Number:
Email Address:
Dated:
,
Holder’s Signature:
Holder’s Address:
ADDITIONAL ISSUANCE AGREEMENT
Exhibit 10.108
This Additional Issuance Agreement (this “Agreement”), dated as of November 27, 2019, is made pursuant to Section 4.13 of that certain
Securities Purchase Agreement, dated as of September 27, 2019 (the “Purchase Agreement”), as amended, by and between Ideanomics, Inc. (the
“Company”) and ID Ventures 7, LLC (the “Purchaser”) for the purchase of the Company’s 10% Senior Secured Convertible Debentures due March 27,
2021 (the “Additional Debenture”), shares of Common Stock (“Additional Shares”) and Common Stock Purchase Warrants (“Additional Warrants” and
together with the Additional Debentures and Additional Shares, the “Additional Securities”). Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Issuance of Additional Debenture, Additional Shares and Additional Warrants. The Company hereby agrees to issue to the Purchaser, and
the Purchaser hereby agrees to purchase, an Additional Debenture in the aggregate principal amount of $230,000, which Additional Debenture shall
otherwise be in the form of the Debenture along with Additional Warrants to purchase up to 345,000 shares of Common Stock, which Additional Warrant
shall otherwise be in the form of the Warrant and 92,000 Additional Shares. The Company shall promptly deliver to the Purchaser the Additional
Securities.
2. Documents. The rights and obligations of the Purchaser and of the Company with respect to the Additional Securities, Additional Shares
and the shares of Common Stock issuable under the Additional Securities (the “New Underlying Shares”) shall be identical in all respects to the rights and
obligations of such Purchaser and of the Company with respect to the Debentures, the Warrants and the Underlying Shares issued and issuable pursuant to
the Purchase Agreement. Any rights of a Purchaser or covenants of the Company which are dependent on such Purchaser holding securities of the
Company or which are determined in magnitude by such Purchaser’s purchase of securities pursuant to the Purchase Agreement shall be deemed to include
any securities purchased or issuable hereunder. The Purchase Agreement is hereby amended so that the term “Debentures” includes the Additional
Debenture, the term “Warrant” includes the Additional Warrant, the term “Shares” includes the “Additional Shares” and the term “Underlying Shares”
includes the New Underlying Shares.
3. Security Interest. Company hereby acknowledges and agrees that the security interests granted to the holders of the Existing Debentures
and Debentures pursuant to the Existing Security Agreement applies to and covers the obligations of the Company to the Purchasers evidenced by the
Additional Debentures and (b) the Additional Debentures rank pari passu to the Existing Debentures and the Debentures.
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4. Subsidiary Guarantee. The Additional Debenture constitutes an “Obligation” under the Subsidiary Guarantee as if the Additional
Debentures were Debentures issued pursuant to the Purchase Agreement.
5. Representations and Warranties of the Company. The Company hereby makes to the Purchaser the following representations and
warranties:
(a) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in
connection therewith. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or
articles of incorporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the creation of any Lien (except as contemplated by the Security
Documents) upon any of the properties or assets of the Company in connection with, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material
instrument (evidencing Company debt or otherwise) or other material understanding to which such Company is a party or by which any property
or asset of the Company is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected, except, in the
case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
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(c) Issuance of the Additional Securities. The Additional Securities are duly authorized and, upon the execution of this Agreement
by a Purchaser, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Additional Underlying Shares, when issued in accordance with the terms
of the Additional Securities, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Additional Underlying
Shares at least equal to the Required Minimum on the date hereof.
(d) Affirmation of Prior Representations and Warranties. Except as set forth on Schedule 4(d) hereto, the Company hereby
represents and warrants to each Purchaser that the Company’s representations and warranties listed in Section 3.1 of the Purchase Agreement are
true and correct as of the date hereof.
4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof to the Company as
follows:
(a) Authority. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. This Agreement has been duly executed by
such Purchaser and, when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser (i) understands that the Additional Securities are “restricted security” and have not been
registered under the Securities Act or any applicable state securities law, (ii) is acquiring the Additional Securities as principal for its own account
and not with a view to or for distributing or reselling such Additional Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, (iii) has no present intention of distributing any of such securities in violation of the Securities Act or any
applicable state securities law and (iv) has no arrangement or understanding with any other persons regarding the distribution of such Additional
Securities (this representation and warranty not limiting such Purchaser’s right to sell the Additional Underlying Shares pursuant to the
Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any
applicable state securities law. Such Purchaser is acquiring the Additional Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Additional Securities or
Additional Underlying Shares.
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(c) Purchaser Status. Such Purchaser is an “accredited investor” as defined in Rule 501under the Securities Act.
(d) General Solicitation. Such Purchaser is not purchasing the Additional Securities as a result of any advertisement, article, notice
or other communication regarding the Additional Securities published in any newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or any other general solicitation or general advertisement.
5. Public Disclosure. The Company shall, on or before 9 am ET on the Trading Day immediately following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to the Purchaser, disclosing the material terms of the transactions contemplated hereby and attaching this
Agreement as an exhibit thereto. The Company shall consult with the Purchaser in issuing any other press releases with respect to the transactions
contemplated hereby.
6. Delivery of Opinion. Concurrently herewith, the Company shall deliver to the Purchaser an opinion of counsel regarding this Agreement
and the issuance of the Additional Securities in form and substance reasonably acceptable to the Purchaser.
7. Effect on Transaction Documents. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall
continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth
herein, including, but not limited to, any other obligations the Company may have to the Purchaser under the Transaction Documents. Notwithstanding the
foregoing, this Agreement shall be deemed for all purposes as an amendment to any Transaction Document as required to serve the purposes hereof, and in
the event of any conflict between the terms and provisions of the Debentures or any other Transaction Document, on the one hand, and the terms and
provisions of this Agreement, on the other hand, the terms and provisions of this Agreement shall prevail.
8. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the
Company and each Purchaser.
9. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as
set forth in the Purchase Agreement.
10. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Purchaser. The Company may not assign (except by merger) its rights or obligations hereunder without the
prior written consent of the Purchaser of the then-outstanding Securities. The Purchaser may assign their rights hereunder in the manner and to the Persons
as permitted under the Purchase Agreement.
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11. Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail
delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
12. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be
determined in accordance with the provisions of the Purchase Agreement.
13. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
14. Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
15. Fees and expenses. At the closing, the Company has agreed to reimburse the Purchaser $5,000 for its fees and expenses. The Company
shall deliver to each Purchaser, prior to closing, a completed and executed copy of a closing statement, for the closing of the purchase and sale of the
Additional Securities, otherwise in the form attached to the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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Executed as of the first date written above by the undersigned duly authorized representatives of the Company and the Purchaser:
IDEANOMICS, INC.
By:
Name: Conor McCarthy
Title: CFO
Name of Purchaser:
Signature of Authorized Signatory:
Name of Authorized Signatory:
Title of Authorized Signatory:
Subscription Amount: $230,000
Principal Amount: $230,000
Warrant Shares: 345,000
Shares: 92,000
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NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.109
Original Issue Date: November 27, 2019
Original Conversion Price (subject to adjustment herein): $1.00
10% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE MARCH 27, 2021
$230,000.00
THIS 10% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 10% Senior Secured
Convertible Debentures of Ideanomics, Inc., a Nevada corporation (the “Company”), having its principal place of business at 55 Broadway, 19th Floor,
New York, New York 10006, designated as its 10% Senior Secured Convertible Debenture due March 27, 2021 (this debenture, the “Debenture” and,
collectively with the other debentures of such series, the “Debentures”).
FOR VALUE RECEIVED, the Company promises to pay to ID VENTURAS 7 LLC or its registered assigns (the “Holder”), or shall have paid
pursuant to the terms hereunder, the principal sum of $230,000 on March 27, 2021 (the “Maturity Date”) or such earlier date as this Debenture is required
or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
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“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in
Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not
dismissed within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60)
calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of
creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment
or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as
they become due, or (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval
of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Base Conversion Price” shall have the meaning set forth in Section 5(b).
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Buy-In” shall have the meaning set forth in Section 4(c)(v).
“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through
legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the
Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), including,
without limitation, through a purchase offer, tender offer or exchange offer (whether by the Company or another Person) or a stock or share
purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement), in one or more related transactions, (b) the Company merges into or consolidates with any other Person, or any Person merges into
or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or
transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less
than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.
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“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed.
“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the
terms hereof.
“Debenture Register” shall have the meaning set forth in Section 2(c).
“Dilutive Issuance” shall have the meaning set forth in Section 5(b).
“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).
“Effectiveness Period” shall have the meaning set forth in the Registration Rights Agreement.
“Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all
liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c) with respect to Section 2 only, (i) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock
issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash
payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information
requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock
on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) there
is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default,
(g) the issuance of the shares in question (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional
Redemption Amount) to the Holder would not violate the limitations set forth in Section 4(d) and Section 4(e) herein, (h) there has been no public
announcement of a pending or proposed Change of Control Transaction that has not been consummated, and (i) the applicable Holder is not in
possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates,
that constitutes, or may constitute, material non-public information.
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“Event of Default” shall have the meaning set forth in Section 8(a).
“Interest Conversion Rate” means 85% of the lesser of (i) the average of the VWAPs for the 5 consecutive Trading Days ending on the
Trading Day that is immediately prior to the applicable Interest Payment Date or (ii) the average of the VWAPs for the 5 consecutive Trading
Days ending on the Trading Day that is immediately prior to the date the applicable Interest Conversion Shares are issued and delivered if such
delivery is after the Interest Payment Date.
“Interest Conversion Shares” shall have the meaning set forth in Section 2(a).
“Interest Notice Period” shall have the meaning set forth in Section 2(a).
“Interest Payment Date” shall have the meaning set forth in Section 2(a).
“Interest Share Amount” shall have the meaning set forth in Section 2(a).
“Issuable Maximum” shall have the meaning set forth in Section 4(e).
“Late Fees” shall have the meaning set forth in Section 2(d).
“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued
and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the
VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or
(ii) 110% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs,
expenses and liquidated damages due in respect of this Debenture.
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“New York Courts” shall have the meaning set forth in Section 9(e).
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“Optional Redemption” shall have the meaning set forth in Section 6(a).
“Optional Redemption Amount” means the sum of (a) the then outstanding principal amount of the Debenture, (b) accrued but unpaid
interest and (c) all liquidated damages and other amounts due in respect of the Debenture.
“Optional Redemption Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice” shall have the meaning set forth in Section 6(a).
“Optional Redemption Notice Date” shall have the meaning set forth in Section 6(a).
“Optional Redemption Period” shall have the meaning set forth in Section 6(a).
“Original Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debentures.
“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue
Date and set forth on Schedule 3.1(p) attached to the Purchase Agreement, (c) indebtedness resulting from a bank or other financial institution
honoring a check, draft or similar instrument in the ordinary course of business, (d) indebtedness arising under or in connection with cash
management services in the ordinary course of business, (e) equipment lease obligations and purchase money indebtedness of up to $1,000,000, in
the aggregate, incurred in connection with the acquisition of fixed or capital assets and equipment lease obligations with respect to newly acquired
or leased assets, (f) indebtedness under bank lines of credit up to $5,000,000 in the aggregate, at any time outstanding, (g) up to an aggregate of
$5,000,000 of indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers
that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the ninety first (91st) day following the
Maturity Date, and (h) obligations existing or arising under any swap or hedge contract; provided that such obligations are (or were) entered into
by the Company in the ordinary course of business for the purpose of mitigating risks associated with liabilities, commitments, investments, assets
or property held or reasonably anticipated by the Company, or changes in the value of securities issued by the Company, and not for speculative
purposes.
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“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in
accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’,
warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s
business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the
use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset
subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a) and (b) thereunder, (d) Liens incurred in
connection with Permitted Indebtedness under clause (e) thereunder, provided that such Liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased, (e) any interest or title of a lessor, sublessor, licensor or sublicensor under leases or
licenses that are entered into in the ordinary course of business, (f) leases, licenses, subleases, or sublicenses granted to others in the ordinary
course of business that do not (i) interfere in any material respect with the ordinary conduct of the business of the Company or (ii) secure any
indebtedness, or (g) Liens securing judgments against the Company for the payment of money that does not constitute an Event of Default.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of September 27, 2019, as amended, among the Company and
the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Registration Rights Agreement” means the Registration Rights Agreement, dated on or about the date of the Purchase Agreement,
among the Company and the original Holders, in the form of Exhibit B to the Purchase Agreement.
“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Holder as provided for in the Registration Rights Agreement.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Series B Warrant” shall have the meaning set forth in Section 6(a).
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Trading Day” means a day on which the principal Trading Market is open for trading.
6
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the
date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York
Stock Exchange (or any successors to any of the foregoing).
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by
OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported.
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 10% per annum, payable quarterly in arrears on January 1, April 1, July 1 and
October 1, beginning on the first such date after the Original Issue Date, on each Conversion Date (as to that principal amount then being
converted), on each Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an
“Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding
Business Day), in cash or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock at
the Interest Conversion Rate (the dollar amount to be paid in shares, the “Interest Share Amount”) or a combination thereof; provided, however,
that payment in shares of Common Stock may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in
writing) during the ten (10) Trading Days immediately prior to the applicable Interest Payment Date (the “Interest Notice Period”) and through
and including the date such shares of Common Stock are actually issued to the Holder, (ii) the Company shall have given the Holder notice in
accordance with the notice requirements set forth below, and (iii) as to such Interest Payment Date, prior to such Interest Notice Period (but not
more than five (5) Trading Days prior to the commencement of such Interest Notice Period), the Company shall have delivered to the Holder’s
account with The Depository Trust Company a number of shares of Common Stock due such Holder to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount divided by (y) the Interest Conversion Rate assuming for such purposes
that the Interest Payment Date is the Trading Day immediately prior to the commencement of the Interest Notice Period (the “Interest Conversion
Shares”).
7
b) Company’s Election to Pay Interest in Cash or Kind. Subject to the terms and conditions herein, the decision whether to pay
interest hereunder in cash, shares of Common Stock or a combination thereof shall be at the sole discretion of the Company. If the Company elects
to pay any interest hereunder in shares of Common Stock, the Company shall deliver to the Holder a written notice of its election to pay interest
hereunder ten (10) Trading Days prior to the applicable Interest Payment Date either in shares of Common Stock or a combination of Common
Stock and cash, and the Interest Share Amount as to the applicable Interest Payment Date and the Interest Notice Period with respect to such
payment shall commence as of the date of such notice, provided that the Company may indicate in such notice that the election contained in such
notice shall also apply to future Interest Payment Dates until revised by a subsequent notice. After the first five (5) Trading Days of any Interest
Notice Period, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to timely deliver such written notice to the Holder shall be deemed an election by
the Company to pay the interest on such Interest Payment Date in cash. At any time that the Company delivers a notice to the Holder of its
election to pay the interest in shares of Common Stock, the Company shall timely file a prospectus supplement pursuant to Rule 424 disclosing
such election if at such time the Company has an effective Registration Statement that does not otherwise disclosure such election. The aggregate
number of shares of Common Stock otherwise issuable to the Holder on an Interest Payment Date shall be reduced by the number of Interest
Conversion Shares previously issued to the Holder in connection with such Interest Payment Date.
c) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve (12) thirty (30) calendar
day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all
accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Payment of interest in
shares of Common Stock (other than the Interest Conversion Shares issued prior to an Interest Notice Period) shall otherwise occur pursuant to
Section 4(c)(ii) herein and, solely for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually delivers the Conversion
Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of this Debenture (the “Debenture Register”). Except as otherwise
provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock to the holders of the
Debentures, then such payment of cash shall be distributed ratably among the holders of the then-outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement.
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d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the
lesser of 8% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is
due hereunder through and including the date of actual payment in full. Notwithstanding anything to the contrary contained herein, if, on any
Interest Payment Date the Company has elected to pay accrued interest in the form of Common Stock but the Company is not permitted to pay
accrued interest in Common Stock because it fails to satisfy the conditions for payment in Common Stock set forth in Section 2(a) herein, then, at
the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly
scheduled interest payment in cash, shall deliver, within three (3) Trading Days of each applicable Interest Payment Date, an amount in cash equal
to the product of (x) the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on
such Interest Payment Date multiplied by (y) the highest VWAP during the period commencing five (5) Trading Days after the Interest Payment
Date and ending on the Trading Day prior to the date such payment is actually made. If any Interest Conversion Shares are issued to the Holder in
connection with an Interest Payment Date and are not applied against an Interest Share Amount, then the Holder shall promptly return such excess
shares to the Company.
e) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount
of this Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or
exchange.
b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
9
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture
shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the
conversion limitations set forth in Section 4(d) and Section 4(e) hereof). The Holder shall effect conversions by delivering to the Company a
properly completed Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein
the principal amount of this Debenture, and any accrued but unpaid interest, to be converted and the date on which such conversion shall be
effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date
that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued
and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably
practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.
The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company
may deliver an objection to any Notice of Conversion within one (1) Business Day of receipt of such Notice of Conversion. In the event of any
dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any
assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the
face hereof.
b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $1.00, subject to adjustment herein
(the “Conversion Price”).
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a
conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to
be converted by (y) the Conversion Price.
ii. Delivery of Conversion Shares Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the
“Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after
the six (6) month anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of Conversion Shares being issued upon the conversion
of this Debenture (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of
Common Stock at least ten (10) Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of
Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a) but assuming that the Interest
Notice Period is the ten (10) Trading Days period immediately prior to the date on which the Notice of Conversion is delivered to the
Company and excluding for such issuance the condition that the Company deliver Interest Conversion Shares as to such interest payment
prior to the commencement of the Interest Notice Period) and (B) a bank check in the amount of accrued and unpaid interest (if the
Company has elected or is required to pay accrued interest in cash). On or after the six (6) month anniversary of the Original Issue Date,
the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through
the Depository Trust Company or another established clearing corporation performing similar functions.
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iii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not
delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to
the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company
shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the
Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.
iv. Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this
Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the
Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert
any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or
anyone associated or affiliated with the Holder has been engaged in any violation of law or any agreement (except if, upon the Holder’s
election to convert any principal amount here, the Company’s delivery of Conversion Shares in connection therewith constitutes a
violation of law by the Company, evidenced by a written opinion of counsel to the Company), unless an injunction from a court, on
notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the
Company posts a surety bond for the benefit of the Holder in the amount of 125% of the outstanding principal amount of this Debenture,
which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute
and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the
Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason
to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day
after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit
a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other
rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery
Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available
to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for
the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was
entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this
Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be
deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had
timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual
sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.
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vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture
and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall
be registered for public resale in accordance with such Registration Statement (subject to such Holder’s compliance with its obligations
under the Registration Rights Agreement).
vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of
this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the
Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share.
viii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of
such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this
Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or
Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day
processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation
performing similar functions) required for same-day electronic delivery of the Conversion Shares.
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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have
the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the
Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and
Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the
Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the
extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible
shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of
whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties)
and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance
with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most
recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent
public announcement by the Company, or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written request of a Holder, the Company shall within one Trading Day confirm in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be
4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock
issuable upon conversion of this Debenture held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number
of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this
Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the
Beneficial Ownership Limitation will not be effective until the sixty first (61st) day after such notice is delivered to the Company. The Beneficial
Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the
terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor holder of this Debenture.
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e) Issuance Limitations. Notwithstanding anything herein to the contrary, if the Company has not obtained Shareholder Approval,
then the Company may not issue, upon conversion of this Debenture, a number of shares of Common Stock which, when aggregated with any
shares of Common Stock issued on or after the Original Issue Date and prior to such Conversion Date (i) in connection with the conversion of any
Debentures issued pursuant to the Purchase Agreement, (ii) in connection with the exercise of any Warrants issued pursuant to the Purchase
Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement, would exceed 25,874,400 shares of Common Stock
(subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (such number of shares, the “Issuable Maximum”). Each
Holder shall be entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the original principal amount of the
Holder’s Debenture by (y) the aggregate original principal amount of all Debentures issued on the Original Issue Date to all Holders. In addition,
each Holder may allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares and Warrants held by it in its sole discretion.
Such portion shall be adjusted upward ratably in the event a Holder no longer holds any Debentures or Warrants and the amount of shares issued
to the Holder pursuant to the Holder’s Debentures, Shares and Warrants was less than the Holder’s pro-rata share of the Issuable Maximum.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or
payment of interest on, the Debentures or upon exercise of the Warrants), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of
the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
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b) Subsequent Equity Sales. If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable,
sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any
option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common
Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such
issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price
on such date of the Dilutive Issuance), then simultaneously with the consummation of each Dilutive Issuance the Conversion Price shall be
reduced to equal the Base Conversion Price. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or
Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price,
conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company
provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the
Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
c) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
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d) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5,
the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the
Debenture Register, at least five (5) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent
that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the
Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The
Holder shall remain entitled to convert this Debenture during the 5-day period commencing on the date of such notice through the
effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
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Section 6. Redemptions.
a) Optional Redemption at Election of Company. Subject to the provisions of this Section 6(a), at any time after the Original Issue
Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder,
the “Optional Redemption Notice Date”) of its irrevocable election to redeem all, but not less than all, of the then outstanding principal amount of
this Debenture for cash in an amount equal to the Optional Redemption Amount on the tenth (10th) Trading Day following the Optional
Redemption Notice Date (such date, the “Optional Redemption Date”, such ten (10) Trading Day period, the “Optional Redemption Period” and
such redemption, the “Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The
Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder)
on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and
through and including the date on which payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions
shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within three (3) Trading Days after the first day on which any such Equity Condition has not been met (provided
that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition,
such notice period shall be extended to the third (3rd) Trading Day after proper notice from the Company) in which case the Optional Redemption
Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to
pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. In addition, in the event of any Optional Redemption, the
Company shall issue to the Holder Series B Warrants to purchase a number of shares of Common Stock equal to 50% of the Conversion Shares
issuable on an as-converted basis of the principal amount of the Holder’s Debenture redeemed in the Optional Redemption (for purposes of clarity,
not including any principal amount of this Debenture that is converted by the Holder during the Optional Redemption Period) as if such principal
amount of this Debenture was converted immediately prior to such Optional Redemption, in the form of Series A Warrant issued on the Closing
Date, exercisable for a period of five (5) years from the Optional Redemption Date (the “Series B Warrant”). The Company shall deliver the
Series B Warrants on the Optional Redemption Date. The purchase price of one share of Common Stock under this Series B Warrant shall be equal
to the Conversion Price of the Debenture on the Optional Redemption Date.
18
b) Redemption Procedure. The payment of cash and the issuance of the Series B Warrant pursuant to an Optional Redemption
shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the
Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 10% per annum or the maximum rate
permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the
Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the
Company shall have no further right to exercise such Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the
Company’s determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Debentures. The
Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any
redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least a majority in
principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed
money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness (other than Indebtedness under clauses
(c) and (d) in the definition of Permitted Indebtedness), other than the Debentures if on a pro-rata basis; or
e) enter into any agreement with respect to any of the foregoing.
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Section 8. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether
such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other
amounts owing to a Holder under any Debenture, as and when the same shall become due and payable (whether on a Conversion Date,
Optional Redemption Date, or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under
clause (B) above, is not cured within three (3) Trading Days;
ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than
a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed
in clause (ix) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) ten
(10) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) fifteen (15) Trading
Days after the Company has become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument
to which the Company is obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement
pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall
be untrue or incorrect in any material respect as of the date when made or deemed made;
v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be
subject to a Bankruptcy Event;
vi. the Company shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation
greater than $500,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise become due and payable;
20
vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be
eligible to resume listing or quotation for trading thereon within five (5) Trading Days;
viii. the Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess
of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control
Transaction);
ix. the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth (5th) Trading Day
after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms
hereof;
x. any monetary judgment, writ or similar final process shall be entered or filed against the Company or any of its
property or other assets for more than $500,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of sixty (60) calendar days, unless such judgment, writ or similar final process is covered by an independent third
party insurer which insurer has been notified of such judgement or order and has acknowledged in writing coverage of the judgment, writ
or final process within such 60 day period; or
xi. a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that the Equity
Conditions are satisfied or that there has been no Equity Conditions failure or as to whether any Event of Default has occurred.
b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus
accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the
Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing five (5) days after the occurrence of any
Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal
to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount,
the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the
Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall
have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such
rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
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Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or
address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices
or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by
email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or
address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books
of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this
Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company.
This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.
22
c) Transferability. Subject to compliance with any applicable securities laws, this Debenture, and the provisions of Section 4.1 of
the Purchase Agreement, this Debenture and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole
or in part, upon surrender of this Debenture at the principal office of the Company or its designated agent, together with a written assignment of
this Debenture substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer.
d) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company, together with
such instruments of indemnity (which in no event shall include the posting of any bond) as the Company may reasonably request.
e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict
of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the
“New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable and documented attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of
such action or proceeding.
23
f) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any
waiver by the Company or the Holder must be in writing.
g) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The
Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or
any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall
be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms of this Debenture. To the fullest extent permitted by applicable
law, no party hereto shall assert, and each party hereby waives, and acknowledges that no other Person shall have, any claim against any other
party hereto, on any theory of liability, for special or punitive damages arising out of, in connection with, or as a result of, this Debenture, any
other Transaction Document or any agreement or instrument contemplated hereby and thereby or the transactions contemplated hereby and
thereby. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened
breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the
terms and conditions of this Debenture.
24
i) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
j) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
k) Amendment. This Debenture may be modified or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
l) Secured Obligation. The obligations of the Company under this Debenture are secured by all assets of the Company pursuant to
the Security Agreement, dated as of February 22, 2019 between the Company and the Secured Parties (as defined in the Security Agreement).
m) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the
Holder (other than by merger). The Holder may assign any or all of its rights under this Agreement to any Person with the prior written consent of
the Company and provided that such transferee shall agrees in writing to be bound, with respect to the transferred Securities, by the provisions of
the Transaction Documents that apply to the “Holder”; provided, however, that, in connection with any transfer in whole or in part of this
Debenture to an Affiliate of the Holder, such transfer shall not require the prior written consent of the Company and, in connection with such
transfer to an Affiliate of the Holder, the Holder shall not be required to physically surrender this Debenture to the Company.
*********************
(Signature Page Follows)
25
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above
indicated.
IDEANOMICS, INC.
By: /s/ Conor McCarthy
Name: Conor McCarthy
Title: CFO
Facsimile No. for delivery of
Notices:
Email address for delivery of
Notices:
26
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 10% Senior Secured Convertible Debenture due March 27, 2021 of Ideanomics, Inc.,
a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the
date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock
does not exceed the amounts specified under Section 4(d) of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer
of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock yes no
If yes, $ of Interest Accrued on Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker No:
Account No:
27
Schedule 1
CONVERSION SCHEDULE
The 10% Senior Secured Convertible Debentures due on March 27, 2021 in the aggregate principal amount of $______ are issued by Ideanomics, Inc., a
Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.
Date of Conversion
(or for first entry,
Original Issue Date)
Amount of
Conversion
Dated:
Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion
(or original
Principal
Amount)
Company Attest
28
Schedule 2
ASSIGNMENT FORM
(To assign the foregoing Debenture, execute this form and supply required information. Do not use this form to convert the Debenture.)
FOR VALUE RECEIVED, the foregoing Debenture and all rights evidenced thereby are hereby assigned to
Name:
Address:
Phone Number:
Email Address:
Dated: ______________ __, ______
Holder’s Signature: __________________
Holder’s Address: __________________
(Please Print)
(Please Print)
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NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.110
SERIES A-6 COMMON STOCK PURCHASE WARRANT
IDEANOMICS, INC.
Warrant Shares: 345,000
Initial Exercise Date: November 27, 2019
THIS SERIES A-6 COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ID VENTURAS 7
LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on September 27, 2024 (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Ideanomics, Inc., a Nevada corporation (the “Company”), up to 345,000 shares (as subject to
adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the
Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the “Purchase Agreement”), dated September 27, 2019, as amended, among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time
or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy
or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within
the two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified
in the applicable Notice of Exercise
1
by wire transfer in immediately available funds unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable
Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or
notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date
on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder
in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within
one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $1.00, subject to adjustment
hereunder (the “Exercise Price”).
c) Cashless Exercise. If at any time after the six-month anniversary of the Closing Date, there is no effective registration statement
registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in
whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal
to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice
of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed
and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in
Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the
Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid
Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s delivery of
the applicable Notice of Exercise if such Notice of Exercise is delivered during “regular trading hours” on a Trading Day (including
until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on
the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is
both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;
2
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if
such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares
being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not then listed or
quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets
Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by
OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share
of the Common Stock so reported.
3
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder
to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account
with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then
a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant
Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without
volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the
Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is
entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is two
(2) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”).
Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the
Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received
within two (2) Trading Days following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the
Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on
the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per
Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain
a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company
shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares,
deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for
by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant
Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such
exercise.
4
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other
rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in
accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the
Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash
to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares
that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the
sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise
shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the
amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such
exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to
such fraction multiplied by the Exercise Price or round up to the next whole share.
5
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and
expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for
same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing
corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have
the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons
acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own
in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a
limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates
or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To
the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s
determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and
Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any
group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic
or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more
recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the
written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or
Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or
decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any
increase in the Beneficial Ownership Limitation will not be effective until the sixty first (61st) day after such notice is delivered to the
Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the
terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to
such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
6
f) Issuance Restrictions. If the Company has not obtained Shareholder Approval, then the Company may not issue upon
exercise of this Warrant a number of shares of Common Stock, which, when aggregated with any shares of Common Stock issued
(i) pursuant to the conversion of any Debentures issued pursuant to the Purchase Agreement, (ii) upon prior exercise of this or any other
Warrant issued pursuant to the Purchase Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement,
would exceed 26,000,000 shares of Common Stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the date of the Purchase Agreement (such number of
shares, the “Issuable Maximum”). The Holder and the holders of the other Warrants issued pursuant to the Purchase Agreement shall be
entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the Holder’s original Subscription Amount
by (y) the aggregate original Subscription Amount of all holders pursuant to the Purchase Agreement. In addition, the Holder may
allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares and Warrants held by it in its sole discretion. Such
portion shall be adjusted upward ratably in the event a Purchaser no longer holds any Debentures or Warrants and the amount of shares
issued to such Purchaser pursuant to its Debentures, Shares and Warrants was less than such Purchaser’s pro-rata share of the Issuable
Maximum.
Section 3.
Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares
of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this
Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made
pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-
classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding,
shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or
any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the
Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood
and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than
the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such
effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to
equal the Base Share Price. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an
Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of
any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.
7
c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or
more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property
and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more
related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby
such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held
by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), the Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(c) pursuant to written
agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding
number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the value of the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise
price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental
Transaction). Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as
defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the
Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from
the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of
this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on
the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of
consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the
Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying
price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any
non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the
public announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental
Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds
within ten (10) Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction).
d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
8
e) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after
such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts
requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the
Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall
appear upon the Warrant Register of the Company, at least five (5) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as
of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The Holder shall remain entitled to exercise this Warrant
during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may
otherwise be expressly set forth herein.
9
Section 4.
Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and
to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. In connection with an assignment of this Warrant, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning
some or all of this Warrant; provided, however, that, in connection with any assignment of this Warrant to an Affiliate of the Holder, the Holder
shall not be required to physically surrender this Warrant to the Company. The Warrant, if properly assigned to an Affiliate of the Holder in
accordance herewith, may be exercised by such Affiliate for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this
Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the
“Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer
of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state
securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case
may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant
and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except
pursuant to sales registered or exempted under the Securities Act.
10
Section 5.
Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and
in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant
Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges
created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such
issue).
11
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use
commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may
be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and
the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this
Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase Agreement.
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i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the
Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any
action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall
inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of
Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable
by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
********************
(Signature Page Follows)
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first above indicated.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date
IDEANOMICS, INC.
By
/s/Conor McCarthy
Name: Conor McCarthy
Title:CFO
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TO:
IDEANOMICS, INC.
NOTICE OF EXERCISE
Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(1) The undersigned hereby elects to purchase ____________Warrant Shares of the Company pursuant to the terms of the attached
(2) Payment shall take the form of (check applicable box):
☐ in lawful money of the United States; or
☐ if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
ASSIGNMENT FORM
EXHIBIT B
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
(Please Print)
(Please Print)
Name:
Address:
Phone Number:
Email Address:
Dated: ,
Holder’s
Signature:
Holder’s Address:
ADDITIONAL ISSUANCE AGREEMENT
Exhibit 10.111
This Additional Issuance Agreement (this “Agreement ”), dated as of December 19, 2019, is made in satisfaction of the conditions required under
the Consent (“Consent”), dated as of the date hereof, being given under the Company’s 10% Senior Secured Convertible Debentures due March 27, 2021
and Common Stock Purchase Warrants ( “Warrants”) issued pursuant to that certain Securities Purchase Agreement, dated as of September 27, 2019 (the
“Purchase Agreement”), as amended, by and between Ideanomics, Inc. (the ''Company'') and ID Venturas 7, LLC (the “Purchaser”). Capitalized terms
used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement.
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and as a condition to the effectiveness of the
Consent, the parties hereby agree as follows:
1. Issuance of Shares of Common Stock and Additional Warrants. In consideration for the delivery of the Consent, the Company hereby
agrees to issue to the Purchaser:
a. 1,950,000 shares of Common Stock ''Shares'');
b. Common Stock Purchase Warrant (''Additional Warrant'' and together with the Shares, the ''Additional Securities'')) to purchase up to
1,000,000 shares of Common Stock at an exercise price of $1, a 7 year term of exercise, which Additional Warrant shall otherwise be in the
form of the Warrants . The Company shall promptly deliver to the Purchaser the Additional Securities; and
c. Extend the term of exercise of all of the outstanding Warrants held by the Purchaser by 2 years which extension is effective
immediately and requires no further action by either· party (provided at the request of the Purchaser the Company shall promptly issue a new
Warrant certificate with such extension).
2. Documents. The rights and obligations of the Purchaser and of the Company with respect to the Additional Securities and the shares of
Common Stock issuable under the Additional Securities (together with the Shares, the ''New Underlying Shares'') shall be identical in all respects to the
rights and obligations of such Purchaser and of the Company with respect to the Warrants and the Underlying Shares issued and issuable pursuant to the
Purchase Agreement. Any rights of a Purchaser or covenants of the Company which are dependent on such Purchaser holding securities of the Company or
which are determined in magnitude by such Purchaser's purchase of securities pursuant to the Purchase Agreement shall be deemed to include any
securities purchased or issuable hereunder. The Purchase Agreement and other Transaction Documents is hereby amended so that the term ''Warrant''
includes the Additional Warrant and the term ''Underlying Shares'' includes the New Underlying Shares and the New Underlying Shares shall be deemed
''Registrable Securities'' under the Registration Rights Agreement.
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3. Representations and Warranties of the Company. The Company hereby makes to the Purchaser the following representations and
warranties:
(a) Authorization; Enforcement. The Company has the requisite Corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its
stockholders in connection therewith. This Agreement has been duly executed by the Company and, when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by
applicable law.
(b) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company's certificate or articles of
incorporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, result in the creation of any Lien (except as contemplated by the Security
Documents) upon any of the properties or assets of the Company in connection with, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material
instrument (evidencing Company debt or otherwise) or other material understanding to which such Company is a party or by which any
property or asset of the Company is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is
subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected,
except, in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
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(c) Issuance of the Additional Securities. The Additional Securities are duly authorized and, upon the execution of this Agreement by a
Purchaser, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Additional Underlying Shares underlying the Additional Warrants,
when issued in accordance with the terms of the Additional Securities, will be validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock
for issuance of the Additional Underlying Shares at least equal to the Required Minimum on the date hereof.
(d) Affirmation of Prior Representations and Warranties. Except as set forth on Schedule 4(d) hereto, the Company hereby represents and
warrants to each Purchaser that the Company’s representations and warranties listed in Section 3.1 of the Purchase Agreement are true and
correct as of the date hereof.
4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof to the Company as
follows:
(a) Authority. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part of such Purchaser. This Agreement has been duly executed by such
Purchaser and, when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally,
(ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser (i) understands that the Additional Securities are ''restricted security'' and have not been registered
under the Securities Act or any applicable state securities law, (ii) is acquiring the Additional Securities as principal for its own account and
not with a view to or for distributing or reselling such Additional Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, (iii) has no present intention of distributing any of such securities in violation of the Securities Act or any
applicable state securities law and (iv) has no arrangement or understanding with any other persons regarding the distribution of such
Additional Securities (this representation and warranty not limiting such Purchaser's right to sell the Additional Underlying Shares pursuant
to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act
or any applicable state securities law. Such Purchaser is acquiring the Additional Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Additional
Securities or Additional Underlying Shares.
(c) Purchaser Status. Such Purchaser is an ''accredited investor'' as defined in Rule 501 under the Securities Act.
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(d) General Solicitation. Such Purchaser is not purchasing the Additional Securities as a result of any advertisement, article, notice or
other communication regarding the Additional Securities published in any newspaper, magazine or similar media or broadcast over television
or radio or presented at any seminar or any other general solicitation or general advertisement.
5. Public Disclosure. The Company shall, on or before 9 am ET on the Trading Day immediately following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to the Purchaser, disclosing the material terms of the transactions contemplated hereby and attaching this
Agreement as an exhibit thereto. The Company shall consult with the Purchaser in issuing any other press releases with respect to the transactions
contemplated hereby.
6. Delivery of Opinion. Within 5 days of the date hereof, the Company shall deliver to the Purchaser an opinion of counsel regarding this
Agreement and the issuance of the Additional Securities in form and substance reasonably acceptable to the Purchaser. If such opinion is not delivered
within 30 days after the date hereof, the Company shall issue to the Purchaser an additional 1 million shares of Common Stock pursuant to the terms of this
Agreement.
7. Effect on Transaction Documents. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall
continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth
herein, including, but not limited to, any other obligations the Company may have to the Purchaser under the Transaction Documents. Notwithstanding the
foregoing, this Agreement shall be deemed for all purposes as an amendment to any Transaction Document as required to serve the purposes hereof, and in
the event of any conflict between the terms and provisions of the Transaction Document, on the one hand, and the terms and provisions of this Agreement,
on the other hand, the terms and provisions of this Agreement shall prevail.
8. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the
Company and each Purchaser.
9. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as
set forth in the Purchase Agreement.
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10. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Purchaser. The Company may not assign (except by merger) its rights or obligations hereunder without the
prior written consent of the Purchaser of the then-outstanding Securities. The Purchaser may assign their rights hereunder in the manner and to the Persons
as permitted under the Purchase Agreement.
11. Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail
delivery of a “.pdf'” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf'” signature page were an original thereof.
12. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be
determined in accordance with the provisions of the Purchase Agreement.
13. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
14. Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
15. Fees and expenses. At the closing, the Company has agreed to reimburse the Purchaser $10,000 for its fees and expenses. The Company
shall deliver to each Purchaser, prior to closing, a completed and executed copy of a closing statement, for the closing of the purchase and sale of the
Additional Securities, otherwise in the form attached to the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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Executed as of the first date written above by the undersigned duly authorized representatives of the Company and the Purchaser:
IDEANOMICS, INC.
By:
Name: Anthony Sklar
Title: Corporate Secretary
Name of Purchaser: ILLEGIBLE
Signature of Authorized Signatory:
Name of Authorized Signatory: ILLEGIBLE
Title of Authorized Signatory: ILLEGIBLE
Shares: 1,950,000
Warrant Shares: 1,000,000
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Exhibit 10.112
October 30, 2019
ID Ventures 7, LLC
17 State Street #2100
New York, New York 10004
Attn: Antonio Ruiz-Gimenez, Managing Partner
Re: Amendment to Transaction Documents
Dear Mr. Ruiz-Gimenez:
Reference is made to those certain Securities Purchase Agreements, dated February 22, 2019 (“February SPA”) and dated September 27, 2019 (the
“September SPA” and collectively with the February SPA, the “SPAs”), each between Ideanomics, Inc. (the “Company”) and ID Ventures 7, LLC (the
“Purchaser”) pursuant to which the purchaser purchased 10% Senior Secured Convertible Debentures (the “Debentures”) and common stock purchase
warrants (the “Warrants”) and were granted Additional Investments Rights (as defined under the SPAs) to purchase additional Debentures and Warrants.
This letter confirms that, as an inducement to the Purchaser to convert Debentures. Exercise Warrants and exercise the Additional Investment
Rights, the Company hereby agrees to reduce the Conversion Price (as defined under the Debentures) and Exercise Price (as defined under the Warrants) to
$1.00, subject to adjustment thereunder. This amendment shall also have the effect of reducing the Conversion Price of Debentures and Exercise Price of
Warrants issuable pursuant to the Additional Investments Rights. This amendment is effective immediately without any further action by either party and
shall apply retroactively to any conversions or exercises made since 7 am ET on October 29, 2019. At the election of the Purchaser, the Purchaser shall
have the right to cause the Company to issue a new certificates representing the Debentures and Warrant with the reduced Conversion and Exercise Price.
The Company shall file a Current Report on Form 8-K, which shall describe the transactions hereunder, prior to 9:00 am ET on the trading day
following the date hereof. The Company shall reimburse counsel to the Purchaser $10.000 for Purchaser’s legal fees and expenses incurred in connection
herewith.
Except as expressly set forth hereunder, the terms and provisions of the SPAs. Debenture and Warrants shall remain in full force and effect after
the execution of this agreement and shall not be in any way changed, modified or superseded by the terms set forth herein.
This agreement may be executed in two or more counterparts and by facsimile or “.pdf” signature or otherwise, and each of such counterparts
shall be deemed an original and all of such counterparts together shall constitute one and the same agreement.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed by their respective authorized signatories as of the
date first indicated above.
Ideanomics, Inc.
By :
Name: Conor McCarthy
Title: Chief Financial Officer
Name of Holder:
ID Ventures 7, LLC
Signature of Authorized Signatory of Holder:
Name of Authorized Signatory: Antonio Ruiz-Gimenez
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Exhibit 10.113
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of December 13, 2019, is between IDEANOMICS, INC., a
company incorporated under the laws of the State of Nevada, with headquarters located at 55 Broadway, 19th Floor, New York, New York 10006 (the
“Company”), and each of the investors listed on the Schedule of Buyers attached hereto (individually, the “Buyer” and collectively the “Buyers”).
WITNESSETH
WHEREAS, the Company and each Buyer desire to enter into this transaction for the Company to sell and the Buyers to purchase the Convertible
Debentures (as defined below) pursuant to an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D (“Regulation D”) as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”);
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the
Buyer(s), as provided herein, and the Buyer(s) shall purchase from the Company, units consisting of secured convertible debentures in the form attached
hereto as “Exhibit A” (the “Convertible Debentures”), which shall be convertible into shares of the Company’s Common Stock (as defined herein) (as
converted, the “Conversion Shares”), and shares of the Company’s Common Stock, up to an aggregate of $5,000,000. The purchase and sale of the units
shall take place in three closings, of which $2,000,000 of Convertible Debentures and 1,424,658 shares of Common Stock shall be purchased upon the
signing this Agreement (the “First Closing”), $1,000,000 of Convertible Debentures and 712,329 shares of Common Stock shall be purchased upon the
filing with the U.S. Securities and Exchange Commission (the “SEC”) of a Registration Statement in accordance with that certain Registration Rights
Agreement (the “RRA”) of even date herewith (the “Second Closing”), and $2,000,000 of Convertible Debentures and 1,424,658 shares of Common Stock
shall be purchased on or about the date the Registration Statement has first been declared effective by the SEC (the “Third Closing”) (each of the First
Closing, Second Closing and Third Closing individually referred to as a “Closing” and collectively referred to as the “Closings”), for a total purchase price
equal to 96% of the face amount of each Convertible Debenture (up to an aggregate of $4,800,000 (the “Purchase Price”) in the respective amounts set
forth opposite each Buyer(s) name on Schedule I (the “Subscription Amount”);
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering the RRA
pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated there
under, and applicable state securities laws;
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Buyer, the Company, and each subsidiary of the
Company are executing and delivering a Guaranty (the “Guaranty”) and a Security Agreement (the “Security Agreement”) pursuant to which the Company
and its wholly owned subsidiaries agree to secure the payment and performance of all obligations of the Company to the Buyer and to secure such
obligations by granting to the Buyer a security interest in Pledged Property (as this term is defined in the Security Agreement); and
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WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company is delivering to the Buyer Irrevocable Transfer
Agent Instructions (the ‘‘Irrevocable Transfer Agent Instructions”);
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company is delivering to the Buyer Warrants (the
“Warrants”) to purchase up to 1,666,667 and 1,000,000 shares (the “Warrant Shares”) of the Company’s Common Stock at exercise prices of $1.50 and
$1.00 per share, respectively; and
WHEREAS, the Convertible Debentures and the Conversion Shares, the Warrants and the Warrant Shares, and the shares of Common Stock to be
issued at each Closing are collectively referred to herein as the “Securities.”
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the
Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees to purchase from the Company at each Closing Convertible
Debentures in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule of Buyers attached as Schedule I
hereto, plus the number of shares of Common Stock specified in the recitals hereto.
(b) Closing Dates. Each Closing of the purchase of Convertible Debentures and shares of Common Stock by the Buyers shall occur at the
offices Yorkville Advisors Global, LP, 1012 Springfield Avenue, Mountainside, NJ 07092. The date and time of each Closing shall be as follows: (i) the
First Closing shall be 10:00 a.m., New York time, by the fifth (5th) Business Day on which the conditions to the Closing set forth in Sections 6 and 7 below
are satisfied or waived (or such other date as is mutually agreed to by the Company and each Buyer) (the “First Closing Date”), (ii) the Second Closing
shall be 10:00 a.m., New York time, by the fifth (5th) Business Day after the date on which the Company files the Registration Statement with the SEC in
accordance with the RRA (the “Second Closing Date”), and (iii) the Third Closing shall be 10:00 a.m., New York time, by the fifth (5th) Business Day after
the date on which the Registration Statement is first declared effective by the SEC, provided the conditions to the Closing set forth in Sections 6 and 7
below are satisfied or waived (or such other date as is mutually agreed to by the Company and each Buyer) (the “Third Closing Date”, and collectively with
the First Closing Date and the Second Closing Date referred to as the “Closing Dates”). As used herein “Business Day” means any day other than a
Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.
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(c) Form of Payment; Deliveries. Subject to the satisfaction of the terms and conditions of this Agreement, on each Closing Date, (i) the
Buyers shall deliver to the Company such aggregate cash proceeds for the Convertible Debentures and shares of Common Stock to be issued and sold to
such Buyer at such Closing, minus the fees to be paid directly from the proceeds of such Closing as set forth herein, and (ii) the Company shall deliver to
each Buyer, Convertible Debentures which such Buyer is purchasing at such Closing in amounts indicated opposite such Buyer’s name on Schedule I and
shares of Common Stock, duly executed on behalf of the Company.
2. BUYER’S REPRESENTATIONS AND WARRANTIES.
Each Buyer, severally and not jointly, represents and warrants to the Company with respect to only itself that, as of the date hereof and as of each
Closing Date:
(a) Investment Purpose. The Buyer is acquiring the Securities for its own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided,
however, that by making the representations herein, such Buyer reserves the right to dispose of the Securities at any time in accordance with or pursuant to
an effective registration statement covering such Securities or an available exemption under the Securities Act. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.
(b) Accredited Investor Status. The Buyer is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D. The Buyer
has such knowledge, skill and experience in business, financial and investment matters that the undersigned is capable of evaluating the merits and risks of
an investment in the Securities. The Buyer has considered the suitability of the Securities as an investment in light of its own circumstances and financial
condition and the Buyer is able to bear the risks associated with an investment in the Securities and its authority to invest in the Securities.
(c) Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of,
and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities. The Buyer acknowledges that neither the
Company nor any other person offered to sell the Securities to it by means of any form of general solicitation or advertising, including but not limited to:
(i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio
or (ii) any seminar or meeting whose attendees were invited by any general solicitation or general advertising.
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(d) Information. The Buyer and its advisors (and his or its counsel), if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information he deemed material to making an informed investment decision regarding his purchase of the
Securities, which have been requested by such Buyer. The Buyer and its advisors, if any, have reviewed the Company’s reports, statements and registration
statements on file in the SEC’s EDGAR system or delivered to it by the Company, and they have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a high degree of risk. The Buyer has sought such accounting, legal and tax advice, as it has
considered necessary to make an informed investment decision with respect to its acquisition of the Securities. The Buyer represents that it is not relying on
(and will not at any time rely on) any communication (written or oral) of the Company as investment advice or as a recommendation to purchase the
Securities, it being understood that information and explanations related to the terms and conditions of the Securities shall not be considered investment
advice or a recommendation to purchase the Securities. The Buyer confirms that the Company has not (i) given any guarantee or representation as to the
potential success, return, effect or benefit (either legal, regulatory, tax, financial, accounting or otherwise) of an investment in the Securities or (ii) made
any representation to the Buyer regarding the legality of an investment in the Securities under applicable legal investment or similar laws or regulations. In
deciding to purchase the Securities, the Buyer is not relying on the advice or recommendations of the Company and the Buyer has made its own
independent decision that the investment in the Securities is suitable and appropriate for the Buyer.
(e) Transfer or Resale. The Buyer understands that: (i) the Securities have not been registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration requirements, or (C) such Buyer provides the Company with reasonable
assurances (in the form of seller and broker representation letters) that such Securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the Securities Act, as amended (or a successor rule thereto) (collectively, “Rule 144”), in each case following the applicable holding
period set forth therein; and (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities
Act or the rules and regulations of the SEC thereunder.
4
(f) Legends. The Buyer agrees to the imprinting, so long as its required by this Section 2(f), of a restrictive legend on the Securities in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE [AND THOSE SECURITIES INTO WHICH THEY ARE CONVERTIBLE]
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES [AND THOSE SECURITIES INTO WHICH THEY ARE CONVERTIBLE] HAVE BEEN ACQUIRED SOLELY
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS.
Certificates evidencing the Conversion Shares shall not contain any legend (including the legend set forth above), (i) while a registration statement
covering the resale of such security is effective under the Securities Act (provided that any such Conversion Share certificates issued prior to the
effectiveness of such registration statement are properly presented by the holder thereof for removal of the legend), (ii) following any sale of such
Conversion Shares pursuant to Rule 144, (iii) if such Conversion Shares are eligible for sale under Rule 144, or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC), exclusive of legends
arising under agreements between a Buyer and a third-party other than the Company or a Subsidiary (as defined herein). The Buyer agrees that the removal
of restrictive legend from certificates representing Securities as set forth in this Section 2(f) is predicated upon the Company’s reliance that the Buyer will
sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set
forth therein.
(g) Organization; Authority. Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction
of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder.
(h) Authorization, Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and
shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with its terms, except as such
enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
5
(i) No Conflicts. The execution, delivery and performance by such Buyer of this Agreement and the consummation by such Buyer of the
transactions contemplated hereby will not (i) result in a violation of the organizational documents of such Buyer, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture or instrument to which such Buyer is a party or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to such Buyer, except, in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on (A) the
ability of such Buyer to perform its obligations hereunder or (B) the Company.
(j) Certain Trading Activities. The Buyer has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Buyer, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales (as defined
below) involving the Company’s securities) during the period commencing as of the time that the Buyer first contacted the Company or the Company’s
agents regarding the specific investment in the Company contemplated by this Agreement and ending immediately prior to the execution of this Agreement
by such Buyer. The Buyer hereby agrees that it shall not directly or indirectly, engage in any Short Sales involving the Company’s securities during the
period commencing on the date hereof and ending when no Convertible Debentures remain outstanding. “Short Sales” means all “short sales” as defined in
Rule 200 promulgated under Regulation SHO under the 1934 Act (as defined below). The Buyer is aware that Short Sales and other hedging activities may
be subject to applicable federal and state securities laws, rules and regulations and the Buyer acknowledges that the responsibility of compliance with any
such federal or state securities laws, rules and regulations is solely the responsibility of the Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof and to
qualify any representation or warranty otherwise made herein to the extent of such disclosure, the Company hereby makes the representations and
warranties set forth below to The Buyer:
6
(a) Organization and Qualification. The Company and each of its Subsidiaries are entities duly formed, validly existing and in good
standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authority to own their properties and to carry on their
business as now being conducted and as presently proposed to be conducted. The Company and each of its Subsidiaries is duly qualified as a foreign entity
to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material
Adverse Effect (as defined below). As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (i) the business, properties,
assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company and its Subsidiary, taken as a whole,
(ii) the transactions contemplated hereby or in any of the other Transaction Documents or any other agreements or instruments to be entered into by the
Company in connection herewith or therewith or (iii) the authority or ability of the Company to perform any of its obligations under any of the Transaction
Documents (as defined below) provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly
or indirectly, arising out of or attributable to: (1) general economic or political conditions; (2) conditions generally affecting the industries in which the
Company operates; (3) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of
any security or any market index or any change in prevailing interest rates; (4) acts of war (whether or not declared), armed hostilities or terrorism, or the
escalation or worsening thereof; (5) any action required or permitted by the Transaction Documents (as defined herein) or any action taken (or omitted to
be taken) with the written consent of or at the written request of a Buyer; (6) any changes in applicable laws, rules or regulations, or in accounting
rules (including GAAP), or changes in the enforcement, implementation or interpretation thereof; (7) the announcement, pendency or completion of the
transactions contemplated by this Agreement, or the identity of the Buyer, including losses or threatened losses of employees, customers, suppliers,
distributors or others having relationships with the Company; (8) any natural or man-made disaster or acts of God; (9) any failure by the Company to meet
any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other
provisions of this definition) shall not be excluded); (10) any matter which the Company has identified as non-core or non-strategic assets or business in its
SEC Documents (as defined herein) or on Schedule 3(a). “Subsidiaries” means any Person in which the Company, directly or indirectly, owns a majority of
the outstanding capital stock having voting power or holds a majority of the equity or similar interest of such Person, and each of the foregoing, is
individually referred to herein as a “Subsidiary”.
(b) Authorization; Enforcement; Validity. The Company has the requisite power and authority to enter into and perform its obligations
under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Convertible Debentures, Warrants and shares of Common Stock, the reservation for
issuance and issuance of the Conversion Shares and Warrants issuable upon conversion of the Convertible Debentures or exercise of the Warrants (as
applicable), have been duly authorized by the Company’s board of directors and no further filing, consent or authorization is required by the Company, its
board of directors or its stockholders or Governmental Entity (as defined herein). This Agreement has been, and the other Transaction Documents to which
the Company is a party will be prior to the Closing, duly executed and delivered by the Company, and each constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state
securities law. “Transaction Documents” means, collectively, this Agreement, the RRA, the Convertible Debentures, the Guaranty, the Security Agreement,
the Warrants, the Mortgage, and each of the other agreements and instruments entered into by the Company or delivered by the Company in connection
with the transactions contemplated hereby and thereby, as may be amended from time to time.
7
(c) Issuance of Securities. The issuance of the Securities are duly authorized and, upon issuance and payment in accordance with the terms
of the Transaction Documents the Securities shall be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, mortgages,
defects, claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances, security interests and other encumbrances (collectively “Liens”) with
respect to the issuance thereof. As of each Closing Date, the Company shall have reserved from its duly authorized capital stock (i) all Warrant Shares, and
not less than (ii) 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible Debentures (assuming for
purposes hereof that (x) such Convertible Debentures are convertible at the Conversion Price (as defined therein) as of the date of determination, (y) any
such conversion shall not take into account any limitations on the conversion of the Convertible Debentures set forth therein, including the Floor Price).
Upon issuance, conversion or exercise (as applicable) in accordance with the Convertible Debentures and the Warrants, the Conversion Shares and Warrant
Shares, when issued, will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights or Liens with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of Common Stock.
(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Convertible Debentures, the Conversion
Shares, the Warrants, the Warrant Shares, the reservation for issuance of the Conversion Shares and the Warrant Shares, and the shares of Common Stock)
will not (i) result in a violation of the Articles of Incorporation (as defined below), Bylaws (as defined below), certificate of formation, memorandum of
association, articles of association, bylaws or other organizational documents of the Company or any of its Subsidiaries, or any capital stock or other
securities of the Company or any of its Subsidiaries, (ii) conflict with, or constitute a default under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including, without limitation, U.S. federal and state securities laws and regulations, the
securities laws of the jurisdictions of the Company’s incorporation or in which it or its subsidiaries operate and the rules and regulations of the NASDAQ-
CM (the “Principal Market”) and including all applicable laws, rules and regulations of the State of Nevada) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, except in the case of (ii) and (iii) for any
conflict, default, right or violation that would not reasonably be expected to result in a Material Adverse Effect.
8
(e) Consents. The Company is not required to obtain any material consent from, authorization or order of, or make any filing or registration
with (other than any filings as may be required by any state securities agencies and any filings as may be required by the Principal Market), any
Governmental Entity or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders,
filings and registrations which the Company or any Subsidiary is required to obtain pursuant to the preceding sentence have been or will be obtained or
effected on or prior to each Closing Date, and neither the Company nor any of its Subsidiaries are aware of any facts or circumstances which might prevent
the Company or any of its Subsidiaries from obtaining or effecting any of the registration, application or filings contemplated by the Transaction
Documents. The Company is not in violation of the requirements of the Principal Market and has no knowledge of any facts or circumstances which could
reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. Prior to the First Closing, the Company shall have complied with
all requirements of the Principal Market relating to (a) the notification of the issuance of all of the Securities hereunder, which does not require obtaining
the approval of the stockholders of the Company or any other Person or Governmental Entity, and (b) the Principal Market’s completion of its review of the
related Listing of Additional Share form, as applicable. “Governmental Entity” means any nation, state, county, city, town, village, district, or other
political jurisdiction of any nature, federal, state, local, municipal, foreign, or other government, governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal), multi-national organization or body; or
body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature or
instrumentality of any of the foregoing, including any entity or enterprise owned or controlled by a government or a public international organization or any
of the foregoing.
(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no
Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) to its knowledge, an “affiliate” (as defined in Rule 144 promulgated under
the 1933 Act (or a successor rule thereto) (collectively, “Rule 144”)) of the Company or any of its Subsidiaries or (iii) to its knowledge, based solely on
information provided by the Buyer, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the
1934 Act). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in
any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely
incidental to such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents to which it is a party has been based solely on the independent evaluation by the Company and its representatives.
9
(g) No Integrated Offering. None of the Company, its Subsidiaries or any of their affiliates, nor any Person acting on their behalf has,
directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering
of the Securities to require approval of stockholders of the Company under any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated for
quotation. None of the Company, its Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps that would cause the
offering of any of the Securities to be integrated with other offerings of securities of the Company.
(h) Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares and Warrant Shares will increase in
certain circumstances. The Company further acknowledges its obligation to issue the Conversion Shares and Warrant Shares upon conversion of the
Convertible Debentures or exercise of the Warrant in accordance with this Agreement, the Convertible Debentures and the Warrant (as applicable) is,
absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.
(i) Application of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any,
in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including, without limitation, any
distribution under a rights agreement), stockholder rights plan or other similar anti-takeover provision under the Articles of Incorporation, Bylaws or other
organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as a result of
the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the
Securities.
(j) SEC Documents; Financial Statements. During the two (2) years prior to the date hereof, the Company has filed all reports, schedules,
forms, proxy statements, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits and appendices included therein and
financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).
The Company has delivered or has made available to the Buyers or their respective representatives true, correct and complete copies of each of the SEC
Documents not available on the EDGAR system. Subject to the subsequent filing of an amendment to an SEC Document with the SEC prior to date of this
Agreement, as of their respective dates, the SEC Documents, complied in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have been prepared in accordance with generally
accepted accounting principles (“GAAP”), consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations
and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material,
either individually or in the aggregate). The reserves, if any, established by the Company or the lack of reserves, if applicable, are reasonable based upon
facts and circumstances known by the Company on the date hereof and there are no loss contingencies that are required to be accrued by the Statement of
Financial Accounting Standard No. 5 of the Financial Accounting Standards Board which are not provided for by the Company in its financial statements
or otherwise. No other information provided by or on behalf of the Company to any of the Buyers which is not included in the SEC Documents (including,
without limitation, information in the disclosure schedules to this Agreement) contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or were made. The Company is
not currently contemplating to amend or restate any of the financial statements (including, without limitation, any notes or any letter of the independent
accountants of the Company with respect thereto) included in the SEC Documents (the “Financial Statements”), nor is the Company currently aware of
facts or circumstances which would require the Company to amend or restate any of the Financial Statements, in each case, in order for any of the
Financials Statements to be in compliance with GAAP and the rules and regulations of the SEC. The Company has not been informed by its independent
accountants that they recommend that the Company amend or restate any of the Financial Statements or that there is any need for the Company to amend or
restate any of the Financial Statements. The Company has engaged BF Borges CPA PC to audit the consolidated financial results for the Company and its
subsidiaries.
10
(k) Absence of Certain Changes. Except as set forth on Schedule 3(k), since the date of the Company’s most recent audited financial
statements contained in a Form 10-K, there has been no change or development that resulted or would result in a Material Adverse Effect on the business,
assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any of its
Subsidiaries. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, except as set forth in the SEC Documents
filed by the Company following the Company’s most recently filed Form 10-K/A, neither the Company nor any of its Subsidiaries has (i) declared or paid
any dividends, (ii) sold any material assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any material capital
expenditures, individually or in the aggregate, outside of the ordinary course of business. Neither the Company nor any of its Subsidiaries has taken any
steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does
the Company or any Subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.
(l) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as set forth on Schedule 3(1), no event, liability,
development or circumstance has occurred or exists, or is reasonably expected to exist or occur specific to the Company, any of its Subsidiaries or any of
their respective businesses, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise), that has not been
publicly disclosed and would reasonably be expected to have a Material Adverse Effect.
(m) Conduct of Business; Regulatory Permits. Neither the Company nor any of its Subsidiaries is in violation of any term under its Articles
of Incorporation, any certificate of designation, preferences or rights of any other outstanding series of preferred stock of the Company or any of its
Subsidiaries or Bylaws or their organizational charter, certificate of formation, memorandum of association, articles of association, Articles of
Incorporation or certificate of incorporation or bylaws, respectively. Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree
or order or any statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing, except in all cases for violations which would not reasonably be expected to have
a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements
of the Principal Market and has no knowledge of any facts or circumstances that could reasonably lead to delisting or suspension of the Common Stock by
the Principal Market in the foreseeable future. During the one year prior to the date hereof, (i) the Common Stock has been listed or designated for
quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has
received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the
Principal Market, which has not been publicly disclosed. The Company and each of its Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates,
authorizations or permits would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and neither the Company
nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
There is no agreement, commitment, judgment, injunction, order or decree binding upon the Company or any of its Subsidiaries or to which the Company
or any of its Subsidiaries is a party which has or would reasonably be expected to have the effect of prohibiting or materially impairing any business
practice of the Company or any of its Subsidiaries, any acquisition of property by the Company or any of its Subsidiaries or the conduct of business by the
Company or any of its Subsidiaries as currently conducted other than such effects, individually or in the aggregate, which have not had and would not
reasonably be expected to have a Material Adverse Effect on the Company or any of its Subsidiaries.
11
(n) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries nor any director, officer, agent, employee, nor any other
person acting for or on behalf of the Company or any of its Subsidiaries (individually and collectively, a “Company Affiliate”) have violated the U.S.
Foreign Corrupt Practices Act (the “FCPA) or any other applicable anti-bribery or anti-corruption laws, nor has any Company Affiliate offered, paid,
promised to pay, or authorized the payment of any money, or offered, given, promised to give, or authorized the giving of anything of value, to any officer,
employee or any other person acting in an official capacity for any Governmental Entity to any political party or official thereof or to any candidate for
political office (individually and collectively, a “Government Official”) or to any person under circumstances where such Company Affiliate knew or was
aware of a high probability that all or a portion of such money or thing of value would be offered, given or promised, directly or indirectly, to any
Government Official, for the purpose, in violation of applicable law, of: (i) (A) influencing any act or decision of such Government Official in his/her
official capacity, (B) inducing such Government Official to do or omit to do any act in violation of his/her lawful duty, (C) securing any improper
advantage, or (D) inducing such Government Official to influence or affect any act or decision of any Governmental Entity, or (ii) assisting the Company or
its Subsidiaries in obtaining or retaining business for or with, or directing business to, the Company or its Subsidiaries.
(o) Equity Capitalization.
(i) “Common Stock” means (x) the Company’s Common Stock, par value $0.001 per share, and (y) any capital stock into which
such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
(ii) Authorized and Outstanding Capital Stock. As of the date hereof, the authorized capital stock of the Company consists of
(A) 1,500,000,000 shares of Common Stock, of which 133,871,256 shares are issued and outstanding (and of which none are reserved for
issuance) and (B) 50,000,000 shares of preferred stock, of which 7,000,000 shares of Series A Convertible Redeemable Preferred Stock are
outstanding.
(iii) Valid Issuance; Available Shares. All of such outstanding shares are duly authorized and have been validly issued and are fully
paid and nonassessable.
12
(iv) Existing Securities; Obligations. Except as disclosed in the SEC Documents: (A) none of the Company’s or any Subsidiary’s
shares, interests or capital stock is subject to preemptive rights or any other similar rights or Liens suffered or permitted by the Company or any
Subsidiary; (B) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into, or exercisable or exchangeable for, any shares, interests or capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares, interests or capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any
shares, interests or capital stock of the Company or any of its Subsidiaries; (C) there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to this Agreement);
(D) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may
become bound to redeem a security of the Company or any of its Subsidiaries; (E) there are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Securities; and (G) neither the Company nor any Subsidiary has any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement.
(v) Organizational Documents. The Company has furnished to the Buyers or filed on the EDGAR system true, correct and
complete copies of the Company’s Articles of Incorporation, as amended and as in effect on the date hereof (the “Articles of Incorporation”), and
the Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all Convertible Securities and the material
rights of the holders thereof in respect thereto.
(p) Litigation. Except as disclosed in the SEC Documents, there is no action, suit, arbitration, proceeding, inquiry or investigation before or
by the Principal Market, any court, public board, other Governmental Entity, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’ officers
or directors, whether of a civil or criminal nature or otherwise, in their capacities as such, which would reasonably be expected to result in a Material
Adverse Effect. The Company is not aware of any event which might result in or form the basis for any such action, suit, arbitration, investigation, inquiry
or other proceeding. Without limitation of the foregoing, there has not been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the SEC involving the Company, any of its Subsidiaries or any current or former director or officer of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries is the subject of any order, writ, judgment, injunction, decree, determination or award of any
Governmental Entity that would reasonably be expected to result in a Material Adverse Effect.
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(q) Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Except as set forth on Schedule 3(q), neither the Company nor any such Subsidiary has any reason to believe that it will be
unable to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse Effect.
(r) Manipulation of Price. Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on
their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of
the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company or any of its Subsidiaries.
(s) Registration Eligibility. The Company is eligible to register the resale of the Conversion Shares by the Buyers using Form S-1
promulgated under the 1933 Act.
(t) Shell Company Status. The Company has never been an issuer identified in Rule 144(i)(1)(i).
(u) Money Laundering. The Company and its Subsidiaries are in compliance with, and have not previously violated, the USA Patriot Act of
2001 and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, but not limited to, the laws, regulations and
Executive Orders and sanctions programs (“Sanctions Programs”) administered by the U.S. Office of Foreign Assets Control (“OFAC”), including, without
limitation, (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and any regulations contained in 31 CFR, Subtitle B, Chapter V.
(v) Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their
agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning the
Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents and
information in the Schedules to this Agreement. The Company understands and confirms that each of the Buyers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided to the Buyers regarding the Company and its Subsidiaries, their businesses
and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries,
taken as a whole, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in the light of the circumstances under which they were made, not misleading. All of the written information furnished
after the date hereof by or on behalf of the Company or any of its Subsidiaries to each Buyer pursuant to or in connection with this Agreement and the other
Transaction Documents, taken as a whole, will be true and correct in all material respects as of the date on which such information is so provided and will
not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or
otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but
which has not been so publicly disclosed, except for information in the Schedules to this Agreement. The Company acknowledges and agrees that no Buyer
makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in
Section 2.
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(w) No General Solicitation. Neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the
Securities.
(x) Private Placement. Assuming the accuracy of the Buyers’ representations and warranties set forth in Section 2, no registration under the
Securities Act is required for the offer and sale of the Securities by the Company to the Buyers as contemplated hereby, and the issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the Primary Market.
4. COVENANTS.
(a) Reporting Status. Until the date on which the Buyers shall have sold all of the Underlying Securities, as defined below, (the “Reporting
Period”), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit
such termination.
(b) Use of Proceeds. Except as set forth on Schdule 4(a) hereto, neither the Company nor any Subsidiary will, directly or indirectly, use the
proceeds of the transactions contemplated herein to repay any loans to any executives or employees of the Company. Neither the Company nor any
Subsidiary will, directly or indirectly, use the proceeds of the transactions contemplated herein, or lend, contribute, facilitate or otherwise make available
such proceeds to any Person (i) to fund, either directly or indirectly, any activities or business of or with any Person that is identified on the list of Specially
Designated Nationals and Blocker Persons maintained by OFAC, or in any country or territory, that, at the time of such funding, is, or whose government
is, the subject of Sanctions Programs, or (ii) in any other manner that will result in a violation of Sanctions Programs.
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(c) Listing. The Company shall promptly secure the listing or designation for quotation (as the case may be) of all of the Underlying
Securities (as defined below) upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed
or designated for quotation (as the case may be) (subject to official notice of issuance) and shall maintain such listing or designation for quotation (as the
case may be) of all Underlying Securities from time to time issuable under the terms of the Transaction Documents on such national securities exchange or
automated quotation system. The Company shall maintain the Common Stock’s listing or authorization for quotation (as the case may be) on the Principal
Market, The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Market, the Nasdaq Global Select Market, or the OTCQX (each, an “Eligible
Market”). Neither the Company nor any of its Subsidiaries shall take any action which could be reasonably expected to result in the delisting or suspension
of the Common Stock on an Eligible Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this
Section 4(c). “Underlying Securities” means the (i) the Conversion Shares, (ii) the Warrant Shares, and (iii) any common stock of the Company issued or
issuable with respect to the Conversion Shares or the Warrant Shares, including, without limitation, (1) as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise and (2) shares of capital stock of the Company into which the shares of Common Stock are
converted or exchanged without regard to any limitations on conversion of the Convertible Debentures or the exercise of the Warrant.
(d) Pledge of Securities. Notwithstanding anything to the contrary contained in this Agreement, the Company acknowledges and agrees that
the Securities may be pledged by the Buyer in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the
Securities, subject to Section 5(b). The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and except
as set forth in Section 5(b), no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make
any delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.
(e) Disclosure of Transactions and Other Material Information. The Company shall, on or before 9:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, issue a press release (the “Press Release”) reasonably acceptable to the Buyers disclosing all the material
terms of the transactions contemplated by the Transaction Documents. On or before 9:30 a.m., New York time, on or before the fourth (4th) Business Day
after the date of this Agreement, the Company shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by
the Transaction Documents in the form required by the 1934 Act and attaching all the required Transaction Documents (including, without limitation, this
Agreement (such Form 8-K, including all attachments, the “8-K Filing”). From and after the filing of the 8-K Filing, the Company shall have disclosed all
material, non-public information (if any) provided to any of the Buyers by the Company or any of its Subsidiaries or any of their respective officers,
directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the filing of the
8-K Filing, the Company acknowledges and agrees that any and all confidentiality or similar obligations with respect to the transactions contemplated by
the Transaction Documents under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers,
directors, affiliates, employees or agents, on the one hand, and any of the Buyers or any of their affiliates, on the other hand, shall terminate. The Company
shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents not to, provide
any Buyer with any material, non-public information regarding the Company or any of its Subsidiaries from and after the date hereof without the express
prior written consent of such Buyer (which may be granted or withheld in such Buyer’s sole discretion).
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(f) Reservation of Shares. So long as any of the Convertible Debentures remain outstanding, the Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less than 300% of the maximum number of shares of Common Stock issuable
upon conversion of all the Convertible Debentures then outstanding (assuming for purposes hereof that (x) the Convertible Debentures are convertible at
the Conversion Price then in effect, and (y) any such conversion shall not take into account any limitations on the conversion of the Convertible
Debentures, including the Floor Price) (the “Required Reserve Amount”); provided that at no time shall the number of shares of Common Stock reserved
pursuant to this Section 4(f) be reduced other than proportionally in connection with any conversion and/or redemption, or reverse stock split. If at any time
the number of shares of Common Stock authorized and reserved for issuance is not sufficient to meet the Required Reserved Amount, the Company will
promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting
of stockholders to authorize additional shares to meet the Company’s obligations pursuant to the Transaction Documents, in the case of an insufficient
number of authorized shares, and obtain stockholder approval of an increase in such authorized number of shares, and voting the management shares of the
Company in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Required
Reserved Amount.
(g) Conduct of Business. The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except where such violations would not reasonably be expected to result, either individually or in the aggregate, in a
Material Adverse Effect.
(h) No Issuance of Variable Financings. So long as the Debenture is outstanding, without the Buyer’s prior written consent, the Company
covenants and agrees that it shall not enter into any Variable Rate Transaction (as defined below). For purposes hereof, “Variable Rate Transaction” means
a transaction in which the Company (i) issues or sells any securities convertible or exercisable into shares of the Company’s common stock (collectively,
“Convertible Securities”) either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or
quotations for, the shares of Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified
or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement
(including, without limitation, an equity line of credit) whereby the Company may sell securities at a future determined price (other than standard and
customary “preemptive” or “participation” rights”).
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5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.
(a) Register. The Company shall maintain at its principal executive offices or with the Transfer Agent (or at such other office or agency of
the Company as it may designate by notice to each holder of Securities), a register for the Convertible Debentures and the Warrants in which the Company
shall record the name and address of the Person in whose name the Convertible Debentures and the Warrant have been issued (including the name and
address of each transferee), the amount of Convertible Debentures and Warrants held by such Person, and the number of Conversion Shares and Warrant
Shares issuable upon conversion of the Convertible Debentures or exercise of the Warrants held by such Person. The Company shall keep the register open
and available at all times during business hours for inspection of any Buyer or its legal representatives.
(b) Transfer Restrictions. The Securities may only be disposed of in compliance with state and federal securities laws. In connection with
any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Buyer or in
connection with a pledge as contemplated herein, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected
by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Buyer under this Agreement.
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible Debentures and shares of Common Stock to each Buyer at each
Closing is subject to the satisfaction, at or before each Closing Date, of each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:
(a) Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.
(b) Such Buyer and each other Buyer shall have delivered to the Company the Purchase Price (less, in the case of any Buyer, the amounts
withheld pursuant to Section 1(c)) for the Convertible Debentures and shares of Common Stock being purchased by such Buyer and each other Buyer at the
Closing, by wire transfer of immediately available funds in accordance with the Closing Statement.
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(c) In the case of the Second Closing and Third Closing, the Buyers shall have purchased all the Convertible Debentures and shares of
Common Stock offered for sale at the Closings prior thereto.
(d) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of
each Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and
correct as of such specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to such Closing Date.
7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase its Convertible Debentures and shares of Common Stock at each Closing is subject to the
satisfaction, at or before each Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:
(a) The Company shall have duly executed and delivered to such Buyer each of the Transaction Documents to which it is a party and the
Company shall have duly executed and delivered to such Buyer such aggregate amount of Convertible Debentures as is set forth opposite such Buyer’s
name in column (b) of the Schedule of Buyers for each Closing, against payment therefor.
(b) Such Buyer’s designee shall have received a structuring fee of $25,000, of which $12,500 was received in connection with the signing
of the Term Sheet. The balance of $12,500 shall be deducted by the Buyers pro-rata in proportion to the amounts of the Convertible Debentures purchased
from the proceeds of the First Closing.
(c) The average VWAP for the Company’s Common Stock for the ten (10) Trading Days immediately prior to each Closing shall not be less
than the Floor Price.
(d) Reserved.
(e) Each and every representation and warranty of the Company shall be true and correct in all material respects (other than representations
and warranties qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of each Closing Date as though
originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific
date), which representations and warranties the Company may update prior to each Closing Date, and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to
each Closing Date, as set forth in Sections 3 and 4.
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(f) The Common Stock (A) shall be designated for quotation or listed (as applicable) on the Principal Market and (B) shall not have been
suspended, as of each Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of each Closing Date, either (I) in writing by the SEC or the Principal Market or (II) by falling below the
minimum maintenance requirements of the Principal Market.
(g) The Company shall have obtained all Governmental Entity or third party consents and approvals, if any, necessary for the sale of the
Securities, including without limitation, those required by the Principal Market, if any.
(h) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by
any court or Governmental Entity of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction
Documents.
(i) Since the date of execution of this Agreement, no event or series of events shall have occurred that has resulted in or would reasonably
be expected to result in a Material Adverse Effect.
(j) The Company shall have obtained approval of the Principal Market to list or designate for quotation (as the case may be) the Conversion
Shares, if applicable.
(k) Such Buyer shall have received a letter, duly executed by an officer of the Company, setting forth the wire amounts of each Buyer and
the wire transfer instructions of the Company (the “Closing Statement”).
(l) From the date hereof to the applicable Closing Date, (i) trading in the Common Stock shall not have been suspended by the SEC or the
Principal Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the
Closing), (ii) the closing price of the Common Stock on each such day shall be 120% above the Floor Price (as defined in the Convertible Debentures), and
(iii) at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are reported by such service, or on the Principal Market, nor shall a banking
moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of each Buyer, makes it impracticable or inadvisable to purchase the Securities at the Closing.
(m) The Company and its Subsidiaries shall have delivered to such Buyer such other documents, instruments or certificates relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.
(n) Solely with respect to the Second Closing, the Registration Statement shall be filed with the SEC in accordance with the RRA.
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(o) Solely with respect to the Third Closing, the Registration Statement shall be effective in accordance with the RRA.
8. TERMINATION.
In the event that the First Closing shall not have occurred with respect to a Buyer within five (5) days of the date hereof, then such Buyer shall
have the right to terminate its obligations under this Agreement with respect to itself at any time on or after the close of business on such date without
liability of such Buyer to any other party; provided, however, (i) the right to terminate this Agreement under this Section 8 shall not be available to such
Buyer if the failure of the transactions contemplated by this Agreement to have been consummated by such date is the result of such Buyer’s breach of this
Agreement and (ii) the abandonment of the sale and purchase of the Convertible Debentures shall be applicable only to such Buyer providing such written
notice, provided further that no such termination shall affect any obligation of the Company under this Agreement to reimburse such Buyer for the
expenses described herein. Nothing contained in this Section 8 shall be deemed to release any party from any liability for any breach by such party of the
terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other
party of its obligations under this Agreement or the other Transaction Documents.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of
New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York County, New York, for
the adjudication of any dispute hereunder or in connection herewith or under any of the other Transaction Documents or with any transaction contemplated
hereby or thereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Nothing contained herein shall be deemed or operate to preclude any Buyer from bringing suit or taking other legal action against the
Company in any other jurisdiction to collect on the Company’s obligations to such Buyer or to enforce a judgment or other court ruling in favor of such
Buyer. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR THEREBY.
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(b) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature
page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if
such signature page were an original thereof.
(c) Headings; Gender. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine,
neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed
by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the
provision in which they are found.
(d) Entire Agreement, Amendments. This Agreement supersedes all other prior oral or written agreements between the Buyer, the
Company, their affiliates and persons acting on their behalf with respect to the subject matter hereof, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.
(e) Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement
must be in writing by letter and email and will be deemed to have been delivered: upon the later of (A) either (i) receipt, when delivered personally or
(ii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to
receive the same and (B) receipt, when sent by electronic mail with confirmed delivery. Notices sent by email after 5 pm eastern time shall be deemed
delivered on the next Business Day. The addresses and e-mail addresses for such communications shall be:
If to the Company, to:
Ideanomics, Inc.
55 Broadway, 19th Floor
New York, New York 10006
212-206-1216
Telephone:
Chief Executive Officer
Attention:
apoor@ideanomics.com
E-Mail:
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With Copy to:
Ruskin Moscou Faltischek, P.C.
1425 RXR Plaza
East Tower, 15th Floor
Uniondale, New York 11556
516-663-6514
Telephone:
Gavin C. Grusd, Esq.
Attention:
ggrusd@rmfpc.com
E-Mail:
If to a Buyer, to its address, e-mail address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set
forth on the Schedule of Buyers,
With copy to:
Troy J.
Rillo, Esq.
c/o Yorkville Advisors Global, LP
1012 Springfield Avenue
Mountainside, NJ 07092
Email: legal@yorkvilleadvisors.com
or to such other address, e-mail address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s e-mail containing the time, date, recipient e-
mail address, or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by e-mail or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.
(f) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of any of the Convertible Debentures (but excluding any purchasers of Underlying Securities, unless pursuant to a written
assignment by such Buyer). The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the
Buyers. In connection with any transfer of any or all of its Securities, a Buyer may assign all, or a portion, of its rights and obligations hereunder in
connection with such Securities without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to
such transferred Securities.
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(g) Indemnification.
(i) In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the
Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders, partners, members, officers, directors, employees
and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims,
losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred
by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the
Company in any of the Transaction Documents, (ii) any breach of any covenant, agreement or obligation of the Company or any Subsidiary contained in
any of the Transaction Documents or (iii) any cause of action, suit, proceeding or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the Company or any Subsidiary) or which otherwise involves such Indemnitee that
arises out of or results from (A) the execution, delivery, performance or enforcement of any of the Transaction Documents, (B) any transaction financed or
to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (C) any disclosure properly made by such
Buyer pursuant to Section 3(f), or (D) the status of such Buyer or holder of the Securities either as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents or as a party to this Agreement (including, without limitation, as a party in interest or otherwise in any action
or proceeding for injunctive or other equitable relief), except in the case of this clause (iii), any cause of action, suit, proceeding or claim arising from the
Indemnitee’s breach of any representation or covenant of this Agreement or any other Transaction Document, or willful or reckless misconduct. To the
extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.
(ii) Promptly after receipt by an Indemnitee under this Section 9(g) of notice of the commencement of any action
or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim in respect thereof is
to be made against the Company under this Section 9(g), deliver to the Company a written notice of the commencement thereof, and the Company shall
have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually reasonably
satisfactory to the Company and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its own counsel with the fees and
expenses of such counsel to be paid by the Company if: (A) the Company has agreed in writing to pay such fees and expenses; (B) the Company shall have
failed promptly to assume the defense of such Indemnified Liability and to employ counsel reasonably satisfactory to such Indemnitee in any such
Indemnified Liability; or (C) the named parties to any such Indemnified Liability (including any impleaded parties) include both such Indemnitee and the
Company, and such Indemnitee shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such
Indemnitee and the Company (in which case, if such Indemnitee notifies the Company in writing that it elects to employ separate counsel at the expense of
the Company, then the Company shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Company), provided
further, that in the case of clause (C) above the Company shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal
counsel for the Indemnitees. The Indemnitee shall reasonably cooperate with the Company in connection with any negotiation or defense of any such
action or Indemnified Liability by the Company and shall furnish to the Company all information reasonably available to the Indemnitee which relates to
such action or Indemnified Liability. The Company shall keep the Indemnitee reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. The Company shall not be liable for any settlement of any action, claim or proceeding effected without its
prior written consent, provided, however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not,
without the prior written consent of the Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such
Indemnified Liability or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnitee. Following indemnification
as provided for hereunder, the Company shall be subrogated to all rights of the Indemnitee with respect to all third parties, firms or corporations relating to
the matter for which indemnification has been made. The failure to deliver written notice to the Company within a reasonable time of the commencement
of any such action shall not relieve the Company of any liability to the Indemnitee under this Section 9(g), except to the extent that the Company is
materially and adversely prejudiced in its ability to defend such action.
24
during the course of the investigation or defense, within ten (10) days after bills supporting the Indemnified Liabilities are received by the Company.
(iii) The indemnification required by this Section 9(g) shall be made by periodic payments of the amount thereof
the Indemnitee against the Company or others, and (B) any liabilities the Company may be subject to pursuant to the law.
(iv) The indemnity agreement contained herein shall be in addition to (A) any cause of action or similar right of
contained in the RRA shall apply in connection with the RRA.
(v) The indemnity agreement contained herein shall not apply to the RRA and instead the indemnity agreement
(h) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
25
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to
be duly executed as of the date first written above.
COMPANY:
IDEANOMICS, INC.
By:
Name: Alfred P. Poor
Title: CEO
26
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to
be duly executed as of the date first written above.
BUYER:
YA II PN, LTD.
By:
Its:
Yorkville Advisors Global, LP
Investment Manager
By: Yorkville Advisors Global II, LLC
Its: General Partner
By:
Name: Troy Rillo
Title: Sr. Managing Director
27
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURES
28
(a)
Buyer
YA II PN, Ltd.
1012 Springfield Avenue
Mountainside, NJ 07092
Email:
Legal@yorkvilleadvisors.com
SCHEDULE I
SCHEDULE OF BUYERS
(b)
Principal
Amount of
Convertible
Debentures
(c)
Purchase Price
(96% of Face
Value)
First Closing: $
Second Closing $
2,000,000.00 $
1,000,000.00 $
Third Closing $
2,000,000.00 $
Aggregate: $
5,000,000.00 $
1,920,000.00
960,000.00
1,920,000.00
4,800,000.00
Legal Representative’s Address and E-Mail Address
Troy J. Rillo, Esq.
1012 Springfield Avenue
Mountainside, NJ 07092
Email: Legal@yorkvilleadvisors.com
29
SCHEDULE 3(a)
NON-CORE OR NON-STRATEGIC ASSETS OR BUSINESS
In addition to any non-core or non-strategic assets or business identified in the Company’s SEC Documents, the following are non-core or non-strategic
assets or businesses:
Non-Core Assets
Fintech Village – West Hartford, Connecticut
Cryptocurrency holdings denominated on GTB, Bitcoin & Ethereum
Frequency Networks
HooXi
Comments Radar
Fintalk
Grapevine
30
On August 31, 2019 the Company disposed of its majority ownership in its Amer subsidiary. The Company retains a 10% equity stake.
SCHEDULE 3(k)
ABSENCE OF CERTAIN CHANGES
31
SCHEDULE 3(1)
UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES
GTB Cryptocurrency holdings
The Company has GTB cryptocurrency with a value of $60 million on the balance sheet classified as Intangible Assets. The value of GTB on the Asia
EDX exchange has declined significantly and it is possible that the Company will need to take an impairment charge against the GTB.
Fintech Village
The Company is developing a 58 acre site in West Hartford, Connecticut. As part of the development process the Company engaged Newman Architects to
produce a design for the redevelopment of the site. The architect is proposing to charge a fee of $2.2M for the design work. The company is in negotiations
with the architects about the fees charged for the design work, if these negotiations are not successful it is likely that the Company will commence litigation
to resolve the matter
32
SCHEDULE 3(q)
INSURANCE
D&O insurance premiums are anticipated to increase significantly when the insurance policy is up for renewal in May, 2020.
33
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES
HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Exhibit 10.114
EXECUTION COPY
IDEANOMICS, INC.
SECURED CONVERTIBLE DEBENTURE
Face Amount: $2,000,000
Purchase Price: $1,920,000
Debenture Issuance Date: December 13, 2019
Debenture Number: IDEX-1
FOR VALUE RECEIVED, IDEANOMICS, INC., a Nevada corporation (the "Company"), hereby promises to pay to the order of YA
II PN, LTD., or its registered assigns (the “Holder”) the amount set out above as the Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the "Principal") when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding Principal at the applicable Interest Rate from the date
set out above as the Debenture Issuance Date (the "Issuance Date") until the same becomes due and payable, whether upon an Interest Date (as defined
below), the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Secured
Convertible Debenture (including all debentures issued in exchange, transfer or replacement hereof, this "Debenture") was originally issued pursuant to the
Securities Purchase Agreement dated December 13, 2019, (the "Securities Purchase Agreement") between the Company and the Buyers listed on the
Schedule of Buyers attached thereto. Certain capitalized terms used herein are defined in Section 16. For the avoidance of doubt, the Issuance Date is the
date of the first issuance of this Debenture regardless of the number of transfers and regardless of the number of instruments, which may be issued to
evidence such Debenture.
(1)
GENERAL TERMS
(a) Maturity Date. The "Maturity Date" shall be December 13, 2020, as may be extended at the option of the Holder.
(b) Interest Rate and Payment of Interest. Interest shall accrue on the outstanding principal balance hereof at an
annual rate equal to 4% ("Interest Rate"). Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed, to the extent
permitted by applicable law.
Purchase Agreement.
(c) Security. This Debenture is secured by a grant of a security interest and a mortgage as set forth in the Securities
(d) Redemption. The Company shall have the right, but not the obligation, to redeem ("Optional Redemption") a
portion or all amounts outstanding under this Debenture prior to the Maturity Date as described in this Section; provided that the Company provides
each Buyer with at least 15 Business Days' prior written notice (each, a "Redemption Notice") of its desire to exercise an Optional Redemption and the
VWAP of the Company's Common Stock over the 10 Business Days' immediately prior to the Redemption Notice is less than the Fixed Conversion
Price. Each Redemption Notice shall be irrevocable and shall specify the outstanding balance of the Convertible Debentures to be redeemed (principal
plus accrued but unpaid interest through the date of redemption), plus a redemption premium equal to 15% of the amount being redeemed (collectively,
the amount being redeemed plus the redemption premium is the "Redemption Amount"). The Optional Redemption shall be consummated by a wire
transfer by the Company to the Holder of the Redemption Amount (or such lesser amount, if the Holder has converted any part of this Debenture
during the 15- Business Day notice period specified herein) on the first Business Day following the expiration of the 15-Business Day notice period
specified herein. The Holder may convert all or any part of this Debenture after receiving a Redemption Notice, in which case the Redemption Amount
shall be reduced by the amount so converted.
(2)
EVENTS OF DEFAULT.
(a) An "Event of Default", wherever used herein, means any one of the following events (whatever the reason and
whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):
due under this Debenture or any other Transaction Document within fifteen (15) Business Days after such payment is due;
(i) the Company's failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as
(ii) The Company or any subsidiary of the Company shall commence, or there shall be commenced against the
Company or any subsidiary of the Company under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or
the Company or any subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any subsidiary of the Company any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 61 days; or the Company or any subsidiary of the Company is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary of the Company suffers any
appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or
unstayed for a period of sixty one (61) days; or the Company or any subsidiary of the Company makes a general assignment for the benefit of creditors; or
the Company or any subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Company or any subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of
or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary of the Company for the purpose of
effecting any of the foregoing;
2
(iii) The Company or any subsidiary of the Company shall default beyond applicable grace and cured periods in
any of its obligations under any other debenture or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under
any long term leasing or factoring arrangement of the Company or any subsidiary of the Company in an amount exceeding $500,000, whether such
indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable and
such default is not thereafter cured within fifteen (15) Business Days, except for the DBOT lease;
maintain a trading market on any Primary Market, for a period of 10 consecutive Trading Days;
(iv) The Common Stock shall cease to be quoted or listed for trading, fail to have a bid price or VWAP, or fail to
defined in Section 16) unless in connection with such Change of Control Transaction this Debenture is retired;
(v) The Company or any subsidiary of the Company shall be a party to any Change of Control Transaction (as
(vi) the Company's (A) failure to cure a Conversion Failure by delivery of (I) the required number of shares of
Common Stock or (II) the Buy-In Price within five (5) Business Days after the applicable Conversion Failure or (B) notice, written or oral, to any holder of
the Debentures, including by way of public announcement, at any time, of its intention not to comply with a request for conversion of any Debentures into
shares of Common Stock that is tendered in accordance with the provisions of the Debentures, other than pursuant to Section 3(c);
herein) within five (5) Business Days after such payment is due;
(vii) The Company shall fail for any reason to deliver the payment in cash pursuant to a Buy-In (as defined
(viii) The Company shall fail to observe or perform any other material covenant, agreement or warranty contained
in, or otherwise commit any material breach or default of any provision of this Debenture (except as may be covered by Section 2(a)(i) through 2(a)
(vii) hereof) or any Transaction Document (as defined in Section 16) which is not cured within the time prescribed.
3
(ix) any Event of Default (as defined in the Other Debentures) occurs with respect to any Other Debentures.
(b) During the time that any portion of this Debenture is outstanding, if any Event of Default has occurred and is
continuing, the full unpaid Principal amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of
acceleration shall become at the Holder's election given by notice pursuant to Section 6, immediately due and payable in cash. Furthermore, in addition
to any other remedies, the Holder shall have the right (but not the obligation) to convert this Debenture (subject to the beneficial ownership limitations
set out in Section 3(d)) at any time after (x) an Event of Default (provided that such Event of Default is continuing) or (y) the Maturity Date at the
Default Conversion Price. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind,
(other than required notice of conversion) and the Holder may immediately enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
terms and conditions set forth in this Section 3.
(3) CONVERSION OF DEBENTURE. This Debenture shall be convertible into shares of the Company's Common Stock, on the
(a) Conversion Right. Subject to the provisions of Section 3(c), at any time or times on or after the Issuance Date, the
Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable
shares of Common Stock in accordance with Section 3(b), at the Conversion Rate (as defined below). The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to this Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (the "Conversion Rate"). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance
would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up or down
to the nearest whole share. The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of any Conversion Amount.
otherwise with respect to which this determination is being made.
(i) "Conversion Amount" means the portion of the Principal and accrued Interest to be converted, redeemed or
(b) "Conversion Price" means, as of any Conversion Date (as defined below) the lower of (a) $1.50 (the "Fixed
Conversion Price") or (b) 90% of the lowest daily VWAP as reported by Bloomberg, LP for the 10 trading consecutive Trading Days immediately (as
defined herein) preceding the Conversion Date (the "Variable Conversion Price," and together with the Fixed Conversion Price, the "Conversion
Price"). The Variable Conversion Price shall be subject to a minimum price of $1.00 per share (the "Floor Price"). The Conversion Price shall be
adjusted from time to time pursuant to the other terms and conditions of this Debenture.
4
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a
"Conversion Date"), the Holder shall (A) transmit by facsimile with confirmation of delivery (or otherwise deliver by method set forth in Section 6(A)(i) or
(ii)), for receipt on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I
(the "Conversion Notice") to the Company and (B) if required by Section 3(c)(iii), surrender this Debenture to a nationally recognized overnight delivery
service for delivery to the Company (or an indemnification undertaking reasonably satisfactory to the Company with respect to this Debenture in the case
of its loss, theft or destruction). On or before the third (3rd) Business Day following the date of receipt of a Conversion Notice (the "Share Delivery Date"),
the Company shall (X) if legends are not required to be placed on certificates of Common Stock and provided that the Transfer Agent is participating in the
Depository Trust Company's ("DTC") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion
Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled
which certificates shall not bear any restrictive legends unless required pursuant to rules and regulations of the Commission. If this Debenture is physically
surrendered for conversion and the outstanding Principal of this Debenture is greater than the Principal portion of the Conversion Amount being converted,
then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Debenture and at its own expense,
issue and deliver to the holder a new Debenture representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Debenture shall be treated for all purposes as the record holder or holders of such shares of Common
Stock upon the transmission of a Conversion Notice.
(ii) Company's Failure to Timely Convert. If within three (3) Trading Days after the Company's receipt of a copy
of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder's balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount (a "Conversion Failure"),
and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a "Buy-In"), then the Company shall,
within three (3) Business Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the shares of Common Stock so purchased (the "Buy-In
Price"), at which point the Company's obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.
5
(iii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of
this Debenture in accordance with the terms hereof, the Holder shall not be required to physically surrender this Debenture to the Company unless (A) the
full Conversion Amount represented by this Debenture is being converted or (B) the Holder has provided the Company with prior written notice (which
notice may be included in a Conversion Notice) requesting reissuance of this Debenture upon physical surrender of this Debenture. The Holder and the
Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical surrender of this Debenture upon conversion.
(d) Limitations on Conversions.
the Holder may not convert more than $600,000 (of Principal, Interest or both) of this Debenture during any calendar month.
(i) Conversions Below the Fixed Conversion Price. Absent an Event of Default or the Company's prior consent,
(ii) Beneficial Ownership. The Holder shall not have the right to convert any portion of this Debenture or receive
shares of Common Stock as payment of Interest hereunder to the extent that after giving effect to such conversion or receipt of such Interest payment, the
Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the
rules promulgated thereunder) in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of interest. Since the Holder will not be obligated to report to the Company the number of shares of Common
Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of
4.99% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority, responsibility and obligation to determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which
portion of the Principal amount of this Debenture is convertible shall be the responsibility and obligation of the Holder. The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 65 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(e) Other Provisions.
(i) The Company shall at all times reserve and keep available out of its authorized Common Stock the full
number of shares of Common Stock issuable upon conversion of all outstanding amounts under this Debenture; and within three (3) Business Days
following the receipt by the Company of a Holder's notice that such minimum number of Underlying Shares is not so reserved, the Company shall
promptly reserve a sufficient number of shares of Common Stock to comply with such requirement.
6
(ii) All calculations under this Section 3 shall be rounded to the nearest $0.0001 or whole share.
(iii) The Company covenants that it will at all times reserve and keep available out of its authorized and unissued
shares of Common Stock solely for the purpose of issuance upon conversion of this Debenture and payment of Interest on this Debenture, each as herein
provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder, not less than such number of shares
of the Common Stock as shall be issuable (taking into account the adjustments and restrictions set forth herein) upon the conversion of the outstanding
principal amount of this Debenture and payment of Interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in accordance with such Underlying Shares Registration Statement.
(iv) Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant
to Section 2 herein for the Company's failure to deliver certificates representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not
prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
(v) Conversion Costs. The Company agrees to reimburse the Holder for all reasonable costs incurred by the
Holder in connection with any legal opinions paid for by the Holder in connection with sale of Underlying Shares of Common Stock (provided that the
Company has first had the opportunity to obtain such a legal opinion on behalf of the Holder). The Holder shall notify the Company of any such costs and
expenses it incurs that are referred to in this section from time to time and all amounts owed hereunder shall be paid by the Company with reasonable
promptness.
(4)
Adjustments to Conversion Price
(a) Adjustment to Fixed Conversion Price. Except in the case of an event described in either Section 4(c) or
Section 4(d), if the Company shall, at any time or from time to time after the date hereof, issue or sell, or in accordance with Section 4(b) is deemed to
have issued or sold, any shares of Common Stock without consideration or for consideration per share less than the Fixed Conversion Price in effect
immediately prior to such issuance or sale (or deemed issuance or sale), except for Excluded Securities, then immediately upon such issuance or sale
(or deemed issuance or sale), the Fixed Conversion Price in effect immediately prior to such issuance or sale (or deemed issuance or sale) shall be
reduced (and in no event increased) to a Fixed Conversion Price equal to the quotient obtained by dividing:
7
(i) the sum of (A) the product obtained by multiplying the Common Stock Deemed Outstanding immediately
prior to such issuance or sale (or deemed issuance or sale) by the Fixed Conversion Price then in effect plus (B) the aggregate consideration, if any,
received by the Company upon such issuance or sale (or deemed issuance or sale); by
the sum of (A) the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed issuance or sale) plus (B) the aggregate
number of shares of Common Stock issued or sold (or deemed issued or sold) by the Company in such issuance or sale (or deemed issuance or sale).
Conversion Price under Section 4(a) hereof, the following shall be applicable:
(b) Effect of Certain Events on Adjustment to Conversion Price. For purposes of determining the adjusted
(i) Issuance of Options. If the Company shall, at any time or from time to time after the Issuance Date, in any
manner grant or sell (whether directly or by assumption in a merger or otherwise) any Options, whether or not such Options or the right to convert or
exchange any Convertible Securities issuable upon the exercise of such Options are immediately exercisable, and the price per share (determined as
provided in this paragraph and in Section (4)(b)(v)) for which Common Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon the exercise of such Options is less than the Fixed Conversion Price in effect immediately prior to the
time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of Convertible Securities issuable upon the exercise of such Options shall be deemed to have
been issued as of the date of granting or sale of such Options (and thereafter shall be deemed to be outstanding for purposes of adjusting the Fixed
Conversion Price under Section 4(a), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable
consideration received for purposes of Section 4(a) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting
or sale of all such Options, plus (y) the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such
Options, plus (z), in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of all such Convertible Securities and the conversion or exchange of all such Convertible Securities, by
(B) the total maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all
Convertible Securities issuable upon the exercise of all such Options. Except as otherwise provided in Section (4)(b)(iii), no further adjustment of the
Conversion Price shall be made upon the actual issuance of Common Stock or of Convertible Securities upon exercise of such Options or upon the actual
issuance of Common Stock upon conversion or exchange of Convertible Securities issuable upon exercise of such Options.
8
(ii) Issuance of Convertible Securities. If the Company shall, at any time or from time to time after the Issuance
Date, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Convertible Securities, whether or not the right to
convert or exchange any such Convertible Securities is immediately exercisable, and the price per share (determined as provided in this paragraph and in
Section 4(b)(v)) for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities is less than the Fixed Conversion
Price in effect immediately prior to the time of the granting or sale of such Convertible Securities, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of the total maximum amount of such Convertible Securities shall be deemed to have been issued as of the
date of granting or sale of such Convertible Securities (and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price
pursuant to Section 4(a)), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable
consideration received for purposes of Section 4(a)) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting
or sale of such Convertible Securities, plus (y) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. Except as otherwise provided in Section (4)(b)(iii), (A) no further adjustment of the Conversion Price shall be
made upon the actual issuance of Common Stock upon conversion or exchange of such Convertible Securities and (B) no further adjustment of the
Conversion Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been made pursuant to the other provisions of this Section (4)(b).
(iii) Change in Terms of Options or Convertible Securities. Upon any change in any of (A) the total amount
received or receivable by the Company as consideration for the granting or sale of any Options or Convertible Securities referred to in Section (4)(b)(i) or
Section (4)(b)(ii) hereof, (B) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of any Options
or upon the issuance, conversion or exchange of any Convertible Securities referred to in Section (4)(b)(i) or Section (4)(b)(ii) hereof, (C) the rate at which
Convertible Securities referred to in Section (4)(b)(i) or Section (4)(b)(ii) hereof are convertible into or exchangeable for Common Stock, or (D) the
maximum number of shares of Common Stock issuable in connection with any Options referred to in Section (4)(b)(i) hereof or any Convertible Securities
referred to in Section (4)(b)(ii) hereof, then (whether or not the original issuance or sale of such Options or Convertible Securities resulted in an adjustment
to the Fixed Conversion Price pursuant to this Section 4) the Fixed Conversion Price in effect at the time of such change shall be adjusted or readjusted, as
applicable, to the Fixed Conversion Price which would have been in effect at such time pursuant to the provisions of this Section 4 had such Options or
Convertible Securities still outstanding provided for such changed consideration, conversion rate or maximum number of shares, as the case may be, at the
time initially granted, issued or sold, but only if as a result of such adjustment or readjustment the Fixed Conversion Price then in effect is reduced, and the
number of shares of Common Stock obtainable upon conversion of this Debenture will be proportionately adjusted or readjusted.
9
(iv) Treatment of Expired or Terminated Options or Convertible Securities. Upon the expiration or termination
of any unexercised Option (or portion thereof) or any unconverted or unexchanged Convertible Security (or portion thereof) for which any adjustment
(either upon its original issuance or upon a revision of its terms) was made pursuant to this Section 4 (including without limitation upon the redemption or
purchase for consideration of all or any portion of such Option or Convertible Security by the Company), the Conversion Price then in effect hereunder
shall forthwith be changed pursuant to the provisions of this Section 4 to the Fixed Conversion Price which would have been in effect at the time of such
expiration or termination had such unexercised Option (or portion thereof) or unconverted or unexchanged Convertible Security (or portion thereof), to the
extent outstanding immediately prior to such expiration or termination, never been issued.
(v) Calculation of Consideration Received. If the Company shall, at any time or from time to time after the
Issuance Date, issue or sell, or is deemed to have issued or sold in accordance with Section (4)(b), any shares of Common Stock, Options or Convertible
Securities: (A) for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor; (B) for consideration
other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of consideration received by the Company shall be the market price (as reflected
on any securities exchange, quotation system or association or similar pricing system covering such security) for such securities as of the end of business
on the date of receipt of such securities; (C) for no specifically allocated consideration in connection with an issuance or sale of other securities of the
Company, together comprising one integrated transaction, the amount of the consideration therefor shall be deemed to be the fair value of such portion of
the aggregate consideration received by the Company in such transaction as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be, issued in such transaction; or (D) to the owners of the non-surviving entity in connection with any merger in which the
Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued to
such owners. The net amount of any cash consideration and the fair value of any consideration other than cash or marketable securities shall be determined
in good faith by the Board of Directors of the Company, which shall be final and binding, absent manifest error.
(vi) Record Date. For purposes of any adjustment to the Fixed Conversion Price or the number of shared of
Common Stock issuable upon conversion of this Debenture in accordance with this Section 4, in case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or purchase, as the case may be.
10
(vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the
cancellation or retirement thereof or the transfer of such shares among the Company and its wholly-owned subsidiaries) shall be considered an issue or sale
of Common Stock for the purpose of this Section 4.
(c) Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. If the Company at
any time after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of shares of Common Stock obtainable upon conversion of this Debenture will be proportionately increased. If
the Company at any time after the Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, any Fixed Conversion Price in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock issuable upon exercise of this Warrant will be proportionately decreased. Any
adjustment under this Section 4(b) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(d) Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets
with respect to or in exchange for shares of Common Stock (a "Corporate Event"), the Company shall make appropriate provision to ensure that the
Holder will thereafter have the right to receive upon a conversion of this Debenture, at the Holder's option, (i) in addition to the shares of Common
Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of
Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into
account any limitations or restrictions on the convertibility of this Debenture) or (ii) in lieu of the shares of Common Stock otherwise receivable upon
such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such
Corporate Event in such amounts as the Holder would have been entitled to receive had this Debenture initially been issued with conversion rights for
the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion
Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Holder. The provisions of this
Section shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or
redemption of this Debenture.
(e) Notification of Adjustment. Whenever the Conversion Price is adjusted pursuant to Section 4 hereof, the
Company shall promptly send the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
11
(5)
REISSUANCE OF THIS DEBENTURE.
(a) Transfer. If this Debenture is to be transferred, the Holder shall surrender this Debenture to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Debenture (in accordance with Section 5(d)), registered in
the name of the registered transferee or assignee, representing the outstanding Principal being transferred by the Holder (along with any accrued and
unpaid interest thereof) and, if less then the entire outstanding Principal is being transferred, a new Debenture (in accordance with Section 5(d)) to the
Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Debenture, acknowledge and
agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Debenture, the outstanding
Principal represented by this Debenture may be less than the Principal stated on the face of this Debenture.
(b) Lost, Stolen or Mutilated Debenture. Upon receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Debenture, and, in the case of loss, theft or destruction, of any indemnification undertaking
by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Debenture, the Company shall
execute and deliver to the Holder a new Debenture (in accordance with Section 5(d)) representing the outstanding Principal.
(c) Debenture Exchangeable for Different Denominations. This Debenture is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Debenture or Debentures (in accordance with Section 5(d)) representing in the
aggregate the outstanding Principal of this Debenture, and each such new Debenture will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.
(d) Issuance of New Debentures. Whenever the Company is required to issue a new Debenture pursuant to the terms
of this Debenture, such new Debenture (i) shall be of like tenor with this Debenture, (ii) shall represent, as indicated on the face of such new
Debenture, the Principal remaining outstanding (or in the case of a new Debenture being issued pursuant to Section 5(a) or Section 5(c), the Principal
designated by the Holder which, when added to the principal represented by the other new Debentures issued in connection with such issuance, does
not exceed the Principal remaining outstanding under this Debenture immediately prior to such issuance of new Debentures), (iii) shall have an
issuance date, as indicated on the face of such new Debenture, which is the same as the Issuance Date of this Debenture, (iv) shall have the same rights
and conditions as this Debenture, and (v) shall represent accrued and unpaid Interest from the Issuance Date.
(6) NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof
must be in writing and will be deemed to have been delivered: upon the later of (A) either (i) receipt, when delivered personally or (ii) one (1) Business
Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same and
(B) receipt, when sent by e-mail. The addresses and e-mail addresses for such communications shall be:
12
If to the Company, to:
With Copy to:
If to the Holder:
Ideanomics, Inc.
55 Broadway, 19th Floor
New York, New York 10006
Telephone: 212-206-1216
Attention: Chief Executive Officer
E-Mail: apoor@ideanomics.com
Ruskin Moscou Faltischek, P.C.
1425 RXR Plaza
East Tower, 15th Floor
Uniondale, New York 11556
Telephone: 516-663-6514
Attention: Gavin C. Grusd, Esq.
E-Mail: ggrusd@rmfpc.com
YA II PN, Ltd
c/o Yorkville Advisors Global, LLC
1012 Springfield Avenue
Mountainside, NJ 07092
Attention: Mark Angelo
Telephone: 201-985-8300
Email: Legal@yorkvilleadvisors.com
or at such other address and/or e-mail address and/or to the attention of such other person as the recipient party has specified by written notice given to each
other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice,
consent, waiver or other communication, (ii) electronically generated upon sending the e-mail or (iii) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by e-mail or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
(7) Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligations of the Company, which
are absolute and unconditional, to pay the principal of, interest and other charges (if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the Company.
(8) This Debenture shall not entitle the Holder to any of the rights of a stockholder of the Company, including without limitation,
the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in accordance with the terms hereof.
(9) After the Issuance Date, without the Holder's consent, the Company will not and will not permit any of their subsidiaries to,
directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior in any respect to the obligations of the Company under
this Debenture.
13
(10) This Debenture shall be governed by and construed in accordance with the laws of the State of New York, without giving
effect to conflicts of laws thereof. Each of the parties consents to the jurisdiction of the Courts of the State of New York sitting in New York County, New
York and the U.S. District Court for the Southern District of New York sitting in New York County, New York in connection with any dispute arising under
this Debenture and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the
bringing of any such proceeding in such jurisdictions.
(11) If the Company fails to strictly comply with the terms of this Debenture, then the Company shall reimburse the Holder
promptly for all fees, costs and expenses, including, without limitation, attorneys' fees and expenses incurred by the Holder in any action in connection with
this Debenture, including, without limitation, those incurred: (i) during any workout, attempted workout, and/or in connection with the rendering of legal
advice as to the Holder's rights, remedies and obligations, (ii) collecting any sums which become due to the Holder, (iii) defending or prosecuting any
proceeding or any counterclaim to any proceeding or appeal; or (iv) the protection, preservation or enforcement of any rights or remedies of the Holder.
(12) Any waiver by the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Holder to insist upon strict adherence to any
term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Debenture. Any waiver must be in writing.
(13) If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and
if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be
found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due
hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company
(to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no
such law has been enacted.
14
made on the next succeeding Business Day.
(14) Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be
(15) THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF
THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.
(16) CERTAIN DEFINITIONS For purposes of this Debenture, the following terms shall have the following meanings:
(a) "Bloomberg" means Bloomberg Financial Markets.
United States or a day on which banking institutions are authorized or required by law or other government action to close.
(b) "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the
(c) "Change of Control Transaction" means the occurrence of (a) an acquisition after the Issuance Date by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(l) promulgated under the Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent (50%) of the voting securities of the Company (except
that the acquisition of voting securities by the Holder or any other current holder of convertible securities of the Company shall not constitute a Change of
Control Transaction for purposes hereof), (b) a replacement at one time or over time of more than one-half of the members of the board of directors of the
Company (other than as due to the death or disability of a member of the board of directors) which is not approved by a majority of those individuals who
are members of the board of directors on the Issuance Date (or by those individuals who are serving as members of the board of directors on any date
whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the Issuance Date),
(c) the merger, consolidation or sale of fifty percent (50%) or more of the assets of the Company or any subsidiary of the Company in one or a series of
related transactions with or into another entity, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (a), (b) or (c). No transfer to a wholly-owned subsidiary shall be deemed a Change of Control
Transaction under this provision.
on the exchange which the Common Stock is then listed as quoted by Bloomberg.
(d) "Closing Bid Price" means the price per share in the last reported trade of the Common Stock on a Primary Market or
15
(e) "Common Stock Deemed Outstanding" means, at any given time, the sum of (1) the number of shares of Common
Stock actually outstanding at such time, plus (2) the number of shares of Common Stock issuable upon exercise of Options actually outstanding at such
time, plus (3) the number of shares of Common Stock issuable upon conversion or exchange of Convertible Securities actually outstanding at such time
(treating as actually outstanding any Convertible Securities issuable upon exercise of Options actually outstanding at such time), in each case, regardless of
whether the Options or Convertible Securities are actually exercisable at such time; provided, that Common Stock Deemed Outstanding at any given time
shall not include shares owned or held by or for the account of the Company or any of its wholly owned subsidiaries.
exercisable or exchangeable for Common Stock.
(f) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or
(g) "Commission" means the Securities and Exchange Commission.
such shares may hereafter be changed or reclassified.
(h) "Common Stock" means the common stock, par value $0.001, of the Company and stock of any other class into which
consecutive Trading Days immediately preceding the applicable date of determination.
(i) "Default Conversion Price" means the lower of (i) $1.00 or (ii) 60% of the lowest closing bid prices during the 20
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Excluded Securities" means, (1) shares of Common Stock issued or deemed to be issued by the Company upon the
conversion, exchange or exercise of any right, option, obligation or security outstanding on the date prior to date of the Securities Purchase Agreement,
provided that the terms of such right, option, obligation or security are not amended or otherwise modified on or after the date of the Securities Purchase
Agreement, and provided that the conversion price, exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise modified
and the number of shares of Common Stock issued or issuable is not increased (whether by operation of, or in accordance with, the relevant governing
documents or otherwise) on or after the date of the Securities Purchase Agreement, and (2) the shares of Common Stock issued or deemed to be issued by
the Company upon conversion of this Debenture or Other Debenture or exercise of Common Stock purchase warrants issued to the Holder or any holder of
Other Debentures.
(1) "Fundamental Transaction" means any of the following: (1) the Company effects any merger or consolidation of the
Company with or into another Person and the Company is the non-surviving company (other than a merger or consolidation with a wholly owned
subsidiary of the Company for the purpose of redomiciling the Company), (2) the Company effects any sale of all or substantially all of its assets in one or
a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders
of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities,
cash or property.
16
Securities.
(m) "Options" means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible
debentures, notes, or other instruments issued in exchange, replacement, or modification of the foregoing.
(n) "Other Debentures" means any other debentures issued pursuant to the Securities Purchase Agreement and any other
political subdivision thereof or a governmental agency.
(o) "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or
Nasdaq Global Select Market, the Nasdaq Capital Market, or the OTC QB, and any successor to any of the foregoing markets or exchanges.
(p) "Primary Market" means any of the New York Stock Exchange, the NYSE MKT, the Nasdaq Global Market, the
(q) "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(r) "Trading Day" means a day on which the shares of Common Stock are quoted or traded on a Primary Market on which
the shares of Common Stock are then quoted or listed; provided, that in the event that the shares of Common Stock are not listed or quoted, then Trading
Day shall mean a Business Day.
(s) "Transaction Documents" shall have the meaning set forth in the Securities Purchase Agreement.
interest in accordance with the terms hereof.
(t) "Underlying Shares" means the shares of Common Stock issuable upon conversion of this Debenture or as payment of
(u) "VWAP" means, for any security as of any date, the daily dollar volume-weighted average price for such security on
the Primary Market as reported by Bloomberg LP through its "Historical Prices - Px Table with Average Daily Volume" functions, or, if no dollar volume-
weighted average price is reported for such security by Bloomberg.
17
IN WITNESS WHEREOF, the Company has caused this Secured Convertible Debenture to be duly executed by a duly authorized
officer as of the date set forth above.
COMPANY:
IDEANOMICS, INC.
By:
Name: Alfred P. Poor
CEO
Title
EXHIBIT I
CONVERSION NOTICE
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal amount of Debenture No. IDEX-1 into
Shares of Common Stock of IDEANOMICS, INC., according to the conditions stated therein, as of the Conversion Date written below.
Conversion Date:
Conversion Amount to be converted:
Conversion Price:
Number of shares of Common Stock to be
issued:
$
$
Please issue the shares of Common Stock in the following name and to the following address:
Issue to:
Authorized Signature:
Name:
Title:
Broker DTC Participant Code:
Account Number:
Exhibit 10.115
EXECUTION COPY
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
IDEANOMICS, INC.
Warrant To Purchase Common Stock
Warrant No.: IDEX-1
Date of lssuance: December 13, 2019
Number of Shares:
Warrant Exercise Price:
1,666,667
$1.50
IDEANOMICS, INC., a Nevada corporation (the "Company"), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, YA II PN, Ltd. (the "Holder"), the registered holder hereof or its permitted assigns, is entitled, subject to the terms set
forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Eastern
Time on the Expiration Date (as defined herein) 1,666,667 fully paid and nonassessable shares of Common Stock (as defined herein) of the Company (the
"Warrant Shares") at the exercise price per share provided in Section 2(a) below or as subsequently adjusted; provided, however, that in no event shall the
Holder be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise, except within sixty (60) days of the Expiration Date (however, such restriction may be
waived by Holder (but only as to itself and not to any other holder) upon not less than 65 days prior notice to the Company). For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the determination of such proviso is being made, but shall exclude shares of
Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Warrants beneficially owned by the holder and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by the holder and its
affiliates (including, without limitation, any convertible notes or preferred stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-
Q or Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding. Upon the written request of any holder, the Company shall promptly, but in no event later
than one (1) Business Day following the receipt of such notice, confirm in writing to any such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of Warrants (as defined
below) by such Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
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Section 1.
(a) This Warrant is being issued pursuant to the Securities Purchase Agreement ("Securities Purchase Agreement") of even date
herewith between the Company and the Holder or issued in exchange or substitution thereafter or replacement thereof. Each Capitalized term used, and not
otherwise defined herein, shall have the meaning ascribed thereto in the Securities Purchase Agreement.
(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:
(i) "Approved Stock Plan" means a stock option plan that has been approved by the Board of Directors of the Company
prior to the date of the Securities Purchase Agreement, pursuant to which the Company's securities may be issued only to any employee, officer or director
or qualified consultant for services provided to the Company.
New York are authorized or required by law to remain closed.
(ii) "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in the City of
Bloomberg Financial Markets ("Bloomberg") through its "Volume at Price" function).
(iii) "Closing Bid Price" means the closing bid price of Common Stock as quoted on the Principal Market (as reported by
which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.
(iv) "Common Stock" means (i) the Company's common stock, par value $0.001 per share, and (ii) any capital stock into
exercisable or exchangeable for Common Stock.
(v) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or
issued in connection therewith.
(vi) "Event of Default" means an event of default under the Securities Purchase Agreement or the Convertible Debenture
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(vii) "Excluded Securities" means, (1) shares issued or deemed to have been issued by the Company pursuant to an
Approved Stock Plan, (2) shares of Common Stock issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right,
option, obligation or security outstanding on the date prior to date of the Securities Purchase Agreement, provided that the terms of such right, option,
obligation or security are not amended or otherwise modified on or after the date of the Securities Purchase Agreement, and provided that the conversion
price, exchange price, exercise price or other purchase price is not reduced, adjusted or otherwise modified and the number of shares of Common Stock
issued or issuable is not increased (whether by operation of, or in accordance with, the relevant governing documents or otherwise) on or after the date of
the Securities Purchase Agreement, and (3) the shares of Common Stock issued or deemed to be issued by the Company upon conversion of the
Convertible Debentures or exercise of the Warrants.
(viii) "Expiration Date" means the five (5) year anniversary of the Issuance Date. If such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of New York or the State of New York or on which trading does not take place
on the Principal Exchange or automated quotation system on which the Common Stock is traded (a "Holiday"), the next date that is not a Holiday.
(ix) "Issuance Date" means the date hereof.
(x) "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.
unincorporated organization and a government or any department or agency thereof.
(xi) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an
National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board ("OTCBB")
(xii) "Principal Market" means on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq
(xiii) "Securities Act" means the Securities Act of 1933, as amended.
(xiv) "Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement thereof.
(xv) "Warrant Exercise Price" shall be $1.50 or as subsequently adjusted as provided in Section 8 hereof.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to the Company shall be deemed to include the
Company's successors and (B) to any applicable law defined or referred to herein shall be deemed references to such applicable law as the same may have
been or may be amended or supplemented from time to time.
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(ii) When used in this Warrant, the words "herein", "hereof", and "hereunder" and words of similar import, shall refer to
this Warrant as a whole and not to any provision of this Warrant, and the words "Section", "Schedule", and "Exhibit" shall refer to Sections of, and
Schedules and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number
includes the plural, and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of
the Company, pro rata as hereinafter provided, at any time on any Business Day on or after the opening of business on such Business Day, commencing
with the first day after the date hereof, and prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, payment to the Company of an amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares
being purchased, multiplied by the number of Warrant Shares (at the applicable Warrant Exercise Price) as to which this Warrant is being exercised (plus
any applicable issue or transfer taxes) (the "Aggregate Exercise Price") in cash or wire transfer of immediately available funds and the surrender of this
Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) to a common carrier for overnight
delivery to the Company as soon as practicable following such date ("Cash Basis") or (ii) if at the time of exercise, the Warrant Shares are not subject to an
effective registration statement, or can be sold without restriction or limitation pursuant to Rule 144 as promulgated under the Securities Act or if an Event
of Default has occurred, by delivering an Exercise Notice and in lieu of making payment of the Aggregate Exercise Price in cash or wire transfer, elect
instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (the "Cashless
Exercise"):
Net Number = (A x B) – (A x C)
B
For purposes of the foregoing formula:
A = the total number of Warrant Shares with respect to which this Warrant is then being exercised.
B = the Closing Bid Price of the Common Stock on the date of exercise of the Warrant.
C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
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In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2, the Company shall on or before the fifth
(5th) Business Day following the date of receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking
with respect to this Warrant in the case of its loss, theft or destruction) and the receipt of the representations of the holder specified in Section 6 hereof, if
requested by the Company (the "Exercise Delivery Documents"), and if the Common Stock is DTC eligible, credit such aggregate number of shares of
Common Stock to which the holder shall be entitled to the holder's or its designee's balance account with The Depository Trust Company; provided,
however, if the holder who submitted the Exercise Notice requested physical delivery of any or all of the Warrant Shares, or, if the Common Stock is not
DTC eligible then the Company shall, on or before the fifth (5th) Business Day following receipt of the Exercise Delivery Documents, (A) issue and
surrender to a common carrier for overnight delivery to the address specified in the Exercise Notice, a certificate, registered in the name of the holder, for
the number of shares of Common Stock to which the holder shall be entitled pursuant to such request, or (B) provided the Company's transfer agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designees' balance account with DTC through its
Deposit Withdrawal At Custodian ("DWAC") system provided the Holder causes its bank or broker to initiate the DWAC transaction. Upon delivery of the
Exercise Notice and Aggregate Exercise Price referred to in clause (i) or (ii) above the holder of this Warrant shall be deemed for all corporate purposes to
have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised. In the case of a dispute as to the
determination of the Warrant Exercise Price, the Closing Bid Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to
the holder the number of Warrant Shares that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) Business Day of receipt of the holder's Exercise Notice.
(b) If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price or arithmetic
calculation of the Warrant Shares within one (1) day of such disputed determination or arithmetic calculation being submitted to the holder, then the
Company shall immediately submit via e-mail in accordance with Section 11 (i) the disputed determination of the Warrant Exercise Price or the Closing
Bid Price to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside
accountant. The Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and
notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations.
Such investment banking firm's or accountant's determination or calculation, as the case may be, shall be deemed conclusive absent manifest error.
(c) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon
as practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant identical in all respects to
this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this
Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised.
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Shares issued upon such exercise of this Warrant shall be rounded up or down to the nearest whole number.
(d) No fractional Warrant Shares are to be issued upon any pro rata exercise of this Warrant, but rather the number of Warrant
(e) If the Company or its Transfer Agent shall fail for any reason or for no reason to issue to the holder within ten (10) days of
receipt of the Exercise Delivery Documents, a certificate for the number of Warrant Shares to which the holder is entitled or to credit the holder's balance
account with The Depository Trust Company for such number of Warrant Shares to which the holder is entitled upon the holder's exercise of this Warrant,
the Company shall, in addition to any other remedies under this Warrant, have any other remedies otherwise available to such holder.
(f) If within ten (10) days after the Company's receipt of the Exercise Delivery Documents, the Company fails to deliver a new
Warrant to the holder for the number of Warrant Shares to which such holder is entitled pursuant to Section 2 hereof, then, in addition to any other available
remedies under this Warrant, have any other remedies otherwise available to such holder.
Section 3. Covenants as to Common Stock. The Company hereby covenants and agrees as follows:
authorized and validly issued.
(a) This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly
validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
(b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be
(c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have
authorized and reserved at least one hundred percent (100%) of the number of shares of Common Stock needed to provide for the exercise of the rights then
represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. If at any time the
Company does not have a sufficient number of shares of Common Stock authorized and available, then the Company shall call and hold a special meeting
of its stockholders within sixty (60) days of that time for the sole purpose of increasing the number of authorized shares of Common Stock.
(d) The Warrant Shares are subject to registration rights pursuant to a Registration Rights Agreement of even date with the Date of
Issuance of this Warrant between the Company and the Holder.
(e) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action (it being understood that filing a Certificate of Designation or
implementing a reverse split are not intended to be included in this provision), avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking
of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise
of this Warrant.
6
substantially all of the Company's assets.
(f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or
Section 4. Taxes. The Company shall pay any and all taxes, except any applicable withholding, which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote,
give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the
Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide
the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously
with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and
the Warrant Shares for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the
right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the
Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an "accredited investor" as such term
is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an "Accredited Investor").
Upon exercise of this Warrant the holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant
Shares so purchased are being acquired solely for the holder's own account and not as a nominee for any other party, for investment, and not with a view
toward distribution or resale and that such holder is an Accredited Investor. If such holder cannot make such representations because they would be
factually incorrect, it shall be a condition to such holder's exercise of this Warrant that the Company receive such other factually correct representations as
the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any
United States or state securities laws.
7
Section 7. Ownership and Transfer. The Company shall maintain at its principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name
any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events
recognizing any transfers made in accordance with the terms of this Warrant.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Exercise Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment for Additional Issuances. Except in the case of an event described in either Section 8(c), Section 8(d), or
Section 8(e), if the Company shall, at any time or from time to time after the date hereof, issue or sell, or in accordance with Section 8(b) is deemed to have
issued or sold, any shares of Common Stock without consideration or for consideration per share less than the Warrant Exercise Price in effect immediately
prior to such issuance or sale (or deemed issuance or sale), except for Excluded Securities, then immediately upon such issuance or sale (or deemed
issuance or sale), the Warrant Exercise Price in effect immediately prior to such issuance or sale (or deemed issuance or sale) shall be reduced (and in no
event increased) to a Warrant Exercise Price equal to the quotient obtained by dividing:
(i) the sum of (A) the product obtained by multiplying the Common Stock Deemed Outstanding immediately
prior to such issuance or sale (or deemed issuance or sale) by the Warrant Exercise Price then in effect plus (B) the aggregate consideration, if any, received
by the Company upon such issuance or sale (or deemed issuance or sale); by
(ii) the sum of (A) the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or
deemed issuance or sale) plus (B) the aggregate number of shares of Common Stock issued or sold (or deemed issued or sold) by the Company in such
issuance or sale (or deemed issuance or sale).
Price under Section 4(a) hereof, the following shall be applicable:
(b) Effect of Certain Events on Adjustment to Warrant Exercise Price. For purposes of determining the adjusted Warrant Exercise
(i) Issuance of Options. If the Company shall, at any time or from time to time after the Issuance Date, in any
manner grant or sell (whether directly or by assumption in a merger or otherwise) any Options, whether or not such Options or the right to convert or
exchange any Convertible Securities issuable upon the exercise of such Options are immediately exercisable, and the price per share (determined as
provided in this paragraph and in Section 8(b)(v) for which Common Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon the exercise of such Options is less than the Warrant Exercise Price in effect immediately prior to the time
of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of Convertible Securities issuable upon the exercise of such Options shall be deemed to have been
issued as of the date of granting or sale of such Options (and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Exercise
Price under Section 8(a), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration
received for purposes of Section 8(a) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of all
such Options, plus (y) the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z),
in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the issuance or sale of all such Convertible Securities and the conversion or exchange of all such Convertible Securities, by (B) the total
maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all Convertible
Securities issuable upon the exercise of all such Options. Except as otherwise provided in Section 8(b)(iii), no further adjustment of the Warrant Exercise
Price shall be made upon the actual issuance of Common Stock or of Convertible Securities upon exercise of such Options or upon the actual issuance of
Common Stock upon conversion or exchange of Convertible Securities issuable upon exercise of such Options.
8
(ii) Issuance of Convertible Securities. If the Company shall, at any time or from time to time after the Issuance
Date, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Convertible Securities, whether or not the right to
convert or exchange any such Convertible Securities is immediately exercisable, and the price per share (determined as provided in this paragraph and in
Section 8(b)(v)) for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities is less than the Warrant Exercise
Price in effect immediately prior to the time of the granting or sale of such Convertible Securities, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of the total maximum amount of such Convertible Securities shall be deemed to have been issued as of the
date of granting or sale of such Convertible Securities (and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Exercise
Price pursuant to Section 8(a)), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable
consideration received for purposes of Section 8(a)) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting
or sale of such Convertible Securities, plus (y) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. Except as otherwise provided in Section 8(b)(iii), (A) no further adjustment of the Warrant Exercise Price shall
be made upon the actual issuance of Common Stock upon conversion or exchange of such Convertible Securities and (B) no further adjustment of the
Warrant Exercise Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Warrant Exercise Price have been made pursuant to the other provisions of this Section 8(b).
9
(iii) Change in Terms of Options or Convertible Securities. Upon any change in any of (A) the total amount
received or receivable by the Company as consideration for the granting or sale of any Options or Convertible Securities referred to in Section 8(b)(i) or
Section 8(b)(ii) hereof, (B) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of any Options or
upon the issuance, conversion or exchange of any Convertible Securities referred to in Section8(b)(i) or Section 8(b)(ii) hereof, (C) the rate at which
Convertible Securities referred to in Section 8(b)(i) or Section 8(b)(ii) hereof are convertible into or exchangeable for Common Stock, or (D) the maximum
number of shares of Common Stock issuable in connection with any Options referred to in Section 8(b)(i) hereof or any Convertible Securities referred to
in Section 8(b)(ii) hereof, then (whether or not the original issuance or sale of such Options or Convertible Securities resulted in an adjustment to the
Warrant Exercise Price pursuant to this Section 8) the Warrant Exercise Price in effect at the time of such change shall be adjusted or readjusted, as
applicable, to the Warrant Exercise Price which would have been in effect at such time pursuant to the provisions of this Section 8 had such Options or
Convertible Securities still outstanding provided for such changed consideration, conversion rate or maximum number of shares, as the case may be, at the
time initially granted, issued or sold, but only if as a result of such adjustment or readjustment the Warrant Exercise Price then in effect is reduced, and the
number of shares of Common Stock obtainable upon conversion of this Debenture will be proportionately adjusted or readjusted.
(iv) Treatment of Expired or Terminated Options or Convertible Securities. Upon the expiration or termination
of any unexercised Option (or portion thereof) or any unconverted or unexchanged Convertible Security (or portion thereof) for which any adjustment
(either upon its original issuance or upon a revision of its terms) was made pursuant to this Section 8 (including without limitation upon the redemption or
purchase for consideration of all or any portion of such Option or Convertible Security by the Company), the Warrant Exercise Price then in effect
hereunder shall forthwith be changed pursuant to the provisions of this Section 8 to the Warrant Exercise Price which would have been in effect at the time
of such expiration or termination had such unexercised Option (or portion thereof) or unconverted or unexchanged Convertible Security (or portion
thereof), to the extent outstanding immediately prior to such expiration or termination, never been issued.
(v) Calculation of Consideration. Received. If the Company shall, at any time or from time to time after the
Issuance Date, issue or sell, or is deemed to have issued or sold in accordance with Section 8(b), any shares of Common Stock, Options or Convertible
Securities: (A) for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor; (B) for consideration
other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of consideration received by the Company shall be the market price (as reflected
on any securities exchange, quotation system or association or similar pricing system covering such security) for such secunt1es as of the end of business
on the date of receipt of such securities; (C) for no specifically allocated consideration in connection with an issuance or sale of other securities of the
Company, together comprising one integrated transaction, the amount of the consideration therefor shall be deemed to be the fair value of such portion of
the aggregate consideration received by the Company in such transaction as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be, issued in such transaction; or (D) to the owners of the non-surviving entity in connection with any merger in which the
Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued to
such owners. The net amount of any cash consideration and the fair value of any consideration other than cash or marketable securities shall be determined
in good faith by the Board of Directors of the Company, which shall be final and binding, absent manifest error.
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(vi) Record Date. For purposes of any adjustment to the Warrant Exercise Price or the number of shared of
Common Stock issuable upon conversion of this Debenture in accordance with this Section 8, in case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the
cancellation or retirement thereof or the transfer of such shares among the Company and its wholly-owned subsidiaries) shall be considered an issue or sale
of Common Stock for the purpose of this Section 8.
(c) Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after
the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, any Warrant Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the
Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, any Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon exercise of this Warrant will be proportionately decreased. Any adjustment
under this Section 8(c) shall become effective at the close of business on the date the subdivision or combination becomes effective.
11
(d) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at
any time after the issuance of this Warrant , then, in each such case:
(i) any Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the
determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to
a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board
of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number
of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the
determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately
preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities
exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the
terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been
payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an
exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding clause (i).
(e) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for
by such provisions (including , without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features other
than to employees, officers, directors or consultants as compensation), then the Company's Board of Directors will make an appropriate adjustment in the
Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the
Warrants; provided, except as set forth in section 8(a), that no such adjustment pursuant to this Section 9(e) will increase the Warrant Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.
12
(f)
Notices.
holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment.
(i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the
(ii) The Company will give written notice to the holder of this Warrant at least ten (10) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of this Warrant at least ten (10) days prior to the date on
which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification. Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. In the event the holder of
this Warrant does not exercise any part of this Warrant, the Purchase Rights allocable to such unexercised portion of the Warrant shall be automatically
canceled.
(b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to
another Person or other transaction in each case which is effected in such a way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an "Organic Change."
Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following
which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the "Acquiring Entity") a written agreement (in form and substance reasonably satisfactory to the holders of Warrants representing at
least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and reasonably
satisfactory to the holders of the Warrants (including an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the
Warrants without regard to any limitations on exercise, if the value so reflected is less than any Applicable Warrant Exercise Price immediately prior to
such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and
substance reasonably satisfactory to the holders of Warrants representing a majority of the Warrant Shares issuable upon exercise of the Warrants then
outstanding) to insure that each of the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case
may be) the Warrant Shares immediately theretofore issuable and receivable upon the exercise of such holder's Warrants (without regard to any limitations
on exercise), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the
number of Warrant Shares which would have been issuable and receivable upon the exercise of such holder's Warrant as of the date of such Organic
Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).
13
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
on receipt of an indemnification undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by e-mail
(provided confirmation of delivery by the sending party transmission is electronically generated and kept on file by the sending party); or (iii) one Business
Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses
and e-mail addresses for such communications shall be:
If to Holder:
With Copy to:
YA II PN, Ltd.
c/o Yorkville Advisors Global, LP
1012 Springfield Avenue
Mountainside, NJ 07092
Attention: Mark Angelo
Telephone: (201) 536-5115
Email: mangelo@yorkvilleadvisors.com
Troy J. Rillo, Esq.
1012 Springfield Avenue
Mountainside, NJ 07092
Telephone: (201) 536-5109
Email:trillo@yorkvilleadvisors.com
legal@yorkvilleadvisors.com
14
If to the Company, to:
With a copy to:
Ideanomics, Inc.
55 Broadway, 19th Floor
New York, New York 10006
Telephone: 212-206-1216
Attention: Chief Executive Officer
E-Mail: apoor@ideanomics.com
Ruskin Moscou Faltischek, P.C.
1425 RXR Plaza
East Tower, 15th Floor
Uniondale, New York 11556
Telephone: 516-663-6514
Attention: Gavin C. Grusd, Esq.
E-Mail: ggrusd@rmfpc.com
or at such other address and/or e-mail address and/or to the attention of such other person as the recipient party has specified by written notice given to each
other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice,
consent, waiver or other communication, (ii) electronically generated upon sending the e-mail or (iii) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by e-mail or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is set forth on page 1 hereof. This Warrant, in all events, shall be wholly-void and of no effect
after the close of business on the Expiration Date.
Section 13. Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the
written consent of the holders of Warrants representing at least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding;
provided that, except for Section 9(a), no such action may increase the Warrant Exercise Price or decrease the number of shares or class of stock obtainable
upon exercise of any Warrant without the written consent of the holder of such Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. The corporate laws of the State of Nevada shall govern all issues concerning the
relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York County, New York, for the
adjudication of any dispute hereunder or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
15
Section 15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS
WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN
ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
16
IN WITNESS WHEREOF, the Company has caused this Warrent to be signed as of the date first set forth above.
IDEANOMICS, INC.
By:
Name: Alfred P. Poor
Title: CEO
17
EXHIBIT A TO WARRANT
EXERCISE NOTICE
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
IDEANOMICS, INC.
The undersigned holder hereby exercises the right to purchase _____________ of the shares of Common Stock ("Warrant Shares") of
IDEANOMICS, INC. (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
Specify Method of exercise by check mark:
1. ☐ Cash Exercise
(a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate Exercise Price of $ to the Company in
accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the
Warrant.
2. ☐ Cashless Exercise
(a) Payment of Warrant Exercise Price. In lieu of making payment of the Aggregate Exercise Price, the holder elects to receive
upon such exercise the Net Number of shares of Common Stock determined in accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the
Warrant.
Date:
,
Name of Registered Holder
By:
Name:
Title:
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED,
,
Federal Identification No. a warrant to purchase shares of the capital stock of Ideanomics, Inc. represented by warrant certificate
no. , standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint
, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.
the undersigned does hereby assign and
transfer
to
Dated:
By:
Name:
Title:
B-1
Exhibit 10.116
EXECUTION COPY
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
IDEANOMICS, INC.
Warrant To Purchase Common Stock
Warrant No.: IDEX-2
Date of Issuance: December 13, 2019
Number of Shares:
Warrant Exercise Price:
1,000,000
$1.00
IDEANOMICS, INC., a Nevada corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, YA II PN, Ltd. (the “Holder”), the registered holder hereof or its permitted assigns, is entitled, subject to the terms set
forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Eastern
Time on the Expiration Date (as defined herein) 1,000,000 fully paid and nonassessable shares of Common Stock (as defined herein) of the Company (the
“Warrant Shares”) at the exercise price per share provided in Section 2(a) below or as subsequently adjusted; provided, however, that in no event shall the
Holder be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise, except within sixty (60) days of the Expiration Date (however, such restriction may be
waived by Holder (but only as to itself and not to any other holder) upon not less than 65 days prior notice to the Company). For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the determination of such proviso is being made, but shall exclude shares of
Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Warrants beneficially owned by the Holder and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by the Holder and its
affiliates (including, without limitation, any convertible notes or preferred stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-
Q or Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding. Upon the written request of any holder, the Company shall promptly, but in no event later
than one (1) Business Day following the receipt of such notice, confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of Warrants (as defined
below) by such holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
1
Section 1.
(a) This Warrant is being issued pursuant to the Securities Purchase Agreement (“Securities Purchase Agreement”) of even date herewith
between the Company and the Holder or issued in exchange or substitution thereafter or replacement thereof. Each Capitalized term used, and not
otherwise defined herein, shall have the meaning ascribed thereto in the Securities Purchase Agreement.
(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:
(i) “Approved Stock Plan” means a stock option plan that has been approved by the Board of Directors of the Company prior
to the date of the Securities Purchase Agreement, pursuant to which the Company’s securities may be issued only to any employee, officer or director or
qualified consultant for services provided to the Company.
York are authorized or required by law to remain closed.
(ii) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New
Bloomberg Financial Markets (“Bloomberg”) through its “Volume at Price” function).
(iii) “Closing Bid Price” means the closing bid price of Common Stock as quoted on the Principal Market (as reported by
which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.
(iv) “Common Stock” means (i) the Company’s common stock, par value $0.001 per share, and (ii) any capital stock into
exercisable or exchangeable for Common Stock.
(v) “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or
2
issued in connection therewith.
(vi) “Event of Default” means an event of default under the Securities Purchase Agreement or the Convertible Debenture
(vii) “Excluded Securities” means, (1) shares issued or deemed to have been issued by the Company pursuant to an Approved
Stock Plan, (2) shares of Common Stock issued or deemed to be issued by the Company upon the conversion, exchange or exercise of any right, option,
obligation or security outstanding on the date prior to date of the Securities Purchase Agreement, provided that the terms of such right, option, obligation or
security are not amended or otherwise modified on or after the date of the Securities Purchase Agreement, and provided that the conversion price, exchange
price, exercise price or other purchase price is not reduced, adjusted or otherwise modified and the number of shares of Common Stock issued or issuable is
not increased (whether by operation of, or in accordance with, the relevant governing documents or otherwise) on or after the date of the Securities
Purchase Agreement, and (3) the shares of Common Stock issued or deemed to be issued by the Company upon conversion of the Convertible Debentures
or exercise of the Warrants.
(viii) “Expiration Date” means the one (1) year anniversary of the Issuance Date. If such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of New York or the State of New York or on which trading does not take place
on the Principal Exchange or automated quotation system on which the Common Stock is traded (a “Holiday”), the next date that is not a Holiday.
(ix) “Issuance Date” means the date hereof.
(x) “Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.
unincorporated organization and a government or any department or agency thereof.
(xi) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an
National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (“OTCBB”)
(xii) “Principal Market” means on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq
(xiii) “Securities Act” means the Securities Act of 1933, as amended.
(xiv) “Warrant” means this Warrant and all Warrants issued in exchange, transfer or replacement thereof.
(xv) “Warrant Exercise Price” shall be $1.00 or as subsequently adjusted as provided in Section 8 hereof.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to the Company shall be deemed to include the Company’s
successors and (B) to any applicable law defined or referred to herein shall be deemed references to such applicable law as the same may have been or may
be amended or supplemented from time to time.
(ii) When used in this Warrant, the words “herein”, “hereof”, and “hereunder” and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words “Section”, “Schedule”, and “Exhibit” shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
the plural, and vice versa.
(iii) Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes
3
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the
Company, pro rata as hereinafter provided, at any time on any Business Day on or after the opening of business on such Business Day, commencing with
the first day after the date hereof, and prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the “Exercise Notice”), of such holder’s election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, payment to the Company of an amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares
being purchased, multiplied by the number of Warrant Shares (at the applicable Warrant Exercise Price) as to which this Warrant is being exercised (plus
any applicable issue or transfer taxes) (the “Aggregate Exercise Price”) in cash or wire transfer of immediately available funds and the surrender of this
Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) to a common carrier for overnight
delivery to the Company as soon as practicable following such date (“Cash Basis”) or (ii) if at the time of exercise, the Warrant Shares are not subject to an
effective registration statement, or can be sold without restriction or limitation pursuant to Rule 144 as promulgated under the Securities Act or if an Event
of Default has occurred, by delivering an Exercise Notice and in lieu of making payment of the Aggregate Exercise Price in cash or wire transfer, elect
instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (the “Cashless
Exercise”):
Net Number = (A x B) – (A x C)
B
For purposes of the foregoing formula:
A = the total number of Warrant Shares with respect to which this Warrant is then being exercised.
B = the Closing Bid Price of the Common Stock on the date of exercise of the Warrant.
C = the Warrant Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
4
In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2, the Company shall on or before the fifth
(5th) Business Day following the date of receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking
with respect to this Warrant in the case of its loss, theft or destruction) and the receipt of the representations of the holder specified in Section 6 hereof, if
requested by the Company (the “Exercise Delivery Documents”), and if the Common Stock is DTC eligible, credit such aggregate number of shares of
Common Stock to which the holder shall be entitled to the holder’s or its designee’s balance account with The Depository Trust Company; provided,
however, if the holder who submitted the Exercise Notice requested physical delivery of any or all of the Warrant Shares, or, if the Common Stock is not
DTC eligible then the Company shall, on or before the fifth (5th) Business Day following receipt of the Exercise Delivery Documents, (A) issue and
surrender to a common carrier for overnight delivery to the address specified in the Exercise Notice, a certificate, registered in the name of the holder, for
the number of shares of Common Stock to which the holder shall be entitled pursuant to such request, or (B) provided the Company’s transfer agent is
participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designees’ balance account with DTC through its
Deposit Withdrawal At Custodian (“DWAC”) system provided the Holder causes its bank or broker to initiate the DWAC transaction. Upon delivery of the
Exercise Notice and Aggregate Exercise Price referred to in clause (i) or (ii) above the holder of this Warrant shall be deemed for all corporate purposes to
have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised. In the case of a dispute as to the
determination of the Warrant Exercise Price, the Closing Bid Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to
the holder the number of Warrant Shares that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) Business Day of receipt of the holder’s Exercise Notice.
(b) If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price or arithmetic calculation of
the Warrant Shares within one (1) day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall
immediately submit via e-mail in accordance with Section 11 (i) the disputed determination of the Warrant Exercise Price or the Closing Bid Price to an
independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside accountant. The
Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such
investment banking firm’s or accountant’s determination or calculation, as the case may be, shall be deemed conclusive absent manifest error.
(c) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this
Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised.
5
issued upon such exercise of this Warrant shall be rounded up or down to the nearest whole number.
(d) No fractional Warrant Shares are to be issued upon any pro rata exercise of this Warrant, but rather the number of Warrant Shares
(e) If the Company or its Transfer Agent shall fail for any reason or for no reason to issue to the holder within ten (10) days of receipt of
the Exercise Delivery Documents, a certificate for the number of Warrant Shares to which the holder is entitled or to credit the holder’s balance account
with The Depository Trust Company for such number of Warrant Shares to which the holder is entitled upon the holder’s exercise of this Warrant, the
Company shall, in addition to any other remedies under this Warrant, have any other remedies otherwise available to such holder.
(f) If within ten (10) days after the Company’s receipt of the Exercise Delivery Documents, the Company fails to deliver a new Warrant
to the holder for the number of Warrant Shares to which such holder is entitled pursuant to Section 2 hereof, then, in addition to any other available
remedies under this Warrant, have any other remedies otherwise available to such holder.
Section 3. Covenants as to Common Stock. The Company hereby covenants and agrees as follows:
validly issued.
(a) This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and
issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
(b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly
(c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have
authorized and reserved at least one hundred percent (100%) of the number of shares of Common Stock needed to provide for the exercise of the rights then
represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. If at any time the
Company does not have a sufficient number of shares of Common Stock authorized and available, then the Company shall call and hold a special meeting
of its stockholders within sixty (60) days of that time for the sole purpose of increasing the number of authorized shares of Common Stock.
Issuance of this Warrant between the Company and the Holder.
(d) The Warrant Shares are subject to registration rights pursuant to a Registration Rights Agreement of even date with the Date of
(e) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action (it being understood that filing a Certificate of Designation or implementing a
reverse split are not intended to be included in this provision), avoid or seek to avoid the observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such
action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution
or other impairment, consistent with the tenor and purpose of this Warrant. The Company will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Warrant Exercise Price then in effect, and (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
all of the Company’s assets.
(f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially
6
Section 4. Taxes. The Company shall pay any and all taxes, except any applicable withholding, which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote,
give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the
Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide
the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously
with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this
Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the
right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the
Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an “accredited investor” as such term
is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an “Accredited Investor”).
Upon exercise of this Warrant the holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant
Shares so purchased are being acquired solely for the holder’s own account and not as a nominee for any other party, for investment, and not with a view
toward distribution or resale and that such holder is an Accredited Investor. If such holder cannot make such representations because they would be
factually incorrect, it shall be a condition to such holder’s exercise of this Warrant that the Company receive such other factually correct representations as
the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any
United States or state securities laws.
7
Section 7. Ownership and Transfer. The Company shall maintain at its principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name
any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events
recognizing any transfers made in accordance with the terms of this Warrant.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Exercise Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment for Additional Issuances. Except in the case of an event described in either Section 8(c), Section 8(d), or Section 8(e), if
the Company shall, at any time or from time to time after the date hereof, issue or sell, or in accordance with Section 8(b) is deemed to have issued or sold,
any shares of Common Stock without consideration or for consideration per share less than the Warrant Exercise Price in effect immediately prior to such
issuance or sale (or deemed issuance or sale), except for Excluded Securities, then immediately upon such issuance or sale (or deemed issuance or sale), the
Warrant Exercise Price in effect immediately prior to such issuance or sale (or deemed issuance or sale) shall be reduced (and in no event increased) to a
Warrant Exercise Price equal to the quotient obtained by dividing:
(i) the sum of (A) the product obtained by multiplying the Common Stock Deemed Outstanding immediately prior
to such issuance or sale (or deemed issuance or sale) by the Warrant Exercise Price then in effect plus (B) the aggregate consideration, if any, received by
the Company upon such issuance or sale (or deemed issuance or sale); by
(ii) the sum of (A) the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed
issuance or sale) plus (B) the aggregate number of shares of Common Stock issued or sold (or deemed issued or sold) by the Company in such issuance or
sale (or deemed issuance or sale).
8
under Section 4(a) hereof, the following shall be applicable:
(b) Effect of Certain Events on Adjustment to Warrant Exercise Price. For purposes of determining the adjusted Warrant Exercise Price
(i) Issuance of Options. If the Company shall, at any time or from time to time after the Issuance Date, in any
manner grant or sell (whether directly or by assumption in a merger or otherwise) any Options, whether or not such Options or the right to convert or
exchange any Convertible Securities issuable upon the exercise of such Options are immediately exercisable, and the price per share (determined as
provided in this paragraph and in Section 8(b)(v) for which Common Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon the exercise of such Options is less than the Warrant Exercise Price in effect immediately prior to the time
of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of Convertible Securities issuable upon the exercise of such Options shall be deemed to have been
issued as of the date of granting or sale of such Options (and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Exercise
Price under Section 8(a), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration
received for purposes of Section 8(a) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of all
such Options, plus (y) the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z),
in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the issuance or sale of all such Convertible Securities and the conversion or exchange of all such Convertible Securities, by (B) the total
maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all Convertible
Securities issuable upon the exercise of all such Options. Except as otherwise provided in Section 8(b)(iii), no further adjustment of the Warrant Exercise
Price shall be made upon the actual issuance of Common Stock or of Convertible Securities upon exercise of such Options or upon the actual issuance of
Common Stock upon conversion or exchange of Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company shall, at any time or from time to time after the Issuance
Date, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Convertible Securities, whether or not the right to
convert or exchange any such Convertible Securities is immediately exercisable, and the price per share (determined as provided in this paragraph and in
Section 8(b)(v)) for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities is less than the Warrant Exercise
Price in effect immediately prior to the time of the granting or sale of such Convertible Securities, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of the total maximum amount of such Convertible Securities shall be deemed to have been issued as of the
date of granting or sale of such Convertible Securities (and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Exercise
Price pursuant to Section 8(a)), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable
consideration received for purposes of Section 8(a)) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting
or sale of such Convertible Securities, plus (y) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. Except as otherwise provided in Section 8(b)(iii), (A) no further adjustment of the Warrant Exercise Price shall
be made upon the actual issuance of Common Stock upon conversion or exchange of such Convertible Securities and (B) no further adjustment of the
Warrant Exercise Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Warrant Exercise Price have been made pursuant to the other provisions of this Section 8(b).
9
(iii) Change in Terms of Options or Convertible Securities. Upon any change in any of (A) the total amount received
or receivable by the Company as consideration for the granting or sale of any Options or Convertible Securities referred to in Section 8(b)(i) or Section 8(b)
(ii) hereof, (B) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of any Options or upon the
issuance, conversion or exchange of any Convertible Securities referred to in Section 8(b)(i) or Section 8(b)(ii) hereof, (C) the rate at which Convertible
Securities referred to in Section 8(b)(i) or Section 8(b)(ii) hereof are convertible into or exchangeable for Common Stock, or (D) the maximum number of
shares of Common Stock issuable in connection with any Options referred to in Section 8(b)(i) hereof or any Convertible Securities referred to in
Section 8(b)(ii) hereof, then (whether or not the original issuance or sale of such Options or Convertible Securities resulted in an adjustment to the Warrant
Exercise Price pursuant to this Section 8) the Warrant Exercise Price in effect at the time of such change shall be adjusted or readjusted, as applicable, to
the Warrant Exercise Price which would have been in effect at such time pursuant to the provisions of this Section 8 had such Options or Convertible
Securities still outstanding provided for such changed consideration, conversion rate or maximum number of shares, as the case may be, at the time initially
granted, issued or sold, but only if as a result of such adjustment or readjustment the Warrant Exercise Price then in effect is reduced, and the number of
shares of Common Stock obtainable upon conversion of this Debenture will be proportionately adjusted or readjusted.
(iv) Treatment of Expired or Terminated Options or Convertible Securities. Upon the expiration or termination of
any unexercised Option (or portion thereof) or any unconverted or unexchanged Convertible Security (or portion thereof) for which any adjustment (either
upon its original issuance or upon a revision of its terms) was made pursuant to this Section 8 (including without limitation upon the redemption or
purchase for consideration of all or any portion of such Option or Convertible Security by the Company), the Warrant Exercise Price then in effect
hereunder shall forthwith be changed pursuant to the provisions of this Section 8 to the Warrant Exercise Price which would have been in effect at the time
of such expiration or termination had such unexercised Option (or portion thereof) or unconverted or unexchanged Convertible Security (or portion
thereof), to the extent outstanding immediately prior to such expiration or termination, never been issued.
(v) Calculation of Consideration Received. If the Company shall, at any time or from time to time after the Issuance
Date, issue or sell, or is deemed to have issued or sold in accordance with Section 8(b), any shares of Common Stock, Options or Convertible Securities:
(A) for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor; (B) for consideration other than
cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of consideration received by the Company shall be the market price (as reflected
on any securities exchange, quotation system or association or similar pricing system covering such security) for such securities as of the end of business
on the date of receipt of such securities; (C) for no specifically allocated consideration in connection with an issuance or sale of other securities of the
Company, together comprising one integrated transaction, the amount of the consideration therefor shall be deemed to be the fair value of such portion of
the aggregate consideration received by the Company in such transaction as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be, issued in such transaction; or (D) to the owners of the non-surviving entity in connection with any merger in which the
Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued to
such owners. The net amount of any cash consideration and the fair value of any consideration other than cash or marketable securities shall be determined
in good faith by the Board of Directors of the Company, which shall be final and binding, absent manifest error.
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(vi) Record Date. For purposes of any adjustment to the Warrant Exercise Price or the number of shared of Common
Stock issuable upon conversion of this Debenture in accordance with this Section 8, in case the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may be.
(vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the
cancellation or retirement thereof or the transfer of such shares among the Company and its wholly-owned subsidiaries) shall be considered an issue or sale
of Common Stock for the purpose of this Section 8.
(c) Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date
of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced
and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after
the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, any Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and
the number of Warrant Shares issuable upon exercise of this Warrant will be proportionately decreased. Any adjustment under this Section 8(c) shall
become effective at the close of business on the date the subdivision or combination becomes effective.
11
(d) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at
any time after the issuance of this Warrant, then, in each such case:
(i) any Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the
determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to
a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board
of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i),
or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national
automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of
this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the
amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding
clause (i).
(e) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features other than to
employees, officers, directors or consultants as compensation), then the Company’s Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the
Warrants; provided, except as set forth in section 8(a), that no such adjustment pursuant to this Section 8(e) will increase the Warrant Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.
12
(f) Notices.
holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment.
(i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the
(ii) The Company will give written notice to the holder of this Warrant at least ten (10) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of this Warrant at least ten (10) days prior to the date on which
any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. In the event the holder of
this Warrant does not exercise any part of this Warrant, the Purchase Rights allocable to such unexercised portion of the Warrant shall be automatically
canceled.
(b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to
another Person or other transaction in each case which is effected in such a way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an “Organic Change.”
Prior to the consummation of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii) other Organic Change following
which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the “Acquiring Entity”) a written agreement (in form and substance reasonably satisfactory to the holders of Warrants representing at
least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and reasonably
satisfactory to the holders of the Warrants (including an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the
Warrants without regard to any limitations on exercise, if the value so reflected is less than any Applicable Warrant Exercise Price immediately prior to
such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and
substance reasonably satisfactory to the holders of Warrants representing a majority of the Warrant Shares issuable upon exercise of the Warrants then
outstanding) to insure that each of the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case
may be) the Warrant Shares immediately theretofore issuable and receivable upon the exercise of such holder’s Warrants (without regard to any limitations
on exercise), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the
number of Warrant Shares which would have been issuable and receivable upon the exercise of such holder’s Warrant as of the date of such Organic
Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).
13
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on
receipt of an indemnification undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this
Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by e-mail (provided
confirmation of delivery is received by the sending party transmission electronically generated and kept on file by the sending party); or (iii) one Business
Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses
and e-mail addresses for such communications shall be:
If to Holder:
With Copy to:
YA II PN, Ltd.
c/o Yorkville Advisors Global, LP
1012 Springfield Avenue
Mountainside, NJ 07092
Attention: Mark Angelo
Telephone: (201) 536-5115
Email: mangelo@yorkvilleadvisors.com
Troy J. Rillo, Esq.
1012 Springfield Avenue
Mountainside, NJ 07092
Telephone: (201) 536-5109
Email: trillo@yorkvilleadvisors.com
legal@yorkvilleadvisors.com
14
If to the Company, to:
With a copy to:
Ideanomics, Inc.
55 Broadway, 19th Floor
New York, New York 10006
Telephone: 212-206-1216
Attention: Chief Executive Officer
E-Mail: apoor@ideanomics.com
Ruskin Moscou Faltischek, P.C.
1425 RXR Plaza
East Tower, 15th Floor
Uniondale, New York 11556
Telephone: 516-663-6514
Attention: Gavin C. Grusd, Esq.
E-Mail: ggrusd@rmfpc.com
or at such other address and/or e-mail address and/or to the attention of such other person as the recipient party has specified by written notice given to each
other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice,
consent, waiver or other communication, (ii) electronically generated upon sending the e-mail or (iii) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by e-mail or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is set forth on page 1 hereof. This Warrant, in all events, shall be wholly-void and of no effect after
the close of business on the Expiration Date.
Section 13. Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written
consent of the holders of Warrants representing at least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding; provided
that, except for Section 9(a), no such action may increase the Warrant Exercise Price or decrease the number of shares or class of stock obtainable upon
exercise of any Warrant without the written consent of the holder of such Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted
for convenience only and do not constitute a part of this Warrant. The corporate laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York County, New York, for the adjudication of
any dispute hereunder or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
Section 15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS
WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN
ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the date first set forth above.
IDEANOMICS, INC.
By:
Name: Alfred P. Poor
Title: CEO
16
EXHIBIT A TO WARRANT
EXERCISE NOTICE
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
IDEANOMICS, INC.
The undersigned holder hereby exercises the right to purchase of the shares of Common Stock (“Warrant Shares”) of
IDEANOMICS, INC. (the “Company”). evidenced by the attached Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
Specify Method of exercise by check mark:
1. ☐ Cash Exercise
(a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate Exercise Price of $ to the Company in
accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the
Warrant.
2.☐ Cashless Exercise
(a) Payment of Warrant Exercise Price. In lieu of making payment of the Aggregate Exercise Price, the holder elects to receive upon such
exercise the Net Number of shares of Common Stock determined in accordance with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the
Warrant.
Date:
,
Name of Registered Holder
By:
Name:
Title:
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to , Federal Identification No. , a
warrant to purchase shares of the capital stock of Ideanomics, Inc. represented by warrant certificate no. , standing in the name of
the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint , attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated:
By:
Name:
Title:
B-1
SUBSIDIARY GUARANTEE
Exhibit 10.117
SUBSIDIARY GUARANTEE, dated as of September 27, 2019 (this “Guarantee”), made by each of the signatories hereto (together with any other
entity that may become a party hereto as provided herein, the “Guarantors”), in favor of the purchasers signatory (together with their permitted assigns, the
“Purchasers”) to that certain Securities Purchase Agreement, dated as of September 27, 2019, between Ideanomics, Inc., a Nevada corporation (the
“Company”) and the Purchasers.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as of September 27, 2019, by and between the Company and the
Purchasers (the “Purchase Agreement”), the Company has agreed to sell and issue to the Purchasers, and the Purchasers have agreed to purchase from the
Company the Debentures, subject to the terms and conditions set forth therein; and
WHEREAS, each Guarantor will directly benefit from the extension of credit to the Company represented by the issuance of the Debentures; and
NOW, THEREFORE, in consideration of the premises and to induce the Purchasers to enter into the Purchase Agreement and to carry out the
transactions contemplated thereby, each Guarantor hereby agrees with the Purchasers as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to
them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall
refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless
otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The
following terms shall have the following meanings:
“Guarantee” means this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise modified from time to time.
“Guarantor Permitted Indebtedness” means (a) indebtedness resulting from a bank or other financial institution honoring a check, draft or
similar instrument in the ordinary course of business, (b) indebtedness arising under or in connection with cash management services in the
ordinary course of business, (c) equipment lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in
connection with the acquisition of fixed or capital assets and equipment lease obligations with respect to newly acquired or leased assets,
(d) indebtedness under bank lines of credit up to $500,000, in the aggregate, at any time outstanding, (e) obligations existing or arising under any
swap or hedge contract; provided that such obligations are (or were) entered into by the Guarantor in the ordinary course of business for the
purpose of mitigating risks associated with liabilities, commitments, investments, assets or property held or reasonably anticipated by the
Guarantor, or changes in the value of securities issued by the Guarantor, and not for speculative purposes, and (f) intercompany indebtedness up to
$1,000,000, in the aggregate, at any time outstanding, that is unsecured and that is (i) is expressly subordinated to the Debentures pursuant to a
written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion, and (ii) matures at a
date later than the ninety first (91st) day following the Maturity Date.
1
“Guarantor Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith
and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Guarantor) have been
established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Guarantor’s business, such as
carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the
Guarantor’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the Guarantor and its consolidated Subsidiaries or (y) are being contested in
good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such Lien, (c) Liens incurred in connection with Guarantor Permitted Indebtedness under clause (c) thereunder,
provided that such Liens are not secured by assets of the Guarantor other than the assets so acquired or leased, (d) any interest or title of a lessor,
sublessor, licensor or sublicensor under leases or licenses that are entered into in the ordinary course of business, or (e) leases, licenses, subleases,
or sublicenses granted to others in the ordinary course of business that do not (i) interfere in any material respect with the ordinary conduct of the
business of the Guarantor or (ii) secure any indebtedness.
“Obligations” means, in addition to all other costs and expenses of collection incurred by Purchasers in enforcing any of such Obligations
and/or this Guarantee, all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or
that are now or may be hereafter contracted or acquired, or owing to, of the Company or any Guarantor to the Purchasers, including, without
limitation, all obligations under this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or
delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute
or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished
and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such
payment is avoided or recovered directly or indirectly from any of the Purchasers as a preference, fraudulent transfer or otherwise as such
obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing,
the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto;
(ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company or any Guarantor from time to time under or in connection
with this Guarantee, the Debentures and any other instruments, agreements or other documents executed and/or delivered in connection herewith
or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the
fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Company or any Guarantor.
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2. Guarantee.
(a) Guarantee.
(i) The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Purchasers and their
respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations.
(ii) Anything herein or in any other Transaction Document to the contrary notwithstanding, the maximum liability of each
Guarantor hereunder and under the other Transaction Documents shall in no event exceed the amount which can be guaranteed by such
Guarantor under applicable federal and state laws, including laws relating to the insolvency of debtors, fraudulent conveyance or transfer
or laws affecting the rights of creditors generally (after giving effect to the right of contribution established in Section 2(b)).
(iii) Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability
of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the
Purchasers hereunder.
(iv) The guarantee contained in this Section 2 shall remain in full force and effect until all the Obligations and the
obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by indefeasible payment in full.
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(v) No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or
collected by the Purchasers from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations
shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any
such payment (other than any payment made by such Guarantor in respect of the Obligations or any payment received or collected from
such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder
until the Obligations are indefeasibly paid in full.
(vi) Notwithstanding anything to the contrary in this Guarantee, with respect to any defaulted non-monetary Obligations
the specific performance of which by the Guarantors is not reasonably possible (e.g. the issuance of the Company's Common Stock), the
Guarantors shall only be liable for making the Purchasers whole on a monetary basis for the Company's failure to perform such
Obligations in accordance with the Transaction Documents.
(b) Right of Contribution. Subject to Section 2(c), each Guarantor hereby agrees that to the extent that a Guarantor shall have paid
more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and
against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be
subject to the terms and conditions of Section 2(c). The provisions of this Section 2(b) shall in no respect limit the obligations and liabilities of any
Guarantor to the Purchasers and each Guarantor shall remain liable to the Purchasers for the full amount guaranteed by such Guarantor hereunder.
(c) No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any
Guarantor by the Purchasers, no Guarantor shall be entitled to be subrogated to any of the rights of the Purchasers against the Company or any
other Guarantor or any collateral security or guarantee or right of offset held by the Purchasers for the payment of the Obligations, nor shall any
Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made
by such Guarantor hereunder, until all amounts owing to the Purchasers by the Company on account of the Obligations are indefeasibly paid in
full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have
been paid in full, such amount shall be held by such Guarantor in trust for the Purchasers, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the Purchasers in the exact form received by such Guarantor (duly indorsed by
such Guarantor to the Purchasers, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the
Purchasers may determine.
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(d) Amendments, Etc. With Respect to the Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that,
without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any
of the Obligations made by the Purchasers may be rescinded by the Purchasers and any of the Obligations continued, and the Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto,
may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released
by the Purchasers, and the Purchase Agreement and the other Transaction Documents and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Purchasers may deem advisable from
time to time, and any collateral security, guarantee or right of offset at any time held by the Purchasers for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. The Purchasers shall have no obligation to protect, secure, perfect or insure any Lien at any time
held by them as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto.
(e) Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual
of any of the Obligations and notice of or proof of reliance by the Purchasers upon the guarantee contained in this Section 2 or acceptance of the
guarantee contained in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred,
or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and
any of the Guarantors, on the one hand, and the Purchasers, on the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives to the extent permitted by law diligence,
presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to
the Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute
and unconditional guarantee of payment and performance without regard to (a) the validity or enforceability of the Purchase Agreement or any
other Transaction Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at
any time or from time to time held by the Purchasers, (b) any defense, set-off or counterclaim (other than a defense of payment or performance or
fraud by Purchasers) which may at any time be available to or be asserted by the Company or any other Person against the Purchasers, or (c) any
other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Company for the Obligations, or of such Guarantor under the guarantee contained in
this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies
hereunder against any Guarantor, the Purchasers may, but shall be under no obligation to, make a similar demand on or otherwise pursue such
rights and remedies as they may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee
for the Obligations or any right of offset with respect thereto, and any failure by the Purchasers to make any such demand, to pursue such other
rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such
collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a matter of law, of the Purchasers against any Guarantor. For the purposes
hereof, “demand” shall include the commencement and continuance of any legal proceedings.
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(f) Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at
any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Purchasers upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or
otherwise, all as though such payments had not been made.
(g) Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Purchasers without set-off or
counterclaim in U.S. dollars at the address set forth or referred to in the Signature Pages to the Purchase Agreement.
3. Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date
hereof:
(a) Consents and Approvals. The Guarantor is not required to obtain any consent, waiver, authorization or order of, or make any
filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other person in connection with the
execution, delivery and performance by the Guarantor of this Guaranty.
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(b) Purchase Agreement. The representations and warranties of the Company set forth in the Purchase Agreement as they relate to
such Guarantor, each of which is hereby incorporated herein by reference, are true and correct as of each time such representations are deemed to
be made pursuant to such Purchase Agreement, and the Purchasers shall be entitled to rely on each of them as if they were fully set forth herein,
provided that each reference in each such representation and warranty to the Company's knowledge shall, for the purposes of this Section 3, be
deemed to be a reference to such Guarantor's knowledge.
4. Covenants.
(a) Each Guarantor covenants and agrees with the Purchasers that, from and after the date of this Guarantee until the Obligations
shall have been indefeasibly paid in full, such Guarantor shall take, and/or shall refrain from taking, as the case may be, each commercially
reasonable action that is necessary to be taken or not taken, as the case may be, so that no Event of Default (as defined in the Debentures) is
caused by the failure to take such action or to refrain from taking such action by such Guarantor.
(b) So long as any of the Obligations are outstanding, unless Purchasers holding at least a majority in interest of the aggregate
principal amount of the then outstanding Debentures shall otherwise consent in writing, each Guarantor will not directly or indirectly on or after
the date of this Guarantee:
i. other than Guarantor Permitted Indebtedness, enter into, create, incur, assume or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom;
ii. other than Guarantor Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or
with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
iii. amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of any
Purchaser;
iv. repay, repurchase or offer to repay, repurchase or otherwise acquire any indebtedness (other than indebtedness under
clauses (a), (b), (d) and (f) in the definition of Guarantor Permitted Indebtedness); or
v. enter into any agreement with respect to any of the foregoing.
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5. Miscellaneous.
(a) Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or
otherwise modified except in writing by the Purchasers.
(b) Notices. All notices, requests and demands to or upon the Purchasers or any Guarantor hereunder shall be effected in the
manner provided for in the Purchase Agreement, provided that any such notice, request or demand to or upon any Guarantor shall be addressed to
such Guarantor at its notice address set forth on Schedule 5(b).
(c) No Waiver By Course Of Conduct; Cumulative Remedies. The Purchasers shall not by any act (except by a written instrument
pursuant to Section 5(a)), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default under the Transaction Documents or Event of Default. No failure to exercise, nor any delay in exercising, on the part of
the Purchasers, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the
Purchasers of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Purchasers
would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any other rights or remedies provided by law.
(d) Enforcement Expenses; Indemnification.
(i) Each Guarantor agrees to pay, or reimburse the Purchasers for, all its costs and expenses incurred in collecting against
such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Guarantee and the
other Transaction Documents to which such Guarantor is a party, including, without limitation, the reasonable and documented fees and
disbursements of counsel to the Purchasers.
(ii) Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in
connection with any of the transactions contemplated by this Guarantee.
(iii) Each Guarantor agrees to pay, and to save the Purchasers harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this Guarantee to the extent the Company would be required to do
so pursuant to the Purchase Agreement.
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(iv) The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the
Purchase Agreement and the other Transaction Documents.
(e) Successor and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to
the benefit of the Purchasers and their respective successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its
rights or obligations under this Guarantee without the prior written consent of the Purchasers.
(f) Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any time and from time to time while an Event of
Default under any of the Transaction Documents shall have occurred and be continuing, without notice to such Guarantor or any other Guarantor,
any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits, credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the
Purchasers to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Purchasers may elect, against and on
account of the obligations and liabilities of such Guarantor to the Purchasers hereunder and claims of every nature and description of the
Purchasers against such Guarantor, in any currency, whether arising hereunder, under the Purchase Agreement, any other Transaction Document or
otherwise, as the Purchasers may elect, whether or not the Purchasers have made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. The Purchasers shall notify such Guarantor promptly of any such set-off and the application
made by the Purchasers of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Purchasers under this Section are in addition to other rights and remedies (including, without limitation, other rights
of set-off) which the Purchasers may have.
(g) Counterparts. This Guarantee may be executed by one or more of the parties to this Guarantee on any number of separate
counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
(h) Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
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(i) Section Headings. The Section headings used in this Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
(j) Integration. This Guarantee and the other Transaction Documents represent the agreement of the Guarantors and the Purchasers
with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Purchasers
relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Transaction Documents.
(k) Governing Laws. All questions concerning the construction, validity, enforcement and interpretation of this Guarantee shall be
governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict
of laws thereof. Each of the Company and the Guarantors agree that all proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Guarantee (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough
of Manhattan (the “New York Courts”). Each of the Company and the Guarantors hereby irrevocably submits to the exclusive jurisdiction of the
New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of this Guarantee), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Courts or such New York Courts are
improper or inconvenient venue for such suit, action or proceeding. Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Guarantee and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guarantee or the transactions contemplated
hereby.
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(l) Acknowledgements. Each Guarantor hereby acknowledges that:
(i) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Transaction
Documents to which it is a party;
(ii) the Purchasers have no fiduciary relationship with or duty to any Guarantor arising out of or in connection with this
Guarantee or any of the other Transaction Documents, and the relationship between the Guarantors, on the one hand, and the Purchasers,
on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and
(iii) no joint venture is created hereby or by the other Transaction Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Guarantors and the Purchasers.
(m) Release of Guarantors. Each Guarantor will be released from all liability hereunder concurrently with (i) the indefeasible
repayment in full of all amounts owed under the Purchase Agreement, the Debentures and the other Transaction Documents or (ii) pursuant to any
Applicable Subsidiary Release under Section 4.12 of the Purchase Agreement.
(n) Seniority. As of the date hereof, the Obligations of each of the Guarantors hereunder rank senior in priority to any other
Indebtedness of such Guarantor.
(o) WAIVER OF JURY TRIAL. EACH GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE
PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.
*********************
(Signature Pages Follow)
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IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed and delivered as of the date first above written.
DELAWARE BOARD OF TRADE, LLC
By:
Name:Anthony Sklar
Title: Director
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SCHEDULE 1
GUARANTORS
The following are the names, notice addresses and jurisdiction of organization of each Guarantor.
JURISDICTION OF
INCORPORATION
COMPANY
OWNED BY
PERCENTAGE
13
Exhibit 10.118
EXECUTION COPY
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of December 13, 2019, by and among IDEANOMICS, INC., a
Nevada corporation (the “Company”), and YA II PN, Ltd., a Cayman Islands exempt limited partnership (the “Investor”).
REGISTRATION RIGHTS AGREEMENT
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Investor
(i) up to $5,000,000 of face amount of secured convertible debentures (the “Convertible Debentures”), which shall be convertible into shares of the
Company’s common stock, par value $0.001 (the “Common Stock”) (as converted, the “Conversion Shares”), (ii) up to 3,561,644 shares of the Company’s
Common Stock, and (iii) Warrants to purchase up to 1,666,667 and 1,000,000 shares (as exercised, the “Warrant Shares”) of the Company’s Common
Stock at exercise prices of $1.50 and $1.00 per share, respectively. Capitalized terms not defined herein shall have the meaning ascribed to them in the
Securities Purchase Agreement.
B. To induce the Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities
Act”), and applicable state securities laws and other rights as provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings:
(a) “Effectiveness Deadline” means, with respect to a Registration Statement filed hereunder, the 120th calendar day following the
date hereof, provided, however, in the event the Company is notified by the U.S. Securities and Exchange Commission (“SEC”) that one of the Registration
Statements, as defined below, will not be reviewed or is no longer subject to further review and comments, the Effectiveness Deadline as to such
Registration Statement shall be the fifth calendar day following the date on which the Company is so notified if such date precedes the date required above.
hereof.
(b) “Filing Deadline” means, with respect to a Registration Statement required hereunder, the 21st calendar day following the date
(c) “Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual,
a governmental or political subdivision thereof or a governmental agency.
(d) “Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable
Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
(e) “Registrable Securities” means all of (i) the Conversion Shares issuable upon conversion of the Convertible Debentures, (ii)
3,561,644 shares of the Company’s Common Stock, (iii) the Warrant Shares issuable upon exercise of the Warrants, (iv) any additional shares issuable in
connection with any anti-dilution provisions of the Convertible Debentures or the Warrants (without giving effect to any limitations on exercise set forth in
the Convertible Debentures or the Warrants, as applicable) and (v) any shares of Common Stock issued or issuable with respect to the Conversion Shares or
the Warrant Shares as a result of any stock split, dividend or other distribution, recapitalization or similar event or otherwise (in each case without giving
effect to any limitations on exercise set forth in the Convertible Debentures or the Warrants, as applicable).
(f) “Registration Statement” means the registration statements required to be filed hereunder (including any additional registration
statements contemplated by Section 2(c)), including (in each case) the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
(g) “Required Registration Amount” means (i) with respect to the initial Registration Statement at least 3,333,334 shares of Common
Stock issued or to be issued upon conversion of the Convertible Debentures, 3,561,644 shares of the Company’s Common Stock and 2,666,667 shares of
Common Stock issued or to be issued upon exercise of the Warrants, and (ii) with respect to subsequent Registration Statements at least such number of
shares of Common Stock as shall equal up to 300% of the maximum number of shares of Common Stock issuable upon conversion of all Convertible
Debentures then outstanding (assuming for purposes hereof that (x) such Convertible Debentures are convertible at the Conversion Price (as defined
therein) in effect as of the date of determination, and (y) any such conversion shall not take into account any limitations on the conversion of the
Convertible Debentures set forth in the Statement of Designations).
time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.
(h) “Rule 415” means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to
- 2 -
2. REGISTRATION.
(a) The Company’s registration obligations set forth in this Section 2 including its obligations to file Registration Statements, obtain
effectiveness of Registration Statements, and maintain the continuous effectiveness of Registration Statement that have been declared effective shall begin
on the date hereof and continue until all the Registrable Securities have been sold or may permanently be sold without any restrictions pursuant to Rule
144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer
agent and the affected Holders (the “Registration Period”).
(b) Subject to the terms and conditions of this Agreement, the Company shall, on or prior to the Filing Deadline, prepare and file with
the SEC a Registration Statement on Form S-3 (or, if the Company is not then eligible, on Form S-l), covering the resale by the Investor of Registrable
Securities. For the avoidance of doubt, the Company may amend a Registration Statement currently on file with the SEC to include the Registrable
Securities therein to meet its obligations in the preceding sentence. Each Registration Statement prepared pursuant hereto shall cumulatively register for
resale at least the number of shares of Common Stock equal to the Required Registration Amount as of date the Registration Statement is initially filed with
the SEC. Each Registration Statement shall contain the “Selling Stockholders” and “Plan of Distribution” sections in substantially the form attached hereto
as Exhibit A. Subject to the terms of this Agreement, the Company shall use its best efforts to have each Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than the Effectiveness Deadline. By 9:30 am on the business day following the date of effectiveness, the
Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final Prospectus to be used in connection with sales pursuant to such
Registration Statement. Prior to the filing of the Registration Statement with the SEC, the Company shall furnish a draft of the Registration Statement to
the Investor for their review and comment. The Investor shall furnish comments on the Registration Statement to the Company within twenty-four (24)
hours of the receipt thereof from the Company. If the Registration Statement is not filed with the SEC on or before January 13, 2020 or the Registration
Statement is not declared effective by the SEC or otherwise become effective on or before April 13, 2020, then the Company shall pay to the Investor as
liquidated damages and not as a penalty an amount equal to 2% of the outstanding balance on the Convertible Debentures for each 30-day period (to be
pro-rated for any period shorter than 30-days) thereafter until the Registration Statement is filed and/or the Registration Statement is declared effective (as
applicable).
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(c) During the Registration Period, the Company shall (i) promptly prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to a Registration Statement and the Prospectus used in connection with a Registration Statement, which Prospectus
is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times
during the Registration Period, (ii) prepare and file with the SEC additional Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (iii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the
terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iv) respond as promptly as reasonably possible to any
comments received from the SEC with respect to a Registration Statement or any amendment thereto and as promptly as reasonably possible provide the
Investors true and complete copies of all correspondence from and to the SEC relating to a Registration Statement (provided that the Company may excise
any information contained therein which would constitute material non-public information as to any Investor which has not executed a confidentiality
agreement with the Company); and (v) comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 2(c)) by reason of the Company’s filing
a report on Form 10-K, Form 10-Q, or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
the Company shall incorporate such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with
the SEC within three (3) days following the day the Exchange Act report is filed which created the requirement for the Company to amend or supplement
the Registration Statement.
(d) Reduction of Registrable Securities Included in a Registration Statement. Notwithstanding anything contained herein, in the event
that the SEC requires the Company to reduce the number of Registrable Securities to be included in a Registration Statement in order to allow the
Company to rely on Rule 415 with respect to a Registration Statement, then the Company shall be obligated to include in such Registration Statement
(which may be a subsequent Registration Statement if the Company needs to withdraw a Registration Statement and refile a new Registration Statement in
order to rely on Rule 415) only such limited portion of the Registrable Securities as the SEC shall permit. Any Registrable Securities that are excluded in
accordance with the foregoing terms are hereinafter referred to as “Cut Back Securities.” To the extent Cut Back Securities exist, as soon as may be
permitted by the SEC, the Company shall be required to file a Registration Statement covering the resale of the Cut Back Securities (subject also to the
terms of this Section) and shall use best efforts to cause such Registration Statement to be declared effective as promptly as practicable thereafter.
3. RELATED OBLIGATIONS.
(a) The Company shall, not less than three (3) business days prior to the filing of each Registration Statement and not less than one
(1) Trading Day prior to the filing of any related amendments and supplements to all Registration Statements (except for annual reports on Form 10-K),
furnish to each Investor copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated
by reference) will be subject to the reasonable and prompt review of such Investors, The Company shall not file a Registration Statement or any such
Prospectus or any amendments or supplements thereto to which the Investors shall reasonably object in good faith; provided that, the Company is notified
of such objection in writing no later than two (2) business days after the Investors have been so furnished copies of a Registration Statement.
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(b) The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without
charge, (i) at least one (1) copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final
prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, which are not publicly available through EDGAR, as such Investor may reasonably request from time
to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.
(c) The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement
under such other securities or “blue sky” laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w)
make any change to its articles of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(c), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any
jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
(d) As promptly as practicable after becoming aware of such event or development, the Company shall notify each Investor in writing
of the happening of any event as a result of which the Prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly
prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to each Investor. The Company shall also promptly notify each Investor in writing (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination
that a post-effective amendment to a Registration Statement would be appropriate.
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(e) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of
America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify
each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
(f) If, after the execution of this Agreement, an Investor believes, after consultation with its legal counsel, that it could reasonably be
deemed to be an underwriter of Registrable Securities, at the request of any Investor, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) a letter, dated such date,
from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investors. Upon the
request of the documents discussed above pursuant to this Section 3(f), the Investor shall provide documents to the Company typically provided by an
underwriter of its securities in form, scope and substance as is customarily given in an underwritten public offering, including an opinion of counsel
representing the Investor for purposes of such Registration Statement, addressed to the Company.
(g) If, after the execution of this Agreement, an Investor believes, after consultation with its legal counsel, that it could reasonably be
deemed to be an underwriter of Registrable Securities, at the request of any Investor, the Company shall make available for inspection by (i) any Investor
and (ii) one (1) firm of accountants or other agents retained by the Investors (collectively, the “Inspectors”) all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector, and
cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each
Inspector shall agree, and each Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to an Investor) or use any
Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body
of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of
this or any other agreement of which the Inspector and the Investor has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.
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(h) The Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the
Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through
other means, give prompt written notice to such Investor and allow such Investor, at the Investor’s expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
(i) The Company shall either cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities
exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange or (ii) to be included for quotation on the Nasdaq Capital Markets for such Registrable Securities. The
Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(i).
(j) The Company shall cooperate with each Investor who holds Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may
reasonably request.
(k) The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable
Securities.
any registration hereunder.
(l) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with
(m) Within two (2) business days after a Registration Statement which covers Registrable Securities is declared effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the
Investor whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit B.
Registrable Securities pursuant to a Registration Statement.
(n) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by each Investor of
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4. OBLIGATIONS OF THE INVESTORS.
(a) The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in
Section 3(d) such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement covering such
Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(d) or receipt of
notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended certificates for shares of Common Stock to a transferee of an Investor in connection with any sale of Registrable Securities with respect to
which an Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind
described in Section 3(d) and for which the Investor has not yet settled.
applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to the Registration Statement.
(b) The Investor covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as
5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting fees, except legal fees of Investor’s counsel associated with the review of the
Registration Statement and any comment letters issued by the SEC relating to such Registration Statement, shall be paid by the Company.
6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the
directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the Securities
Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”) incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto
(“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened,
in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of
any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained
in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements
therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant
to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). The Company shall reimburse the
Investors and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other
reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the
extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of the Indemnified Person.
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(b) In connection with a Registration Statement, the Investor agrees to severally and not jointly indemnify, hold harmless and defend,
to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers, employees, representatives,
or agents and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an “Indemnified Party”),
against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation
occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such
Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this
Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by
or on behalf of such Indemnified Party. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section
6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in
the prospectus was corrected and such new prospectus was delivered to each Investor prior to such Investor’s use of the prospectus to which the Claim
relates.
(c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim
in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with
any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the
right to retain its own counsel with the fees and expenses of not more than one (1) counsel for such Indemnified Person or Indemnified Party to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified
Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior
written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or
other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified
Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party
shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such action.
investigation or defense, as and when bills are received or Indemnified Damages are incurred.
(d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the
or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
(e) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party
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7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however,
that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“Rule 144”), and as a material
inducement to the Investor’s purchase of the Convertible Debentures, the Company represents, warrants, and covenants to the following:
(a) The Company is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act and has filed all required reports
under section 13 or 15(d) of the Exchange Act during the 12 months prior to the date hereof (or for such shorter period that the issuer was required to file
such reports), other than Form 8-K reports
(b) During the Registration Period, the Company shall file with the SEC in a timely manner all required reports under section 13 or
15(d) of the Exchange Act (it being understood that nothing herein shall limit the Company’s obligations under the Securities Purchase Agreement) and
such reports shall conform to the requirement of the Exchange Act and the SEC for filing thereunder.
(c) The Company shall furnish to the Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a
written statement by the Company that it has complied with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit
the Investors to sell such securities pursuant to Rule 144 without registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to fewer than all of the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
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10. MISCELLANEOUS.
(a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such
Registrable Securities or owns the right to receive the Registrable Securities. If the Company receives conflicting instructions, notices or elections from two
(2) or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from
the registered owner of such Registrable Securities.
(b) Piggy-Back Registrations. If at any time there is not an effective Registration Statement covering all of the Registrable Securities
and the Company shall determine to prepare and file with the SEC a registration statement relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their
then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans, then the Company shall send to each Investor a written notice of such determination and,
if within fifteen (15) days after the date of such notice, any such Investor shall so request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such Investor requests to be registered; provided, however, that, the Company shall not be required
to register any Registrable Securities pursuant to this Section 10(c) that are eligible for resale pursuant to Rule 144 promulgated under the Securities Act or
that are the subject of a then effective Registration Statement.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be
deemed to have been delivered pursuant to the notice provisions of the Securities Purchase Agreement or to such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii)
electronically generated by the sender’s e-mail transmission or (iii) provided by a courier or overnight courier service, shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
right or remedy, shall not operate as a waiver thereof.
(c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such
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(d) The laws of the State of New York shall govern all issues concerning the relative rights of the Company and the Investors as its
stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal
laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York than the
State of New Jersey. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in New York County,
New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each
party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any
provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties
hereto.
(f) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(g) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto as an attachment to an email
or by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
(h) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions contemplated hereby.
rules of strict construction will be applied against any party.
(i) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no
the benefit of, nor may any provision hereof be enforced by, any other Person.
(j) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for
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IN WITNESS WHEREOF, the Investor and the Company have caused their signature page to this Registration Rights Agreement to be duly
executed as of the date first above written.
COMPANY:
IDEANOMICS, INC.
By:
Name: Alfred P. Poor
Title: CEO
INVESTOR:
YA II PN, LTD.
By:
Its:
Yorkville Advisors Global, LP
Investment Manager
By:
Its:
Yorkville Advisors Global II, LLC
General Partner
By:
Name:
Title:
- 13 -
IN WITNESS WHEREOF, the Investor and the Company have caused their signature page to this Registration Rights Agreement to be duly
executed as of the date first above written.
COMPANY:
IDEANOMICS, INC.
By:
Name:
Title:
INVESTOR:
YA II PN, LTD.
By:
Its:
Yorkville Advisors Global, LP
Investment Manager
By:
Its:
Yorkville Advisors Global II, LLC
General Partner
By:
Name: Troy Rillo
Title: Sr. Managing Director
- 14 -
EXHIBIT A
SELLING STOCKHOLDERS
AND PLAN OF DISTRIBUTION
Selling Stockholders
The shares of Common Stock being offered by the selling stockholders are issuable upon conversion of the convertible debentures or the exercise
of the warrants. For additional information regarding the issuance of those convertible debentures and warrants, see “Private Placement” above. We are
registering the shares of Common Stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except as otherwise
noted and except for the ownership of the convertible debentures and the warrants issued pursuant to the securities purchase agreements, the selling
stockholders have not had any material relationship with us within the past three years.
The table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of Common Stock by each of
the selling stockholders. The second column lists the number of shares of Common Stock beneficially owned by each selling stockholder, based on its
ownership of the convertible debentures and warrants, as of , 2019, assuming conversion of all convertible debentures and exercise of the
warrants held by the selling stockholders on that date, without regard to any limitations on conversions or exercise.
The third column lists the shares of Common Stock being offered by this prospectus by the selling stockholders.
In accordance with the terms of an amended and restated registration rights agreement with the selling stockholders, this prospectus generally
covers the resale of at least shares of common stock issued or issuable to the selling stockholders pursuant to the securities purchase
agreements. Because the conversion price of the convertible debentures and the exercise price of the warrants may be adjusted, the number of shares that
will actually be issued may be more or less than the number of shares being offered by this prospectus. The fourth column assumes the sale of all of the
shares offered by the selling stockholders pursuant to this prospectus.
Under the terms of the convertible debentures and the warrants, a selling stockholder may not convert the convertible debentures or the warrants to
the extent such conversion or exercise would cause such selling stockholder, together with its affiliates, to beneficially own a number of shares of Common
Stock which would exceed 4.99% of our then outstanding shares of Common Stock following such conversion or exercise, excluding for purposes of such
determination shares of Common Stock issuable upon conversion or exercise of the convertible debentures or the warrants (as applicable) which have not
been converted or exercised. The number of shares in the second column does not reflect this limitation. The selling stockholders may sell all, some or
none of their shares in this offering. See “Plan of Distribution.”
Name of Selling Stockholder
YA II PN, Ltd. (1)
Number of Shares Owned
Prior to Offering
Maximum Number of Shares
to be Sold Pursuant to this
Prospectus
Number of Shares Owned
After Offering
(1) YA II PN, Ltd. is a Cayman Island exempt limited company (“YA”). Yorkville Advisors Global, LP (“Yorkville LP”) is YA’s investment
manager and Yorkville Advisors Global II, LLC (“Yorkville LLC”) is the General Partner of Yorkville LP. All investment decisions for YA are made by
Yorkville LLC’s Managing Member, Matthew Beckman.
2
Each Selling Stockholder (the “Selling Stockholders”) of the common stock and any of their pledgees, assignees and successors-in-interest may,
from time to time, sell any or all of their shares of common stock on the or any other stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
Plan of Distribution
·
·
·
·
·
·
·
·
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
a combination of any such methods of sale; or
any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available,
rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts
to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage
commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-
2440.
In connection with the sale of the common stock or interests therein and except if the Debentures remain outstanding, the Selling Stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the
course of hedging the positions they assume. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of
shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or
amended to reflect such transaction).
3
The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder
has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the
Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has
agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the
shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only
through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be
sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement
of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholders or any
other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
4
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Attention:
Re: IDEANOMICS, INC.
Ladies and Gentlemen:
We are counsel to IDEANOMICS, INC., a Nevada corporation (the “Company”), and have represented the Company in connection with that
certain Securities Purchase Agreement (the “Securities Purchase Agreement”) entered into by and among the Company and the Investors named therein
(collectively, the “Investors”) pursuant to which the Company issued to the Investors up to $5,000,000 of secured convertible debentures (the “Convertible
Debentures”), which are convertible into its Common Stock, par value $0.001 per share (the “Common Stock”). Pursuant to the Purchase Agreement, the
Company also has entered into a Registration Rights Agreement with the Investors (the “Registration Rights Agreement”) pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as
amended (the “Securities Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on , the
Company filed a Registration Statement on Form (File No. 333- ) (the “Registration Statement”) with the Securities and Exchange
Commission (the “SEC”) relating to the Registrable Securities which names each of the Investors as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale
under the Securities Act pursuant to the Registration Statement.
cc:
[LIST NAMES OF INVESTORS]
Very truly yours,
[Law Firm]
By:
5
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Exhibit 10.119
SERIES A-6 COMMON STOCK PURCHASE WARRANT
IDEANOMICS, INC.
Warrant Shares:
Initial Exercise Date: December 19, 2019
THIS SERIES A-6 COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ID VENTURAS 7
LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on September 27, 2024 (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Ideanomics, Inc., a Nevada corporation (the “Company”), up to __________ shares (as subject to
adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the
Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the “Purchase Agreement”), dated September 27, 2019, as amended, among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time
or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy
or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within
the two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified
in the applicable Notice of Exercise
1
by wire transfer in immediately available funds unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable
Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or
notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date
on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder
in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within
one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $1.00, subject to adjustment
hereunder (the “Exercise Price”).
c) Cashless Exercise. If at any time after the six-month anniversary of the Closing Date, there is no effective registration statement
registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in
whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal
to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice
of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed
and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in
Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the
Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid
Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s delivery of
the applicable Notice of Exercise if such Notice of Exercise is delivered during “regular trading hours” on a Trading Day (including
until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on
the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is
both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;
2
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if
such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares
being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not then listed or
quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets
Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, or (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by
OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share
of the Common Stock so reported.
3
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder
to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account
with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then
a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant
Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without
volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the
Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is
entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is two
(2) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”).
Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the
Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received
within two (2) Trading Days following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the
Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on
the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per
Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain
a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company
shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares,
deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for
by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant
Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such
exercise.
4
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other
rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in
accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the
Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash
to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares
that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the
sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise
shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the
amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such
exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to
such fraction multiplied by the Exercise Price or round up to the next whole share.
5
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and
expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for
same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing
corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have
the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons
acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own
in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a
limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates
or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To
the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s
determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and
Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any
group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic
or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more
recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the
written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or
Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or
decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any
increase in the Beneficial Ownership Limitation will not be effective until the sixty first (61st) day after such notice is delivered to the
Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the
terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to
such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
6
f) Issuance Restrictions. If the Company has not obtained Shareholder Approval, then the Company may not issue upon
exercise of this Warrant a number of shares of Common Stock, which, when aggregated with any shares of Common Stock issued
(i) pursuant to the conversion of any Debentures issued pursuant to the Purchase Agreement, (ii) upon prior exercise of this or any other
Warrant issued pursuant to the Purchase Agreement and (iii) in connection with any Shares issued pursuant to the Purchase Agreement,
would exceed 26,000,000 shares of Common Stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the date of the Purchase Agreement (such number of
shares, the “Issuable Maximum”). The Holder and the holders of the other Warrants issued pursuant to the Purchase Agreement shall be
entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the Holder’s original Subscription Amount
by (y) the aggregate original Subscription Amount of all holders pursuant to the Purchase Agreement. In addition, the Holder may
allocate its pro-rata portion of the Issuable Maximum among Debentures, Shares and Warrants held by it in its sole discretion. Such
portion shall be adjusted upward ratably in the event a Purchaser no longer holds any Debentures or Warrants and the amount of shares
issued to such Purchaser pursuant to its Debentures, Shares and Warrants was less than such Purchaser’s pro-rata share of the Issuable
Maximum.
Section 3.
Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares
of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this
Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made
pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-
classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding,
shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or
any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the
Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood
and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than
the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such
effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to
equal the Base Share Price. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an
Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of
any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the
Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.
7
c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or
more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property
and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more
related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby
such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held
by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), the Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(c) pursuant to written
agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding
number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the value of the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise
price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental
Transaction). Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as
defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the
Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from
the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of
this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on
the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of
consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the
Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying
price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any
non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the greater of (x) the last VWAP immediately prior to the
public announcement of such Fundamental Transaction and (y) the last VWAP immediately prior to the consummation of such Fundamental
Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds
within ten (10) Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction).
d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
8
e) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after
such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts
requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize
the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the
Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall
appear upon the Warrant Register of the Company, at least five (5) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as
of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The Holder shall remain entitled to exercise this Warrant
during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may
otherwise be expressly set forth herein.
9
Section 4.
Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and
to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. In connection with an assignment of this Warrant, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning
some or all of this Warrant; provided, however, that, in connection with any assignment of this Warrant to an Affiliate of the Holder, the Holder
shall not be required to physically surrender this Warrant to the Company. The Warrant, if properly assigned to an Affiliate of the Holder in
accordance herewith, may be exercised by such Affiliate for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this
Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the
“Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer
of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state
securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case
may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant
and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except
pursuant to sales registered or exempted under the Securities Act.
10
Section 5.
Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and
in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant
Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges
created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such
issue).
11
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use
commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may
be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and
the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this
Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase Agreement.
12
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the
Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any
action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall
inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of
Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable
by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
********************
(Signature Page Follows)
13
first above indicated.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date
IDEANOMICS, INC.
By
/s/Conor McCarthy
Name: Conor McCarthy
Title:CFO
14
TO:
IDEANOMICS, INC.
NOTICE OF EXERCISE
(1) The undersigned hereby elects to purchase ____________Warrant Shares of the Company pursuant to the terms of the attached
Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
☐ in lawful money of the United States; or
☐ if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
ASSIGNMENT FORM
EXHIBIT B
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
(Please Print)
(Please Print)
Name:
Address:
Phone Number:
Email Address:
Dated: ,
Holder’s
Signature:
Holder’s Address:
Ideanomics, Inc. Subsidiaries
Name
YOU On Demand (Beijing) Technology Co., Ltd.
YOU On Demand (Asia) Limited
Grapevine Logic, Inc.
Delaware Board of Trade Holding, Inc.
Tree Technologies Sdn. Bhd.
Shanghai YiYouKong New Energy Development Co., Ltd
Exhibit 21
Place of Incorporation
PRC
Hong Kong
US
US
Singapore
PRC
In accordance with Item 601(b)(21) of Regulation S-K, the company has omitted from this Exhibit the names of its subsidiaries which, considered in the
aggregate or as a single subsidiary, do not constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in the Registration Statement (No. 333-205043) on Form S-8 of our report dated March 16, 2020, relating to the
consolidated financial statements of Ideanomics, Inc. as of and for the years ended December 31, 2019 and 2018, to all references to our firm included in
the December 31, 2019 annual report on Form 10-K of Ideanomics, Inc. filed with the U.S. Securities and Exchange Commission (the “SEC”) on March
16, 2020.
/s/ B F Borgers CPA PC
Lakewood, Colorado
March 16, 2020
I, Alf Poor, Chief Executive Officer of Ideanomics, Inc., certify that:
CERTIFICATIONS
Exhibit 31.1
I have reviewed this Annual Report on Form 10-K of Ideanomics, Inc.;
1.
2. Based on my knowledge, this does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
filing;
3. Based on my knowledge, the financial statements, and other financial information included in this filing, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this filing
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this filing is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this filing our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this filing based on such evaluation; and
d) Disclosed in this filing any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 16, 2020
/s/ Alf Poor
Alf Poor
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIONS
Exhibit 31.2
I, Conor McCarthy, Chief Financial Officer of Ideanomics, Inc. certify that:
I have reviewed this Annual Report on Form 10-K of Ideanomics, Inc.;
1.
2. Based on my knowledge, this filing does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
filing;
3. Based on my knowledge, the financial statements, and other financial information included in this filing, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this filing is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this filing our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 16, 2020
/s/ Conor McCarthy
Conor McCarthy
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
The undersigned, Alf Poor, Chief Executive Officer of Ideanomics, Inc. (the “Company”), DOES HEREBY CERTIFY that:
1. The Company’s filing to the Annual Report on Form 10-K for the year ended December 31, 2019 (the “Report”), fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934; and
Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
2.
IN WITNESS WHEREOF, the undersigned has executed this statement this March 16, 2020.
/s/ Alf Poor
Alf Poor
Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement required by Section 906 has been provided to Ideanomics, Inc. and will be retained by Ideanomics, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any general incorporation language in such filing.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
The undersigned, Conor McCarthy, Chief Financial Officer of Ideanomics, Inc. (the “Company”), DOES HEREBY CERTIFY that:
1. The Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “Report”), fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
2.
IN WITNESS WHEREOF, the undersigned has executed this statement this March 16, 2020.
/s/ Conor McCarthy
Conor McCarthy
Chief Financial Officer
(Principal Financial and Accounting Officer)
A signed original of this written statement required by Section 906 has been provided to Ideanomics, Inc. and will be retained by Ideanomics, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any general incorporation language in such filing.