Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934
(Amendment No. )
☐ Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of
its filing.
At the special meeting, you will be asked to
consider and vote upon (i) a proposal to sell all of the issued and outstanding membership interests of Vegas.com, LLC, pursuant
to a membership interest purchase agreement, dated March 15, 2019, and (ii) a proposal to adjourn the special meeting to a later
date, if necessary or appropriate, to allow for the solicitation of additional proxies.
After careful consideration, our board of directors
determined that the proposed transaction and the related membership interest purchase agreement are fair to, advisable and in the
best interests of Remark Holdings, Inc. and our stockholders. Our board of directors unanimously approved the proposed transaction
and recommends that you vote “FOR” the proposal to approve the proposed transaction and “FOR” the adjournment
or postponement of the special meeting, if necessary or appropriate, to allow for the solicitation of additional proxies.
The enclosed proxy statement provides you with
detailed information about the special meeting, the proposed transaction and the membership interest purchase agreement. A copy
of the membership interest purchase agreement is attached as Annex A to the proxy statement. We encourage you to read the proxy
statement and all annexes thereto carefully and in their entirety. You may also obtain additional information about us from documents
we have filed with the Securities and Exchange Commission.
Thank you in advance for your continued support
and your consideration of this matter.
THE VDC TRANSACTION
(PROPOSAL NO. 1)
The Parties to the VDC Transaction
Remark Holdings, Inc.
3960 Howard Hughes Parkway, Suite 900
Las Vegas, Nevada 89169
Telephone: (702) 701-9514
Remark delivers an integrated suite
of AI solutions that enable businesses and organizations to solve problems, reduce risk and deliver positive outcomes. Our easy-to-install
AI products are being rolled out in a wide range of applications within the retail, financial, public safety and workplace arenas.
We also own and operate digital media properties that deliver relevant, dynamic content and ecommerce solutions. Our common stock
is listed on the NASDAQ Capital Market under the ticker symbol MARK.
VDC-MGG Holdings LLC
c/o MGG Investment Group, LP
One Penn Plaza
New York, New York 10119
Telephone: (212) 356-6100
VDC-MGG is a Delaware limited liability
company that was formed solely for the purpose of engaging in the transactions contemplated by the Purchase Agreement and has not
carried on any activities on or prior to the date of this proxy statement, except for activities incidental to its formation and
activities undertaken in connection with its acquisition of Vegas.com. VDC-MGG has not conducted any business operations other
than in connection with the transactions contemplated by the Purchase Agreement, including the VDC Transaction, and the related
agreements. VDC-MGG is an affiliate of MGG, the collateral agent and administrative agent for the Lenders under the Financing Agreement.
VDC-MGG and MGG are both affiliates of the Lenders under the Financing Agreement.
Background of the VDC Transaction
In September 2015, we completed the acquisition
of all of the outstanding equity interests of Vegas.com. Concurrently with the closing of such acquisition, we entered into the
Financing Agreement, pursuant to which the Lenders extended credit to the Borrowers consisting of a term loan in the aggregate
principal amount of $27.5 million (the “MGG Loan”). The amount of the MGG Loan outstanding accrued interest at three
month LIBOR plus 10.0% per annum, payable monthly, and the MGG Loan had a maturity date of September 24, 2018. The Financing Agreement
and related documents also provided for certain fees payable to the Lenders, including an exit fee, and for the issuance to an
affiliate of MGG of a five-year warrant to purchase up to 2,580,423 shares of our common stock at an exercise price of $9.00 per
share.
In September 2016, we completed the acquisition
of assets of China Branding Group Limited. Concurrently with the closing of such acquisition, we entered into the First Amendment
to Financing Agreement (“Amendment No. 1”) to amend the Financing Agreement to provide for, among other things, (i)
the extension of additional credit to the Borrowers in the principal amount of $8.0 million, increasing the aggregate principal
amount outstanding under the MGG Loan to $35.5 million, and (ii) the modification of certain of the financial covenants. The new
amount of the MGG Loan outstanding accrued interest at three month LIBOR plus 10.0% per annum, payable monthly, and had a maturity
date of September 24, 2018. Amendment No. 1 and the related documents also provided for certain fees payable to the Lenders, including
an increase to the exit fee payable to the Lenders upon termination of the Financing Agreement by $500,000, and for the issuance
to affiliates of MGG of warrants to purchase up to 2,670,736 shares of our common stock at an exercise price of $5.50 per share.
In October 2017, we entered into Amendment
No. 2 and Waiver and Consent to Financing Agreement (“Amendment No. 2”) to amend the Financing Agreement to provide
for, among other things, (i) the waiver of specified events of default occurring prior to January 1, 2018, and (ii) the waiver
of the financial covenant related to restricted cash balance for the period commencing on or about July 12, 2017 and ending on
or about September 19, 2017. In consideration for the Lenders’ entry into Amendment No. 2, among other things, we agreed
to increase the exit fee payable to the Lenders upon termination of the Financing Agreement by $750,000, and to reimburse the Lenders
for fees, costs and expenses related to Amendment No. 2.
In December 2017, we entered into Amendment
No. 3 to Financing Agreement (“Amendment No. 3”) to amend the Financing Agreement to provide for, among other things,
(i) the modification of certain financial covenants and (ii) an increase in the amount we were permitted to invest in our non-U.S.
subsidiaries operating our KanKan business. In consideration for the Lenders’ entry into Amendment No. 3, among other things,
we agreed to increase the exit fee payable to the Lenders upon termination of the Financing Agreement by $250,000, and to reimburse
the Lenders for fees, costs and expenses related to Amendment No. 3.
In April 2018, we entered into Amendment
No. 4 and Waiver to Financing Agreement (“Amendment No. 4”) to amend the Financing Agreement to provide for, among
other things, (i) the reduction in the interest rate on the remaining amount outstanding under the Financing Agreement to three
month LIBOR plus 8.5% per annum, (ii) the extension of the maturity date under the Financing Agreement to September 30, 2020, (iii)
the modification of certain financial covenants, (iv) an increase in the amount we were permitted to invest in our non-U.S. subsidiaries
operating our KanKan business, (v) the waiver by the Lenders of certain events of default and (vi) the prepayment by the Borrowers
of $8.0 million principal amount outstanding and $3.5 million of exit fees under the Financing Agreement within 60 days following
the date of Amendment No. 4. We also paid a closing fee of $412,500 related to Amendment No. 4.
In June 2018, we entered into Amendment
No. 5 and Waiver to Financing Agreement (“Amendment No. 5”) to amend the Financing Agreement to provide for, among
other things, the extension of the due date of the required prepayment by the Borrowers of $8.0 million principal amount and $3.5
million of exit fees under the Financing Agreement for up to three months, subject to our making an extension payment on the first
business day of each such month as a condition to the effectiveness of the extension for such month. The extension payments were
$250,000 for each of the first two months and $500,000 for the third month, with the final extension period ending on September
28, 2018.
On September 28, 2018, after we made
each of the three extension payments required under Amendment No. 5, we did not pay to the Lenders the $8.0 million principal amount
and $3.5 million of exit fees due on such date. Such failure to make the required payments constituted an event of default under
the Financing Agreement.
On October 1, 2018, we received a letter
from MGG notifying us of specified events of default under the Financing Agreement, and that as a result, among other things, (i)
from September 28, 2018, the MGG Loan would bear interest at three-month LIBOR plus 11.0% (the default interest rate under the
Financing Agreement), and (ii) pursuant an account control agreement with respect to one of our bank accounts, MGG had instructed
the bank to transfer the funds in the account to the Lenders to be applied towards payment of amounts due and payable under the
Financing Agreement.
On October 4, 2018, $2.25 million held
in a cash collateral account to secure our obligations under the Financing Agreement was transferred to the Lenders and applied
to the amount of exit fees due and payable under the Financing Agreement.
During early October 2018, we engaged
in discussions with the Lenders regarding a resolution of the continuing events of default under the Financing Agreement. Potential
resolutions we discussed with the Lenders included our pursuit of strategic alternatives, such as the potential sale of certain
of our non-core assets, investment assets and operating businesses. Beginning in early October 2018, the Lenders urged us to engage
a financial advisor and commence a process to sell Vegas.com to an unaffiliated third party such that the proceeds of the transaction
would be applied towards payment of amounts due and payable under the Financing Agreement, and to target signing a related purchase
agreement before the end of 2018. Through March 2019, we continued to consider and pursue various strategic alternatives to obtain
financing to pay down the MGG Loan, including the sale of Vegas.com.
On October 8, 2018, we engaged Raine
Securities LLC (“Raine”) as our exclusive financial advisor to assist us in connection with a potential sale of Vegas.com.
Beginning on October 10, 2018 and through November 2018, Raine communicated with a total of 39 parties, including both strategic
and financial buyers, to gauge their interest in acquiring Vegas.com. Of those parties, 13 proceeded to conduct management meetings
and limited due diligence.
On October 16, 2018, the Lenders provided
us with a letter (the “October 2018 Forbearance Letter”) informing us that they were willing to forebear from taking
enforcement actions against us under the Financing Agreement with respect to specified events of default through December 31, 2018
if we pursued the sale of Vegas.com. The forbearance was subject to potential early expiration if, among other things, we did not
take specified actions in connection with the Vegas.com sale process or a new event of default occurred under the Financing Agreement.
The specified actions included, among others, our and Raine’s participation in recurring weekly calls with MGG and the Lenders
to provide an update with respect to the Vegas.com sale process, which we continued to hold through January 2019. In connection
with our discussions with the Lenders related to such letter, we agreed to increase the amount of the exit fees payable to the
Lenders under the Financing Agreement by $1.0 million.
On November 8, 2018, Raine began distributing
a first-round process letter to certain interested parties (eventually sent to 10 parties), requesting that interested parties
submit a written non-binding indication of interest in acquiring Vegas.com on a debt-free and cash-free basis by no later than
November 19, 2018. The letter requested, among other things, that interested parties specify in their indication of interest their
proposed purchase price, provide a timeframe for completing due diligence and describe any intended financing sources.
Beginning on November 19, 2018, we received
indications of interest from four interested parties, which we will refer to as Parties A, B, C and D. The proposed purchase prices,
assuming an adjustment of approximately $15 million for expected negative working capital of Vegas.com at closing, ranged from
approximately $17 to $35 million. The offers from Parties A, B and C provided for payment of the full purchase price in cash at
the closing, while the offer from Party D provided for one-third of the purchase price to be paid out over two years, subject to
an earn-out. The offer from Party B named MGG as a potential source of debt financing.
On November 25, 2018, we held a telephonic
Board meeting. At the meeting, management updated the Board on the status of the process to sell Vegas.com, including the status
of discussions with the interested parties.
On December 7, 2018, Raine began distributing
a second-round process letter to Parties A, B and C, requesting that interested parties submit a revised non-binding indication
of interest in acquiring Vegas.com on a debt-free and cash-free basis by no later than December 21, 2018. The letter requested,
among other things, that interested parties specify in their indication of interest their final proposed purchase price, a timeframe
for completing confirmatory due diligence, signing the purchase agreement and closing the transaction, and a description of any
intended financing sources. Raine also requested that interested parties provide a markup of the draft purchase agreement enclosed
with the process letter.
On December 10, 2018, we held a telephonic
Board meeting. At the meeting, management updated the Board on the status of the process to sell Vegas.com, which management believed
could extend beyond year end, and therefore beyond the expiration of the forbearance period under the October 2018 Forbearance
Letter.
On December 21, 2018, Raine received
revised non-binding indications of interest and markups of the draft purchase agreement from Parties A and B. Party A’s offer
reflected a purchase price of approximately $32.4 million, assuming an adjustment of approximately $15 million for expected negative
working capital of Vegas.com at closing and adjustments for estimated lease obligations and closing transaction costs, and Party
B’s offer reflected a purchase price of $31.2 million.
On December 26, 2018, we held a telephonic
Board meeting. At the meeting, management updated the Board on the status of the process to sell Vegas.com, and provided the Board
with a financial comparison of the offers from Parties A and B. Management informed the Board that, after taking into account estimated
working capital adjustments and other expenses, management determined that Party A’s offer would provide for proceeds of
approximately $32.4 million and Party B’s offer would provide for proceeds of approximately $31.2 million. Management also
informed the Board that Party B may need to withdraw its offer as its financing source had expressed an unwillingness to provide
debt financing for Party B’s offer without confirmation of Vegas.com management continuation. Management also informed the
Board that Party A’s offer was subject to further due diligence, and consequently Party A would not be in a position to sign
a purchase agreement prior to the middle or end of January.
On December 31, 2018, the forbearance
under the October 2018 Forbearance Letter expired. On the same date, Party B revised its previously submitted offer to raise the
expected proceeds of the proposed transaction to approximately $37.1 million, assuming a working capital adjustment and adjustments
for estimated lease obligations and closing transaction costs.
During January and early February 2019,
we engaged in discussions with MGG regarding the status of the sale process and a new forbearance letter. We were not able to come
to agreement on certain terms of the forbearance, including the expiration date and associated fees. MGG informed us that, were
we to continue without a forbearance, the Lenders would need to consider exercising remedies under the Financing Agreement.
In mid-January 2019, Party B and Party
C informed Raine that they would be withdrawing from the process.
On January 23, 2019, we entered into
a letter of intent with Party A (the “Party A LOI”). The Party A LOI reflected expected proceeds of approximately $41.7
million, assuming an adjustment of approximately $15 million for expected negative working capital of Vegas.com at closing and
adjustments for estimated lease obligations and closing transaction costs, and provided for a 60-day exclusivity period that could
be extended upon mutual agreement of the parties. Party A held in person meetings with Vegas.com management over the next week.
On February 4, 2019, Party A informed
Raine of its decision to withdraw its offer. Party A subsequently sent us a letter offering to terminate the Party A LOI, including
the exclusivity provisions, which we signed.
After Party A’s withdrawal from
the process, we engaged in discussions with MGG regarding potential resolutions of the continuing events of default under the Financing
Agreement, including our pursuit of strategic alternatives, such as the potential sale of certain of our non-core assets, investment
assets and operating businesses.
On February 14, 2019, MGG, through a
newly-formed affiliate VDC-MGG, submitted an offer to purchase Vegas.com, followed up by a markup of the draft purchase agreement
included with the second-round process letter. We and our legal counsel, Olshan Frome Wolosky LLP (“Olshan”), commenced
discussions with MGG and its legal counsel, Schulte Roth & Zabel LLP (“SRZ”), regarding the terms of its offer
and its comments to the draft Purchase Agreement.
During early March 2019, Raine communicated
with three potentially interested parties. Two of these parties remained in communication with Raine regarding a potential acquisition
of Vegas.com as of March 14, 2019, but they were at the preliminary stage of due diligence and were not expected to complete due
diligence until April 2019.
On March 11, 2019, we held an in-person
Board meeting in Las Vegas. At the meeting, Olshan and representatives of Raine discussed with the Board the proposed terms of
the VDC Transaction and of potential interest from certain third parties in acquiring Vegas.com. Representatives of Raine informed
the Board that such third party interest was at a preliminary stage, and a firm offer from any such party could not reasonably
be expected until April 2019. Representatives of Raine and Olshan also discussed with the Board restrictions on soliciting alternative
transactions contained in the then-current draft of the Purchase Agreement. MGG and SRZ then joined the meeting telephonically.
After MGG and SRZ were informed of the potential interest from certain third parties in acquiring Vegas.com, MGG agreed to refrain
from exercising its remedies under the Financing Agreement and permit us until March 15, 2019, but no longer, to explore those
potential transactions before entering into the Purchase Agreement.
On March 12, 2019, SRZ called Olshan
to inform them that SRZ would be sending revised drafts of the Purchase Agreement and related documents. Olshan was informed that
the revised documents would reflect, among other things, the removal from the draft Purchase Agreement of certain restrictions
on our ability to engage in discussions with third parties regarding potential alternative acquisition offers for Vegas.com up
to our receipt of stockholder approval, to provide us with additional flexibility to continue communications with the third parties
discussed at the Board meeting held the day before. SRZ also stated that, if we did not enter into the Purchase Agreement by 5:00
pm Eastern Time on March 15, 2019, on the next business day the Lenders would begin to exercise the rights available to them under
the Financing Agreement and applicable law.
On March 14, 2019, we held a telephonic
Board meeting. At the meeting, Olshan reviewed with the members of the Board their fiduciary duties under Delaware law, as well
as the terms and provisions of the Purchase Agreement. Olshan and management also discussed with the Board the potential interest
expressed by certain third parties in potential alternative acquisition offers for Vegas.com and the Lenders’ stated intention
to begin to exercise the rights available to them under the Financing Agreement and applicable law if we did not enter into the
Purchase Agreement by 5:00 pm Eastern Time on March 15, 2019. After extensive discussion, including an in-depth analysis of the
reasons for engaging in the VDC Transaction as discussed in detail on page 18, the Board unanimously approved the Purchase Agreement
and resolved to recommend that our stockholders approve the VDC Transaction.
On March 15, 2019, we entered into the
Purchase Agreement with VDC-MGG. In connection with the Purchase Agreement, MGG provided us with a letter (the “March 2019
Forbearance Letter”) in which MGG (i) consented to the VDC Transaction, or to an Alternate Transaction and (ii) subject to
the terms and conditions set forth therein, agreed it is willing to forbear from taking enforcement actions under the Financing
Agreement and applicable law, effective on such date as we pay certain outstanding costs and expenses of the Lenders payable under
the Financing Agreement, through up to June 4, 2019. Additionally, Kai-Shing Tao, our Chief Executive Officer, and certain of his
affiliates (collectively owning approximately 14.8% of our common stock outstanding), entered into a Voting Agreement with VDC-MGG
pursuant to which they agreed, among other things, to vote their shares in favor of the adoption of the Purchase Agreement and
the VDC Transaction.
Following our entry into the Purchase
Agreement, Raine and Vegas.com management have continued to communicate with third parties regarding a potential acquisition of
Vegas.com. As of the date of this proxy statement, three parties were in communication with Raine regarding a potential acquisition
of Vegas.com. These parties are at the preliminary stage of due diligence and are not expected to complete due diligence until
April 2019. Our ability to consummate a transaction with any third party will be subject to the terms and conditions of the March
2019 Forbearance Letter and the Financing Agreement, including applicable consent requirements of MGG set forth therein.
Reasons for the VDC Transaction
The Board, acting with the advice and
assistance of its financial and legal advisors, evaluated the Purchase Agreement, including the consideration negotiated with VDC-MGG
and its representatives. After careful consideration, the Board determined that (i) the VDC Transaction is advisable and in the
best interests of us and our stockholders and (ii) the form, terms and provisions of the Purchase Agreement and the VDC Transaction
are expedient and in the best interests of us and our stockholders. The Board met on each of March 11, 2019 and March 14, 2019
to evaluate the VDC Transaction. At its March 14, 2019 meeting, the Board unanimously resolved to adopt and approve the Purchase
Agreement and the transactions contemplated thereby, and to recommend to our stockholders that they vote for the approval of the
Purchase Agreement and the VDC Transaction. For additional information regarding the Board’s discussion and approval of the
VDC Transaction, see “The VDC Transaction (Proposal No. 1) — Background of the VDC Transaction” beginning on
page 14.
In the course of reaching its determinations,
the Board consulted with our management and our financial advisor and Olshan, our legal advisor, and considered a number of substantive
factors, both positive and negative, and potential benefits and detriments of the VDC Transaction. The Board believed that, taken
as a whole, the following factors supported its decision to approve the VDC Transaction:
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Financing Agreement
. The Board considered the fact that MGG
has agreed, in connection with our entry into the Purchase Agreement, that it would be willing to forbear from taking any enforcement
actions against us in connection with certain ongoing events of default under the Financing Agreement, subject to certain conditions.
We are in default under the terms of the Financing Agreement because we did not make a required prepayment of $8.0 million principal
amount and $3.5 million of exit fees that was due on September 28, 2018 under the Financing Agreement, and have not complied with
certain other covenants under the Financing Agreement. As a result, the Lenders may declare our obligations under the Financing
Agreement, including all unpaid principal and interest, due and payable immediately and exercise such other rights available to
them under the Financing Agreement and applicable law, including, without limitation, (i) instructing banks and other financial
institutions party to a control agreement with MGG to transfer all of our and certain of our subsidiaries' cash and other assets
held by such banks or financial institutions to MGG, (ii) directing our customers and other parties to make payment of all amounts
due or to become due to us or certain of our subsidiaries directly to MGG, and (iii) assign, sell, transfer or foreclose on our
and certain of our subsidiaries' assets and equity interests. Our available cash and other liquid assets are not sufficient to
pay such obligations in full. Consequently, the Board considered the likelihood of foreclosure action by the Lenders were we to
not enter into the Purchase Agreement.
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Strategic Review Process
. The Board considered the vigorous
process (which began in October 2018) through which we had explored strategic alternatives for Vegas.com, which process included,
among other things, (i) engaging Raine as our exclusive financial advisor to, among other things, identify and contact potentially
interested parties and review indications of interest, (ii) Raine communicating with a total of 39 parties, including both strategic
and financial buyers, to gauge their interest in acquiring Vegas.com, (iii) holding management meetings with 13 parties, (iv) receipt
of indications of interest from four parties, and (v) generally conducting an auction process.
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Consideration
. The Board considered the fact that the proceeds
of the VDC Transaction would substantially reduce the amount outstanding under the MGG Loan. Under the Purchase Agreement, the
cash proceeds of the VDC Transaction will be used to pay amounts due under the Financing Agreement. Approximately $39 million is
outstanding under the Financing Agreement and approximately $10 million will remain outstanding after giving effect to the application
of such cash proceeds.
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Likelihood and Speed of Consummation of the VDC Transaction
.
The Board considered the likelihood that the VDC Transaction would be completed, including the limited number and nature of the
conditions to VDC-MGG’s obligation to consummate the VDC Transaction and the likelihood that those conditions would be satisfied.
The Board also considered the fact that MGG was very familiar with the operations of Vegas.com in connection with the Financing
Agreement, such that VDC-MGG would not need to conduct significant additional due diligence and would be able to move forward quickly
to closing, giving greater certainty to the transactions.
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Ability to Focus on our High Growth Artificial Intelligence Business
.
The Board considered the best uses for our limited funds and concluded that it is reasonable to concentrate our resources on the
portion of our business with the greatest potential for high growth, which is our Artificial Intelligence (AI) solutions business.
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Ability to Solicit and Respond to Alternative Third-Party Proposals
.
The Board considered the fact that the Purchase Agreement does not prohibit us from soliciting alternative third-party acquisition
proposals and affords the Board flexibility to consider, evaluate and accept superior acquisition proposals in the period after
signing and prior to the approval of the VDC Transaction by our stockholders.
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The Board also considered a variety of
risks and other potentially negative factors relating to the transaction, including the following:
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Future Growth and Risk Profile
. The Board considered the fact
that if the VDC Transaction is consummated, we will no longer participate in the potential future growth of Vegas.com. Vegas.com
accounted for approximately 87% of our consolidated revenues for each of the nine months ended September 30, 2018 and the year
ended December 31, 2017, respectively. The Board recognized that the VDC Transaction will eliminate cash flows that we currently
receive through Vegas.com and, as a result, we will become entirely dependent upon our Artificial Intelligence (AI) solutions business
and our digital media properties. Our risk/reward profile following the transaction will be changed accordingly.
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Risk of Non-Completion
. The Board considered the risk that
the VDC Transaction might not be completed and, in that event, our directors, executive officers and other employees will have
expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the
VDC Transaction, we will have incurred significant transaction costs, and the perception of Vegas.com could potentially result
in a loss of customers, business partners and employees. In addition, the forbearance provided by MGG under the March 2019 Forbearance
Letter will expire if the Purchase Agreement is terminated by either party for any reason other than for us to enter into an agreement
with respect to an alternative transaction to sell all of the issued and outstanding membership interests of Vegas.com under certain
limited conditions, or if we or Vegas.com breach or default under the Purchase Agreement, among other things.
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Possible Disruption of the Business
. The Board considered the
possible disruption to our and Vegas.com’s business that might result from the announcement of the VDC Transaction and the
resulting distraction of the attention of our management and employees. The Board also considered the fact that the Purchase Agreement
contains certain limitations regarding the operation of Vegas.com during the period between the signing of the Purchase Agreement
and the completion of the VDC Transaction. The Board believed that such limitations were customary for transactions similar to
the VDC Transaction and appropriately tailored to the specific requirements of the operation of Vegas.com.
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Indemnification Obligations
. The Board was aware that the Purchase
Agreement placed certain indemnification obligations on us relating to Vegas.com. The Board considered the customary nature of
such indemnification obligations in a sale of a business unit and the risk of liability to us following the closing of the VDC
Transaction.
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Acceleration of Equity Awards
. The Board was aware that the
completion of the VDC Transaction may constitute a “change in control” or an “acquisition” as defined under
the Incentive Plans, and in such event, the Compensation Committee, in its sole discretion, may accelerate the vesting and exercisability
of awards granted under the Incentive Plans. See “The VDC Transaction (Proposal No. 1) — Interests of Our Directors
and Executive Officers in the VDC Transaction.”
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The foregoing discussion summarizes the
material factors considered by the Board in its consideration of the VDC Transaction. In view of the variety of factors and the
quality and amount of information considered, as well as the complexity of these matters, the Board did not find it practicable
to, and did not attempt to, make specific assessments of, quantify, rank or otherwise assign relative weights to the specific factors
considered in reaching this determination. The Board conducted an overall analysis of the factors described above, as well as others,
including thorough discussion with, and questioning of, our senior management and our financial advisors and Olshan, and considered
the benefits of the VDC Transaction to outweigh the risks and the factors overall to be favorable to, and to support, its determination.
Individual members of the Board may have given different weight to different factors.
Recommendation of the Board of Directors
After careful consideration, the Board
unanimously recommends that you vote “FOR” the approval of the VDC Transaction.
Net Proceeds from the VDC Transaction
and Their Expected Use
The Purchase Agreement provides for the
sale of Vegas.com for an anticipated enterprise value of approximately $45 million, with all of the cash proceeds of the VDC Transaction
to be used to pay amounts due under the Financing Agreement (which amounts will be paid to affiliates of VDC-MGG). Approximately
$39 million is outstanding under the Financing Agreement and approximately $10 million will remain outstanding after giving effect
to the application of such cash proceeds. The amount by which the purchase price exceeds the net tax basis of the sold assets is
subject to federal and state income taxes.
The VDC Transaction will be a taxable
event to us for U.S. federal income tax purposes. However, we expect that the VDC Transaction will not result in any material adverse
U.S. federal income tax consequences to us or to our stockholders. The VDC Transaction may result in our being subject to state
or local sales, use or other taxes in jurisdictions in which we file tax returns or have assets.
Nature of our Business Following the VDC Transaction
Vegas.com is an online agency catering
to the travel and entertainment needs of visitors to the Las Vegas area and those of Las Vegas locals. Vegas.com offers users
the ability to book lodging, air travel, show tickets and tours, and its customer service team is staffed by Las Vegas locals
who are intimately familiar with Las Vegas and the various products and services offered through the website. Vegas.com accounted
for approximately 87% of our consolidated revenues for each of the nine months ended September 30, 2018 and the year ended December
31, 2017. Following the VDC Transaction, we will continue to operate our technology and data intelligence business and our other
digital media properties. We will focus primarily on developing and monetizing our artificial intelligence-based products and
services using our KanKan social media data intelligence platform and deploying such products and services in the Asia market
across multiple industries.
For pro forma historical financial information
giving effect to the VDC Transaction and certain assumptions and adjustments, see “Unaudited Pro Forma Condensed Combined
Financial Statements” beginning on page 41.
Agreements Related to the Purchase Agreement
Voting Agreement
On March 15, 2019, concurrently with
our entry into the Purchase Agreement, MGG-VDC entered into a Voting Agreement with Kai-Shing Tao, our Chief Executive Officer,
and certain of his affiliates, pursuant to which the stockholders have agreed, among other things, to vote the shares beneficially
owned by the stockholders in favor of the adoption of the Purchase Agreement and the VDC Transaction. These stockholders beneficially
owned approximately 14.8% of our common stock outstanding.
Forbearance Letter
In connection with our entry into the
Purchase Agreement, in its capacity as administrative agent and collateral agent for the Lenders under the Financing Agreement,
MGG provided us with the March 2019 Forbearance Letter in which MGG (a) consented to the VDC Transaction, or to an Alternative
Transaction, and (b) subject to the terms and conditions set forth therein, agreed it is willing to forbear from taking enforcement
actions under the Financing Agreement and applicable law, effective on such date as we pay certain outstanding costs and expenses
of the Lenders payable under the Financing Agreement, through up to June 4, 2019, on the terms and subject to the conditions set
forth therein. The forbearance will expire early under certain circumstances, including but not limited to the following: (i) if
any event of default occurs under the Financing Agreement, other than those previously specified by us to the Lenders; (ii) if
we or Vegas.com breach or default under the Purchase Agreement; (iii) if the Purchase Agreement is terminated for any reason other
than for us to enter into an agreement with respect to an Alternative Transaction under the conditions specified in the Purchase
Agreement; (iv) if we do not file a definitive proxy statement with the SEC within three business days after expiration of the
required 10-day waiting period after filing the preliminary proxy statement, or if we receive SEC comments, on the earlier of (x)
three business days after resolution of such comments and (y) April 24, 2019; (v) if we do not hold the Special Meeting within
40 calendar days after the filing of the definitive proxy statement with the SEC; (vi) if the VDC Transaction does not close in
accordance with the Purchase Agreement within one business day after the Special Meeting; (vii) if Vegas.com transfers cash or
other assets to us or our other subsidiaries in excess of $150,000 in any 30-day consecutive period beginning on March 15, 2019;
(viii) if we or our domestic subsidiaries transfer cash or other assets to our foreign subsidiaries in excess of $10,000, other
than the transfer of cash proceeds from certain future equity issuances; and (ix) if we fail to deliver to MGG a rolling 13-week
cash flow forecast each week, commencing on March 21, 2019.
Stockholder Approval Requirement
We are organized under the corporate
laws of the State of Delaware. The VDC Transaction may constitute the sale of “substantially all” of our property and
assets under Section 271 of the DGCL. Section 271 of the DGCL requires that a Delaware corporation obtain the approval
of the holders of a majority of the corporation’s outstanding stock entitled to vote thereon for the sale of “all or
substantially all of its property and assets.” In light of this requirement, after taking into account the specific facts
and circumstances of the VDC Transaction, we have determined to seek stockholder approval of the VDC Transaction. Additionally,
obtaining such stockholder approval is a closing condition under the Purchase Agreement.
The Purchase Agreement provides that
any of the parties thereto may terminate the Purchase Agreement if we do not obtain stockholder approval of the VDC Transaction.
Effect of the VDC Transaction on Stock Options and Stock-Based
Awards
In the event the VDC Transaction is completed,
it may constitute a “change in control” or an “acquisition” as defined under the Incentive Plans. Under
the Incentive Plans, a change in control or an acquisition will be deemed to occur in circumstances including but not limited to
a sale of substantially all of our assets. If the VDC Transaction is deemed to constitute a change in control under the Incentive
Plans, the Compensation Committee, in its sole discretion, may accelerate the vesting and exercisability of awards granted under
the Incentive Plans. However, as the Compensation Committee already has full authority to accelerate the vesting and exercisability
of awards granted under the Incentive Plans and none of the awards granted to our directors and executive officers under the Incentive
Plans are unvested, the completion of the VDC Transaction will not constitute a change to the compensation that may be due to our
directors and executive officers under the Incentive Plans. The Compensation Committee has not determined whether to exercise its
authority to accelerate the vesting and exercisability of awards granted under the Incentive Plans. As of March 20, 2019, options
to purchase 223,000 shares of our common stock remained unvested and no shares of restricted stock were unvested under the Incentive
Plans.
Interests of Our Directors and Executive Officers in the
VDC Transaction
Certain of our directors and executive
officers may have interests in the VDC Transaction that are different from, or in addition to, those of our stockholders generally.
These interests may create potential conflicts of interest. The Board was aware that these interests existed when it approved the
Purchase Agreement and the VDC Transaction. All such interests are described below to the extent material, and except as described
below, such persons have, to our knowledge, no material interest in the VDC Transaction apart from those of stockholders generally.
Effect of the VDC Transaction
on Stock Options and Stock-Based Awards Held by our Directors and Executive Officers
In the event that the VDC Transaction
is completed, it may constitute a “change in control” or an “acquisition” as defined under the Incentive
Plans. Under the Incentive Plans, a change in control or an acquisition will be deemed to occur in circumstances including but
not limited to a sale of substantially all of our assets. If the VDC Transaction is deemed to constitute a change in control under
the Incentive Plans, the Compensation Committee, in its sole discretion, may accelerate the vesting and exercisability of awards
granted under the Incentive Plans. However, as the Compensation Committee already has full authority to accelerate the vesting
and exercisability of awards granted under the Incentive Plans and none of the awards granted to our directors and executive officers
under the Incentive Plans are unvested, the completion of the VDC Transaction will not constitute a change to the compensation
that may be due to our directors and executive officers under the Incentive Plans. The Compensation Committee has not determined
whether to exercise its authority to accelerate the vesting and exercisability of awards granted under the Incentive Plans.
Appraisal Rights in Respect of the VDC
Transaction
Under Delaware law, our stockholders
are not entitled to appraisal rights in connection with the VDC Transaction.
Regulatory Matters
Mergers and acquisitions that may have
an impact in the United States are subject to review by the Department of Justice and the Federal Trade Commission to determine
whether they comply with applicable antitrust laws. We believe that the VDC Transaction is not subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 or the reporting and waiting requirements of any other United States antitrust law. Neither
we nor VDC-MGG are aware of any other regulatory requirements or governmental approvals or actions that may be required to consummate
the VDC Transaction, except for compliance with the applicable regulations of the SEC in connection with this proxy statement.
Accounting Treatment of the VDC Transaction
If the sale of Vegas.com is consummated,
it is expected to be accounted for as a sale of membership interest transaction, in conformity with accounting principles generally
accepted in the United States of America. At the closing of the sale of Vegas.com, the excess or shortfall of the purchase price
received by us, less transaction expenses, over the carrying value of the membership interests of Vegas.com, including goodwill
allocated to Vegas.com within the reporting segment, will be recognized as a gain or loss for financial accounting purposes. Contingent
consideration, if any, to be received in connection with the sale of Vegas.com will be recorded in subsequent periods, when received.
In subsequent reporting periods, the presentation of Vegas.com for current and prior years, including the gain or loss on sale
of its membership interest after the transaction is consummated, will be presented in our financial statements as a discontinued
operation for financial accounting purposes.
Material United States Federal Income Tax Consequences
The VDC Transaction will be a taxable
event to us for U.S. federal income tax purposes. However, we expect that the VDC Transaction will not result in any material
adverse U.S. federal income tax consequences to us or to our stockholders. The VDC Transaction may result in our being subject
to state or local sales, use or other taxes in jurisdictions in which we file tax returns or have assets.
RISK FACTORS RELATING
TO THE PROPOSAL TO APPROVE THE VDC TRANSACTION
You should carefully consider the
risk factors described below and those risk factors generally associated with our business contained in our Annual Report on Form 10-K
for the year ended December 31, 2017 and our subsequent SEC filings, along with other information provided to you in this
proxy statement, in deciding how to vote on the proposal to approve the VDC Transaction. See “Where You Can Find Additional
Information” beginning on page 39. The special risk considerations described below are not the only ones facing us.
Additional considerations not presently known to us or that we currently believe are immaterial may also impair our business operations.
If any of the following special risk considerations actually occurs, our business, financial condition or results of operations
could be materially adversely affected, the market price of our common stock may decline, and you may lose all or part of your
investment.
The announcement and pendency of the VDC Transaction,
whether or not consummated, may adversely affect our business.
The announcement and pendency of the
VDC Transaction, whether or not consummated, may adversely affect the trading price of our common stock, our business or our relationships
with clients, vendors and employees. As a result of the announcement and pendency of the VDC Transaction, third parties may be
unwilling to enter into material agreements with respect to our business. New or existing clients, vendors and other business partners
may prefer to enter into agreements with our competitors who have not expressed an intention to sell a portion of their business
because clients and business partners may perceive that such new relationships are likely to be more stable. In addition, pending
the completion of the VDC Transaction, we may be unable to attract and retain key personnel as our employees may become concerned
about the future of our business and lose focus or seek other employment. Furthermore, our management’s focus and attention
and employee resources may be diverted from operational matters during the pendency of the VDC Transaction. The Purchase Agreement
also imposes certain restrictions on the conduct of our business prior to the completion of the VDC Transaction, which could delay
or prevent us from undertaking business opportunities that may arise pending completion of the VDC Transaction. In the event that
the VDC Transaction is not completed, the announcement of the termination of the Purchase Agreement may also adversely affect the
trading price of our common stock, our business or our relationships with clients, vendors and employees.
If we fail to complete the VDC Transaction, our business
may be harmed.
We cannot provide assurances that the
VDC Transaction will be completed. The closing of the Purchase Agreement is subject to a number of conditions, including but not
limited to (i) our obtaining stockholder approval of the VDC Transaction, (ii) an absence of a material adverse effect on Vegas.com,
(iii) Vegas.com’s purchasing at its expense a six-year tail directors’ and officers’ liability insurance policy,
(iv) Vegas.com and its subsidiaries’ having at least $1.5 million in cash at closing, and (v) with respect to a certain intellectual
property license agreement pursuant to which certain intellectual property is licensed to Vegas.com, execution and delivery of
an assignment of such agreement by the licensor party to such agreement to the record owner of the relevant intellectual property.
We are currently in default under the
Financing Agreement. In connection with the entry into the Purchase Agreement, MGG provided us with the March 2019 Forbearance
Letter in which MGG agreed it is willing to forbear from taking enforcement actions under the Financing Agreement and applicable
law, through up to June 4, 2019, on the terms and subject to the conditions set forth therein. The forbearance will expire if the
Purchase Agreement is terminated by either party for any reason other than for us to enter into an agreement with respect to an
alternative transaction to sell all of the issued and outstanding membership interests of Vegas.com under certain limited conditions,
or if we or Vegas.com breach or default under the Purchase Agreement, among other things. If MGG’s forbearance expires, as
a result of existing events of default under the Financing Agreement, the Lenders may declare our obligations under the Financing
Agreement, including all unpaid principal and interest, due and payable immediately and exercise such other rights available to
them under the Financing Agreement and applicable law, which could have a material adverse effect on our financial condition.
If the VDC Transaction is not completed,
our Board, in discharging its fiduciary obligations to our stockholders, will evaluate other strategic alternatives to the VDC
Transaction that may be available, which alternatives may not be as favorable to our stockholders as the VDC Transaction. Any future
sale of substantially all of our assets or other transactions may be subject to further stockholder approval.
If we fail to complete the VDC Transaction,
the failure to maintain existing business relationships or enter into new ones could adversely affect our business, results of
operations and financial condition. The potential for loss or disaffection of employees or clients or vendors of the VDC Transaction
following a failure to consummate the VDC Transaction could have a material, negative impact on the value of our business.
In addition, if the VDC Transaction is
not completed, our directors, executive officers and other employees will have expended extensive time and effort and experienced
significant distractions from their work during the pendency of the transaction and we will have incurred significant third party
transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our stock price
and results of operations.
You will not receive any of the proceeds from the VDC
Transaction.
All of the cash proceeds of the VDC Transaction
will be used to pay amounts due under the Financing Agreement (which amounts will be paid to affiliates of VDC-MGG). Approximately
$39 million is outstanding under the Financing Agreement and approximately $10 million will remain outstanding after giving effect
to the application of such cash proceeds. You should not vote to approve the VDC Transaction based upon the assumption that you
will receive any portion of the net proceeds from the VDC Transaction.
Vegas.com has historically accounted for a substantial
portion of our revenue. If we complete the VDC Transaction, we will become entirely dependent on our remaining business units.
We have incurred significant operating
losses since our inception. Vegas.com and its subsidiaries accounted for approximately 87%, 87% and 96% of our consolidated revenues
for the nine months ended September 30, 2018 and the years ended December 31, 2017 and 2016, respectively. If we complete the VDC
Transaction, we will be exiting the Vegas.com business and we will no longer benefit from its performance. Following the VDC transaction,
we will become entirely dependent upon our technology and data intelligence business and our other digital media properties. Although
we expect the revenue generated from our technology and data intelligence business to grow in the future, our business will be
substantially different following the VDC Transaction, and there can be no assurance that we will achieve sustained growth, achieve
or sustain profitability, or generate positive cash flows from our technology and data intelligence business, or in new products
or business opportunities we may pursue.
We will continue to incur the expenses of complying
with public company reporting requirements following the closing of the VDC Transaction.
After the VDC Transaction, we will continue
to be required to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley
Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules adopted, and to be adopted,
by the SEC and NASDAQ, and will incur significant legal, accounting and other expenses in connection with that compliance. In addition,
our management and other personnel will need to continue to devote a substantial amount of time to these compliance initiatives.
We will be unable to compete with Vegas.com’s
business for three years from the date of closing.
We have agreed that, for a period of
three years after the closing of the VDC Transaction, we will not (i) directly or indirectly own, manage, operate, finance, control
or knowingly participate in the ownership, management, operation, control or financing of any entity that has operations engaged,
directly or indirectly, in the business of running an online agency that, through websites and mobile applications, allows users
to book travel to, and lodging and entertainment in, the Las-Vegas-area market, or (ii) solicit or induce for employment, hire
or otherwise retain any individual who is an employee of Vegas.com at closing and remains employed by Vegas.com following the closing.
While we do not currently believe these limitations negatively affect our remaining business, the non-compete provisions will restrict
our ability to engage in any business that competes with Vegas.com’s business for three years from the date of closing.
We may be exposed to litigation related to the VDC
Transaction from the holders of our common stock.
Transactions such as the VDC Transaction
are often subject to lawsuits by stockholders. Particularly because the holders of our common stock will not receive any consideration
from the VDC Transaction, it is possible that they may sue us or our Board. Such lawsuits could result in substantial costs and
divert our management’s attention from other business concerns, which could seriously harm our business.
We may be unable to realize the benefits of our net
operating loss (“NOL”) and capital loss carryforwards.
The amount of NOL and capital loss carryforwards
that we have claimed have not been audited or otherwise validated by the U.S. Internal Revenue Service (the “IRS”).
The IRS could challenge our calculation of the amount of our NOL and capital loss carryforwards or our determinations as to when
a prior change in ownership occurred, and other provisions of the IRC may limit our ability to utilize our NOL and capital loss
carryforwards to offset taxable income and capital gains. If the IRS is successful with respect to any such challenge, the tax
benefit of our NOL and capital loss carryforwards to us could be substantially reduced.
THE MEMBERSHIP INTEREST
PURCHASE AGREEMENT
The following is a
summary of the material terms of the Purchase Agreement. This summary does not purport to describe all the terms of the Purchase
Agreement and is qualified in its entirety by reference to the full text of the Purchase Agreement, which is attached as Annex A.
We urge you to read the Purchase Agreement carefully and in its entirety because it, and not the summary set forth in this proxy
statement, is the legal document that governs the VDC Transaction.
The representations,
warranties and covenants contained in the Purchase Agreement were made only for purposes of the Purchase Agreement as of specific
dates and may be subject to more recent developments. Such representations, warranties and covenants were made solely for the benefit
of the parties to the Purchase Agreement, may be subject to limitations agreed upon by the contracting parties, including being
qualified by confidential disclosures made for the purposes of allocating risk between the parties instead of establishing these
matters as facts, and may apply standards of materiality in a way that is different from what may be viewed as material by you
or by other investors. For the foregoing reasons, you should not rely on the representations, warranties and covenants or any descriptions
thereof as characterizations of the actual state of facts or condition of the parties or any of their respective subsidiaries or
affiliates.
General
Pursuant to the terms
of the Purchase Agreement, we agreed to sell to VDC-MGG all of the issued and outstanding membership interests of the Vegas.com,
for an aggregate consideration of $30 million.
Vegas.com is an online
agency catering to the travel and entertainment needs of visitors to the Las Vegas area and those of Las Vegas locals. Vegas.com
offers users the ability to book lodging, air travel, show tickets and tours, and its customer service team is staffed by Las Vegas
locals who are intimately familiar with Las Vegas and the various products and services offered through the website.
Consideration
The consideration for
the VDC Transaction is $30 million. The entire proceeds of the VDC Transaction will be used to pay amounts due under the Financing
Agreement (which amounts will be paid to affiliates of VDC-MGG). Approximately $39 million is outstanding under the Financing Agreement
and approximately $10 million will remain outstanding after giving effect to the application of such cash proceeds.
Closing
The closing will take
place at 10:00 a.m., Eastern time, at the offices of Olshan Frome Wolosky LLP, 1325 Avenue of the Americas, New York, New York
10019, on the first business day following the satisfaction or waiver of the closing conditions set forth in the Purchase Agreement,
or at such other time, date and place as may be mutually agreed upon in writing by the parties.
Representations and Warranties
We made representations and warranties
relating to the following matters:
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organization, existence, good standing and power and authority of Remark, Vegas.com and the subsidiaries of Vegas.com, in each
case to own, lease and operate Vegas.com’s properties and assets and to carry on Vegas.com’s business;
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corporate power and authority of Remark to execute and deliver the Purchase Agreement and related agreements and consummate
the VDC Transaction;
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enforceability of the Purchase Agreement and related agreements;
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the absence of violation of any of our organizational documents and applicable law or governmental orders and the absence of
breach of, default under or violation of any material contracts as a result of the execution, delivery or performance by us of
the Purchase Agreement and related agreements or the consummation of the VDC Transaction;
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governmental consents and filings required in connection with the VDC Transaction;
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absence of legal proceedings and governmental orders;
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capitalization of Vegas.com;
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subsidiaries of Vegas.com;
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financial statements of Vegas.com;
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conduct of Vegas.com’s business in ordinary course;
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compliance with applicable laws;
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labor and employment matters;
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intellectual property and data privacy;
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absence of unlawful payments;
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affiliate transactions;
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broker’s, finder’s and other similar fees and payments;
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title and sufficiency to assets of Vegas.com;
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accounts receivable and accounts payable; and
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Certain of our representations and warranties
in the Purchase Agreement provide exceptions for items that are not reasonably likely to have a “Material Adverse Effect.”
For purposes of the Purchase Agreement, “Material Adverse Effect” means any change or event that is materially adverse
to the business, assets, properties or condition of Vegas.com and its subsidiaries (collectively, the “Company Entities”),
taken as a whole. When determining whether a “Material Adverse Effect” has occurred, any change or event resulting
from any of the following shall not be considered: (i) changes in economic, political, regulatory, financial or capital market
conditions generally or in the industries in which Vegas.com and its subsidiaries operate, (ii) any acts of war, sabotage, terrorist
activities or changes imposed by a governmental entity associated with additional security, (iii) effects of weather or meteorological
events, (iv) any change of law, accounting standards, regulatory policy or industry standards after the date of the Purchase Agreement,
(v) the announcement, execution, delivery or performance of the Purchase Agreement or the consummation of the VDC Transaction,
(vi) any failure by Vegas.com to meet projections or forecasts or revenue or earnings predictions for any period (but not the underlying
cause of such failure nor any specific representations or warranties regarding the same in the Purchase Agreement), and (vii) any
actions required to be taken pursuant to the Purchase Agreement. However, in the case of the foregoing items (i), (ii), (iii) and
(iv), to the extent the Company Entities and/or the business of the Company Entities are materially and disproportionately affected
thereby relative to the other participants in the industry or industries in which the Company Entities operate, such incremental
material and disproportionate effect or effects may be taken into account in determining whether there has been or may be a “Material
Adverse Effect.”
The Purchase Agreement contains representations
and warranties made by VDC-MGG relating to the following matters:
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organization, existence and good standing of VDC-MGG and power and authority to carry on its business;
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corporate power and authority of VDC-MGG to execute and deliver the Purchase Agreement and related agreements and consummate
the VDC Transaction;
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enforceability of the Purchase Agreement and related agreements;
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the absence of violation of any of its organizational documents and applicable law or governmental orders and the absence of
breach of, default under or violation of any material contracts as a result of the execution, delivery or performance by VDC-MGG
of the Purchase Agreement and related agreements or the consummation of the VDC Transaction;
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governmental consents and filings required in connection with the VDC Transaction;
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absence of legal proceedings and governmental orders;
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sufficiency of funds to pay the consideration for the VDC Transaction;
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acquisition of the membership interests of Vegas.com for own account and not with a view to distribution;
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broker’s, finder’s and other similar fees and payments; and
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independent review and analysis of the VDC Transaction.
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Access to Information
Until the closing of the VDC Transaction,
we will, and will cause the Company Entities to (i) provide VDC-MGG and its representatives with access to the offices and properties,
and to copies of books and records, of the Company Entities, (ii) furnish to VDC-MGG and its representatives with financial and
operating data and any other information relating to the business of the Company Entities that is produced in the ordinary course
of business as VDC-MGG or its representatives may request, (iii) instruct the employees, counsel and financial advisors of the
Company Entities to cooperate with VDC-MGG in its investigation of the business of the Company Entities, and (iv) provide VDC-MGG
and its representatives a reasonable opportunity to participate in any communications with any customer or supplier of any Company
Entity specified by VDC-MGG, other than information that is protected by attorney-client privilege.
VDC-MGG will cause the books and records
of the Company Entities to be maintained for not less than 6 years from the closing date.
Conduct of Business Prior to Closing
Until the
closing of the VDC Transaction, unless expressly required by the Purchase Agreement or VDC-MGG otherwise consents in writing, we
will cause each Company Entity to conduct the business of Vegas.com in the ordinary course, consistent with past practice, and
use our reasonable best efforts to preserve intact each of the Company Entities’ current business organization, the services
of its partners and employees relations and goodwill with suppliers, customers, landlord and other persons have business relationships
with any Company Entity.
Additionally, unless
expressly required by the Purchase Agreement or VDC-MGG otherwise consents in writing, we will cause each Company Entity not to:
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incur or guarantee any indebtedness (other than amounts owed under
the Financing Agreement);
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allow or cause to exist any lien (other than permitted liens) on any
of our assets or equity securities;
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dispose of, transfer, sell, mortgage, lease or license any material
properties or assets;
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issue, sell, authorize, transfer, pledge, encumber, dispose of or
grant, or authorize the issuance, sale, transfer, pledge, encumbrance, disposal of or grant of any equity securities of any Company
Entity;
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acquire any material assets;
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make any loans, advances or capital contributions to, or material
investments in, any other person;
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declare, accrue, set aside or pay any dividend or other distribution;
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effect or become a party to any merger, consolidation, share exchange,
business combination, recapitalization, stock split, stock combination or similar transaction;
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amend, voluntarily terminate, grant a material waiver under, cancel
or breach any material contract or enter into or assume any material contract;
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amend, voluntarily terminate, grant a material wavier under, cancel
or breach (i) any real property lease, (ii) any agreement containing a most favored nation, most favored customer, most favored
supplier, exclusivity or other similar provision, or take or pay provision or requirements provision, (iii) any contracts that
constitutes a guarantee or assumption or similar commitment with respect to the obligations or liabilities of any other person,
(iv) any collective bargaining agreement or arrangement with any unions or similar employee representatives, and (v) any agreement
involving any resolution or settlement of any actual or threatened legal proceeding or other dispute that imposes continuing obligations
on any Company Entity;
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make or change any tax election, adopt or change any method of tax
accounting, enter into any material closing agreement with respect to taxes or settle any material tax claim or assessment, file
any amended tax return with respect to a material amount of taxes, extend or waive the application of any statute of limitations
regarding the assessment or collection of any material tax (except with respect to routine extensions in the ordinary course of
business), apply for or pursue any tax ruling, or execute any powers of attorney with respect to any material tax matter;
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make any changes to its accounting principles or practices, except
as required by contemporaneous changes in generally accepted accounting principles (GAAP) or applicable law;
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other than in the ordinary course of business, (i) establish, adopt,
enter into, materially amend or terminate any employee benefit plan of any Company Entity or (ii) increase the aggregate compensation,
bonus or other benefits of any employee;
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purchase any equity securities of any person other than another Company
Entity, except for short-term investments or cash equivalents made in the ordinary course of business;
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make or incur any capital expenditure or commitments aggregating more
than $100,000;
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adopt a plan, agreement or resolutions providing for liquidation,
dissolution, bankruptcy, restructuring, recapitalization or other reorganization of any of the Company Entities;
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settle any threatened or pending legal proceeding against any of the
Company Entities in excess of $50,000;
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form any subsidiary to enter into any partnership, joint venture or
similar relationship in which any of the Company Entities acquires equity securities of another person;
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other than in the ordinary course of business, incur any indemnification
obligations;
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accelerate the collection of accounts receivable or delay the payment
of accounts payable (other than delays as a result of disputes with respect to any account payable initiated by the payee thereof);
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amend its organizational documents;
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make any payment or transfer of funds, cash or any other assets (i)
to Remark or its other subsidiaries in excess of $150,000 in the aggregate in any 30-day period from and after the date of the
Purchase Agreement, or (ii) to any other person outside of the ordinary course of business pursuant to any contract provided to
the VDC-MGG; or
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agree or commit to do any of the foregoing.
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Stockholder Meeting and Filing of Proxy Statement
We have agreed to hold a meeting of our
stockholders to approve the VDC Transaction and to use commercially reasonable efforts to solicit proxies in favor of the approval
of the VDC Transaction from our stockholders. We have also agreed to file a preliminary proxy statement relating to a stockholder
meeting to approve the VDC Transaction no later than 5 business days after the date of the Purchase Agreement and to use commercially
reasonable efforts to cause a definitive proxy statement as soon as reasonably practicable following the later of (i) the receipt
and resolution of the SEC comments on the preliminary proxy statement and (ii) the expiration of the 10-day waiting period with
respect to the preliminary proxy statement.
Public Announcements
Except to the extent required by applicable
law or stock exchange rule, each party shall obtain the prior written approval of the other party before issuing any public release
or statement with respect to the Purchase Agreement or the VDC Transaction (other than public statements that are consistent with
prior press releases or other public statements made by the parties that are approved in accordance with the Purchase Agreement).
Transfer Taxes
All transfer taxes incurred in connection
with the Purchase Agreement and the VDC Transaction will be paid by us.
Release
Effective upon and following the closing
and subject to the indemnification obligations set forth in the Purchase Agreement, each party, on its own behalf and on behalf
of its related parties (including, in our case, the Company Entities), has agreed to release the other party and their representatives
and related parties from all past, present and future losses arising from any matter concerning any Company Entity occurring prior
to the closing date.
Letter of Credit Facility Agreement
We will use reasonable efforts to assist
VDC-MGG in obtaining any necessary approvals with respect to the Letter of Credit Facility Agreement, dated as of September 24,
2015, by and between Bank of America, N.A. and Vegas.com (the “Letter of Credit Facility Agreement”), in connection
with the VDC Transaction. If such approvals are not obtained after our use of reasonable efforts, we will use reasonable efforts
to assist Vegas.com in obtaining consents from the necessary persons to accept new letters of credit issued by a financial institution
acceptable to VDC-MGG in lieu of the letters of credit issued under the Letter of Credit Facility Agreement.
Non-Solicitation; Non-Competition
We have agreed that, for a period of
three years after the closing date, we will not (and shall cause our other subsidiaries, other than the Company Entities, not to)
solicit or induce for employment, hire or otherwise retain any individual who is an employee or consultant of VDC-MGG or its affiliates
(including any individual who is an employee of Vegas.com at closing and remains employed by Vegas.com following the closing),
except that we may engage in general solicitations, solicit any person who responds to a general solicitation or solicit or hire
any person no longer employed by VDC-MGG or its affiliates at least 6 months prior to the initiation of such solicitation.
We have agreed that, for a period of
three years after the closing date, we will not (and shall cause our other subsidiaries, other than the Company Entities, not to)
directly or indirectly own, manage, operate, finance, control or knowingly participate in the ownership, management, operation,
control or financing of any entity that has operations engaged, directly or indirectly, in the business of running an online agency
that, through websites and mobile applications, allows users to book travel to, and lodging and entertainment in, the Las-Vegas-area
market, except that we may own publicly traded securities of any entity engaged in such business to the extent such investment
does not exceed 2% of the voting power of such entity.
Change in Board Recommendation
If, at any time prior to obtaining stockholder
approval of the VDC Transaction, we receive an Alternative Acquisition Proposal (as defined below) from any person that our Board
has determined in good faith, after consultation with our independent financial advisors and outside legal counsel, constitutes
a Superior Acquisition Proposal (as defined below), and that failure to take any action with respect to such Superior Acquisition
Proposal would be inconsistent with the fiduciary duties of our Board under applicable law, then our Board may make a Seller Adverse
Recommendation Change (as defined below) and cause us to terminate the Purchase Agreement in order to enter into a definitive agreement
relating to such Superior Acquisition Proposal; provided that we have (i) entered into a confidentiality agreement (in form and
substance reasonably acceptable to VDC-MGG) with the person that has made the Alternative Acquisition Proposal, (ii) furnished,
pursuant to such confidentiality agreement, information with respect to the Company Entities to the person that has made such Alternative
Acquisition Proposal and its representatives (provided that we have also provided to VDC-MGG any non-public information concerning
any Company Entity that was provided or made available to such person); and (iii) engaged in or otherwise participated in discussions
or negotiations with the person making such Alternative Acquisition Proposal and its representatives regarding such Alternative
Acquisition Proposal.
We are required to promptly (and in no
event later than 24 hours after receipt) notify VDC-MGG in writing in the event we or any of our representatives receives an Alternative
Acquisition Proposal or any similar offer relating to the Company Entities that our Board determines in good faith would be reasonably
likely to lead to an Alternative Acquisition Proposal and keep VDC-MGG reasonably informed as to the status of, including any material
changes to, such Alternative Acquisition Proposal or similar offer.
Prior to making a Seller Adverse Recommendation
Change, (i) we are required to give VDC-MGG at least 4 business days prior written notice of our intention to take such action,
(ii) during such notice period, if and to the extent desired by VDC-MGG, we will negotiate with VDC-MGG in good faith make such
adjustments to the terms of the Purchase Agreement and related agreements, and (iii) upon the end of such notice period, our Board
shall have considered in good faith any revisions to such terms proposed in writing by VDC-MGG and shall have determined, after
consultation with independent financial advisors and outside legal counsel, that the failure to make a Seller Adverse Recommendation
Change would be inconsistent with the Board’s fiduciary duties under applicable law.
Under the Purchase Agreement, “Alternative
Acquisition Proposal” means any
bona fide
proposal, offer or similar indication of interest made by any person or
group of related persons (other than VDC-MGG and its subsidiaries and affiliates), and whether involving a transaction or series
of related transactions, directly or indirectly, for (i) a merger, reorganization, share exchange, consolidation, business combination,
dissolution, liquidation, joint venture, recapitalization or similar transaction involving any Company Entity, (ii) the acquisition
(whether by purchase, lease, exchange, transfer or other disposition) by any person or group of related persons (other than VDC-MGG
and its affiliates) of more than 25% of the assets (measured by the market value thereof), revenue or net income of the Company
Entities, on a consolidated basis (in each case, including securities of the subsidiaries of Vegas.com), or (iii) the direct or
indirect acquisition by, or issuance to, any person or group of related persons (other than VDC-MGG and its affiliates) of more
than 25% of any class of voting or equity interests of Vegas.com issued and outstanding following such acquisition or issuance,
or any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in any person beneficially
owning more than 25% of any class of outstanding voting or equity securities of Vegas.com.
Under the Purchase Agreement, “Superior
Acquisition Proposal” means a written Alternative Acquisition Proposal, substituting “50%” for “25%”
in the definition thereof, and for which, if financing is required, such third party will have entered into binding commitments
for such financing, that our Board determines in good faith, after consultation with our independent financial advisors and outside
legal counsel, (i) to be reasonably likely to be consummated if accepted on the terms thereof, and (ii) taking into account the
factors our Board considers to be relevant (which includes the various legal, financial and regulatory aspect of the Alternative
Acquisition Proposal, all terms and conditions of such Alternative Acquisition Proposal and the Purchase Agreement, any changes
to the terms of the Purchase Agreement offered by VDC-MGG in response to such Alternative Acquisition Proposal, and the anticipated
timing, conditions and the ability of the person or group of related persons making such Alternative Acquisition Proposal to consummate
the transaction contemplated thereby), if consummated, to be more favorable to our stockholders from a financial point of view
than the transactions contemplated by the Purchase Agreement.
Under the Purchase Agreement, “Seller
Adverse Recommendation Change” means any action by us to (i)(A) change, qualify, withhold, withdraw or modify, or publicly
propose or announce our intention to change, qualify, withhold, withdraw or modify, in each case, in any manner adverse to VDC-MGG,
our Board’s recommendation in favor of the VDC Transaction, or (B) approve, adopt or recommend (publicly or otherwise) to
our stockholders, or resolve to or publicly propose or announce its intention to approve or recommend to our stockholders, an Alternative
Acquisition Proposal, (ii) authorize, cause or permit a Company Entity to enter into any letter of intent, memorandum of understanding,
agreement (including an acquisition agreement, merger agreement, joint venture agreement or other agreement), commitment or agreement
in principle with respect to any Alternative Acquisition Proposal (other than a confidentiality agreement contemplated by the Purchase
Agreement) or agree or publicly propose to do any of the foregoing, or (iii) terminate, amend, relate, modify or fail to enforce
any provision (including any standstill), or grant any waiver or request under, any confidentiality, standstill or similar agreement
(including any such confidentiality agreement).
Real Property
We have agreed to use reasonable efforts
to cause the landlord under the lease for our corporate headquarters to consent to a sublease between us, as sublandlord, and Vegas.com,
as tenant, and consent to the physical separation of the premises in a manner reasonably satisfactory to VDC-MGG such that VDC-MGG
may operate the business in the ordinary course following the closing.
Other Covenants and Agreements
Remark and MGG have made certain other
covenants to and agreements with each other regarding various other matters, including:
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payment of costs and expenses incurred in connection with the VDC
Transaction;
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cooperating with each other and using reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, and reasonably assist and cooperate with each other in doing,
all things necessary, proper or advisable to comply promptly with all legal requirements imposed on VDC-MGG or Remark with respect
to the Purchase Agreement, and using reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations,
orders and approvals from all governmental entities that may be or become necessary for the execution of the Purchase Agreement
and the performance thereof;
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the filing of tax returns and allocation of taxes;
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using reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the VDC Transaction;
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VDC-MGG (i) providing, or causing to be provided, to each individual
who is an employee at the closing of the VDC Transaction and who remains employed by Vegas.com following the closing (each, a “Continuing
Employee”): (A) a base salary or hourly wage rate, as applicable, that is at least equal to the base salary or hourly wage
rate provided to such Continuing Employee immediately prior to the closing, (B) bonus and other incentive compensation opportunities
(excluding equity and equity based rights) that are no less favorable than those provided to such Continuing Employee immediately
prior to the closing, and (C) employee benefits (excluding defined benefit pension benefits and equity and equity based rights)
that are no less favorable, in the aggregate, than those provided to such Continuing Employee immediately prior to the closing;
and (ii) causing each Company Entity to pay, in the manner and at the time paid in accordance with past practice, all bonuses and
deferred compensation payments payable to employees of such Company Entity for services performed on or prior to the closing date;
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for a period of 5 years following closing, to keep confidential all
non-public information to the extent relating to the Company Entities and the respective businesses thereof;
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Vegas.com’s entitlement to coverage under our insurance policies
with respect to the Company Entities and their respective businesses for matters arising prior to the closing of the VDC transaction,
and our cooperating with VDC-MGG and the Company Entities, as applicable, in filing insurance claims and collection of insurance
proceeds; and
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our use of commercially reasonable efforts to ensure that all documents
and instruments necessary to establish, perfect and maintain the rights of Vegas.com in certain intellectual property have been
validly executed, delivered and filed with the appropriate governmental authority.
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Closing Conditions
VDC-MGG’s obligations to complete
the VDC Transaction is subject to the fulfillment or waiver of the following conditions:
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certain fundamental representations and warranties made by us shall
be true and correct (except for de minimis breaches or inaccuracies), and the other representations and warranties made by us shall
be true and correct without giving effect to any materiality or material adverse qualifiers (except for any breaches or inaccuracies
that would not, individually or in the aggregate, have a material adverse effect);
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the covenants, agreements and obligations required by the Purchase
Agreement to be performed or complied with by us at or prior to the closing shall have been performed and complied with in all
material respects;
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we shall have executed and delivered to VDC-MGG all contracts and
documents required to be delivered by us under the Purchase Agreement, including but not limited to, an officer’s certificate
certifying that certain specified closing conditions have been satisfied;
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we shall have paid all transaction expenses in connection with the
VDC Transaction;
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there shall not have occurred any material adverse effect since the
date of the Purchase Agreement;
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Vegas.com shall have obtained and fully paid for a six-year tail directors’
and officers’ liability insurance policy;
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Vegas.com and its subsidiaries shall have at least $1.5 million in
cash at closing; and
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with respect to a certain intellectual property license agreement
pursuant to which certain intellectual property is licensed to Vegas.com, we shall have executed and delivered an assignment of
such agreement by the licensor party to such agreement to the record owner of the relevant intellectual property.
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Our obligations to complete the VDC Transaction
is subject to the fulfillment or waiver of the following conditions:
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certain fundamental representations and warranties made by VDC-MGG
shall be true and correct (except for de minimis breaches or inaccuracies), and the other representations and warranties made by
VDC-MGG shall be true and correct without giving effect to any materiality or material adverse qualifiers (except for any breaches
or inaccuracies that would not, individually or in the aggregate, have a material adverse effect);
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the covenants, agreements and obligations required by the Purchase
Agreement to be performed or complied with by VDC-MGG at or prior to the closing shall have been performed and complied with in
all material respects; and
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VDC-MGG shall have executed and delivered to us all contracts and
documents required to be delivered by it under the Purchase Agreement, including but not limited to, an officer’s certificate
certifying that certain specified closing conditions have been satisfied.
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Each party’s obligations to complete
the VDC Transaction is subject to the fulfillment or waiver of the following conditions:
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the parties shall have received all necessary governmental authorizations,
consents, clearances, waivers and approvals in connection with the Purchase Agreement and the VDC Transaction;
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no provision of applicable law prohibiting, enjoining, restricting
or making illegal the consummation of the VDC Transaction shall be in effect and no restraining order enjoining, restricting or
making illegal the consummation of the VDC Transaction shall be in effect; and
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we shall have received the approval of the VDC Transaction by the
holders of a majority of our outstanding shares of common stock.
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Termination
The Purchase Agreement may be terminated as follows:
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by either party if the closing does not occur before June 15,
2019, which deadline may be extended by VDC-MGG, in its sole discretion, to August 15, 2019 if stockholder approval of the VDC
Transaction is not obtained by June 15, 2019;
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by either party if (i) there exists a breach of any representation
or warranty of the other party such that the corresponding closing conditions would not be satisfied, (ii) the other party has
breached any of the covenants or agreements to be complied with by such party such that the corresponding closing condition would
not be satisfied, unless, in each case, such breach is cured by such party within 30 days or at the time of termination, the party
seeking to terminate is in breach of any representation, warranty, covenant or other agreement such that the corresponding closing
conditions would not have been satisfied;
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by either party if there is in effect a final, nonappealable governmental
order prohibiting, enjoining, restricting or making illegal the VDC Transaction;
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by either party if stockholder approval of the VDC Transaction is
not obtained at the Special Meeting (including any adjournments or postponements thereof) is not obtained;
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by mutual written agreement of the parties at any time prior to the
closing date;
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by either party, if our Board makes a Seller Adverse Recommendation
Change in accordance with the terms of the Purchase Agreement; or
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by VDC-MGG, if we did not file a preliminary proxy statement related
to the Purchase Agreement with the SEC within 5 business days after the date of the Purchase Agreement.
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Indemnification
The representations and warranties set
forth in the Purchase Agreement will survive for a period of 12 months from the closing date, other than certain fundamental representations,
which will survive indefinitely. The covenants and agreements contained in the Purchase Agreement or any instrument or certificate
delivered pursuant to the Purchase Agreement that by their terms do not contemplate performance after the closing shall survive
the closing for a period of 60 days following the closing. The covenants and agreements contained in the Purchase Agreement or
any instrument or certificate delivered pursuant to the Purchase Agreement that by their terms contemplate performance after the
closing shall survive the closing in accordance with their terms until 60 days following the expiration of any applicable statute
of limitations; however, any such covenant or agreement that expires on a date certain shall survive until that date certain.
After the closing, we will indemnify
VDC-MGG, its affiliates (including the Company Entities), its and their respective representatives, and each of the foregoing person’s
respective related parties against any loss, liability, dispute, claim, controversy, demand, charge, action, suit, proceeding,
assessed interest, penalty, damage, tax, cost, expense and cause of action resulting from, arising out of or incurred in connection
with, or otherwise with respect to (i) any inaccuracy in or breach of any representation and warranty made by us in the Purchase
Agreement or pursuant to any instrument or certificate delivered pursuant to the Purchase Agreement, (ii) any breach or non-fulfillment
of our covenants or agreements determined without regard to materiality contained in the Purchase Agreement or pursuant to any
instrument or certificate delivered pursuant to the Purchase Agreement; and (iii) any indebtedness (other than indebtedness under
the Financing Agreement or Letter of Credit Facility Agreement) or transaction expenses that are not paid in full prior to the
Closing. Additionally, VDC-MGG will indemnify us, our affiliates, our and their respective representatives, and each of the foregoing
person’s respective related parties, against any loss, liability, dispute, claim, controversy, demand, charge, action, suit,
proceeding, assessed interest, penalty, damage, tax, cost, expense and cause of action resulting from, arising out of or incurred
in connection with, or otherwise with respect to (i) any inaccuracy in or breach of any representation and warranty made by VDC-MGG
in the Purchase Agreement, and (ii) any breach or non-fulfillment of any covenant or agreement determined without regard to materiality
of VDC-MGG contained in the Purchase Agreement.
Notwithstanding the foregoing, an indemnifying
party will not be liable for any losses arising under each clause (i) above (other than for inaccuracies in or breaches of certain
fundamental representations) unless and until the amount of such losses arising from any matter or series of related matters exceeds
$25,000 and unless and until all such losses exceed $300,000. In no event shall the cumulative indemnification obligations of an
indemnifying party under each clause (i) above (other than for inaccuracies in or breaches of certain fundamental representations)
exceed $6 million. In addition, the cumulative indemnification obligations of an indemnifying party under the Purchase Agreement
shall in no event exceed $30 million.
Amendments and Waiver
The Purchase Agreement may not be amended,
supplemented or modified except by a written instrument signed on behalf of VDC-MGG and Remark. Any term or condition of the Purchase
Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver will be effective,
unless set forth in written instrument. No waiver by any party of any term or condition of the Purchase Agreement will be deemed
to be a waiver of the same or any other term or condition of the Purchase Agreement on any future occasion.
Governing Law
The Purchase Agreement is governed by
the laws of the state of New York, without giving effect to any choice of law or conflict of laws rules or provisions (whether
of the state of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than
the state of New York.
Specific Performance
Remark and VDC-MGG are entitled to seek
an injunction or injunctions to prevent breaches of the Purchase Agreement and to seek to enforce specifically the terms and provisions
of the Purchase Agreement, in addition to any other remedy to which Remark or VDC-MGG is entitled at law, in equity, in contract,
in tort or otherwise.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion
in our proxy materials relating to our 2019 Annual Meeting of Stockholders (the “2019 Annual Meeting”), stockholder
proposals for such meeting were required to be submitted to us no later than December 19, 2018.
Under SEC rules, if we do not receive notice
of a stockholder proposal at least 45 days prior to the first anniversary of the date of mailing of the prior year’s proxy
statement, then we will be permitted to use our discretionary voting authority when the proposal is raised at the annual meeting,
without any discussion of the matter in the proxy statement. In connection with the 2019 Annual Meeting, if we do
not receive notice of a stockholder proposal on or before March 4, 2019, we will be permitted to use our discretionary voting
authority as outlined above.
Our Bylaws provide that, in order for stockholder
nominations related to director elections or other business proposed by a stockholder to be properly brought before any annual
or special meeting of our stockholders, written notice generally must be delivered to our Secretary not less than 60 days nor more
than 90 days prior to the first anniversary of the preceding year’s annual meeting. Our Bylaws also contain certain procedures
that must be followed relating to a stockholder director nomination and other proposals of stockholders.
OTHER MATTERS
At this time, we know of no other matters
to be submitted to our stockholders at the Special Meeting. If any other matters properly come before the Special Meeting in which
your proxy has provided discretionary authority, your shares of common stock will be voted in accordance with the discretion of
the persons named on the enclosed proxy card in accordance with their best judgment.
Householding
The SEC has adopted a rule concerning
the delivery of annual reports and proxy statements. It permits us, with your permission, to send a single notice of meeting and,
to the extent requested, a single copy of this proxy statement to any household at which two or more stockholders reside if they
appear to be members of the same family. This rule is called “householding,” and its purpose is to help reduce printing
and mailing costs of proxy materials. If you are a stockholder of record, please check the appropriate box on your proxy card or
select the householding option when you vote by Internet or phone if you would like to participate in our householding program.
Stockholders who participate in householding will continue to receive separate proxy cards, and householding will not affect the
mailing of account statements or special notices in any way.
A number of brokerage firms have
instituted householding for shares held in “street name.” If you and members of your household have multiple accounts
holding shares of our common stock, you may have received a householding notification from your broker. Please contact your broker
directly if you have questions, require additional copies of this proxy statement or wish to revoke your decision to household.
These options are available to you at any time.
WHERE YOU CAN
FIND ADDITIONAL INFORMATION
We file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public
reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at www.sec.gov.
You also may obtain free copies of the documents we file with the SEC by going to the Investor Relations page of our corporate
website at www.remarkholdings.com. Our website address is provided as an inactive textual reference only. The information provided
on our website is not part of this proxy statement, and therefore is not incorporated herein by reference.
Statements contained in this proxy statement,
or in any document incorporated by reference in this proxy statement regarding the contents of any contract or other document,
are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document
filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents
we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will
update and supersede that information. We incorporate by reference the documents listed below and any future information filed
(rather than furnished) with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement and before the date of the Special Meeting, provided, however, that we are not incorporating any information furnished
under any of Item 2.02 or Item 7.01 of any Current Report on Form 8-K (and exhibits filed on such form that are related to such
items):
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Our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on April 2, 2018;
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Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2018, June 30, 2018 and September 30, 2018 filed
with the SEC on May 14, 2018, August 14, 2018 and November 14, 2018, respectively; and
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Our Current Reports on Form 8-K filed with the SEC on January 24, 2018, May 2, 2018, May 18, 2018, June 5, 2018, July 3, 2018,
August 14, 2018, December 10, 2018 and March 19, 2019.
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Any person, including any beneficial
owner, to whom this proxy statement is delivered may request copies of proxy statements and any of the documents incorporated by
reference in this document or other information concerning us, without charge, by written request directed to Remark Holdings,
Inc., Remark Holdings Corporate Headquarters, 3960 Howard Hughes Parkway, Suite 900, Las Vegas, NV 89169, Attention: Corporate
Secretary, online at www.envisionreports.com/MARK or from the SEC through the SEC’s website at the address provided above.
Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit
is specifically incorporated by reference into those documents.
THIS PROXY STATEMENT DOES NOT CONSTITUTE
THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION
IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO
VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT
IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED [•], 2019. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS
DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed
Combined Balance Sheet as of September 30, 2018 and the Unaudited Pro Forma Condensed Combined Statements of Operations for the
nine months ended September 30, 2018 and for the years ended December 31, 2017 and December 31, 2016 have been derived from the
historical consolidated financial statements of Remark Holdings, Inc. (together with its subsidiaries, “we”, “us”,
“our”, “Remark Holdings” or “Remark”) and Vegas.com, LLC (“Vegas.com”), as adjusted
to give effect to our sale of all of the issued and outstanding membership interests of Vegas.com (the “VDC Transaction”),
and are intended to reflect the impact of the VDC Transaction on Remark on a pro forma basis as of and for the periods indicated.
The following Unaudited Pro Forma Condensed
Combined Financial Information is based upon, and should be read in conjunction with:
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The historical audited consolidated and combined financial statements of Remark and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in its Annual Report on Form 10-K for
the fiscal years ended December 31, 2017 and December 31, 2016, as filed with the Securities and Exchange Commission (“SEC”)
on April 2, 2018 and April 5, 2017; and
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The historical unaudited condensed consolidated interim financial statements of Remark and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in its Quarterly Report on Form 10-Q for
the nine months ended September 30, 2018, as filed with the SEC on November 14, 2018.
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The Unaudited Pro Forma Condensed Combined Balance
Sheet reflects the VDC Transaction as if it had been consummated on September 30, 2018, and includes pro forma adjustments for
preliminary estimates made by management.
The Unaudited Pro Forma Condensed Combined Statements
of Operations for the years ended December 31, 2017 and December 31, 2016 combines our historical results for such period with
Vegas.com’s historical results for the same period, and the Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended September 30, 2018 combines our historical results for such period with Vegas.com’s historical
results for the same period. The Unaudited Pro Forma Condensed Combined Statements of Operations give effect to the VDC Transaction
as if it had been consummated on January 1, 2018.
We have prepared the Unaudited Pro Forma Condensed
Combined Financial Information for informational purposes only and it is based upon estimates by Remark’s management, which
are based upon available information and certain assumptions that Remark’s management believes are reasonable as of the date
of this proxy statement. The unaudited pro forma combined financial information is not intended to be indicative of actual financial
position or results of operations that would have been achieved had the Transaction been consummated on the dates indicated, nor
does it purport to indicate results which may be attained in the future. Actual amounts could differ materially from these estimates.
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Balance
Sheet
Nine Months Ended September 30, 2018
(dollars in thousands, except par values)
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Travel & Entertainment Segment
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Remark Holdings, Inc.
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Sale of Vegas.com and Subsidiaries
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Disposal of Roomlia
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Historical
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Historical
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Historical
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Adjustments(1)
|
|
|
Remark Holdings, Inc.
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,902
|
|
|
$
|
(8,751
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
$
|
1,151
|
|
|
Restricted cash
|
|
|
11,655
|
|
|
|
(9,405
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
2,250
|
|
|
Trade accounts receivable, net
|
|
|
4,753
|
|
|
|
(567
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
4,186
|
|
|
Prepaid expense and other current assets
|
|
|
8,710
|
|
|
|
(4,420
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
4,290
|
|
|
Note receivable, current
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
100
|
|
|
Total current assets
|
|
|
35,120
|
|
|
|
(23,143
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
11,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
11,630
|
|
|
|
(9,415
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
2,215
|
|
|
Investment in unconsolidated affiliate
|
|
|
2,030
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
2,030
|
|
|
Intangible assets, net
|
|
|
19,950
|
|
|
|
(16,497
|
)
|
|
|
(1,549
|
)
|
|
|
|
|
|
|
|
1,904
|
|
|
Goodwill
|
|
|
20,099
|
|
|
|
(15,044
|
)
|
|
|
(3,470
|
)
|
|
|
|
|
|
|
|
1,585
|
|
|
Other long-term assets
|
|
|
1,620
|
|
|
|
(9,398
|
)
|
|
|
—
|
|
|
|
9,222
|
(a)
|
|
|
|
1,444
|
|
|
Total Assets
|
|
$
|
90,449
|
|
|
$
|
(73,497
|
)
|
|
$
|
(5,019
|
)
|
|
|
9,222
|
|
|
|
$
|
21,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholder's Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
23,956
|
|
|
$
|
(18,910
|
)
|
|
$
|
—
|
|
|
|
3,600
|
(b)
|
|
|
$
|
8,646
|
|
|
Accrued expenses and other current liabilities
|
|
|
12,034
|
|
|
|
(6,799
|
)
|
|
|
—
|
|
|
|
|
(c)(d)
|
|
|
|
5,235
|
|
|
Deferred merchant booking
|
|
|
8,727
|
|
|
|
(8,727
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
Contract Liability
|
|
|
5,049
|
|
|
|
(4,926
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
123
|
|
|
Note Payable
|
|
|
3,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
3,000
|
|
|
Current maturities of long-term debt,
net of unamortized discount and debt issuance costs
|
|
|
37,319
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30,000
|
)(e)
|
|
|
|
7,319
|
|
|
Total current liabilities
|
|
|
90,085
|
|
|
|
(39,362
|
)
|
|
|
—
|
|
|
|
(26,400
|
)
|
|
|
|
24,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long- term debt, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
Warrant liability
|
|
|
7,072
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
7,072
|
|
|
Other liabilities
|
|
|
3,296
|
|
|
|
(34
|
)
|
|
|
(3,113
|
)
|
|
|
4,355
|
(a)(d)
|
|
|
|
3,262
|
|
|
Total Liabilities
|
|
|
100,453
|
|
|
|
(39,396
|
)
|
|
|
(3,113
|
)
|
|
|
(23,287
|
)
|
|
|
|
34,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 36,468,696 and 28,406,026 shares issued and outstanding; each at September 30, 2018 and December 31, 2017, respectively
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
36
|
|
|
Additional paid-in-capital
|
|
|
304,006
|
|
|
|
(40,787
|
)
|
|
|
(6,810
|
)
|
|
|
47,597
|
(f)
|
|
|
|
304,006
|
|
|
Accumulated other comprehensive loss
|
|
|
48
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
48
|
|
|
Accumulated deficit
|
|
|
(314,094
|
)
|
|
|
6,686
|
|
|
|
4,904
|
|
|
|
(16,696
|
)(g)
|
|
|
|
(317,592
|
)
|
|
Total stockholders' deficit
|
|
|
(10,004
|
)
|
|
|
(34,101
|
)
|
|
|
(1,906
|
)
|
|
|
32,509
|
|
|
|
|
(13,502
|
)
|
|
Total liabilities and stockholders' equity
|
|
|
90,449
|
|
|
|
(73,497
|
)
|
|
|
(5,019
|
)
|
|
|
9,222
|
|
|
|
|
21,155
|
|
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statement
of Operations
Nine Months Ended September 30, 2018
(dollars in thousands, except share and
per share amounts)
|
|
|
|
Remark Holdings, Inc.
|
|
|
|
Sale of Vegas.com
and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Historical
|
|
|
|
Pro-Forma
Adjustments
|
|
|
|
Pro-Forma
Remark
Holdings, Inc.
|
|
|
Revenue, net
|
|
$
|
56,788
|
|
|
$
|
(49,318
|
)
|
|
|
|
|
|
$
|
7,470
|
|
|
Cost and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
14,557
|
|
|
|
(8,779
|
)
|
|
|
|
|
|
|
5,778
|
|
|
Sales and marketing
|
|
|
20,884
|
|
|
|
(20,165
|
)
|
|
|
|
|
|
|
719
|
|
|
Technology and development
|
|
|
2,587
|
|
|
|
(1,875
|
)
|
|
|
|
|
|
|
712
|
|
|
General and administrative
|
|
|
44,941
|
|
|
|
(14,240
|
)
|
|
|
|
|
|
|
30,701
|
|
|
Depreciation and amortization
|
|
|
8,220
|
|
|
|
(6,327
|
)
|
|
|
|
|
|
|
1,893
|
|
|
Other operating expense
|
|
|
264
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
94
|
|
|
Total cost and expense
|
|
|
91,453
|
|
|
|
(51,556
|
)
|
|
|
—
|
|
|
|
39,897
|
|
|
Operating income (loss)
|
|
|
(34,665
|
)
|
|
|
2,238
|
|
|
|
—
|
|
|
|
(32,427
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Warrant Liability
|
|
|
22,190
|
|
|
|
—
|
|
|
|
|
|
|
|
22,190
|
|
|
Interest expense
|
|
|
(3,968
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(3,970
|
)
|
|
Other gain (loss)
|
|
|
511
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
507
|
|
|
Other income, net
|
|
|
56
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
44
|
|
|
Total other income (expense), net
|
|
|
18,789
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
18,771
|
|
|
Income (loss) before income taxes
|
|
|
(15,876
|
)
|
|
|
2,220
|
|
|
|
|
|
|
|
(13,656
|
)
|
|
Benefit from (provision for) income taxes
|
|
|
1,437
|
|
|
|
—
|
|
|
|
|
|
|
|
1,437
|
|
|
Net income (loss)
|
|
$
|
(14,439
|
)
|
|
$
|
2,220
|
|
|
|
|
|
|
$
|
(12,219
|
)
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(67
|
)
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(67
|
)
|
|
Comprehensive loss
|
|
$
|
(14,506
|
)
|
|
$
|
2,220
|
|
|
|
|
|
|
$
|
(12,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- average shares outstanding, basic and diluted
|
|
|
33,608
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
33,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.43
|
)
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(0.37
|
)
|
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statement
of Operations
For the Year Ended December 31, 2017
(dollars in thousands, except share and per
share amounts)
|
|
|
Remark Holdings, Inc.
|
|
Sale of Vegas.com and
Subsidiaries
|
|
|
|
|
|
|
|
Historical
|
|
Historical
|
|
Pro - Forma
Adjustments
|
|
Pro - Forma
Remark Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
70,601
|
|
|
$
|
(61,541
|
)
|
|
|
|
|
|
$
|
9,060
|
|
|
Cost and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
16,909
|
|
|
|
(10,768
|
)
|
|
|
|
|
|
|
6,141
|
|
|
Sales and marketing
|
|
|
23,600
|
|
|
|
(23,033
|
)
|
|
|
|
|
|
|
567
|
|
|
Technology and development
|
|
|
3,551
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
1,051
|
|
|
General and administrative
|
|
|
37,689
|
|
|
|
(18,355
|
)
|
|
|
—
|
|
|
|
19,334
|
|
|
Depreciation and amortization
|
|
|
11,070
|
|
|
|
(8,155
|
)
|
|
|
|
|
|
|
2,915
|
|
|
Impairments
|
|
|
14,646
|
|
|
|
—
|
|
|
|
|
|
|
|
14,646
|
|
|
Other operating expense
|
|
|
515
|
|
|
|
(227
|
)
|
|
|
|
|
|
|
288
|
|
|
Total cost and expense
|
|
|
107,980
|
|
|
|
(63,038
|
)
|
|
|
—
|
|
|
|
44,942
|
|
|
Operating income (loss)
|
|
|
(37,379
|
)
|
|
|
1,497
|
|
|
|
—
|
|
|
|
(35,882
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Warrant Liability
|
|
|
(64,139
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(64,139
|
)
|
|
Interest expense
|
|
|
(4,645
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4,649
|
)
|
|
Other gain (loss)
|
|
|
(317
|
)
|
|
|
125
|
|
|
|
|
|
|
|
(192
|
)
|
|
Other income, net
|
|
|
23
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
4
|
|
|
Total other income (expense), net
|
|
|
(69,078
|
)
|
|
|
102
|
|
|
|
|
|
|
|
(68,976
|
)
|
|
Income (loss) before income taxes
|
|
|
(106,457
|
)
|
|
|
1,599
|
|
|
|
|
|
|
|
(104,858
|
)
|
|
Benefit from (provision for) income taxes
|
|
|
(278
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(278
|
)
|
|
Net income (loss)
|
|
$
|
(106,735
|
)
|
|
$
|
1,599
|
|
|
|
|
|
|
$
|
(105,136
|
)
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
131
|
|
|
|
—
|
|
|
|
|
|
|
|
131
|
|
|
Comprehensive loss
|
|
$
|
(106,604
|
)
|
|
$
|
1,599
|
|
|
|
|
|
|
$
|
(105,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- average shares outstanding, basic and diluted
|
|
|
23,763
|
|
|
$
|
—
|
|
|
|
|
|
|
|
23,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(4.49
|
)
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(4.42
|
)
|
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Statement
of Operations
For the Year Ended December 31, 2016
(dollars in thousands, except share and per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Remark Holdings, Inc.
|
|
Sale of Vegas.com and
Subsidiaries
|
|
|
|
|
|
|
|
Historical
|
|
Historical
|
|
Pro - Forma
Adjustments
|
|
Pro - Forma
Remark Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
59,328
|
|
|
$
|
(56,829
|
)
|
|
|
|
|
|
$
|
2,499
|
|
|
Cost and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
11,155
|
|
|
|
(10,222
|
)
|
|
|
|
|
|
|
933
|
|
|
Sales and marketing
|
|
|
19,541
|
|
|
|
(19,001
|
)
|
|
|
|
|
|
|
540
|
|
|
Technology and development
|
|
|
2,796
|
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
1,546
|
|
|
General and administrative
|
|
|
36,460
|
|
|
|
(18,679
|
)
|
|
|
|
|
|
|
17,781
|
|
|
Depreciation and amortization
|
|
|
10,299
|
|
|
|
(7,762
|
)
|
|
|
|
|
|
|
2,537
|
|
|
Impairments
|
|
|
1,159
|
|
|
|
—
|
|
|
|
|
|
|
|
1,159
|
|
|
Other operating expense
|
|
|
515
|
|
|
|
(493
|
)
|
|
|
|
|
|
|
22
|
|
|
Total cost and expense
|
|
|
81,925
|
|
|
|
(57,407
|
)
|
|
|
—
|
|
|
|
24,518
|
|
|
Operating income (loss)
|
|
|
(22,597
|
)
|
|
|
578
|
|
|
|
—
|
|
|
|
(22,019
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Warrant Liability
|
|
|
5,790
|
|
|
|
—
|
|
|
|
|
|
|
|
5,790
|
|
|
Interest expense
|
|
|
(4,685
|
)
|
|
|
14
|
|
|
|
|
|
|
|
(4,671
|
)
|
|
Loss on extinguishment of debt
|
|
|
(9,157
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,157
|
)
|
|
Other gain (loss)
|
|
|
(313
|
)
|
|
|
178
|
|
|
|
|
|
|
|
(135
|
)
|
|
Other income, net
|
|
|
29
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
—
|
|
|
Total other income (expense), net
|
|
|
(8,336
|
)
|
|
|
163
|
|
|
|
|
|
|
|
(8,173
|
)
|
|
Income (loss) before income taxes
|
|
|
(30,933
|
)
|
|
|
741
|
|
|
|
|
|
|
|
(30,192
|
)
|
|
Benefit from (provision for) income taxes
|
|
|
(746
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(746
|
)
|
|
Net income (loss)
|
|
$
|
(31,679
|
)
|
|
$
|
741
|
|
|
|
|
|
|
$
|
(30,938
|
)
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(11
|
)
|
|
Comprehensive loss
|
|
$
|
(31,690
|
)
|
|
$
|
741
|
|
|
|
|
|
|
$
|
(30,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- average shares outstanding, basic and diluted
|
|
|
20,529
|
|
|
$
|
—
|
|
|
|
|
|
|
|
20,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(1.54
|
)
|
|
$
|
—
|
|
|
|
|
|
|
$
|
(1.51
|
)
|
Notes to Unaudited Pro Forma Consolidated Financial Information
We prepared the Unaudited Pro Forma Condensed Combined Balance
Sheet to reflect the effect of the following pro forma adjustments:
(a) This adjustment reflects
the write off of inter- company payables and receivables.
(b) This adjustment reflects
an increase to accounts payable for Remark Holdings, Inc. transaction costs and D & O insurance tail policy.
(c) This adjustment reflects
the reversal of accrued interest expense on our historical balance sheet.
(d) This adjustment reflects
a liability that will be assumed by Vegas.com for an early lease retirement obligation.
(e) This adjustment reflects
application of cash proceeds to reduce debt.
(f) This adjustment is
to eliminate the investment in the two subsidiaries that comprise our Travel and Entertainment segment.
(g) This adjustment reflects
the increases and decreases to accumulated deficit (in thousands).
UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS OF VEGAS.COM
The following Unaudited Condensed Financial
Statements have been derived from the historical consolidated financial statements of Remark Holdings, Inc. (together with its
subsidiaries, “we”, “us”, “our”, “Remark Holdings” or “Remark”) and
Vegas.com, LLC (“Vegas.com”), and show the balance sheets and statements of operations, cash flows and members’
equity of Vegas.com on a stand-alone basis.
The following Unaudited Condensed Combined
Financial Information is based upon, and should be read in conjunction with:
|
|
•
|
The historical audited consolidated and combined financial statements of Remark and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in its Annual Report on Form 10-K for
the fiscal years ended December 31, 2017 and December 31, 2016, as filed with the Securities and Exchange Commission (“SEC”)
on April 2, 2018 and April 5, 2017; and
|
|
|
•
|
The historical unaudited condensed consolidated interim financial statements of the Company and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in its Quarterly Report on Form 10-Q for
the nine months ended September 30, 2018, as filed with the SEC on November 14, 2018.
|
The Unaudited Condensed Combined Statements
of Operations for the years ended December 31, 2017 and December 31, 2016 is derived from Vegas.com’s historical results,
and the Unaudited Condensed Combined Statement of Operations for the nine months ended September 30, 2018 is derived from Vegas.com’s
historical results.
We have prepared the Unaudited Condensed
Combined Financial Information for informational purposes only and do not purport to represent, and are not necessarily indicative
of what the actual financial results would have been had we operated Vegas.com as a separate entity.
VEGAS.COM AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Remark Holdings,
Inc.)
Unaudited Condensed Combined Balance Sheet
(dollars in thousands)
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,751
|
|
|
$
|
12,152
|
|
|
$
|
6,100
|
|
|
Restricted cash
|
|
|
9,405
|
|
|
|
9,420
|
|
|
|
9,405
|
|
|
Trade accounts receivable
|
|
|
567
|
|
|
|
457
|
|
|
|
956
|
|
|
Prepaid expense and other current assets
|
|
|
4,420
|
|
|
|
2,296
|
|
|
|
2,425
|
|
|
Note receivable, current
|
|
|
—
|
|
|
|
190
|
|
|
|
181
|
|
|
Total current assets
|
|
|
23,143
|
|
|
|
24,515
|
|
|
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
190
|
|
|
Property and equipment, net
|
|
|
9,415
|
|
|
|
10,652
|
|
|
|
12,449
|
|
|
Intangible assets, net
|
|
|
16,497
|
|
|
|
19,602
|
|
|
|
23,752
|
|
|
Goodwill
|
|
|
15,044
|
|
|
|
15,044
|
|
|
|
15,044
|
|
|
Other long-term assets
|
|
|
9,398
|
|
|
|
7,307
|
|
|
|
3,739
|
|
|
Total Assets
|
|
$
|
73,497
|
|
|
$
|
77,120
|
|
|
$
|
74,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
18,910
|
|
|
$
|
14,320
|
|
|
$
|
14,178
|
|
|
Accrued expenses and other current liabilities
|
|
|
6,799
|
|
|
|
12,162
|
|
|
|
11,696
|
|
|
Deferred merchant booking
|
|
|
8,727
|
|
|
|
9,027
|
|
|
|
6,991
|
|
|
Contract Liability
|
|
|
4,926
|
|
|
|
5,482
|
|
|
|
3,470
|
|
|
Current portion of capital lease obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
179
|
|
|
Total current liabilities
|
|
|
39,362
|
|
|
|
40,991
|
|
|
|
36,514
|
|
|
Other liabilities
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
Total Liabilities
|
|
|
39,396
|
|
|
|
40,991
|
|
|
|
36,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in-capital
|
|
|
40,787
|
|
|
|
40,787
|
|
|
|
40,787
|
|
|
Accumulated deficit
|
|
|
(6,686
|
)
|
|
|
(4,658
|
)
|
|
|
(3,060
|
)
|
|
Total members’ equity
|
|
|
34,101
|
|
|
|
36,129
|
|
|
|
37,727
|
|
|
Total liabilities and members’ equity
|
|
$
|
73,497
|
|
|
$
|
77,120
|
|
|
$
|
74,241
|
|
VEGAS.COM AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Remark Holdings,
Inc.)
Unaudited Condensed Combined Statement of
Operations
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
Year Ended
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
49,318
|
|
|
$
|
61,541
|
|
|
$
|
56,829
|
|
|
Cost and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization)
|
|
|
8,779
|
|
|
|
10,768
|
|
|
|
10,222
|
|
|
Sales and marketing
|
|
|
20,165
|
|
|
|
23,033
|
|
|
|
19,001
|
|
|
Technology and development
|
|
|
1,875
|
|
|
|
2,500
|
|
|
|
1,250
|
|
|
General and administrative
|
|
|
14,240
|
|
|
|
18,355
|
|
|
|
18,679
|
|
|
Depreciation and amortization
|
|
|
6,327
|
|
|
|
8,155
|
|
|
|
7,762
|
|
|
Other operating expense
|
|
|
170
|
|
|
|
227
|
|
|
|
493
|
|
|
Total cost and expense
|
|
|
51,556
|
|
|
|
63,038
|
|
|
|
57,407
|
|
|
Operating loss
|
|
|
(2,238
|
)
|
|
|
(1,497
|
)
|
|
|
(578
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income)
|
|
|
2
|
|
|
|
4
|
|
|
|
(14
|
)
|
|
Other gain (loss)
|
|
|
4
|
|
|
|
(125
|
)
|
|
|
(178
|
)
|
|
Other income, net
|
|
|
12
|
|
|
|
19
|
|
|
|
29
|
|
|
Total other income (expense), net
|
|
|
18
|
|
|
|
(102
|
)
|
|
|
(163
|
)
|
|
Income (loss) before income taxes
|
|
|
(2,220
|
)
|
|
|
(1,599
|
)
|
|
|
(741
|
)
|
|
Benefit from (provision for) income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net loss
|
|
$
|
(2,220
|
)
|
|
$
|
(1,599
|
)
|
|
$
|
(741
|
)
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Comprehensive loss
|
|
$
|
(2,220
|
)
|
|
$
|
(1,599
|
)
|
|
$
|
(741
|
)
|
VEGAS.COM AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Remark Holdings,
Inc.)
Unaudited Consolidated Statements of Members’
Deficit
(dollars in thousands)
|
|
|
Additional
|
|
Accumulated
|
|
|
|
|
|
Paid-In Capital
|
|
Deficit
|
|
Total
|
|
Balance at December 31, 2015
|
|
|
40,787
|
|
|
|
(2,320
|
)
|
|
|
38,467
|
|
|
Net loss
|
|
|
—
|
|
|
|
(740
|
)
|
|
|
(740
|
)
|
|
Balance at December 31, 2016
|
|
|
40,787
|
|
|
|
(3,060
|
)
|
|
|
37,727
|
|
|
Net loss
|
|
|
—
|
|
|
|
(1,598
|
)
|
|
|
(1,598
|
)
|
|
Balance at December 31, 2017
|
|
|
40,787
|
|
|
|
(4,658
|
)
|
|
|
36,129
|
|
|
Net loss
|
|
|
—
|
|
|
|
(2,221
|
)
|
|
|
(2,221
|
)
|
|
Adoption of ASC 606
|
|
|
—
|
|
|
|
193
|
|
|
|
193
|
|
|
Balance at September 30, 2018
|
|
|
40,787
|
|
|
|
(6,686
|
)
|
|
|
34,101
|
|
|
Net loss
|
|
$
|
(2,221
|
)
|
|
$
|
(1,598
|
)
|
|
$
|
(740
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Depreciation and amortization
|
|
|
6,318
|
|
|
|
8,217
|
|
|
|
7,762
|
|
|
Write off of property, equipment and software
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
Loss (gain) on disposal of long-lived assets
|
|
|
(4
|
)
|
|
|
125
|
|
|
|
178
|
|
|
Changes in operating assets and liabilities:
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Accounts receivable
|
|
|
(110
|
)
|
|
|
498
|
|
|
|
(312
|
)
|
|
Prepaid expenses and other assets
|
|
|
(2,004
|
)
|
|
|
212
|
|
|
|
(845
|
)
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(739
|
)
|
|
|
609
|
|
|
|
1,144
|
|
|
Deferred merchant booking
|
|
|
(300
|
)
|
|
|
2,036
|
|
|
|
(6
|
)
|
|
Contract liability
|
|
|
(556
|
)
|
|
|
2,013
|
|
|
|
208
|
|
|
Other
|
|
|
194
|
|
|
|
—
|
|
|
|
—
|
|
|
Net cash provided by operating activities
|
|
$
|
591
|
|
|
$
|
12,112
|
|
|
$
|
7,389
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter- company loan
|
|
|
(2,663
|
)
|
|
|
(2,820
|
)
|
|
|
(3,936
|
)
|
|
Purchases of property, equipment and software
|
|
|
(1,344
|
)
|
|
|
(3,046
|
)
|
|
|
(1,563
|
)
|
|
Proceeds from notes receivable
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Business acquisitions, net of cash received
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Net cash used in investing activities
|
|
|
(4,007
|
)
|
|
|
(5,866
|
)
|
|
|
(5,499
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of capital leases
|
|
|
—
|
|
|
|
(179
|
)
|
|
|
(25
|
)
|
|
Net cash used by financing activities
|
|
|
—
|
|
|
|
(179
|
)
|
|
|
(25
|
)
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
(3,416
|
)
|
|
|
6,067
|
|
|
|
1,865
|
|
|
Cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
21,572
|
|
|
|
15,505
|
|
|
|
13,640
|
|
|
End of period
|
|
$
|
18,156
|
|
|
$
|
21,572
|
|
|
$
|
15,505
|
|
NOTE 1. ORGANIZATION AND BUSINESS
Organization and Business
Vegas.com, Inc. and subsidiaries (“Vegas.com”,
“we”, “us”, or “our”), is an online agency catering to the travel and entertainment needs
of visitors to the Las Vegas area and those of Las Vegas locals. Vegas.com offers users the ability to book lodging, air travel,
show tickets and tours, and its customer service team is staffed by Las Vegas locals who are intimately familiar with Las Vegas
and the various products and services offered through the website.
Comparability
We reclassified an amount in the December
31, 2017 Consolidated Balance Sheet to conform to the current presentation as of September 30, 2018. Specifically, we reclassified
liabilities associated with gift cards and similar items from contract liability to other current liabilities as we continue to
clarify our disclosures related to the newly-adopted revenue standard.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
We include all of our subsidiaries in
our consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.
Use of Estimates
We prepare our consolidated financial statements
in conformity with GAAP. While preparing our financial statements, we make estimates and assumptions that affect amounts reported
and disclosed in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from those
estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, intangible assets, the
useful lives of property and equipment, stock-based compensation, the fair value of the warrant liability, income taxes, inventory
reserve and purchase price allocation, among other items.
Changes to Significant Accounting Policies - Revenue Recognition
On January 1, 2018, we adopted Accounting
Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
, and all subsequent amendments (collectively
“ASC 606”) using the modified retrospective method. We recognized the cumulative effect of initially applying the new
revenue standard as an adjustment to the opening balance of Accumulated deficit (the amount was not material). We have not retrospectively
adjusted the information for the comparative period reported herein, which information we continue to report under the accounting
standards in effect for that period. The amounts of revenue, accounts receivable and contract balances that we reported under ASC
606 as of and for the three and nine months ended September 30, 2018, were not materially different than the amounts we would have
reported under the accounting standards previously in effect.
We recognize revenue when we transfer control
of the promised goods or services to our customers, and we recognize an amount that reflects the consideration to which we expect
to be entitled in exchange for those goods or services.
When customers pay us prior to when we
satisfy our obligation to transfer control of promised goods or services, we record the amount that reflects the consideration
to which we expect to be entitled as a contract liability until such time as we satisfy our performance obligation. As a result
of our adoption of ASC 606, the line item previously labeled “Deferred revenue” on our condensed consolidated balance
sheets is now labeled “Contract liability”; the comparative period balance as reported herein did not change as a result
of our application of the modified retrospective transition approach.
For our contracts with customers, we only
extend short-term credit policies to our customers, generally of 90 days or less.
We record the incremental costs of obtaining
contracts as an expense when incurred, because such costs would otherwise be amortized over a period of less than one year if capitalized.
Transaction Services
Our transaction services revenue, most
of which results from the use of the merchant model under which we remain the merchant of record, but various service providers
with whom we maintain relationships are ultimately responsible for delivering the underlying services for which our customers
transact, such as lodging, air travel, entertainment, or tours. Our obligation to our customers is to arrange for these service
providers to provide the underlying services, and we satisfy our obligation at the point in time that these service providers
begin to provide the underlying service (e.g., upon the check-in date for lodging stays, upon the show/performance date for entertainment
transactions, etc.). Though we are the merchant of record for transactions in which other entities provide the ultimate service,
under current accounting guidance we are an agent in such transactions; therefore, we recognize revenue from transactions under
the merchant model on a net basis (i.e., the amount we bill to our customers less the amounts we pay to the service providers).
To a lesser extent, we provide tour services
directly to our customers. Our obligation to provide such services is satisfied at the point in time that we finish providing the
tour, and we recognize the resulting revenue on a gross basis when our obligation is satisfied.
Our customers pay at the time the original
transaction occurs via our sales channels, primarily the Vegas.com website and mobile application. Because the original transaction
date almost always precedes the date that our performance obligation is satisfied, we record a Contract liability for the amount
of consideration received (net of amounts owed to suppliers). In general, we satisfy most of our performance obligations within
approximately three to four months from the original transaction date, and substantially all performance obligations are satisfied
within one year from the original transaction date.
Advertising and Other
We primarily generate advertising revenue
from the use of sponsored links and display advertising placed directly on our website pages. Substantially all of our advertising
contracts with customers are completed within one year or less.
In click-through advertising contracts
with customers, our obligation is to place our customers’ interactive ads on our websites for a specified period of time.
We recognize revenue from click-through advertising at the point in time at which visitors to our websites click through the ads
to our advertising customers’ websites. Any variability regarding contract consideration is resolved within the reporting
period.
Some of our advertising contracts with
customers require us to place our advertising customers’ static display ads on our websites for a specified period of time
or in a specific location on our websites, or both. We recognize revenue from such advertising placement arrangements either over
time (ratably over the contract term) or based upon the delivery of advertising impressions, depending upon the terms of the contract.
Other than as noted above, we have made
no changes to our significant accounting policies as reported in our 2017 Form 10-K.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting
Standards Board issued ASU 2016-02, Leases (Topic 842), which changes GAAP primarily by requiring lessees to recognize, at
lease commencement, a lease liability representing the present value of the lessee’s obligation to make lease payments, and
a right-of-use asset representing the lessee’s right to use (or control the use of) a specified asset during the lease term,
for leases classified as operating leases. For us, the amendments in ASU 2016-02 will become effective on January 1, 2019. We are
designing appropriate internal controls and modifying key processes to allow for the implementation of ASU 2016-02, which we anticipate
will have a material impact on our balance sheet, as we will be recording right-of-use assets and lease liabilities related to
our operating leases, including our leases for office space. We do not anticipate that application of ASU 2016-02 will have a material
impact on our statement of operations or cash flows.
We have reviewed all recently issued accounting
pronouncements. The pronouncements that we have already adopted did not have a material effect on our financial condition, results
of operations, cash flows or reporting thereof, and except as otherwise noted above, we do not believe that any of the pronouncements
that we have not yet adopted will have a material effect upon our financial condition, results of operations, cash flows or reporting
thereof.
NOTE 3. REVENUE
We are not required to include disclosures
related to remaining performance obligations because substantially all of our contracts with customers have an original expected
duration of one year or less.
Significant Judgments
When accounting for revenue in accordance
with ASC 606, we make certain judgments, such as whether we act as a principal or as an agent in transactions or whether our contracts
with customers fall within the scope of ASC 606, that affect the determination of the amount and timing of our revenue from contracts
with customers. Based on the current facts and circumstances related to our contracts with customers, none of the judgments we
make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted in terms of
their potential impact on the amount and timing of our revenue.
Contract Assets and Contract Liabilities
We do not currently generate material contract
assets. Other than changes resulting from routine business activity, the balance of our Contract liability did not change significantly
during the nine months ended September 30, 2018. We recognized revenue of $3.1 million during the nine months ended September 30,
2018, which was included in the beginning balance of Contract liability at January 1, 2018.
NOTE 4. FAIR VALUE MEASUREMENTS
Contingent Consideration Issued in Business Acquisition
We used the discounted cash flow valuation
technique to estimate the fair value of the liability related to certain cash payments stipulated in the VDC Acquisition that were
contingent upon the performance of Vegas.com in the years ended December 31, 2016 and 2017, and are contingent upon the performance
of Vegas.com in the year ending December 31, 2018 (the “Earnout Payments”). The significant unobservable inputs that
we used, which we classify in Level 3 of the fair value hierarchy, were projected earnings before interest, taxes, depreciation
and amortization (“EBITDA”), the probability of achieving certain amounts of EBITDA, and the rate used to discount
the liability.
The following table presents the
change during the nine months ended September 30, 2018 in the balance of the liability associated with the Earnout Payments (in
thousands):
|
Balance at beginning of period
|
$
|
1,930
|
|
|
Payments
|
(1,000
|
)
|
|
Change in fair value of contingent consideration (included in Other loss)
|
50
|
|
|
Balance at end of period
|
$
|
980
|
|
On the Condensed Consolidated Balance Sheet,
we included the liability for contingent consideration as a component of Accrued expense and other liabilities.
NOTE 5. RESTRICTED CASH
Our restricted cash relates to the Letter
of Credit Facility Agreement we have in place to satisfy the requirements of several of the vendors for whom we sell products
(hotel rooms, air travel, show tickets, et cetera) through our online outlets. By contract, certain vendors require letters of
credit as a means of securing our payment to them of amounts related to the sales we make on their behalf. We renew the letter
of credit facility annually in May, and the restrictions on the cash related to the letters of credit will remain to the extent
we continue to enter into contracts requiring the security of letters of credit.
NOTE 6. PREPAID EXPENSE
AND OTHER CURRENT ASSETS
The following table presents the components
of prepaid expense and other current assets (in thousands):
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Prepaid expense
|
$
|
2,918
|
|
|
$
|
2,036
|
|
|
Deposits
|
3,487
|
|
|
1,960
|
|
|
Inventory, net
|
744
|
|
|
234
|
|
|
Other current assets
|
1,561
|
|
|
1,288
|
|
|
Total
|
$
|
8,710
|
|
|
$
|
5,518
|
|
|
|
|
|
|
NOTE 7. PROPERTY AND
EQUIPMENT
Property and equipment consist of the
following (in thousands, except estimated lives):
|
|
Estimated Life
(Years)
|
|
September 30,
2018
|
|
December 31, 2017
|
|
Vehicles
|
5
|
|
$
|
1,350
|
|
|
$
|
447
|
|
|
Computers and equipment
|
2 - 12
|
|
1,978
|
|
|
1,635
|
|
|
Furniture and fixtures
|
2 - 9
|
|
221
|
|
|
220
|
|
|
Software
|
3 - 5
|
|
21,719
|
|
|
20,773
|
|
|
Software development in progress
|
|
|
2,010
|
|
|
1,935
|
|
|
Leasehold improvements
|
1 - 10
|
|
569
|
|
|
328
|
|
|
Total property, equipment and software
|
|
|
$
|
27,847
|
|
|
$
|
25,338
|
|
|
Less accumulated depreciation
|
|
|
(16,217
|
)
|
|
(11,951
|
)
|
|
Total property, equipment and software, net
|
|
|
$
|
11,630
|
|
|
$
|
13,387
|
|
For the nine months ended September 30,
2018 and 2017, depreciation (and amortization of software) expense was $4.4 million and $4.1 million, respectively.
NOTE 8. GOODWILL AND OTHER
INTANGIBLE ASSETS
The following table summarizes intangible
assets by category (in thousands):
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Net Amount
|
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Net Amount
|
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain names
|
$
|
2,000
|
|
|
$
|
(1,358
|
)
|
|
$
|
642
|
|
|
$
|
2,591
|
|
|
$
|
(1,663
|
)
|
|
$
|
928
|
|
|
Customer relationships
|
23,186
|
|
|
(13,509
|
)
|
|
9,677
|
|
|
23,486
|
|
|
(10,539
|
)
|
|
12,947
|
|
|
Media content and broadcast rights
|
2,485
|
|
|
(1,309
|
)
|
|
1,176
|
|
|
2,485
|
|
|
(936
|
)
|
|
1,549
|
|
|
Acquired technology
|
578
|
|
|
(527
|
)
|
|
51
|
|
|
578
|
|
|
(461
|
)
|
|
117
|
|
|
Other intangible assets
|
68
|
|
|
(68
|
)
|
|
—
|
|
|
68
|
|
|
(68
|
)
|
|
—
|
|
|
|
$
|
28,317
|
|
|
$
|
(16,771
|
)
|
|
$
|
11,546
|
|
|
$
|
29,208
|
|
|
$
|
(13,667
|
)
|
|
$
|
15,541
|
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
$
|
8,276
|
|
|
|
|
$
|
8,276
|
|
|
$
|
8,276
|
|
|
|
|
$
|
8,276
|
|
|
License to operate in China
|
128
|
|
|
|
|
128
|
|
|
129
|
|
|
|
|
129
|
|
|
Total intangible assets
|
$
|
36,721
|
|
|
|
|
$
|
19,950
|
|
|
$
|
37,613
|
|
|
|
|
$
|
23,946
|
|
Total amortization expense was $3.8 million
and $4.1 million for the nine months ended September 30, 2018 and 2017, respectively.
The following table summarizes the
changes in goodwill during the nine months ended September 30, 2018 and the year ended December 31, 2017 (in thousands):
|
|
Nine Months Ended September 30, 2018
|
|
Year Ended December 31, 2017
|
|
|
Travel & Entertainment Segment
|
|
Corporate Entity and Other Business Units
|
|
Total
|
|
Travel & Entertainment Segment
|
|
Corporate Entity and Other Business Units
|
|
Total
|
|
Balance at beginning of period
|
$
|
18,514
|
|
|
$
|
1,585
|
|
|
$
|
20,099
|
|
|
$
|
18,514
|
|
|
$
|
8,249
|
|
|
$
|
26,763
|
|
|
Business acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,116
|
|
|
2,116
|
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,796
|
)
|
|
(8,796
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
|
Balance at end of period
|
$
|
18,514
|
|
|
$
|
1,585
|
|
|
$
|
20,099
|
|
|
$
|
18,514
|
|
|
$
|
1,585
|
|
|
$
|
20,099
|
|
The amount in the table above related to
business acquisitions in the year ended December 31, 2017 represents measurement-period adjustments related to the CBG Acquisition.
NOTE 9. INCOME TAX
Our effective tax rate (“ETR”)
from continuing operations was 9.1% for the nine months ended September 30, 2018. The quarterly ETR has not significantly differed
from our historical annual ETR. The ETR primarily results from recording a benefit associated with a partial valuation allowance
release during 2018. The release was affected by the Tax Act, as described below, which changed the carryforward period of net
operating losses for U.S. federal tax purposes from 20 years to an indefinite period.
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which makes
broad and complex changes to the U.S. tax code that will affect the 2018 tax year.
We have not completed our accounting for
the Tax Act. As noted in our 2017 Form 10-K:
|
|
•
|
We were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the impact
on deferred tax assets and deferred tax liabilities from reduction of the U.S. federal corporate tax rate.
|
|
|
•
|
We were not yet able to reasonably estimate the effects for global intangible low-taxed income (GILTI) and deemed repatriation
taxes. Therefore, no provisional adjustments were recorded.
|
NOTE 10. OTHER LIABILITIES
The following table presents the components
of other liabilities (in thousands):
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Deferred rent
|
$
|
1,650
|
|
|
$
|
1,820
|
|
|
Early lease termination liability
|
1,242
|
|
|
—
|
|
|
Contingent consideration liability, net of current portion
|
—
|
|
|
940
|
|
|
Deferred tax liability, net
|
369
|
|
|
741
|
|
|
Other
|
35
|
|
|
—
|
|
|
Total
|
$
|
3,296
|
|
|
$
|
3,501
|
|
|
|
|
|
|
During the first quarter of 2018, we determined
that we would no longer use certain leased office space and, as a result, we sublet the majority of such office space to third
parties. As a result of our decision, we recognized $2.3 million of unallocated rent expense in the corporate entity, and an associated
liability for early lease termination. The current portion of the liability is recorded in Accrued expense and other current liabilities,
with the long-term portion recorded in Other liabilities (see table above).
The following table presents the change
in the liability balance related to the early lease termination (in thousands):
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
Balance at beginning of period
|
$
|
—
|
|
|
Establishment of early lease termination liability
|
2,295
|
|
|
Payment of rent and other costs
|
(798
|
)
|
|
Receipt of amounts due under subleases
|
95
|
|
|
Other
|
16
|
|
|
Balance at end of period
|
$
|
1,608
|
|
NOTE 11. COMMITMENTS AND
CONTINGENCIES
We are neither a defendant in any material
pending legal proceeding nor are we aware of any material threatened claims against us; therefore, we have not accrued any contingent
liabilities, exclusive of the liability for the Earnout Payment related to the VDC Acquisition.
NOTE 12. SEGMENT INFORMATION
We currently report on two segments: our
Travel & Entertainment segment, which provides our customers with access to a full range of travel and entertainment services
in Las Vegas and surrounding areas, and our Technology & Data Intelligence segment, which provides services to our customers
based upon the data collected and processed by our proprietary data intelligence software.
Our chief operating decision makers use
Adjusted EBITDA as the primary measure of profitability for evaluating the operational performance of our reportable segments.
Adjusted EBITDA represents operating income (loss) plus depreciation and amortization expense, share-based compensation expense,
impairments and net other income, less other loss. For our Travel & Entertainment segment, Adjusted EBITDA includes an allocation
of rent expense, which allocation we base on usage of space. We do not allocate certain other types of shared expense, such as
legal and accounting, to our reportable segments; such costs are included in Corporate Entity and Other.
The following table presents certain
financial information regarding our business segments and other entities for the three and nine months ended September 30, 2018
and 2017 (in thousands):
|
|
Travel & Entertainment
|
|
Technology & Data Intelligence
|
|
Corporate Entity and Other
|
|
Consolidated
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
17,596
|
|
|
$
|
1,039
|
|
|
$
|
716
|
|
|
$
|
19,351
|
|
|
Adjusted EBITDA
|
$
|
2,324
|
|
|
$
|
(1,674
|
)
|
|
$
|
(3,428
|
)
|
|
$
|
(2,778
|
)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
16,284
|
|
|
$
|
2,203
|
|
|
$
|
962
|
|
|
$
|
19,449
|
|
|
Adjusted EBITDA
|
$
|
1,955
|
|
|
$
|
(946
|
)
|
|
$
|
(2,833
|
)
|
|
$
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
49,320
|
|
|
$
|
5,591
|
|
|
$
|
1,877
|
|
|
$
|
56,788
|
|
|
Adjusted EBITDA
|
$
|
4,493
|
|
|
$
|
(5,166
|
)
|
|
$
|
(12,292
|
)
|
|
$
|
(12,965
|
)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
45,765
|
|
|
$
|
3,212
|
|
|
$
|
3,027
|
|
|
$
|
52,004
|
|
|
Adjusted EBITDA
|
$
|
4,322
|
|
|
$
|
(2,096
|
)
|
|
$
|
(7,788
|
)
|
|
$
|
(5,562
|
)
|
|
|
|
|
|
|
|
|
|
The following table reconciles Adjusted
EBITDA to Loss before income taxes (in thousands):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Adjusted EBITDA
|
$
|
(2,778
|
)
|
|
$
|
(1,824
|
)
|
|
$
|
(12,965
|
)
|
|
$
|
(5,562
|
)
|
|
Depreciation and amortization
|
(2,756
|
)
|
|
(2,482
|
)
|
|
(8,220
|
)
|
|
(8,237
|
)
|
|
Impairments
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
(28
|
)
|
|
Share-based compensation expense
|
(891
|
)
|
|
(1,629
|
)
|
|
(12,913
|
)
|
|
(2,225
|
)
|
|
Other loss
|
(1
|
)
|
|
—
|
|
|
(56
|
)
|
|
(20
|
)
|
|
Other loss (gain)
|
12
|
|
|
33
|
|
|
(511
|
)
|
|
85
|
|
|
Operating loss
|
$
|
(6,414
|
)
|
|
$
|
(5,930
|
)
|
|
$
|
(34,665
|
)
|
|
$
|
(15,987
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
(1,307
|
)
|
|
(1,080
|
)
|
|
(3,968
|
)
|
|
(3,279
|
)
|
|
Other income
|
1
|
|
|
—
|
|
|
56
|
|
|
20
|
|
|
Change in fair value of warrant liability
|
3,525
|
|
|
(5,978
|
)
|
|
22,190
|
|
|
2,351
|
|
|
Other gain (loss)
|
(12
|
)
|
|
(33
|
)
|
|
511
|
|
|
(85
|
)
|
|
Total other income, net
|
$
|
2,207
|
|
|
$
|
(7,091
|
)
|
|
$
|
18,789
|
|
|
$
|
(993
|
)
|
|
Income (loss) before income taxes
|
$
|
(4,207
|
)
|
|
$
|
(13,021
|
)
|
|
$
|
(15,876
|
)
|
|
$
|
(16,980
|
)
|
The following table presents total assets
for our segments and the corporate and other entities (in thousands):
|
|
September 30,
2018
|
|
December 31, 2017
|
|
Travel & Entertainment segment
|
$
|
69,296
|
|
|
$
|
75,820
|
|
|
Technology & Data Intelligence segment
|
3,824
|
|
|
5,105
|
|
|
Corporate entity and other business units
|
17,329
|
|
|
22,612
|
|
|
Consolidated
|
$
|
90,449
|
|
|
$
|
103,537
|
|
Capital expenditures for our Travel &
Entertainment segment totaled $0.3 million and $0.7 million during the three months ended September 30, 2018 and 2017, respectively,
while capital expenditures for our Technology & Data Intelligence segment totaled $0.1 million and $0.2 million during each
of the same periods, respectively. Capital expenditures for our Travel & Entertainment segment totaled $2.0 million and $1.6
million during the nine months ended September 30, 2018 and 2017, respectively, while capital expenditures for our Technology
& Data Intelligence segment totaled $0.6 million and $1.0 million during each of the same periods, respectively.
ANNEX A
Membership Interest Purchase Agreement
Exhibit 2.1
|
|
|
MEMBERSHIP INTEREST PURCHASE AGREEMENT
|
|
by and between
|
|
VDC-MGG Holdings LLC
|
|
and
|
|
REMARK HOLDINGS, INC.
|
|
Dated as of March 15, 2019
|
|
|
Table of Contents
Page
|
ARTICLE I DEFINITIONS
|
|
1
|
|
|
Section 1.1
|
Definitions
|
|
1
|
|
ARTICLE II PURCHASE AND SALE
|
|
1
|
|
|
Section 2.1
|
Purchase and Sale of the Membership Interests
|
|
1
|
|
|
Section 2.2
|
Closing
|
|
2
|
|
|
Section 2.3
|
Transactions to Be Effected at the Closing
|
|
2
|
|
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER
|
|
3
|
|
|
Section 3.1
|
Organization and Existence
|
|
3
|
|
|
Section 3.2
|
Authority and Enforceability
|
|
3
|
|
|
Section 3.3
|
Noncontravention
|
|
4
|
|
|
Section 3.4
|
Proceedings
|
|
4
|
|
|
Section 3.5
|
Capitalization
|
|
4
|
|
|
Section 3.6
|
Company Subsidiaries
|
|
5
|
|
|
Section 3.7
|
Financial Statements
|
|
6
|
|
|
Section 3.8
|
Conduct of Business
|
|
6
|
|
|
Section 3.9
|
Compliance with Laws; Permits; Filings
|
|
7
|
|
|
Section 3.10
|
Material Contracts
|
|
7
|
|
|
Section 3.11
|
Real Property
|
|
8
|
|
|
Section 3.12
|
Employee Benefits
|
|
8
|
|
|
Section 3.13
|
Labor and Employment Matters
|
|
9
|
|
|
Section 3.14
|
Environmental Matters
|
|
10
|
|
|
Section 3.15
|
Insurance
|
|
10
|
|
|
Section 3.16
|
Taxes
|
|
11
|
|
|
Section 3.17
|
Intellectual Property and Data Privacy
|
|
12
|
|
|
Section 3.18
|
Unlawful Payments
|
|
14
|
|
|
Section 3.19
|
Affiliate Transactions
|
|
14
|
|
|
Section 3.20
|
Brokers
|
|
14
|
|
|
Section 3.21
|
Company Entities’ Assets
|
|
14
|
|
|
Section 3.22
|
Full Disclosure
|
|
14
|
|
|
Section 3.23
|
Accounts Receivable and Accounts Payable
|
|
15
|
|
|
Section 3.24
|
Voting Agreement
|
|
15
|
|
|
Section 3.25
|
No Other Representations
|
|
15
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER
|
|
15
|
|
|
Section 4.1
|
Organization and Existence
|
|
15
|
|
|
Section 4.2
|
Authority and Enforceability
|
|
15
|
|
|
Section 4.3
|
Noncontravention
|
|
16
|
|
|
Section 4.4
|
Proceedings
|
|
16
|
|
|
Section 4.5
|
Sufficiency of Funds
|
|
16
|
|
|
Section 4.6
|
No Distribution
|
|
16
|
|
|
Section 4.7
|
Brokers
|
|
16
|
Table
of Contents
(continued)
Page
|
|
Section 4.8
|
Acknowledgements and Confirmations
|
|
16
|
|
|
Section 4.9
|
No Other Representations
|
|
17
|
|
ARTICLE V COVENANTS
|
|
17
|
|
|
Section 5.1
|
Access to Information
|
|
17
|
|
|
Section 5.2
|
Conduct of Business Pending the Closing
|
|
18
|
|
|
Section 5.3
|
Proxy Statement; Company Stockholder Meeting
|
|
21
|
|
|
Section 5.4
|
Public Announcements
|
|
21
|
|
|
Section 5.5
|
Expenses
|
|
22
|
|
|
Section 5.6
|
Governmental Filings and Other Third-Party Consents
|
|
22
|
|
|
Section 5.7
|
Transfer Taxes
|
|
23
|
|
|
Section 5.8
|
Tax Matters
|
|
23
|
|
|
Section 5.9
|
Further Actions
|
|
26
|
|
|
Section 5.10
|
Release
|
|
26
|
|
|
Section 5.11
|
Employee Matters
|
|
27
|
|
|
Section 5.12
|
Letter of Credit Facility Agreement
|
|
28
|
|
|
Section 5.13
|
Non-Solicitation of Employees; Non-Competition
|
|
28
|
|
|
Section 5.14
|
Change in Recommendation
|
|
29
|
|
|
Section 5.15
|
Real Property Matters
|
|
30
|
|
|
Section 5.16
|
Confidentiality
|
|
30
|
|
|
Section 5.17
|
Insurance Cooperation
|
|
31
|
|
|
Section 5.18
|
Intellectual Property
|
|
32
|
|
ARTICLE VI CLOSING CONDITIONS
|
|
32
|
|
|
Section 6.1
|
Buyer’s Conditions to Closing
|
|
32
|
|
|
Section 6.2
|
Seller’s Conditions to Closing
|
|
33
|
|
|
Section 6.3
|
Mutual Conditions to Closing
|
|
34
|
|
ARTICLE VII TERMINATION
|
|
34
|
|
|
Section 7.1
|
Grounds for Termination
|
|
34
|
|
|
Section 7.2
|
Effect of Termination
|
|
36
|
|
ARTICLE VIII INDEMNIFICATION
|
|
36
|
|
|
Section 8.1
|
Survival
|
|
36
|
|
|
Section 8.2
|
Indemnification by the Seller
|
|
36
|
|
|
Section 8.3
|
Indemnification by the Buyer
|
|
38
|
|
|
Section 8.4
|
Indemnification Procedure for Third-Party Claims
|
|
39
|
|
|
Section 8.5
|
Indemnification Procedures for Non-Third-Party Claims
|
|
40
|
|
|
Section 8.6
|
Calculation of Indemnity Payments
|
|
41
|
|
|
Section 8.7
|
Characterization of Indemnification Payments
|
|
42
|
|
ARTICLE IX MISCELLANEOUS
|
|
42
|
|
|
Section 9.1
|
Notices
|
|
42
|
|
|
Section 9.2
|
Severability
|
|
43
|
|
|
Section 9.3
|
Entire Agreement; Third-Party Beneficiaries
|
|
43
|
Table
of Contents
(continued)
Page
|
|
Section 9.4
|
Governing Law
|
|
44
|
|
|
Section 9.5
|
Consent to Jurisdiction; Waiver of Jury Trial
|
|
44
|
|
|
Section 9.6
|
Specific Performance
|
|
44
|
|
|
Section 9.7
|
Assignment
|
|
45
|
|
|
Section 9.8
|
Headings
|
|
45
|
|
|
Section 9.9
|
Construction
|
|
45
|
|
|
Section 9.10
|
Amendments and Waivers
|
|
45
|
|
|
Section 9.11
|
Attorney-Client Privilege
|
|
46
|
|
|
Section 9.12
|
Schedules and Exhibits
|
|
46
|
|
|
Section 9.13
|
Counterparts
|
|
46
|
Appendix A
Definitions
MEMBERSHIP INTEREST PURCHASE AGREEMENT
,
dated as of March 15, 2019 (this “
Agreement
”), is entered into by and between VDC-MGG Holdings LLC, a Delaware
limited liability company (the “
Buyer
”), and Remark Holdings, Inc., a Delaware corporation (the “
Seller
”
and, together with the Buyer, each individually a “
Party
” and, collectively, the “
Parties
”).
RECITALS
WHEREAS
, Vegas.com, LLC, a Nevada
limited liability company (the “
Company
”), is in the business of running an online agency that, through websites
and mobile applications that it controls, allows users to book travel to, and lodging and entertainment in, the Las-Vegas-area
market (the “
Business
”);
WHEREAS
, the Seller is the sole
member of the Company and owns all of the issued and outstanding membership interests of the Company (the “
Membership
Interests
”);
WHEREAS
, the Seller desires to sell
to the Buyer, and the Buyer desires to purchase from the Seller, all of the Membership Interests, upon the terms and subject to
the conditions set forth in this Agreement; and
WHEREAS
, concurrently with the execution
and delivery of this Agreement and as an inducement to the Buyer’s willingness to enter into this Agreement, each Specified
Stockholder has delivered to the Buyer a voting agreement (the “
Voting Agreement
”), duly executed by each Specified
Stockholder, pursuant to which, among other things and on the terms and subject to the conditions set forth therein, each Specified
Stockholder has agreed to vote the shares of common stock, par value $0.001, of the Seller (the “
Seller Common Stock
”)
beneficially owned by such Specified Stockholder and his, her or its Affiliates in favor of the adoption of this Agreement and
the transactions contemplated hereby.
NOW THEREFORE
, in consideration
of the foregoing premises and the respective representations and warranties, covenants and agreements contained herein, the receipt
and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE
I
DEFINITIONS
Section 1.1
Definitions
.
Capitalized terms used in this Agreement have the meanings ascribed to them in
Appendix A
hereto.
ARTICLE
II
PURCHASE AND SALE
Section 2.1
Purchase and Sale of the Membership Interests
.
Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Seller will sell,
transfer and deliver to the Buyer, and the Buyer will purchase from the Seller, the Membership Interests for an aggregate purchase
price equal to $30,000,000 (the “
Purchase Price
”).
Section 2.2
Closing
.
The closing of the transaction contemplated by
Section 2.1
(the “
Closing
”) shall take place at 10:00
a.m., Eastern time, at the offices of Olshan Frome Wolosky LLP, 1325 Avenue of the Americas, New York, New York 10019, on the first
Business Day following the satisfaction or waiver of the conditions set forth in
ARTICLE VI
(other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at the Closing),
or at such other time, date and place as may be mutually agreed upon in writing by the Parties (the date on which the Closing actually
occurs being referred to as the “
Closing Date
”).
Section 2.3
Transactions
to Be Effected at the Closing
.
(a)
At the Closing, the Buyer will:
(i)
pay to the Seller, pursuant to the Closing Direction Letter, an aggregate amount in cash equal to the Purchase Price;
(ii)
deliver to the Seller, a duly executed counterpart to the Transition Services Agreement; and
(iii)
deliver to the Seller all documents, instruments or certificates required to be delivered by the Buyer at or prior
to the Closing pursuant to
Section 6.2
.
(b)
At the Closing, the Seller will:
(i)
deliver to the Buyer, a certificate representing the Membership Interests, duly endorsed by the Seller for transfer
to the Buyer or accompanied by transfer power, in form and substance reasonably satisfactory to the Buyer, attached thereto and
duly executed in blank;
(ii)
deliver to the Buyer, the Invoices from each Person to whom any Transaction Costs are owed;
(iii)
deliver to the Buyer, the Closing Direction Letter, duly executed by the Seller;
(iv)
deliver to the Buyer, all documents, instruments or certificates required to be delivered by the Seller at or prior
to the Closing pursuant to
Section 6.1
;
(v)
deliver to the Buyer, a duly executed counterpart to the Transition Services Agreement; and
(vi)
pay, pursuant to the applicable Invoice, to each Person to whom any Transaction Costs are owed, all amounts set forth
in such Invoice as being owed to such Person.
ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the
Buyer that each statement contained in this
ARTICLE III
is true and correct as of the date hereof and as of the Closing
Date, except as set forth in the disclosure schedule accompanying this Agreement (the “
Disclosure Schedule
”),
subject to
Section 9.12.
Section 3.1
Organization
and Existence
.
(a)
The Seller is a corporation, duly incorporated, validly existing and in good standing under the Laws of the State of Delaware,
and has all requisite power and authority to own, lease and operate its properties and assets and to carry on its business as it
is now being conducted.
(b)
The Company is a limited liability company, duly organized, validly existing and in good standing under the Laws of the
State of Nevada, and has all requisite power and authority to own, lease and operate its properties and assets and to carry on
the Business as it is now being conducted. The Company is duly qualified or licensed as a foreign entity to do business, and is
in good standing, in each jurisdiction where the character of its properties or assets owned, leased or operated by it or the nature
of its activities makes such qualification or licensing necessary, except where the failure to be so qualified or licensed has
not been, or would not reasonably be expected to be, individually or in the aggregate, material to the Company Entities, taken
as a whole, or the operation of the Business.
Section 3.2
Authority
and Enforceability
.
(a)
The Seller has all requisite corporate power and authority to execute and deliver this Agreement and each other agreement,
document, instrument and/or certificate contemplated by this Agreement to be executed by the Seller in connection with the Transactions
(all agreements, documents, instruments and certificates to be executed and delivered by the Seller or the Buyer in connection
with the Transactions, the “
Ancillary Documents
”), and to perform its obligations hereunder and thereunder.
The execution, delivery and performance by the Seller of this Agreement and the Ancillary Documents to which the Seller is a party,
and the consummation by the Seller of the Transactions, have been duly authorized by all necessary corporate action on the part
of the Seller, and no other action is necessary on the part of the Seller to authorize this Agreement or such Ancillary Documents
or to consummate the Transactions, other than Seller Stockholder Approval. This Agreement and each Ancillary Document to which
the Seller is a party have been duly executed and delivered by the Seller, and, assuming the due authorization, execution and delivery
by each other party thereto, each constitutes (or will constitute upon execution) a legal, valid and binding obligation of the
Seller, enforceable against the Seller in accordance with its respective terms, except as limited by the Bankruptcy and Equity
Exception.
(b)
The board of directors of the Seller (the “
Seller Board
”) has duly adopted resolutions by which the Seller
Board has: (i) determined that the sale of the Membership Interests, the other Transactions and this Agreement are advisable and
fair to and in the best interests of the Seller and its stockholders; (ii) authorized and approved the execution, delivery and
performance of this Agreement (including the sale of the Membership Interests) by the Seller; (iii) resolved to recommend the Transactions
to the Seller’s stockholders for Seller Stockholder Approval (the “
Seller Board Recommendation
”); and
(iv) directed that this Agreement and the transactions contemplated hereby be submitted to the holders of Seller Common Stock for
their adoption.
Section 3.3
Noncontravention
.
(a)
Neither the execution, delivery or performance by the Seller of this Agreement or the Ancillary Documents to which the Seller
is a party, nor the consummation of the Transactions by the Seller, will, with or without the giving of notice or the lapse of
time or both, (i) violate any provision of the Organizational Documents of the Seller, (ii) violate, in any material respects,
any Law or Order applicable to the Seller or (iii) result in a material breach of or default under, require consent or notice under,
or violate any, material Contract to which the Seller is a party.
(b)
No Permit or Filing is required by the Seller in connection with the execution and delivery by the Seller of this Agreement
or the Ancillary Documents to which it is a party, the performance by the Seller of its obligations hereunder and thereunder, and
the consummation by the Seller of the Transactions, other than Permits and Filings the failure of which to obtain or make would
not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Seller’s ability to
perform its obligations hereunder.
Section 3.4
Proceedings
.
(a)
There are no Proceedings or Orders pending or, to the Knowledge of the Seller, threatened in writing against the Seller
that (a) challenge or seek to enjoin, alter or materially delay the Transactions or (b) would, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Seller’s ability to perform its obligations hereunder.
(b)
There are no Proceedings or Orders pending or, to the Knowledge of the Seller, threatened in writing against any Company
Entity that (a) challenge or seek to enjoin, alter or materially delay the Transactions or (b) would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
Section 3.5
Capitalization
.
(a)
The Seller is the sole member of the Company and owner of all of the Membership Interests, free and clear of all Liens (other
than liens arising pursuant to applicable securities Laws or relating to the Financing Agreement). At the Closing, the Seller will
transfer to the Buyer all of the Seller’s right, title and interest in and to the Membership Interests, free and clear of
all Liens (other than liens arising pursuant to applicable securities Laws).
(b)
(i) There are no outstanding restrictions on transfers or voting of the Membership Interests, and (ii) no Person has been
granted any agreement or option, or any right or privilege capable of becoming an agreement or option, for the purchase, subscription,
allotment or issue of any Equity Securities of the Company.
(c)
The Company is not party to or bound by (i) any stockholder agreement, voting trust, proxy or other agreement or understanding
relating to the holding, voting, sale, transfer, purchase, registration, redemption or other acquisition or disposition of any
Equity Securities of the Company, as applicable, or (ii) any agreement, commitment, arrangement, understanding or other obligation
to declare, make or pay any dividends or distributions, whether current or accumulated, or due or payable, on any Equity Securities
of the Company, that will not have been paid in full prior to the Closing.
(d)
Other than the Indebtedness listed on Section 3.5(d) of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries have any Indebtedness.
Section 3.6
Company
Subsidiaries
.
(a)
A true and complete list of every Company Subsidiary, together with the jurisdiction of organization of, and the holder
of all outstanding Equity Interests of, each such Company Subsidiary, is set forth on Section 3.6(a) of the Disclosure Schedule.
(b)
Each Company Subsidiary is duly incorporated or organized, validly existing and in good standing under the Laws of its jurisdiction
of incorporation or organization, as applicable (as set forth on Section 3.6(a) of the Disclosure Schedule), and has all requisite
power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each Company
Subsidiary is duly qualified or licensed as a foreign entity to do business, and is in good standing, in each jurisdiction where
the character of its properties or assets owned, leased or operated by it or the nature of its activities makes such qualification
or licensing necessary, except where the failure to be so qualified or licensed has not been, and would not reasonably be expected
to be, individually or in the aggregate, material to the Company Entities, taken as a whole, or the operation of the Business.
(c)
The authorized, issued and outstanding Equity Securities of each Company Subsidiary are set forth on Section 3.6(c) of the
Disclosure Schedule. The Equity Securities of each Company Subsidiary are (i) duly authorized and validly issued in accordance
with applicable Law and the Organizational Documents of the applicable Company Subsidiary and (ii) fully paid and non-assessable.
There are no outstanding obligations of any Company Subsidiary to repurchase, redeem or otherwise acquire any outstanding Equity
Securities. All of the Equity Securities of each Company Subsidiary are owned (of record and beneficially), directly or indirectly,
by the Company, free and clear of all Liens (other than liens arising under applicable securities Laws or relating to the Financing
Agreement).
(d)
(i) There are no outstanding restrictions on transfers or voting of the Equity Securities of any Company Subsidiary, and
(ii) no Person has been granted any agreement or option, or any right or privilege capable of becoming an agreement or option,
for the purchase, subscription, allotment or issue of any Equity Securities of any Company Subsidiary.
(e)
No Company Subsidiary is a party to or bound by (i) any stockholder agreement, voting trust, proxy or other agreement
or understanding relating to the holding, voting, sale, transfer, purchase, registration, redemption or other acquisition or disposition
of any of its Equity Securities, as applicable, or (ii) any agreement, commitment, arrangement, understanding or other obligation
to declare, make or pay any dividends or distributions, whether current or accumulated, or due or payable, on any of its Equity
Securities, that will not have been paid in full prior to the Closing.
(f)
Except for the Equity Securities in the Company Subsidiaries, the Company does not own, directly or indirectly, any Equity
Securities in any other Person.
Section 3.7
Financial
Statements
.
(a)
The Seller has made available to the Buyer true, correct and complete copies of (a) (i) the unaudited consolidated balance
sheet of the Company Entities, taken as a whole, as of December 31, 2018 and December 31, 2017, (ii) the related consolidated statements
of income for the years ended December 31, 2018 and December 31, 2017 (collectively, the “
Annual Financial Statements
”)
and (b) (i) the unaudited consolidated balance sheet of the Company Entities, taken as a whole, as of January 31, 2019 (the “
Interim
Balance Sheet Date
”) and (ii) the related unaudited consolidated statements of income for the one-month period ending
on the Interim Balance Sheet Date (the “
Interim Financial Statements
” and, together with the Annual Financial
Statements, the “
Financial Statements
”). The Financial Statements (1) present fairly, in all material respects,
the consolidated financial condition and results of operations of the Company Entities, taken as a whole, as of the indicated dates
and for the indicated periods, (2) make adequate provision for all established, deferred or contingent liabilities of the Company
Entities, (3) have been prepared in accordance with GAAP, consistently applied and (4) have been prepared in a manner consistent
with the preparation of the audited consolidated financial statements of the Seller and its Subsidiaries as filed with the Form
10-K of the Seller for the fiscal year ended December 31, 2017 and, to the extent on file with the SEC, December 31, 2018.
There is no material off-balance sheet transaction, arrangement, obligation or relationship attributable to any Company Entity.
(b)
Except to the extent (and not in excess of the amounts) reflected in the Financial Statements or as disclosed on Section
3.7(b) of the Disclosure Schedule, the Company Entities do not have any material liabilities or obligations of any nature, whether
absolute, accrued, unmatured, contingent or otherwise, or any unsatisfied judgments or any unusual or extraordinary commitments
other than trade payables and accrued expenses incurred in the ordinary course of business since the Interim Balance Sheet Date.
Section 3.8
Conduct
of Business
. Except for any action taken by any Company Entity that would be permitted under
Section 5.2
, since
the Interim Balance Sheet Date through the date hereof, the Business of the Company Entities has been conducted in accordance with
the ordinary course of business consistent with past practices, except in connection with any process relating to a sale of the
Company.
Section 3.9
Compliance
with Laws; Permits; Filings
.
(a)
Except for such noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, each Company Entity is in compliance in all material respects with all Laws applicable to it or its business or
properties.
(b)
All Permits that any Company Entity is required to hold in order to own, lease, maintain, operate and conduct its business
as currently conducted are held by such Company Entity, except for such Permits where the failure to have such Permits would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.10
Material Contracts
.
(a)
Section 3.10(a) of the Disclosure Schedule sets forth a complete and accurate list, as of the date hereof, of all of the
following types of Contracts:
(i)
any material Contract with any Affiliate of any Company Entity, other than Intercompany Contracts;
(ii)
any non-competition Contract or other Contract that limits in any material respect the ability of any Company Entity
from operating or doing business in any location (excluding use or other limitations on owned, leased or subleased real property);
(iii)
any Contract reasonably expected to result in future payments to or by the Company Entities in excess of $250,000
per annum;
(iv)
any Contract for Indebtedness;
(v)
any Contract that would terminate as a result of the closing of the Transactions;
(vi)
any Contract that (x) provides for a period of performance beyond 12 months from the Closing Date and (y) is not
terminable within 12 months of the Closing Date without material penalty or cost; and
(vii)
any Contract establishing any partnership or joint venture.
(b)
The Contracts required to be set forth on Section 3.10(a) of the Disclosure Schedule are collectively referred to as the
“
Material Contracts
”. No Company Entity nor, to the Knowledge of the Seller, any other party thereto, is in,
or has received written notice of any, violation of or default under (including any condition that with the passage of time or
the giving of notice would cause such a violation or default under) any Material Contract. A copy of each Material Contract has
previously been made available to the Buyer. Each Material Contract is a valid and binding agreement of the applicable Company
Entity and is in full force and effect except (i) to the extent such Material Contract terminates or expires after the date hereof
in accordance with its terms, or (ii) as limited by the Bankruptcy and Equity Exception.
Section 3.11
Real Property
.
(a)
Owned Real Property
. Neither the Company nor any of the Company Subsidiaries (i) own any Owned Real Property, (ii)
hold or have ever held any option or right of first refusal or first offer to acquire any real property, or (iii) is obligated
to purchase any real property.
(b)
Leased Real Property
. Section 3.11(b) of the Disclosure Schedule contains a list, as of the date hereof, of all leases,
subleases, licenses, occupancy and other agreements (including all amendments, modifications and supplements thereof and assignments
and subleases thereof) under which any Company Entity is lessee, sublessee, licensee, occupant or user and that provide for payments
by any Company Entity under the applicable lease, sublease, license, occupancy or other agreement in excess of $100,000 annually
(collectively, the “
Real Property Leases
” and the real property subject to such Real Property Leases are the
“
Leased Real Property
”). No Company Entity nor, to the Knowledge of the Seller, any other party thereto, is
in, or has received written notice of any, material violation of or default under (including any condition that with the passage
of time or the giving of notice would cause such a material violation or default under) any Real Property Lease, except as set
forth on Section 3.11(b) of the Disclosure Schedule. A true, correct and complete copy of each Real Property Lease has previously
been made available to the Buyer. Except as set forth on Section 3.11(b) of the Disclosure Schedule, (x) the Company has a
valid and enforceable leasehold estate in all Leased Real Property free and clear of all Liens, in each case subject only to Permitted
Liens and (y) each Real Property Lease is a valid and binding agreement of the applicable Company Entity, is in full force and
effect, and is enforceable in accordance with its terms, except as limited by the Bankruptcy and Equity Exception.
Section 3.12
Employee Benefits
.
(a)
Section 3.12(a) of the Disclosure Schedule includes a list, as of the date hereof, of all material Benefit Plans maintained
or contributed to by any Company Entity for the benefit of any present or former directors, officers or employees of the Company
Entities (collectively, the “
Company Benefit Plans
”) and shall indicate which of such Company Benefit Plans
that are sponsored and maintained solely by a Company Entity (collectively, the “
Company Entity Benefit Plans
”).
The Seller has made available to the Buyer copies of (i) each writing constituting a part of such Company Benefit Plan, including
without limitation all plan documents, employee communications, benefit schedules, trust agreements, and insurance contracts and
other funding vehicles, (ii) the most recent summary plan description for each Company Benefit Plan for which such a summary plan
description is required and (iii) the most recent favorable determination letters from the IRS with respect to each Company Benefit
Plan intended to qualify under Section 401(a) of the Code.
(b)
All contributions required to be made to any Company Benefit Plan by applicable Law or regulation or by any plan document
or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Plan, for any
period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before
the date hereof, have been fully reflected on the Financial Statements.
(c)
(i) None of the Company Benefit Plans is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code,
(ii) each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code is subject to a favorable determination
letter or an advisory opinion letter from the IRS and, to the Knowledge of the Company, no event has occurred and no condition
exists that is reasonably likely to result in the revocation of any such determination and (iii) each Company Benefit Plan, and
each Company Entity with respect to each Company Benefit Plan, has complied in all material respects with all Laws applicable to
such Company Benefit Plans, including all applicable provisions of ERISA and the Code.
(d)
Except for any liabilities that arise solely out of, or relate solely to, the Company Entity Benefit Plans listed on Section
3.12(a) of the Disclosure Schedule, there does not now exist, nor do any circumstances exist that could result in, any liability
of any Company Entity following the Closing (i) under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections
412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of Section 601 et
seq. of ERISA and Section 4980B of the Code, or (v) under corresponding or similar provisions of foreign laws or regulations.
(e)
The consummation of the Transactions will not accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any present or former employee, director or officer of any Company Entity or their respective beneficiaries
solely by reason of such Transactions.
Section 3.13
Labor and Employment Matters
.
(a)
Other than employee offer letters entered into in the ordinary course of business and that do not provide for severance
benefits upon a termination of employment, no Employee nor any current or former employee, director or other service provider of
any Company Entity is party to any Contract with a Company Entity pursuant to which a Company Entity has any actual or contingent
liability or obligation to provide compensation and/or benefits in consideration for past, present or future services.
(b)
No Company Entity is party to any collective bargaining agreement, and, to the Knowledge of the Seller, there are no organizing
activities, strikes, work stoppages, slowdowns, lockouts, material arbitrations or material grievances, or other material labor
disputes pending or threatened against or involving the Company Entities.
(c)
The Company Entities (i) are in material compliance with all applicable Laws regarding employment and employment practices,
including, without limitation, all applicable Laws regarding terms and conditions of employment, health and safety, wages and hours,
child labor, immigration, employment discrimination, equal employment opportunity, affirmative action, plant closures and layoffs,
workers’ compensation, labor relations, disability rights or benefits, employee leave issues, worker classification, and
unemployment insurance, (ii) have not received any written notice of the intent of any Governmental Entity responsible for
the enforcement of any such Laws to conduct an investigation with respect to or relating to any such Laws, or any written notice
that such investigation is in progress, and (iii) are not a party to, or otherwise bound by, any order of a Governmental Entity
relating to employees or employment practices.
(d)
No Company Entity has taken action that could constitute a “mass layoff” or “plant closing” within
the meaning of the Worker Adjustment and Retraining Notification (WARN) Act or similar state Law or could otherwise trigger any
notice requirement or liability under any local or state plant closing notice Law.
(e)
Section 3.13(e) of the Disclosure Schedule lists and describes the current compensation of all employees of each Company
Entity. The amounts accrued on the books and records of the Company for all employees, including part time and contract employees,
for (i) commissions and bonuses and other fees payable, (ii) vacation pay, and (iii) sick pay, are adequate to cover all liabilities
for such items.
Section 3.14
Environmental Matters
.
Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect: (a) to the Knowledge
of the Seller, each Company Entity is in compliance in all material respects with all Environmental Laws, (b) within the last three
years, no Company Entity has received any written notice of any actual or alleged violation of, or liability under, any Environmental
Law that are unresolved, and there are no Proceedings pending or, to the Knowledge of the Company, threatened in writing against
any Company Entity alleging a violation of, or liability under, any Environmental Law and (c) to the Knowledge of the Company,
each Company Entity holds and is in compliance with all Permits required under Environmental Law for the current operations of
such Company Entity.
Section 3.15
Insurance
. Each Company
Entity and its business and/or properties are insured to the extent specified under the insurance policies maintained by the Company
or the applicable Company Subsidiary and listed as of the date hereof on Section 3.15 of the Disclosure Schedule (collectively,
the “
Insurance Policies
”). Complete copies of such Insurance Policies have previously been delivered or made
available to the Buyer. As of the date of this Agreement, (a) all such Insurance Policies are valid, binding and in full force
and effect, (b) all premiums due-to-date thereunder have been paid in full and (c) neither the Company or the applicable Company
Subsidiary is in default with respect to any other obligations thereunder, except as limited by the Bankruptcy and Equity Exception.
As of the date of this Agreement, no written notice of cancellation or termination has been received by the Company with respect
to such Insurance Policies. There are no material pending claims under such Insurance Policies with respect to which an insurer
has questioned, denied or disputed or otherwise reserved its rights with respect to coverage. Section 3.15 of the Disclosure
Schedule clearly indicates which of the Insurance Policies have been written on a claims-made basis (the “
Claims-Made
Policies
”), and all of the Insurance Policies, other than the Claims-Made Policies, have been written on an occurrence
basis such that the Insurance Policy will provide coverage to the Company after the Closing Date to the extent that the applicable
incident occurred during the policy period of such Insurance Policy.
Section 3.16
Taxes
.
(a)
Except as set forth on Section 3.16 of the Disclosure Schedule, each Company Entity has filed or caused to be filed on a
timely basis all Company Tax Returns that each Company Entity was required to file prior to the date hereof and has timely paid
all Taxes due and owing, whether or not such Taxes were shown on such Tax Returns. All such Tax returns are true, complete and
correct in all material respects. Each Company Entity has withheld, deducted and collected and paid all Taxes required to have
been withheld, deducted and collected by each Company Entity, and all such amounts have been timely remitted to the proper Governmental
Entity. No written claim has ever been made by a Governmental Entity in a jurisdiction where Company Tax Returns have not been
filed that any Company Entity is or may be subject to taxation by such jurisdiction. There are no liens or encumbrances on the
assets or properties of any Company Entity that arose in connection with any failure (or alleged failure) to pay any Tax. No Company
Tax Return has been audited or is currently under audit or examination, nor has any Governmental Entity threatened in writing to
audit a Company Tax Return. There is no tax sharing agreement, tax allocation agreement, tax indemnity obligation or similar written
or unwritten agreement, arrangement or understanding or practice with respect to Taxes that will or may require payment by any
Company Entity. Each Company Entity has not waived any statute of limitations in respect of any Taxes or agreed to any extension
of time with respect to any Tax assessment. No Company Entity is the beneficiary of any extension of time within which to file
any Company Tax Return that has not been filed. Each Company Entity has no liability for Taxes of any Person under Treas. Reg.
Section 1.1502-6 (or any similar provision of state, local or foreign law) as a transferee or successor by contract or otherwise.
Each Company Entity has disclosed in its Company Tax Returns all positions taken therein that could result in a substantial understatement
of U.S. federal Income Tax under Section 6662 of the Code.
(b)
Each of the Company Entities has collected all material sales and use, value added, goods and services and other similar
Taxes required to be collected, and has remitted, or will remit on a timely basis, such amounts to the appropriate Governmental
Entity, or has been furnished properly completed exemption certificates and has maintained all such records and supporting documents
in the manner required by all applicable sales and use Tax statutes and regulations.
(c)
Each Company Entity has been at all times treated as an entity disregarded as separate from its owner for U.S. federal income
tax purposes (and under any analogous state or local Tax Law) since September 24, 2015 through the Closing Date.
(d)
Prior to September 24, 2015, the Company was and always had been treated as a partnership for U.S. federal and state income
tax purposes, and each Company Subsidiary was and always had been treated as an entity disregarded as separate from its owner for
U.S. federal and state income tax purposes. No Company Entity has ever filed any entity classification under Code Section 7701.
(e)
The Company has delivered to the Buyer true, correct and complete copies of all income and other material Tax Returns of
each Company Entity, material examination reports and statements of material deficiencies for taxable periods, or transactions
consummated, for which the applicable statutory periods of limitations have not expired. No Company Entity has participated in,
or has any liability or obligation with respect to, any “listed transaction” or “transaction of interest”
within the meaning of Section 6707A(c)(2) of the Code and Treasury Regulation Section 1.6011 4(b) (or any similar provision of
state, local or non-U.S. Tax Law). No Company Entity will be required to include any item of income or gain in, or exclude any
item of deduction or loss or other tax benefit from, taxable income for any taxable period (or portion thereof) ending after the
Closing Date that accrued in a taxable period prior to the Closing Date but was not recognized for Tax purposes in such prior taxable
period for any reason, including as a result of any (i) change in method of accounting for a taxable period ending on or prior
to the Closing Date, (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar
provision of state, local or non-U.S. income Tax Law) executed on or prior to the Closing Date, (iii) intercompany transaction
between the Company Entity, on the one hand, and the Seller or any Affiliate of the Seller, on the other hand occurring at or prior
to the Closing, (iv) installment sale or open transaction disposition made on or prior to the Closing Date, or (v) prepaid amount
received on or prior to the Closing Date.
Section 3.17
Intellectual Property and
Data Privacy
.
(a)
Section 3.17(a) of the Disclosure Schedule identifies, as of the date hereof, (i) all material Intellectual Property that
is owned by a third party and licensed to a Company Entity and (ii) all material Intellectual Property that is (y) owned by the
Company Entities and (z) subject to an application or registration (by name, owner and, where applicable, registration or application
number and jurisdiction). The Company Entities, as applicable, are the exclusive owners of all Registered IP, free and clear of
all Liens, other than Permitted Liens. The Registered IP is subsisting and to the extent issued or granted is, to the Knowledge
of the Seller, valid or enforceable. No action, suit, or proceeding is pending or, to the Knowledge of the Seller, threatened,
in which the scope, validity or enforceability of any material Company Intellectual Property (excluding ordinary course prosecution
before an applicable Governmental Entity of pending Registered IP) is being or could reasonably be expected to be, in the case
of any threatened action, successfully contested or challenged.
(b)
The Company Entities own, license or, have all material rights to use, the Intellectual Property necessary for each Company
Entity to operate its business as currently conducted. As of the Closing, the Company Entities, as applicable, will, have good
title to all material Intellectual Property owned by the Seller and its Affiliates prior to the Closing, that is primarily or exclusively
used, or primarily or exclusively held for use in connection with the conduct of the business of the Company Entities as conducted
as of the date hereof and as contemplated to be conducted at Closing, free and clear of all Liens, other than Permitted Liens.
(c)
No Company Entity, including in the conduct of any business of the Company Entities, has infringed, misappropriated or otherwise
violated or does infringe, misappropriate or otherwise violate in any material respect any Intellectual Property owned by third
parties and no third party has infringed, misappropriated or otherwise violated or does infringe, misappropriate or otherwise violate
in any material respect any Intellectual Property owned by any Company Entity. There are no actions, suits or proceedings pending
or, to the Knowledge of Seller, threatened, by any third party alleging that any of the Company Entities infringe, misappropriate
or otherwise violate any third party’s Intellectual Property.
(d)
To the Knowledge of the Seller, except as would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, the Company Entities have at all times complied in all material respects with all applicable Laws, as
well as their respective rules, policies and procedures, relating to privacy, data protection, and the collection, use, storage
and disposal of personal information collected, used or held for use by the Company Entities in the conduct of their respective
businesses. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, no
claim, action or proceeding has been asserted or, to the Knowledge of the Seller, threatened in writing alleging a violation of
any Person’s rights of publicity or privacy or personal information or data rights. To the Knowledge of the Seller, except
as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, in the past 12 months,
there has not been, and there is no currently occurring, (i) material loss, theft or data or security breach relating to any Company
Entity’s data or (ii) material unintended, illegal or improper use or disclosure of, or access to, any personal information
in the custody or control of any Company Entity.
(e)
To the Knowledge of Seller, each employee and independent contractor of a Company Entity who is involved in the development
of material Intellectual Property did so (i) within the scope of his or her employment or engagement such that, subject to and
in accordance with applicable Law, all Intellectual Property rights arising therefrom became the property of the applicable Company
Entity or (ii) pursuant to one or more written agreements with provisions relating to the protection of the applicable Company
Entity’s confidential information and assigning ownership to the applicable Company Entity of all Intellectual Property rights
developed for the applicable Company Entity within the scope of the individual’s employment or independent contractor relationship
with the Company Entity. No such employee or independent contractor has, to the Knowledge of the Seller, asserted or threatened
in writing a claim against the Company Entities with respect to the ownership or assignment of any such Intellectual Property rights,
and, to the Knowledge of the Seller, no such employee or independent contractor has a valid claim against any Company Entity with
respect to the ownership or assignment of any such Intellectual Property rights. No Company Entity has granted to any Person a
joint ownership interest of, or has granted or permitted any Person to retain, any exclusive rights that remain in effect in, any
Intellectual Property that is material to the conduct of the respective businesses of the Company Entities.
(f)
To the Knowledge of Seller, the IT Systems of the Company Entities are adequate in all material respects for their intended
use and for the conduct of the respective businesses of the Company Entities as currently conducted and as currently contemplated
to be conducted, and are in good working condition (normal wear and tear excepted). To the Knowledge of the Seller, the IT Systems
and material Software owned by the Company Entities are free of all viruses, worms, Trojan horses and other known contaminants
and do not contain any bugs, errors or problems of a nature that would materially disrupt their operation or have a material adverse
impact on the operation of such IT Systems. There has not been any material malfunction with respect to any such IT Systems in
the past three years that has not been remedied or replaced in all material respects.
(g)
Except as set forth on Section 3.17(g) of the Disclosure Schedule, no Company Entity has (x) distributed Public Software
in conjunction with the sale of any products or services, or (y) used Public Software in the development of any Company Intellectual
Property. The Company Entities are in compliance with all agreements and other terms and conditions governing the use of Public
Software. No Software distributed by any of the Company Entities is required to be (a) disclosed or distributed in source code
form; (b) licensed for the purpose of making derivative works; or (c) redistributable at no charge, in each case, as a result of
the use, modification or distribution of Public Software.
Section 3.18
Unlawful Payments
.
No Company Entity or any director, officer, manager, agent, employee or other representative of any Company Entity has (a) made,
paid or received any unlawful bribes, kickbacks or other similar payments to or from any Person (including any customer or supplier)
or Governmental Entity, (b) made or paid any unlawful contributions, directly or indirectly, to a domestic or foreign political
party or candidate or (c) made or paid any improper foreign payment (as defined in the Foreign Corrupt Practices Act of 1977).
No Company Entity has violated the Foreign Corrupt Practices Act of 1977 or any other applicable Law relating to unlawful bribes,
kickbacks, contributions or other payments.
Section 3.19
Affiliate Transactions
.
There are no Contracts between or among any Company Entity, on the one hand, and the Seller or, to the Knowledge of the Seller,
any officer or director of the Seller or any Affiliate thereof, on the other hand.
Section 3.20
Brokers
. Other than
the fees of Raine Securities LLC, which will constitute Transaction Costs, neither the Seller nor any Company Entity has any liability
or obligation to pay fees or commissions to any broker, finder or agent with respect to the Transactions.
Section 3.21
Company Entities’ Assets
.
The Company Entities have good and valid title to, or a valid leasehold interest in, all of their assets except where the failure
to would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company Entities’
assets are free and clear of all Liens (other than Permitted Liens). The Company Entities’ assets constitute all assets used
in or associated with the Business and are sufficient for the operation of the Business as it is currently operated. After giving
effect to the Transactions, the rights, properties and assets (including all Contracts) owned by the Company Entities shall constitute
all of the rights, properties and assets necessary and sufficient to conduct the Business on a stand-alone basis as currently conducted
by the Seller and its Subsidiaries (including the Company Entities) on the date hereof.
Section 3.22
Full Disclosure
. Seller
is not aware of any fact, condition or circumstance that may materially and adversely affect the assets, liabilities, business,
prospects, condition or results of operations of the Seller or the Business that has not been previously disclosed to the Buyer
in writing. Furthermore, no representation or warranty or other statement made by the Seller in this Agreement, the Disclosure
Schedule, or otherwise in connection with the Transactions contemplated hereby contains any untrue statement of material fact or
omits to state a material fact necessary to make such statements not misleading.
Section 3.23
Accounts Receivable and Accounts
Payable
.
(a)
All accounts receivable of the Company Entities were acquired or arose from sales actually made or services actually performed
in the ordinary course of business that represent
bona fide
transactions and valid and enforceable claims, are not subject
to any setoff, counterclaim or Proceeding and are collectible in accordance with their terms, except to the extent that any specific
reserves against such accounts receivable reflected in the Financial Statements.
(b)
All accounts payable of the Company Entities arose in bona fide, arm’s-length transactions in the ordinary course
of business. Other than the Acceptable Delinquent AP, no account payable of any Company Entity is delinquent more than 45
days in its payment.
Section 3.24
Voting Agreement
.
Concurrently with the execution of this Agreement, each Specified Stockholder has delivered to the Buyer a duly executed Voting
Agreement. The Voting Agreement is in full force and effect and constitutes a valid and binding obligation of each Specified Stockholder,
enforceable against each Specified Stockholder in accordance with its terms. No event has occurred which, with or without notice,
lapse of time or both, would constitute a default on the part of any Specified Stockholder under such Voting Agreement.
Section 3.25
No Other Representations
.
The Seller has not made any representation or warranty other than as expressly set forth in this
ARTICLE III
and in any
certificate delivered by the Seller pursuant this Agreement and the Seller expressly disclaims any such other representations and
warranties.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the
Seller that each statement contained in this
ARTICLE IV
is true and correct as of the date hereof and as of the Closing
Date:
Section 4.1
Organization
and Existence
. The Buyer is a Delaware limited liability company, duly formed, validly existing and in good standing under
the Laws of the State of Delaware and has all requisite corporate power and authority under such laws and its Organizational Documents
required to carry on its business as now conducted.
Section 4.2
Authority
and Enforceability
. The Buyer has all requisite corporate power and authority to execute and deliver this Agreement and
the Ancillary Documents to which the Buyer is a party and to perform its obligations hereunder and thereunder. The execution, delivery
and performance by the Buyer of this Agreement and the Ancillary Documents to which the Buyer is a party, and the consummation
by the Buyer of the Transactions, have been duly authorized by all necessary corporate action on the part of the Buyer, and no
other action is necessary on the part of the Buyer to authorize this Agreement or such Ancillary Documents or to consummate the
Transactions. This Agreement and each Ancillary Document to which the Buyer is a party have been duly executed and delivered by
the Buyer, and, assuming the due authorization, execution and delivery by each other party thereto, each constitutes (or will constitute
upon execution) a legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its respective
terms, except as limited by the Bankruptcy and Equity Exception.
Section 4.3
Noncontravention
.
(a)
Neither the execution, delivery or performance by the Buyer of this Agreement or the Ancillary Documents to which the Buyer
is a party, nor the consummation of the Transactions by the Buyer, will, with or without the giving of notice or the lapse of time
or both, (i) violate any provision of the Organizational Documents of the Buyer, (ii) violate any Law or Order applicable to the
Buyer or (iii) result in a material breach of or default under, require consent under, or violate any, material Contract to which
the Buyer is a party.
(b)
No material Permit or Filing is required by the Buyer in connection with the execution and delivery by the Buyer of this
Agreement or the Ancillary Documents to which it is a party, the performance by the Buyer of its obligations hereunder and thereunder,
and the consummation by the Buyer of the Transactions.
Section 4.4
Proceedings
.
There are no Proceedings pending or, to the Knowledge of the Buyer, threatened against the Buyer or Orders binding on the Buyer
or any of its assets or property, except as would not reasonably be expected to have, individually or in the aggregate, a Buyer
Material Adverse Effect.
Section 4.5
Sufficiency
of Funds
. The Buyer has, and will have on the Closing Date, cash on hand or other sources of immediately available funds
sufficient to enable the Buyer to (a) pay the Purchase Price payable under
ARTICLE II
and to satisfy all other payments
required by this Agreement, (b) pay any related fees, costs and expenses incurred by the Buyer in connection with the Transactions
and (c) otherwise consummate the Transactions.
Section 4.6
No
Distribution
. The Buyer acknowledges that the Membership Interests being acquired pursuant to this Agreement have not been
registered under the Securities Act or under any state or foreign securities Laws. The Buyer is purchasing the Membership Interests
for its own account and not with a view to any public resale or other distribution thereof, except in compliance with applicable
securities Laws.
Section 4.7
Brokers
.
Neither the Buyer nor any of its Affiliates has any liability or obligation to pay fees or commissions to any broker, finder or
agent with respect to the Transactions.
Section 4.8
Acknowledgements
and Confirmations
. The Buyer has such knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its participation in the Transactions and is able to bear the economic risk associated with
the purchase of the Membership Interests (including, indirectly through the purchase of the Membership Interests, the assets, properties,
liabilities, condition, operations and prospects of the Company Entities). The Buyer has conducted to its satisfaction its own
independent review and analysis of, and based thereon has formed an independent judgment concerning, the Transactions, the assets,
properties, liabilities, condition, operations and prospects of the business of the Company Entities and the Membership Interests.
In entering into this Agreement, the Buyer has relied solely upon its own review and analysis and the specific representations
and warranties of the Seller expressly set forth in
ARTICLE III
and not on any representations, warranties, statements or
omissions by any Person other than the Seller, or by the Seller other than its specific representations and warranties expressly
set forth in
ARTICLE III
. The Buyer acknowledges and confirms that, except for the representations and warranties expressly
set forth in
ARTICLE III
, none of the Seller, its Affiliates or any of their respective Representatives have made, or shall
be deemed to have made, and the Buyer has not relied on, is not relying on and hereby disclaims, any other representation or warranty,
express or implied, at law or in equity, in respect of the Membership Interests or the assets and properties of the Company Entities.
Section 4.9
No
Other Representations
. The Buyer has not made any representation or warranty other than as expressly set forth in this
ARTICLE IV
and in any certificate delivered by the Buyer pursuant this Agreement and the Buyer expressly disclaims any such
other representations and warranties.
ARTICLE
V
COVENANTS
Section 5.1
Access
to Information
.
(a)
During the Interim Period, the Seller shall, and shall cause the Company Entities to, (i) provide the Buyer and its Representatives
with access to the offices and properties, and to copies of books and records, of the Company Entities, (ii) furnish to the Buyer
and its Representatives such financial and operating data and any other information relating to the business of the Company Entities
that is produced in the ordinary course of business as such Persons may reasonably request, (iii) instruct the employees, counsel
and financial advisors of the Company Entities to cooperate with the Buyer in its investigation of the business of the Company
Entities, and (iv) provide the Buyer and/or any Representative thereof a reasonable opportunity to participate in any correspondence
or other communications, whether written or oral, with any customer or supplier of any Company Entity specified by the Buyer, in
each case, other than information that is protected by attorney-client privilege (
provided
that the Seller shall use reasonable
best efforts to provide such information (or portion thereof) in a manner that does not jeopardize such privilege);
provided
,
however
, that such access and investigation (A) shall be conducted at the Buyer’s expense, upon reasonable advance
notice to the Seller, during normal business hours, (B) does not unreasonably disrupt the normal operations of any Company Entity
and (C) shall comply with all applicable Laws. All requests by the Buyer for access pursuant to this
Section 5.1(a)
shall be submitted or directed exclusively to Michael Reichartz or such other individual(s) as the Seller may designate in writing
from time to time. Notwithstanding anything to the contrary contained herein, the Buyer shall not perform invasive or subsurface
investigations of the Leased Real Property prior to the Closing without the prior written consent of the Seller.
(b)
After the Closing, the Buyer will, and will cause its Representatives to, afford to the Seller, including its Representatives,
at the Seller’s sole cost and expense, reasonable access to the books, records, files and documents of, or relating to, the
Company Entities and in order to permit the Seller to prepare for and participate in any investigation and defend any Proceedings
relating to or involving the Seller (but not relating to any dispute under this Agreement), to discharge its obligations under
this Agreement, and to comply with financial and Tax reporting requirements, and will afford the Seller, at the Seller’s
sole cost and expense, reasonable assistance in connection therewith. The Buyer will cause such records to be maintained for not
less than six years from the Closing Date.
Section 5.2
Conduct
of Business Pending the Closing
.
(a)
During the Interim Period, except (i) as expressly required by this Agreement, (ii) as set forth in Section 5.2 of the Disclosure
Schedule or (iii) with the prior written consent of the Buyer, the Seller shall, and shall cause each Company Entity to, (A) conduct
the Business, in the ordinary course, consistent with past practice and (B) use its reasonable best efforts to preserve intact
each Company Entity’s current business organization, the services of their partners and employees and relations and goodwill
with suppliers, customers, landlords, sublandlords and other Persons having the business relationships with each Company Entity.
(b)
Without limiting the generality of the foregoing, during the Interim Period, except (x) as expressly required by this Agreement,
(y) as set forth in Section 5.2 of the Disclosure Schedule or (z) with the prior written consent of the Buyer, the Seller shall
cause each Company Entity not to, directly or indirectly:
(i)
incur or guarantee any Indebtedness (other than amounts owed to the lenders under the Financing Agreement);
(ii)
grant, permit, create, impose or suffer to exist any Lien (other than Permitted Liens) on any of its assets, including
Company Intellectual Property, or the Equity Securities;
(iii)
dispose of (whether by merger, consolidation, acquisition of stock or assets or otherwise), or otherwise transfer,
sell, mortgage, encumber, pledge, lease or license, or make subject to any Lien (other than the Permitted Liens), directly or indirectly,
any material properties or assets, including Company Intellectual Property, other than pursuant to existing Contracts set forth
on Section 5.2(b)(iii) of the Disclosure Schedules;
(iv)
issue, sell, authorize, transfer, pledge, encumber, dispose of, grant or authorize the sale, issuance, transfer,
pledge, encumbrance, disposal of or grant of any of the Equity Securities of any Company Entity;
(v)
acquire (whether by merger, consolidation, acquisition of stock or asset or otherwise), directly or indirectly, any
material assets, other than pursuant to existing Contracts set forth on Section 5.2(b)(v) of the Disclosure Schedules;
(vi)
make any loans, advances or capital contributions to, or material investments in, any other Person;
(vii)
declare, accrue, set aside or pay any dividend or other distribution;
(viii)
effect or become a party to any merger, consolidation, share exchange, business combination, amalgamation, recapitalization,
reclassification of shares, stock split, reverse stock split, division or subdivision of shares, consolidation of shares or similar
transaction;
(ix)
(A) amend, voluntarily terminate (partially or completely), grant a material waiver under, cancel or take any action
that constitutes a breach (with or without notice, the lapse of time or both) of any Material Contract or (B) enter into or assume
any Contract that would have constituted a Material Contract had it been in effect as of the date hereof;
(x)
amend, voluntarily terminate (partially or completely), grant a material waiver under, cancel or take any action
that constitutes a breach (with or without notice, the lapse of time or both) of:
(A)
any Real Property Lease;
(B)
any agreement containing (i) a “most favored nation”, “most favored customer”, “most
favored supplier”, exclusivity or other similar provision, or (ii) “take or pay” provision (committing a Person
to buy a minimum quantity of goods or services provided by another Person) or “requirements” provisions (committing
a Person to provide the quantity of goods or services required by another Person);
(C)
any Contract that constitutes an agreement of guarantee or assumption or any similar commitment with respect to the
obligations or liabilities (whether accrued, absolute, contingent or otherwise) of any other Person;
(D)
any Contract that constitutes a collective bargaining agreement or other arrangement with any unions or similar employee
representatives; and
(E)
any agreement involving any resolution or settlement of any actual or threatened Proceeding or other dispute that
imposes continuing obligations on any Company Entity.
(xi)
(A) make or change any Tax election, adopt or change any method of Tax accounting, (B) enter into any material
closing agreement with respect to Taxes or settle any material Tax claim or assessment, (C) file any amended Tax Return with
respect to a material amount of Taxes, (D) extend or waive the application of any statute of limitations regarding the assessment
or collection of any material Tax (except with respect to the routine extensions in the ordinary course of business), (E) apply
for or pursue any material Tax ruling, or (F) execute any powers of attorney in respect of any material Tax matter;
(xii)
make any change to its accounting principles or practices, except as required by contemporaneous changes in GAAP
or applicable Law;
(xiii)
other than in the ordinary course of business consistent with past practices, including ordinary course promotions
and annual increases of base salary and the payment of bonuses, or as required by the terms and provisions of any Benefit Plan
or Contract, (i) establish, adopt, enter into, materially amend or terminate any Benefit Plan or (ii) increase the aggregate compensation,
bonus or other benefits payable or provided to any Employee;
(xiv)
purchase any Equity Securities of any Person other than another Company Entity, except for short-term investments
or cash equivalents made in the ordinary course of business consistent with past practices;
(xv)
make or incur any Capital Expenditure or commitments with respect to Capital Expenditures aggregating more than $100,000;
(xvi)
adopt a plan, agreement or resolution providing for complete or partial liquidation, dissolution, bankruptcy, restructuring,
recapitalization or other reorganization of any of the Company Entities;
(xvii)
settle any threatened or pending legal Proceeding against any of the Company Entities (to the extent relating to
any of the Company Entities) other than any monetary settlement only not in excess of $50,000;
(xviii)
form any Subsidiary to enter into any partnership, joint venture or similar relationship in which any Equity Securities
of another Person is acquired by any of the Company Entities;
(xix)
other than in the ordinary course of business, consistent with past practice, incur any indemnification obligations;
(xx)
accelerate the collection of accounts receivable or delay the payment of accounts payable (other than delays as a
result of disputes with respect to any account payable initiated by the payee thereof);
(xxi)
amend or modify (whether by merger, consolidation or otherwise) or permit the adoption of any amendments to its Organizational
Documents;
(xxii)
make any payment or transfer of funds, cash or any other asset (A) to any Company Affiliate in excess of $150,000,
in the aggregate, in any 30-day period from and after the date of this Agreement, or (B) to any other Person outside of the ordinary
course of business pursuant to any Contract in effect as of the date hereof and provided to the Buyer; or
(xxiii)
agree or commit to do any of the foregoing.
(c)
Nothing contained in this Agreement will give the Buyer, directly or indirectly, rights to control or direct the business
or operations of any Company Entity prior to the Closing.
Section 5.3
Proxy
Statement; Company Stockholder Meeting
.
(a)
As promptly as reasonably practicable after the date of this Agreement (but in any event no later than five Business Days
after the date hereof (the “
Proxy Deadline
”)), the Seller shall prepare and cause to be filed with the SEC a
preliminary Proxy Statement relating to the Seller Stockholder Meeting, and use commercially reasonable efforts to: (i) respond
as promptly as reasonably practicable to any comments made by the SEC or its staff with respect to such preliminary Proxy Statement;
and (ii) cause a definitive Proxy Statement (together with any amendments and supplements thereto) relating to the Seller Stockholder
Meeting to be furnished to the Seller’s stockholders in connection with the Transactions as soon as reasonably practicable
following the later of (A) receipt and resolution of the SEC comments on the preliminary Proxy Statement and (B) the expiration
of the 10-day waiting period with respect to the preliminary Proxy Statement provided in Rule 14a-6(a) promulgated under the Exchange
Act.
(b)
The Buyer and its counsel shall be given a reasonable opportunity to review and comment on the preliminary and the definitive
Proxy Statement and any amendment or supplement to the preliminary or the definitive Proxy Statement, as the case may be, each
time before any such document is filed with the SEC, and the Seller shall give reasonable and good faith consideration to the inclusion
therein of any comments made by the Buyer and its counsel. The Seller shall provide the Buyer and its counsel with (i) any comments
or other communications, whether written or oral, that the Seller or its counsel may receive from time to time from the SEC or
its staff with respect to the Proxy Statement promptly after receipt of those comments or other communications and (ii) a reasonable
opportunity to participate in the response of the Seller to those comments and to provide comments on that response (to which reasonable
and good faith consideration shall be given), including by participating with the Seller or its counsel in any discussions or meetings
with the SEC or its staff.
(c)
The Seller shall, as soon as reasonably practicable, take all action necessary under applicable Law and the Organizational
Documents of the Seller to establish a record date, duly call, give notice of, convene and hold a meeting of the Seller’s
stockholders to vote on the approval of this Agreement and the Transactions (the “
Seller Stockholder Meeting
”).
The Seller shall (i) ensure that the Seller Stockholder Meeting is called, noticed, convened, held and conducted, and that all
Persons solicited in connection with the Seller Stockholder Meeting are solicited, in compliance with all applicable Law and (ii)
use commercially reasonable efforts to solicit from its stockholders proxies in favor of the approval of the Transactions and to
take all other actions reasonably necessary or advisable to pursue the vote or consent of its stockholders and to obtain the Seller
Stockholder Approval, including such actions as are required by applicable Law.
Section 5.4
Public
Announcements
. Each Party shall consult with the other Party before issuing any press release or otherwise making any public
statements in connection with the execution of this Agreement, and each Party shall obtain the prior written approval of the other
Party (which approval shall not be unreasonably withheld, delayed or conditioned) before issuing any subsequent press release or
making any subsequent public statement with respect to this Agreement or any of the Transactions (other than public statements
that are consistent with prior press releases or other public statements made by the Parties as approved in accordance with this
Section 5.4
), except to the extent required by applicable Law or the rules of any applicable stock exchange, in which case
the issuing Party shall use reasonable efforts to consult with the other Party before issuing any such release or making any such
public statement. The Parties acknowledge that the Seller will be required to make filings with the SEC disclosing the material
terms and conditions of this Agreement and the Transactions upon the execution of this Agreement.
Section 5.5
Expenses
.
Except as otherwise expressly provided in this Agreement, whether or not the Transactions are consummated, each Party will pay
its own costs and expenses incurred in anticipation of, relating to and in connection with the negotiation and execution of this
Agreement and the consummation of the Transactions. Notwithstanding the immediately preceding sentence, the Buyer shall pay all
filing fees required by Governmental Entities, including with respect to Filings or Permits required in connection with the execution
and delivery of this Agreement, the performance of the obligations hereunder and the consummation of the Transactions.
Section 5.6
Governmental
Filings and Other Third-Party Consents
.
(a)
Subject to the terms and conditions of this Agreement, each of the Buyer and the Seller shall, and shall cause their respective
Affiliates to, cooperate with each other and shall use (and cause their respective Affiliates to use) their reasonable best efforts
to take or cause to be taken all actions, and do or cause to be done, and reasonably assist and cooperate with the other Parties
in doing, all things necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such
Party or its Affiliates with respect to this Agreement and, subject to the conditions set forth in
ARTICLE VI
, to consummate
the Transactions as soon as practicable.
(b)
Without limiting the generality of
Section 5.6(a)
, each Party shall, as promptly as possible, use its reasonable
best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Entities
that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant
to this Agreement. Each Party shall cooperate fully with the other Party and its Affiliates in promptly seeking to obtain all such
consents, authorizations, Orders and approvals. The Parties shall not willfully take any action that will have the effect of delaying,
impairing or impeding the receipt of any required consents, authorizations, Orders and approvals.
(c)
The Seller shall use commercially reasonable efforts to give all notices to, and obtain all consents from, all third parties
that are described in Section 3.3 of the Disclosure Schedule;
provided
,
however
, that the Seller shall not be obligated
to pay any consideration therefor to any third party from whom consent or approval is requested.
(d)
The Seller agrees that, during the Interim Period, it shall, and shall cause its Subsidiaries to, cooperate with the Buyer
and use reasonable best efforts to obtain any consents, authorizations, orders and approvals from any third party (other than a
Governmental Entity) that may be required by any Contract with any Company Entity or otherwise as a result of the Transactions.
(e)
Notwithstanding anything to the contrary set forth herein, nothing in this
Section 5.6
or otherwise in this Agreement
shall require the Buyer or any of its Representatives to propose, negotiate, effect or agree to the sale, divestiture, license
or other disposition of any assets or businesses of the Buyer or its Affiliates (including, following the Closing, the Company
Entities), or otherwise take any action that limits the freedom of action with respect to, or its ability to retain any of the
businesses, product lines or assets of the Buyer or its Affiliates (including, following the Closing, the Company Entities). With
regard to any Governmental Entity, the Company, the Seller and its Representatives shall not, without the Buyer’s prior written
consent, in the Buyer’s sole discretion, discuss or commit to any divestiture transaction, or discuss or commit to alter
the businesses or commercial practices of the Company Entities in any way, or otherwise take or commit to take any action that
limits the Buyer’s freedom of action with respect to, or Buyer’s ability to retain any of the businesses, product lines
or assets of, the Company Entities, or otherwise receive the full benefits of this Agreement.
Section 5.7
Transfer
Taxes
. Notwithstanding any provision of this Agreement to the contrary, all Transfer Taxes incurred in connection with
this Agreement and the Transactions shall be paid by the Seller. The Buyer and the Seller shall cooperate in timely making all
Filings, Tax Returns, reports and forms as may be required to comply with the provisions of such Tax Laws.
Section 5.8
Tax
Matters
.
(a)
The Seller shall prepare, or cause to be prepared, all Income Tax Returns of or with respect to the Company relating to
a Pre-Closing Tax Period and with respect to Income Taxes, which are filed after the Closing Date. The Buyer shall prepare, or
cause to be prepared, and timely file, or cause to be timely filed, all other Tax Returns of each Company Entity related to a Pre-Closing
Tax Period that are filed after the Closing Date, with each such Tax Return prepared in a manner consistent with the Company’s
past practice, except as otherwise required by applicable Law. The Buyer shall provide a draft of such Tax Returns to the Seller
for its review and comment, along with any work papers and accountant work papers, within 45 days following the end of the applicable
Tax period with respect to such Tax Returns, to permit the Seller to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Buyer shall consider in good faith all reasonable comments to such Tax Returns and schedules
provided by the Seller. No later than five Business Days prior to the date of any such Tax Return, the Seller shall pay, or cause
to be paid, to the Buyer the portion of Taxes shown on such Tax Return allocable to the Seller under
Section 5.8(c)
.
(b)
The Parties shall, and shall each cause their respective Affiliates to, provide to the other Party such cooperation and
information, as and to the extent reasonably requested, in connection with preparing, reviewing and filing of any Tax Return, amended
Tax Return or claim for refund, determining liabilities for Taxes or a right to refund of Taxes, or in conducting any audit or
other action with respect to Taxes, with respect to the Company Entities, in each case, at the expense of the requesting Party.
Such cooperation and information shall include providing copies of all relevant portions of relevant Tax Returns, together with
relevant accompanying schedules and relevant work papers, relevant documents relating to rulings and other determinations by Governmental
Entities relating to Taxes, and relevant records concerning the ownership and Tax basis of property, which any such Party may possess.
(c)
Allocation of Taxes
.
(i)
To the extent permitted or required under applicable Tax Laws, the Closing Date shall be treated as the last day
of a taxable period with respect to the Company.
(ii)
For all purposes of this Agreement, including
Section 8.2
:
(A)
Except as otherwise provided herein, any Taxes for a taxable period beginning before the Closing Date and ending
after the Closing Date (the “
Straddle Period
”) with respect to any Company Entity shall be apportioned between
the portion of the period ending on the Closing Date and the portion of the period commencing on the day immediately following
the Closing Date, based on the actual operations of the Company, as the case may be, by a closing of the books of the Company,
as if the Closing Date were the end of a Tax year, and each such portion of such period shall be deemed to be a taxable period
(whether or not it is in fact a taxable period). For purposes of computing the Taxes attributable to the two portions of a taxable
period pursuant to this
Section 5.8(c)
, the amount of any item that is taken into account only once for each taxable
period (e.g., the benefit of exemption amounts, etc.) shall be allocated between the two portions of the period in proportion to
the number of days in each portion.
(B)
In the case of any Taxes based on capitalization, debt or shares of stock authorized, issued or outstanding, or any
real property, personal property or similar ad valorem Taxes that are payable for a taxable period that includes, but does not
end on, the Closing Date, the portion of such Tax which relates to the portion of such taxable period ending on the Closing Date
shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction, the numerator of which is
the number of days in the taxable period ending on (and including) the Closing Date and the denominator of which is the number
of days in the entire taxable period.
(d)
All refunds or credits of Taxes of any Company Entity with respect to a Pre-Closing Tax Period (including any interest received
thereon) shall be for the account of Seller, and Buyer shall pay or cause to be paid over such refund or the amount of such credit
(and any interest received thereon) to Seller within five Business Days after receipt of such refund or final determination of
such credit.
(e)
If a written notice of any Proceeding with respect to Taxes owed by the Company is received by the Buyer or Company for
which the Seller could reasonably be expected to be liable pursuant under this Agreement (a “
Tax Claim
”), the
notified party shall give the Seller prompt written notice of such Tax Claim and in no event later than seven days after receipt
by such notified party of such written notice;
provided
, that the failure or delay by the applicable notified party to provide
notice of such Tax Claim to the Seller shall not affect the rights or obligations of the Parties under this Agreement except to
the extent the Seller has been materially prejudiced as a result of such failure or delay. After the Closing, upon the Seller’s
delivery of notice to the Buyer within 30 days of the Seller’s receipt of written notice of such Tax Claim, the Seller shall
have the right (at its option) to represent the interests of the Company in any Tax Claim relating to a Pre-Closing Tax Period;
provided
,
however
, that (i) the controlling party shall keep the non-controlling party reasonably informed and consult
in good faith with the non-controlling party with respect to any issue relating to such Tax Claim, (ii) the controlling party shall
provide the non-controlling party with copies of all correspondence, notices and other written material received from any Governmental
Entity with respect to such Tax Claim, (iii) the controlling party shall provide the non-controlling party with a copy of, and
an opportunity to review and comment on, all submissions made to a Governmental Entity in connection with such Tax Claim and (iv)
the controlling party may not agree to a settlement or compromise thereof without the prior written consent of the non-controlling
party, which consent shall not be unreasonably withheld, conditioned or delayed. If (A) the Seller fails to notify the Buyer of
its election to control such a Tax Claim within 30 days following receipt by the Seller of a notice of such Tax Claim or (B) such
Tax Claim relates to a tax period other than a Pre-Closing Tax Period, the Buyer shall control such Tax Claim, subject to the foregoing
proviso. In the event of a conflict between the provisions of this
Section 5.8(e)
and
Section 8.4
, the provisions
of this
Section 5.8(e)
shall control.
(f)
Tax Treatment and Purchase Price Allocation
.
(i)
Buyer and Seller hereby acknowledge and agree that the purchase and sale of Membership Interests contemplated by
this Agreement is intended to be treated as a sale of the assets of each Company Entity for U.S. federal Income Tax purposes. The
Buyer and the Seller further agree not to take any action or position that is inconsistent with such treatment unless otherwise
required to do so by applicable Law.
(ii)
In accordance with
Section 5.8(f)(i)
, Buyer shall, within 120 days following the Closing Date, prepare an
allocation of the Purchase Price (together with all other items treated as consideration for U.S. federal Income Tax purposes)
among the Company’s Assets in accordance with Section 1060 and the Treasury regulations thereunder (and any similar provision
of state, local, or non-U.S. law, as appropriate) (the “
Allocation
”). The Buyer may, at its discretion and at
its sole cost and expense, have a third party auditor prepare a valuation report supporting the Allocation. If Seller disputes
any item on the Allocation, it shall, within 60 days following receipt of the Allocation, notify Buyer of such disputed item (or
items) and the basis for its objection. The Buyer and the Seller shall negotiate in good faith for 10 days following Buyer’s
receipt of such notice to resolve any such disputed items. If the Buyer and the Seller are unable to resolve any disputed item
during such 10-day period, then any remaining disputed items, and only such remaining disputed items, shall be resolved by the
Independent Expert. The Independent Expert shall be instructed to resolve any such remaining disputes in accordance with the terms
of this Agreement within 10 days after its appointment and shall be provided the Buyer’s valuation report (if prepared) to
consider in making its resolution. The fees and expenses of the Independent Expert attributable to such dispute shall be borne
equally by the Seller, on the one hand, and the Buyer, on the other hand. The Allocation, as finally determined (the “
Final
Allocation
”), shall be binding upon Seller, Buyer and the Company. Seller, Buyer and the Company shall report, act, and
file all Tax Returns (including, but not limited to Internal Revenue Service Form 8594) in all respects and for all purposes consistent
with the Final Allocation prepared by Seller. None of Seller, Buyer and the Company shall take any action or position that is inconsistent
with the Final Allocation unless otherwise required to do so by applicable Law.
Section 5.9
Further
Actions
.
(a)
Subject to the terms and conditions of this Agreement, the Parties agree to use their reasonable best efforts (except where
a different efforts standard is specifically contemplated by this Agreement, in which case such different standard shall apply)
to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective the Transactions, including, without limitation, with respect to obtaining any consents required to be obtained
in connection with the consummation of the Transactions. The Parties further agree not to take any action, or fail to take any
action, that would otherwise have the effect of preventing or materially delaying the consummation of the Closing.
(b)
Subject to the terms and conditions of this Agreement, at any time and from time to time after the Closing, at a Party’s
request and without further consideration, the other Parties shall execute and deliver to such requesting Party such other instruments
of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions
as such Party may reasonably request in order to consummate the Transactions.
Section 5.10
Release
.
(a)
Effective upon and following the Closing and subject to
ARTICLE VIII
, the Buyer, on its own behalf, on behalf of
each Company Entity and on behalf of each of their respective Related Parties, generally, irrevocably, unconditionally and completely
releases and forever discharges, and agrees to indemnify, defend and hold harmless, the Seller and its Representatives, and each
of their respective Related Parties (collectively, the “
Seller Released Parties
”), from all past, present and
future Losses, whether known or unknown, arising from any matter concerning any Company Entity occurring prior to the Closing Date
(other than as contemplated hereby);
provided
,
however
, that nothing in this
Section 5.10
shall release the
Seller Released Parties from their obligations under this Agreement.
(b)
Effective upon and following the Closing and subject to
ARTICLE VIII
, the Seller, on its own behalf and on behalf
of each of its Related Parties, generally, irrevocably, unconditionally and completely releases and forever discharges, and agrees
to indemnify, defend and hold harmless, the Buyer and its Representatives, and each of their respective Related Parties (collectively,
the “
Buyer Released Parties
”), from all past, present and future Losses, whether known or unknown, arising from
any matter concerning any Company Entity occurring prior to the Closing Date (other than as contemplated hereby);
provided
,
however
, that nothing in this
Section 5.10
shall release the Buyer Released Parties from their obligations under
this Agreement.
Section 5.11
Employee Matters
.
(a)
Effective as of immediately following the Closing, the Buyer shall provide, or shall cause to be provided, to each individual
who is an Employee at the Closing and who remains employed by the Company following the Closing (each, a “
Continuing Employee
”):
(i) a base salary or hourly wage rate, as applicable, that is at least equal to the base salary or hourly wage rate provided to
such Continuing Employee immediately prior to the Closing, (ii) bonus and other incentive compensation opportunities (excluding
equity and equity based rights) that are no less favorable than those provided to such Continuing Employee immediately prior to
Closing, and (iii) employee benefits (excluding defined benefit pension benefits and equity and equity based rights) that
are no less favorable, in the aggregate, than those provided to such Continuing Employee immediately prior to Closing. Notwithstanding
anything to the contrary contained herein, the Buyer shall cause each Company Entity to pay, in the manner and at the time paid
in accordance with past practice, all bonuses and deferred compensation payments payable to Employees of such Company Entity for
services performed on or prior to the Closing Date.
(b)
From and after the Closing Date, the Buyer will, and will cause the Company to, grant Continuing Employees credit for service
with the Company earned prior to the Closing Date: (a) for eligibility and vesting purposes; and (b) for purposes of
vacation accrual and severance benefit determinations under any similar benefit or compensation plan, program or Contract replacing
any of the Seller’s Benefit Plans, but only to the extent that such service was credited for the same purpose for such Continuing
Employee under the corresponding Benefit Plan of the Seller as of the Closing Date and would not result in duplication of benefits.
Nothing contained herein, express or implied, is intended to confer upon any Employee of the Company any right to continued employment
for any period.
(c)
The Buyer shall not, and shall cause the Company not to, take any action following the Closing that could result in WARN
Act liability for Seller.
(d)
Nothing contained in this
Section 5.11
or elsewhere in this Agreement, express or implied, shall confer upon any
current or former Employee any right to continued employment or service (or resumed employment or service) subsequent to the Closing.
The provisions of this
Section 5.11
are for the sole benefit of the parties to this Agreement and nothing herein, expressed
or implied, is intended or shall be construed to (i) constitute an amendment to any of the compensation and benefits plans maintained
for or provided to employees prior to or following the Closing Date or (ii) confer upon or give to any person (including for the
avoidance of doubt any current or former employees, directors, or independent contractors of the Company Entities, or on or after
the Closing Date, the Buyer or any of its Affiliates), other than the parties hereto and their respective permitted successors
and assigns, any legal or equitable or other rights or remedies (with respect to the matters provided for in this
Section 5.11
)
under or by reason of any provision of this Agreement.
Section 5.12
Letter of Credit Facility
Agreement
. During the Interim Period, the Seller shall use reasonable efforts to assist the Buyer in its efforts to obtain,
or cause to be obtained, any necessary approvals with respect to the Letter of Credit Facility Agreement in connection with the
Transactions. If such approvals are not obtained after the Seller’s use of reasonable efforts, the Seller shall use reasonable
efforts to assist the Company in obtaining, or causing to be obtained, consents from the necessary Persons to accept new letters
of credit issued by a financial institution acceptable to the Buyer in lieu of the letters of credit issued under the Letter of
Credit Facility Agreement.
Section 5.13
Non-Solicitation of Employees;
Non-Competition
.
(a)
Non-Solicitation of Employees
. During the three-year period following the Closing Date (such period, the “
Restricted
Period
”), the Seller shall not (and shall cause the other Restricted Parties not to) (i) solicit or induce (or assist
any Person to solicit or induce) for employment, or (ii) hire or otherwise retain, any employee or consultant of the Buyer or its
Affiliates (including any Continuing Employee);
provided
, that the Seller and the other Restricted Parties shall not be
precluded from (A) engaging in any general or public solicitations or advertising (including by a
bona fide
search
firm) not targeted at such Persons, (B) soliciting any Person who responds to any general or public solicitations or advertising
permitted by the foregoing clause (A), or (C) soliciting or hiring any person no longer employed by the Buyer or any
of its Affiliates, as applicable, at least six months prior to the initiation of such solicitation.
(b)
Non-Competition
. The Seller agrees that, during the Restricted Period, the Seller shall not, and shall cause the
other Restricted Parties not to, directly or indirectly, own, manage, operate, finance, control, or knowingly participate in the
ownership, management, operation (including as a consultant, independent contractor or agent), control or financing of any Person
that has operations engaged, directly or indirectly, in the Business. Notwithstanding the foregoing, the direct or indirect passive
ownership by the Restricted Parties of publicly traded interests in or securities of any Person engaged in the Business to the
extent that such investment does not, directly or indirectly, confer on the Restricted Parties more than 2% of the voting power
of such Person shall not constitute a breach of this
Section 5.13(b)
.
(c)
Generally
.
(i)
The undertakings set forth in this
Section 5.13
are given to the Buyer and to each of its Affiliates (including,
following the Closing, the Company Entities). The Seller acknowledges that such undertakings are an entirely independent restriction
and are no greater than is reasonably necessary to protect the interests of the Buyer and its Affiliates. If the final judgment
of a court of competent jurisdiction declares that any term or provision of this
Section 5.13
is invalid or unenforceable,
the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the
scope, duration or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.
(ii)
The Seller acknowledges and agrees that, in the event of a breach by the Seller or any of its Subsidiaries or Affiliates
of any of the applicable provisions of
Section 5.1
or this
Section 5.13
, monetary damages shall not constitute a
sufficient remedy. Consequently, in the event of any such breach, the Buyer, its Subsidiaries, their respective Affiliates or any
such Person’s respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply
to any court of law or equity of competent jurisdiction for specific performance, injunctive relief, or both, or any other equitable
remedies available to enforce or prevent any violations of the provisions hereof (including the extension of the applicable period
in
Section 5.13(a)
and by a period equal to (a) the length of the violation of this
Section 5.13
,
plus
(b)
the length of any legal Proceeding necessary to stop such violation), in each case, without the requirement of posting a bond or
proving actual damages.
Section 5.14
Change in Recommendation
.
(a)
Subject to the further provisions of this
Section 5.14
, if, at any time after the date hereof and prior to obtaining
the Seller Stockholder Approval, the Seller receives an Alternative Acquisition Proposal from any Person that the Seller Board
has determined in good faith, after consultation with its independent financial advisors and outside legal counsel, constitutes
a Superior Acquisition Proposal, and that the failure to take any action with respect to such Superior Acquisition Proposal would
be inconsistent with the fiduciary duties of the members of the Seller Board under applicable Law, then the Seller Board may, (a) make
a Seller Adverse Recommendation Change and (b) cause the Seller to terminate this Agreement in accordance with
Section
7.1
in order to enter into a definitive agreement relating to such Superior Acquisition Proposal;
provided
that (i) the
Seller shall have (A) entered into a confidentiality agreement (in form and substance reasonably acceptable to the Buyer,
which acceptance cannot be unreasonably withheld, delayed or conditioned) with the Person that has made the Alternative Acquisition
Proposal, (B) furnished, pursuant to such confidentiality agreement, information (including non-public information) with respect
to the Company Entities to the Person that has made such Alternative Acquisition Proposal and its Representatives (
provided
that the Seller shall have, substantially concurrently with the delivery to such Person, provided to the Buyer any non-public information
concerning any Company Entity that was provided or made available to such Person or its Representatives unless such non-public
information had been previously provided or made available to the Buyer) and (C) engaged in or otherwise participated in discussions
or negotiations with the Person making such Alternative Acquisition Proposal and its Representatives regarding such Alternative
Acquisition Proposal. The Seller shall promptly (and in any event within 24 hours) notify the Buyer in writing if the Seller takes
any of the actions in clauses (A) through (C) above. Notwithstanding anything to the contrary set forth in this
Section
5.14(a)
, the Seller shall not make a Seller Adverse Recommendation Change unless such Seller Adverse Recommendation Change
is made in respect of a bona fide Superior Acquisition Proposal.
(b)
The Seller shall promptly (and in no event later than 24 hours after receipt) notify the Buyer in writing in the event that
the Seller or any of its Representatives receives an Alternative Acquisition Proposal or any offer, proposal, inquiry or request
for information or discussions relating to the Company Entities that, as determined by the Seller Board in good faith, would be
reasonably likely to lead to an Alternative Acquisition Proposal, including the identity of the Person making such Alternative
Acquisition Proposal or offer, proposal, inquiry or request and the material terms and conditions thereof (including, if applicable,
unredacted copies of any written requests, proposal or offers, including proposed agreements). The Seller shall keep the Buyer
reasonably informed, on a reasonably current basis (but in no event more often than once every 24 hours), as to the status of,
including any material changes to, such Alternative Acquisition Proposal, offer, proposal, inquiry or request.
(c)
Prior to making a Seller Adverse Recommendation Change, (A) the Seller shall have given the Buyer at least four Business
Days prior written notice of its intention to take such action specifying, in reasonable detail, the Superior Acquisition Proposal
(
provided
that, if applicable, following any subsequent revisions to the terms of the such applicable Superior Acquisition
Proposal, the Seller shall be required to deliver a new written notice pursuant to this clause (A) and, thereafter, comply
with the further requirements of this sentence with respect to such new written notice), (B) during such notice period, the
Seller shall have, and shall have caused its Representatives to, negotiate with the Buyer and its Representatives in good faith
(to the extent the Buyer desires to negotiate to) make such adjustments to the terms and conditions of this Agreement and/or the
other Contracts contemplated hereby, and (C) upon the end of such notice period, the Seller Board shall have considered in
good faith any revisions to the terms of this Agreement and/or the other Contracts contemplated hereby proposed in writing by the
Buyer, and shall have determined, after consultation with independent financial advisors and outside legal counsel, that the failure
to make a Seller Adverse Recommendation Change would be inconsistent with the Seller Board’s fiduciary duties under applicable
Law.
(d)
Nothing contained in this
Section 5.14
shall prohibit the Seller or the Seller Board from (i) taking and disclosing
to its stockholders a position contemplated by Rule 14e-2(a) or Rule 14d-9 or Item 1012(a) of Regulation M-A
promulgated under the Exchange Act (it being understood that such action (other than “stop, look and listen” communication
pursuant to Rule 14d-9(f) under the Exchange Act) shall constitute a Seller Adverse Recommendation Change for purposes of
Section 7.1
), or (ii) from making any “stop, look and listen” communication to its stockholders pursuant
to Rule 14d-9(f) under the Exchange Act.
(e)
The Seller agrees that any breach of this
Section 5.14
by any of its Subsidiaries or its and their respective Representatives
shall be deemed to be a breach of this
Section 5.14
by the Seller.
Section 5.15
Real Property Matters
.
Subject to the terms and conditions of this Agreement, the Seller shall, on or prior to Closing, use reasonable efforts to cause
BRE/HC Las Vegas Property Holdings, L.L.C., as landlord under that certain lease for certain premises located at 3960 Howard Hughes
Parkway, Suite 900, Las Vegas, Nevada (the “
Premises
”) to (x) deliver its consent to that certain sublease agreement
by and between the Seller, as sublandlord, and the Business, as subtenant, and (y) consent to the physical separation of the Premises
in a manner reasonably satisfactory to the Buyer such that the Buyer may, immediately following the Closing, operate the Business
in the ordinary course.
Section 5.16
Confidentiality
. For
a period of five (5) years from and after the Closing, the Seller shall keep confidential, and cause its Subsidiaries and instruct
its officers, directors, employees, agents, attorneys, accountants, advisors and representatives to keep confidential, all non-public
information to the extent relating to the Company Entities and the Business after the Closing (collectively, such information,
“
Business Proprietary Information
”), except (i) solely to the extent required or requested by a Governmental
Entity or required pursuant to applicable Law or the rules or regulations of any securities exchange or listing authority or legal,
administrative, regulatory or judicial investigation or proceeding (whether by oral questions, interrogatories, requests for information
or documents, subpoena, civil investigative demand or similar process); (ii) for information that is available on the Closing
Date to the public, or thereafter becomes available to the public other than as a result of a breach of this
Section 5.16
;
(iii) for information required to be disclosed in connection with the exercise of any rights or remedies provided in this
Agreement or any Ancillary Document or any legal Proceeding related to this Agreement or any Ancillary Document or the enforcement
of rights thereunder; (iv) for information that is or was independently conceived or developed by the Seller and its officers,
directors, employees, agents, attorneys, accountants, advisors and representatives following the Closing Date without the use of
or reference to any other Business Proprietary Information described in this
Section 5.16
; (v) for information required
to be disclosed in connection with Taxes; or (vi) for information that is received after the Closing by the Seller or its Representatives
from a source other than the Buyer, the Company or any of their respective Representatives, provided that such source, to the Seller’s
knowledge (after reasonable inquiry), is not bound by a confidentiality agreement with respect to such information or otherwise
prohibited from transmitting such information by a contractual, legal or fiduciary obligation. If the Seller or its Affiliates
is required under clauses (i), (iii) or (v) of this
Section 5.16
to disclose any Business Proprietary Information,
it shall notify the Buyer promptly of the request or requirement to the extent not prohibited by applicable Law so that the Buyer,
at its or the Company’s sole cost and expense, may seek an appropriate protective order or waive compliance with this
Section
5.16
;
provided
that such notice shall not be required to the extent that information described in clause (v) is disclosed
in a Tax Return required by applicable Law. If, in the absence of a protective order or receipt of a waiver hereunder, the Seller
or its Affiliates is, on the advice of counsel, legally required to disclose such Business Proprietary Information, such Person
may so disclose such Business Proprietary Information;
provided
that such Person shall use commercially reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded to such Business Proprietary Information.
Section 5.17
Insurance Cooperation
.
(a)
From and after the Closing Date, the Company shall be entitled to coverage under Insurance Policies (for the avoidance of
doubt, excluding any self-insurance) maintained by the Seller in effect on or prior to the Closing Date (the “
Seller Insurance
Policies
”) with respect to the Company Entities and the Business for matters, events, facts or circumstances arising
on or prior to the Closing Date, but on the terms and subject to the conditions and limitations set forth therein (including retentions
and deductibles) and to the extent permitted under the applicable Seller Insurance Policies and without any obligation by the Seller
to amend, modify or otherwise supplement such Seller Insurance Policies (including obtaining any extended reporting period policy).
The Seller shall cooperate with the Buyer and the Company Entities, as applicable, in filing any insurance claims and in the collection
of insurance proceeds. At the Buyer’s request and cost, the Seller shall use commercially reasonable efforts to pursue, or
caused to be pursued, collection of insurance proceeds. Any Party receiving a notice with respect to any such claim shall promptly
notify the other Party.
(b)
No covenant or agreement by any Party to indemnify the other Party shall release, or be deemed to release, any insurer with
respect to any claim made under any Seller Insurance Policy, and this
Section 5.17
shall not be deemed to limit in any way
the indemnification obligations of the parties under this Agreement.
Section 5.18
Intellectual Property
.
During the Interim Period, the Seller shall use commercially reasonable efforts to ensure that all documents and instruments
necessary to establish, perfect and maintain the rights of the Company in and to the Intellectual Property required to be listed
on Section 3.17(a) of the Disclosure Schedule have been validly executed, delivered and filed with the appropriate Governmental
Authority, including, without limitation, name change or other documentation required to reflect “Vegas.com, LLC” rather
than “Vegas.com” as the record owner of each patent and each trademark for which “Vegas.com” is listed
as the record owner on Section 3.17(a) of the Disclosure Schedule.
ARTICLE
VI
CLOSING CONDITIONS
Section 6.1
Buyer’s
Conditions to Closing
. The obligation of the Buyer to consummate the Transactions shall be subject to fulfillment at or
prior to the Closing of the following conditions, any one or more of which may be waived (to the extent permitted by applicable
Law) in writing by the Buyer:
(a)
Representations and Warranties
. (i) The Fundamental Representations shall be true and correct as of the date hereof
and as of the Closing Date as if made on such date (except to the extent such representations and warranties relate to an earlier
date, in which case such representations and warranties shall be true and correct on and as of such earlier date), except in each
case, for
de minimis
breaches or inaccuracies of the Fundamental Representations, and (ii) the representations and warranties
of the Seller set forth in
ARTICLE III
(other than the Fundamental Representations), excluding for purposes of this clause
(ii) any references to any “materiality” or “Material Adverse Effect” or similar standards or qualifiers,
shall be true and correct as of the date hereof and as of the Closing Date as if made on such date (except to the extent such representations
and warranties relate to an earlier date, in which case such representations and warranties shall be true and correct on and as
of such earlier date), except in each case, for any breaches or inaccuracies of such representations and warranties that would
not, individually or in the aggregate, have a Material Adverse Effect.
(b)
Compliance with Agreements
. The covenants, agreements and obligations required by this Agreement to be performed
and complied with by the Seller at or prior to the Closing shall have been performed and complied with in all material respects
at or prior to the Closing Date.
(c)
Certificates
. The Seller shall execute and deliver to the Buyer a certificate executed by an authorized officer of
the Seller, dated as of the Closing Date, stating that the conditions specified in
Section 6.1(a)
,
Section 6.1(b)
and
Section 6.1(d)
have been satisfied.
(d)
No Material Adverse Effect
. Since the date of this Agreement, there shall not have occurred any Material Adverse
Effect.
(e)
Documents
. The Seller shall have delivered to the Buyer or shall stand ready to deliver all of the certificates,
instruments, Contracts and other documents specified to be delivered by it in
Section 2.3(b)
.
(f)
D&O Tail Policy
. The Company shall have obtained and fully paid for the D&O Tail Policy. The Company shall
bear the cost of the D&O Tail Policy, and such costs, to the extent not paid prior to the Closing, shall be included in the
determination of Closing Transaction Costs. During the term of each D&O Tail Policy, Seller shall not (and shall cause each
of its Affiliates not to) take any action following the Closing to cause the D&O Tail Policy to be cancelled or any provision
therein to be amended or waived.
(g)
Company Cash
. The Company Cash at Closing shall be at least $1,500,000.
(h)
Assignment of Mark and Domain Name License Agreement
. The Seller shall have delivered to the Buyer a document, in
form and substance reasonably satisfactory to the Buyer (which acceptance cannot be unreasonably withheld, delayed or conditioned),
evidencing the assignment from Stephens Media Intellectual Property, LLC (“
Stephens
”), as assignor, to Las Vegas
Review-Journal, Inc., as assignee, of Stephens’ right, title and interest in and to the Mark and Domain Name Assignment Agreement.
Section 6.2
Seller’s
Conditions to Closing
. The obligations of the Seller to consummate the Transactions shall be subject to fulfillment at
or prior to the Closing of the following conditions, any one or more of which may be waived (to the extent permitted by applicable
Law) in writing by the Seller:
(a)
Representations and Warranties
. (i) The Buyer Fundamental Representations shall be true and correct as of the date
hereof and as of the Closing Date as if made on such date (except to the extent such representations and warranties relate to an
earlier date, in which case such representations and warranties shall be true and correct on and as of such earlier date), except
in each case, for
de minimis
breaches or inaccuracies of the Buyer Fundamental Representations, and (ii) the representations
and warranties of the Buyer set forth in
ARTICLE IV
(other than the Buyer Fundamental Representations), excluding for purposes
of this clause (ii) any references to any “materiality”, “Buyer Material Adverse Effect” or similar standards
or qualifiers, shall be true and correct as of the date hereof and as of the Closing Date as if made on such date (except to the
extent such representations and warranties relate to an earlier date, in which case such representations and warranties shall be
true and correct on and as of such earlier date), except, in each case, for any breaches or inaccuracies of such representations
and warranties that that would not, individually or in the aggregate, have a Buyer Material Adverse Effect.
(b)
Compliance with Agreements
. The covenants, agreements and obligations required by this Agreement to be performed
and complied with by the Buyer at or prior to the Closing shall have been performed and complied with in all material respects
at or prior to the Closing Date.
(c)
Certificates
. The Buyer shall execute and deliver to the Seller a certificate executed by an authorized officer of
the Buyer, dated as of the Closing Date, stating that the conditions specified in
Section 6.2(a)
and
Section 6.2(b)
have been satisfied.
(d)
Documents
. The Buyer shall have delivered or shall stand ready to deliver all of the certificates, instruments, Contracts
and other documents specified to be delivered by it in
Section 2.3(a)
.
Section 6.3
Mutual
Conditions to Closing
. The respective obligations of the Buyer and the Seller to consummate the Transactions shall be subject
to fulfillment at or prior to the Closing of the following conditions, any one or more of which may be waived (to the extent permitted
by applicable Law) by mutual written agreement of the Buyer and the Seller:
(a)
Governmental Approvals
. The Parties shall have received or have been deemed to have received all other necessary
pre-closing authorizations, consents, clearances, waivers and approvals of all Governmental Entities in connection with the execution,
delivery and performance of this Agreement and the Transactions.
(b)
Absence of Orders
. No provision of any applicable Law prohibiting, enjoining, restricting or making illegal the consummation
of the Transactions shall be in effect and no temporary, preliminary or permanent restraining Order enjoining, restricting or making
illegal the consummation of the Transactions shall be in effect.
(c)
Seller Stockholder Approval
. The Seller Stockholder Approval shall have been obtained and be in full force and effect.
ARTICLE
VII
TERMINATION
Section 7.1
Grounds
for Termination
. This Agreement may be terminated:
(a)
by either the Buyer (upon written notice from the Buyer to the Seller not less than three Business Days following the Outside
Date) or the Seller (upon written notice from the Seller to the Buyer not less than three Business Days following the Outside Date)
if the Closing shall not have occurred prior to June 15, 2019 (the “
Outside Date
”), unless such failure of the
Closing to have occurred shall be proximately caused by the failure of the terminating Party to perform or comply with any representation,
warranty, covenant or other agreement contained herein;
provided
, that if, as of such date, all conditions to the Closing
set forth in
ARTICLE VI
have been satisfied or waived (other than such conditions that by their terms are satisfied at or
immediately prior to the Closing) other than the condition set forth in
Section 6.3(c)
, the Outside Date may be extended
by the Buyer, in its sole discretion (upon written notice from the Buyer to the Seller within two Business Days following the Outside
Date) to August 15, 2019.
(b)
by the Buyer (upon written notice from the Buyer to the Seller) if (i) there exists a breach of any representation or warranty
of the Seller contained in this Agreement such that the closing condition set forth in
Section 6.1(a)
would not be satisfied
or (ii) the Seller shall have breached any of the covenants or agreements contained in this Agreement to be complied with by the
Seller such that the Closing condition set forth in
Section 6.1(b)
would not be satisfied;
provided
, that (A) the
Buyer shall not be entitled to terminate this Agreement pursuant to this
Section 7.1(b)
unless, in the case of the immediately
preceding clauses (i) or (ii), such breach is not curable prior to, or is not cured by the Seller, prior to the earlier of (x)
30 days after the Seller receives written notice of such breach from the Buyer and (y) the Outside Date; and (B) the Buyer shall
not be entitled to terminate this Agreement pursuant to this
Section 7.1(b)
if, at the time of such termination, the Buyer
is in breach of any representation, warranty, covenant or other agreement contained herein in a manner such that the conditions
to Closing set forth in
Section 6.2(a)
or
Section 6.2(b)
, as applicable, would not have been satisfied;
(c)
by the Seller (upon written notice from the Seller to the Buyer) if (i) there exists a breach of any representation or warranty
of the Buyer contained in this Agreement such that the closing condition set forth in
Section 6.2(a)
would not be satisfied
or (ii) the Buyer shall have breached any of the covenants or agreements contained in this Agreement to be complied with by the
Buyer such that the closing condition set forth in
Section 6.2(b)
would not be satisfied;
provided
, that (A) the
Seller shall not be entitled to terminate this Agreement pursuant to this
Section 7.1(c)
unless, in the case of the immediately
preceding clauses (i) or (ii), such breach is not curable prior to, or is not cured by the Buyer, prior to the earlier of (x) 30
days after the Buyer receives written notice of such breach from the Seller and (y) the Outside Date; and (B) the Seller shall
not be entitled to terminate this Agreement pursuant to this
Section 7.1(c)
if, at the time of such termination, the Seller
is in breach of any representation, warranty, covenant or other agreement contained herein in a manner such that the conditions
to Closing set forth in
Section 6.1(a)
or
Section 6.1(b)
, as applicable, would not have been satisfied;
(d)
by either the Buyer (upon written notice from the Buyer to the Seller) or by the Seller (upon written notice from the Seller
to the Buyer) if there shall be in effect a final, nonappealable Order prohibiting, enjoining, restricting or making illegal the
Transactions;
(e)
by either the Buyer (upon written notice from the Buyer to the Seller) or by the Seller (upon written notice from the Seller
to the Buyer) if (i) the Seller Stockholder Meeting (including any adjournments or postponements thereof) shall have been held
and the Seller’s stockholders shall have taken a vote on the approval of the Transactions; and (ii) the Seller Stockholder
Approval shall not have been obtained;
(f)
at any time prior to the Closing Date by mutual written agreement of the Buyer and the Seller;
(g)
by the Buyer (by written notice from the Buyer to the Seller) or by the Seller (by written notice from the Seller to the
Buyer) if there shall have been a Seller Adverse Recommendation Change made in accordance with
Section 5.14
; or
(h)
by the Buyer (by written notice from the Buyer to the Seller) if the preliminary Proxy Statement is not on file with the
SEC prior to the Proxy Deadline;
provided
that the failure to meet the Proxy Deadline is not proximately caused by the Buyer.
Section 7.2
Effect
of Termination
. Termination of this Agreement pursuant to
Section 7.1
shall terminate all obligations of the
Parties, except for the obligations under
Section 5.3
,
Section 5.5
, this
Section 7.2
, and
ARTICLE
IX
;
provided
,
however
, that termination pursuant to
Section 7.1
shall not relieve a defaulting or
breaching Party (whether or not the terminating Party) from any liability to the other Party resulting from any intentional default
or breach hereunder occurring prior to such termination, unless, with respect to a termination pursuant to
Section 7.1(f)
,
the Parties have expressly waived such defaulting or breaching Party from any liability resulting from any such default or breach
hereunder.
ARTICLE
VIII
INDEMNIFICATION
Section 8.1
Survival
.
(a)
All representations and warranties contained in this Agreement or any instrument or certificate delivered pursuant to this
Agreement shall survive the Closing for a period of 12 months from the Closing Date other than Fundamental Representations and
the Buyer Fundamental Representations, which shall survive the Closing indefinitely.
(b)
The covenants and agreements contained in this Agreement or any instrument or certificate delivered pursuant to this Agreement
that by their terms do not contemplate performance after the Closing shall survive the Closing for a period of 60 days following
the Closing. The covenants and agreements contained in this Agreement or any instrument or certificate delivered pursuant to this
Agreement that by their terms contemplate performance after the Closing Date shall survive the Closing in accordance with their
terms until 60 days following the expiration of any applicable statute of limitations;
provided
,
however
, that any
such covenant or agreement that expires on a date certain shall survive until such date certain.
(c)
The period for which a representation, warranty, covenant or agreement survives the Closing is referred to herein as the
“
Applicable Survival Period
.” In the event notice of a claim for indemnification under
Section 8.2
or
Section 8.3
is given within the Applicable Survival Period, the representation, warranty, covenant or agreement
that is the subject of such indemnification claim shall survive with respect to such claim until such claim is finally resolved.
Section 8.2
Indemnification
by the Seller
.
(a)
Subject to the limitations set forth in this
ARTICLE VIII
, after the Closing, the Seller shall indemnify and defend
the Buyer, its Affiliates (including the Company Entities), its and their respective Representatives, and each of the foregoing
Person’s respective Related Parties, and each of the successors and assigns of any of the foregoing (collectively, the “
Buyer
Indemnitees
”) against, and shall hold each Buyer Indemnitee harmless from, any loss, liability, dispute, claim, controversy,
demand, charge, action, suit, proceeding, assessed interest, penalty, damage, Tax, cost, expense and cause of action of every kind
and nature (collectively, “
Losses
”) resulting from, arising out of or incurred by such Buyer Indemnitee in connection
with, or otherwise with respect to:
(i)
any inaccuracy in or breach of any representation and warranty made by the Seller in this Agreement or any instrument
or certificate delivered pursuant to this Agreement (except for the Fundamental Representations);
(ii)
any inaccuracy in or breach of any Fundamental Representation;
(iii)
any breach or non-fulfillment of the covenants or agreements determined without regard to materiality of the Seller
contained in this Agreement or any instrument or certificate delivered pursuant to this Agreement; and
(iv)
any Indebtedness (other than Indebtedness under the Financing Agreement and the Letter of Credit Facility Agreement)
or Transaction Costs that are not paid in full prior to the Closing.
(b)
The Seller shall not be liable for any Loss or Losses (i) unless a written notice of claim for such Loss or Losses is provided
within the Applicable Survival Period, (ii) if such Loss or Losses arise under
Section 8.2(a)(i)
(A) unless and until the
amount of Losses arising from any matter or series of related matters exceeds $25,000 (“
Covered Losses
”), and
(B) unless and until all Losses arising under
Section 8.2(a)(i)
exceed $300,000 (the “
Deductible
”) (provided
that any Losses that do not constitute Covered Losses shall be included in determining whether or not the amount of Losses under
Section 8.2(a)(i)
exceeds the Deductible);
provided
,
however
, that the cumulative indemnification obligations
of the Seller under
Section 8.2(a)(i)
shall in no event exceed $6,000,000. Notwithstanding any to the contrary set forth
herein, the cumulative indemnification obligations of the Seller under this
ARTICLE VIII
shall in no event exceed $30,000,000.
(c)
Subject to
Section 9.6
and except in respect of Fraud, the Buyer acknowledges and agrees that, should the Closing
occur, its and each Buyer Indemnitee’s sole and exclusive remedy with respect to any and all matters arising out of, relating
to or connected with this Agreement, the Company Entities and their respective assets and liabilities, the Transactions and the
Membership Interests shall be pursuant to the indemnification provisions set forth in this
ARTICLE VIII
;
provided
,
that nothing contained herein shall operate to limit the Buyer Indemnitees’ ability to make a claim for Fraud. Without limiting
the generality of the foregoing, the Buyer acknowledges and agrees that (i) any claim or cause of action based upon, arising out
of, or related to this Agreement or the Transactions may only be brought against Persons that are expressly named as Parties hereto,
and then only with respect to the specific obligations set forth herein, and (ii) no Representative of the Company or the Seller
shall have any liability or obligation for any of the representations, warranties, covenants, agreements, obligations or liabilities
of any Party under this Agreement or of or for any Proceeding based on, in respect of, or by reason of, the Transactions (including
the breach, termination or failure to consummate the Transactions), in each case whether based on Contract, tort, fraud, strict
liability, other Laws or otherwise and whether by piercing the corporate veil, by a claim by or on behalf of a Party or another
Person or otherwise.
(d)
To the extent that any Buyer Indemnitee is entitled to indemnification payments pursuant to this Agreement, such indemnification
payments shall be satisfied from the Seller, subject to the limitations set forth in
Section 8.2(b)
.
Section 8.3
Indemnification
by the Buyer
.
(a)
Subject to the limitations set forth in this
ARTICLE VIII
, after the Closing, the Buyer shall, and shall cause the
Company Entities to, indemnify, hold harmless and defend the Seller, its Affiliates, its and their respective Representatives,
and each of the foregoing Person’s respective Related Parties, and each of the successors and assigns of any of the foregoing
(collectively, the “
Seller Indemnitees
”) against, and shall hold each Seller Indemnitee harmless from, any Loss
resulting from, arising out of, or incurred by such Seller Indemnitee in connection with, or otherwise with respect to:
(i)
any inaccuracy in or breach of any representation and warranty made the Buyer in this Agreement (other than the Buyer
Fundamental Representations);
(ii)
any inaccuracy in or breach of any Buyer Fundamental Representation; and
(iii)
any breach or non-fulfillment of any covenant or agreement determined without regard to materiality of the Buyer
contained in this Agreement.
(b)
The Buyer shall not be liable for any Loss or Losses (i) unless a written notice of claim for such Loss or Losses is provided
within the Applicable Survival Period, (ii) if such Loss or Losses arise under
Section 8.3(a)(i)
, (A) unless and until the
amount of Losses arising from any matter or series of related matters constitutes Covered Losses, and (B) unless and until the
amount of all Losses under Section 8.3(a)(i) exceed the Deductible (provided that any Losses that do not constitute Covered Losses
shall be included in determining whether or not the amount of Losses under Section 8.3(a)(i) exceeds the Deductible);
provided
,
however
, that the cumulative indemnification obligations of the Buyer under
Section 8.3(a)(i)
shall in no event exceed
$6,000,000. Notwithstanding anything to the contrary set forth herein, the cumulative indemnification obligations of the Buyer
under this
ARTICLE VIII
shall in no event exceed $30,000,000.
(c)
Subject to
Section 9.6
, the Seller acknowledges and agrees that, should the Closing occur, each Seller Indemnitee’s
sole and exclusive remedy with respect to any and all matters arising out of, relating to or connected with this Agreement and
the Transactions shall be pursuant to the indemnification provisions set forth in
Section 5.10
or in this
ARTICLE VIII
;
provided
, that nothing contained herein shall operate to limit the Seller Indemnitees’ ability to make a claim for
Fraud.
(d)
Without limiting the generality of the foregoing, each Party acknowledges and agrees that (i) any claim or cause of action
based upon, arising out of, or related to this Agreement or the Transactions may only be brought against Persons that are expressly
named as Parties hereto, and then only with respect to the specific obligations set forth herein, and (ii) no Representative or
Related Party of the Company, the Buyer or the Seller shall have any liability or obligation for any of the representations, warranties,
covenants, agreements, obligations or liabilities of any Party under this Agreement or of or for any Proceeding based on, in respect
of, or by reason of, the Transactions (including the breach, termination or failure to consummate the Transactions), in each case
whether based on Contract, tort, fraud, strict liability, other Laws or otherwise and whether by piercing the corporate veil, by
a claim by or on behalf of a Party or another Person or otherwise.
Section 8.4
Indemnification
Procedure for Third-Party Claims
.
(a)
In the event that any claim or demand, or other circumstance or state of facts that could give rise to any claim or demand,
for which an Indemnitor may be liable to an Indemnitee hereunder, is asserted or sought to be collected by a Person or Governmental
Entity who is not a Party or an Affiliate thereof (a “
Third-Party Claim
”), the Indemnitee shall notify the Indemnitor
in writing of such Third-Party Claim (a “
Notice of Claim
”) as promptly as practicable following receipt by such
Indemnitee of notice of such Third-Party Claim;
provided
,
however
, that a failure or delay by an Indemnitee to provide
a Notice of Claim as promptly as practicable shall not affect the rights or obligations of such Indemnitee unless the Indemnitor
shall have been materially prejudiced as a result of such failure or delay. The Notice of Claim shall specify in reasonable detail
each individual item of Loss, including a reasonable estimate of the amount thereof (to the extent known). The Indemnitee shall
enclose with the Notice of Claim a copy of all papers served with respect to such Third-Party Claim, if any, and any other documents
evidencing such Third-Party Claim.
(b)
The Indemnitor shall have the right, but not the obligation, to assume the defense or prosecution of such Third-Party Claim
and any litigation resulting therefrom with counsel of its choice and at its sole cost and expense (a “
Third-Party Defense
”)
by delivering written notice of such assumption to the Indemnitee within 20 days of the receipt of the applicable Notice of Claim;
provided
,
however
, that, notwithstanding the foregoing, the Indemnitor shall not be entitled to conduct or control
the defense of such Third-Party Claim if (i) in the reasonable conclusion of the applicable Indemnitee, a material conflict
of interest exists between the applicable Indemnitee and the Indemnitor that would make such separate representation necessary;
(ii) there are specific defenses available to the Indemnitee that are different from or additional to those available to the
Indemnitor and that could be materially adverse to the Indemnitor; (iii) such Third Party Claim, together with all other outstanding
and previously resolved claims for which a Notice of Claim has been timely and validly delivered, is for an amount that is less
than the Deductible or greater than the maximum aggregate liability of the Indemnitor set forth in
Section 8.2
or
Section
8.3
, as applicable, with respect to the subject matter underlying such Third Party Claim or could have a material and adverse
impact on the business of the Indemnitee (after giving effect to the Transaction); (iv) upon petition by the Indemnitee, an appropriate
court of competent jurisdiction rules that the Indemnitor failed or is failing to vigorously prosecute or defend such Third-Party
Claim; (v) such Third-Party Claim seeks an Order, injunction or other equitable relief or relief for other than money damages
against the Indemnitee; (vi) such Third-Party Claim involves the pursuit of claims on behalf of the Indemnitee against any
customer, content provider or vendor of the business of the Indemnitee (after giving effect to the Transaction); or (vii) such
Third-Party Claim relates to or arises in connection with a criminal action or an action brought by a Governmental Entity. If the
Indemnitor elects to assume the control of the defense of a Third-Party Claim pursuant to, and in accordance with, this
Section
8.4(b)
, such Third-Party Claim underlying such defense will be irrevocably and unconditionally deemed to be indemnifiable under
this Agreement, and the Indemnitor shall, by assuming the control of the defense of such Third Party Claim, thereby waives its
right to make any claim that any Losses suffered by the Indemnitee (other than the fees of the Indemnitee’s separate legal
counsel or any other expenses incurred by the Indemnitee without request or direction of, or in connection with, the Indemnitor
) are not indemnifiable hereunder. If the Indemnitor assumes the Third-Party Defense in accordance herewith, (i) the Indemnitee
may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third-Party Claim but the Indemnitor
shall control the investigation, defense and settlement thereof, (ii) the Indemnitee will not file any papers or consent to the
entry of any judgment or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the
Indemnitor (not to be unreasonably withheld, conditioned or delayed), (iii) the Indemnitor shall (A) promptly submit to the Indemnitee
copies of all pleadings, responsive pleadings, motions and other similar legal documents and papers received or filed in connection
with such Third-Party Claim, and (B) to the extent practicable, permit the Indemnitee and, to the extent applicable, its separate
legal counsel an opportunity to review all legal papers to be submitted prior to the submission thereof, and the Indemnitor shall
reasonably consider any comments of the Indemnitee or its separate legal counsel provided thereto, and (iv) the Indemnitor will
not consent to the entry of any judgment or enter into any settlement with respect to the Third-Party Claim, without the prior
consent of the Indemnitee, to the extent such judgment or settlement (x) provides for injunctive or other equitable relief, (y)
provides for the payment of money damages by the Indemnitee or its Affiliates, or (z) does not contain an express and unconditional
release of the Indemnitee and its Affiliates from all liabilities and obligations with respect to such Third-Party Claim. The Parties
will use their commercially reasonable efforts to minimize Losses from Third-Party Claims and will act in good faith in responding
to, defending against, settling or otherwise dealing with such claims. The Parties will also cooperate in any such defense and
give each other reasonable access to all information relevant thereto. Whether or not the Indemnitor has assumed the Third-Party
Defense, any settlement entered into or any judgment that was consented to without the Indemnitor’s prior written consent
shall not be determinative of the amount of Losses relating to such matter.
(c)
If the Indemnitor does not assume the Third-Party Defense, the Indemnitee will be entitled to assume the Third-Party Defense,
at its sole cost and expense (or, if the Indemnitee incurs a Loss with respect to the matter in question for which the Indemnitee
is entitled to indemnification pursuant to
Section 8.2
or
Section 8.3
, as applicable, at the expense of the
Indemnitor), upon delivery of notice to such effect to the Indemnitor;
provided
,
however
, that the Indemnitor (i)
shall have the right to participate in the Third-Party Defense at its sole cost and expense, but the Indemnitee shall control the
investigation, defense and settlement thereof and (ii) may at any time thereafter assume the Third-Party Defense, in which event
the Indemnitor shall bear the reasonable fees, costs and expenses of the Indemnitee’s counsel incurred prior to the assumption
by the Indemnitor of the Third-Party Defense.
Section 8.5
Indemnification
Procedures for Non-Third-Party Claims
. The Indemnitee shall notify the Indemnitor in writing as promptly as practicable
following its discovery of any matter for which the Indemnitee may seek indemnification pursuant to this
ARTICLE VIII
that
does not involve a Third-Party Claim. Such notice shall (a) state that the Indemnitee has paid or properly accrued Losses or anticipates
that it will incur liability for Losses for which such Indemnitee is entitled to indemnification pursuant to this Agreement, and
(b) specify in reasonable detail each individual item of Loss included in the amount so stated, the date such item was paid or
properly accrued, the basis for any anticipated liability and the nature of the misrepresentation, breach of warranty, breach of
covenant or claim to which each such item is related and the calculation of the amount to which such Indemnitee claims to be entitled
hereunder;
provided
,
however
, that a failure or delay by an Indemnitee to provide such notice as promptly as practicable
shall not affect the rights or obligations of such Indemnitee unless the Indemnitor shall have been prejudiced as a result of such
failure or delay. The Indemnitee will reasonably cooperate and assist the Indemnitor in determining the validity of any claim for
indemnity by the Indemnitee and in otherwise resolving such matters. Such assistance and cooperation will include providing reasonable
access to and copies of information, records and documents relating to such matters, furnishing employees to assist in the investigation,
defense and resolution of such matters and providing legal and business assistance with respect to such matters.
Section 8.6
Calculation
of Indemnity Payments
.
(a)
Each Indemnitee shall use its commercially reasonable efforts to pursue and collect on any recovery available under any
insurance policies. The amount of Losses payable under this
ARTICLE VIII
by the Indemnitor shall be reduced by any and all
amounts actually recovered by the Indemnitee under applicable insurance policies or from any other Person alleged to be responsible
therefor (net of any expenses incurred by or on behalf of such Indemnitee in collecting such amounts, including any increase of
any premiums as a result thereof). If the Indemnitee actually receives any amounts under applicable insurance policies or from
any other Person alleged to be responsible for any Losses, subsequent to an indemnification payment by the Indemnitor, then such
Indemnitee shall promptly reimburse the Indemnitor for any payment made or expense incurred by such Indemnitor in connection with
providing such indemnification up to the amount received by the Indemnitee, net of any expenses incurred by such Indemnitee in
collecting such amount, including any increases in any premiums as a result thereof.
(b)
Each Indemnitee shall use commercially reasonable efforts to mitigate its Losses upon and after becoming aware of any event
or condition that would reasonably be expected to give rise to any Losses that are indemnifiable hereunder.
(c)
The amount of Losses incurred by an Indemnitee shall be reduced by the present value of any Tax benefit and increased by
the present value of any Tax detriment actually realized by the Indemnitee or its Affiliates arising in connection with the circumstances
relating to such Losses within the taxable year such loss arises and the following taxable year (and, if actually realized after
any payment by the Indemnitor with respect to such Losses, the Indemnitee shall return to the Indemnitor, as an adjustment to the
Purchase Price, the amount of such benefit) in the Tax year in which such Losses were incurred.
(d)
No Losses shall be determined or increased based on any multiple of any financial measure (including earnings, sales or
other benchmarks) that might have been used by the Buyer in the valuation of the Company Entities or their respective business
operations.
(e)
In no event shall any Party have any liability to any Person for any consequential, special, incidental, indirect or punitive
damages, lost profits or similar items (including loss of revenue, income or profits, diminution of value or loss of business reputation,
goodwill or opportunity relating to a breach or alleged breach hereof), except in the case of a Party’s obligation to indemnify
an Indemnitee for amounts paid to a third party where such amounts are awarded pursuant to a Third-Party Claim (or settlement thereof)
that is subject to indemnification in accordance with, and subject to the limitations set forth in,
ARTICLE VIII
.
(f)
For the sole purpose of determining Losses (and not for determining whether or not any breaches of representations or warranties
have occurred), the representations and warranties of Seller shall not be deemed qualified by any references to “materiality
or “Material Adverse Effect”.
Section 8.7
Characterization
of Indemnification Payments
. Except as otherwise required by applicable Law, the Parties shall treat any payment made pursuant
to this
ARTICLE VIII
as an adjustment to the Purchase Price for Tax purposes.
ARTICLE
IX
MISCELLANEOUS
Section 9.1
Notices
.
Any notice, request, demand, waiver, consent, approval or other communication that is required or permitted hereunder shall be
in writing and shall be deemed given: (a) on the date established by the sender as having been delivered personally, (b) on the
date delivered by a private courier as established by the sender by evidence obtained from the courier, (c) on the date sent by
email if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of
the recipient, or (d) on the fifth Business Day after the date mailed, by certified or registered mail, return receipt requested,
postage prepaid. Such communications, to be valid, must be addressed as follows:
(a)
if to the Buyer, to:
VDC-MGG Holdings LLC
c/o MGG Investment Group, LP
One Penn Plaza
New York, New York 10119
Attention: Kevin Griffin
Email: KGriffin@mgginv.com
with a required copy (which shall not constitute notice)
to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Fred Ragucci
Andrew Fadale
Email: frederic.ragucci@srz.com
andrew.fadale@srz.com
(b)
if to the Seller, to:
Remark Holdings, Inc.
3960 Howard Hughes Parkway, Suite 900
Las Vegas, Nevada 89169
Attention: Alison Davidson
Steven Wright
Email: adavidson@remarkholdings.com
swright@remarkholdings.com
with a required copy (which shall not constitute notice)
to:
Olshan Frome Wolosky LLP
1325 Avenue of the Americas
New York, New York 10019
Attention: Robert H. Friedman
Kenneth S. Mantel
Email: rfriedman@olshanlaw.com
kmantel@olshanlaw.com
or to such other address or to the attention
of such Person or Persons as the recipient Party has specified by prior written notice to the sending Party (or in the case of
counsel, to such other readily ascertainable business address as such counsel may hereafter maintain). If more than one method
for sending notice as set forth above is used, the earliest notice date established as set forth above shall control.
Section 9.2
Severability
.
If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law by a
court of competent jurisdiction or other Governmental Entity, (a) such provision will be fully severable, (b) this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and (c) the
remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Upon such determination, the Parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that
the Transactions be consummated as originally contemplated to the fullest extent possible.
Section 9.3
Entire
Agreement; Third-Party Beneficiaries
.
(a)
This Agreement, the Schedules, Exhibits, Appendices and the other documents, instruments and agreements specifically referred
to herein or therein or delivered pursuant hereto or thereto set forth the entire understanding of the Parties with respect to
the Transactions. All Schedules, Exhibits and Appendices referred to herein are intended to be and hereby are specifically made
a part of this Agreement. Any and all previous agreements and understandings between or among the Parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement.
(b)
This Agreement will not confer any rights or remedies upon any Person other than the Parties hereto and their respective
successors and permitted assigns, other than: (i)
Section 5.10
and
Section 5.11
(which will be for the benefit
of the Persons set forth therein, and any such Person will have the rights provided for therein); and (ii) this
ARTICLE IX
in respect of the Sections set forth under the immediately preceding clause (i).
Section 9.4
Governing
Law
. This Agreement and the Exhibits and Schedules hereto shall be governed by and interpreted and enforced in accordance
with the Laws of the State of New York, without giving effect to any choice of Law or conflict of Laws rules or provisions (whether
of the State of New York or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than
the State of New York.
Section 9.5
Consent
to Jurisdiction; Waiver of Jury Trial
. Each Party irrevocably submits to the exclusive jurisdiction of any state or federal
court located in New York, New York for the purposes of any Proceeding arising out of this Agreement or the Transactions, and agrees
to commence any such Proceeding only in such courts. Each Party further agrees that service of any process, summons, notice or
document by United States registered mail to such Party’s respective address set forth herein shall be effective service
of process for any such Proceeding. Each Party irrevocably and unconditionally waives any objection to the laying of venue of any
Proceeding arising out of this Agreement or the Transactions in such courts, and hereby irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Proceeding brought in any such court has been brought in an inconvenient
forum. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY
PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER ARISING HEREUNDER.
Section 9.6
Specific
Performance
.
(a)
The Parties agree that irreparable damage may occur in the event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached, and that such injury would not be adequately compensable in
monetary damages because of the difficulty ascertaining the amount of monetary damages that would be suffered in the event that
this Agreement were breached. It is accordingly agreed that the Parties shall be entitled to seek an injunction or injunctions
to prevent breaches of this Agreement and to seek to enforce specifically the terms and provisions of this Agreement, this being
in addition to any other remedy to which such Party is entitled at Law, in equity, in contract, in tort or otherwise.
(b)
The Parties hereby agree not to raise any unreasonable objections to the availability of the equitable remedy of specific
performance to prevent or restrain breaches of this Agreement by the Parties, as applicable, and to specifically enforce the terms
and provisions of this Agreement to prevent breaches or threatened breaches of, or to enforce compliance with, the respective covenants
and obligations of the Parties under this Agreement, all in accordance with the terms of this
Section 9.6
.
Section 9.7
Assignment
.
Neither this Agreement nor any of the rights or obligations hereunder shall be assigned by any of the Parties without the prior
written consent of the other Parties;
provided
,
however
, the Buyer may assign this Agreement or its right or obligations
hereunder to one or more Affiliates of the Buyer and/or MGG Funds, except that no such assignment shall release the Buyer from
its obligations under this Agreement. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the Parties and their respective successors and permitted assigns. Any attempted assignment in violation
of the terms of this
Section 9.7
shall be null and void,
ab initio
.
Section 9.8
Headings
.
All headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
Section 9.9
Construction
.
For the purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires: (a)
the meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such
term and vice versa, and words denoting either gender shall include both genders as the context requires; (b) where a word or phrase
is defined herein, each of its other grammatical forms shall have a corresponding meaning; (c) the terms “hereof”,
“herein”, “hereunder”, “hereby” and “herewith” and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement;
(d) when a reference is made in this Agreement to an Article, Section, paragraph, Exhibit or Schedule, such reference is to an
Article, Section, paragraph, Exhibit or Schedule to this Agreement unless otherwise specified; (e) the word “include”,
“includes” and “including” when used in this Agreement shall be deemed to be followed by the words “without
limitation”, unless otherwise specified; (f) a reference to any Party to this Agreement or any other agreement or document
shall include such Party’s predecessors, successors and permitted assigns; (g) all accounting terms used and not defined
herein have the respective meanings given to them under GAAP; (h) any event, the scheduled occurrence of which would fall on a
day that is not a Business Day, shall be deferred until the next succeeding Business Day; (j) any statement in this Agreement to
the effect that any information, document or other material has been “made available” by the Seller shall mean such
information, document or material was included in and available at the “Project Vertex” online datasite hosted by Raine
Securities LLC at least one Business Day prior to the date hereof; and (k) the word “or” shall be disjunctive and not
exclusive. The Parties have participated jointly in the negotiation and drafting of this Agreement, and any rule of construction
or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party by virtue of the authorship
of this Agreement shall not apply to the construction and interpretation hereof.
Section 9.10
Amendments and Waivers
.
This Agreement may not be amended, supplemented or modified except by an instrument in writing signed on behalf of the Buyer and
the Seller. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof,
but no such waiver shall be effective, unless set forth in a written instrument duly executed by the Party against whom enforcement
of such waiver is sought. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall
be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.
Section 9.11
Attorney-Client Privilege
.
Reference is made to the fact that Olshan Frome Wolosky LLP (the “
Firm
”) has acted as legal counsel to the Seller
and the Company Entities prior to the Closing in connection with this Agreement and the Transactions (the “
Pre-Closing
Engagement
”). All communications relating to the Pre-Closing Engagement and involving attorney-client confidences between
the Seller, its Affiliates or the Company Entities and the Firm shall be deemed to be attorney-client confidences that belong solely
to the Seller and its Affiliates (and not the Company Entities). Accordingly, the Company Entities shall not, without the Seller’s
consent, have access to the files of the Firm relating to the Pre-Closing Engagement. Without limiting the generality of the foregoing,
upon and after the Closing, (a) the Seller and its Affiliates (and not the Company Entities) shall be the sole holders of the attorney-client
privilege with respect to the Pre-Closing Engagement, and none of the Company Entities shall be a holder thereof, (b) to the extent
that files of the Firm in respect of the Pre-Closing Engagement constitute property of the client, only the Seller and their respective
Affiliates (and not the Company Entities) shall hold such property rights and (c) the Firm shall have no duty whatsoever to reveal
or disclose any such attorney-client communications or files to any of the Company Entities by reason of any attorney-client relationship
between the Firm and the Company Entities or otherwise.
Section 9.12
Schedules and Exhibits
.
Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are
made a part of this Agreement. The Disclosure Schedule has been arranged, for purposes of convenience only, in sections corresponding
to the Sections of this Agreement. The disclosure of any item in any section or subsection of Disclosure Schedule will be deemed
disclosure with respect to each other section and subsection of the Disclosure Schedule to which the relevance of such item is
reasonably apparent on its face to the Person to whom it is disclosed, without independent investigation or knowledge, that the
disclosure of such matter is applicable to such section and subsection of the Disclosure Schedule. The specification of any dollar
amount in the representations and warranties contained in this Agreement or the inclusion of any specific item in the Disclosure
Schedule is not intended to imply that such amounts (or higher or lower amounts) or items (a) are or are not material to the business,
assets, liabilities, financial condition, results of operation or prospects of the Company Entities, (b) amount to a Material Adverse
Effect or (c) occurred outside of the ordinary course of business of the Company. No Party shall use the fact of the setting of
such amounts or the fact of the inclusion of any such item in the Disclosure Schedule in any dispute or controversy between the
Parties as to whether any obligation, item or matter not described herein or included in a Disclosure Schedule is or is not material
for purposes of this Agreement.
Section 9.13
Counterparts
. This
Agreement, and the other documents, agreements and instruments to be delivered in connection herewith, may be executed in counterparts,
and any Party may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become effective
when each Party shall have received a counterpart hereof signed by the other Parties. The Parties agree that the delivery of this
Agreement, and the other documents, agreements and instruments to be delivered in connection herewith, may be effected by means
of an exchange of electronically transmitted signatures.
[
Signature Page Follows
]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly executed as of the day and year first above written.
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BUYER:
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VDC-MGG Holdings LLC
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By:
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MGG Investment Group LP, its Manager
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By:
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MGG GP LLC, its General Partner
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By:
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/s/ Kevin Griffin
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Name:
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Kevin Griffin
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Title:
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Chief Executive Officer
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SELLER:
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REMARK HOLDINGS, INC.
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By:
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/s/ Kai-Shing Tao
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Name:
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Kai-Shing Tao
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Title:
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Chairman/CEO
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Signature Page to Membership Interest Purchase Agreement
Appendix A
Definitions
When used in this Agreement, the following
terms have the meanings assigned to them in this Section:
“
Acceptable Delinquent AP
”
means any account payable of any Companies Entity that is delinquent more than 60 days in its payment;
provided
that all
such accounts payable, taken together, shall not exceed $500,000 in the aggregate.
“
Affiliate
” of any Person
means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under
common control with such first Person. For purposes of this definition, “control” of a Person means the power to, directly
or indirectly, direct or cause the direction of the management and policies of such Person whether through ownership of voting
securities or other ownership interests, by Contract or otherwise, including, with respect to a corporation, partnership or limited
liability company, the direct or indirect ownership of more than 50% of the voting securities in such corporation or of the voting
interest in a partnership or limited liability company.
“
Agreement
” has the
meaning set forth in the preamble to this Agreement.
“
Allocation
” has the
meaning set forth in
Section 5.8(f)(ii)
.
“
Alternative Acquisition Proposal
”
means any
bona fide
proposal, offer or similar indication of interest made by any Person or group of related Persons (other
than the Buyer and its Subsidiaries and Affiliates), and whether involving a transaction or series of related transactions, directly
or indirectly, for (i) a merger, reorganization, share exchange, consolidation, business combination, dissolution, liquidation,
joint venture, recapitalization or similar transaction involving any Company Entity, (ii) the acquisition (whether by purchase,
lease, exchange, transfer or other disposition) by any Person or group of related Persons (other than the Buyer and its Affiliates)
of more than 25% of the assets (measured by the market value thereof), revenue or net income of the Company Entities, on a consolidated
basis (in each case, including securities of the Subsidiaries of the Company), or (iii) the direct or indirect acquisition
by, or issuance to, any Person or group of related Persons (other than the Buyer and its Affiliates) of more than 25% of any class
of voting or Equity Interests of the Company issued and outstanding following such acquisition or issuance, or any tender offer
(including a self-tender offer) or exchange offer that, if consummated, would result in any Person beneficially owning more than
25% of any class of outstanding voting or Equity Securities of the Company.
“
Ancillary Documents
”
has the meaning set forth in
Section 3.2(a)
.
“
Annual Financial Statements
”
has the meaning set forth in
Section 3.7
.
“
Applicable Survival Period
”
has the meaning set forth in
Section 8.1(c)
.
“
Bankruptcy and Equity Exception
”
means the effect on enforceability of (a) any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance or preferential transfers, or similar Law relating to or affecting creditors’ rights generally and (b) general
principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.
“
Benefit Plan
” means
any employee benefit plan, program, policy, practices, or other arrangement providing benefits to any current or former employee,
officer or director of the Company Entities or any beneficiary or dependent thereof that is sponsored or maintained by the Company
Entities or to which any Company Entity contributes or is obligated to contribute, whether or not written, including without limitation
any employee benefit plan within the meaning of Section 3(3) of ERISA (whether or not such plan is subject to ERISA) and any bonus,
incentive compensation, deferred compensation, equity or severance plan, vacation, stock purchase, stock option, severance, employment,
change of control or fringe benefit program, policy or other arrangement.
“
Business
” has the meaning
set forth in the recitals to this Agreement.
“
Business Day
” means
any day, other than Saturday, Sunday or any other day on which banks located in the State of Delaware are authorized or required
to close.
“
Business Proprietary Information
”
has the meaning set forth in
Section 5.16
.
“
Buyer
” has the meaning
set forth in the preamble to this Agreement.
“
Buyer Fundamental Representations
”
means the representations contained in
Section 4.1
,
Section 4.2
and
Section 4.7
.
“
Buyer Indemnitees
”
has the meaning set forth in
Section 8.2(a)
.
“
Buyer Material Adverse Effect
”
means any event, development, or change that would have a material adverse effect on the ability of the Buyer to perform its obligations
under this Agreement, or would prevent, materially impede, interfere with, hinder or delay the consummation by the Buyer of the
Transactions.
“
Buyer Released Parties
”
has the meaning set forth in
Section 5.10
.
“
Capital Expenditures
”
means spending by the Company or its Subsidiaries on acquiring or maintaining its fixed assets, such as land, buildings and equipment.
“
Claims-Made Policies
”
has the meaning set forth in
Section 3.15
.
“
Closing
” has the meaning
set forth in
Section 2.2
.
“
Closing Date
” has the
meaning set forth in
Section 2.2
.
“
Closing Direction Letter
”
means a letter, in the form reasonably satisfactory to Buyer, directing Buyer to pay or cause to be paid, to MGG, the Purchase
Price on behalf of the Seller in partial satisfaction of amounts outstanding under the Financing Agreement.
“Closing Transaction Costs”
means, as of immediately prior to the Closing, the aggregate amount of Transaction Costs that remain unpaid.
“
Code
” means the Internal
Revenue Code of 1986, as amended.
“
Company
” has the meaning
set forth in the recitals to this Agreement.
“
Company Benefit Plans
”
has the meaning set forth in
Section 3.12(a)
.
“
Company Cash
” means,
with respect to the Company Entities, all cash and cash equivalents and marketable securities, including checks, money orders,
marketable securities, short-term instruments, negotiable instruments, funds in time and demand deposits or similar accounts on
hand, in lock boxes, in financial institutions or elsewhere, together with all accrued but unpaid interest thereon, and all bank,
brokerage or other similar accounts. For the avoidance of doubt, Company Cash as of any given time shall (a) exclude the amount
of any checks, drafts and wires issued as of such time that have not yet cleared, and (b) any non-U.S. cash or cash equivalents.
“
Company Entities
” means,
collectively, the Company and the Company Subsidiaries.
“
Company Entity Benefit Plans
”
has the meaning set forth in
Section 3.12(a)
.
“
Company Indebtedness
”
means all Indebtedness of the Company Entities.
“
Company Intellectual Property
”
means all Intellectual Property owned or purported to be owned by any Company Entity.
“
Company Subsidiary
”
means each Subsidiary of the Company.
“
Company Tax Return
”
means all Tax Returns required to be filed by the Company Entities with a Governmental Entity; provided that, for the avoidance
of doubt, a Company Tax Return shall not include any Tax Return required to be filed by the Seller with a Governmental Entity.
“
Continuing Employee
”
has the meaning set forth in
Section 5.11(a)
.
“
Contract
” contracts,
subcontracts, agreements, arrangements, commitments, understandings, notes, indentures, mortgages, debt instruments, loans, evidence
of Indebtedness, letters of credit, covenants not to compete, licenses, franchises, deeds of trust, leases or sublease (whether
for release or personal property), sublicenses, purchase orders for goods or services (subject to the immediately succeeding sentence),
powers of attorney or other agreement, whether written or oral (including any amendments and other modifications thereto) that
is intended to be legally binding on the applicable party(ies) thereto. For the avoidance of doubt, unless otherwise expressly
indicated task, purchase or delivery order(s) or statements of work under a Contract will not constitute a separate Contract, but
will be part of the Contract under which it was issued.
“
Covered Losses
” has
the meaning set forth in
Section 8.2(b)
.
“
D&O Tail Policy
”
means a “tail” directors’ and officers’ liability insurance policy, to be bound effective as of the Closing
Date, that (a) has an effective term of six years following the Closing Date, (b) covers each Person currently covered by the Seller
D&O Policy in effect on the date of this Agreement for acts and omissions occurring at or prior to the Closing Date, and (c)
contains terms that are no less favorable than those of the Seller D&O Policy in effect on the date of this Agreement.
“
Deductible
” has the
meaning set forth in
Section 8.2(b)
.
“
Disclosure Schedule
”
has the meaning set forth in the lead in to
ARTICLE III
.
“
Employee
” means any
employee of any Company Entity as of the applicable date of determination.
“
Environmental Law
”
means any applicable Law relating to the protection of the environment or the protection of human health as it may be affected
by exposure to hazardous substances, each as in effect as of the applicable date of determination.
“
Equity Interest
” has
the meaning set forth in the definition of Equity Securities.
“
Equity Securities
”
means (a) capital stock, partnership or membership interests or units (whether general or limited), and any other interest
or participation that confers on a Person the right to receive a share of the profits and losses of, or distribution of assets
of, the issuing entity or a right to control such entity (an “
Equity Interest
”), (b) subscriptions, calls,
warrants, options, purchase rights or commitments of any kind or character relating to, or entitling any Person to acquire, any
Equity Interest, (c) stock appreciation, phantom stock, equity participation or similar rights and (d) securities convertible
into or exercisable or exchangeable for any Equity Interests.
“
ERISA
” means the Employee
Retirement Income Security Act of 1974, as amended, and the rules and the regulations promulgated thereunder.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended.
“
Filing
” means a registration,
declaration or filing with a Governmental Entity.
“
Final Allocation
” has
the meaning set forth in
Section 5.8(f)(ii)
.
“
Financial Statements
”
has the meaning set forth in
Section 3.7
.
“
Financing Agreement
”
means that certain Financing Agreement, dated as of September 24, 2015 (as emended through the date hereof), by and among the Seller,
the Company, the other Loan Parties (as defined therein) party thereto, the lenders party thereto and MGG, as the administrative
agent and collateral agent for the lenders party thereto.
“
Firm
” has the meaning
set forth in
Section 9.11
.
“
Fraud
” means, with
respect to any Party, actual and intentional fraud or intentional misrepresentation by such Party with respect to the representations
and warranties made by such Party herein.
“
Fundamental Representation
”
means the representations contained in
Section 3.1
,
Section 3.2
,
Section 3.5
,
Section 3.6
,
Section 3.16(c)
,
Section 3.19
and
Section 3.20
.
“
GAAP
” means generally
accepted accounting principles in the United States consistently applied.
“
Governmental Entity
”
means any court, tribunal, arbitrator, authority, agency, commission, legislative body or official of the United States or any
state, or similar governing entity, in the United States or in a foreign jurisdiction.
“
Income Tax
” means any
federal, state, local or foreign Tax based on, measured by or with respect to income, net worth or capital, including any interest,
penalty or addition thereto.
“
Indebtedness
” means
any of the following: (a) any indebtedness for borrowed money; (b) any obligations evidenced by bonds, debentures, notes
or other similar instruments; (c) any obligations, contingent or otherwise, under acceptance, letters of credit or similar
facilities, in each case, solely to the extent drawn upon; (d) any accrued interest, fees and charges in respect of any of
the foregoing; and (e) any prepayment premiums and penalties, and any other fees, expenses, indemnities and other amounts payable
as a result of the prepayment or discharge of any of the foregoing at or prior to the Closing.
“
Indemnitee
” means any
Person that is seeking indemnification pursuant to the provisions of this Agreement.
“
Indemnitor
” means any
Party from which a Person is seeking indemnification pursuant to the provisions of this Agreement.
“
Insurance Policies
”
has the meaning set forth in
Section 3.15
.
“
Intellectual
Property
” means all (a) patents and patent applications; (b) trademarks, service marks and trademark and service mark
applications and registrations, trade dress, logos, and trade names, including all goodwill associated therewith; (c) copyrights
and rights associated with works of authorship, including Software, together with all applications, registrations and renewals
therefor; (d) trade secrets
; and (e) domain names and social media names.
“
Intercompany Contract
”
means each Contract between any Company Entity, on the one hand, and any other Company Entity, on the other hand.
“
Interim Balance Sheet Date
”
has the meaning set forth in
Section 3.7
.
“
Interim
Financial Statements
” has the meaning set forth in
Section 3.7
.
“
Interim
Period
” means the period beginning on the date hereof and ending on the earlier of (a) the Closing and (b) the termination
of this Agreement.
“
Invoice
”
means an invoice marked “final” from each Person to whom any Transaction Costs are to be paid indicating all amounts
to which such Person is entitled from the Company.
“
IRS
” means the Internal
Revenue Service.
“IT Systems”
means electronic
data processing, information, recordkeeping, communications, telecommunications, account management, inventory management and other
computer systems (including all computer programs, software, databases, firmware, hardware and related documentation) and Internet
websites and related content.
“
Knowledge
” means the
actual knowledge, after reasonable inquiry, of (a) in the case of the Seller, Kai-Shing Tao, Alison Davidson, Michael Reichartz
and Adam White, and (b) in the case of the Buyer, Dane Joella.
“
Law
”
means, with respect to any Person, any statute, law (including common law), code, treaty, ordinance, rule or regulation of any
Governmental Entity applicable to such Person as of the date hereof.
“
Leased
Real Property
” has the meaning set forth in
Section 3.11(b)
.
“
Letter
of Credit Facility Agreement”
means
that certain Letter of Credit Facility Agreement, dated as of September 24,
2015, by and between Bank of America, N.A. and the Company, as amended to date.
“
Lien
” means with respect
to any property or asset, any lien, mortgage, pledge, charge, security interest or other encumbrance in respect of such property
or asset.
“
Losses
” has the meaning
set forth in
Section 8.2(a)
.
“
Mark and
Domain Name License Agreement
” means that certain Mark and Domain Name License Agreement dated as of June 10, 2005, by
and between Stephens Media Intellectual Property, LLC and, as to Sections 9.5 and 14.8 only, DR Partners, d/b/a Stephens Media
Group, and Vegas.com LLC and Greenspun Media Group and as to Sections 9.5, 10 and 14.7 only, Las Vegas Sun, Inc.
“
Material Adverse Effect
”
means any change or event that is materially adverse to the business, assets, properties or condition of the Company Entities,
taken as a whole;
provided
,
however
, that any changes or events resulting from the following items shall not be considered
when determining whether a Material Adverse Effect has occurred: (a) changes in economic, political, regulatory, financial or capital
market conditions generally or in the industries in which the Company Entities operate, (b) any acts of war, sabotage, terrorist
activities or changes imposed by a Governmental Entity associated with additional security, (c) effects of weather or meteorological
events, (d) any change of Law, accounting standards, regulatory policy or industry standards after the date hereof, (e) the announcement,
execution, delivery or performance of this Agreement or the consummation of the Transactions, (f) any failure by the Company to
meet projections or forecasts or revenue or earnings predictions for any period (but, for the purposes of clarity, not the underlying
cause of such failure nor any specific representations or warranties regarding the same in this Agreement) and (g) any actions
required to be taken pursuant to this Agreement; provided, further, that, in the case of the foregoing clauses (a), (b), (c) or
(d), to the extent the Business and/or the Company Entities, taken as a whole, are materially and disproportionately affected thereby
relative to the other participants in the industry or industries in which the Company Entities operate, such incremental material
and discorporate effect or effects may be taken into account in determining whether there has been or may be a Material Adverse
Effect.
“
Material Contracts
”
has the meaning set forth in
Section 3.10(b)
.
“
Membership Interests
”
has the meaning set forth in the recitals to this Agreement.
“
MGG
” means MGG Investment
Group LP, as administrative agent under the Financing Agreement.
“
MGG Fund
” means any
Person to which (a) MGG provides investment management services or (b) an Affiliate of MGG serves as the general partner, managing
member or non-member manager.
“
Notice of Claim
” has
a meaning set forth in
Section 8.4(a)
.
“
Order
”
means any award, injunction, judgment, order, writ, decree or ruling entered, issued, made, or rendered by any Governmental Entity
that possesses competent jurisdiction.
“
Organizational Documents
”
means, with respect to any Person that is not an individual, the articles or certificate of incorporation or organization, by-laws,
limited partnership agreement, partnership agreement, limited liability company agreement, shareholders agreement, trust agreement
or such other organizational documents of such Person.
“
Outside Date
” has the
meaning set forth in
Section 7.1(a)
.
“
Owned Real Property
”
means each parcel of real property owned by any Company Entity.
“
Party
” or “
Parties
”
has the meaning set forth in the preamble to this Agreement.
“
Permit
” means a consent,
approval, license, permit, certificate, authorization or the expiration without condition or qualification of applicable waiting
period from any Governmental Entity.
“
Permitted Lien
” means
(a) any Lien for Taxes that are not yet due or delinquent or that are being contested in good faith and for which adequate reserves
have been established in accordance with GAAP, (b) any landlords’, mechanics’, workmen’s, repairmen’s,
warehousemen’s, carriers’ or other like Lien arising in the ordinary course of business that are not material to the
Company Entities, taken as a whole, or the operation of the Business, (c) imperfections or irregularities of title and other Liens
that would not, individually or in the aggregate, materially detract from the value of, or materially interfere with, the present
use and enjoyment of the asset or property subject thereto or affected thereby, (d) zoning, planning, building and other similar
limitations, restrictions and rights of any Governmental Entity to regulate property, (e) any Lien set forth on the Disclosure
Schedule, (f) any condition that may be shown on a current survey or by inspection of a property, (g) any Lien that a reputable
title insurance company would be willing to omit as an exception or affirmatively insure against in a title insurance policy for
the affected property and (h) any Lien recorded or filed in any land register or other public register.
“
Person
” means any natural
person, corporation, general partnership, limited partnership, limited liability company, joint venture, trust, proprietorship,
other business organization or Governmental Entity.
“
Pre-Closing Engagement
”
has the meaning set forth in
Section 9.11
.
“
Pre-Closing Tax Period
”
means any taxable period ending on or before the Closing Date and the portion of any Straddle Period through the end of the Closing
Date.
“
Premises
” has the meaning
set forth in
Section 5.15
.
“
Proceeding
” means any
action, suit, hearing, claim, lawsuit, litigation, investigation, arbitration or other proceeding (in each case, whether civil,
criminal or administrative or at law or in equity) by or before a Governmental Entity.
“
Proxy Deadline
” has
the meaning set forth in
Section 5.3(a)
.
“
Proxy Statement
” means
the proxy statement to be sent to the Seller’s stockholders in connection with the Seller Stockholder Meeting.
“Public Software”
means
all software that is distributed as “free software”, “open source software” or under a similar licensing
or distribution model, including the GNU General Public License (GPL) (including the GNU Affero GPL License), GNU Lesser General
Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community
Source License (SCSL), the Sun Industry Standards License (SISL) and the Apache License.
“
Purchase Price
”
has the meaning set forth in
Section 2.1
.
“Registered IP”
means
patents, patent applications, registered trademarks, trademark applications, registered service marks, service mark applications,
copyright registrations and applications for registration, and domain names.
“
Real Property Leases
”
has the meaning set forth in
Section 3.11(b)
.
“
Related Party
” means,
with respect to a Person, such Person’s former, current and future direct or indirect equityholders, controlling Persons,
shareholders, members, general or limited partners, Affiliates, Representatives, sources of financing, and each of their respective
successors and assigns.
“
Representatives
” means
the officers, directors, managers, trustees, employees, counsel, accountants, agents, financial advisers and consultants of a Person.
“
Restricted Party
” means
(a) the Seller and (b) the Seller’s Subsidiaries for the period that such Subsidiary is a Subsidiary of the Seller
and, in each case, including their respective successors and permitted assigns.
“
Restricted Period
”
has the meaning set forth in
Section 5.13
.
“
SEC
” means the United
States Securities and Exchange Commission.
“
Securities Act
” means
the Securities Act of 1933, as amended from time to time.
“
Seller
” has the meaning
set forth in the preamble to this Agreement.
“
Seller Adverse Recommendation
Change
” means any action by the Seller to (i)(A) change, qualify, withhold, withdraw or modify, or publicly propose
or announce the Seller’s intention to change, qualify, withhold, withdraw or modify, in each case, in any manner adverse
to the Buyer, the Seller Board Recommendation, or (B) approve, adopt or recommend (publicly or otherwise) to the stockholders
of the Seller, or resolve to or publicly propose or announce its intention to approve or recommend to the stockholders of the Seller,
an Alternative Acquisition Proposal, (ii) authorize, cause or permit the Seller or any of its Subsidiaries to enter into any
letter of intent, memorandum of understanding, agreement (including an acquisition agreement, merger agreement, joint venture agreement
or other agreement), commitment or agreement in principle with respect to any Alternative Acquisition Proposal (other than a confidentiality
agreement contemplated by
0
) (a “
Alternative Acquisition Agreement
”) or agree or publicly propose to
do any of the foregoing or (iii) terminate, amend, relate, modify or fail to enforce any provision (including any standstill),
or grant any waiver or request under, any confidentiality, standstill or similar agreement (including any such confidentiality
agreement).
“
Seller Board
” has the
meaning set forth in
Section 3.2(b)
.
“
Seller Board Recommendation
”
has the meaning set forth in
Section 3.2(b)
.
“
Seller Common Stock
”
has the meaning set forth in the recitals to this Agreement.
“
Seller D&O Policy
”
means the director’s and officers’ liability insurance policy of the Seller.
“
Seller Indemnitees
”
has the meaning set forth in
Section 8.3(a)
.
“
Seller Insurance Policies
”
has the meaning set forth in
Section 5.17
.
“
Seller Released Parties
”
has the meaning set forth in
Section 5.10
.
“
Seller Stockholder Approval
”
means approval of the Transactions by the affirmative vote of the holders of a majority of the outstanding shares of Seller Common
Stock.
“
Seller Stockholder Meeting
”
has the meaning set forth in
Section 5.3(c)
.
“
Specified Stockholder
”
means each of Kai-Shing Tao, Digipac, LLC, Pacific Star Capital Management, L.P., and Pacific Star HSW LLC.
“Software”
means any
and all computer programs, including operating system and applications software, implementations of algorithms, and program interfaces,
whether in source code or object code form, databases and compilations (including, but not limited to, all of the foregoing that
is installed on computer hardware) and all documentation, including user manuals, relating to the foregoing.
“
Straddle Period
” has
the meaning set forth in
Section 5.8(c)
.
“
Subsidiary
” means,
with respect to any Person, any corporation, limited liability company, partnership, joint venture or other legal entity of which
such Person (either alone or through or together with any other Subsidiary), owns, directly or indirectly, more than 50% of the
Equity Interests the holders of which are generally entitled to vote for the election of the board of directors or other governing
body of a non-corporate Person.
“
Superior Acquisition Proposal
”
means a written Alternative Acquisition Proposal, substituting “50%” for “25%” in the definition thereof,
and for which, if financing is required, such third party shall have entered into binding commitments for such financing, that
the Seller Board determines in good faith, after consultation with the Seller’s independent financial advisors and outside
legal counsel, (a) to be reasonably likely to be consummated if accepted on the terms thereof, and (b) taking into account
the factors the Seller Board considers to be relevant (which shall include the various legal, financial and regulatory aspect of
the Alternative Acquisition Proposal, all terms and conditions of such Alternative Acquisition Proposal and this Agreement, any
changes to the terms of this Agreement offered by the Buyer in response to such Alternative Acquisition Proposal, and the anticipated
timing, conditions and the ability of the Person or group of related Persons making such Alternative Acquisition Proposal to consummate
the transaction contemplated thereby), if consummated, to be more favorable to the Company stockholders from a financial point
of view than the transactions contemplated by this Agreement.
“
Tail Policies
” has
the meaning set forth in
Section 6.1(f)
.
“
Tax
” or “
Taxes
”
means any United States local, state or federal or foreign income, profits, franchise, withholding, ad valorem, personal property
(tangible and intangible), employment, payroll, sales and use, social security, disability, occupation, real property, severance,
excise and other taxes imposed by a Governmental Entity, including any interest, penalty or addition thereto.
“
Tax Claim
” has the
meaning set forth in Section 5.8(e).
“
Tax Law
” means any
Law relating to Taxes.
“
Tax Returns
” means
any report, return, declaration, claim for refund or other information or statement or schedule supplied or required to be supplied
by any Company Entity, relating to Taxes, including any schedules or attachments thereto and any amendments thereof.
“
Third-Party Claim
”
has the meaning set forth in
Section 8.4(a)
.
“Transaction Costs”
means all out-of-pocket fees, costs and expenses of the Company, other than fees, costs and expenses incurred on behalf of the
Buyer or any Affiliate thereof, in each case, (a) incurred prior to the Closing in connection with the negotiation, preparation
and execution of this Agreement and the consummation of the Transactions and the process for a sale of the Company Entities and/or
the Business, (b) to the extent not paid prior to the Closing, and (c) all costs and expenses incurred in connection with obtaining
the D&O Tail Policy. For the avoidance of doubt, Transaction Costs shall include all bonuses, change in control payments, severance
payments or similar payments payable in connection with the Transactions, and any Taxes payable in connection with the foregoing
amounts;
provided
, that bonuses awarded or payable in the ordinary course of business shall not be considered Transaction
Costs.
“
Third-Party Defense
”
has the meaning set forth in
Section 8.4(b)
.
“
Transactions
” means
the transactions contemplated by this Agreement and each Ancillary Document.
“
Transfer Taxes
” means
all transfer, sales, use, real property transfer, goods and services, value added, documentary, stamp duty, gross receipts, excise,
transfer and conveyance Taxes and other similar Taxes, duties, fees or charges.
“
Transition Services Agreement
”
means the Transition Services Agreement, in customary form, to be agreed prior to the Closing between the Buyer and the Seller,
providing for any and all services and other rights reasonably necessary to operate the Business as it was operated prior to the
Closing, to be provided by the Seller to the Buyer at cost.
“
Voting Agreement
”
has the meaning set forth in the recitals to this Agreement.
REMARK HOLDINGS, INC.
SPECIAL MEETING OF STOCKHOLDERS –
[●], 2019