usell.com, Inc. (OTCMKTS:USEL) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive Agreement.
Special Purpose Entity
On the Closing Date, uSell and the Manager formed a special
purpose entity as a Delaware limited liability company (the SPE),
for the purpose of purchasing, refurbishing, repairing and
reselling cell phones, smart phones, tablets and related
accessories. The Manager is the sole manager of the SPE. The
Manager invested $5,200,000 in equity in exchange for a
membership interest. Of this sum, $5,000,000 will be used by the
SPE for the purchase of approved inventory. The Manager received
a $104,000 consulting fee for startup services and the remaining
$96,000 was used to pay legal fees.
As further detailed in the Services Agreement entered into
between uSell and the SPE on the Closing Date, uSell will provide
all administrative and inventory management services necessary to
the SPEs daily operations. uSell and its personnel will not be
compensated for providing services to the SPE, and uSell will
generally be responsible for the costs of providing services to
the SPE. However, the SPE will be responsible for costs directly
related to acquiring and refurbishing the SPEs inventory,
shipping, certain tax accounting fees approved by the Manager,
and other costs. The Services Agreement allows uSell to purchase
inventory for its account and not for the SPEs account until
uSell has no available capital to purchase inventory. In exchange
for its future services, uSell received its membership interest
in the SPE. Profits from the SPE will be distributed to the
Manager and to uSell based on certain return thresholds.
Neither uSell nor the Manager may dissolve the SPE during the
first six months following its formation. After six months, the
Manager may dissolve the SPE if the Manager has not received an
average of at least $150,000 in distributions per month from the
SPE beginning with month seven and future months. Either party
may dissolve the SPE following 18 months from its formation but
uSell must repay the loan described in Item 2.03 if it elects to
dissolve the SPE. In addition, the Manager may dissolve the SPE
at any time if uSell breaches its obligations under the SPEs
Limited Liability Company Agreement. Distributions upon
dissolution of the SPE vary based on whether the Manager or uSell
elects to dissolve the SPE.
In connection with formation of the SPE, each of Nik Raman,
uSells Chief Executive Officer and a uSell director, Brian
Tepfer, We Sells Chief Executive Officer and a uSell director,
and Scott Tepfer, We Sells President, entered into
Non-Competition and Confidentiality Agreements with uSell and the
SPE.
The foregoing description of the Services Agreement and the
Contribution Agreement is qualified in its entirety by the terms
of the Services Agreement filed as Exhibit 10.1 hereto, and the
Contribution Agreement filed as Exhibit 10.2 hereto, each of
which is incorporated herein by reference. In addition, the forms
of Non-Competition and Confidentiality Agreements are attached as
Exhibit 10.3 and 10.4.
Item 2.03 Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of a
Registrant.
Note Purchase Agreement and Secured Term Note
On the Closing Date, uSell, BST, and We Sell entered into a Note
Purchase Agreement (the NPA) with the Lender (in Lenders capacity
as a purchaser and as the agent (the Agent) for all purchasers
from time to time party to the NPA), to which uSell, BST and We
Sell jointly and severally issued the Lender a secured term note
in the principal amount of $8,660,000 at an original issue
discount of 1%, for gross proceeds of $8,572,400 (the Note). The
Note matures three years from issuance and bears interest at an
annual rate of 13.25%, which interest is due and payable monthly
in arrears. In addition, uSell paid the Lender a fee equal to 2%
of the aggregate original principal amount of the Note and will
pay the Lender a monthly maintenance fee based on an annual rate
of 0.75% of the aggregate original principal amount of the Note.
The Note is prepayable after 18 months with a 3% prepayment
penalty. The Note contains customary financial covenants. In
connection with the issuance of the Note, uSell granted the
Lender a right of first refusal to participate in future
financings (with certain exceptions) for as long as the principal
balance of the Note remains outstanding.
uSell applied the proceeds received upon issuance of the Note to
repay all amounts outstanding under the BAM Facility. At the time
of repayment, amounts of principal outstanding under the BAM
Facility were $8,080,000, with accrued interest and fees bringing
the total payoff amount to $8,140,295.58. Although the BAM
Facility had a 3% prepayment penalty, one of the BAM Facility
lenders agreed to assume the entire amount of the $242,400
prepayment penalty, which permitted uSell to avoid paying the
prepayment penalty.
The foregoing description of the NPA and the Note is a summary
only and is qualified in its entirety by the full text of the NPA
filed as Exhibit 10.5 hereto, and the Note filed as Exhibit 10.6
hereto, each of which is incorporated herein by reference.
Security Agreements, Subsidiary Guaranty and Pledge
Agreement
In connection with the execution of the NPA and issuance of the
Note, uSell, BST, We Sell and certain of their wholly-owned
subsidiaries (collectively, the Debtors) entered into a Security
Agreement for the benefit of the Lender and Agent. to the
Security Agreement, the Debtors granted the Agent (for the
benefit of the Lender) a lien on all of each Debtors respective
assets, including, but not limited to, equipment, inventory,
accounts, and intellectual property. The wholly-owned
subsidiaries which are parties to the Security Agreement also
jointly and severally guaranteed payment and performance of all
obligations under the Note and related debt transaction
documents. uSell also entered into a Trademark Security Agreement
with the Lender incorporating the terms of the Security Agreement
with respect to the uSells trademark-related collateral.
As additional collateral to guarantee the Note and related
obligations, uSell, BST and Upstream Phone Holdings, Inc., a
Delaware corporation and wholly-owned subsidiary of uSell, also
entered into a Pledge Agreement for the benefit of the Agent to
which they pledged the equity interests of certain of their
wholly-owned subsidiaries, including BST and We Sell, and uSell
pledged its equity interest in the SPE.
In connection with the above, the Management Agreement effective
as of October 1, 2015 by and among uSell, Nik Raman, Brian
Tepfer, Scott Tepfer, and Daniel Brauser, uSells Executive
Chairman, was amended to clarify that nothing in the Management
Agreement precludes the Agents ability to exercise its remedies
as a secured creditor party under the Note and related
agreements.
The foregoing description of the Security Agreement, the
Subsidiary Guaranty, the Trademark Security Agreement, the Pledge
Agreement and the Amendment to the Management Agreement is a
summary only and is qualified in its entirety by the full text of
the Security Agreement filed as Exhibit 10.7 hereto, the
Subsidiary Guaranty filed as Exhibit 10.8 hereto, the Trademark
Security Agreement filed as Exhibit 10.9 hereto, the Pledge
Agreement filed as Exhibit 10.10 hereto, and the Amendment to the
Management Agreement filed as Exhibit 10.11 hereto, each of which
is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
| Exhibit No. | Description | |
| 10.1 | Form of Services Agreement | |
| 10.2 | Form of Contribution Agreement | |
| 10.3 | Form of Non-Compete and Confidentiality Agreement – Tepfers | |
| 10.4 | Form of Non-Compete and Confidentiality Agreement – Raman | |
| 10.5 | Form of Note Purchase Agreement * | |
| 10.6 | Form of Secured Term Note | |
| 10.7 | Form of Security Agreement * | |
| 10.8 | Form of Subsidiary Guaranty * | |
| 10.9 | Form of Trademark Security Agreement * | |
| 10.10 | Form of Pledge Agreement * | |
| 10.11 | Form of Amendment to Management Agreement |
| * |
Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request. |
About usell.com, Inc. (OTCMKTS:USEL)
uSell.com, Inc. (uSell) is a technology-based company. The Company focuses on extracting the value from used mobile devices. It acquires products from both individual consumers, on its Website, uSell.com, and from carriers, retailers and manufacturers through its subsidiary, We Sell Cellular, LLC. These devices are then distributed across the world, which leverages an online marketplace where professional buyers of used smartphones compete to buy inventory in an on-demand fashion. The Company, through uSell.com, allows individual consumers to find cash offers for their items based on the make, model, and condition of each item. Upon accepting an offer, consumers can ship their devices for free using either a prepaid shipping kit or shipping label, and then track the progress of their orders online from initiation to final payment of their devices. usell.com, Inc. (OTCMKTS:USEL) Recent Trading Information
usell.com, Inc. (OTCMKTS:USEL) closed its last trading session 00.000 at 0.760 with 1,998 shares trading hands.