Item
1.01. Entry into a Material Definitive Agreement.
Closing
Share Exchange Agreement
On
August 8, 2018, the Company entered into the Closing Share Exchange Agreement and Joinder (the “Closing Agreement”)
dated August 8, 2018 by and among the Company, EAI and the shareholders of EAI (the “EIA Shareholders”), which operated
to amend the Exchange Agreement in certain respects and to provide for the closing of the transactions contemplated therein.
Pursuant
to the terms of the Closing Agreement, the Company agreed to acquire up to all of the issued and outstanding shares of common
stock of EAI, representing 100% of EAI’s issued and outstanding shares of stock, from the EAI Shareholders in exchange for
the issuance of one share of the Company’s Series X preferred stock (the “Series X Stock”) for each 31.645 shares
of EAI common stock issued and outstanding, with any fractional shares of Series X Stock issuable therefore being rounded to the
nearest whole shares of Series X Stock (the “Exchange”), such that an aggregate of 1,000,000 shares of Series X Stock
shall be issued for 100% of the issued and outstanding shares of stock of EAI, with each whole share of Series X Stock originally
being convertible into 450 shares of the Company’s common stock, resulting in an aggregate of 450,000,000 shares of Company
common stock issuable upon conversion of all of the Series X Stock (prior to any adjustments as set forth in the Closing Agreement).
As a result of the Exchange, EAI became a majority owned subsidiary of the Company. As of the closing date, the Company owned
approximately 99.7% of EAI’s outstanding shares. The parties intend that the Exchange will qualify as a reorganization under
the provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. The Exchange closed on August 8, 2018.
Pursuant
to the terms of the Closing Agreement, all but one of those EAI Shareholders that did not sign, and were not parties to, the Exchange
Agreement became parties to the Closing Agreement upon execution of the Closing Agreement, as though original parties to the Exchange
Agreement.
Following
the closing of the Exchange, the Company intends to complete a reverse stock split of the Company’s common stock on such
terms as determined by the Company’s board of directors, currently contemplated to be a 1-for-25 reverse stock split, pursuant
to which each 25 issued and outstanding shares of Company common stock will be exchanged and combined into one new share of Company
common stock, with any resulting fractional shares to be rounded up the nearest whole share of common stock, and with the authorized
shares of Company common stock not being adjusted (the “Reverse Split”). Assuming that the Reverse Split is consummated
at the currently contemplated 1-for-25 structure, and assuming that the Series X Stock has not been converted into Company common
stock prior to the Reverse Split occurring, following the Reverse Split each share of Series X Stock will be convertible into
0.5688 shares of Company common stock.
In
the Closing Agreement, the parties acknowledge and agree that the Company did not have, as of the closing date of the Exchange,
sufficient shares of Company common stock authorized to enable conversion of all of the shares of Series X Stock issued in the
Exchange. Following the closing, in the event that following the Reverse Split, the Company still does not have sufficient shares
of common stock authorized so as to enable the conversion of all of the shares of Series X Stock to be issued hereunder, the Company
will use its commercially reasonable efforts to effect an amendment of the Company’s articles of incorporation to increase
the authorized shares of common stock. The conversion of the Series X Stock into common stock will occur automatically upon such
an authorized share increase.
Pursuant
to the terms of the Closing Agreement, in any vote of the Company’s shareholders required to effect the Reverse Split or
an authorized share increase, the EAI Shareholders agreed to vote all shares of Company common stock and Series X Stock held by
them “for” approval of the Reverse Split, the authorized share increase and any amendments of the Company’s
articles as required in connection therewith.
The
Company also agreed to use its commercially reasonable efforts to register shares of the Company’s common stock issued upon
conversion of the Series X Stock upon completion of the authorized share increase in an amount not to exceed 30% of the total
outstanding shares of stock, or such amount as the SEC requires in order to qualify as a re-sale registration, to be apportioned
among the EAI Shareholders pro rata.
In
the Closing Agreement, the parties agreed that immediately following the closing of the Exchange, Alexander Bafer, the Company’s
Chief Executive Officer and Chairman of the Board, would resign as Chief Executive Officer and be appointed as the Company’s
Executive Chairman of the Board. In addition, John Textor would be named as Chief Executive Officer and a member of the board
of directors.
The
Closing Agreement contains customary representations and warranties that the parties have made to each other.
Voting
Agreement
In
connection with the closing of the Exchange, Messrs. Textor and Bafer entered into a Voting Agreement as of August 8, 2018 (the
“Voting Agreement”), pursuant to which Messrs. Textor and Bafer agreed to vote all shares of the Company’s capital
stock held by them (the “Textor and Bafer Shares”) as follows:
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1.
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Size
of the Company’s Board.
Messrs. Textor and Bafer agreed to vote their Textor and Bafer Shares to ensure that the
size of the Company’s board of directors remains at five directors unless or until Messrs. Textor and Bafer unanimously
determine to increase the size of the board.
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2.
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Board
Composition.
Messrs. Textor and Bafer agreed to vote their Textor and Bafer Shares to ensure, unless otherwise agreed
in writing, that at each annual or special meeting of the shareholders or pursuant to any written consent of the shareholders,
the following persons will be elected to the board: Mr. Bafer, Mr. Textor, Bradley Albert, Frank Esposito and Justin Morris.
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3.
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Availability
of Board Member; Expansion of Board.
In the event that any person listed in #2 above is not available to serve as a director,
Messrs. Textor and Bafer agreed to amend the Voting Agreement to replace such person(s) with replacement directors; provided,
however, that if Mr. Bafer is the person who is unavailable, then Mr. Bafer will identify the replacement person alone, and
if Mr. Textor is the person who is unavailable, then Mr. Textor will identify the replacement person alone. In addition, if
the board size is increased, it will be increased to a total of seven directors, of whom Mr. Textor will have the right, but
not the obligation, to name, with the advice and consent of Mr. Bafer, and Messrs. Bafer and Textor agree to vote their Textor
and Bafer Shares for such additional persons.
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4.
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Removal
of Board Members.
Messrs. Textor and Bafer agreed to vote their Textor and Bafer Shares to ensure that (a) no director
elected pursuant to the terms of the Voting Agreement may be removed from office other than for cause unless such removal
is director or approved by the agreement of Messrs. Textor and Bafer, and (b) any vacancies created by the resignation, removal
of deal of any director elected pursuant to the terms of the Voting Agreement will be filled pursuant to the written agreement
of Messrs. Textor and Bafer.
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5.
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Increase
Authorized Common Stock.
Messrs. Textor and Bafer agreed to vote their Textor and Bafer Shares to increase the number
of authorized shares of Company common stock from time to time to ensure that there will be sufficient shares of common stock
available for conversion of all of the shares of Series X preferred shares outstanding at any given time.
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Brick
Top and Southfork Share Exchange Agreement
Effective
August 8, 2018, the Company entered into a Share Exchange Agreement (the “BTH and SV Exchange Agreement”) with Brick
Top Holdings, Inc. a Florida corporation (“Brick Top”) owned by Alexander Bafer and Southfork Ventures, Inc. a Florida
corporation (“Southfork”) owned by Chris Leone, the Company’s Chief Operating Officer and Director, pursuant
to which the Company agreed to acquire up to all of the shares of Series A preferred stock of the Company held by Brick Top and
Southfork, in exchange for the issuance of shares of Company common stock to Brick Top and Southfork. The closing of the share
exchange contemplated by the BTH and SV Exchange Agreement occurred on August 8, 2018. On such date, the Company issued (i) 81,750,000
shares of Company common stock in exchange for receipt of 3,750,000 shares of Series A preferred shares from Brick Top, and (ii)
27,250,000 shares of Company common stock in exchange for receipt of 1,250,000 shares of Series A preferred shares from Southfork.
The
BTH and SV Exchange Agreement contains customary representations and warranties that the parties have made to each other.
The
information set forth above is qualified in its entirety by reference to the actual terms of the Closing Agreement, the Voting
Agreement and the BTH and SV Share Exchange Agreement, each of which will be filed with the Securities and Exchange Commission
(the “Commission”) as required.
Item
5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements
of Certain Officers.
Executive
Officers and Directors
Immediately
following the closing of the Exchange on August 8, 2018, Mr. Bafer resigned as the Company’s Chief Executive Officer and
was appointed as the Company’s Executive Chairman, an executive officer and director position. Also on August 8, 2018, Mr.
Textor was named as the Company’s Chief Executive Officer and a member of the Company’s board of directors. Accordingly,
immediately following the closing of the Exchange, the executive officers of the Company were as follows:
Name
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Title
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John Textor
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Chief Executive Officer
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Bradley
Albert
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President
and Chief Creative Officer
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Alexander
Bafer
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Executive
Chairman
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Frank
Esposito
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Chief
Legal Officer
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Justin
Morris
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Chief
Operating Officer
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and
the Company’s board of directors consisted of the following individuals:
John
Textor
Bradley
Albert
Alexander
Bafer (Chairman of the Board)
Frank
Esposito
Justin
Morris
John Textor, age 52,
has been Executive Chairman of EAI since its inception in 2017. EAI is a development stage company focused on the adaptation and
development of human animation technology to enable diverse artificial intelligence platforms to interact with consumers in the
relatable form of a human face.
Featured as “Hollywood’s
Virtual Reality Guru” by Forbes Magazine in 2016, Mr. Textor is credited as the pioneer of the new industry of holographic
entertainment, responsible for the 2012 appearance of virtual Tupac Shakur at the Coachella Valley Music Festival and the 2014
performance of virtual Michael Jackson at the 2014 Billboard Music Awards, the latter generating more than 35 million YouTube
views and 98 billion Internet impressions worldwide.
Mr. Textor is currently
active in the development of entertainment properties across a broad spectrum of venues and technology platforms. In addition
to his leadership in the extended uses of photo-realistic, digital humans, he is also currently a Producer of Art Story, an original
animated feature film being developed by Disney veteran filmmaker, Aaron Blaise. He was also Producer and Executive Producer of
Ender’s Game, a science fiction fantasy film released in 2013. Mr. Textor was previously Chairman and CEO of Digital Domain
Productions and Chairman and CEO of its parent company, Digital Domain Media Group, having led its acquisition and restructuring
from 2005 to 2012. Together, the Digital Domain companies were responsible for the visual effects of more than 80 large scale
feature films, 25 of which were completed during Mr. Textor’s leadership, including such films as Transformers, Flags of
our Fathers, Tron: Legacy, Real Steel and Pirates of the Caribbean at World’s End. During Mr. Textor’s leadership,
Digital Domain was reestablished as a market leader in visual effects, winning multiple Academy Awards®, Clio advertising
awards and, importantly, being recognized as the first visual effects company to deliver a believable digital human actor in The
Curious Case of Benjamin Button. This achievement earned the company a 2009 Academy Award® for Achievement in Visual Effects.
Other highlights during Mr. Textor’s tenure included the virtual Tupac Shakur, the consummation of a joint venture for the
digital resurrection of Elvis Presley, the creation of a first of its kind, dual-enrollment Bachelor’s program with Florida
State University, the completion of a $100 million joint venture agreement with the sovereign media authority of Abu Dhabi and
the transformation of Digital Domain into a film production and intellectual property company with the co-production of Ender’s
Game.
Mr. Textor is also
the Founder of Wyndcrest Holdings, LLC, a Florida-based private holding company focused on technology-related opportunities in
entertainment, telecommunications and the Internet (“Wyndcrest”), and has served as its (and its predecessor’s)
President since 1997. Wyndcrest was best known for its role as an early lead investor in Art Technology Group, at the time a NASDAQ
listed company, a principal pioneer of internet personalization technology that achieved a liquid $10.5 billion valuation as one
of the most successful initial public offerings in 1999.
He also served as the
Chairman and CEO of BabyUniverse, Inc., a leading e-tailer of baby-related products, which Mr. Textor saved from insolvency with
only a $300,000 investment in 2001, increasing revenues from $1 million to $40 million, and sold in 2007 for roughly $90 million
to eToys.com, a leading toy e-commerce company of which Mr. Textor also became Chairman. He was also a founding director and the
largest shareholder of Virtual Bank, a Florida-based Internet banking startup that ultimately became a multi-billion dollar diversified
financial services company, also having created several affinity branded internet banks for major corporations, such as MicrosoftVirtualBank,
EMCVirtualBank, WorldcomVirtualBank and TextronVirtualBank. He was previously Chairman of the Board and principal owner of Sims
Snowboards, a leading global snowboard brand. Mr. Textor is a graduate of Wesleyan University in Middletown, CT.
Mr. Textor brings our
board his considerable experience in the strategic planning and growth of entertainment properties and companies, which qualifies
him to serve as a director of our company.
Textor
Employment Agreement
In
connection with the closing of the Exchange, the Company entered into an employment agreement as of August 8, 2018 with Mr. Textor
(the “Textor Employment Agreement”). Pursuant to the terms of the Textor Employment Agreement, the Company agreed
to employ Mr. Textor as the Company’s Chief Executive Officer. The term of the Textor Employment Agreement begins as of
August 8, 2018 and continues until termination of employment as set forth in the Textor Employment Agreement. In exchange for
Mr. Textor’s services as Chief Executive Officer, the Company agreed to pay Mr. Textor an annual base salary of $500,000,
subject to annual increases as determined in the sole discretion of the Compensation Committee or the full Board if no Compensation
Committee exists. In addition, Mr. Textor is also eligible to receive equity awards, and an annual target bonus payment equal,
as a percentage of his base salary, to that received by all other C-suite executives, subject to a minimum bonus of $100,000 per
year. Subject to the minimum bonus, the bonus will be determined based on the achievement of certain performance objectives of
the Company as established by the Compensation Committee.
The
Company may terminate Mr. Textor’s employment at any time for Cause (as hereinafter defined) or without Cause. Mr. Textor
may resign at any time, either with Good Reason (as hereinafter defined) or without Good Reason. In the event of Mr. Textor’s
death or total disability during the term of the Textor Employment Agreement, Mr. Textor’s employment will terminate on
the date of death or total disability.
Upon
termination of Mr. Textor’s employment by the Company, whether with Cause or without Cause, or by Mr. Textor with Good Reason
or without Good Reason:
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(a)
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The
Company will pay Mr. Textor his base salary and benefits (then owed, or accrued and owed in the future, but in all events
and without increasing Mr. Textor’s rights under any other provision of the Textor Employment Agreement, excluding any
bonus payments not yet paid) through the date of termination;
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(b)
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The
Company will pay Mr. Textor accrued by unpaid bonus and benefits (then owed or accrued) through the date of termination; and
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(c)
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The
Company will pay Mr. Textor any unreimbursed expenses incurred by Mr. Textor pursuant to the terms of the Textor Employment
Agreement.
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Upon
termination of Mr. Textor’s employment by the Company without Cause, or by Mr. Textor with Good Reason, in addition to the
payments set forth in (a) through (c) above, the Company will pay Mr. Textor (i) an amount equal to his base salary (other than
bonus) as determined as of the date of termination, and (ii) any unvested incentive awards then held by Mr. Textor will immediately
vest in full.
Upon
termination of Mr. Textor’s employment by the Company with Cause, or by Mr. Textor without Good Reason, in addition to the
payments set forth in (a) through (c) above, any unvested incentive awards then held by Mr. Textor will be immediately forfeited.
Pursuant
to the terms of the Textor Employment Agreement, a termination for “Cause” means a termination based upon:
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(i)
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A
material violation by Mr. Textor of any material written rule or policy of the Company
(A) for which violation any employee may be terminated pursuant to the written policies
of the Company reasonably applicable to an executive employee, and (B) which Mr. Textor
fails to correct within 10 days after he receives written notice from the Board of such
violation;
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(ii)
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Misconduct
by Mr. Textor to the material and demonstrable detriment of the Company; or
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(iii)
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Mr.
Textor’s conviction (by a court of competent jurisdiction, not subject to further
appeal) of, or pleading guilty to, a felony.
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As
used in the Textor Employment Agreement, Good Reason means the occurrence, without Mr. Textor’s express written consent,
of any of the following:
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(1)
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A
significant diminution by the Company of Mr. Textor’s role with the Company or
a significant detrimental change in the nature and/or scope of Mr. Textor’s status
with the Company (including a diminution in title);
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(2)
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A
reduction in base salary or target or maximum bonus, other than as part of an across
the board reduction in salaries of management personnel (including all vice presidents
and positions above) of less than 20%;
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(3)
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At
any time following a change of control of the Company, a material diminution by the Company
of compensation and benefits (taken as a whole) provided to Mr. Textor immediately prior
to a Change of Control;
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(4)
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The
relocation of Mr. Textor’s principal executive office to a location more than 50
miles further from Mr. Textor’s principal residence than Mr. Textor’s principal
executive office immediately prior to such relocation, or any requirement that Mr. Textor
be based anywhere other than Mr. Textor’s principal executive office; or
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(5)
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Any
other material breach by the Company of any of the terms and conditions of the Textor
Employment Agreement.
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The
Textor Employment Agreement contains covenants regarding Mr. Textor’s non-competition and non-solicitation of employees
for 12 months.
Bafer
Termination and Release Agreement
Concurrent
with the closing of the Exchange, the Company and Mr. Bafer entered into that certain Termination and Release Agreement dated
as of August 8, 2018 (the “Bafer Termination Agreement”). In connection with the Exchange and as provided in the
Closing Agreement, Mr. Bafer resigned his position as Chief Executive Officer on August 8, 2018. Pursuant to the terms of
the Bafer Termination Agreement, the employment agreement dated as of July 25, 2016 between the Company and Mr. Bafer (the “2016
Bafer Agreement”) was terminated effective immediately in connection with Mr. Bafer’s resignation; provided,
however, that (i) the provisions of Article 4 and Article 6 (other than Sections 6.7 and 6.8) remain in full force and effect,
and (ii) the parties agreed that the Company owes Mr. Bafer certain past due payments pursuant to the 2016 Bafer Agreement and
other instruments between the parties, which amounts remain owed to Mr. Bafer until paid. The Bafer Termination Agreement contains
customary representations and warranties that the Company and Mr. Bafer have made to each other.
Bafer
Executive Chairman Agreement
Concurrent
with the closing of the Exchange, the Company entered into an Agreement
for Executive Chairman of Board of Directors effective August 8, 2018 (“Bafer Executive Chairman Agreement”). The
Bafer Executive Chairman Agreement has a term of one year from August 8, 2018 and will continue thereafter for as long as Mr.
Bafer is elected as Chairman of the Board. In exchange for Mr. Bafer’s services as Chairman of the Board, the Company agreed
to pay Mr. Bafer an annual base salary of $500,000, subject to annual increases as determined in the sole discretion of the Compensation
Committee or the full Board if no Compensation Committee exists. In addition, Mr. Bafer is also eligible to receive equity awards,
and an annual target bonus payment equal, as a percentage of his base salary, to that received by all other C-suite executives,
subject to a minimum bonus of $100,000 per year. Subject to the minimum bonus, the bonus will be determined based on the achievement
of certain performance objectives of the Company as established by the Compensation Committee.
Mr.
Bafer may be removed as Chairman by the majority vote of the Company’s stockholders. The parties agree, however, that if
the Bafer Executive Chairman Agreement is terminated at any time, whether by majority vote of the Company’s shareholders
or otherwise, Mr. Bafer will be entitled to a lump sum payment equal to the then current base salary.