| Subsequent Events | Note 10 - Subsequent Events Evolution AI Corporation Share Exchange Agreement On June 13, 2018,
we entered into the Share Exchange Agreement (the “Exchange Agreement”) with Evolution AI Corporation (“EAI”),
a privately held Florida corporation, and its shareholders pursuant to which we intend to acquire 100% of the issued and outstanding
shares of common stock of EAI. Upon closing of the transaction, EAI will become our wholly owned subsidiary. To effectuate the
transaction, shareholders of EAI will deliver to the Company an aggregate of 31,645,000 shares of EAI common stock, representing
100% of the issued and outstanding EAI common stock. In exchange for such shares, we agreed to deliver to the EAI shareholders
12.64 shares of our common stock (the “Exchange Shares”) for each share of EAI common stock, or an aggregate of approximately
400,000,000 shares of our common stock, subject to adjustment based on the 10-day average closing price of our common stock, as
quoted on the OTC Market’s OTCQB tier, for the 10-day period immediately prior to the closing day, as necessary for us to
deliver a target valuation of exchange consideration equal to $200 million. Notwithstanding the foregoing, the EAI shareholders
have agreed that the average price to be used in determining the final exchange consideration shall be based on a maximum closing
stock price of $0.60 per share and a minimum closing stock price of $0.40 per share, such that the minimum and maximum number of
Exchange Shares payable in the aggregate to the EAI shareholders shall be 333,333,000 shares and 500,000,000 shares, respectively. It was originally
anticipated that we would hold the initial closing of the transaction upon receipt of the consent of at least 90% of the outstanding
shares of EAI (the “Initial Closing”), and no later than June 30, 2018, with additional closings up to 30 days thereafter
as necessary to acquire the approval of any remaining outstanding EAI shares. The Exchange Agreement
may be terminated by each of the EAI shareholders or the Company (i) if the Initial Closing has not occurred by June 30, 2018;
(ii) if the transaction is not approved by the requisite number of the outstanding shares of EAI common stock, unless a lesser
number is agreed to by the Company; or (iii) if certain customary closing conditions have not been satisfied. Under the terms of
the Exchange Agreement, the Company has agreed to register the Exchange Shares. Holders of EAI common stock have agreed to enter
into lock-up agreements limiting the amount of open market sales of the Exchange Shares to an amount, during the immediate six
months following the closing of the transaction, not to exceed 10% of the average weekly trading volume of the Company’s
common stock. These lock-up agreements shall not preclude the EAI shareholders from selling the Exchange Shares in block transactions
through a qualified investment bank which is either selected or approved by the Company. Series X Preferred Stock On August 6, 2018,
we amended our Articles of Incorporation as filed with the Secretary of State of the State of Florida to designate the Series X
Convertible Preferred Stock, par value $0.0001 per share (the “Series X Preferred Stock”), as a series of preferred
stock of the Company. 1,000,000 shares of Series X Preferred Stock are authorized. Holders of shares
of Series X Preferred Stock (each, a “Series X Holder”) are entitled to receive dividends and distributions as and
when paid on the shares of our common stock, on an as-converted basis, assuming that such shares of Series X Preferred Stock had
been converted into shares of common stock, as described below, immediately prior to the payment of such dividend or distribution.
Series X Holders are also entitled to vote on an as converted basis with the shares of our common stock, and voting with the common
stock as one class, assuming that such shares of Series X Preferred Stock had been converted into shares of common stock immediately
prior to the record date for such vote. The Series X Preferred Stock does not have any preferences in the event of any liquidation,
dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation of the Company wherein
the Company is not the surviving entity, or a sale of all or substantially all of our assets (each, a “Liquidation Event”),
but will participate with the common stock on any distributions made to the common stock in connection with any Liquidation Event
on an as converted basis, assuming that such shares of Series X Preferred Stock had been converted into shares of common stock
immediately prior to the payment of such dividend or distribution. Shares of Series X
Preferred Stock are not currently convertible into common stock, however each share of Series X Preferred Stock will automatically
convert into shares of common stock upon the effectiveness of an amendment to our Articles of Incorporation following the date
of the issuance of any shares of Series X Preferred Stock (the “Issuance Date”) which effects a reverse stock split
of our common stock or increases the authorized shares of our common stock, or a combination thereof, by an amount sufficient to
enable the conversion of all issued and outstanding shares of Series X Preferred Stock. Each whole share of Series X Preferred
Stock then issued and outstanding shall, automatically and without any further action of any Series X Holder, convert into 450
shares of our common stock, with any fractional shares of Series X Stock being converted into a proportionate number of shares
of our common stock, and with any fractional shares of common stock issuable as a result of such conversion being rounded up to
the next nearest whole share of common stock. No Series X Holder will have any right to voluntarily effect conversions of the Series
X Preferred Stock. In the event of any
forward or reverse split of the common stock following the Issuance Date, the conversion ratios as set forth above will be proportionately
and equitably adjusted automatically. In the event that at any time or from time to time after the Issuance Date, the common stock
issuable upon the conversion of the Series X Preferred Stock is changed into the same or a different number of shares of any class
or classes of stock, then and in each such event each Series X Holder will have the right upon conversion to receive the kind and
amount of shares of stock and other securities, cash and property receivable upon such recapitalization, reclassification or other
change, by holders of the number of shares of common stock which the Series X Holder would have received had it converted such
shares immediately prior to such recapitalization, reclassification or other change, at the conversion ratio then in effect. If
at any time or from time to time after the Issuance Date there is a capital reorganization of our common stock then, as a part
of such reorganization, provisions shall be made so that the Series X Holders will be entitled to receive upon conversion of their
shares of Series X Preferred Stock the number of shares of stock or other securities or property to which a holder of the number
of shares of common stock deliverable upon conversion would have been entitled to receive had the Series X Holder converted such
shares immediately prior to such capital reorganization, at the conversion ratio then in effect. Shares of Series X
Preferred Stock converted into common stock may not be reissued by the Company and no fractional shares or scrip representing fractional
shares of common stock will be issued upon the conversion of the Series X Preferred Stock. As to any fraction of a share of common
stock as to which a Series X Holder would otherwise be entitled upon such conversion, we will round such fractional share of common
stock up to the next whole share of common stock. The issuance of shares
on conversion of the Series X Preferred Stock shall be made without charge to any Series X Holder for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such Series X Conversion Shares, which shall be paid by
us. 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:
1. Size of the Company’s Board.
2. Board Composition.
3. Availability of Board Member; Expansion of Board.
4. Removal of Board Members.
5. Increase Authorized Common Stock. 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. Executive Officer and Director Changes 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 Title
John Textor Chief Executive Officer
Bradley Albert President and Chief Creative Officer
Alexander Bafer Executive Chairman
Frank Esposito Chief Legal Officer
Justin Morris Chief Operating Officer 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 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:
(a) 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;
(b) The Company will pay Mr. Textor accrued by unpaid bonus and benefits (then owed or accrued) through the date of termination; and
(c) The Company will pay Mr. Textor any unreimbursed expenses incurred by Mr. Textor pursuant to the terms of the Textor Employment Agreement. 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:
(i) 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;
(ii) Misconduct by Mr. Textor to the material and demonstrable detriment of the Company; or
(iii) Mr. Textor’s conviction (by a court of competent jurisdiction, not subject to further appeal) of, or pleading guilty to, a felony. As used in the Textor Employment
Agreement, Good Reason means the occurrence, without Mr. Textor’s express written consent, of any of the following:
(1) 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);
(2) 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%;
(3) 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;
(4) 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
(5) Any other material breach by the Company of any of the terms and conditions of the Textor Employment Agreement. 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. Termination of Bafer Employment Agreement Concurrent with the closing
of the Exchange and Mr. Bafer’s resignation as Chief Executive Officer, the 2016 Bafer Agreement was terminated effective
immediately, except as set forth in the Bafer Termination Agreement. |
