Item 2.01. Completion of Acquisition or
Disposition of Assets.
W Marketing Acquisition
On June 22, 2017, we consummated
the transactions contemplated by a Share Exchange Agreement (the “
W Marketing Exchange Agreement
”), by and between
the Company, W Marketing Inc. (“
W Marketing
”), and the two shareholders of W Marketing (the “
W Marketing
Shareholders
”). In connection with the closing of the transactions contemplated by the W Marketing Exchange Agreement
(the “
W Marketing Exchange
”), we acquired 100% of the outstanding shares of capital stock of W Marketing from
the W Marketing Shareholders in consideration for 900,000 shares of restricted common stock (the “
W Marketing Shares
”),
the assumption of an outstanding promissory note in the amount of $70,000 owed by W Marketing to Citibank and $75,000 in W Marketing
Notes (defined below). The W Marketing Exchange has an effective date of May 1, 2017. The W Marketing Share Exchange Agreement
included standard and customary representations, warranties and indemnification rights.
As additional consideration
for agreeing to the terms of the transaction, we agreed to issue the W Marketing Shareholders an additional $50,000 of shares of
restricted common stock (based on the closing sales price of the Company’s common stock on July 31, 2018), in the event the
revenue generated by W Marketing exceeds $1.5 million during the 12 calendar months ended July 31, 2018 (the “
W Marketing
Earn-Out
” and the “
W Marketing Earn-Out Shares
”).
W Marketing, located in
Hauppauge, New York, provides the latest National Electrical Code (NEC) through its nationwide network of electrical distributors,
which includes bookstores, trade/vocational schools, universities, retail chains, specialty retailers, and independent hardware
stores. The NEC is a regionally adoptable standard for the safe installation of electrical wiring and equipment in the United States.
It is part of the National Fire Codes series published by the National Fire Protection (NFPA), a private association. First published
in 1897, the NEC is updated and published every three years. W Marketing’s library of published products includes courses
and exam preparation materials.
We provided Promissory
Notes (the “
W Marketing Notes
”) to each of the two W Marketing Shareholders at closing, which each evidence
the principal amount of $37,500 ($75,000 in aggregate) owed to such W Marketing Shareholders. The W Marketing Notes accrue interest
at the rate of 8% per annum (12% upon the occurrence of an event of default), beginning June 22, 2017, and are payable at the rate
of $3,306 per month, beginning August 22, 2017, through the maturity date of such notes, August 22, 2018. The W Marketing Notes
contain standard and customary events of default and may be prepaid at any time without penalty.
As part of the W Marketing
Exchange, on June 22, 2017, and effective June 23, 2017, we entered into an employment agreement with Jeffrey S. Spellman, one
of the employees of W Marketing (“
Employment Agreement
”). Pursuant to the Employment Agreement, we agreed to
pay Mr. Spellman, $50,000 per year, pay Mr. Spellman a commission of 4% of the net profit originated through his personal direct
sales efforts, issue him $1,000 worth of shares of restricted common stock of the Company at the end of each calendar quarter during
the term of the agreement (beginning September 30, 2017)(the “
Employment Agreement Shares
”), and pay him one
month of salary as severance pay in the event the agreement is terminated by Mr. Spellman with good reason or terminated by the
Company without cause. The agreement includes standard and customary indemnification, work for hire, confidentiality, arbitration
and trade secret provisions.
In the event that Mr. Spellman’s
employment with the Company is terminated by Mr. Spellman, terminated by the Company for cause, or terminated due to Mr. Spellman’s
death or disability (a “
Triggering Termination
”), prior to September 20, 2017, the principal amount of the W
Marketing Notes are each automatically decreased by the lesser of (a) $7,500; and (b) the then principal amount of such notes.
In the event that Jeffrey S. Spellman’s employment with the Company is terminated due to a Triggering Termination prior to
December 19, 2017, the W Marketing Earn-Out is deemed terminated and no Earn-Out Shares are due whatsoever to the W Marketing Shareholders.
The shares issued pursuant
to the W Marketing Exchange Agreement are subject to a lock-up agreement (the “
Lock-Up Agreement
”), which prohibits
the sale of any such shares for a period of one year and restricts the sale of any of the shares in any thirty day period, for
an additional one year thereafter, to 10% of the total volume of our common stock which traded in the prior 30 days, on a rolling
basis.
* * * * * *
The foregoing descriptions
of the W Marketing Exchange Agreement, W Marketing Notes, Employment Agreement and Lock-Up Agreement, do not purport to be complete
and are qualified in their entirety by reference to the W Marketing Exchange Agreement, Form of W Marketing Notes, Employment Agreement
and Lock-Up Agreement, copies of which are attached as
Exhibits 2.1, 10.3, 10.4, and 10.5
, to this Current Report on Form
8-K, and incorporated in this
Item 2.01
by reference.