Item
1.01 Entry Into A Material Definitive Agreement
Effective
April 20, 2017 (the “Effective Date”), DirectView Holdings, Inc., a Nevada corporation (the “Company”)
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Video Surveillance Limited Liability
Company, a Texas limited liability company with an assumed name of Virtual Surveillance (“VS”), Apex CCTV Limited
Liability Company, a Texas limited liability company formerly known as Vaultronics (“APEX” and together with VS, the
“Acquisition Companies”), and Mark D. Harris the sole member and equity owner of each of the Acquisition Companies
(the “Seller”).
According
to the terms of the Purchase Agreement, on the Effective Date, the Seller transferred to the Company all of the issued and outstanding
equity interests of each of the Acquisition Companies. The Seller shall have ten (10) days from the Effective Date to submit the
Acquisition Companies’ books, records and all reasonably necessary accounting documents to the Company’s PCAOB certified
auditor to perform an audit in accordance with U.S. GAAP accounting standards for the fiscal years ended 2016 and 2015 (the “Audit”).
The Audit shall be completed within seventy-five (75) days of the Effective Date. Upon completion of the Audit, the Company shall
have up to one hundred eighty (180) days from the Effective Date (the “Purchase Price Payment Date”) to pay the Seller
in cash the purchase price (the “Purchase Price”) as follows: (A) the Company shall pay in full and complete release
of Seller’s guarantee and collateral relating to that certain Business Loan Agreement with an institutional lender (the
“Lender”) dated April 8, 2015 and related Promissory Note with the Lender dated May 4, 2016 in the amount of approximately
$1,924,358.42 (the “Outstanding Loan”), within 180 days of the Effective Date; (B) one time cash payment to Seller
allocated towards the partial repayment of the principal amount of the Note (as defined herein) in an amount determined by the
review of the Audit paid in accordance with the following schedule (the “Cash Payment”): (1) in the event the Average
Combined Cash Flow (as defined in the Purchase Agreement and calculated in accordance with Schedule 2.03(a) of the Purchase Agreement)
of the Acquisition Companies for 2016 and 2015 exceeds $500,000 (the “Maximum Purchase “Price”), the Company
shall pay the Seller cash in the amount of $500,000, (2) in the event the Average Combined Cash Flow of the Acquisition Companies
for 2016 and 2015 is equal to or between $400,001 and $500,000, the Company shall pay the Seller cash in the amount of $300,000,
(3) in the event the Average Combined Cash Flow of the Acquisition Companies for 2016 and 2015 is equal to or between $200,001
and $400,000, the Company shall pay the Seller cash in the amount of $100,000, and (4) in the event the Average Combined Cash
Flow of the Acquisition Companies for 2016 and 2015 is equal to or between $0 and $200,000 (“Minimum Cash Flow”),
the Company shall pay the Seller cash in the amount of $2,000; provided however, in the event of the Minimum Cash Flow, the Company
shall have the right to transfer all of the equity interests of the Acquisition Companies to Seller and unwind the transactions
under the Purchase Agreement in full within eighty-five (85) days of the Purchase Price Payment Date; (C) consideration of $150,000
shall be paid as provided under the Employment Agreement (as defined herein) which shall be allocated towards the partial repayment
of the principal amount of the Note (the “Final Note Payment”). Upon delivery by the Company to Seller of the Final
Note Payment, the Note held by Seller shall be forfeited and cancelled and of no further force or effect, and the Company shall
have no further obligations under the Note.
Under
the Purchase Agreement, if
the Acquisition Companies are purchased
from the Seller by the Company for less than the Maximum Purchase Price, upon the Acquisition Companies generating at least $500,000
in cash flow each year as calculated in accordance with schedule 2.03(a) of the Purchase Agreement, the Seller shall receive five
percent (5%) of such cash flow up to $300,000 per year (the “Cash Flow Payments”). The Cash Flow Payments shall expire
upon the earlier of (i) three years from the Effective Date, or (ii) the aggregate payment of the Purchase Price in the amount
of the Maximum Purchase Price.
The payment and performance of all of the
obligations under the Purchase Agreement is secured by a continuing security interest in all of the Companies now existing or
hereafter acquired tangible and intangible properties including without limitation the Convertible Preferred Stock (as defined
below), in favor of the Seller, as set forth in the Purchase Agreement.
Pursuant to the Purchase Agreement, the
Company shall issue to Seller convertible preferred stock convertible into common stock of the Company with a fair market
value of up to $1,000,000 (“Convertible Preferred Stock”) valued by the closing price of the Company’s common
stock on the day written notice of an Event of Default (as defined in the Note) under the terms of the Note are delivered to the
Company (the “Default Notice”). The Convertible Preferred Stock may be converted solely upon an Event of Default and
in an amount equal to the outstanding amount due under the Note triggering such Event of Default. The Convertible Preferred Stock
shall be held by the Company in escrow and shall be released within ten (10) days of the Event of Default.
According to the Purchase Agreement, if
the Company fails to pay off the Outstanding Loan as set forth above, the Seller shall notify the Company in
writing of such failure and the Company shall have fifteen (15) days after receipt of such notice to cure the failure. If the
failure is not cured within such fifteen (15) days, the parties agree that the transactions under the Purchase Agreement shall
be considered null and void and the parties will take all actions necessary to unwind the transactions under the Purchase
Agreement in an expeditious manner, not to exceed thirty (30) days after the Purchase Price Payment Date, including but not
limited to the transfer of all of the Acquisition Companies’ equity interests back to Seller, cancellation of the Employment
Agreement and Note and all such other actions as are reasonably necessary.
Additionally, within ten (10) days
of the Effective Date, the Company shall issue a promissory note in favor of the Seller in the principal amount of $830,000 evidencing
the amounts previously loaned by Seller to the Acquisition Companies (the “Note”). The $830,000 principal amount of
the Note shall be reduced by the Cash Payment. Upon delivery by Company to the Seller of the Final Note Payment, the Note held
by Seller shall be forfeited and cancelled and of no further force or effect, and the Company shall have no further obligations
under the Note.
On the same date, the Company entered
into a three year (the “Term”) employment agreement with the Seller (the “Employment Agreement”). Under
the terms of the Employment Agreement, commencing on the Effective Date the Seller shall serve as the President of each
of the Acquisition Companies and shall be entitled to receive $150,000, as repayment of certain loans made to the Acquisition
Companies in installments of $50,000 per year during the Term. Within thirty days of the Effective Date, the Company shall
issue Preferred Stock of the Company to the Seller which shall convert into common stock of the Company equal to $25,000 at the
time of conversion (the “Preferred Stock Issuance”) and thereafter the Seller shall receive the Preferred Stock Issuance
each year during the Term. Additionally, the Seller shall be entitled to receive incentive bonus compensation based on the performance
of the Acquisition Companies during the Term as set forth on Exhibit A of the Employment Agreement.