Item 1.01. Entry
into a Material Definitive Agreement.
Background
and Origin of SURG’s Debt
On September
30, 2019, GBT Technologies Inc. (the “Company”) entered into an Asset Purchase Agreement (“APA”) with
Surge Holdings, Inc., a Nevada corporation (“SURG”) pursuant to which the Company agreed to sell and assign to SURG,
all the assets and certain specified liabilities, of its ECS Prepaid, Electronic Check Services and the Central State Legal Services
businesses in consideration of $5,000,000 to be paid through the issuance of 3,333,333 shares of SURG’s common stock (the
“SURG Common Stock”) and a convertible promissory note in favor of the Company in the principal amount of $4,000,000
(the “SURG Note”), convertible into SURG’s shares of common stock.
On June 23,
2020, SURG entered into an Exchange Agreement (the “AltCorp Exchange Agreement”) with AltCorp Trading LLC (“AltCorp”)
with such AltCorp Exchange Agreement being consented and agreed to by the Company, the parent of AltCorp. At the expiration of
the lock-up period, in the event the VWAP for the SURG Common Stock was, during the preceding twenty-day trading period, less
than $0.50 per share, AltCorp retained the right to reserve additional shares of SURG Common Stock equal to the True-Up Value
as defined in the AltCorp Exchange Agreement.
On January 1,
2021, SURG, AltCorp and Stanley Hills, LLC (“Stanley”) entered into a Mutual Release and Settlement Agreement (“Settlement
Agreement”). Pursuant to the terms of the Settlement Agreement, SURG agreed to amend the AltCorp Exchange Agreement where
SURG acknowledged a debt of $3,300,000 (the “Debt”) to be paid in 33 monthly payments of $100,000 payable in shares
of common stock of SURG at a per share price equal the volume weighted average price of Surg’s common stock during the ten
(10) trading days immediately preceding the issuance. The AltCorp assets have been pledged since August 12, 2020 for the benefit
of Stanley to secure Stanley’s note payable by the Company. Accordingly, the SURG Common Stock issued to AltCorp as a result
of the Settlement Agreement were pledged to Stanley.
Subsequently,
SURG was a party to two lawsuits in state District Court, the Eighth Judicial District Court for Clark County, Nevada involving
AltCorp, Stanley and Glen Eagles Acquisition LP (the “AltCorp Parties.”). Each of these lawsuits were ultimately disputes
relating to the total consideration SURG was to pay the Company under the APA.
On October 18,
2021, the AltCorp Parties, the Company, and SURG entered into a Memorandum of Understanding (the “MOU”) to set up
a framework for an attempt to settle the two lawsuits.
On December
22, 2021 (the “Effective Date”), pursuant to the framework in the MOU, the AltCorp Parties (and an additional third
party), the Company, ECS, and SURG, Kevin Brian Cox (SURG’s Chief Executive Officer) - in his individual capacity, entered
into a Resolution of Purchase, Mutual Release, and Settlement Agreement (the “Final Settlement Agreement”) to settle
the two lawsuits and resolve all disputes related to the consideration paid by SURG to the Company in connection with the APA.
The Final Settlement
Agreement, among other resolutions, essentially provides the following:
(i) From the
total consideration of the Final Settlement Agreement, the amount of $375,000 (“Escrow Amount”) will be deposit by
SURG in escrow. SURG has acquired the Company’s rights to a certain Master Distribution and Service Agreement (“MDA”).
Under certain circumstances, if the result of the Company’s lawsuit against a third party (the “GBT Lawsuit”)
is a monetary judgment without the assignment or legal decree of ownership of the MDA, the Company shall be entitled to receive
the Escrow Amount and shall assign to SURG the first $1,000,000 the Company recovers from the defendants in the GBT Lawsuit. In
the event that the Company does not prevail in the GBT Lawsuit then it shall be entitled to release of the Escrow Amount but shall
be responsible for any fees and costs obligation sought by the defendants in the GBT Lawsuit.
(ii) SURG agreed
to make total payments of $4,200,000 to Stanley on or prior to January 7, 2022. This $4.2 million amount consists of $450,000
paid by SURG in November and December 2021, $100,000 to be paid on or about January 4, 2022, and $3,650,000 to be paid on or prior
to January 7, 2022 of which $375,000 will be held in escrow as described before.
(iii) Potential
payments to third parties.
The Final Settlement
Agreement replaces all prior agreements between the parties. In addition, within three (3) trading days of the last payment related
to the $4.2 million payment to Stanley being made, the parties shall make filings with the state District Court in Clark County,
Nevada to dismiss both lawsuits, including, regarding the lawsuit filed by AltCorp Trading, LLC, the dismissal of the lawsuit
as to VStock Transfer, LLC. The parties agreed to a full mutual release of any disputes or claims between the parties.
The
foregoing description of the Final Settlement Agreement is not complete and is qualified in its entirety by reference to the full
text of the Final Settlement Agreement which is filed as exhibit 10.1 to this Current Report on Form 8-K and is incorporated by
reference herein. The foregoing descriptions of the Final Settlement Agreement is qualified in their
entirety by reference to the full text of such agreements, respectively, and each of which is incorporated herein in its entirety
by reference. The representations, warranties and covenants contained in such agreement were made only for purposes of such agreements
and as of specific dates, were solely for the benefit of the parties to such agreements, and may be subject to limitations agreed
upon by the contracting parties.