Item
2.01 | Completion
of Acquisition or Disposition of Assets. |
On
April 1, 2022, Intellinetics, Inc., a Nevada corporation (the “Company”), acquired substantially all of the assets of Yellow
Folder, LLC, a Texas limited liability company (“Yellow Folder”) (the “Acquisition”). Located in Dallas, Yellow
Folder is a document solutions company that specializes in the K-12 education market.
The
Acquisition was consummated pursuant to an Asset Purchase Agreement, dated as of April 1, 2022 (the “Purchase Agreement”),
by and among the Company, as the purchaser, Yellow Folder, as the seller, and 16th Fairway, LLC, TAG 2103 Investment Trust,
Elderly Moose, LLC, and Double Wolves, Inc., collectively, as the members. The purchase price for Yellow Folder consisted of approximately
$6.5 million in cash, on a cash-free, debt-free basis, with a preliminary working capital negative adjustment of $116,731, which remains
subject to a post-closing net working capital true-up adjustment. The
board of directors of the Company approved the Purchase Agreement and the transactions contemplated thereby.
The
Acquisition was effective as of 12:01 a.m. on April 1, 2022. The Purchase Agreement contains customary representations and warranties
as well as indemnification obligations by Yellow Folder and its members, on the one hand, and by the Company, on the other hand, to each
other. In addition, the Purchase Agreement contains a five year covenant not to compete by Yellow Folder and its members against the
Company and its affiliates in the acquired business, and related customary restrictive covenants. The Company financed the Acquisition
through a private placement of equity and debt as further described in Item 3.02 of this Report.
The
Company retained Taglich Brothers, Inc. (the “Placement Agent”) on an exclusive basis to render financial advisory and investment
banking services to the Company in connection with the acquisition of Yellow Folder. Pursuant to an Engagement Agreement, dated
May 1, 2020, between the Company and the Placement Agent, the Company paid the Placement Agent a success fee of $200,000 as a result
of the successful completion of the acquisition of Yellow Folder. The Company also agreed to reimburse the Placement Agent for
reasonable out of pocket expenses related to the acquisition, not exceeding $5,000. The Placement Agent has certain material relationships
with the Company: William Cooke, a Director of the Company, is a Vice President of Investment Banking at the Placement Agent; Michael
Taglich, a beneficial owner of more than 10% of the currently outstanding shares of the Company’s common stock, par value $0.001
per share (“Common Stock”), is a co-founder and the President and Chairman of the Placement Agent; and Robert Taglich, a
beneficial owner of more than 10% of the currently outstanding shares of the Company’s Common Stock, is also a co-founder
and the Managing Director of the Placement Agent.
The
foregoing description of the Purchase Agreement is a summary of, and does not purport to be a complete statement of, the Purchase Agreement
or the rights and obligations of the parties thereunder, and is qualified in its entirety by reference to the full text of the Purchase
Agreement, which is filed herewith as Exhibit 2.1 and incorporated herein by this reference.
Cautionary
Note Regarding the Purchase Agreement
The
Purchase Agreement has been attached as an exhibit hereto to provide investors with information regarding its terms. It is not intended
to provide any other factual information about Yellow Folder, the members or the Company. The Purchase Agreement contains representations
and warranties made by Yellow Folder, the members, and the Company. Such representations and warranties were made only for the purposes
of the Purchase Agreement, are solely for the benefit of the parties to the Purchase Agreement, and are not intended to be and should
not be relied upon by any other person. In addition, these representations and warranties should not be treated as establishing matters
of fact, but rather as a way of allocating risk between the parties. Moreover, certain of the representations and warranties may be subject
to limitations agreed upon by the parties to the Purchase Agreement and are qualified by information in confidential disclosure schedules
provided by Yellow Folder and its members to the Company. These representations and warranties may apply standards of materiality in
a way that is different from what may be material to investors, and were made only as of the date of the Purchase Agreement or such other
date or dates as may be specified in the Purchase Agreement and are subject to more recent developments. Accordingly, investors are not
third party beneficiaries under the Purchase Agreement and should not rely on the representations and warranties in the Purchase Agreement
as characterizations of the actual state of facts about Yellow Folder, its members, or the Company, or of any of their respective businesses,
assets or contracts, or otherwise.