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ITEM 1.01
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ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
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Share Exchange Agreement
On March 3, 2017, Avalanche International Corp., a Nevada corporation (the “
Company
”), entered into a Share Exchange Agreement (the “
Agreement
”) with MTIX Limited, an English company (the “
MTIX
”) and the three (3) current shareholders of MTIX (individually, a “
Seller
” and collectively, the “
Sellers
”). Upon the terms and subject to the conditions set forth in the Agreement, the Company will acquire MTIX from the Sellers through the transfer of all issued and outstanding ordinary shares of MTIX (the “
MTIX Shares
”) by the Sellers to the Company in exchange (the “
Exchange
”) for the issuance by the Company of: (a) 7% secured convertible promissory notes (individually, a “
Note
” and collectively, the “
Notes
”) in the aggregate principal face amount of $9,500,000 to the Sellers in pro rata amounts commensurate with their current respective ownership percentages of MTIX’s ordinary shares, (b) (i) $500,000 in cash, $50,000 of which has already been paid, and (ii) 100,000 shares of the Company’s newly designated shares of Class B Convertible Preferred Stock (the “
Class B Shares
”) to Pravin Mistry, the principal shareholder of MTIX (the “
Majority Shareholder
”). Upon the closing of the Agreement, and assuming the conversion of the Notes and the Class B Shares, the Conversion Shares (as hereinafter defined) shall at that time constitute approximately 56.3% of the aggregate number of shares of common stock, par value $0.001 per share, of the Company (the “
Common Stock
”) issued and outstanding, calculated on a fully diluted basis, assuming a conversion price of $0.50.
At Closing, subject to the terms and conditions of the Agreement, the Company will enter into a three year employment agreement mutually agreed between the Company and the Majority Shareholder providing for salary of $150,000 per annum and issue stock options to purchase an aggregate of 531,919 shares of Common Stock to the members of management of MTIX.
Consummation of the Exchange (the “
Closing
”) is subject to a number of closing conditions, including, among other things: (i) absence of litigation that seeks to prohibit the Exchange and certain other matters; (ii) the accuracy of the representations and warranties, subject to customary materiality qualifiers; (iii) the performance by the parties of certain covenants and agreements in all material respects, and (iv) the absence of a Material Adverse Effect (as defined in the Agreement). The Agreement does not contain a financing condition.
Each of the Company and the Sellers have made customary representations and warranties in the Agreement and have covenanted, among other things, that, subject to certain customary exceptions: (i) MTIX will conduct its business in the ordinary course of business consistent with past practice during the interim period between the execution of the Agreement and the Closing; (ii) upon Closing, subject to certain conditions, the Company will appoint two designees of the Majority Shareholder to its board of directors; (iii) prior to the Closing, the Common Stock shall be quoted on the OTCQB; and (iv) MTIX shall have provided the Company with its audited financial statements and all other information about MTIX necessary for AIC to prepare and file a Current Report on Form 8-K to be filed in connection with the Closing that complies with the rules and regulations of the Securities and Exchange Commission (the “
Commission
”).
The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement and the Exhibits thereto, which is attached as
Exhibit 2.1
to this Current Report on Form 8-K and is incorporated herein by reference. The Agreement has been included to provide investors and stockholders with information regarding its terms. It is not intended to provide any other factual information about the Company, MTIX or the Sellers. The Agreement contains representations and warranties that the parties to the Agreement made to and solely for the benefit of each other, and the assertions embodied in such representations and warranties are qualified by information contained in confidential disclosure schedules that the parties exchanged in connection with signing the Agreement. Accordingly, investors and stockholders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances, since they were only made as of the date of the Agreement (or such other date as specified therein) and are modified in important part by the underlying disclosure schedules.
The foregoing does not purport to be a complete description of the Agreement and is qualified in its entirety by reference to the full text of the Agreement.
Notes
At the Closing the Company shall deliver to the Majority Shareholder and the two Sellers other than Majority Shareholder (the “
Minority Shareholders
”) three Notes, which Notes shall be in the principal face amount of $6,166,666 with respect to the Majority Shareholder and in the principal face amount of $1,666,667 with respect to each of the Minority Shareholders. Other than the principal amount under the foregoing Notes, the Notes shall be in all respects identical to the Note.
The Notes bear interest at 7% per annum with interest payable (i) in cash upon maturity or in connection with any voluntary or mandatory conversion or, (ii) at the option of the Seller, in arrears
on the first day of each calendar quarter after the date of issuance (the “
Closing Date
”) by issuing and delivering that number of shares of Common Stock determined by dividing the interest accrued for such quarter by the average price per share for the ten (10) trading days immediately preceding the determination date as reported by Bloomberg, L.P.
Commencing two (2) years from the Closing Date, the Company may prepay any portion of the principal amount of this Note without the prior written consent of the Holder, provided, however, that the Company shall provide the Seller with 90 days’ notice of such prepayment, and any prepayment must be undertaken on a pro rata basis for all Notes then outstanding. The holders of Notes shall have the right to convert any or all of the amount to be redeemed into common stock prior to prepayment.
Each Note ranks pari passu in right of payment with all other Notes now or hereafter issued in accordance with the Agreement and matures on the five-year anniversary of the issuance date thereof. Subject to certain limitations, the Notes are convertible at any time at the option of the holder into shares of the Company’s common stock at a conversion price equal to either (i) if the aggregate market capital of the Company on the date of conversion (the “
Market Cap
”) is $35,000,000 or less, at a 25% discount to the Market Price, or (ii) if the Market Cap is greater than $35,000,000, at a 25% discount to the Market Price, provided that such discount shall be increased by dividing it by the quotient that shall be obtained by dividing $35,0000,000 by the Market Cap at the time of conversion, provided, however, any increase in the discount to the Market Price shall not result in a discount that is greater than a 75% discount (the “
Conversion Price
”). Notwithstanding the foregoing, in no event shall the Conversion Price be less than $0.35. In addition, the Company may force the conversion of the Notes at any time commencing two (2) years from the Closing Date, provided certain conditions are met.
Certificate of Designations of Class B Convertible Preferred Stock
Upon Closing, the Company will issue the 100,000 Class B Shares to the Majority Shareholder. The Class B Shares will have a priority over all of the shares of Common Stock on liquidation or sale of the Company, at the rate of $50.00 per Class B Share, or a liquidation preference of $5,000,000 (the “
Class B Stated Value
”) as to all Class B Shares. The Class B Shares will pay an annual dividend (at the option of the Company, either in cash or in additional shares of Common Stock), in an amount that shall be the greater of (i) an annual rate of 5% per annum, or (ii) 5% of MTIX’s net income as determined in accordance with United States Generally Accepted Accounting Principles for the fiscal year then ended. The Class B Shares will vote with the Common Stock on all matters as to which shareholders of the Company are entitled to vote, on an “as converted” basis, as though all outstanding Class B Shares had been converted into Common Stock immediately prior to the taking of the record date for all shareholders entitled to vote at any regular or special meeting of the Company’s shareholders. Commencing two (2) years after the Closing Date, the Class B Shares shall be convertible into shares of Common Stock by dividing the Class B Stated Value by the Conversion Price applicable to the Notes. The Class B Shares shall contain the respective rights, privileges and designations as are set forth in the Certificate of Designations, Preferences, Rights and Limitations of Class B Convertible Preferred Stock appended hereto as
Exhibit 3.3
.
Security Agreement
The Notes will be secured, pursuant to a Security Agreement, by a lien on certain of the Company’s assets, including but not limited to the intellectual property of MTIX. Upon the occurrence of an event of default under the Notes, a majority in interest of the Notes may require the Company to repay all of its Notes in cash, at a price equal to 100% of the principal, accrued and unpaid interest and any amounts, costs and liquidated damages, as applicable.
Registration Rights Agreement
In connection with the Exchange, the Company and the Sellers will enter into a Registration Rights Agreement under which the Company shall be required to file a registration statement with the Commission covering the resale of the shares of the Common Stock issuable pursuant to conversion of: (i) the Notes
eighteen (18) months from the Closing Date, and (ii) the Class B Shares twenty-four (24) months from the Closing Date. In addition, the Company use its best efforts to have the registration statement declared effective as soon as practicable, but in no event later than 90 days after the filing date if the registration statement is not subject to a full review by the Commission, or 120 days after filing if the registration statement is subject to a full review by the Commission. The Company will be subject to certain monetary penalties, as set forth in the Registration Rights Agreement, if the registration statement is not filed, does not become effective on a timely basis, or does not remain available for the resale (subject to certain allowable grace periods) of the Registrable Securities, as such term is defined in the Registration Rights Agreement.
The foregoing does not purport to be a complete description of the Note, the Certificate of Designations, the Security Agreement or the Registration Rights Agreement and is qualified in its entirety by reference to the full text of such documents, which the Company has filed as forms of exhibits to the Agreement.
Where You Can Find Additional Information
The Company will file with the Commission a Current Report on Form 8-K (the “
Closing 8-K
”) in connection with the Closing. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE CLOSING 8-K AND ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION about the Company and MTIX. Investors and security holders will be able to obtain these materials (when they are available) and other documents filed with the SEC free of charge at the Commission’s website,
www.sec.gov
. Security holders may also read and copy any reports, statements and other information filed by the Company with the Commission, at the SEC public reference room at 100 F Street, N.E., Washington D.C. 20549. Please call the Commission at 1-800-SEC-0330 or visit the Commission’s website for further information on its public reference room.
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