AAPC Atlantic Alliance Partnership Corp. - Ordinary Shares

Item 1.01. Entry Into A Material Definitive Agreement.

Merger Agreement

This section describes the material provisions of the Merger Agreement (as defined below) but does not purport to describe all of the terms thereof.  The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1.  AAPC’s shareholders and other interested parties are urged to read such agreement in its entirety.  Unless otherwise defined herein, the capitalized terms used below are defined in the Merger Agreement.

General Description of the Merger Agreement

On  May 8, 2017, Atlantic Alliance Partnership Corp., a British Virgin Islands company (together with the successor entity thereto, “ AAPC ”), entered into a Merger Agreement (the “ Merger Agreement ”) with Kalyx Development Inc., a Maryland corporation (“ Kalyx ”). Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated thereby (the “ Closing ”), Kalyx will merge with and into AAPC (the “ Merger ”), with AAPC continuing as the surviving entity (the “ Surviving Corporation ”). As a result of the consummation of the Merger, at the effective time of the Merger (the “ Effective Time ”), Kalyx will cease to exist, the holders of Kalyx capital stock will receive shares of AAPC capital stock and Kalyx’s outstanding warrants will be assumed by AAPC.

Immediately prior to the Closing, AAPC be converted into a Maryland corporation, named Atlantic Alliance Partnership Corp. (the “ Successor ”), pursuant to a statutory conversion (the “ Conversion ”). As a result of the Conversion, each outstanding no par ordinary share of AAPC will become one share of common stock, par value $0.0001 per share of the successor entity.

Merger Consideration

Pursuant to Kalyx’s Articles of Amendment and Restatement, dated July 14, 2016 (the “ Kalyx Charter ”), holders of outstanding shares of Kalyx’s Series A Preferred Stock (the “ Kalyx Series A Preferred Stock ”) and Kalyx’s Series B Preferred Stock (the “ Kalyx Series B Preferred Stock ”) are entitled to a certain internal rate of return under certain circumstances, which is taken into account in the shares of common stock of the Surviving Corporation to be issued to the Kalyx stockholders pursuant to the Merger Agreement (the “ Merger Consideration ”). In particular, the Merger Agreement provides that holders of Kalyx Series A Preferred Stock and of Kalyx Series B Preferred Stock (collectively, the “ Kalyx Preferred Stock ”) will receive an “ IRR Value ” defined, with respect to a share of Kalyx Preferred Stock, as the amount by which a ten percent (10%) Internal Rate of Return (as defined in, and calculated in accordance with, the Kalyx Charter, including giving effect to prior dividends), with respect to the relevant share of Kalyx Preferred Stock, exceeds $10.00.

As a result of the consummation of the Merger, at the Effective Time and subject to the terms and conditions set forth in the Merger Agreement:

At the Effective Time, each Kalyx Warrant that remains outstanding, including the Amended Warrants discussed below, will be assumed by the Surviving Corporation.

For purposes of the Merger Agreement, the shares of the Surviving Corporation to be issued as Merger Consideration will be valued at $10.00 per share. Prior to the Closing, AAPC will issue a stock dividend to its shareholders who do not elect to redeem their AAPC ordinary shares, with the number of shares based on the difference between AAPC’s Trust Account (as defined below) liquidation value per share at the Closing and the $10.00 per share price.

Representations and Warranties

The Merger Agreement contains customary representations and warranties by AAPC relating to, (1) organization and qualification, (2) capitalization, (3) corporate authorization, enforceability and board action, (4) consents and approvals, no violations, (5) SEC filings and financial statements, (6) absence of certain changes, (7) undisclosed liabilities, (8) litigation, (9) compliance with laws, (10) employee benefit plans, (11) taxes, (12) contracts, (13) intellectual property, (14) finders’ or advisors’ fees, (15) absence of sensitive matters and (16) bank accounts. The Merger Agreement also contains customary representations and warranties by Kalyx relating to, (1) organization, authority, (2) corporate authorization, enforceability, board action, (3) consents and approvals, no violations, (4) capitalization, (5) financial statements, (6) absence of certain changes, (7) undisclosed liabilities, (8) real property, (9) environmental laws, (10) utilities and access, (11) no condemnation, (12) possession of licenses and permits, (13) business insurance, (14) title insurance, (15) real estate investment trust and operating partnership, (16) transactions with related parties, (17) absence of sensitive matters, (18) litigation, (19) compliance with laws, (20) employee benefit plans, (21) taxes, (22) intellectual property, (23) material contracts and (24) finders’ or advisors’ fees. Certain of the representations and warranties are qualified by the representing party’s knowledge and/or by materiality or material adverse effect. The representations and warranties made by the parties to the Merger Agreement do not survive the Closing.

Covenants of the Parties

The Merger Agreement contains certain customary covenants by each of the parties to be performed during the period between the signing of the Merger Agreement and the earlier of the Closing or the termination of the Merger Agreement in accordance with its terms, including covenants regarding (1) conduct of business, (2) access to information, (3) no solicitation, (4) regulatory filings, (5) announcements, (6) further assurances, (7) notification of certain matters, (8) post-closing director and officer liability, (9) reasonable efforts to consummate the Merger, (10) annual and interim financial statements by Kalyx, (11) no trading by Kalyx, (12) use of funds in AAPC’s trust account containing the proceeds from its initial public offering (the “ Trust Account ”) and (13) Kalyx disclosure schedule updates.

Both AAPC and Kalyx agreed to certain covenants related to the preparation and filing of a preliminary registration statement on Form S-4 in connection with the registration under the Securities Act of 1933 of (i) the issuance of the Successor’s stock to AAPC’s pre-Conversion shareholders, and (ii) the issuance of the Merger Consideration (the “ Registration Statement ”). AAPC also agreed to certain covenants to hold a special meeting of its shareholders as soon as practicable after the filing and effectiveness of a definitive Registration Statement on Form S-4 to approve the Conversion, Merger and Merger Agreement.

In addition, Kalyx agreed that its board of directors will, prior to the Closing, recommend that the shareholders of Kalyx (the “ Kalyx Shareholders ”) consent to the Merger and adopt the Merger Agreement in accordance with the Kalyx Charter, Kalyx’s bylaws and applicable law and to use Kalyx’s reasonable best efforts to obtain that consent (the “ Kalyx Shareholder Approval ”), and that Kalyx will use its reasonable best efforts to obtain the approval of the holders of at least 75% of the outstanding Kalyx Warrants (the “ Warrantholder Approval ”) to either (i) surrender and cancel their Kalyx Warrants in exchange for a certain number of shares of Kalyx Common Stock as provided below, or (ii) agree to amend their Kalyx Warrants so that the number of shares for which such Warrant was exercisable (the “ Warrant Shares ”) would be reduced to an amount equal to seventy-five percent (75%) of the current number of Warrant Shares and such reduced number of Warrant Shares would only exercisable as provided below (the “ Amended Warrants ”). The Kalyx Warrants that are exchanged for shares of Kalyx Common Stock will be exchanged based on the following ratios: (1) 0.0388 shares of Kalyx Common Stock for each Warrant Share under Kalyx Warrants that were issued in connection with the issuance of Kalyx Common Stock, (2) 0.02947 shares of Kalyx Common Stock for each Warrant Share under Kalyx Warrants that were issued in connection with the issuance of Kalyx Series A Preferred Stock and (3) 0.0368 shares of Kalyx Common Stock for each Warrant Share under Kalyx Warrants that were issued in connection with the issuance of Kalyx Series B Preferred Stock. The Amended Warrants will provide that the exercisability would be in nine different tranches with the first tranche for 12.5% of the total Warrant Shares being exercisable for the 12 months after the Effective Time at a price of $11.50 per share, with the second tranche for 13.25% of the total Warrant Shares being exercisable for a period of 6 months beginning on the 12 month anniversary of the Effective Time at a price of $11.75 per share and each additional tranche being exercisable for a period of 6 months beginning on the expiration of the prior tranche (with the third tranche for 14.25% of the total Warrant Shares at $12.00 per share, the fourth and fifth tranches for 14.5% and 14.25%, respectively of the total Warrant Shares at $12.25 per share, the sixth and seventh tranches for 13.5% and 11.00%, respectively of the total Warrant Shares at $12.50 per share and the eighth and ninth tranches for 4.0% and 2.75%, respectively of the total Warrant Shares at $13.00 per share).

Conditions to Closing of the Merger

The obligations of each party to consummate the Merger are subject to the satisfaction or waiver of customary conditions and closing deliverables, including, among other matters, (1) AAPC having obtained the approval and adoption by its shareholders of the Merger Agreement and related transactions (the “ AAPC Shareholder Approval ”), (2) Kalyx having obtained the Kalyx Shareholder Approval, (3) the consummation of the Conversion, (4) AAPC having issued its ordinary shares in a private placement to certain accredited investors at a price of $10.00 per share (the “ PIPE Transaction ”), with AAPC having at least $15,000,000 in funds when combining (i) the funds left in the Trust Account after giving effect to redemptions by its public shareholders, plus (ii) the gross proceeds received by AAPC in the PIPE Transaction, (5) AAPC having net tangible assets of at least $5,000,001 upon the Closing, after giving effect to redemptions from its public shareholders, (6) any material required third party approvals having been obtained, (7) no applicable law, judgment, injunction, order or decree makes illegal or otherwise prohibits the consummation of the Merger or any transactions contemplated by the Merger Agreement, (9) all material authorizations, consents, orders, permits or approvals of or declarations or filings with any governmental authority will have been made or obtained and will be in full effect, (10) ordinary shares of AAPC (or the shares of the Successor or the Surviving Corporation), after giving effect to any redemptions by the public shareholders of AAPC, being listed or quoted on any tier of the Nasdaq stock market, the New York Stock Exchange, the NYSE MKT or another recognized U.S. national stock exchange, (11) the accuracy of the other party’s respective representations and warranties (subject to certain materiality qualifiers) and compliance with its covenants under the Merger Agreement in all material respects, and (12) no event having occurred since the date of the Merger Agreement resulting in a material adverse effect upon the business, assets, liabilities, results of operations, prospects or condition of the other party and its subsidiaries, taken as a whole, or the other party’s ability to consummate the transactions contemplated by the Merger Agreement and ancillary documents on a timely basis (subject in each case to customary exceptions) (a “ Material Adverse Effect ”).

The obligation of Kalyx to consummate the Merger is subject to satisfaction or waiver of certain additional conditions, including among others, that the Forfeiture Agreement, as described below, is in full force and effect.

The obligation of AAPC to consummate the Merger is subject to satisfaction or waiver of certain additional conditions, including among others: (1) receipt by AAPC of non-competition and non-solicitation agreements and lock-up agreements from certain key stockholders of Kalyx, as discussed below, (2) receipt by AAPC of employment agreements from certain key officers, directors and/or employees of Kalyx, (3) the Warrantholder Approval, and (4) the termination of certain management fee arrangements of Kalyx.

Termination

The Merger Agreement may be terminated under certain customary and limited circumstances at any time prior to the Effective Time, including among other reasons: (1) by the mutual written consent of Kalyx and AAPC, (2) by either of AAPC or Kalyx if (i) the shareholders of AAPC have voted on the Merger Agreement and the AAPC Shareholder Approval has not been obtained, unless the failure to obtain such approval was caused by the breach of the party seeking termination, (ii) the shareholders of Kalyx have voted on the Merger Agreement and the Kalyx Shareholder Approval has not been obtained, unless the failure to obtain such approval was caused by the breach of the party seeking termination, (iii) if any final and non-appealable order is entered which enjoins Kalyx or AAPC from consummating the Merger, or (iv) if the Merger has not occurred on or before October 1, 2017 (the “ Termination Date ”), unless the terminating party’s breach was the cause of the failure to occur by such date, (3) by either party if the other party has breached any of its representations, warranties or covenants in the Merger Agreement such that the related closing conditions would not be met and such breach is incapable of cure or has not been cured by the earlier of the Termination Date or 30 days after the breaching party receives written notice of the breach (unless, at the intended time of termination, the terminating party has breached any of its representations or warranties in any material respect and such breach is uncured), or (4) by either party if there has been a Material Adverse Effect with respect to the other party since the date of the Merger agreement which is continuing and uncured.

If the Merger Agreement is terminated, all further obligations of the parties under the Merger Agreement will terminate, and no party to the Merger Agreement will have any further liability to any other party thereto except for liability for fraud, intentional misrepresentation, willful misconduct or for willful breach of the Merger Agreement prior to termination, except that sections of the Merger Agreement related to announcements, waiver of claims against the Trust Account, the termination provisions and certain general provisions will survive the termination of the Merger Agreement. There are no termination fees in connection with the termination of the Merger Agreement.

Trust Account Waiver

Kalyx agreed that it and its affiliates will not have any right, title, interest or claim of any kind in or to any monies in the Trust Account held for AAPC’s public shareholders, and agreed not to, and waived any right to, make any claim against the Trust Account (including any distributions therefrom).

Certain Governance Matters

The Merger Agreement contemplates that the articles of incorporation and bylaws of the Successor shall be the articles of incorporation and bylaws of the Surviving Corporation. The Merger Agreement further provides that after the Effective Time and until successors are duly elected in accordance with the bylaws of the Surviving Corporation and applicable law, the directors and officers of Kalyx immediately prior to the Effective Time will become the directors and officers of the Surviving Corporation.

A copy of the Merger Agreement is filed with this Current Report on Form 8-K as Exhibit 2.1 and is incorporated herein by reference, and the foregoing description of the Merger Agreement is qualified in its entirety by reference thereto.

Forfeiture Agreement

In connection with the execution of the Merger Agreement, AAP Sponsor (PTC) Corp. (the “ Sponsor ”) and Fox Investments Limited (“ Fox ”), an affiliate of Iain Abrahams, the Chief Executive Officer and a director of AAPC and a director and shareholder of the Sponsor, entered into a letter agreement (the “ Forfeiture Agreement ”) with Kalyx, pursuant to which the Sponsor agreed to forfeit at the Effective Time all but 321,492 of the Sponsor’s 2,976,691 ordinary shares of AAPC (the “ Sponsor Shares ”), provided that if Fox elects to have any of its 522,800 AAPC public shares redeemed by AAPC in connection with the Merger, the Sponsor will forfeit all of its Sponsor Shares at the Effective Time. Fox also agreed that within 10 business days after receipt of notice from Kalyx (or as earlier required in connection with AAPC’s shareholder meeting) that AAPC has received binding subscription agreements for the PIPE Transaction for an aggregate purchase price of at least $9.5 million at $10.00 per share, it must provide written notice to Kalyx that it is or, as the case may be, is not, committing to waive its rights to have its AAPC public shares redeemed by AAPC in connection with the Merger.

Related Agreements

This section describes the material provisions of certain additional agreements entered into or to be entered into pursuant to the Merger Agreement (the “ Related Agreements ”) but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of each of the Related Agreements, copies of each of which are attached hereto as exhibits. Shareholders and other interested parties are urged to read such Related Agreements in their entirety.

Voting Agreements

At the same time that the Merger Agreement was signed, AAPC and Kalyx entered into voting agreements (each, a “ Voting Agreement ”) with certain Kalyx Shareholders. Under the Voting Agreement, the Kalyx Shareholders party thereto generally agreed to vote all of their Kalyx shares in favor of the Merger Agreement and related transactions and to otherwise take certain other actions in support of the Merger Agreement and related transactions and refrain from taking actions that would adversely affect such Kalyx Shareholder’s ability to perform its obligations under the Voting Agreement or which Kalyx is prohibited from taking under the Merger Agreement. Each Voting Agreement prevents, with certain exceptions, transfers of the Kalyx shares held by the Kalyx Shareholder party thereto between the date of the Voting Agreement and the date of the meeting of Kalyx shareholders.

The form of the Voting Agreements that were signed is filed with this Current Report on Form 8-K as Exhibit 10.1 and is incorporated herein by reference, and the foregoing description of the Voting Agreements is qualified in its entirety by reference thereto.

Non-Competition and Non-Solicitation Agreement

At the Closing, certain specified Kalyx Shareholders actively involved with Kalyx’s management (each, an “ Owner ”) will enter into Non-Competition and Non-Solicitation Agreements in favor of AAPC (including the Surviving Corporation as its successor) and its affiliates and subsidiaries (referred to as the “ Covered Parties ”), in substantially the form attached to the Merger Agreement (each, a “ Non-Competition Agreement ”), relating to the business of acquiring, owning, managing, upgrading and leasing commercial and industrial properties to state-licensed operators for their regulated cannabis businesses in states in which such activities are legal under state laws (the “ Business ”). Under the Non-Competition Agreement, for a period of three years after the Closing (such period, the “ Restricted Period ”), the Owner will not and will not permit its Affiliates to, without the Surviving Corporation’s prior written consent, anywhere in the United States, directly or indirectly engage in the Business (other than through a Covered Party) or own, manage, finance or control, or participate in the ownership, management, financing or control of, or become engaged or serve as an officer, director, member, partner, employee, agent, consultant, advisor or representative of, a business or entity (other than a Covered Party) that engages in the Business (a “ Competitor ”). However, the Owner and its affiliates will be permitted under the Non-Competition Agreement to own passive investments of no more than 2% of any class of outstanding equity interests in a Competitor that is publicly traded, so long as the Owner and its affiliates are not involved in the management or control of such Competitor. Under the Non-Competition Agreements, the Owner and its affiliates will also be subject to certain non-solicitation and non-interference obligations during the Restricted Period with respect to the Covered Parties’ respective (i) employees, consultants and independent contractors, (ii) customers and (iii) vendors, suppliers, distributors, agents or other service providers. The Owner will also be subject to non-disparagement provisions regarding the Covered Parties and confidentiality obligations with respect to the confidential information of the Covered Parties.

The form of the Non-Competition Agreement is filed with this Current Report on Form 8-K as Exhibit 10.2 and is incorporated herein by reference, and the foregoing description of the Non-Competition Agreement is qualified in its entirety by reference thereto.

Lock-Up Agreement

At the Closing, certain Kalyx Shareholders will enter into a Lock-Up Agreement with AAPC, in substantially the form attached to the Merger Agreement (each, a “ Lock-Up Agreement ”), with respect to their common shares of the Surviving Corporation received as Merger Consideration, the shares issuable under their Kalyx Warrants that are assumed by the Surviving Corporation, as the successor to AAPC, and/or upon conversion of any Class A units or LTIP profits interests of Kalyx OP LP into common shares of the Surviving Corporation in accordance with the terms of such units and profits interests (collectively, the “ Restricted Securities ”). In such Lock-Up Agreement, each holder will agree that, during the period commencing from the Closing and continuing for the earliest of: (x) the one year anniversary date of the Closing, (y) the date on which the closing sale price of the shares of common stock of the Surviving Corporation equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing, and (z) the date after the Closing on which the Surviving Corporation consummates a transaction, including a liquidation, merger, stock exchange or other similar transaction, which results in all of the Surviving Corporation’s stockholders having the right to exchange their shares of the Surviving Corporation’s common stock for cash, securities or other property, it will not (i) lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Restricted Securities, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Restricted Securities, or (iii) publicly disclose the intention to do any of the foregoing, whether any such transaction described in clauses (i), (ii), or (iii) above is to be settled by delivery of Restricted Securities or other securities, in cash or otherwise. However, each holder is permitted to transfer its Restricted Securities (A) by gift, will or intestate succession upon the death of such holder, (B) to certain permitted transferees or (C) pursuant to a court order or settlement agreement related to the distribution of assets in connection with the dissolution of marriage or civil union.

The form of the Lock-Up Agreement is filed with this Current Report on Form 8-K as Exhibit 10.3 and is incorporated herein by reference, and the foregoing description of the Lock-Up Agreement is qualified in its entirety by reference thereto.