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VICTORY ELECTRONIC CIGARETTES CORP FILES (8-K) Disclosing Entry into a Material Definitive Agreement, Completion of Acquisition or Disposition of Assets, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant, Unregistered Sale of Equity Securities, Non-Reliance on Previous Financials, Audits or Interim Review, Change in Directors or Principal Officers, Other Events, Financial Statements and Exhibits

April 29, 2014

Item 1.01 Entry into a Material Definitive Agreement

Share Purchase Agreement

On April 22, 2014 (the "Closing Date"), Victory Electronic Cigarettes Corporation (the "Company" or "Victory") entered into a share purchase agreement (the "Exchange Agreement") by and between (i) the Company and (ii) the shareholders of Must Have Limited ("MHL"), an England and Wales incorporated limited company (the "MHL Shareholders"). Pursuant to the terms of the Exchange Agreement the MHL Shareholders transferred to the Company all of the shares of MHL held by such shareholders in exchange for (1) the issuance of 2,300,000 shares (the "Exchange Shares") of the Company's common stock, par value $0.001 per share (the "Common Stock"), (2) GBP £5,345,713.58 (equivalent to $9,000,000) in cash consideration, (3) $11,000,000 of promissory notes (the "Share Exchange"), (4) GBP £6,796,303 in respect of MHL's surplus cash, and (5) (if payable in accordance with the terms of the Exchange Agreement) up to $5,000,000 as earn-out consideration.

Promissory Notes

On the Closing Date, the Company issued $11,000,000 of promissory notes (the "Promissory Notes"). The Promissory Notes become due at the earlier of 1) 175 days from the date of issuance, 2) the day the Company first trades it shares of a common stock on certain listed exchanges (including the NYSE Market, the Nasdaq Capital Market, the Nasdaq Global Select Market, the Nasdaq Global Market or the New York Stock Exchange) or 3) the Company completes an underwritten public offering of a minimum of $40 million (the "Maturity Date"). Beginning 120 days following the date of issuance, the Promissory Notes will accrue interest at a rate of 10% per annum.

Registration Rights Agreement

In connection with the Share Exchange, the Company entered into a registration rights agreement (the "Registration Rights Agreement") with the MHL Shareholders, pursuant to which the Company agreed to register all of the Exchange Shares (the "Registrable Securities") on a Form S-1 registration statement (the "Registration Statement") to be filed with the SEC within 30 calendar days following the completion of the audit of the MHL financial statement for the 2013 fiscal year (the "Filing Date"), subject to the satisfaction of any registration rights previously granted by the Company, and to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended, (the "Securities Act") within 90 days following the Filing Date (the "Required Filing Date").

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages to the MHL Shareholders in the amount equal to 2% of the value of the Exchange Shares on the Closing Date for each 30-day period for which the Company is non-compliant.

Security Agreements

As security for all of the Company's obligations under the Promissory Notes and related documents executed in connection with the Share Exchange, MHL granted a guarantee in favor of the MHL Shareholders (the "MHL Shareholders' Guarantee") supported by a second priority security interest in all of MHL's assets pursuant to the terms of the Debenture entered into between MHL and the security trustee for the MHL Shareholders (the "Security Agreement").

The foregoing descriptions of the terms of the Exchange Agreement, the Promissory Notes, the Registration Rights Agreement, the MHL Shareholders' Guarantee and the Security Agreement are qualified in their entirety by reference to the provisions of the agreements filed as Exhibits 2.1, 10.1, 10.2, . . .

Item 2.01 Completion of Acquisition or Disposition of Assets

The information set forth in Item 1.01 hereof is incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Item 1.01 hereof is incorporated herein by reference.

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Item 3.02 Unregistered Sales of Equity Securities

Reference is made to the disclosure set forth under Item 1.01 of this Report, which disclosure is incorporated herein by reference.

The Exchange Shares were issued in reliance upon exemptions from registration pursuant to Regulation S promulgated under the Securities Act ("Regulation S"). These shares of our common stock qualified for exemption Regulation S as all of the Exchange Shares were issued to non-US persons as that term is defined in Regulation S.

The sale and the issuance of the Notes were offered and sold in reliance upon exemptions from registration pursuant to Regulation S promulgated under the Securities Act ("Regulation S"). These shares of our common stock qualified for exemption Regulation S as all of the Exchange Shares were issued to non-US persons as that term is defined in Regulation S.

On April 22, 2014, the Company issued a warrant to acquire an aggregate of 85,478 shares of our common stock (the "Agent Warrant") to the placement agent and its sub-agents, or their respective designees, in the Offering. The Agent Warrant is exercisable for a period of five years from the original issuance date with an exercise price of $9.00 per share. The exercise price of the Agent Warrant is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.

The foregoing descriptions of the terms of the form of Agent Warrant is qualified in its entirety by reference to the provisions of the Agent Warrant filed as Exhibit 4.2 to this Report, which is incorporated by reference herein.

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

Background to the Restatements

On April 24, 2014, the Audit Committee of Victory Electronic Cigarettes Corporation ("Victory" or the "Company") determined that due to a change in an input to the Company's valuation models, the Company's consolidated financial statements as of December 31, 2013 and for the year ended December 31, 2013 as contained in the Company's 2013 Annual Report on Form 10-K (the "2013 10-K") should no longer be relied upon.

The change in an input was the result of a change in the valuation methodology used to value the Company's stock. The change in the input is used in the valuation models to determine the fair value of certain of the Company's warrant liabilities, stock options and for the allocation of proceeds related to a convertible debt instrument. Based upon the Company's preliminary analysis, the change would have increased distribution, marketing and advertising expense by approximately $9.6 million, increased interest expense by approximately $1.5 million, increased general and administrative expenses by approximately $200,000 and increased the net loss, as reported, by approximately $11.3 million. These adjustments have no effect on the Company's assets or cash flows.

The Company currently plans to file an amendment to its 201310-K to recognize the impact of these adjustments.

The Audit Committee of the Company's Board of Directors and management have discussed this matter with the Company's independent registered public accounting firm, McGladrey LLP. McGladrey LLP was appointed as the Company's independent registered public accounting firm on April 1, 2014.

Effects of Restatement

Management has considered the effect of the restatements on our prior conclusions as to the effectiveness of our disclosure controls and procedures and internal control over financial reporting. Management has concluded that no material weakness in internal controls over financial reporting existed as of December 31, 2013, and that our disclosure controls and procedures and internal control over financial reporting for such periods were therefore effective.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

On April 22, 2014, Elliot B. Maisel notified Victory Electronic Cigarettes Corporation (the "Company") that he would resign from his position as a member of the Company's board of directors, as well as from his position as Chief Executive Officer of FIN Branding Group, LLC, a wholly-owned subsidiary of the Company, effective immediately. Mr. Maisel's resignation was not as a result of any disagreements with us.

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Item 8.01 Other Events

On April 22, 2014, the Company issued a press release (the "Press Release") announcing the execution of the Exchange Agreement with MHL. A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(a) Financial Statements

Financial statements of MHL required by Item 9.01(a) of Form 8-K are not being included with this filing, but are intended to be filed by amendment no later than 71 calendar days from the date of the filing of this current report on Form 8-K.

(b) Pro Forma Financial Information

The pro forma financial information required by Item 9.01(b) of Form 8-K are not being included with this filing, but are intended to be filed by amendment no later than 71 calendar days from the date of the filing of this current report on Form 8-K.

(d) Exhibits



Exhibit No. Description

2.1 Exchange Agreement by and between Victory Electronic Cigarettes Corporation and the MHL Shareholders, dated as of April 22, 2014. 4.1 Form of Note 4.2 Form of Agent Warrant (1) 10.1 Form of Promissory Note 10.2 Form of Registration Rights Agreement entered into with MHL Shareholders 10.3 Form of MHL Shareholders Guarantee 10.4 Form of Security Agreement entered into between MHL and the MHL Shareholders 10.5 Form of Securities Purchase Agreement 10.6 Form of Registration Rights Agreement entered into with Purchasers 10.7 Form of Purchasers Guarantee 10.6 Form of Security Agreement entered into between MHL and the Purchasers 10.9 Form of Share Charge entered into with Purchasers 10.10 Form of Intercreditor Agreement 99.1 Press Release dated April 22, 2014



(1) Filed as an Exhibit on Current Report to Form 8-K with the SEC on January 17, 2014

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