PRER14A 1 s118091_prer14a.htm PRER14A

             

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

(Amendment No. 3) 

 

Filed by the Registrant x
Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

 

  x Preliminary Proxy Statement
  ¨ Confidential, For Use of the Commission Only (as Permitted by Rule 14a-6(e)(2))
  ¨ Definitive Proxy Statement
  ¨ Definitive Additional Materials
  ¨ Soliciting Material Pursuant to §240.14a-12

 

MTech Acquisition Corp.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

  x No fee required.

 

  ¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)

Title of each class of securities to which transaction applies: 

     
  (2)

Aggregate number of securities to which transaction applies:

     
  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  (4)

Proposed maximum aggregate value of transaction:

 

  (5)

Total fee paid:

 

  ¨ Fee paid previously with preliminary materials.

 

  ¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

  (2) Form, Schedule or Registration Statement No.:

 

  (3) Filing Party:

 

 

 

The information in this preliminary proxy statement/prospectus is not complete and may be changed. These securities may not be issued until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROXY STATEMENT/PROSPECTUS

SUBJECT TO COMPLETION, DATED MAY 7, 2019

 

MTech Acquisition Corp.

10124 Foxhurst Court

Orlando, Florida 32836

 

To the Stockholders of MTech Acquisition Corp.:

 

You are cordially invited to attend the Special Meeting of Stockholders (the “Special Meeting”) of MTech Acquisition Corp. (“MTech,” “we,” “us” or “our”) on ________, 2019, at 10:00 a.m., Eastern time, at the offices of Ellenoff Grossman & Schole LLP, at 1345 Avenue of the Americas, 11th Floor, New York, New York 10105.

 

At the Special Meeting, our stockholders will be asked to consider and vote on a proposal, which we refer to as the “Business Combination Proposal,” to approve an Agreement and Plan of Merger (as amended on April 17, 2019, the “Merger Agreement”) providing for the combination of MTech and MJ Freeway, LLC (“MJF”) under a new holding company called MTech Acquisition Holdings Inc. (“MTech Holdings”). Upon completion of the Business Combination, current MTech stockholders will receive shares of MTech Holdings common stock to replace their existing shares of MTech common stock. The outstanding MTech warrants, by their terms, will be cancelled and exchanged for MTech Holdings’ warrants to purchase an equal number of shares of MTech Holdings’ common stock. Current holders of MJF’s membership interests, including MJF’s preferred units and profits interest units (the “Sellers”), will receive shares of MTech Holdings common stock. We refer to such transactions hereafter as the “Business Combination.”

 

It is anticipated that, upon completion of the Business Combination and if there are no redemptions, MTech’s existing stockholders, including MTech Sponsor LLC (“Sponsor”), will own approximately 51.89% of the outstanding capital stock of MTech Holdings and the Sellers will own approximately 48.11% of the outstanding capital stock of MTech Holdings, and if there are redemptions by MTech’s public stockholders up to the maximum level that would permit completion of the Business Combination, MTech’s remaining stockholders, including the Sponsor, will own approximately 26.76% of the outstanding capital stock of MTech Holdings and the Sellers will own approximately 73.24% of the outstanding capital stock of MTech Holdings. These percentages are calculated based on a number of assumptions (as described in the accompanying proxy statement/prospectus) and are subject to adjustment in accordance with the terms of the Merger Agreement. A copy of the Merger Agreement is attached to the accompanying proxy statement/prospectus as Annex A.

 

In addition to the proposal to approve the Merger Agreement, our stockholders will also be asked to consider and vote upon the following proposals:

 

to approve the Amended and Restated Certificate of Incorporation of MTech Holdings, a copy of which is attached to the accompanying proxy statement/prospectus as Annex B, reflecting the following material differences from MTech’s current amended and restated certificate of incorporation, which we refer to as the “Charter Amendments Proposal:”

 

(a)having a single class of common stock and an authorized 75,000,000 shares of common stock;
(b)having 5,000,000 authorized shares of preferred stock;
(c)fixing the number of directors of MTech Holdings at eight, subject to change by resolution adopted by the affirmative vote of at least a majority of the board of directors then in office;
(d)dividing the board of directors of MTech Holdings into three classes with staggered three-year terms;
(e)prohibiting stockholder actions by written consent; and

 

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(f)making MTech Holdings’ corporate existence perpetual as opposed to MTech’s corporate existence terminating 18 months following the consummation of its initial public offering and removing various provisions applicable only to special purpose acquisition corporations contained in MTech’s current amended and restated certificate of incorporation.

 

to approve the MTech Acquisition Holdings Inc. 2019 Long Term Incentive Plan in connection with the Business Combination, a copy of which is attached to the accompanying proxy statement/prospectus as Annex C, which we refer to as the “Incentive Plan Proposal;” and

 

to approve a proposal to adjourn the Special Meeting to a later date or dates, if necessary, which we refer to as the “Adjournment Proposal.”

 

Our units, Class A common stock and warrants are currently listed on the Nasdaq Capital Market under the symbols “MTECU,” “MTEC” and “MTECW,” respectively. We have applied to list the MTech Holdings common stock and warrants on the Nasdaq Capital Market under the symbols “KERN” and “KERNW,” respectively, upon the closing of the Business Combination. MTech Holdings will not have units traded following closing of the Business Combination.

 

The Board of Directors of MTech (the “Board”) has fixed the close of business on _______, 2019 as the record date (the “Record Date”) for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting or any postponement or adjournment thereof. Stockholders should carefully read the accompanying Notice of Special Meeting and proxy statement/prospectus for a more complete statement of the proposals to be considered at the Special Meeting.

 

We are providing this proxy statement/prospectus and accompanying proxy card to our stockholders in connection with the solicitation of proxies to be voted at the Special Meeting and at any adjournments or postponements of the Special Meeting. Whether or not you plan to attend the Special Meeting, we urge you to read this proxy statement/prospectus carefully.

 

You should read the “Risk Factors” section of this proxy statement/prospectus and the other information contained in this proxy statement/prospectus for a discussion of factors you should consider carefully before making an investment decision. 

 

The Board has unanimously approved and adopted the Merger Agreement and unanimously recommends that our stockholders vote “FOR” all of the proposals presented to MTech stockholders at the Special Meeting. When you consider the board recommendation of these proposals, you should keep in mind that directors and officers of MTech have interests in the Business Combination that may conflict with your interests as a stockholder. See the section titled “The Business Combination Proposal — Interests of MTech’s Directors and Officers in the Business Combination” in the accompanying proxy statement/prospectus.

 

Pursuant to our Amended and Restated Certificate of Incorporation, our public stockholders have redemption rights in connection with the Business Combination. Our public stockholders are not required to affirmatively vote for or against the Business Combination to redeem their shares of common stock. This means that public stockholders who hold shares of Class A common stock on or before________, 2019 (two (2) business days before the Special Meeting) will be eligible to elect to have their shares of Class A common stock redeemed for cash in connection with the Special Meeting, whether or not they are holders as of the Record Date, and whether or not such shares are voted at the Special Meeting. MTech public stockholders should carefully refer to the accompanying proxy statement/ prospectus for the requirements and procedures of redemption.

 

By Order of the Board,

____________________

Scott Sozio

Chief Executive Officer

 

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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying proxy statement/prospectus or determined that the accompanying proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

  

The accompanying proxy statement/prospectus is dated_______, 2019 and will first be mailed to the stockholders of MTech on or about ________, 2019.

 

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MTECH ACQUISITION CORP.

10124 Foxhurst Court

Orlando, Florida 32836

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF MTECH ACQUISITION CORP.

TO BE HELD ON _______, 2019

 

TO THE STOCKHOLDERS OF MTECH ACQUISITION CORP.:

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Special Meeting”) of MTech Acquisition Corp. (“MTech,” “we,” “us” or “our”) will be held on ________, 2019, at 10:00 a.m., Eastern time, at the offices of Ellenoff Grossman & Schole LLP, at 1345 Avenue of the Americas, 11th Floor, New York, New York 10105. At the Special Meeting, MTech stockholders will be asked to consider and vote upon the following proposals (the “Proposals”).

 

(1)The Business Combination Proposal - to consider and vote upon a proposal to approve an Agreement and Plan of Merger, dated as of October 10, 2018 (as amended on April 17, 2019, the “Merger Agreement”) providing for the combination of MTech and MJ Freeway, LLC (“MJF”) under a new holding company called MTech Acquisition Holdings Inc. (“MTech Holdings”). Upon completion of the Business Combination, current MTech stockholders and warrant holders will receive shares of MTech Holdings common stock and warrants to purchase shares of MTech Holdings common stock to replace their existing shares of MTech common stock and existing MTech warrants. Current holders of MJF’s membership interests, including MJF’s preferred units and profits interest units (the “Sellers”) will receive shares of MTech Holdings common stock. We refer to such transactions hereafter as the “Business Combination”;

 

(2)The Charter Amendments Proposal – to consider and vote upon a proposal to approve the Amended and Restated Certificate of Incorporation of MTech Holdings, a copy of which is attached to the accompanying proxy statement/prospectus as Annex B, reflecting the following material differences from MTech’s current amended and restated certificate of incorporation, which we refer to as the “Charter Amendments Proposal:”

 

(a)having a single class of common stock and an authorized 75,000,000 shares of common stock;
(b)having 5,000,000 shares of authorized preferred stock.
(c)fixing the number of directors of MTech Holdings at eight, subject to change by resolution adopted by the affirmative vote of at least a majority of the board of directors then in office;
(d)dividing the board of directors of MTech Holdings into three classes with staggered three-year terms;
(e)prohibiting stockholder actions by written consent; and
(f)making MTech Holdings’ corporate existence perpetual as opposed to MTech’s corporate existence terminating 18 months following the consummation of its initial public offering and removing various provisions applicable only to special purpose acquisition corporations contained in MTech’s current amended and restated certificate of incorporation;

 

(3)The Incentive Plan Proposal - to consider and vote upon a proposal to approve and adopt the MTech Acquisition Holdings Inc. 2019 Long Term Incentive Plan; and

 

(4)The Adjournment Proposal - to consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if MTech is unable to consummate the Business Combination for any reason.

 

Only holders of record of MTech common stock at the close of business on ________, 2019 (the “Record Date”) are entitled to notice of the Special Meeting and to vote at the Special Meeting and any adjournments or postponements of the Special Meeting. A complete list of MTech stockholders of record entitled to vote at the Special Meeting will be available for ten days before the Special Meeting at the principal executive offices of MTech for inspection by stockholders during ordinary business hours for any purpose germane to the Special Meeting.

 

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Pursuant to our Amended and Restated Certificate of Incorporation, we are providing our public stockholders with the opportunity to redeem, upon the closing of the Business Combination, shares of our Class A common stock then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the closing of the Business Combination) in the trust account that holds the proceeds (including interest but less franchise and income taxes payable) of the MTech initial public offering (“IPO”). For illustrative purposes, based on funds in the Trust Account of $58,451,942 on December 31, 2018, the estimated per share redemption price would have been approximately $10.14 (net of income and franchise taxes). We anticipate the per share redemption price will be approximately $10.16 (net of income and franchise taxes) at the closing of the Business Combination, which is anticipated to occur during the second quarter of 2019. Our public stockholders are not required to affirmatively vote for or against the Business Combination in order to redeem their shares of common stock for cash. This means that public stockholders who hold shares of our Class A common stock on or before ______, 2019 (two (2) business days before the Special Meeting) will be eligible to elect to have their shares of Class A common stock redeemed for cash in connection with the Special Meeting, whether or not they are holders as of the Record Date, and whether or not such shares are voted at the Special Meeting. To redeem their shares of common stock for cash, our public stockholders can demand MTech to convert their public shares into cash and tender their shares to MTech’s transfer agent. MTech public stockholders should carefully refer to the accompanying proxy statement/ prospectus for the requirements and procedures of redemption. Holders of our outstanding public warrants do not have redemption rights with respect to such securities in connection with the Business Combination. The holders of shares of our Class B common stock issued prior to our IPO, which we refer to as “founder shares,” and the holders of shares of our Class A common stock included within the units (“placement units”) purchased in a private placement (“Private Placement”) simultaneously with the consummation of our IPO, which we refer to as “placement shares,” have agreed to waive their redemption rights with respect to any shares of our capital stock they may hold in connection with the consummation of the Business Combination, and the founder shares and placement shares will be excluded from the pro rata calculation used to determine the per-share redemption price. Currently, MTech Sponsor LLC, which we refer to as our Sponsor, owns approximately 22.6% of our issued and outstanding shares of common stock, including all of the founder shares and placement shares. Our Sponsor, directors and officers have agreed to vote any shares of our common stock owned by them in favor of the Business Combination Proposal.

 

The transactions contemplated by the Merger Agreement will be consummated only if the Business Combination Proposal, the Charter Amendments Proposal and Incentive Plan Proposal are approved at the Special Meeting. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth in the proxy statement/prospectus. The Board has already approved the Business Combination and recommends that you vote “FOR” all of the proposals presented at the Special Meeting.

 

You should read the “Risk Factors” section of this proxy statement/prospectus and the other information contained in this proxy statement/prospectus for a discussion of factors you should consider carefully before making an investment decision. 

 

Your attention is directed to the proxy statement/prospectus accompanying this notice (including the annexes thereto) for a more complete description of the proposed Business Combination and related transactions and each of the Proposals. We encourage you to read this proxy statement/prospectus carefully. If you have any questions or need assistance voting your shares, please call us at (407) 345-8332.

 

 

By Order of the Board of Directors

   
 

 

Scott Sozio

Chief Executive Officer

   

______, 2019

 

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TABLE OF CONTENTS

 

  PAGE
FREQUENTLY USED TERMS 7
SUMMARY TERM SHEET 9
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS 18
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS 29
SUMMARY FINANCIAL AND OTHER DATA OF MJF 44
SUMMARY FINANCIAL AND OTHER DATA OF MTECH 45
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 46
COMPARATIVE SHARE INFORMATION 54
RISK FACTORS 55
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 72
SPECIAL MEETING OF MTECH STOCKHOLDERS 74
THE BUSINESS COMBINATION PROPOSAL 79
THE CHARTER AMENDMENTS PROPOSAL 101
THE INCENTIVE PLAN PROPOSAL 105
THE ADJOURNMENT PROPOSAL 111
MTECH’S MANAGEMENT 112
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MTECH 118
INFORMATION ABOUT MJF 122
EXECUTIVE OFFICERS AND DIRECTORS OF MJF 135
EXECUTIVE COMPENSATION OF MJF 137
MANAGEMENT AFTER THE BUSINESS COMBINATION 140
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MJF 145
DESCRIPTION OF SECURITIES OF MTECH 159
DESCRIPTION OF SECURITIES OF MTECH HOLDINGS 165
BENEFICIAL OWNERSHIP OF SECURITIES 168
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 170
PRICE RANGE AND DIVIDENDS OF SECURITIES 173
LEGAL MATTERS 174
INDEPENDENT AUDITORS 174
TRANSFER AGENT AND REGISTRAR 174
DELIVERY OF DOCUMENTS TO STOCKHOLDERS 174
SUBMISSION OF STOCKHOLDER PROPOSALS 174
FUTURE STOCKHOLDER PROPOSALS 174
WHERE YOU CAN FIND MORE INFORMATION 174
INDEX TO FINANCIAL STATEMENTS 176

  

ANNEX A Merger Agreement, As Amended  
ANNEX B Amended and Restated Certificate of Incorporation of MTech Acquisition Holdings Inc.  
ANNEX C MTech Acquisition Holdings Inc. 2019 Long Term Incentive Plan  
ANNEX D Section 262 of the Delaware General Corporation Law  

 

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FREQUENTLY USED TERMS

 

Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” and “MTech” refer to MTech Acquisition Corp.

 

In this document:

 

“Board” means the board of directors of MTech.

 

“Business Combination” means the transactions contemplated by the Merger Agreement whereby, among other things, MTech and MJF, through a set of mergers, are combined under the new holding company MTech Holdings.

 

“Class A common stock” means the Class A common stock, par value $0.0001, of MTech.

 

“Class B common stock” means the Class B common stock, par value $0.0001, of MTech.

 

“Closing” means the closing of the Business Combination.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company Merger Sub” means MTech Company Merger Sub LLC, Colorado Limited Liability Company and a wholly owned subsidiary of MTech Holdings.

 

“DGCL” means the Delaware General Corporation Law.

 

“EBC” means EarlyBirdCapital, Inc., the representative of the underwriters in the MTech IPO.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“founder shares” means 1,437,500 shares of Class B common stock purchased by the Sponsor in September 2017.

 

“MJF” means MJ Freeway, LLC, a Colorado limited liability company.

 

“MTech” means MTech Acquisition Corp., a Delaware corporation.

 

“MTech common stock” means common stock of MTech, par value $0.0001, including the Class A common stock and Class B common stock.

 

“MTech Holdings” means MTech Acquisition Holdings Inc., a Delaware company and wholly owned subsidiary of MTech.

 

“MTech IPO” means MTech’s initial public offering.

 

“MTech Representative” means the Sponsor in its capacity under the Merger Agreement as the representative of the equity holders of MTech and MTech Holdings (other than the Sellers and their successors and assigns).

 

“Merger Agreement” means the Agreement and Plan of Merger, dated as of October 10, 2018, as amended on April 17, 2019, by and among (i) MTech, (ii) MTech Holdings, (iii) Purchaser Merger Sub, (iv) Company Merger Sub, (v) the Purchaser Representative, (vi) MJF and (vii) the Seller Representative.

 

“placement shares” means the 243,750 shares of Class A common stock underlying the placement units.

 

“placement units” means 243,750 units sold to the Sponsor in the Private Placement.

 

“placement warrants” means the warrants to purchase 243,750 shares of Class A common stock underlying the placement units.

 

“Private Placement” means the private placement consummated simultaneously with the MTech IPO in which MTech issued to the Sponsor the placement units.

 

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“Proposals” means the Business Combination Proposal, the Charter Amendments Proposal, the Incentive Plan Proposal and the Adjournment Proposal.

 

“public shares” means Class A common stock underlying the units sold in the MTech IPO.

 

“public units” means units issued in the MTech IPO.

 

“public warrants” means warrants underlying the units issued in the MTech IPO.

 

“Purchaser Merger Sub” means MTech Purchaser Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of MTech Holdings.

 

“Purchaser Representative” means MTech Sponsor LLC, as the representative of the equity holders of MTech Holdings (other than Sellers) for certain purposes of the Merger Agreement specified therein.

 

“redemption” means the right of the holders of Class A common stock to have their shares redeemed in accordance with the procedures set forth in this proxy statement/prospectus.

 

“Seller Representative” means Jessica Billingsley, as the representative of the Sellers for certain purposes of the Merger Agreement specified therein.

 

“Special Meeting” means the special meeting of the stockholders of MTech, to be held on ______, 2019 at 10:00 a.m. Eastern Time, at the offices of Ellenoff Grossman & Schole LLP, at 1345 Avenue of the Americas, 11th Floor, New York, New York 10105.

 

“Sponsor” means MTech Sponsor, LLC, a Florida limited liability company.

 

“Trust Account” means the trust account of MTech, which holds the net proceeds of the MTech IPO and the sale of the placement units, together with interest earned thereon, less amounts released to pay franchise and income tax obligations and up to $15,000 of any remaining interest for dissolution expenses.

 

“UPOs” means the options to purchase up to an aggregate of 250,000 units exercisable at $10.00 per unit commencing on the later of January 29, 2019 and the consummation of a business combination issued to EBC and its designees in connection with the MTech IPO. The UPOs may be exercised for cash or on a cashless basis, at the holders’ option, and expires January 28, 2023.

 

“units” means a unit consisting of one share of Class A common stock and one warrant.

  

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SUMMARY TERM SHEET

 

This Summary Term Sheet, together with the sections titled “Questions and Answers About the Proposals” and “Summary of the Proxy Statement/Prospectus,” summarize information contained in this proxy statement/prospectus, but do not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus, including the attached annexes, for a more complete understanding of the matters to be considered at the Special Meeting. In addition, for definitions of terms commonly used throughout this proxy statement/prospectus, including in this Summary Term Sheet, see the section titled “Frequently Used Terms.”

 

Parties to the Business Combination

 

MTech

 

MTech is a special purpose acquisition company incorporated on September 27, 2017 for purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, recapitalization, exchangeable share transaction or other similar business transaction, one or more businesses or assets.

 

MTech’s units, Class A common stock and warrants are currently quoted on the Nasdaq Capital Market under the symbols “MTECU,” “MTEC” and “MTECW,” respectively.

 

MTech’s executive office is located at 10124 Foxhurst Court, Orlando, Florida 32836 and its telephone number is (407) 345-8332.

 

Sponsor

 

MTech Sponsor, LLC, a Florida limited liability company, is the sponsor of MTech and currently owns 22.62% of the issued and outstanding shares of common stock of MTech. The Sponsor has two managing members - SS FL, LLC and Game Boy Partners, LLC. Steve Van Dyke and Scott Sozio, the Chairman and the Chief Executive Officer of MTech respectively, are the managing members of SS FL, LLC. Douglas Rothschild, the senior advisor of MTech, is one of the members of Game Boy Partners, LLC.

 

MTech Holdings

 

MTech Holdings is a wholly-owned subsidiary of MTech and is the owner of all of the issued and outstanding equity interests of Purchaser Merger Sub and Company Merger Sub. MTech Holdings was incorporated under the laws of the State of Delaware on October 3, 2018. MTech Holdings owns no material assets other than the equity interest of Purchaser Merger Sub and Company Merger Sub and it does not operate any business.

 

The mailing address of MTech Holdings’ principal executive office is 10124 Foxhurst Court, Orlando, Florida 32836. Its telephone number is (407) 345-8332.

 

MJF

 

MJF is a large and growing regulatory compliance and inventory management technology company. MJF’s proprietary software platform is adaptable for industries in which interfacing with government regulatory agencies for compliance purposes is required, or where the tracking of organic materials from seed or plant to end products is desired. Nine years ago, MJF identified a need for organic material tracking and regulatory compliance SaaS solutions in the growing cannabis and hemp industry. MJF developed products intended to assist states in monitoring licensed businesses’ compliance with state regulations, and to help state-licensed businesses operate in compliance with such law. MJF provides its regulatory software platform, Leaf Data Systems®, to state government regulatory agencies, and its business software platform, MJ Platform®, to state-licensed businesses.

 

Purchaser Merger Sub

 

Purchaser Merger Sub is a wholly-owned subsidiary of MTech Holdings formed solely for the purpose of effectuating the merger with MTech in which MTech will be the surviving entity. Purchaser Merger Sub was incorporated under the laws of the State of Delaware on October 3, 2018. Purchaser Merger Sub owns no material assets and does not operate any business.

 

The mailing address of Purchaser Merger Sub’s principal executive office is 10124 Foxhurst Court, Orlando, Florida 32836. Its telephone number is (407) 345-8332. After the consummation of the Business Combination, it will cease to exist.

 

Company Merger Sub

 

Company Merger Sub is a wholly-owned subsidiary of MTech Holdings formed solely for the purpose of effectuating the merger with MJF in which MJF will be the surviving entity. Company Merger Sub was formed under the laws of the State of Colorado on September 17, 2018. Merger Sub LLC owns no material assets and does not operate any business.

 

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The mailing address of Company Merger Sub’s principal executive office is 10124 Foxhurst Court, Orlando, Florida 32836. Its telephone number is (407) 345-8332. After the consummation of the Business Combination, it will cease to exist.

 

Consideration to the Sellers in the Business Combination

 

Pursuant to the Merger Agreement, upon the Closing, the membership units of MJF (including the profits interest units, the “Company Units”) issued and outstanding immediately prior to the Merger will convert automatically into the right to receive an aggregate number of shares of MTech Holdings common stock equal to the quotient of the aggregate merger consideration of $70,000,000, subject to adjustments for net working capital and MJF’s indebtedness as of the date of the Closing, divided by $10.16. 10% of the shares issuable to the Sellers will be set aside in escrow to satisfy any post-closing purchase price adjustments and indemnification claims.

 

Ownership Structure

 

The following diagram illustrates the ownership structure of MTech, MTech Holdings and MJF prior to the Business Combination and then after the Business Combination.

 

 

 

 

 

Board of Directors Following the Business Combination

 

Upon the Closing, MTech Holdings’ board of directors will consist of eight directors, including three (3) directors designated by MTech and five (5) directors designated by MJF. MTech has designated Scott Sozio, Tahira Rehmatullah and Douglas Rothschild to serve on the board of directors of MTech Holdings. MJF has designated, Jessica Billingsley, Matthew R. Kane, Emery J. Huang and Mark Iwanowski to serve on the board of directors of MTech Holdings and will be entitled to designate a fifth member prior to the filing of the definitive proxy statement/ prospectus. See the section entitled “Management After the Business Combination.”

 

Accounting Treatment for Business Combination

 

The Business Combination will be accounted for as a “reverse merger” in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting MTech Holdings will be treated as the “acquired” company for financial reporting purposes. This determination is primarily based on MJF shareholders expecting to have a majority of the voting power of the combined company, MJF comprising the ongoing operations of the combined entity, MJF comprising a majority of the governing body of the combined company, and MJF’s senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of MJF issuing stock for the net assets of MTech, accompanied by a recapitalization. The net assets of MTech will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of MJF.

 

MTech Appraisal Rights

 

MTech stockholders may have appraisal rights in connection with the Business Combination. If MTech Holdings’ securities are not listed on a national securities exchange at the time the Business Combination is consummated, holders of shares of MTech common stock who do not vote in favor of the Business Combination Proposal and who properly demand appraisal of their shares will be entitled to appraisal rights in connection with the Business Combination under Section 262 of the DGCL. Holders of public shares electing to exercise redemption rights will not be entitled to appraisal rights. Additionally, appraisal rights are not available to holders of public warrants. For additional information, including the procedures for properly demanding appraisal, see “Summary of the Proxy Statement/Prospectus - MTech Appraisal Rights.”

 

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MJF Appraisal Rights

 

MJF’s holders do not have appraisal rights in connection with the Business Combination under the Colorado Limited Liability Company Act.

 

Redemption Rights

 

Holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with our Amended and Restated Certificate of Incorporation. As of December 31, 2018, this would have amounted to approximately $10.14 per share (net of income and franchise taxes). It is anticipated that the per share redemption price will be approximately $10.16 (net of income and franchise taxes) at the closing of the Business Combination, which is anticipated to occur during the second quarter of 2019. If a holder exercises its redemption rights, then such holder will be exchanging its shares of MTech common stock for cash and will no longer own shares of MTech common stock and will not participate as a future shareholder of MTech Holdings. Our public stockholders are not required to affirmatively vote for or against the Business Combination in order to redeem their shares of common stock for cash. This means that public stockholders who hold shares of our Class A common stock on or before ______, 2019 (two (2) business days before the Special Meeting) will be eligible to elect to have their shares of Class A common stock redeemed for cash in connection with the Special Meeting, whether or not they are holders as of the Record Date, and whether or not such shares are voted at the Special Meeting. To redeem their shares of common stock for cash, our public stockholders can demand MTech to convert their public shares into cash and tender their shares to MTech’s transfer agent in accordance with the procedures described herein. See the section entitled “Special Meeting of MTech Stockholders – Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash. 

 

Impact of the Business Combination on MTech’s Public Float

 

MTech’s public stockholders currently own approximately 77.38% of MTech’s issued and outstanding capital stock and the Sponsor currently owns approximately 22.62% of MTech’s issued and outstanding capital stock. It is anticipated that, immediately after the Business Combination and if there are no redemptions, MTech’s public stockholders will own approximately 40.15% of MTech Holdings’ issued and outstanding capital stock, the Sponsor will own approximately 11.74% of MTech Holdings’ issued and outstanding capital stock and the Sellers will own approximately 48.11% of MTech Holdings’ issued and outstanding capital stock. If any of MTech’s public stockholders exercise their redemption rights, the ownership interest in MTech Holdings of MTech’s public stockholders will decrease and the ownership interest in MTech Holdings of the Sellers and the Sponsor will increase, and if there are redemptions by MTech’s public stockholders up to the maximum level that would permit completion of the Business Combination, MTech’s public stockholders will own 8.89% of MTech Holdings’ issued and outstanding capital stock, the Sponsor will own approximately 17.87% of MTech Holdings’ issued and outstanding capital stock and the Sellers will own approximately 73.24% of MTech Holdings’ issued and outstanding capital stock. If the actual facts are different than these assumptions (based on redemptions by MTech’s public stockholders, changes in the terms of the Business Combination, adjustments to the MJF purchase price pursuant to the Merger Agreement or otherwise), the percentage ownership interests in MTech Holdings post-Business Combination may be different.

 

The following table illustrates varying ownership levels of the issued and outstanding capital stock of MTech Holdings, assuming varying levels of redemptions by MTech’s public stockholders:

 

    Ownership 
Percentage Assuming No Redemption of Shares
    Ownership Percentage Assuming Maximum Redemption of Shares  
Sellers     48.11 %     73.24 %
Sponsor     11.74 %     17.87 %
MTech’s public stockholders     40.15 %     8.89 %

 

The ownership percentage set forth above with respect to MTech Holdings includes the shares issuable to the Sellers that are held in escrow, as well as shares issued in exchange for unvested MJF profits units that are subject to continued vesting, and does not take into account (i) the issuance of any shares under the Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 5,993,750 shares of MTech Holdings common stock that will remain outstanding following the Business Combination or any additional warrants that are issued to our Sponsor pursuant to the conversion of its working capital loans that were made to MTech, (iii) any adjustments to the merger consideration payable to the Sellers as a result of MJF’s working capital and/or debt as of the completion of the Business Combination varying from certain specified targets set forth in the Merger Agreement, (iv) the issuance of any underlying shares upon the exercise of the underwriter’s option to purchase up to 250,000 units and (v) any indemnification payments that are made after the consummation of the Business Combination by delivery of shares of MTech Holdings’ common stock. See “Unaudited Pro Forma Combined Financial Information” for further information. 

 

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Reasons for the Business Combination

 

MTech’s Reasons for the Business Combination

 

MTech was organized for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization, or similar business combination with one or more businesses. MTech has sought to capitalize on the ability of its management team to identify, acquire and partner with management to operate a business.

 

In considering the proposed Business Combination, MTech’s Board considered in particular the following positive factors, although not weighted or in any order of significance:

 

Proven Track Record. MJF is led by an experienced management team that has created proprietary and complex solutions for organic material tracking and regulatory compliance monitoring for the cannabis industry. As the creator of seed-to-sale tracking for the legal cannabis industry, MJF serves clients in 29 of the 33 U.S. states that have legalized cannabis in some form and 11 legalized countries with substantial growth opportunity.

 

Strong Competitive Position. MTech focused on MJF’s growing market position in the tracking and compliance monitoring segment within the cannabis industry. MTech believes that MJF has large scale potential as the cannabis market continues to grow globally and is the only Software-as-a-Service (“SaaS”) platform able to compete on this level because of (a) its nine years of experience in providing monitoring and compliance services to the cannabis industry, including several years of experience serving clients in 11 countries, (b) its understanding of foreign country cannabis markets, including client requirements, applicable laws and currency issues, (c) the availability of its platform in three languages, English, Spanish and French, and its ability to quickly adapt its platform to other languages with left to right reading format, and (d) its current standing as the only SaaS solution provider in the industry that provides extensive consulting and support services in the pre-operational phase through the complete business lifecycle. MJF’s eight and a half years of operations have provided it with a statistically significant dataset of cannabis transaction information that MJF believes cannot be readily duplicated by new entrants into the marketplace. MJF uses this dataset to more accurately ensure compliance in the industry and to predict trends in the marketplace and makes this dataset available to users of its platforms, providing greater utility to customers in this regard than can be provided by competing platforms.

 

Industry-leading Technology; High Barriers for New Entrants. Since its inception in 2010, MJF has led the market in delivering cannabis tracking and compliance management technology to commercial businesses and state government regulatory agencies. MJF’s products, MJ Platform® and Leaf Data Systems®, are highly-versatile platforms that provide clients with a central data management system for tracking regulated cannabis products — from seed to product to shelf to customer — throughout the complete supply chain, using a unique plant identifier method. New technology platforms will experience high barriers to enter this segment in light of the time it takes to develop technology platforms, their ability to understand the various cannabis markets and build programs that meet regulatory requirements, and their ability to penetrate markets that have multi-year contracts and/or prove that a new product is more impactful than MJF.

 

Opportunity for Significant Revenue and Earnings Growth. MJF has the potential for significant revenue and earnings growth through a combination of organic growth and acquisition opportunities. MTech believes MJF will continue to grow organically by further penetrating existing customers, expanding its customer base and developing and expanding its cross-selling efforts. MJF also aims to opportunistically acquire high-quality businesses that are synergistic to current business operations. In connection with MTech’s evaluation of MJF, MJF projected significant gross margins of 60% in 2019, 70% in 2020, and 69% in 2021, based on historic gross margins of 78% and 61% in 2017 and 2018, respectively, and an organic growth rate for MJF’s business of more than 50% each year for the next few years using only MJF’s current resources. MJF’s growth projections are not based on securing additional state contracts but on three concepts: (1) the economic environment in which MJF is operating; (2) MJF’s status as a leader and comprehensive compliance solution in its target markets; and (3) existing contracts that can be further monetized in the future.

 

oEconomic Environment. MJF’s clients operate and seek to comply with state laws in the cannabis, cannabidiol (“CBD”) and hemp markets, which are growing at rapid rates. According to a February 2018 report from Arcview Market Research, spending on legal cannabis is projected to grow in North America from $9.2 billion in 2017 to an estimated $47.3 billion in 2027, an 18% compound annual growth rate.  Internationally, the Rest of World markets are expected grow at a compound annual growth rate of 47%. According to a 2017 Gartner report, on average, companies spend 2.5% of their gross revenues on technology solutions. These data points, when applied to the forecasted $47.3 billion sales in North America, reflect a potential 2027 technology spend of $1.2 billion ($47.3 billion x 2.5%) without considering the international impact. Further, the report noted that 37% of respondents reported a preference for buy versus build which included SaaS and SaaS was reported as the most popular for significant investment. Industry studies show that current operators in the cannabis, CBD, and hemp market are underspending on technology compared to other industries. MJF believes those operators will be forced to automate their operations, compliance, and reporting with an integrated ERP system, such as MJF’s platforms, if they are to remain competitive in a rapidly growing marketplace.
   
oStatus of MJF in the Economic Environment. According to state tax agencies records and locator services, MJF was one of the first, if not the first, technology platforms built for ensuring and monitoring compliance in the cannabis, CBD, and hemp industries. Further, it is the only ERP solution built to scale nationally and internationally while providing technology compliance, monitoring and auditing products across the entire supply chain and all industry verticals of the cannabis, CBD and hemp markets. Importantly, MJF has already started serving businesses and governments globally. MJF currently services clients in 29 of the 33 U.S. states that have legalized cannabis in some form and 11 legalized countries. These factors establish MJF as a mature, vetted solution for the coming global expansion in the industry. MJF expects to leverage its first-mover advantage and reputation among industry participants throughout the global supply chain to increase market share.
   
oFuture Monetization. In addition to the market advantages described above, MJF has existing contracts with its current clients that can be monetized in the future. 100% of MJF’s license agreements provide MJF with the right to aggregate and monetize client data. MJF to date has processed and compiled data related to more than $13 billion in sales, resulting in MJF owning and controlling substantial business intelligence data set that can be monetized for multiple purposes in the future. MJF believes this database represents the largest statistically relevant dataset of any competitor (by far) and expects to leverage this data to develop and provide additional service offerings to current and future clients.

 

Benefit from Being a Public Company. MTech believes that MJF, under public ownership, will have the flexibility and financial resources to pursue and execute a growth strategy to increase revenues and shareholder value. The company will benefit from being publicly traded and can effectively utilize the broader access to capital and public profile that are associated with being a publicly traded company.

 

MTech’s directors also considered the following negative factors:

 

Threat from Competition. The landscape in which MJF competes is highly competitive and expected to continue to change. While innovation can help MJF’s business as it creates new offerings for MJF to sell and provide complementary services, it can also disrupt MJF’s business model and create new and stronger competitors. Additionally, to the extent MJF faces increased competition to gain and retain clients, MJF may be required to reduce prices, increase sales and marketing expenditures, or take other actions that could adversely affect its business, results of operations, or financial condition. MTech carefully considered the competitive landscape and believes that MJF is well positioned with respect to competition in the industry.

 

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Growth through acquisitions and integration risk. MJF has never acquired a business and gone through a process integrating technologies, products, personnel, or operations of any acquired business. Any failure to successfully integrate the acquired business and any delay in achieving synergies from integration, could harm the company’s business, results of operations, or financial condition.

 

Changes in industry landscape through technological developments. MJF’s primary markets are characterized by technological change, regulatory change, evolving industry standards, changing client preferences, and new product and service introductions. As a result, MTech considered the potentially adverse effects of these evolving technological developments on MJF’s business. These technologies could reduce and, over time, replace some of MJF’s current business. In addition, MJF’s clients may delay spending under existing contracts and engagements and may delay entering into new contracts while they evaluate new technologies. MTech believes that MJF has managed to adapt well to technological changes and MJF’s strong technical expertise will enable it to remain at the forefront of any such changes in the future.

 

Revenue growth and risks related to achievement of projected margins and growth. MJF has a relatively short operating history, which makes it difficult to evaluate its business and future prospects. MJF has been in existence since 2010, though much of its revenue growth has occurred during the past three years. MJF has encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, such as market acceptance of its current and future products and services, changing regulatory environments and costs associated with compliance, and existing client retention rates and the ability to upsell clients. The projections of gross margins and business growth for the next several years provided by MJF are based on what MJF’s management believes to be conservative assumptions, but these projections are only predictions based on information known to MJF and risks known and unknown to MJF at the time the projections were formulated. Any and all of the risks described in this proxy statement/prospectus regarding MJF and its business and industry, including but not limited to, adverse changes in the laws governing MJF or its clients or MJF’s target markets, advances in compliance technology offered by MJF’s competitors, MJF’s failure to efficiently manage growth or deploy its resources in an opportunistic manner and general economic trends, as well as the failure by MJF to fully monetize existing clients as projected, could cause MJF’s business to experience lower gross margins, revenues lower than those projected, and generally reduced growth or overall decline in its business operations.

 

Security concerns. MJF utilizes information technology systems, including third-party hosted servers and cloud-based servers, to host digital databases and client information, including business, financial and corporate records, internal and external electronic communications and other critical information, and to process operational functions integral to MJF’s internal operations and the provision of services to clients across its platforms. MJF has experienced data loss and theft in the past. Although MJF has taken steps to protect the security of data maintained in its information systems, its security measures may not prevent additional attacks in the future, prevent systems from improperly functioning, or prevent the improper disclosure of client information in the event of future cyberattacks or otherwise. If any of MJF’s internal systems or the systems of MJF’s third-party providers are compromised due to computer virus, unauthorized access, malware, and the like, then sensitive documents could be exposed or deleted, and MJF’s ability to conduct business could be impaired.

 

Government contracts and regulatory changes. Leaf Data Systems is a compliance tracking system designed to give regulators visibility into the activity of licensed cannabis businesses in their jurisdiction. MJF currently has two clients for Leaf Data Systems, the State of Washington and the Commonwealth of Pennsylvania. Leaf Data Systems comprised 43% of MJF’s revenue for the year ended June 30, 2018 and 49% of MJF’s revenue for the six months ended December 31, 2018. MTech considered potentially adverse effects from changes in law, regulation, or the political climate of the cannabis industry, or an across-the-board change in government spending and purchasing policies that may result in MJF’s public sector clients reducing their purchases or even terminating their service contracts. MTech believes these risks are inherent in a government contracting environment and does not consider these risks to be significant.

 

In considering the Business Combination, MTech’s Board of Directors concluded the risks of proceeding with a transaction with MJF could be managed or mitigated and were unlikely to have a material impact on the Business Combination or MTech, and that, overall, the potentially negative factors or risks associated with the Business Combination were outweighed by the potential benefits of the Business Combination to MTech and its stockholders.

 

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MJF’s Reasons for the Business Combination

 

MJF believes that it will continue to experience rapid growth and that there are numerous opportunities for MJF to expand its business both organically and through acquisitions. MJF believes that becoming a public company provides it with the ability to capitalize on growth opportunities, and that the Business Combination presents the best route to this objective. In the course of reaching its decision to approve the Business Combination, the MJF board of directors consulted with its senior management, financial advisors and legal counsel, reviewed a significant amount of information, and considered a number of factors, including, among others:

 

Other Alternatives. It is the belief of MJF, after review of alternative strategic opportunities from time to time, that the proposed Business Combination represents the best potential transaction for MJF to create greater value for MJF’s holders, while providing MJF’s holders with greater liquidity by owning stock in a public company.

 

Advantages over a Traditional IPO. Prior to executing the Merger Agreement, the MJF board of directors considered the alternative of a traditional initial public offering. The MJF board of directors considered that the Business Combination provided certain advantages over a traditional IPO. In particular, the MJF board of directors considered that, based on available information at the time, including with respect to the conditions of the IPO market for companies with MJF’s characteristics, the Business Combination with MTech was likely to provide for a more time- and cost- effective means to capital with less dilution to MJF’s existing holders.

 

Access to Capital. MJF expects that the Business Combination would be a more time- and cost-effective means to access capital than other options considered, including a traditional IPO.

 

Size of Post-Combination Company. MJF considered the Business Combination implied enterprise value of approximately $70 million for MJF, providing MJF’s holders with the opportunity to go-forward with ownership in a public company with a larger market capitalization.

 

Benefit from Being a Public Company. MJF believes that under public ownership it will have the flexibility and financial resources to pursue and execute a growth strategy to increase revenues and stockholder value. It will benefit from being publicly traded, and can effectively utilize the broader access to capital and public profile that are associated with being a publicly traded company.

 

In the course of reaching its decision to approve the Business Combination, the MJF board of directors, also considered negative factors, including, among others:

 

Uncertainty of Consummation of the Business Combination. The board considered the risk that the Business Combination may not be approved by the necessary vote of the MTech stockholders and that time and resources for other potential opportunities could be lost to the Business Combination process.

 

  Uncertainty as to Amount of Redemptions and cash in Trust following the Business Combination. The Board noted that the MTech stockholders have the right to redeem their shares for cash. Any such redemptions shall serve to reduce the amount of cash in Trust following the Business Combination and reduce the amount of capital available to operate and grow MJF’s operations. The amount of redemptions and the amount of cash that will remain in Trust following the Business Combination cannot be determined.

 

Diversion of Resources to the Business Combination Process. The board noted that MJF’s management and capital resources would be diverted in part to the Business Combination process at a time when such resources are required to shepherd MJF’s entrance into new markets and manage MJF’s organic business growth.

 

Expense of Being a Public Company. The board considered the added financial expense of being a public company, including greater legal and accounting expenses, and the requirement to dedicate personnel and other resources to quarterly, annual and other reporting obligations.

 

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MTech Special Meeting

 

MTech is furnishing this proxy statement/prospectus to its stockholders as part of the solicitation of proxies by its Board for use at the Special Meeting to be held on ______, 2019, and at any adjournment or postponement thereof. This proxy statement/prospectus is first being furnished to you on or about ________, 2019. This proxy statement/prospectus provides you with information you need to know to be able to vote or instruct how your vote shall be cast at the Special Meeting.

 

Date, Time and Place of Special Meeting

 

The Special Meeting will be held at 10:00 a.m. Eastern Time on ______, 2019, at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York 10105, or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed.

 

Voting Power; Record Date

 

You will be entitled to vote or direct votes to be cast at the Special Meeting if you owned shares of MTech common stock as of the close of business on ______, 2019, which is the Record Date for the Special Meeting. You are entitled to one vote for each share of MTech common stock that you owned as of the close of business on the Record Date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. As of the date of this proxy statement/prospectus, there were 7,431,250 shares of MTech common stock issued and outstanding, consisting of 5,750,000 shares originally sold as part of units in the IPO, 243,750 shares originally sold as part of units to the Sponsor in a Private Placement that occurred simultaneously with the consummation of the IPO and 1,437,500 founder shares that were issued to the Sponsor prior to the IPO. MTech does not expect to issue any shares of common stock on or before the Record Date.

 

Quorum and Required Vote for Proposals for the Special Meeting

 

A quorum of MTech stockholders is necessary to hold a valid meeting. A quorum will be present at the Special Meeting if a majority of the common stock outstanding and entitled to vote at the Special Meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum.

 

Approval of the Business Combination Proposal and the Charter Amendments Proposal requires the affirmative vote of a majority of the issued and outstanding shares of MTech common stock as of the Record Date. Accordingly, an MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or an abstention will have the same effect as a vote “AGAINST” the Business Combination Proposal and the Charter Amendments Proposal.

 

The approval of the Incentive Plan Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by stockholders present in person or represented by proxy at the Special Meeting. Accordingly, an MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or the failure of an MTech stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee (a “broker non-vote”) will result in that stockholder’s shares not being counted towards the number of shares of MTech common stock required to validly establish a quorum, but if a valid quorum is otherwise established, it will have no effect on the outcome of any vote on the Incentive Plan Proposal or the Adjournment Proposal. Abstentions will also have no effect on the outcome of the Incentive Plan Proposal or the Adjournment Proposal.

 

The transactions contemplated by the Merger Agreement will be consummated only if the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal are approved at the Special Meeting. The Adjournment Proposal does not require the approval of any other proposal to be effective.

 

It is important for you to note that in the event that the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal do not receive the requisite vote for approval, then we will not consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial business combination by August 1, 2019, we will be required to dissolve and liquidate our trust account by returning the then remaining funds in such account to the public stockholders.

 

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Recommendation to MTech Stockholders

 

After careful consideration, our Board has concluded that the Business Combination is in the best interests of MTech’s stockholders. Our directors believe that the proposals being presented at the Special Meeting are in the best interests of MTech’s stockholders, and they recommend that MTech’s stockholders vote FOR each of the proposals.

 

Interests of MTech’s Directors and Officers in the Business Combination

 

When you consider the recommendation of our Board in favor of the proposals, you should keep in mind that our directors and officers have interests in the Business Combination that are different from or in addition to (and which may conflict with) your interests as a stockholder. These interests include, among other things:

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $25,000 for their founder shares and such securities should have a significantly higher value at the time of the Business Combination;

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $2,437,500 for the placement units and such securities should have a significantly higher value at the time of the Business Combination;

 

if MTech is unable to complete a business combination within the required time period, our Chairman will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by MTech for services rendered or contracted for or products sold to MTech, but only if such a vendor or target business has not executed a waiver of claims against the trust account and except as to any claims under our indemnity of the underwriters;

 

unless MTech consummates an initial business combination, MTech’s officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account;

 

the fact that Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination;

 

the fact that the founder shares and placement units, including the placement shares and placement warrants, purchased by the Sponsor will be worthless if a business combination is not consummated;

 

the Sponsor has agreed that the placement units, and all of their underlying securities, will not be sold or transferred by it until MTech has completed a business combination, subject to limited exceptions;

 

the appointment of Scott Sozio, Tahira Rehmatullah and Douglas Rothschild as designees to the board of directors of MTech Holdings which will entitle such individuals to any cash fees, stock options or stock awards that MTech Holdings determines to pay to its non-executive directors; and

 

the continued indemnification of current directors and officers of MTech and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

These interests may influence our directors in making their recommendation that you vote in favor of the Business Combination.

 

Risk Factors

 

In evaluating the proposals set forth in this proxy statement/prospectus, you should carefully read this proxy statement/prospectus, including the annexes and the other documents referred to herein, for a discussion of factors, including the risks to holders of MTech common stock who do not redeem in connection with the Special Meeting, you should consider carefully before making an investment decision. 

 

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Officers and Directors of MTech Holdings

 

MTech Holdings’ directors and executive officers upon consummation of the Business Combination will be as follows:

 

Name   Age   Position
Jessica Billingsley   41   Chief Executive Officer and Director
Ruth Ann Kraemer   65   Chief Financial Officer
Scott Sozio    39    Director
Emery Johnathon Huang   34   Director
Matthew R. Kane   38   Director
Tahira Rehmatullah   37   Director
Douglas Rothschild   42   Director
Mark Iwanowski   63   Director

 

For more information on the new directors and management of MTech Holdings, see “Management After the Business Combination.”

 

Quotation of MTech Holdings Securities

 

It is anticipated that MTech Holdings’ common stock and public warrants will be traded on the Nasdaq Stock Market under the symbols “KERN” and “KERNW,” respectively, following the closing of the Business Combination.

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

 

The following questions and answers briefly address some commonly asked questions about the proposals to be presented at the Special Meeting of MTech stockholders. The following questions and answers do not include all the information that is important to stockholders of MTech. We urge the stockholders of MTech to read carefully this entire proxy statement/prospectus, including the annexes and other documents referred to herein.

 

Q: Why am I receiving this proxy statement/prospectus?

  

A:

MTech’s stockholders are being asked to consider and vote upon a proposal to approve and adopt the Merger Agreement, among other proposals. We have entered into the Merger Agreement with the parties thereto to provide for the combination of MTech and MJF under a new holding company called MTech Acquisition Holdings Inc. Upon completion of the Business Combination, current MTech stockholders will receive shares of MTech Holdings common stock to replace their existing shares of MTech common stock. The outstanding MTech warrants, by their terms, will be cancelled and exchanged for MTech Holdings’ warrants to purchase an equal number of shares of MTech Holdings’ common stock. Current holders of MJF’s membership interests, including MJF’s preferred units and profits interest units (the “Sellers”), will receive shares of MTech Holdings common stock. We refer to the transactions contemplated by the Merger Agreement hereafter as the “Business Combination.” The purchase price for the Business Combination is $70 million, subject to net working capital and closing date indebtedness adjustments in accordance with the terms of the Merger Agreement, as described further herein. The purchase price shall be paid in shares of MTech Holdings common stock valued at $10.16 per share. 10% of the shares otherwise issuable to the Sellers will be set aside in escrow to satisfy any post-closing purchase price adjustments and indemnification claims.

 

A copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A. This proxy statement/prospectus and its annexes contain important information about the proposed Business Combination and the other matters to be acted upon at the Special Meeting. You should read them carefully and in their entirety.

 

This proxy statement/prospectus also serves as an information statement of MJF used to solicit the written consent of holders of its membership interests for the adoption of the Merger Agreement and the approval of the Business Combination and the other related transactions contemplated by the Merger Agreement. Holders of membership interests of MJF are entitled to sign and return a written consent to adopt the Merger Agreement and approve the Business Combination and the other related transactions contemplated by the Merger Agreement.

 

Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement/prospectus, its annexes and the other documents referred to herein.

  

Q: What is being voted on at the Special Meeting?

 

A:Our stockholders are being asked to vote on the following proposals

 

1.To approve and adopt the Business Combination and the other transactions contemplated by the Merger Agreement

2.To approve and adopt the Amended and Restated Certificate of Incorporation of MTech Holdings to reflect the following material differences from MTech’s current amended and restated certificate of incorporation:

  

(a)having a single class of common stock and an authorized 75,000,000 shares of common stock;

  

(b)having 5,000,000 shares of authorized preferred stock;

  

(c)fixing the number of directors of MTech Holdings at eight, subject to change by resolution adopted by the affirmative vote of at least a majority of the board of directors then in office;

 

(d)dividing the board of directors of MTech Holdings into three classes with staggered three-year terms;

 

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  (e)   prohibiting stockholder actions by written consent; and

 

(f)making MTech Holdings’ corporate existence perpetual as opposed to MTech’s corporate existence terminating 18 months following the consummation of its initial public offering and removing various provisions applicable only to special purpose acquisition corporations contained in MTech’s current amended and restated certificate of incorporation;

 

3.To approve and adopt the Incentive Plan; and
4.To adjourn the Special Meeting to a later date or dates, if MTech is unable to consummate the Business Combination for any reason.

  

Q: Are the proposals conditioned on one another?

 

A: Unless the Business Combination Proposal is approved, the Charter Amendments Proposal and the Incentive Plan Proposal will not be presented to the stockholders of MTech at the Special Meeting. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth in this proxy statement/prospectus. It is important for you to note that in the event that the Business Combination Proposal does not receive the requisite vote for approval, then we will not consummate the Business Combination. If MTech does not consummate the Business Combination and fails to complete an initial business combination by August 1, 2019, MTech will be required to dissolve and liquidate its trust account by returning the then remaining funds in such account to its public stockholders.

 

Q: What will happen in the Business Combination?

 

A: Upon completion of the Business Combination, MTech and MJF will be combined under the new holding company MTech Holdings. The purchase price for the Business Combination is $70 million, subject to net working capital and closing date indebtedness adjustments in accordance with the terms of the Merger Agreement, as described further herein. The purchase price shall be paid in shares of MTech Holdings common stock valued at $10.16 per share. The Sellers will receive an aggregate number of shares of MTech Holdings common stock equal to the quotient of the aggregate merger consideration of $70,000,000, subject to adjustments for net working capital and MJF’s indebtedness as of the date of the Closing, divided by $10.16, in exchange for all of the issued and outstanding membership interests of MJF upon the closing of the Business Combination with 10% of such shares set aside in escrow until 90 days after MTech Holdings files with the Commission its annual report of Form 10-K for the fiscal year ending June 30, 2019 in order to satisfy post-closing purchase price adjustments and indemnification claims against the Sellers. Shares issued for unvested MJF profits interest units shall continue to be subject to the same vesting after the closing as applicable to the profits interest units of MJF. Typically, the profits interest units of MJF vest in four equal 25% annual installments, with the first tranche vesting on the first anniversary of the date of grant. Vesting of each tranche is conditioned upon the holder thereof being employed by MJF on the vesting date. Assuming that 6,889,764 shares of MTech Holdings common stock are issued to the current unit holders of MJF in the business combination (using the aggregate merger consideration amount of $70 million (assuming that there are no adjustments to the merger consideration at the closing for net working capital or indebtedness) divided by the fixed price of $10.16 per share, and including the shares of MTech Holdings common stock to be held in escrow), an aggregate of 88,568 shares of MTech Holdings common stock will be issued to the holders of the unvested profit interests units of MJF. Current MTech stockholders will receive shares of MTech Holdings common stock to replace their existing shares of MTech common stock. The outstanding MTech warrants, by their terms, will be cancelled and exchanged for MTech Holdings’ warrants to purchase an equal number of warrants to shares of MTech Holdings’ common stock. MTech units will cease trading upon consummation of the Business Combination.

 

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Q: What equity stake will current stockholders of MTech and the Sellers hold in MTech Holdings after the Closing?

 

A: It is anticipated that, upon the completion of the Business Combination and if there are no redemptions, MTech’s public stockholders will retain an ownership interest of approximately 40.15% of the outstanding capital stock of MTech Holdings, the Sponsor will retain an ownership interest of approximately 11.74% of the outstanding capital stock of MTech Holdings and the Sellers will own approximately 48.11% of the outstanding common stock of MTech Holdings. These ownership percentages with respect to MTech Holdings include the shares issuable to the Sellers that are held in escrow, as well as shares issued in exchange for unvested MJF profits interest units that are subject to continued vesting, and do not take into account (i) the issuance of any shares under the Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 5,993,750 shares of MTech Holdings common stock that will remain outstanding following the Business Combination or any additional warrants that are issued to our Sponsor pursuant to the conversion of its working capital loans that were made to MTech, (iii) any adjustments to the merger consideration payable to the Sellers as a result of MJF’s working capital and/or debt as of the completion of the Business Combination varying from certain specified targets set forth in the Merger Agreement, (iv) the issuance of any underlying shares upon the exercise of the underwriter’s option to purchase up to 250,000 units and (v) any indemnification payments that are made after the consummation of the Business Combination by delivery of shares of MTech Holdings’ common stock. . If the actual facts are different than these assumptions (which they are likely to be), the percentage ownerships in MTech Holdings will be different. See “Summary of the Proxy Statement/Prospectus – Impact of the Business Combination on MTech’s Public Float” and “Unaudited Pro Forma Combined Financial Information” for further information.”

Q: What conditions must be satisfied to complete the Business Combination?

  

A: There are a number of closing conditions in the Merger Agreement, including that our stockholders have approved and adopted the Merger Agreement and the Incentive Plan Proposal.

  

Q: Why is MTech providing stockholders with the opportunity to vote on the Business Combination?

  

A: Under the DGCL and MTech’s Amended and Restated Certificate of Incorporation, MTech must provide all holders of its public shares with the opportunity to have their public shares redeemed upon the consummation of MTech’s initial business combination either in conjunction with a tender offer or in conjunction with a stockholder vote. For legal and other reasons, MTech has elected to provide its stockholders with the opportunity to have their public shares redeemed in connection with a stockholder vote rather than a tender offer. Therefore, MTech is seeking to obtain the approval of its stockholders of the Business Combination Proposal in order to allow its public stockholders to effectuate redemptions of their public shares in connection with the closing of the Business Combination.

  

Q: How many votes do I have at the Special Meeting?

  

A: MTech stockholders are entitled to one vote at the Special Meeting for each share of MTech common stock held of record as of ______, 2019, the Record Date for the Special Meeting. As of the date of this proxy statement/prospectus, there were 7,431,250 outstanding shares of MTech common stock. MTech does not expect to issue any shares of common stock on or before the Record Date.

  

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Q: What vote is required to approve the proposals presented at the Special Meeting?

  

A:

The approval of the Business Combination Proposal and the Charter Amendments Proposal requires the affirmative vote of a majority of the issued and outstanding MTech common stock as of the Record Date. Accordingly, an MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or an abstention will have the same effect as a vote “AGAINST” the Business Combination Proposal.

 

Our Sponsor, directors and officers have agreed to vote their shares in favor of the Business Combination Proposal. As a result, we would need only 2,034,376, or approximately 35.38%, of the 5,750,000 public shares, to be voted in favor of the Business Combination in order to have the Business Combination approved.

 

The approval of the Incentive Plan Proposal and the Adjournment Proposal each require the affirmative vote of the holders of a majority of the shares of MTech common stock cast by the stockholders represented in person or by proxy and entitled to vote thereon at the Special Meeting. An MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting will not be counted towards the number of shares of MTech common stock required to validly establish a quorum, and if a valid quorum is otherwise established, it will have no effect on the outcome of the vote on the Charter Amendments Proposal, the Incentive Plan Proposal and the Adjournment Proposal.

 

If the Business Combination Proposal is not approved, the Charter Amendments Proposal and the Incentive Plan Proposal will not be presented to the MTech stockholders for a vote. The approval of the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal are preconditions to the consummation of the Business Combination. 

 

Q: May MTech, the Sponsor or MTech’s directors, officers, advisors or their affiliates purchase shares in connection with the Business Combination?

  

A: In connection with the stockholder vote to approve the proposed Business Combination, the Sponsor, directors, officers or advisors or their respective affiliates may privately negotiate transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed in conjunction with a proxy solicitation pursuant to the proxy rules for a per-share pro rata portion of the trust account. None of MTech’s Sponsor, directors, officers or advisors or their respective affiliates will make any such purchases when they are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. Such a purchase would include a contractual acknowledgement that such stockholder, although still the record holder of MTech shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights, and could include a contractual provision that directs such stockholder to vote such shares in a manner directed by the purchaser. In the event that the Sponsor, directors, officers or advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are below or in excess of the per-share pro rata portion of the trust account.

  

Q: What constitutes a quorum at the Special Meeting?

  

A: Holders of a majority in voting power of MTech common stock issued and outstanding and entitled to vote at the Special Meeting constitute a quorum. In the absence of a quorum, the chairman of the meeting has the power to adjourn the Special Meeting. As of the Record Date, 3,715,626 shares of MTech common stock would be required to achieve a quorum assuming MTech has 7,431,250 shares of common stock issued and outstanding.

  

Q: How will the Sponsor, directors and officers vote?

  

A:

Our Sponsor currently owns 243,750 shares of Class A common stock and 1,437,500 shares of Class B common stock, representing 22.62% of the issued and outstanding shares of common stock of MTech. Shares of Class B common stock will automatically convert into shares of Class A common stock on a one-for-one basis, subject to certain anti-dilution adjustments which have been waived by the Sponsor and will be exchanged into shares of common stock of MTech Holdings upon consummation of the Business Combination. Our Sponsor, as well as all of MTech’s officers and directors, have agreed to vote any shares held by them in favor of our Business Combination. As a result, we would need only 2,034,376, or approximately 35.38%, of the 5,750,000 public shares, to be voted in favor of the Business Combination in order to have the Business Combination approved.

  

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Q: What interests do MTech’s current officers and directors have in the Business Combination?

 

A:The Sponsor, members of MTech’s Board and its executive officers have interests in the Business Combination that are different from or in addition to (and which may conflict with) your interest. These interests include, among other things:

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $25,000 for their founder shares and such securities should have a significantly higher value at the time of the Business Combination;

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $2,437,500 for the placement units and such securities should have a significantly higher value at the time of the Business Combination;

 

if MTech is unable to complete a business combination within the required time period, our Chairman will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by MTech for services rendered or contracted for or products sold to MTech, but only if such a vendor or target business has not executed a waiver of claims against the trust account and except as to any claims under our indemnity of the underwriters;

 

unless MTech consummates an initial business combination, MTech’s officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account;

 

the fact that Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination;

 

the fact that the founder shares and placement units, including the placement shares and placement warrants, purchased by the Sponsor will be worthless if a business combination is not consummated;

 

the Sponsor has agreed that the placement units, and all of their underlying securities, will not be sold or transferred by it until MTech has completed a business combination, subject to limited exceptions;

 

the appointment of Scott Sozio, Tahira Rehmatullah and Douglas Rothschild as designees to the board of directors of MTech Holdings which will entitle such individuals to any cash fees, stock options or stock awards that MTech Holdings determines to pay to its non-executive directors; and

 

the continued indemnification of current directors and officers of MTech and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

Q: What happens if I sell my shares of Class A common stock before the Special Meeting?

  

A: The Record Date is earlier than the date of the Special Meeting. If you transfer your shares of common stock after the Record Date, but before the Special Meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the Special Meeting. However, you will not be able to seek redemption of your shares because you will no longer be able to deliver them for cancellation upon consummation of the Business Combination in accordance with the provisions described herein. If you transfer your shares of Class A common stock prior to the Record Date, you will have no right to vote those shares at the Special Meeting.

  

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Q: What happens if the Business Combination Proposal is not approved?

  

A: Pursuant to MTech’s Amended and Restated Certificate of Incorporation, if the Business Combination Proposal is not approved and MTech does not otherwise consummate an alternative business combination by August 1, 2019, MTech will be required to dissolve and liquidate its trust account by returning the then remaining funds in such account to the public stockholders.

  

Q: Do I have redemption rights?

 

A: Pursuant to MTech’s existing Amended and Restated Certificate of Incorporation, holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with MTech’s Amended and Restated Certificate of Incorporation. As of December 31, 2018, based on funds in the trust account of $58,451,942, this would have amounted to approximately $10.14 per share (net of income and franchise taxes). It is anticipated that the per share redemption price will be approximately $10.16 (net of income and franchise taxes) at the closing of the Business Combination, which is anticipated to occur during the second quarter of 2019. If a holder exercises its redemption rights, then such holder will be exchanging its shares of Class A common stock for cash. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to MTech’s transfer agent prior to the Special Meeting. See the question titled “How do I exercise my redemption rights?” below and the section titled “Special Meeting of MTech Stockholders—Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

  

Q: Will how I vote affect my ability to exercise redemption rights?

  

A: No. You may exercise your redemption rights whether or not you vote your shares of MTech common stock “FOR” or “AGAINST” the Business Combination Proposal or any other proposal described by this proxy statement/prospectus. As a result, the Merger Agreement can be approved by stockholders who will redeem their shares and no longer remain stockholders, leaving stockholders who choose not to redeem their shares holding shares in a company with a potentially less liquid trading market, fewer stockholders, potentially less cash and the potential inability to meet the listing standards of Nasdaq.

  

Q: How do I exercise my redemption rights?

  

A: In order to exercise your redemption rights, you must, prior to 5:00 p.m., Eastern time, on ______, 2019 (two (2) business days before the Special Meeting), tender your shares physically or electronically and submit a request in writing that we redeem your Public Shares for cash to Continental Stock Transfer & Trust Company, our transfer agent, at the following address:

 

Continental Stock Transfer & Trust Company 

One State Street Plaza, 30th Floor

New York, New York 10004

Attn: Mark Zimkind

E-mail: mzimkind@continentalstock.com

 

Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates should allot sufficient time to obtain physical certificates from the transfer agent and time to effect delivery. It is MTech’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, MTech does not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other nominee to have the shares certificated or delivered electronically.

 

Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the vote is taken with respect to the Business Combination. If you delivered your shares for redemption to our transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that our transfer agent return the shares (physically or electronically). You may make such request by contacting our transfer agent at the phone number or address listed under the question “Who can help answer my questions?” below.

 

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Q: What are the federal income tax consequences of exercising my redemption rights?

  

A: MTech stockholders who exercise their redemption rights to receive cash in exchange for their shares of Class A common stock generally will be required to treat the transaction as a sale of such shares and recognize gain or loss upon the redemption in an amount equal to the difference, if any, between the amount of cash received and the tax basis of the shares of common stock redeemed. Such gain or loss should be treated as capital gain or loss if such shares were held as a capital asset on the date of the redemption. The redemption, however, may be treated as a distribution to a redeeming stockholder for U.S. federal income tax purposes if the redemption does not effect a sufficient reduction (as determined under applicable federal income tax law) in the redeeming stockholder’s percentage ownership in us (whether such ownership is direct or through the application of certain attribution and constructive ownership rules). Any amounts treated as such a distribution will constitute a dividend to the extent not in excess of our current and accumulated earnings and profits as measured for U.S. federal income tax purposes. Any amounts treated as a distribution and that are in excess of our current and accumulated earnings and profits will reduce the redeeming stockholder’s basis in his or her redeemed shares of our common stock, and any remaining amount will be treated as gain realized on the sale or other disposition of our common stock. These tax consequences are described in more detail in the section titled “The Business Combination Proposal — Material U.S. Federal Income Tax Considerations.” We urge you to consult your tax advisor regarding the tax consequences of exercising your redemption rights.

  

Q: What are the U.S. federal income tax consequences if I do not exercise my redemption rights and instead participate in the Business Combination?

  

A: It is intended that the Business Combination will qualify as part of an exchange described in Section 351 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. If the Business Combination qualifies as part of an exchange described in Section 351, then U.S. Holders (as defined in the section entitled “The Business Combination Proposal — Material U.S. Federal Income Tax Considerations”) of MTech common stock who do not exercise their redemption rights and who participate in the Business Combination generally will not recognize gain or loss for U.S. federal income tax purposes as a result of the exchange of MTech common stock for MTech Holdings common stock. You are strongly urged to consult with a tax advisor to determine the particular U.S. federal, state or local or foreign income or other tax consequences of your participation in the Business Combination. See “The Business Combination Proposal — Material U.S. Federal Income Tax Considerations.”

  

Q: If I am a warrant holder, can I exercise redemption rights with respect to my warrants?

  

A: No. The holders of warrants have no redemption rights with respect to warrants.

  

Q: Do I have appraisal rights if I object to the proposed Business Combination?

  

A: MTech stockholders may have appraisal rights in connection with the Business Combination. If MTech Holdings’ securities are not listed on a national securities exchange at the time the Business Combination is consummated, holders of MTech common stock who do not vote in favor of the Business Combination Proposal and who properly demand appraisal of their shares will be entitled to appraisal rights in connection with the Business Combination under Section 262 of the DGCL. Holders of public shares electing to exercise redemption rights will not be entitled to appraisal rights. Additionally, appraisal rights are not available to holders of public warrants. For additional information, including the procedures for properly demanding appraisal, see “Summary of the Proxy Statement/Prospectus - MTech Appraisal Rights.”

  

Q: What happens to the funds held in the Trust Account upon consummation of the Business Combination?

 

A: If the Business Combination is consummated, the funds held in the trust account will be released to pay:

 

  MTech stockholders who properly exercise their redemption rights;

 

  $2,300,000 of Business Combination marketing fees to EBC in connection with the Business Combination;

 

  certain other fees, costs and expenses (including regulatory fees, legal fees, accounting fees, printer fees, and other professional fees) that were incurred by MTech or MJF in connection with the transactions contemplated by the Business Combination and pursuant to the terms of the Merger Agreement;

  

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  any loans owed by MTech to its Sponsor for any MTech transaction expenses or other administrative expenses incurred by MTech; and

  

  for general corporate purposes including, but not limited to, working capital for operations.

  

Q: What happens if the Business Combination is not consummated?

  

A: There are certain circumstances under which the Merger Agreement may be terminated. See the section titled “The Business Combination Proposal — Merger Agreement” for information regarding the parties’ specific termination rights.

 

If, as a result of the termination of the Merger Agreement or otherwise, MTech is unable to complete the Business Combination or another initial business combination transaction by August 1, 2019, MTech’s Amended and Restated Certificate of Incorporation provides that it will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest earned on the funds held in the trust account net of interest that may be used by us to pay our franchise and income taxes payable and up to $15,000 of any remaining interest for dissolution expenses, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our Board, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Holders of founder shares have waived any right to any liquidation distribution with respect to those shares.

 

In the event of liquidation, there will be no distribution with respect to MTech’s outstanding warrants. Accordingly, the warrants will expire worthless.

 

Q: When is the Business Combination expected to be completed?

  

A: The closing is expected to take place in the second quarter of 2019.

 

For a description of the conditions to the completion of the Business Combination, see the section titled “The Business Combination Proposal.”

 

Q: What will MTech stockholders receive in the Business Combination?

  

A: Upon completion of the Business Combination, each share of MTech common stock will be exchanged for one share of MTech Holdings common stock, par value $0.001 per share. Shares held by MTech as treasury stock or that are owned by MTech, which we refer to as the MTech excluded shares, will not be exchanged and will be canceled. 

  

Q: What will MTech warrant holders receive in the Business Combination?

 

A: Upon completion of the Business Combination, all of the warrants to purchase MTech common stock will be cancelled and exchanged for MTech Holdings warrants to purchase an equal number of shares of MTech Holdings common stock on the same terms and conditions as the original warrants.

 

Q: If I am an MTech warrant holder, will my warrants become exercisable for shares of MTech Holdings common stock if the Business Combination is consummated?

  

A: Yes. Pursuant to the Merger Agreement and the terms of the MTech warrants, each MTech warrant will be cancelled and exchanged for an MTech Holdings warrant to purchase shares of MTech Holdings common stock. However, in the event that MTech does not consummate the business combination by August 1, 2019, MTech will be required to liquidate and any MTech warrants you own will expire without value.

  

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Q: If the Business Combination is completed, when can I expect to receive the MTech Holdings common stock for my shares of MTech common stock?

  

A: After the consummation of the Business Combination, MTech Holdings’ transfer agent will send instructions to MTech security holders regarding the exchange of their MTech securities for MTech Holdings securities.  MTech stockholders who exercise their redemption rights must deliver their stock certificates to MTech’s transfer agent (either physically or electronically) at least two (2) business days prior to the vote at the meeting.

 

Q: How much cash will be available to MTech Holdings following the closing of the Business Combination, assuming maximum and minimum redemptions?  To what extent will MTech Holdings need to secure additional financing in connection with the Business Combination?  Following the Business Combination?

  

A: Following the closing of the Business Combination, it is currently anticipated that MTech Holdings will have available to it approximately $63.8 million of cash, after payment of estimated expenses and assuming no redemptions are made by MTech public stockholders prior to the closing of the Business Combination, or approximately $10.4 million of cash, after payment of estimated expenses and assuming that the maximum amount of redemptions are made by MTech public stockholders prior to the closing of the Business Combination. We do not foresee the need to secure additional financing in connection with the Business Combination. Following the Business Combination, the combined entity will have enough cash on its balance sheet to finance operations. We also expect that from time to time we may need to raise additional financing to maintain our operations, and from time to time we may wish to raise additional financing in order to take advantage of business opportunities. To the extent we need or wish to raise such additional financing, our access to commercial bank financing or the debt and equity capital markets may be limited by various factors, including the condition of overall credit and capital markets, general economic factors, the state of the cannabis industry, our financial performance, credit ratings, and other factors. Commercial credit and debt and equity capital may not be available to us on favorable terms, or at all.

  

Q: What do I need to do now?

  

A:

You are urged to read carefully and consider the information contained in this proxy statement/prospectus, including the annexes, and to consider how the Business Combination will affect you as a stockholder. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

If you hold membership interests of MJF, you may execute and return your written consent to MJF in accordance with the instructions provided.

  

Q: How do I vote?

  

A: If you were a holder of record of MTech common stock on ______, 2019, the Record Date, you may vote with respect to the Proposals in person at the Special Meeting, or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the instructions provided by your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the Special Meeting and vote in person, obtain a proxy from your broker, bank or nominee.

  

Q: What will happen if I abstain from voting or fail to vote at the Special Meeting?

  

A: At the Special Meeting, MTech will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of approval, assuming a quorum is otherwise validly established, a failure to vote your shares will have no effect on the Proposals to be considered at the special meeting of stockholders.

  

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Q: What will happen if I sign and return my proxy card without indicating how I wish to vote?

  

A: Signed and dated proxies received by MTech without an indication of how the stockholder intends to vote on a proposal will be voted “FOR” each proposal presented to the stockholders. The proxyholders may use their discretion to vote on any other matters which properly come before the Special Meeting.

  

Q: If I am not going to attend the Special Meeting in person, should I return my proxy card instead?

  

A: Yes. Whether you plan to attend the Special Meeting or not, please read the enclosed proxy statement/prospectus carefully, and vote your shares by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

  

Q: If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

  

A: No. Under the rules of various national and regional securities exchanges, your broker, bank or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. MTech believes the proposals presented to the stockholders will be considered non-discretionary and therefore your broker, bank or nominee cannot vote your shares without your instruction. Your bank, broker or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.

  

Q: May I change my vote after I have mailed my signed proxy card?

  

A: Yes. You may change your vote by sending a later-dated, signed proxy card to MTech’s secretary at the address listed below so that it is received by MTech’s secretary prior to the Special Meeting or attend the Special Meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to MTech’s secretary, which must be received by MTech’s secretary prior to the Special Meeting.

  

Q: What should I do if I receive more than one set of voting materials?

  

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

  

Q: Who will solicit and pay the cost of soliciting proxies?

 

A: MTech will pay the cost of soliciting proxies for the Special Meeting. MTech has engaged Advantage Proxy Inc., which we refer to as “Advantage Proxy Inc.,” to assist in the solicitation of proxies for the Special Meeting. MTech has agreed to pay Advantage Proxy Inc. a fee of $12,500, plus disbursements. MTech will reimburse Advantage Proxy Inc. for reasonable out-of-pocket expenses and will indemnify Advantage Proxy Inc. and its affiliates against certain claims, liabilities, losses, damages and expenses. MTech will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of MTech common stock for their expenses in forwarding soliciting materials to beneficial owners of the MTech common stock and in obtaining voting instructions from those owners. MTech’s directors and officers may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

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Q: Who can help answer my questions?

  

A:

If you have questions about the proposals or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card you should contact:

 

Scott Sozio

Chief Executive Officer

MTech Acquisition Corp.

10124 Foxhurst Court

Orlando, Florida 32836

 

You may also contact our proxy solicitor at:

 

Advantage Proxy Inc.

PO Box 13581

Des Moines, WA 98198

Tel: (206)870-8565

Email: www.advantageproxy.com

 

To obtain timely delivery, MTech stockholders must request the materials no later than ______, 2019.

 

You may also obtain additional information about MTech from documents filed with the SEC by following the instructions in the section titled “Where You Can Find More Information.”

 

If you intend to seek redemption of your Public Shares, you will need to send a letter demanding redemption and deliver your stock (either physically or electronically) to MTech’s transfer agent prior to the Special Meeting in accordance with the procedures detailed under the question “How do I exercise my redemption rights?” If you have questions regarding the certification of your position or delivery of your stock, please contact:

 

Continental Stock Transfer & Trust Company

One State Street Plaza, 30th Floor

New York, New York 10004

Attn: Mark Zimkind

E-mail: mzimkind@continentalstock.com

 

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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

 

This summary, together with the section entitled, “Questions and Answers About the Proposals” summarizes certain information contained in this proxy statement/prospectus and may not contain all of the information that is important to you. To better understand the Business Combination and the Proposals to be considered at the Special Meeting, you should read this entire proxy statement/prospectus carefully, including the annexes. See also the section titled “Where You Can Find More Information.”

 

Parties to the Business Combination

 

MTech

 

MTech is a special purpose acquisition company incorporated on September 27, 2017 for purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, recapitalization, exchangeable share transaction or other similar business transaction, one or more businesses or assets.

 

MTech’s units, Class A common stock and warrants are currently quoted on the Nasdaq Capital Market under the symbols “MTECU,” “MTEC” and “MTECW,” respectively.

 

MTech’s executive office is located at 10124 Foxhurst Court, Orlando, Florida 32836 and its telephone number is (407) 345-8332.

 

Sponsor

 

The Sponsor, a Florida limited liability company, is the sponsor of MTech and currently owns 22.62% of the issued and outstanding shares of common stock of MTech. The Sponsor has two managing members - SS FL, LLC and Game Boy Partners, LLC. Steve Van Dyke and Scott Sozio, the Chairman and the Chief Executive Officer of MTech respectively, are the managing members of SS FL, LLC. Douglas Rothschild, the senior advisor of MTech, is one of the members of Game Boy Partners, LLC.

 

MTech Holdings

 

MTech Holdings is a wholly-owned subsidiary of MTech and is the owner of all of the issued and outstanding equity interests of Purchaser Merger Sub and Company Merger Sub. MTech Holdings was incorporated under the laws of the State of Delaware on October 3, 2018. MTech Holdings owns no material assets other than the equity interest of Purchaser Merger Sub and Company Merger Sub and it does not operate any business.

 

The mailing address of MTech Holdings’ principal executive office is 10124 Foxhurst Court, Orlando, Florida 32836. Its telephone number is (407) 345-8332.

 

MJF

 

MJF is a large and growing regulatory compliance and inventory management technology company. MJF’s proprietary software platform is adaptable for industries in which interfacing with government regulatory agencies for compliance purposes is required, or where the tracking of organic materials from seed or plant to end products is desired. Nine years ago, MJF identified a need for organic material tracking and regulatory compliance SaaS solutions in the growing cannabis and hemp industry. MJF developed products intended to assist states in monitoring licensed businesses’ compliance with state regulations, and to help state-licensed businesses operate in compliance with such law. MJF provides its regulatory software platform, Leaf Data Systems®, to state government regulatory agencies, and its business software platform, MJ Platform®, to state-licensed businesses.

 

Purchaser Merger Sub

 

Purchaser Merger Sub is a wholly-owned subsidiary of MTech Holdings formed solely for the purpose of effectuating the merger with MTech in which MTech will be the surviving entity. Purchaser Merger Sub was incorporated under the laws of the State of Delaware on October 3, 2018. Purchaser Merger Sub owns no material assets and does not operate any business.

 

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The mailing address of Purchaser Merger Sub’s principal executive office is 10124 Foxhurst Court, Orlando, Florida 32836. Its telephone number is (407) 345-8332. After the consummation of the Business Combination, it will cease to exist.

 

Company Merger Sub

 

Company Merger Sub is a wholly-owned subsidiary of MTech Holdings formed solely for the purpose of effectuating the merger with MJF in which MJF will be the surviving entity. Company Merger Sub was formed under the laws of the State of Colorado on September 17, 2018. Merger Sub LLC owns no material assets and does not operate any business.

 

The mailing address of Company Merger Sub’s principal executive office is 10124 Foxhurst Court, Orlando, Florida 32836. Its telephone number is (407) 345-8332. After the consummation of the Business Combination, it will cease to exist.

 

Consideration to the Sellers in the Business Combination

 

Pursuant to the Merger Agreement, upon the Closing, the Company Units issued and outstanding immediately prior to the Merger will convert automatically into the right to receive an aggregate number of shares of MTech Holdings common stock equal to the quotient of the aggregate merger consideration of $70,000,000, subject to adjustments for net working capital and MJF’s indebtedness as of the date of the Closing, divided by $10.16. 10% of the shares issuable to the Sellers will be set aside in escrow to satisfy any post-closing purchase price adjustment and indemnification claims.

 

Ownership Structure

 

The following diagram illustrates the ownership structure of MTech, MTech Holdings and MJF prior to the Business Combination and then after the Business Combination.

 

 

 

 

Board of Directors Following the Business Combination

 

Upon the Closing, MTech Holdings’ board of directors will consist of eight directors, including three (3) directors designated by MTech and five (5) directors designated by MJF. MTech has designated Scott Sozio, Tahira Rehmatullah and Douglas Rothschild to serve on the board of directors of MTech Holdings. MJF has designated, Jessica Billingsley, Matthew R. Kane, Emery J. Huang and Mark Iwanowski to serve on the board of MTech Holdings and will be entitled to designate a fifth member prior to the filing of the definitive proxy statement/ prospectus. See the section entitled “Management After the Business Combination.”

 

Accounting Treatment for Business Combination

 

The Business Combination will be accounted for as a “reverse merger” in accordance with U.S. GAAP. Under this method of accounting MTech Holdings will be treated as the “acquired” company for financial reporting purposes. This determination is primarily based on MJF shareholders expecting to have a majority of the voting power of the combined company, MJF comprising the ongoing operations of the combined entity, MJF comprising a majority of the governing body of the combined company, and MJF’s senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of MJF issuing stock for the net assets of MTech, accompanied by a recapitalization. The net assets of MTech will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of MJF.

 

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MTech Appraisal Rights

 

In the event MTech Holdings’ securities are not listed on a national securities exchange at the time the Business Combination is consummated, appraisal rights will be available to all MTech stockholders pursuant to Section 262 of the DGCL. Appraisal rights are not available to holders of public warrants. If appraisal rights are available, holders of shares of MTech common stock who do not vote in favor of the Business Combination Proposal and who properly demand appraisal of their shares will be entitled to appraisal rights in connection with the Business Combination under Section 262 of the DGCL. If the common stock of MTech Holdings is listed on a national securities exchange at the time the Business Combination is consummated, MTech stockholders will not be entitled to assert appraisal rights under Section 262. Holders of public shares electing to exercise redemption rights will not be entitled to appraisal rights.

 

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262, which is attached to this proxy statement/prospectus as Annex D. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights, if any, under Section 262. All references in Section 262 and in this summary to a “stockholder” are to the record holder of the shares of common stock of MTech as to which appraisal rights are asserted. A person having a beneficial interest in shares of common stock of MTech held of record in the name of another person, such as a broker, fiduciary, depositary or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights, if available.

 

In the event that appraisal rights are available, under Section 262, holders of shares of common stock of MTech who do not vote in favor of the Business Combination Proposal and who otherwise follow the procedures set forth in Section 262 will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the Business Combination, together with a fair rate of interest, if any, as determined by the court.

 

Under Section 262, where a merger or consolidation agreement is to be submitted for adoption at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available and include in the notice a copy of Section 262. To the extent appraisal rights are available in connection with the Business Combination, this proxy statement/prospectus shall constitute the notice, and the full text of Section 262 is attached to this proxy statement/prospectus as Annex D. In the event appraisal rights are available in connection with the Business Combination, any holder of common stock of MTech who wishes to exercise appraisal rights, or who wishes to preserve such holder’s right to do so, should review the following discussion and Annex D carefully because failure to timely and properly comply with the procedures specified will result in the loss of appraisal rights. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of common stock, MTech believes that if a stockholder considers exercising such rights, such stockholder should seek the advice of legal counsel.

 

Filing Written Demand

 

If appraisal rights are available in connection with the Business Combination, any holder of common stock of MTech wishing to exercise appraisal rights must deliver to MTech, before the vote on the Business Combination Proposal at the special meeting, a written demand for the appraisal of the stockholder’s shares, and that stockholder must not vote in favor of the Business Combination Proposal. A holder of shares of MTech common stock wishing to exercise appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold the shares of record through the effective time of the Business Combination. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the Business Combination Proposal, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote against the Business Combination Proposal or abstain from voting on the Business Combination Proposal. Neither voting against the Business Combination Proposal nor abstaining from voting or failing to vote on the Business Combination Proposal will, in and of itself, constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal must be in addition to and separate from any proxy or vote on the Business Combination Proposal. The demand must reasonably inform MTech of the identity of the holder, as well as the intention of the holder to demand an appraisal of the “fair value” of the shares held by the holder. A stockholder’s failure to make the written demand prior to the taking of the vote on the Business Combination Proposal at the special meeting will constitute a waiver of appraisal rights.

 

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If appraisal rights are available in connection with the Business Combination, only a holder of record of shares of MTech common stock is entitled to assert appraisal rights for the shares registered in that holder’s name. A demand for appraisal in respect of shares of common stock of MTech should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates, should specify the holder’s name and mailing address and the number of shares registered in the holder’s name and must state that the person intends thereby to demand appraisal of the holder’s shares in connection with the Business Combination. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners. If the shares are held in “street name” by a broker, bank or nominee, the broker, bank or nominee may exercise appraisal rights with respect to the shares held for one or more beneficial owners while not exercising the rights with respect to the shares held for other beneficial owners; in such case, however, the written demand should set forth the number of shares as to which appraisal is sought, and where no number of shares is expressly mentioned, the demand will be presumed to cover all shares of common stock of MTech held in the name of the record owner. Stockholders who hold their shares in brokerage accounts or other nominee forms and who wish to exercise appraisal rights are urged to consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

All written demands for appraisal pursuant to Section 262 should be sent or delivered to MTech Acquisition Corp., 10124 Foxhurst Court, Orlando, Florida 32836, Attention: Scott Sozio.

 

Any holder of common stock of MTech may withdraw his, her or its demand for appraisal and accept the consideration offered pursuant to the Merger Agreement by delivering to MTech as the surviving corporation of the Purchaser Merger (as defined below), a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the effective date of the Business Combination will require written approval of MTech as the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed without the approval of the court, and such approval may be conditioned upon such terms as such court deems just.

 

Notice by the Surviving Corporation

 

If appraisal rights are available in connection with the Business Combination, within 10 days after the effective time of the Business Combination, MTech, as the surviving corporation, must notify each holder of common stock of MTech who has made a written demand for appraisal pursuant to Section 262, and who has not voted in favor of the Business Combination Proposal, that the Business Combination has become effective.

 

Filing a Petition for Appraisal

 

Within 120 days after the effective time of the Business Combination, but not thereafter, MTech, as the surviving corporation of the Purchaser Merger, or any holder of common stock of MTech who has so complied with subsections (a) and (b) of Section 262 and is entitled to appraisal rights under Section 262, may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all dissenting holders. MTech, as the surviving corporation, is under no obligation to and has no present intention to file a petition, and holders should not assume that MTech will file a petition. Accordingly, it is the obligation of the holders of MTech common stock to initiate all necessary action to perfect their appraisal rights in respect of shares of MTech common stock within the time prescribed in Section 262.

 

Within 120 days after the effective time of the Business Combination, any holder of common stock of MTech who has complied with the requirements subsections (a) and (b) of Section 262 for exercise of appraisal rights will be entitled, upon written request, to receive from MTech a statement setting forth the aggregate number of shares not voted in favor of the Business Combination Proposal and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within 10 days after a written request therefor has been received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal under section 262(d), whichever is later.

 

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If a petition for an appraisal is timely filed by a holder of shares of MTech common stock and a copy thereof is served upon the surviving corporation, the surviving corporation will then be obligated within 20 days after such service to file with the court a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to the stockholders as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the stockholders who demanded appraisal for their shares and who hold stock represented by certificates to submit their stock certificates to the court for notation thereon of the pendency of the appraisal proceeding, and if any stockholder fails to comply with the direction, the court may dismiss the proceedings as to such stockholder.

 

Determination of Fair Value

 

After the Delaware Court of Chancery determines the holders of common stock of MTech entitled to appraisal, the court will appraise the “fair value” of their shares, exclusive of any element of value arising from the accomplishment or expectation of the Business Combination, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining fair value and, if applicable, a fair rate of interest, the Delaware Court of Chancery will take into account all relevant factors. In Weinberger v. UOP, Inc., the Supreme Court of Delaware discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the Business Combination that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

 

Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined could be more than, the same as or less than the consideration they would receive pursuant to the Business Combination if they did not seek appraisal of their shares. Although MTech believes that the exchange of MTech common stock for MTech Holdings common stock is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, this consideration. Neither MTech nor MTech Holdings anticipates offering more than the applicable shares of common stock of MTech Holdings to any stockholder of MTech exercising appraisal rights, and each of MTech and MTech Holdings reserves the right to assert, in any appraisal proceeding, that for purposes of Section 262, the “fair value” of a share of common stock of MTech is less than the applicable shares of common stock of MTech Holdings, and that the methods which are generally considered acceptable in the financial community and otherwise admissible in court should be considered in the appraisal proceedings. In addition, Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenter’s exclusive remedy. The Delaware Court of Chancery will also determine the amount of interest, if any, to be paid upon the amounts to be received by persons whose shares of common stock of MTech have been appraised. If a petition for appraisal is not timely filed, then the right to an appraisal will cease. The costs of the action (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the court and taxed upon the parties as the court deems equitable under the circumstances. The court may also order that all or a portion of the expenses incurred by a stockholder in connection with an appraisal, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, be charged pro rata against the value of all the shares entitled to be appraised.

 

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If any stockholder who demands appraisal of shares of common stock of MTech under Section 262 fails to perfect, or successfully withdraws or loses, such holder’s right to appraisal, the stockholder’s shares of common stock of MTech will be deemed to have been converted at the effective time of the Business Combination into the right to receive the Business Combination consideration in accordance with the terms of the Merger Agreement. A stockholder will fail to perfect, or lose or withdraw, the holder’s right to appraisal if no petition for appraisal is filed within 120 days after the effective time of the Business Combination or if the stockholder delivers to the surviving corporation a written withdrawal of the holder’s demand for appraisal and an acceptance of the common stock of MTech Holdings in accordance with Section 262.

 

From and after the effective time of the Business Combination, no dissenting stockholder who has demanded appraisal rights shall have any rights of a stockholder of MTech with respect to such holder’s shares for any purpose, except to receive payment of fair value and to receive payment of dividends or other distributions on the holder’s shares of common stock of MTech, if any, payable to stockholders of MTech of record as of a time prior to the effective time of the Business Combination; provided, however, that such stockholder delivers to the surviving corporation a written withdrawal of its demand for an appraisal, either within 60 days after the effective time of the Business Combination, or thereafter with the written approval of the surviving corporation, then the right of such stockholder to an appraisal will cease and such stockholder will be entitled to receive only the Business Combination consideration in accordance with the terms of the Merger Agreement. Once a petition for appraisal is filed with the Delaware court, however, the appraisal proceeding may not be dismissed as to any stockholder of MTech without the approval of the court.

 

Failure to comply strictly with all of the procedures set forth in Section 262 of the DGCL may result in the loss of a stockholder’s statutory appraisal rights. Consequently, any stockholder wishing to exercise appraisal rights is urged to consult legal counsel before attempting to exercise those rights.

 

MJF Appraisal Rights

 

MJF’s holders do not have appraisal rights in connection with the Business Combination under the Colorado Limited Liability Company Act.

 

Redemption Rights

 

Holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with our Amended and Restated Certificate of Incorporation. As of December 31, 2018, this would have amounted to approximately $10.14 per share (net of income and franchise taxes). It is anticipated that the per share redemption price will be approximately $10.16 (net of income and franchise taxes) at the closing of the Business Combination, which is anticipated to occur during the second quarter of 2019. If a holder exercises its redemption rights, then such holder will be exchanging its shares of MTech common stock for cash and will no longer own shares of MTech common stock and will not participate as a future shareholder of MTech Holdings. Our public stockholders are not required to affirmatively vote for or against the Business Combination in order to redeem their shares of common stock for cash. This means that public stockholders who hold shares of our Class A common stock on or before ______, 2019 (two (2) business days before the Special Meeting) will be eligible to elect to have their shares of Class A common stock redeemed for cash in connection with the Special Meeting, whether or not they are holders as of the Record Date, and whether or not such shares are voted at the Special Meeting. To redeem their shares of common stock for cash, our public stockholders can demand MTech to convert their public shares into cash and tender their shares to MTech’s transfer agent in accordance with the procedures described herein. See the section entitled “Special Meeting of MTech Stockholders – Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

 

Impact of the Business Combination on MTech’s Public Float

 

MTech’s public stockholders currently own approximately 77.38% of MTech’s issued and outstanding capital stock and the Sponsor currently owns approximately 22.62% of MTech’s issued and outstanding capital stock.

 

It is anticipated that, immediately after the Business Combination and if there are no redemptions, MTech’s public stockholders will own approximately 40.15% of MTech Holdings’ issued and outstanding capital stock, the Sponsor will own approximately 11.74% of MTech Holdings’ issued and outstanding capital stock and the Sellers will own approximately 48.11% of MTech Holdings’ issued and outstanding capital stock. If any of MTech’s public stockholders exercise their redemption rights, the ownership interest in MTech Holdings of MTech’s public stockholders will decrease and the ownership interest in MTech Holdings of the Sellers and the Sponsor will increase, and if there are redemptions by MTech’s public stockholders up to the maximum level that would permit completion of the Business Combination, MTech’s public stockholders will own 8.89% of MTech Holdings’ issued and outstanding capital stock, the Sponsor will own approximately 17.87% of MTech Holdings’ issued and outstanding capital stock and the Sellers will own approximately 73.24% of MTech Holdings’ issued and outstanding capital stock. If the actual facts are different than these assumptions (based on redemptions by MTech’s public stockholders, changes in the terms of the Business Combination, adjustments to the MJF purchase price pursuant to the Merger Agreement or otherwise), the percentage ownership interests in MTech Holdings post-Business Combination may be different.

 

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The following table illustrates varying ownership levels of the issued and outstanding capital stock of MTech Holdings, assuming varying levels of redemptions by MTech’s public stockholders:

 

    Ownership 
Percentage Assuming No Redemption of Shares
    Ownership Percentage Assuming Maximum Redemption of Shares  
Sellers     48.11 %     73.24 %
Sponsor     11.74 %     17.87 %
MTech’s public stockholders   40.15 %   8.89 %
                 

The ownership percentages set forth above with respect to MTech Holdings include the shares issuable to the Sellers that are held in escrow, as well as shares issued in exchange for unvested MJF profits interest units that are subject to continued vesting, and do not take into account (i) the issuance of any shares under the Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 5,993,750 shares of MTech Holdings common stock that will remain outstanding following the Business Combination or any additional warrants that are issued to our Sponsor pursuant to the conversion of its working capital loans that were made to MTech, (iii) any adjustments to the merger consideration payable to the Sellers as a result of MJF’s working capital and/or debt as of the completion of the Business Combination varying from certain specified targets set forth in the Merger Agreement, (iv) the issuance of any underlying shares upon the exercise of the underwriter’s option to purchase up to 250,000 units and (v) any indemnification payments that are made after the consummation of the Business Combination by delivery of shares of MTech Holdings’ common stock. See “Unaudited Pro Forma Combined Financial Information” for further information.

 

MTech’s Reasons for the Business Combination

 

MTech was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. MTech sought to do this by utilizing the networks and industry experience of both its management team and its Board to identify, acquire and operate one or more businesses within or outside of the United States.

 

In particular, MTech’s Board considered the following positive factors, although not weighted or in any order of significance:

 

In considering the proposed Business Combination, MTech’s Board considered in particular the following positive factors, although not weighted or in any order of significance:

 

Proven Track Record. MJF is led by an experienced management team that has created proprietary and complex solutions for organic material tracking and regulatory compliance monitoring. As the creator of seed-to-sale tracking for the legal cannabis industry, MJF serves clients in 29 of the 33 U.S. states that have legalized cannabis in some form and 11 legalized countries with substantial growth opportunity.

 

Strong Competitive Position. MTech focused on MJF’s growing market position in the tracking and compliance monitoring segment within the cannabis industry. MTech believes that MJF has large scale potential as the cannabis market continues to grow globally and is the only SaaS platform able to compete on this level because of (a) its nine years of experience in providing monitoring and compliance services to the cannabis industry, including several years of experience serving clients in 11 countries, (b) its understanding of foreign country cannabis markets, including client requirements, applicable laws and currency issues, (c) the availability of its platform in three languages, English, Spanish and French, and its ability to quickly adapt its platform to other languages with left to right reading format, and (d) its current standing as the only SaaS solution provider in the industry that provides extensive consulting and support services in the pre-operational phase through the complete business lifecycle. MJF’s nine years of operations have provided it with a statistically significant dataset of cannabis transaction information that MJF believes cannot be readily duplicated by new entrants into the marketplace. MJF uses this dataset to more accurately ensure compliance in the industry and to predict trends in the marketplace and makes this dataset available to users of its platforms, providing greater utility to customers in this regard than can be provided by competing platforms.

 

Industry-leading Technology; High Barriers for New Entrants. Since its inception in 2010, MJF has led the market in delivering cannabis tracking and compliance management technology to commercial businesses and state government regulatory agencies. MJF’s products, MJ Platform® and Leaf Data Systems®, are highly-versatile platforms that provide clients with a central data management system for tracking regulated cannabis products — from seed to product to shelf to customer — throughout the complete supply chain, using a unique plant identifier method. New technology platforms will experience high barriers to enter this segment in light of the time it takes to develop technology platforms, their ability to understand the various cannabis markets and build programs that meet regulatory requirements, and their ability to penetrate markets that have multi-year contracts and/or prove that a new product is more impactful than MJF.

 

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Opportunity for Significant Revenue and Earnings Growth. MJF has the potential for significant revenue and earnings growth through a combination of organic growth and acquisition opportunities. MTech believes MJF will continue to grow organically by further penetrating existing customers, expanding its customer base and developing and expanding its cross-selling efforts. MJF also aims to opportunistically acquire high-quality businesses that are synergistic to current business operations. In connection with MTech’s evaluation of MJF, MJF projected significant gross margins of 60% in 2019, 70% in 2020, and 69% in 2021, based on historic gross margins of 78% and 61% in 2017 and 2018, respectively, and an organic growth rate for MJF’s business of more than 50% each year for the next few years using only MJF’s current resources. MJF’s growth projections are not based on securing additional state contracts but on three concepts: (1) the economic environment in which MJF is operating; (2) MJF’s status as a leader and comprehensive compliance solution in its target markets; and (3) existing contracts that can be further monetized in the future.

 

oEconomic Environment. MJF’s clients operate and seek to comply with state laws in the cannabis, CBD and hemp markets, which are growing at rapid rates. According to a February 2018 report from Arcview Market Research, spending on legal cannabis is projected to grow in North America from $9.2 billion in 2017 to an estimated $47.3 billion in 2027, an 18% compound annual growth rate.  Internationally, the Rest of World markets are expected grow at a compound annual growth rate of 47%. According to a 2017 Gartner report, on average, companies spend 2.5% of their gross revenues on technology solutions. These data points, when applied to the forecasted $47.3 billion sales in North America, reflect a potential 2027 technology spend of $1.2 billion ($47.3 billion x 2.5%) without considering the international impact. Further, the report noted that 37% of respondents reported a preference for buy versus build which included SaaS and SaaS was reported as the most popular for significant investment. Industry studies show that current operators in the cannabis, CBD, and hemp market are underspending on technology compared to other industries. MJF believes those operators will be forced to automate their operations, compliance, and reporting with an integrated ERP system, such as MJF’s platforms, if they are to remain competitive in a rapidly growing marketplace.

 

  o Status of MJF in the Economic Environment. According to state tax agencies records and locator services, MJF was one of the first, if not the first, technology platforms built for ensuring and monitoring compliance in the cannabis, CBD, and hemp industries. Further, it is the only ERP solution built to scale nationally and internationally while providing technology compliance, monitoring and auditing products across the entire supply chain and all industry verticals of the cannabis, CBD and hemp markets. Importantly, MJF has already started serving businesses and governments globally. MJF currently services clients in 29 of 33 U.S. states that have legalized cannabis in some form and 11 legalized countries. These factors establish MJF as a mature, vetted solution for the coming global expansion in the industry. MJF expects to leverage its first-mover advantage and reputation among industry participants throughout the global supply chain to increase market share.

   
 oFuture Monetization. In addition to the market advantages described above, MJF has existing contracts with its current clients that can be monetized in the future. 100% of MJF’s license agreements provide MJF with the right to aggregate and monetize client data. MJF to date has processed and compiled data related to more than $13 billion in sales, resulting in MJF owning and controlling substantial business intelligence data set that can be monetized for multiple purposes in the future. MJF believes this database represents the largest statistically relevant dataset of any competitor (by far) and expects to leverage this data to develop and provide additional service offerings to current and future clients.
   
Benefit from Being a Public Company. MTech believes that MJF, under public ownership, will have the flexibility and financial resources to pursue and execute a growth strategy to increase revenues and shareholder value. The company will benefit from being publicly traded and can effectively utilize the broader access to capital and public profile that are associated with being a publicly traded company.

 

MTech’s directors also considered the following negative factors:

 

Threat from Competition. The landscape in which MJF competes is highly competitive and expected to continue to change. While innovation can help MJF’s business as it creates new offerings for MJF to sell and provide complementary services, it can also disrupt MJF’s business model and create new and stronger competitors. Additionally, to the extent MJF faces increased competition to gain and retain clients, MJF may be required to reduce prices, increase sales and marketing expenditures, or take other actions that could adversely affect its business, results of operations, or financial condition. MTech carefully considered the competitive landscape and believes that MJF is well positioned with respect to competition in the industry.

 

Growth through acquisitions and integration risk. MJF has never acquired a business and gone through a process integrating technologies, products, personnel, or operations of any acquired business. Any failure to successfully integrate the acquired business and any delay in achieving synergies from integration, could harm the company’s business, results of operations, or financial condition.

 

Changes in industry landscape through technological developments. MJF’s primary markets are characterized by technological change, regulatory change, evolving industry standards, changing client preferences, and new product and service introductions. As a result, MTech considered the potentially adverse effects of these evolving technological developments on MJF’s business. These technologies could reduce and, over time, replace some of MJF’s current business. In addition, MJF’s clients may delay spending under existing contracts and engagements and may delay entering into new contracts while they evaluate new technologies. MTech believes that MJF has managed to adapt well to technological changes and MJF’s strong technical expertise will enable it to remain at the forefront of any such changes in the future.

 

Revenue growth and risks related to achievement of projected margins and growth. MJF has a relatively short operating history, which makes it difficult to evaluate its business and future prospects. MJF has been in existence since 2010, though much of its revenue growth has occurred during the past three years. MJF has encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, such as market acceptance of its current and future products and services, changing regulatory environments and costs associated with compliance, and existing client retention rates and the ability to upsell clients. The projections of gross margins and business growth for the next several years provided by MJF are based on what MJF’s management believes to be conservative assumptions, but these projections are only predictions based on information known to MJF and risks known and unknown to MJF at the time the projections were formulated. Any and all of the risks described in this proxy statement/prospectus regarding MJF and its business and industry, including but not limited to, adverse changes in the laws governing MJF or its clients or MJF’s target markets, advances in compliance technology offered by MJF’s competitors, MJF’s failure to efficiently manage growth or deploy its resources in an opportunistic manner and general economic trends, as well as the failure by MJF to fully monetize existing clients as projected, could cause MJF’s business to experience lower gross margins, revenues lower than those projected, and generally reduced growth or overall decline in its business operations.

 

Security concerns. MJF utilizes information technology systems, including third-party hosted servers and cloud-based servers, to host digital databases and client information, including business, financial and corporate records, internal and external electronic communications and other critical information, and to process operational functions integral to MJF’s internal operations and the provision of services to clients across its platforms. MJF has experienced data loss and theft in the past. Although MJF has taken steps to protect the security of data maintained in its information systems, its security measures may not prevent additional attacks in the future, prevent systems from improperly functioning, or prevent the improper disclosure of client information in the event of future cyberattacks or otherwise. If any of MJF’s internal systems or the systems of MJF’s third-party providers are compromised due to computer virus, unauthorized access, malware, and the like, then sensitive documents could be exposed or deleted, and MJF’s ability to conduct business could be impaired.

 

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Government contracts and regulatory changes. Leaf Data Systems is a compliance tracking system designed to give regulators visibility into the activity of licensed cannabis businesses in their jurisdiction. MJF currently has two clients for Leaf Data Systems, the State of Washington and the Commonwealth of Pennsylvania. Leaf Data Systems comprised 43% of MJF’s revenue for the year ended June 30, 2018 and 49% of MJF’s revenue for the six months ended December 31, 2018. MTech considered potentially adverse effects from changes in law, regulation, or the political climate of the cannabis industry, or an across-the-board change in government spending and purchasing policies that may result in MJF’s public sector clients reducing their purchases or even terminating their service contracts. MTech believes these risks are inherent in a government contracting environment and does not consider these risks to be significant.

 

In considering the Business Combination, MTech’s Board of Directors concluded the risks of proceeding with a transaction with MJF could be managed or mitigated and were unlikely to have a material impact on the Business Combination or MTech, and that, overall, the potentially negative factors or risks associated with the Business Combination were outweighed by the potential benefits of the Business Combination to MTech and its stockholders.

 

MJF’s Reasons for the Business Combination

 

MJF believes that it will continue to experience rapid growth and that there are numerous opportunities for MJF to expand its business both organically and through acquisitions. MJF believes that becoming a public company provides it with the ability to capitalize on growth opportunities, and that the Business Combination presents the best route to this objective. In the course of reaching its decision to approve the Business Combination, the MJF board of directors consulted with its senior management, financial advisors and legal counsel, reviewed a significant amount of information, and considered a number of factors, including, among others:

 

Other Alternatives. It is the belief of MJF, after review of alternative strategic opportunities from time to time, that the proposed Business Combination represents the best potential transaction for MJF to create greater value for MJF’s holders, while providing MJF’s holders with greater liquidity by owning stock in a public company.

 

Advantages over a Traditional IPO. Prior to executing the Merger Agreement, the MJF board of directors considered the alternative of a traditional initial public offering. The MJF board of directors considered that the Business Combination provided certain advantages over a traditional IPO. In particular, the MJF board of directors considered that, based on available information at the time, including with respect to the conditions of the IPO market for companies with MJF’s characteristics, the Business Combination with MTech was likely to provide for a more time- and cost- effective means to capital with less dilution to MJF’s existing holders.

 

Access to Capital. MJF expects that the Business Combination would be a more time- and cost-effective means to access capital than other options considered, including a traditional IPO.

 

Size of Post-Combination Company. MJF considered the Business Combination implied enterprise value of approximately $70 million for MJF, providing MJF’s holders with the opportunity to go-forward with ownership in a public company with a larger market capitalization.

 

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Benefit from Being a Public Company. MJF believes that under public ownership it will have the flexibility and financial resources to pursue and execute a growth strategy to increase revenues and stockholder value. It will benefit from being publicly traded, and can effectively utilize the broader access to capital and public profile that are associated with being a publicly traded company.

 

In the course of reaching its decision to approve the Business Combination, the MJF board of directors, also considered negative factors, including, among others:

 

Uncertainty of Consummation of the Business Combination. The board considered the risk that the Business Combination may not be approved by the necessary vote of the MTech stockholders and that time and resources for other potential opportunities could be lost to the Business Combination process.

 

  Uncertainty as to Amount of Redemptions and cash in Trust following the Business Combination. The Board noted that the MTech stockholders have the right to redeem their shares for cash. Any such redemptions shall serve to reduce the amount of cash in Trust following the Business Combination and reduce the amount of capital available to operate and grow MJF’s operations. The amount of redemptions and the amount of cash that will remain in Trust following the Business Combination cannot be determined.

 

Diversion of Resources to the Business Combination Process. The board noted that MJF’s management and capital resources would be diverted in part to the Business Combination process at a time when such resources are required to shepherd MJF’s entrance into new markets and manage MJF’s organic business growth.

 

Expense of Being a Public Company. The board considered the added financial expense of being a public company, including greater legal and accounting expenses, and the requirement to dedicate personnel and other resources to quarterly, annual and other reporting obligations.

 

MTech Special Meeting

 

MTech is furnishing this proxy statement/prospectus to its stockholders as part of the solicitation of proxies by its Board for use at the Special Meeting of stockholders to be held on ______, 2019, and at any adjournment or postponement thereof. This proxy statement/prospectus is first being furnished to you on or about _______, 2019. This proxy statement/prospectus provides you with information you need to know to be able to vote or instruct how your vote shall be cast at the Special Meeting.

 

Date, Time and Place of Special Meeting

 

The Special Meeting will be held at 10:00 a.m. Eastern Time on ______, 2019, at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York 10105, or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed.

 

Voting Power; Record Date

 

You will be entitled to vote or direct votes to be cast at the Special Meeting if you owned shares of MTech common stock as of the close of business on ______, 2019, which is the Record Date for the Special Meeting. You are entitled to one vote for each share of MTech common stock that you owned as of the close of business on the Record Date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. As of the date of this proxy statement/prospectus, there were 7,431,250 shares of MTech common stock issued and outstanding, consisting of 5,750,000 shares originally sold as part of units in the IPO, 243,750 shares originally sold as part of units to the Sponsor in a Private Placement that occurred simultaneously with the consummation of the IPO and 1,437,500 founder shares that were issued to the Sponsor prior to the IPO. MTech does not expect to issue any shares of common stock on or before the Record Date.

 

Quorum and Required Vote for Proposals for the Special Meeting

 

A quorum of MTech stockholders is necessary to hold a valid meeting. A quorum will be present at the Special Meeting if a majority of the common stock outstanding and entitled to vote at the special meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum.

 

Approval of the Business Combination Proposal and the Charter Amendments Proposal requires the affirmative vote of a majority of the issued and outstanding MTech common stock as of the Record Date. Accordingly, an MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or an abstention will have the same effect as a vote “AGAINST” the Business Combination Proposal and the Charter Amendments Proposal.

 

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The Incentive Plan Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by stockholders present in person or represented by proxy at the Special Meeting. Accordingly, an MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or the failure of an MTech stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee will result in that stockholder’s shares not being counted towards the number of shares of MTech common stock required to validly establish a quorum, but if a valid quorum is otherwise established, it will have no effect on the outcome of any vote on the Business Combination Proposal, the Charter Amendments Proposal, the Incentive Plan Proposal or the Adjournment Proposal. Abstentions will also have no effect on the outcome of the Incentive Plan Proposal or the Adjournment Proposal.

 

The transactions contemplated by the Merger Agreement will be consummated only if the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal are approved at the Special Meeting. The Adjournment Proposal does not require the approval of any other proposal to be effective.

 

It is important for you to note that in the event that the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal do not receive the requisite vote for approval, then we will not consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial business combination by August 1, 2019, we will be required to dissolve and liquidate our trust account by returning the then remaining funds in such account to the public stockholders.

 

The Proposals

 

The Business Combination Proposal

 

On October 10, 2018, MTech entered into the Merger Agreement by and among MTech, MTech Holdings, Purchaser Merger Sub, Company Merger Sub, the Purchaser Representative, MJF and the Seller Representative. The Merger Agreement was amended on April 17, 2019. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Merger Agreement.

 

The Merger Agreement provides for two mergers: (i) the merger of Purchaser Merger Sub with and into MTech, with MTech continuing as the surviving entity (the “Purchaser Merger”), and with security holders of MTech receiving substantially equivalent securities of MTech Holdings and (ii) the merger of Company Merger Sub with and into MJF, with MJF continuing as the surviving entity (the “Company Merger”, and together with the Purchaser Merger, the “Mergers”), and with the members of MJF, receiving shares of common stock of MTech Holdings (subject to the withholding of the escrow shares being deposited in an escrow account in accordance with the terms and conditions of the Merger Agreement).

 

Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Mergers (the “Effective Time”):

 

(a) each share of MTech common stock issued and outstanding immediately prior to the Effective Time will be converted automatically into the right to receive one share of MTech Holdings common stock;

 

(b) each issued and outstanding MTech warrant shall be automatically adjusted to become one MTech Holdings warrant;

 

(c) the unit purchase option held by MTech’s underwriters will become an equivalent unit purchase option for MTech Holdings;

 

(d) each Company Unit will convert automatically into the right to receive the Merger Consideration (as defined below) (provided that for MJF profits interest units that are unvested as of the Effective Time, the Merger Consideration will be exchanged for restricted shares comprising a part of the Merger Consideration and will continue to be subject to vesting requirements that were applicable to such unvested profits interest units); and

 

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(e) each outstanding convertible security of MJF that is not a Company Unit, if not exercised or converted prior to the Effective Time, shall be cancelled, retired and terminated.

 

The value of the aggregate merger consideration (the “Merger Consideration”) to be paid pursuant to the Merger Agreement to the holders of Company Units as of immediately prior to the Effective Time (the “Sellers”) will be an amount equal to $70,000,000, subject to adjustments for net working capital and MJF’s indebtedness as of the date of the Closing. The Merger Consideration will be paid in shares of MTech Holdings common stock at a price equal to $10.16 per share. 10% of the shares issuable to the Sellers will be set aside in escrow to satisfy any post-closing purchase price adjustments and indemnification claims.

 

In addition to the approval of the Proposals at the Special Meeting, unless waived by the parties to the Merger Agreement, in accordance with applicable law, the Closing of the Business Combination is subject to a number of conditions set forth in the Merger Agreement including, among others, receipt of the requisite stockholder approval contemplated by this proxy statement/prospectus. For more information about the closing conditions to the Business Combination, see the section titled “The Business Combination Proposal — Conditions to Consummation of the Merger.

 

The Merger Agreement may be terminated at any time prior to the Closing of the Business Combination upon the mutual agreement of MJF and MTech, or by MJF or MTech acting alone, in specified circumstances. For more information about the termination rights under the Merger Agreement, see the section titled “The Business Combination Proposal - Merger Agreement - Termination.”

 

In connection with the Business Combination, holders of MTech’s public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with MTech’s Amended and Restated Certificate of Incorporation. As of December 31, 2018, the pro rata portion of the funds available in the Trust Account for the Public Shares was approximately $10.14 per share (net of income and franchise taxes). MTech anticipates the per share redemption price will be approximately $10.16 (net of income and franchise taxes) at the closing of the Business Combination, which is anticipated to occur during the second quarter of 2019. If a holder exercises its redemption rights, then such holder will be exchanging its shares of MTech common stock for cash and will no longer own shares of MTech common stock and will not participate as a future shareholder of MTech Holdings. Our public stockholders are not required to affirmatively vote for or against the Business Combination in order to redeem their shares of common stock for cash. This means that public stockholders who hold shares of our Class A common stock on or before _____, 2019 (two (2) business days before the Special Meeting) will be eligible to elect to have their shares of Class A common stock redeemed for cash in connection with the Special Meeting, whether or not they are holders as of the Record Date, and whether or not such shares are voted at the Special Meeting. To redeem their shares of common stock for cash, our public stockholders can demand MTech to convert their public shares into cash and tender their shares to MTech’s transfer agent in accordance with the procedures described herein. See the section entitled “Special Meeting of MTech Stockholders – Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash. The transactions contemplated by the Merger Agreement will be consummated only if the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal are approved at the Special Meeting. The Adjournment Proposal is not conditioned on the approval of any other proposal set forth in this proxy statement/prospectus.

 

The Business Combination involves numerous risks. For more information about these risks, see the section titled “Risk Factors.”

 

The Charter Amendments Proposal

 

In connection with the Business Combination, MTech is proposing that its stockholders approve the amended and restated certificate of incorporation of MTech Holdings for the following:

 

having a single class of common stock and an authorized 75,000,000 shares of common stock;

having 5,000,000 shares of authorized preferred stock;

fixing the number of directors of MTech Holdings at eight, subject to change by resolution adopted by the affirmative vote of at least a majority of the board of directors then in office;

dividing the board of directors of MTech Holdings into three classes with staggered three-year terms;

prohibiting stockholder actions by written consent; and

 

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making MTech Holdings’ corporate existence perpetual as opposed to MTech’s corporate existence terminating 18 months following the consummation of its initial public offering and removing various provisions applicable only to specified purpose acquisition corporations contained in MTech’s current amended and restated certificate of incorporation.

 

The Incentive Plan Proposal

 

MTech is proposing that its stockholders approve and adopt the Incentive Plan, which will become effective upon the Closing of the Business Combination and have the following principal features:

 

Types of Awards. The Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, and other sock based award all of which may be granted to employees, including officers, directors and consultants of the combined entity and its affiliates. Incentive stock options may be granted only to employees.

Stock Subject to the Plan. Assuming the Incentive Plan Proposal is approved, there will be available for issuance 10% of the issued and outstanding shares of MTech Holdings common stock immediately after the Closing under the Incentive Plan. Shares of stock subject to other awards that are forfeited or terminated will be available for future award grants under the Incentive Plan. If a holder pays the exercise price of a stock option by surrendering any previously owned shares of common stock or arranges to have the appropriate number of shares otherwise issuable upon exercise withheld to cover the withholding tax liability associated with the stock option exercise, the shares surrendered by the holder or withheld by the Company will not be available for future award grants under the plan.

 

A summary of the Incentive Plan is set forth in the “The Incentive Plan Proposal” section of this proxy statement/prospectus and a complete copy of the Incentive Plan is attached hereto as Annex C.

 

The Adjournment Proposal

 

MTech is proposing that its stockholders approve and adopt a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if MTech is unable to consummate the Business Combination for any reason.

 

Recommendation to MTech Stockholders

 

After careful consideration, our Board has concluded that the Business Combination is in the best interests of MTech’s stockholders. Our directors believe that the proposals being presented at the Special Meeting are in the best interests of MTech’s stockholders, and they recommend that MTech’s stockholders vote FOR each of the proposals.

 

Interests of MTech’s Directors and Officers in the Business Combination

 

When you consider the recommendation of our Board in favor of the proposals, you should keep in mind that our directors and officers have interests in the Business Combination that are different from or in addition to (and which may conflict with) your interests as a stockholder. These interests include, among other things:

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $25,000 for their founder shares and such securities should have a significantly higher value at the time of the Business Combination;

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $2,437,500 for the placement units and such securities should have a significantly higher value at the time of the Business Combination;

 

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if MTech is unable to complete a business combination within the required time period, our Chairman will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by MTech for services rendered or contracted for or products sold to MTech, but only if such a vendor or target business has not executed a waiver of claims against the trust account and except as to any claims under our indemnity of the underwriters;

 

unless MTech consummates an initial business combination, MTech’s officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account;

 

the fact that Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination;

 

the fact that the founder shares and placement units, including the placement shares and placement warrants, purchased by the Sponsor will be worthless if a business combination is not consummated;

 

the Sponsor has agreed that the placement units, and all of their underlying securities, will not be sold or transferred by it until MTech has completed a business combination, subject to limited exceptions; and

 

the appointment of Scott Sozio, Tahira Rehmatullah and Douglas Rothschild as designees to the board of directors of MTech Holdings which will entitle such individuals to any cash fees, stock options or stock awards that MTech Holdings determines to pay to its non-executive directors; and

 

the continued indemnification of current directors and officers of MTech and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

These interests may influence our directors in making their recommendation that you vote in favor of the Business Combination.

 

Interests of MJF’s Directors and Officers in the Business Combination

 

In considering the recommendation of the MJF board of directors with respect to approving the Mergers, the holders of MJF’s membership interests should be aware that certain members of the board of directors and executive officers of MJF have interests in the Mergers that may be different from, or in addition to, your interests as a holder of MJF’s membership interests. For example, some of MJF’s directors and executive officers are expected to become directors and/or executive officers of MTech Holdings upon the closing of the Mergers. Specifically, Jessica Billingsley and Ruth Ann Kraemer, both of whom are currently executive officers of MJF, are expected to become executive officers of MTech Holdings upon the closing of the Mergers, with Ms. Billingsley serving as the Chief Executive Officer and Ms. Kraemer serving as the Chief Financial Officer of MTech Holdings. Additionally, Ms. Billingsley, Emery J. Huang, Matthew R. Kane and Mark Iwanowski, all of whom are current directors of MJF, and an additional designee who may be a current director of MJF or appointed to the board of directors of MJF prior to the filing of the definitive proxy statement/prospectus, are expected to be designated by MJF to serve on the board of directors of MTech Holdings following the closing of the Mergers. Nothing herein is intended to allege that any of the interests of the MJF’s directors and executive officers described above presented a conflict of interest for such directors and executive officers in connection with the Mergers.

 

MJF Solicitation of Written Consents

 

Following the registration statement on Form S-4, of which this proxy statement/prospectus is a part, being declared effective by the Securities and Exchange Commission (the “SEC”), certain holders of MJF membership interests will execute an action by written consent adopting the Merger Agreement, thereby approving the Business Combination and related transactions. Therefore, no meeting of holders of MJF membership interests will be held to approve and adopt the Merger Agreement. Nevertheless, votes to adopt the Merger Agreement will be solicited from all holders of membership interests of MJF, and all holders of MJF membership interests will have the opportunity to elect to adopt the Merger Agreement, thereby approving the Business Combination and related transactions, by signing and returning to MJF a written consent.

 

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The adoption of the Merger Agreement and the approval of the Business Combination and related transactions by the holders of membership interests of MJF require the affirmative votes of the holders of a majority of the outstanding MJF membership interests, including its preferred units.

 

Risk Factors

 

In evaluating the proposals set forth in this proxy statement/prospectus, you should carefully read this proxy statement/prospectus, including the annexes and other documents referred to herein, for a discussion of factors, including the risks to holders of MTech common stock who do not redeem in connection with the Special Meeting, you should consider carefully before making an investment decision. 

 

Officers and Directors of MTech Holdings

 

MTech Holdings’ directors and executive officers upon consummation of the Business Combination will be as follows:

 

Name   Age   Position
Jessica Billingsley   41   Chief Executive Officer and director
Ruth Ann Kraemer   65   Chief Financial Officer
Scott Sozio    39    Director
Emery Johnathon Huang   34   Director
Matthew R. Kane   38   Director
Tahira Rehmatullah    37   Director
Douglas Rothschild   42   Director
Mark Iwanowski   63   Director

 

For more information on the new directors and management of MTech Holdings, see “Management After the Business Combination.”

 

Quotation of MTech Holdings Securities

 

It is anticipated that MTech Holdings’ common stock and public warrants will be traded on the Nasdaq Stock Market under the symbols “KERN” and “KERNW,” respectively, following the closing of the Business Combination. MTech Holdings will not have units publicly traded.

 

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SUMMARY FINANCIAL AND OTHER DATA OF MJF

 

The following tables summarize MJF’s financial and other data. MJF has derived the summary statements of operations data for the six months ended December 31, 2018 and 2017 from its condensed financial statements included elsewhere in this proxy statement/prospectus. MJF’s balance sheet as of June 30, 2018 is derived from MJF’s audited financial statements included elsewhere in this proxy statement/prospectus. MJF’s historical results are not necessarily indicative of the results that may be expected in any future period, and interim financial results are not necessarily indicative of the results that may be expected for the full year.

 

You should read this data together with MJF’s financial statements and related notes included elsewhere in this proxy statement/prospectus and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MJF.”

 

   Six Months Ended
December 31,
 
   2018   2017 
Revenues  $4,969,979   $5,532,084 
Cost of revenues   (2,155,034)   (2,600,716)
Gross profit   2,814,945    2,931,368 
Operating expenses   (6,882,515)   (5,808,846)
Loss from operations   (4,067,570)   (2,877,478)
Other income (expense)   74,184    (28,333)
Net loss   (3,993,386)   (2,905,811)

 

Balance Sheet Data:  As of
December 31,
2018
   As of
June 30,
2018
 
Working capital  $

7,630,443

   $1,623,829 
Total assets   9,836,178    3,017,731 
Total liabilities   2,205,735    1,393,902 
Members’ equity   7,630,443    1,623,829 

 

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SUMMARY FINANCIAL AND OTHER DATA OF MTECH

 

The following tables summarize the relevant financial data for MTech’s business and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MTech” and its audited and unaudited interim financial statements, and the notes and schedules related thereto, which are included elsewhere in this proxy statement/prospectus.

 

MTech’s balance sheet data as of December 31, 2018 and 2017 and its statement of operations data for the year ended December 31, 2018 and for the period from September 27, 2017 (inception) through December 31, 2017 are derived from MTech’s audited financial statements included elsewhere in this proxy statement/prospectus.

 

The historical results presented below are not necessarily indicative of the results to be expected for any future period. You should read the following selected financial information in conjunction with MTech’s financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operation of MTech” contained elsewhere herein.

 

   Year Ended
December 31, 2018
   For the
Period
from
September
27, 2017
(inception)
through
December
31, 2017
 
Revenue  $   $ 
Loss from operations   (906,166)   (1,558)
Interest income on marketable securities   959,645     
Unrealized loss on marketable securities   (7,703)    
Provision for income taxes   (75,733)    
Net loss   (29,957    (1,558)
Basic and diluted net loss per share   (0.37)   (0.00)
Weighted average shares outstanding — basic and diluted   2,057,246    1,250,000 

 

Balance Sheet Data: 

As of
December 31,

2018

  

As of
December 31,

2017

 
Working capital deficit  $370,753   $(111,036)
Trust account   58,451,942     
Total assets   58,474,545    159,695 
Total liabilities   391,738    136,253 
Value of common stock subject to redemption   53,082,804     
Stockholders’ equity   5,000,003    23,442 

 

 45 

 

 

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

Introduction

 

MTech is providing the following unaudited pro forma combined financial information to aid you in your analysis of the financial aspects of the Mergers.

 

The unaudited pro forma combined balance sheet as of December 31, 2018 gives pro forma effect to the Mergers as if they had been consummated as of that date. The unaudited pro forma combined statements of operations for the year ended December 31, 2018 gives pro forma effect to the Mergers as if they had occurred as of the beginning of the earliest period presented. This information should be read together with MJF’s and MTech’s respective unaudited and audited financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MJF,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MTech” and other financial information included elsewhere in this proxy statement/prospectus.

 

The unaudited pro forma combined balance sheet as of December 31, 2018 has been prepared using the following:

 

  · MJF’s unaudited historical condensed balance sheet as of December 31, 2018, as included elsewhere in this proxy statement/prospectus

  · MTech’s audited historical balance sheet as of December 31, 2018, as included elsewhere in this proxy statement/prospectus

  

The unaudited pro forma combined statement of operations for the year ended December 31, 2018 has been prepared using the following:

 

  · MJF’s unaudited historical condensed statement of operations for the twelve months ended December 31, 2018

  · MTech’s audited historical statement of operations for the year ended December 31, 2018, as included elsewhere in this proxy statement/prospectus

 

Description of the Transaction

 

On October 10, 2018, MTech entered into the Merger Agreement with MJF, MTech Holdings, Purchaser Merger Sub, Company Merger Sub and the other parties thereto (MTech, collectively with MTech Holdings, Purchaser Merger Sub and Company Merger Sub, shall be referred to as “MTech” in these unaudited pro forma combined financial statements).

 

The Merger Agreement provides for (i) the Purchaser Merger, and with security holders of MTech receiving substantially equivalent securities of MTech Holdings and (ii) the merger of Company Merger Sub with and into MJF, with MJF continuing as the surviving entity (the “Company Merger”, and together with the Purchaser Merger, the “Mergers”), and with the members of MJF, receiving shares of common stock of MTech Holdings (subject to the withholding of the escrow shares being deposited in an escrow account in accordance with the terms and conditions of the Merger Agreement). Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time: (a) each share of MTech common stock issued and outstanding immediately prior to the Effective Time will be converted automatically into and thereafter represent the right to receive one share of MTech Holdings common stock; (b) each issued and outstanding MTech warrant shall be automatically adjusted to become one MTech Holdings warrant; (c) the unit purchase option held by MTech’s underwriters will become an equivalent unit purchase option for MTech Holdings; and (d) each Company Units will convert automatically into the right to receive the Merger Consideration (as defined below) (except as it pertains to the MJF profits interest units that are unvested as of the Effective Time, for which the Merger Consideration will continue to be subject to the identical vesting requirements).

 

 46 

 

 

The Merger Consideration to be paid pursuant to the Merger Agreement to the holders of Company Units as of immediately prior to the Effective Time will be an amount equal to: (i) $70,000,000, plus (or minus if negative) (ii) the Net Working Capital of MJF less the Net Working Capital Target Amount, minus (iii) the aggregate indebtedness of MJF as of the date of the Closing.

 

The Merger Consideration will be paid in the form of a number of shares of MTech Holdings common stock (the “Consideration Shares”), valued at $10.16 per share (the “Closing Share Price”). Notwithstanding the foregoing, ten percent (10%) of the Merger Consideration otherwise issuable to the Sellers at Closing (together with any equity securities paid as dividends or distributions with respect to such shares or into which such shares are exchanged or converted, the “Escrow Shares”) shall be held, along with any other dividends, distributions or other income on the Escrow Shares (other than regular ordinary dividends), in a segregated escrow account (the “Escrow Account”) to cover any adjustments to the Merger Consideration or claims for indemnification pursuant to the Merger Agreement until 90 days after MTech Holdings files its Annual Report on Form 10-K with the Securities Exchange Commission for the fiscal year ending June 30, 2019 (the “Expiration Date”), with the exception of Escrow Shares held to satisfy then pending claims which shall remain in the Escrow Account until the claims are resolved.

 

Accounting for the Mergers

 

The Mergers will be accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, MTech will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on MJF shareholders expecting to have a majority of the voting power of the combined company, MJF comprising the ongoing operations of the combined entity, MJF comprising a majority of the governing body of the combined company, and MJF’s senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Mergers will be treated as the equivalent of MJF issuing stock for the net assets of MTech, accompanied by a recapitalization. The net assets of MTech will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Mergers will be those of MJF.

 

Basis of Pro Forma Presentation

 

The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Mergers, are factually supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro forma combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Mergers.

 

The unaudited pro forma combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience. MJF and MTech have not had any historical relationship prior to the Mergers. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

There is no historical activity with respect to MTech Holdings, Purchaser Merger Sub and Company Merger Sub, and accordingly, no adjustments were required with respect to these entities in the pro forma combined financial statements.

 

The unaudited pro forma combined financial information has been prepared assuming two alternative levels of redemption into cash of MTech’s common stock:

 

·Scenario 1 – Assuming no redemptions for cash: This presentation assumes that no MTech stockholders exercise redemption rights with respect to their common stock upon consummation of the Mergers; and

 

 47 

 

 

Scenario 2 – Assuming redemptions of 4,913,821 shares of MTech common stock for cash: This presentation assumes that MTech stockholders exercise their redemption rights with respect to a maximum of 4,913,821 shares of common stock upon consummation of the Mergers at a redemption price of approximately $10.17 per share. The maximum redemption amount is derived so that there is a minimum remaining in our trust account of $5,000,001 plus $3,500,000 required to pay MTech’s transaction expenses, after giving effect to the payments to redeeming stockholders. There could be more shares redeemed as long as MTech has at least $5,000,001 of net tangible assets upon consummation of the Mergers.

 

Included in the shares outstanding and weighted average shares outstanding as presented in the pro forma combined financial statements are 6,774,650 shares of common stock to be issued to MJF shareholders.

 

As a result of the Mergers, assuming no MTech stockholders elect to redeem their shares for cash, MJF will own approximately 47.7% of MTech common stock to be outstanding immediately after the Mergers and MTech stockholders will own approximately 52.3% of MTech common stock, based on the number of shares of MTech common stock outstanding as of December 31, 2018 (in each case, not giving effect to any shares issuable to them upon exercise of warrants or the unit purchase option). If 4,913,821 shares of common stock are redeemed for cash, which assumes the maximum redemption of MTech’s shares and providing for a minimum of $5,000,001 in net tangible assets and $3,500,000 of cash after giving effect to payments to redeeming stockholders, MJF will own approximately 72.9% and MTech will own approximately 27.1% of MTech common stock to be outstanding immediately after the Mergers (in each case, not giving effect to any shares issuable to them upon exercise of warrants or the unit purchase option). The above numbers (i) include the Escrow Shares and shares issued for unvested MJF profits interest units, which shall be subject to continued vesting, and (ii) assume that there are no purchase price adjustments or indemnification payments.

 

 48 

 

 

PRO FORMA COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2018

(UNAUDITED)

 

           Scenario 1
Assuming No
Redemptions into Cash
   Scenario 2
Assuming Maximum
Redemptions into Cash
 
   (A)
MJF
   (B)
MTech
   Pro Forma
Adjustments
   Pro Forma
Balance Sheet
   Pro Forma
Adjustments
   Pro Forma
Balance Sheet
 
Assets                              
Current assets:                              
Cash  $8,082,272   $4,489    58,451,942(1)               
              (4,500,000)(2)  $62,038,703   $(49,951,942)(3)  $12,086,761 
Restricted cash   1,000,940    -    -    1,000,940    -    1,000,940 
Accounts receivables, net   489,665    -    -    489,665    -    489,665 
Prepaid expenses and other   263,301    18,114    -    281,415    -    281,415 
Total Current Assets   9,836,178    22,603    53,951,942    63,810,723    (49,951,942)   13,858,781 
                               
Marketable securities held in Trust Account   -    58,451,942    (58,451,942)(1)   -    -    - 
Total Assets  $9,836,178   $58,474,545   $(4,500,000)  $63,810,723   $(49,951,942)  $13,858,781 
                               
Liabilities and Stockholders' Equity                              
Current liabilities:                              
Accounts payable, accrued expenses and other current liabilities  $1,864,681   $391,738   $(227,166)(2)  $2,029,253   $-   $2,029,253 
Deferred revenue   341,054    -    -    341,054    -    341,054 
Total Current Liabilities   2,205,735    391,738    (227,166)   2,370,307    -    2,370,307 
                               
Commitments and Contingencies                              
                               
Common stock subject to redemption   -    53,082,804    (53,082,804)(3)   -    -    - 
                               
Stockholders’ Equity                              
Preferred units   24,463,594         (24,463,594)(4)   -    -    - 
Common units   100,000         (100,000)(4)   -    -    - 
Common stock   -    220    523(3)               
              677(4)   1,420    (491)(3)   929 
Additional paid-in capital   -    5,031,298    53,082,281(3)        (49,951,451)(3)     
              25,370,226(4)   83,483,805    493,050(4)   34,025,404 
Accumulated deficit   (16,933,151)   (31,515)   (4,272,834)(2)               
              (807,309)(4)   (22,044,809)   (493,050)(4)   (22,537,859)
Total Stockholders' Equity   7,630,443    5,000,003    48,809,970    61,440,416    (49,951,942)   11,488,474 
Total Liabilities and Stockholders’ Equity  $9,836,178   $58,474,545   $(4,500,000)  $63,810,723   $(49,951,942)  $13,858,781 

  

 49 

 

 

Pro Forma Adjustments to the Unaudited Combined Balance Sheet

 

  (A) Derived from the unaudited condensed balance sheet of MJF as of December 31, 2018.

 

  (B) Derived from the audited balance sheet of MTech as of December 31, 2018.

 

  (1) To reflect the release of cash from marketable securities held in the trust account.

 

  (2) To reflect the payment of estimated legal, financial advisory and other professional fees related to the Transaction.

 

  (3) In Scenario 1, which assumes no MTech stockholders exercise their redemption rights, the common stock subject to redemption for cash amounting to $53,082,804 would be transferred to permanent equity. In Scenario 2, which assumes the same facts as described in Items 1 and 2 above, but also assumes the maximum number of shares are redeemed for cash by the MTech stockholders, $49,951,942 would be paid out in cash. The $49,951,942, or 4,913,821 shares of common stock, represents the maximum redemption amount providing for a minimum of $5,000,001 in net tangible assets and $3,500,000 of cash, after giving effect to payments to redeeming stockholders based on a consummation of the Mergers on December 31, 2018.

 

  (4) To reflect recapitalization of MJF through (a) the contribution of all the share capital in MJF to MTech, (b) the recording of $838,824 of accrued compensation (under Scenario 1) or $1,331,874 of accrued compensation (under Scenario 2) for the profits interest units due to a triggered liquidating event as a result of the Mergers and (c) the issuance of 6,774,650 shares of common stock and the elimination of the historical accumulated deficit of MTech, the accounting acquiree.

 

 50 

 

 

PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2018

(UNAUDITED)

 

           Scenario 1
Assuming No
Redemptions into Cash
   Scenario 2
Assuming Maximum
Redemptions into Cash
 
   (A)
MJF
   (B)
MTech
   Pro Forma
Adjustments
   Pro Forma
Income
Statement
   Pro Forma
Adjustments
   Pro Forma
Income
Statement
 
                         
Total revenues  $9,914,678   $-   $-   $9,914,678   $-   $9,914,678 
                               
Cost of revenues   3,596,483    -    -    3,596,483    -    3,596,483 
Gross profit   6,318,195    -    -    6,318,195    -    6,318,195 
                               
Operating expenses                              
Product development   3,025,403    -    -    3,025,403    -    3,025,403 
Selling, general and administrative   6,946,046    906,166    (765,254)(1)               
              328,646(2)   7,415,604    193,174(2)   7,608,778 
Total operating expenses   9,971,449    906,166    (436,608)   10,441,007    193,174    10,634,181 
                               
Loss from operations   (3,653,254)   (906,166)   436,608    (4,122,812)   (193,174)   (4,315,986)
                               
Other income (expense):                              
Interest income   52,655    959,645    (959,645)(3)   52,655    -    52,655 
Unrealized loss on marketable securities   -    (7,703)   7,703(3)   -    -    - 
Other   24,713    -    -    24,713    -    24,713 
Income (loss) before income taxes   (3,575,886)   45,776    (515,334)   (4,045,444)   (193,174)   (4,238,618)
Provision (benefit) for income taxes   -    75,733    (75,733)(4)   -    -(4)   - 
Net income (loss)  $(3,575,886)  $(29,957)  $(439,601)  $(4,045,444)  $(193,174)  $(4,238,618)
                               
                               
Weighted average shares outstanding, basic and diluted        2,057,246    12,148,654(5)   14,205,900    (4,913,821)(5)   9,292,079 
Basic and diluted net loss per share       $(0.37)       $(0.28)       $(0.46)

  

 51 

 

 

Pro Forma Adjustments to the Unaudited Combined Statements of Operations

 

(A)Derived from the unaudited condensed statement of operations of MJF for the twelve months ended December 31, 2018.

 

(B)Derived from the audited statement of operations of MTech for the year ended December 31, 2018.

 

(1)Represents an adjustment to eliminate direct, incremental costs of the Merger which are reflected in the historical financial statements of MJF and MTech in the amount of $450,393 and $314,861 for the year ended December 31, 2018, respectively.

 

(2)To reflect stock-based compensation expense over the vesting period of restricted stock issued in exchange for unvested profits interest units. Such amount excludes the one-time stock-based compensation expense recorded for vested profits interest units exchanged for restricted stock at the consummation of the Mergers.

 

(3)Represents an adjustment to eliminate interest income and unrealized losses on marketable securities held in the trust account as of the beginning of the period.

 

(4)To record normalized blended statutory income tax benefit rate of 21% for pro forma financial presentation purposes resulting in the recognition of an income tax benefit, which however, has been offset by a full valuation allowance as the combined company expects to incur continuing losses.

 

(5)The calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that MTech’s initial public offering occurred as of the earliest period presented. In addition, as the Mergers are being reflected as if they had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares have been outstanding for the entire periods presented. This calculation is retroactively adjusted to eliminate the number of shares redeemed for the entire period.

 

The Consideration Shares to be issued pursuant to the Merger Agreement to the holders of the Company Units was calculated to be 6,774,650 as of December 31, 2018, based upon an amount equal to: (i) $70,000,000, minus (ii) $1,169,557 as of December 31, 2018 (the Net Working Capital of MJF less the Net Working Capital Target Amount) (iii) divided by $10.16.

 

The following presents the calculation of basic and diluted weighted average common shares outstanding. The computation of diluted loss per share excludes the effect (1) 250,000 shares of common stock and warrants to purchase 2,250,000 shares of common stock in the unit purchase option held by the underwriter and (2) warrants to purchase 5,993,750 shares of common stock because the inclusion of any of these securities would be anti-dilutive.

 

 52 

 

 

   Scenario 1
Combined
(Assuming No
Redemptions
Into Cash)
   Scenario 1
Combined
(Assuming
Maximum
Redemptions
Into Cash)
 
Weighted average shares calculation, basic and diluted          
MTech public shares   5,750,000    836,179 
MTech Sponsor shares   1,437,500    1,437,500 
MTech Sponsor placement shares   243,750    243,750 
MTech shares issued in Mergers   6,774,650    6,774,650 
Weighted average shares outstanding   14,205,900    9,292,079 
Percent of shares owned by MJF holders   47.7%   72.9%
Percent of shares owned by MTech   52.3%   27.1%

 

 53 

 

 

COMPARATIVE SHARE INFORMATION

 

The following table sets forth the historical comparative share information for MJF and MTech on a stand-alone basis and the unaudited pro forma combined share information for the year ended December 31, 2018 after giving effect to the Mergers, (1) assuming no MTech stockholders exercise redemption rights with respect to their common stock upon the consummation of the Mergers; and (2) assuming that MTech stockholders exercise their redemption rights with respect to a maximum of 4,913,821 shares of common stock upon consummation of the Mergers. There could be more shares redeemed as long as MTech has at least $5,000,001 of net tangible assets upon consummation of the Mergers.

  

You should read the information in the following table in conjunction with the selected historical financial information summary included elsewhere in this proxy statement/prospectus, and the historical financial statements of MTech and MJF and related notes that are included elsewhere in this proxy statement/prospectus. The unaudited pro forma combined share information is derived from, and should be read in conjunction with, the unaudited pro forma combined financial statements and related notes included elsewhere in this proxy statement/prospectus.

 

The unaudited pro forma combined earnings per share information below does not purport to represent the earnings per share which would have occurred had the companies been combined during the periods presented, nor earnings per share for any future date or period. The unaudited pro forma combined book value per share information below does not purport to represent what the value of MTech and MJF would have been had the companies been combined during the periods presented. 

 

   MJF   MTech  

Pro Forma

Combined

Assuming No

Redemptions

into Cash

  

Pro Forma

Combined

Assuming

Maximum

Redemptions

into Cash

 
Year Ended December 31, 2018                    
Net loss  $(3,575,886 )  $(29,957)  $(4,045,444)  $(4,238,618)
Stockholders’ equity   7,630,443    5,000,003    61,440,416    11,488,474 
Weighted average shares outstanding—basic and diluted        2,057,246    14,205,900    9,292,079 
Basic and diluted net loss per share        (0.37)   (0.28)   (0.46)
Stockholders’ equity (deficit) per share—basic and diluted        2.43    4.32    1.24 

 

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RISK FACTORS

 

Stockholders should carefully consider the following risk factors, together with all of the other information included in this proxy statement/prospectus, before they decide whether to vote or instruct their vote to be cast to approve the Proposals described in this proxy statement/prospectus.

 

Risks Relating to MJF

 

MJF has a history of losses, expects to continue to incur losses in the near term and may not achieve or sustain profitability in the future.

 

MJF has incurred significant losses in each fiscal year since its inception in 2010. MJF experienced net losses of approximately $2.5 million and $7.0 million for the years ended June 30, 2018 and 2017, respectively and $4.0 million and $2.9 million for the six months ended December 31, 2018 and 2017, respectively. These losses have been due to the substantial investments made by MJF to develop its monitoring and compliance platforms and related software, market these products to government regulatory agencies and commercial businesses, and grow its infrastructure to support increased business. MJF expects to continue to invest in further development of its platforms, software and related product offerings and to grow both its government regulatory and commercial business client base. As a result, MJF expects its operating expenses to increase in the future due to expected increased sales and marketing expenses, operational costs, product development costs, and general and administrative costs and, therefore, its operating losses will continue or even increase at least through the near term. In addition, following the business combination, MJF will become a public company and incur significant legal, accounting and other expenses that MJF did not incur as a private company. Furthermore, to the extent that MJF is successful in increasing its customer base, it will also incur increased expenses because costs associated with generating and supporting customer agreements are generally incurred up front, while revenue is generally recognized ratably over the term of the agreement. You should not rely upon MJF’s recent revenue growth as indicative of future performance. MJF may not reach profitability in the near future or at any specific time in the future. If and when its operations do become profitable, MJF may not sustain profitability.

 

MJF has a relatively short operating history, which makes it difficult to evaluate its business and future prospects.

 

MJF has a relatively short operating history, which makes it difficult to evaluate its business and future prospects. MJF has been in existence since 2010, and much of its revenue growth has occurred during the past three years. MJF has encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, including those related to:

 

market acceptance of its current and future products and services;

changing regulatory environments and costs associated with compliance;

its ability to compete with other companies offering similar products and services;

its ability to effectively market its products and services and attract new clients;

existing client retention rates and the ability to upsell clients;

the amount and timing of operating expenses, particularly sales and marketing expenses, related to the maintenance and expansion of its business, operations and infrastructure;

its ability to control costs, including operating expenses;

its ability to manage organic growth and growth fueled by acquisitions;

public perception and acceptance of cannabis-related products and services generally; and

general economic conditions and events.

 

If MJF does not manage these risks successfully, its business and financial performance will be adversely affected.

 

MJF’s long-term results of operations are difficult to predict and depend on the commercial success of its clients, the continued growth of the cannabis industry generally and the regulatory environment within which the cannabis industry operates.

 

MJF offers its products and services globally to help government regulatory agencies and commercial businesses monitor regulatory compliance and operate efficiently and successfully in compliance with applicable state laws. MJF’s long-term results will directly depend on the continued growth of the legalized cannabis industry (and public acceptance of cannabis-related products) and the ability of its current and future clients to successfully market their own products and services. If the legalized cannabis marketplace does not continue to grow because the public does not increasingly accept cannabis-related products or government regulators adopt laws, rules or regulations that terminate or diminish the ability for commercial businesses to develop, market and sell cannabis-related products, MJF’s business and financial performance would be materially adversely affected. Additionally, even if the cannabis marketplace continues to grow rapidly, and government regulation allows for the free-market development of this industry, products and services competitive with those offered by MJF may enjoy better market acceptance.

 

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The legalized cannabis industry may not continue to grow and the regulatory environment may not remain favorable to participants in the industry. More generally, MJF’s products and services may not experience growing market acceptance, which would adversely impact MJF’s ability to grow revenue.

 

As a company whose clients operate in the cannabis industry, MJF faces many unique and evolving risks.

 

MJF currently serves government and private clients with respect to their tracking, monitoring and compliance needs as they operate in a growing cannabis industry. Any risks related to the cannabis industry that may adversely affect MJF’s clients and potential clients may, in turn, adversely affect demand for MJF’s products. Specific risks faced by companies operating in the cannabis industry include, but are not limited to, the following:

 

Marijuana remains illegal under United States federal law

 

Marijuana is a Schedule-I controlled substance under the Controlled Substances Act and is illegal under federal law. It remains illegal under United States federal law to grow, cultivate, sell or possess marijuana for any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856 makes it illegal to “knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance.” Even in those states in which the use of marijuana has been authorized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana is not preempted by state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in MJF’s clients’ inability to proceed with their operations, which would adversely affect demands for MJF’s products.

 

Uncertainty of federal enforcement and the need to renew temporary safeguards

 

On January 4, 2018, Attorney General Sessions rescinded the previously issued memoranda (known as the Cole Memorandum) from the U.S. Department of Justice (“DOJ”) that had de-prioritized the enforcement of federal law against marijuana users and businesses that comply with state marijuana laws, adding uncertainty to the question of how the federal government will choose to enforce federal laws regarding marijuana. Attorney General Sessions issued a memorandum to all United States Attorneys in which the DOJ affirmatively rescinded the previous guidance as to marijuana enforcement, calling such guidance “unnecessary.” This one-page memorandum was vague in nature, stating that federal prosecutors should use established principles in setting their law enforcement priorities. Under previous administrations, the DOJ indicated that those users and suppliers of medical marijuana who complied with state laws, which required compliance with certain criteria, would not be prosecuted. As a result, it is now unclear if the DOJ will seek to enforce the Controlled Substances Act against those users and suppliers who comply with state marijuana laws.

 

Despite Attorney General Sessions’ rescission of the Cole Memorandum, the Department of the Treasury, Financial Crimes Enforcement Network, has not rescinded the “FinCEN Memo” dated February 14, 2014, which de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and marijuana-related businesses which utilize them. This memo appears to be a standalone document and is presumptively still in effect. At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This would make it more difficult for MJF’s clients and potential clients to access the U.S. banking systems and conduct financial transactions, which would adversely affect MJF’s operations.

 

In 2014, Congress passed a spending bill (“2015 Appropriations Bill”) containing a provision (“Appropriations Rider”) blocking federal funds and resources allocated under the 2015 Appropriations Bill from being used to “prevent such States from implementing their own State [medical marijuana] law.” The Appropriations Rider seemed to have prohibited the federal government from interfering with the ability of states to administer their medical marijuana laws, although it did not codify federal protections for medical marijuana patients and producers. Moreover, despite the Appropriations Rider, the Justice Department maintains that it can still prosecute violations of the federal marijuana ban and continue cases already in the courts. Additionally, the Appropriations Rider must be re-enacted every year. While it was continued in 2016, 2017 and 2018, and remains in effect, continued re-authorization of the Appropriations Rider cannot be guaranteed. If Congress should pass a 2019 budget rather than an extension of the 2018 budget, it would need to renew the Appropriations Rider at such time, and there can be no assurance that the Appropriations Rider would be renewed at such time. Additionally, in the event of Congress failing either to pass a 2019 budget or an extension of the 2018 budget in the form of a “continuing resolution,” a government shutdown would result, and the Appropriations Rider would no longer be in force. If the Appropriation Rider is no longer in effect, the risk of federal enforcement and override of state marijuana laws would increase.

 

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Further legislative development beneficial to the operations of MJF is not guaranteed

 

Among other things, MJF‘s business involves the provision of an online platform that provides monitoring and tracking of those involved in the cultivation, distribution, manufacture, storage, transportation and/or sale of medical and adult use cannabis products in compliance with applicable state law. The success of MJF’s business depends on the continued development of the cannabis industry and the activity of commercial business and government regulatory agencies within the industry. The continued development of the cannabis industry is dependent upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire approach by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress beneficial to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect demand for MJF’s product and its operations.

 

The cannabis industry could face strong opposition from other industries

 

MJF believes that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational marijuana as an alternative to alcohol, and medical marijuana as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging cannabis industry as an economic threat are well established, with vast economic and federal and state lobbying resources. It is possible that companies within these industries could use their resources to attempt to slow or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the cannabis industry could have a detrimental impact on MJF’s clients and, in turn on MJF’s operations.

 

The legality of marijuana could be reversed in one or more states

 

The voters or legislatures of states in which marijuana has already been legalized could potentially repeal applicable laws which permit the operation of both medical and retail marijuana businesses. These actions might force businesses, including those that are MJF’s clients, to cease operations in one or more states entirely.

 

Changing legislation and evolving interpretations of law

 

Laws and regulations affecting the medical and adult-use marijuana industry are constantly changing, which could detrimentally affect MJF’s clients and, in turn, MJF’s operations. Local, state and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require MJF’s clients and thus MJF itself to incur substantial costs associated with modification of operations to ensure such clients’ compliance. In addition, violations of these laws, or allegations of such violations, could disrupt MJF’s clients’ business and result in a material adverse effect on MJF’s operations. In addition, it is possible that regulations may be enacted in the future that will limit the amount of cannabis growth or related products that MJF’s commercial clients are authorized to produce. MJF cannot predict the nature of any future laws, regulations, interpretations or applications, nor can it determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on its operations.

 

Dependence on client licensing

 

MJF’s business is dependent on its customers obtaining various licenses from various municipalities and state licensing agencies. There can be no assurance that any or all licenses necessary for MJF’s clients to operate their businesses will be obtained, retained or renewed. If a licensing body were to determine that a client of MJF had violated applicable rules and regulations, there is a risk the license granted to that client could be revoked, which could adversely affect MJF’s operations. There can be no assurance that MJF’s existing clients will be able to retain their licenses going forward, or that new licenses will be granted to existing and new market entrants.

 

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Banking regulations could limit access to banking services

 

Since the use of marijuana is illegal under federal law, there is a compelling argument that banks cannot lawfully accept for deposit funds from businesses involved with marijuana. Consequently, businesses involved in the cannabis industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for MJF’s clients to operate and their reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm MJF’s business. Additionally, some courts have denied marijuana-related businesses bankruptcy protection, thus, making it very difficult for lenders to recoup their investments, which may limit the willingness of banks to lend to MJF’s clients and to MJF itself.

 

Insurance risks

 

In the United States, many marijuana-related businesses are subject to a lack of adequate insurance coverage. In addition, many insurance companies may deny claims for any loss relating to marijuana or marijuana-related operations based on their illegality under federal law, noting that a contract for an illegal transaction is unenforceable.

 

The cannabis industry is an evolving industry and we must anticipate and respond to changes.

 

The cannabis industry is not yet well-developed, and many aspects of this industry’s development and evolution cannot be accurately predicted. While MJF has attempted to identify many risks specific to the cannabis industry, you should carefully consider that there are other risks that cannot be foreseen or are not described in this proxy statement/prospectus, which could materially and adversely affect MJF’s business and financial performance. MJF expects that the cannabis market and the business of MJF will evolve in ways that are difficult to predict. For example, it is anticipated that over time, MJF will reach a point in most markets where it has achieved a market penetration level in which new client acquisitions are less productive, and the continued growth of MJF’s revenue will require more focus on increasing the rate at which existing clients purchase products and services across MJF’s platforms. MJF’s long-term success will depend on its ability to successfully adjust its strategy to meet the changing market dynamics. If MJF is unable to successfully adapt to changes in the cannabis industry, MJF’s operations could be adversely affected.

 

A significant portion of MJF’s business is, and is expected to be, from government contracts, which present certain unique risks.

 

Contracts for the Leaf Data Systems with government agencies in Pennsylvania and Washington represented 43% of MJF’s revenue for the fiscal year ended June 30, 2018 and 49% of MJF’s revenue for the six months ended December 31, 2018.

 

In order to obtain a government contract for the Leaf Data Systems, MJF is required to follow a competitive bidding process in each state where it seeks a contract. Government contracts have very specific compliance requirements that often require contractors to invest material time and money to prepare a bid to ensure that its technology, processes and staff meet these specific requirements. After expenditures of such time and money, there is no assurance that the bid will result in an award of a contract. Further, even if a contract is awarded, there are strict procedures that government agencies follow when it comes to reimbursement of the costs incurred in the course of fulfilling contracts. Accordingly, it is possible that some or all costs might not be reimbursed under a government contract as contemplated by MJF.

 

Government agencies also typically audit and investigate government contractors. These agencies review a contractor's performance under its contracts, its cost structure, its business systems and compliance with applicable laws, regulations and standards. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of profits, suspension of payments, penalties, fines and suspension, or prohibition from doing business with the government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Any such imposition of penalties, or the loss of such government contracts, could materially adversely affect our business, financial condition, results of operations and growth prospects.

 

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There also is typically a longer window of liability under government contracts than private contracts, and the government can seek claims after the contract has ended and payments under the contract have been made. The terms of government contract may also require the sharing of proprietary information, processes, software and research and development efforts with the government. Additionally, government employees are required to follow certain protocols to ensure there is no appearance of impropriety in the bidding process. As a result, bidders on government contracts must ensure that there is no appearance of favoritism, gift giving, bribery or the exertion of other influences in the bidding process. Any finding of same can result in fines to the bidder and cancellation of contracts. The applicable state government generally has the ability to terminate MJF’s contract, in whole or in part, without prior notice, for convenience or for default based on performance. If a government contract were to be terminated for convenience, MJF generally would be protected by provisions covering reimbursement for costs incurred on the contract and profit on those costs, but not the anticipated profit that would have been earned had the contract been completed. The state government also has the ability to stop work under a contract for a limited period of time for its convenience.

 

We cannot assure you that MJF will be successful in navigating the government contract bidding process or that it will be able to maintain its existing government contracts or obtain additional government contracts in the future.

 

Since MJF’s client information and proprietary databases are digitally stored and distributed online, MJF faces numerous cybersecurity risks.

 

MJF utilizes information technology systems, including third-party hosted servers and cloud-based servers, to host digital databases and client information, including business, financial and corporate records, internal and external electronic communications and other critical information, and to process operational functions integral to MJF’s internal operations and the provision of services to clients across its platforms. If any of MJF’s internal systems or the systems of MJF’s third-party providers are compromised, then sensitive documents could be exposed or deleted, and MJF’s ability to conduct business could be impaired.

 

Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, unauthorized access to systems, computer viruses or other malicious code, denial of service attacks, malware, ransomware, phishing, SQL injection attacks, human error, or other events that result in security breaches or give rise to the manipulation or loss of sensitive information or assets. Cyber incidents can be caused by various persons or groups, including disgruntled employees and vendors, activists, organized crime groups, and state-sponsored and individual hackers. Cyber incidents can also be caused or aggravated by natural events, such as earthquakes, floods, fires, power loss, and telecommunications failures.

 

In 2016, MJF experienced a cyberattack on its data system, resulting in a loss of client data, an attack in January 2017 resulting in certain data theft and corruption of elements of its legacy software, a theft of source code in June 2017, and other sporadic outages of its systems. MJF has conducted a thorough examination of these events and has taken remedial actions, including enhancing system redundancies, and other proactive measures to prevent similar events cross its existing platforms and future platforms. Although, MJF has taken steps to protect the security of data maintained in its information systems, it is possible that its security measures will not be able to prevent additional attacks in the future, prevent systems from improperly functioning, or prevent the improper disclosure of client information in the event of future cyberattacks or otherwise. In addition to operational and business consequences, if MJF’s cybersecurity is breached, MJF could be held liable to its clients or other parties in regulatory or other actions, and MJF may be exposed to reputation damages and loss of trust and business. This could result in costly investigations and litigation and negative publicity. Additionally, MJF has commenced an action against one “John Doe” defendant and may pursue legal remedy against other cyber attackers, which could require material expense and divert meaningful resources to such actions.

 

Privacy regulation is an evolving area and compliance with applicable privacy regulations may increase MJF’s operating costs or adversely impact its ability to service its clients and market its products and services.

 

Because MJF stores, processes, and uses data, some of which contains personal information, MJF is subject to complex and evolving federal, state, and foreign laws and regulations (including Canadian’s Cannabis Act and related regulations and the European Union’s general data protection regulation (“GDPR”)) regarding privacy, data protection, and other matters. While MJF believes it is currently in compliance with applicable laws and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to MJF’s business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm MJF’s business.

 

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MJF relies on third parties for certain services made available to users of its platforms, which could limit MJF’s control over the quality of the user experience and its cost of providing services.

 

Some of the applications and services available through the Leaf Data System and MJ Platform are provided through relationships with third-party service providers. MJF does not typically have any direct control over these third-party service providers. These third-party service providers could experience service outages, data loss, privacy breaches, including cyberattacks, and other events relating to the applications and services they provide that could diminish the utility of these services and which could harm users thereof. The MJ Platform itself does not depend on any third-party software or applications and is based entirely on open source technologies and custom programming. The MJ Platform, however, is hosted by Amazon Web Services, a third party service provider. There are readily available alternative hosting services available should MJF desire or need to move to a different web host. Certain ancillary services provided by MJF also uses the services of third party providers, for which, MJF believes, there are readily available alternatives on comparable economic terms. Offering integrated platforms, such as the Leaf Data System and MJ Platform which rely, in part, on the services of other providers lessens the control that MJF has over the total client experience. Should the third-party service providers MJF relies upon not deliver at standards MJF expects and desires, acceptance of the MJF platforms could suffer, which would have an adverse effect on MJF’s business and financial performance. Further, MJF cannot be assured of entering into agreements with such third-party service providers on economically favorable terms.

 

MJF may require and not be able to obtain additional funding if and when required.

 

Although MJF believes that its existing capital resources and the proceeds remaining in trust upon completion of the transactions contemplated by the Merger are sufficient for its operations for the next 12 months, MJF intends to continue to grow its business through organic initiatives, acquisitions and joint ventures if and as opportunities arise. MJF may be required in the future to obtain additional capital resources in connection with continuing organic initiatives, acquisitions or joint venture opportunities, including through equity financing, debt financing (including credit facilities) or the sale or syndication of some or all of its interests in certain projects or other assets or businesses. If MJF does not have access to such resources if and when need, it may not be able to realize acquisition opportunities, enter into joint ventures or continue expansion of its operations and business.

 

MJF’s ability to maintain its competitive position will depend on its ability to retain senior management and other highly qualified personnel.

 

MJF’s success will depend in part on its continued ability to retain and motivate its highly qualified management and personnel. MJF is highly dependent upon its management team, particularly its Chief Executive Officer and member of its board of directors, Jessica Billingsley, and the other members of its senior management, and other key personnel. The replacement of any of MJF’s key personnel would likely involve significant time and costs and may significantly delay or prevent the achievement of its business objectives, which could have an adverse effect on its business. In addition, we do not carry “key person” insurance policies for all management and key personnel, which could offset potential loss of service under applicable circumstances.

 

Many of MJF’s employees have become or will soon become vested in a meaningful amount of MJF’s profits interest units or receive shares of MTech Holdings’ common stock after the Business Combination. Those employees may be more likely to leave MJF if the profits interest units or MTech Holdings’ common stock they own or have the option to purchase have significantly appreciated in value relative to the original purchase price for the shares, or if the exercise prices of the options that they hold are significantly below the market price of MTech Holdings common stock. Replacement of any employees who leave MJF could involve significant time and costs and may significantly delay or prevent the achievement of MJF’s business objectives, which could have an adverse effect on its business.

 

To grow and be successful, MJF needs to attract and retain qualified personnel.

 

MJF’s growth and success will depend to a significant extent on its ability to identify, attract, hire, train and retain qualified professional, creative, technical and managerial personnel. Competition for experience and qualified talent in the cannabis industry can be intense. MJF may not be successful in identifying, attracting, hiring, training and retaining such personnel in the future. If MJF is unable to hire, assimilate and retain qualified personnel in the future, such inability could adversely affect MJF’s operations.

 

MJF may not manage its growth effectively, execute its business plan as proposed or adequately address competitive challenges.

 

MJF has significantly grown its business, with revenues increasing from approximately $0.8 million in its first year of operations in 2010 to approximately $10.5 million in the year ended June 30, 2018. MJF anticipates continuing to grow its business and operations. MJF’s growth strategy includes organic initiatives and acquisitions. In connection with the implementation of its growth strategy, the proceeds of the Business Combination will be used by MJF (a) to increase its sales and marketing abilities and to enter into new markets as opportunities arise through the hiring of additional sales and marketing personnel, larger advertising budgets and expanded and more frequent presence at trade shows, (b) for continued development of its product offerings and enhancements to existing products, including through customer research and investment in technology, and (c) to fund investigation of potential acquisitions and, possibly, the funding of all or a part of acquisition consideration. MJF cannot specifically allocate the proceeds from the Business Combination to these various items, but would deploy capital opportunistically with respect to its growth strategy. Such growth could place a significant strain on the management, administrative, operational and financial infrastructure MJF utilizes. MJF’s long-term success will depend, in part, on its ability to manage this growth effectively and grow its own internal resources as required, including internal management and staff personnel. To manage the expected growth of its operations and personnel, MJF also will need to increase its internal operational, financial and management controls, and its reporting systems and procedures. Failure to effectively manage growth could result in difficulty or delays in producing software improvements and new software offerings, declines in overall product and service quality and increases in costs. Any of these difficulties could adversely affect MJF and its operations.

 

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MJF is smaller and less diversified than many of its potential competitors.

 

While MJF believes it is a leading provider in the software solutions segment of the cannabis industry, there exists many general software design and integrated business platform companies seeking to provide online and software based business solutions and operations integration to customers in numerous industries. The continued growth of the cannabis industry will likely attract some of these existing companies and incentivize them to produce solutions that are competitive with those offered by us. Many of these potential competitors are a part of large diversified corporate groups with a variety of other operations and expansive resources. MJF may not be able to successfully compete with larger enterprises devoting significant resources to compete in its target marketspace.

 

MJF must successfully respond to rapid technological changes to compete successfully.

 

The software-based business solution industry in general continues to undergo significant development and change as advances in technologies are made, new methods of data analysis, delivery and storage are introduced, and changes in privacy laws and other regulatory requirements are implemented. Consumer behavior can rapidly change as a result of such developments. MJF’s core products, the Leaf Data System and MJ Platform are software-based and based on MJF’s proprietary technologies and approaches. Changes in technology and consumer behavior will require modifications and improvements in its technologies from time to time. MJF may not properly identify changing technological and consumer behavior trends in a manner that enables it to timely respond to such changes, or that its responses will enable MJF to effectively adapt and compete. MJF’s failure to adequately address these changes could adversely affect MJF’s operations.

 

MJF could be subject to risks associated with possible acquisitions, business combinations, or joint ventures.

 

As part of MJF’s growth strategy, it may seek to acquire assets or companies that are synergistic with MJF’s business. MJF may not realize the anticipated benefit from any acquisition it consummates. Regardless of whether MJF consummates any such acquisitions, the negotiation of a potential transaction could require MJF to incur significant costs and cause diversion of management’s time and resources. Integrating any business that MJF acquires may be distracting to management and disruptive to MJF’s core business and may result in significant costs. MJF could face several challenges in the consolidation and integration of information technology, accounting systems, personnel and operations. Any such transaction could also result in impairment of goodwill and other intangibles, development write-offs and other related expenses. Any of the foregoing could have adversely affect MJF’s operations.

 

MJF would face risks from doing business internationally.

 

MJF intends to increase the distribution of its products and services to clients outside the U.S. and thereby derive more revenues in foreign jurisdictions. As a result, MJF’s business would be subject to certain risks inherent in international business, many of which are beyond its control. These risks include, among numerous others:

 

laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;

the Foreign Corrupt Practices Act and similar laws regulating interactions and dealings with foreign government officials;

changes in local regulatory requirements relating to cannabis;

differing cultural tastes and attitudes;

differing degrees of protection for intellectual property; and

fluctuating foreign exchange rates.

 

Events or developments related to these and other risks associated with international trade could adversely affect MJF’s revenue from non-U.S. sources, which could have an adverse effect on MJF’s operations.

 

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Protecting and defending against intellectual property claims may have a material adverse effect on MJF’s business.

 

MJF’s ability to compete depends, in part, upon successful protection of its intellectual property relating to MJF’s Leaf Data Systems and MJ Platform. MJF seeks to protect its proprietary and intellectual property rights through patent applications, available copyright and trademark laws, nondisclosure agreements, and licensing and distribution arrangements with reputable companies in the target markets of MJF. While patent protection for inventions related to marijuana and marijuana-related products is available, there are substantial difficulties faced in the patent process by marijuana-related businesses. Further, patent applications may be rejected for numerous other reasons beyond those related to the cannabis industry, including that the subject matter of the application is found to be nonpatentable. MJF’s previous patent applications were denied and while MJF is continuing to pursue such applications and believes they are with merit, there can be no assurance that patents will be issued on these applications. The failure to be awarded patents on its technology could weaken MJF’s ability to enforce its intellectual property rights. Any such enforcement, whether MJF’s has been granted patent protection or not, would be costly, and there can be no assurance that MJF will have the resources to undertake all necessary action to protect its intellectual property rights or that MJF will be successful. Any infringement of MJF’s material intellectual property rights could require MJF to redirect resources to actions necessary to protect same, and could distract management from its underlying business operations. An infringement of MJF’s material intellectual property rights and resulting actions could adversely affect MJF’s operations.

 

Others may assert intellectual property infringement claims against MJF.

 

Companies in the software and technology industries own large numbers of patents, copyrights, trademarks, and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. In addition, various “non-practicing entities” that own patents and other intellectual property rights often attempt to aggressively assert their rights in order to extract value from technology companies. It is possible that others may claim from time to time that MJF’s products misappropriate or infringe the intellectual property rights of third parties. Irrespective of the validity or the successful assertion of any such claims, MJF could incur significant costs and diversion of resources in defending against these claims, which could adversely affect MJF’s operations. MJF may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained in all cases. MJF may decide to settle such lawsuits and disputes on terms that are unfavorable to MJF. As a result, MJF may also be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of alternative non-infringing technology or practices could require significant effort and expense or may not be feasible.

 

MJF’s ability to raise capital in the future may be limited.

 

MJF’s business and operations may consume resources faster than it anticipates. In the future, MJF may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, MJF may be unable to fund its capital requirements. If MJF issues new debt securities, the debt holders would have rights senior to the existing equity holders to make claims on its assets, and the terms of any debt could restrict MJF’s operations. If MJF issues additional equity securities, existing equity holders will experience dilution, and the new equity securities could have rights senior to those of existing equity holders. Because MJF’s decision to issue securities in any future offering will depend on market conditions and other factors beyond its control, MJF cannot predict or estimate the amount, timing or nature of its future offerings. Thus, existing equity holders bear the risk of MJF’s future securities offerings reducing the market price of its equity and diluting their interest.

 

MJF may acquire or invest in other companies, which could divert its management's attention, result in dilution to its equity holders, and otherwise disrupt its operations and harm its results of operations.

 

In the future, MJF may acquire or invest in businesses, products, or technologies that it believes could complement or expand its business, enhance its capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause it to incur various costs and expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.

 

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In any future acquisitions, MJF may not be able to successfully integrate acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition. MJF also may not achieve the anticipated benefits from future acquisitions due to a number of factors, including: (a) an inability to integrate or benefit from acquisitions in a profitable manner; (b) unanticipated costs or liabilities associated with the acquisition; (c) the incurrence of acquisition-related costs; (d) the diversion of management’s attention from other business concerns; (e) the loss of MJF’s or the acquired business’ key employees; or (f) the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions.

 

MJF identified material weaknesses in its internal control over financial reporting which could, if not remediated, result in material misstatements in MJF’s financial statements.

 

MJF had previously identified material weaknesses in its internal control over financial reporting related to controls over its formal documentation and development of its policies and procedures, and the availability of sufficient resources to establish segregated review functions and documentation of financial data. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

 

MJF has initiated remedial measures, including the hiring of a CFO, adding to its IT and accounting staff, and is conducting a search for a controller with CPA certification. Accordingly, the resources to mitigate the above weaknesses are currently being addressed.  These new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weakness has been remediated. To fully implement these remedial measures, MJF may need to commit additional resources, hire additional staff, and provide additional management oversight. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on MJF’s business, financial condition, results of operations, and cash flows. Further, if MJF’s remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in its internal control over financial reporting are discovered or occur in the future, MJF’s financial statements may contain material misstatements, and MJF could be required to restate financial results.

 

Risks Relating to MTech, MTech Holdings and the Business Combination

 

If MTech does not consummate a business combination by the termination date of August 1, 2019, MTech will have to cease all operations except for the purpose of winding up and redeem all of its public shares for their pro rata portions of the trust account and liquidate, or seek approval of its stockholders to extend the termination date.

 

If MTech is unable to complete a business combination by August 1, 2019, MTech will have to (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem all public shares then outstanding at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any amounts representing interest earned on the trust account, less any interest released to MTech for working capital purposes, the payment of taxes or dissolution expenses (although MTech expects all or substantially all of such interest to be used for working capital purposes), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of its remaining stockholders and board of directors, dissolve and liquidate, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

 

Following the consummation of the Business Combination, the only significant asset of the combined entity will be ownership of 100% of MJF’s membership interests, including MJF’s preferred units and profits interest units and the combined entity does not currently intend to pay dividends on its common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of MTech Holdings’ common stock.

 

Following the consummation of the Business Combination, the combined entity will have no direct operations and no significant assets other than the ownership of 100% of MJF’s membership interests, including MJF’s preferred units and profits interest units. Promptly after the consummation of the Business Combination, MTech is required distribute any remaining funds in the trust account to MTech Holdings, who is then required to contribute such funds along with any other cash held by MTech Holdings (net of necessary reserves) to MJF. MTech Holdings will depend on MJF for distributions, loans and other payments to generate the funds necessary to meet its financial obligations, including its expenses as a publicly traded company, and to pay any dividends with respect to its stock. Legal and contractual restrictions may limit MTech Holdings’ ability to obtain cash from MJF. Thus, MTech Holdings does not expect to pay cash dividends on its common stock. Any future dividend payments are within the absolute discretion of the board of directors of MTech Holdings and will depend on, among other things, MTech Holdings’ results of operations, working capital requirements, capital expenditure requirements, financial condition, level of indebtedness, contractual restrictions with respect to payment of dividends, business opportunities, anticipated cash needs, provisions of applicable law and other factors that its board of directors may deem relevant.

 

MTech will incur significant transaction and transition costs in connection with the Business Combination. If MTech fails to consummate the Business Combination, it may not have sufficient cash available to pay such costs.

 

MTech expects to incur significant, non-recurring costs in connection with consummating the Business Combination. Some of these costs are payable regardless of whether the Business Combination is completed. MTech's transaction expenses as a result of the Business Combination are currently estimated at approximately $3.5 million, which is comprised of (i) $2.3 million in deferred underwriting compensation payable to the underwriters of its IPO and (ii) approximately $1.2 million in costs relating to fees associated with legal, audit, printing and mailing this proxy statement/ prospectus, investor relations, insurance, and other operating costs related to the Business Combination. MJF estimates its Business Combination costs to be approximately $1 million which is comprised of approximately $500,000 of legal, $250,000 of auditing and financial consulting, and $250,000 of investor relations, insurance and other operating costs. If MTech and MJF do not consummate the Business Combination, each party will be required to pay its own fees and expenses, and MTech likely will not have sufficient cash available to pay its fees and expenses unless and until it completes a subsequent business combination transaction.

  

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The working capital available to MTech Holdings after the Business Combination will be reduced to the extent MTech’s stockholders exercise their redemption rights in connection with the Business Combination and will also be reduced to the extent of MJF’s and MTech’s transaction expenses, which will be payable by the combined company. This may adversely affect the business and future operations of MTech Holdings.

 

The amount of working capital available to the combined company after the Business Combination will depend in part on the extent to which MTech stockholders exercise their right to redeem their shares into cash in connection with the Business Combination. MTech Holdings’ working capital will be reduced in proportion to such redemptions, and will also be reduced to the extent of MTech’s and MJF’s transaction expenses, which will be payable by the combined company. Reduced working capital may adversely affect MTech Holdings’ business and future operations.

 

The unaudited pro forma financial information included in this proxy statement/prospectus may not be indicative of what the actual financial position or results of operations of the combined entity would have been.

 

 The unaudited pro forma financial information in this proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what the actual financial position or results of operations of the combined entity would have been had the Business Combination been completed on the dates indicated. See the section entitled “Unaudited Pro Forma Combined Financial Information” for more information.

 

MTech may waive one or more of the conditions to the Business Combination.

 

MTech may agree to waive, in whole or in part, some of the conditions to its obligations to complete the Business Combination, to the extent permitted by its existing charter and applicable laws. For example, it is a condition to MTech’s obligations to close the Business Combination that the representations and warranties of MJF and the Sellers are true and correct in all respects as of the date of the Merger Agreement and as of the date of the Closing (or an earlier date to the extent that an earlier date is referenced in the representation and warranty), except, for certain of the representations and warranties, for such inaccuracies that, individually or in the aggregate, would not result in a Material Adverse Effect (as defined in the Merger Agreement) on MJF. Under applicable law and MTech’s existing charter, MTech is not able to waive the condition that its stockholders approve the Business Combination.

 

The Sponsor, directors and officers of MTech have conflicts of interest in determining to pursue the business combination with MJF, since certain of their interests, and certain interests of their affiliates and associates, are different from or in addition to (and which may conflict with) the interests of MTech’s stockholders.

 

The Sponsor, officers and directors of MTech, have interests in and arising from the Business Combination that are different from or in addition to (and which may conflict with) the interests of MTech’s public stockholders, which may result in a conflict of interest. These interests include: 

 

the fact that the Sponsor, officers and directors of MTech and their affiliates paid an aggregate of $25,000 for their founder shares and such securities should have a significantly higher value at the time of the Business Combination;

 

the fact that MTech’s Sponsor, officers and directors and their affiliates paid an aggregate of $2,437,500 for the placement units and such securities should have a significantly higher value at the time of the Business Combination;

 

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if MTech is unable to complete a business combination within the required time period, its Chairman will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by MTech for services rendered or contracted for or products sold to MTech, but only if such a vendor or target business has not executed a waiver of claims against the trust account and except as to any claims under MTech’s indemnity of the underwriters;

 

unless MTech consummates an initial business combination, MTech’s officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account;

 

the fact that Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination;

 

the fact that the founder shares and placement units, including the placement shares and placement warrants, purchased by the Sponsor will be worthless if a business combination is not consummated;

 

the Sponsor has agreed that the placement units, and all of their underlying securities, will not be sold or transferred by it until MTech has completed a business combination, subject to limited exceptions;

 

the appointment of Scott Sozio, Tahira Rehmatullah and Douglas Rothschild as designees to the board of directors of MTech Holdings which will entitle such individuals to any cash fees, stock options or stock awards that MTech Holdings determines to pay to its non-executive directors; and

 

the continued indemnification of current directors and officers of MTech and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

These interests may influence MTech’s directors in making their recommendation that you vote in favor of the Business Combination Proposal, and the transactions contemplated thereby. 

 

MTech has not obtained an opinion from an independent investment banking firm, and consequently, there is no assurance from an independent source that the price MTech is paying for MJF is fair to its stockholders from a financial point of view.

 

MTech is not required to and has not obtained an opinion from an independent investment banking firm that the price it is paying for MJF is fair to its stockholders from a financial point of view. The fair market value of MJF has been determined by MTech’s board of directors based upon standards generally accepted by the financial community, such as potential sales and the price for which comparable businesses or assets have been valued. MTech’s stockholders will be relying on the judgment of its board of directors with respect to such matters. 

 

MTech’s ability to successfully effect the Business Combination and successfully operate the business thereafter will be largely dependent upon the efforts of certain key personnel, including the key personnel of MJF, all of whom are expected to stay with MJF following the Business Combination. The loss of such key personnel could negatively impact the operations and profitability of the post-combination business.

 

MTech’s ability to successfully effect the Business Combination and successfully operate the business is dependent upon the efforts of certain key personnel of MJFparticularly Ms. Billingsley. Although all of such key personnel are expected to remain with MJF following the Business Combination, it is possible that the combined entity will lose some key personnel, the loss of which could negatively impact the operations and profitability of the post-combination business. Furthermore, while MTech has scrutinized individuals it intends to engage to stay with MJF following the Business Combination, its assessment of these individuals may not prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause the combined entity to have to expend time and resources helping them become familiar with such requirements.

 

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If the Business Combination’s benefits do not meet the expectations of investors, stockholders or financial analysts, the market price of MTech Holdings’ securities may decline.

 

If the benefits of the Business Combination do not meet the expectations of investors or securities analysts, the market price of MTech’s securities prior to the Closing of the Business Combination may decline. The market values of MTech’s securities at the time of the Business Combination may vary significantly from their prices on the date the Merger Agreement was executed, the date of this proxy statement/prospectus, or the date on which our stockholders vote on the Business Combination.

 

In addition, following the Business Combination, fluctuations in the price of the securities of MTech Holdings could contribute to the loss of all or part of your investment. Prior to the Business Combination, there has not been a public market for MJF’ membership interests or MTech Holdings’ stock and trading in the shares of MTech common stock has not been active. Accordingly, the valuation ascribed to MJF and our common stock in the Business Combination may not be indicative of the price that will prevail in the trading market following the Business Combination. If, following the Business Combination, an active market for MTech Holdings’ securities develops and continues, the trading price of these securities could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond MTech Holdings’ control. Any of the factors listed below could have a material adverse effect on your investment in our securities and MTech Holdings’ securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of MTech Holdings’ securities may not recover and may experience a further decline.

 

Factors affecting the trading price of MTech Holdings’ securities following the Business Combination may include:

 

actual or anticipated fluctuations in the quarterly financial results of MTech Holdings or the quarterly financial results of companies perceived to be similar to MTech Holdings;

changes in the market’s expectations about MTech Holdings’ operating results;

success of competitors;

MTech Holdings’ operating results failing to meet the expectation of securities analysts or investors in a particular period;

changes in financial estimates and recommendations by securities analysts concerning MTech Holdings or the cannabis industry in general;

operating and stock price performance of other companies that investors deem comparable to MTech Holdings;

MTech Holdings’ ability to market new and enhanced products on a timely basis;

changes in laws and regulations affecting MTech Holdings’ business;

commencement of, or involvement in, litigation involving MTech Holdings;

changes in MTech Holdings’ capital structure, such as future issuances of securities or the incurrence of additional debt;

the volume of shares of MTech Holdings’ common stock available for public sale;

any major change in the board or management of MTech Holdings;

sales of substantial amounts of MTech Holdings stock by its directors, executive officers or significant stockholders or the perception that such sales could occur; and

general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

 

Broad market and industry factors may materially harm the market price of MTech Holdings’ securities irrespective of its operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of MTech Holdings’ securities, may not be predictable. A loss of investor confidence in the market for aviation services -related stocks or the stocks of other companies which investors perceive to be similar to MTech Holdings could depress its stock price regardless of its business, prospects, financial conditions or results of operations. A decline in the market price of MTech Holdings’ securities also could adversely affect its ability to issue additional securities and its ability to obtain additional financing in the future.

 

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Following the Business Combination, MTech Holdings’ business and stock price may suffer as a result of its lack of public company operating experience and if securities or industry analysts do not publish or cease publishing research or reports about MTech Holdings, its business, or its market, or if they change their recommendations regarding MTech Holdings’ common stock in an adverse manner, the price and trading volume of MTech Holdings’ common stock could decline.

 

Prior to the completion of the Business Combination, MJF has been a privately-held company. MJF’ lack of public company operating experience may make it difficult to forecast and evaluate its future prospects. If MTech Holdings is unable to execute its business strategy, either as a result of its inability to manage effectively its business in a public company environment or for any other reason, MTech Holdings’ business, prospects, financial condition and operating results may be harmed.

 

The trading market for MTech Holdings’ common stock will be influenced by the research and reports that industry or securities analysts may publish about MTech Holdings, its business, its market, or its competitors. Securities and industry analysts do not currently, and may never, publish research on MTech Holdings. If no securities or industry analysts commence coverage of MTech Holdings, its stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover MTech Holdings changes its recommendation regarding MTech Holdings’ stock in an adverse manner, or provides more favorable relative recommendations about its competitors, the price of MTech Holdings’ common stock would likely decline. If any analyst who may cover MTech Holdings were to cease coverage of MTech Holdings or fail to regularly publish reports on it, MTech Holdings could lose visibility in the financial markets, which could cause MTech Holdings’ stock price or trading volume to decline.

 

MTech Holdings may not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002 that will be applicable to it after the Business Combination.

 

Neither MTech nor MJF is currently subject to Section 404 of the Sarbanes-Oxley Act of 2002. However, following the Business Combination, MTech Holdings will be required to provide management’s attestation on internal controls commencing with its annual report for year ending June 30, 2020. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act of 2002 are significantly more stringent than those required of MJF as a privately-held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the regulatory compliance and reporting requirements that will be applicable to MTech Holdings after the Business Combination. If MTech Holdings is not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, MTech Holdings may not be able to assess whether its internal controls over financial reporting are effective, which may subject it to adverse regulatory consequences and could harm investor confidence and the market price of its common stock.

 

MTech’s Sponsor, directors and officers have agreed to vote in favor of its initial business combination, regardless of how MTech’s public stockholders vote.

 

Unlike many other blank check companies in which the founders agree to vote their founder shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, MTech’s Sponsor, directors and officers have agreed to vote their founder shares and placement shares, as well as any public shares purchased by them in or after the IPO, in favor of the initial business combination of MTech. Our Sponsor currently owns 243,750 shares of Class A common stock and 1,437,500 shares of Class B common stock, representing 22.62% of the issued and outstanding shares of common stock of MTech. Shares of Class B common stock will automatically convert into shares of Class A common stock on a one-for-one basis, subject to certain anti-dilution adjustments which have been waived by the Sponsor and will be exchanged into shares of common stock of MTech Holdings upon consummation of the Business Combination. As a result, we would need only 2,034,376, or approximately 35.38%, of the 5,750,000 public shares, to be voted in favor of the Business Combination in order to have the Business Combination approved. Accordingly, it is more likely that the necessary stockholder approval will be received than would be the case if MTech’s sponsor, directors and officers agreed to vote their founder shares and placement shares in accordance with the majority of the votes cast by its public stockholders.

 

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Subsequent to the consummation of the Business Combination, MTech Holdings may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

 

Although MTech has conducted due diligence on MJF, there is no assurance that this diligence revealed all material issues that may be present in MJF’ business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of MTech’s and MJF’s control will not later arise. As a result, MTech Holdings may be forced later to write down or write off assets, restructure its operations, or incur impairment or other charges that could result in losses. Even if MTech’s due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on the liquidity of MTech Holdings, the fact that MTech Holdings reports charges of this nature could contribute to negative market perceptions about the combined company or its securities. In addition, charges of this nature may cause MTech Holdings to be unable to obtain future financing on favorable terms or at all.

 

Warrants will become exercisable for MTech Holdings common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to MTech Holdings stockholders.

 

MTech issued public warrants to purchase 5,750,000 shares of common stock as part of the MTech IPO and in connection with the MTech IPO, MTech issued UPOs and an aggregate of 243,750 placement warrants as part of the placement units to the Sponsor. All the MTech warrants will be cancelled and exchanged for MTech Holdings warrants upon Closing of the Business Combination. Each one share of MTech Holdings warrants is exercisable for one share of MTech Holdings common stock at $11.50 per share. To the extent such warrants are exercised, additional shares of MTech Holdings common stock will be issued, which will result in dilution to the then existing holders of MTech Holdings common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of MTech Holdings common stock.

 

The requirements of being a public company may strain MTech Holdings’ resources and divert management’s attention.

 

As a public company, MTech Holdings is subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of Nasdaq (if applicable) and other applicable securities rules and regulations. Compliance with these rules and regulations increase the legal and financial compliance costs of MTech Holdings, make some activities more difficult, time-consuming or costly and increase demand on MTech Holdings’ systems and resources, particularly after it is no longer an “emerging growth company.” The Sarbanes-Oxley Act requires, among other things, that MTech Holdings maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve MTech Holdings’ disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect MTech Holdings’ business and operating results. MTech Holdings may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase its costs and expenses.

 

 In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. MTech Holdings intends to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If MTech Holdings’ efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against MTech Holdings and its business may be adversely affected.

 

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MTech Holdings is an “emerging growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make its shares of common stock less attractive to investors.

 

MTech Holdings is an “emerging growth company,” as defined in the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, MTech Holdings elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, the financial statements of MTech Holdings may not be comparable to companies that comply with public company effective dates. It cannot be predicted if investors will find MTech Holdings’ common stock less attractive because MTech Holdings may rely on these exemptions. If some investors find MTech Holdings’ common stock less attractive as a result, there may be a less active trading market for MTech Holdings’ common stock and its share price may be more volatile.

 

The future exercise of registration rights may adversely affect the market price of MTech Holdings’ common stock.

 

MTech Holdings’ common stock will be subject to multiple registration rights agreements. Sales of restricted securities pursuant to these agreements may substantially depress the market price of MTech Holdings’ common stock. Pursuant to registration rights agreement entered into concurrently with MTech’s IPO (which agreement will be assumed by MTech Holdings pursuant to the Merger Agreement), the Sponsor is entitled to make a demand that MTech Holdings register the resale of the founder shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the holders of the placement units, UPOs and any units the Sponsor, officers or directors of MTech, or their affiliates may be issued in payment of working capital loans made to MTech are entitled to demand that MTech Holdings register the resale of the placement units, UPOs and any other units issued to them (and the underlying shares) commencing at any time after the consummation of the Business Combination, as well as any securities underlying any such units. The presence of these additional shares of MTech Holdings common stock trading in the public market may have an adverse effect on the market price of MTech Holdings’ securities. Additionally, the Sellers are being granted piggy-back registration rights under the transmittal letters for any shares that may be issued to them by MTech Holdings under the Merger Agreement after the Closing for purchase price adjustments or indemnification claims.

 

A market for MTech Holdings’ securities may not continue, which would adversely affect the liquidity and price of MTech Holdings’ securities.

 

Following the Business Combination, the price of MTech Holdings’ securities may fluctuate significantly due to the market’s reaction to the Business Combination, including a significant number of redemptions by MTech’s public stockholders, and general market and economic conditions. An active trading market for MTech Holdings’ securities following the Business Combination may never develop or, if developed, may not be sustained. In addition, the price of MTech Holdings’ securities after the Business Combination could vary due to general economic conditions and forecasts, its general business condition and the release of its financial reports. You may be unable to sell your securities unless a market can be established or sustained.

 

Anti-takeover provisions contained in the proposed amended and restated certificate of incorporation and proposed amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt and limit the price investors might be willing to pay in the future for the MTech Holdings common stock and could entrench management.

 

The Amended and Restated Certificate of Incorporation of MTech Holdings will contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. MTech Holdings is also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for MTech Holdings’ securities.

 

These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for MTech Holdings’ securities.  

 

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MTech Holdings is also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for MTech Holdings’ securities. These provisions are described in the Section titled “The Charter Amendments Proposal.” 

 

MTech Holdings’ corporate opportunity provisions in its amended and restated certificate of incorporation could enable management to benefit from corporate opportunities that might otherwise be available to MTech Holdings.

 

MTech Holdings’ amended and restated certificate of incorporation provides that the doctrine of corporate opportunity, or any other analogous doctrine, shall not apply with respect to MTech Holdings, or any of its directors or officers in circumstances where the application of such doctrine would conflict with any fiduciary duties or contractual obligations they may otherwise have.

 

Management of MTech Holdings may become aware, from time to time, of certain business opportunities (such as acquisition opportunities) and may direct such opportunities to other businesses in which they have invested, in which case MTech Holdings may not become aware of or otherwise have the ability to pursue such opportunity. Further, such businesses may choose to compete with MTech Holdings for these opportunities, possibly causing these opportunities to not be available to MTech Holdings or causing them to be more expensive for MTech Holdings to pursue. These potential conflicts of interest could adversely impact MTech Holdings’ business or prospects if attractive business opportunities are procured by such parties for their own benefit rather than for MTech Holdings.

 

MTech Holdings’ amended and restated certificate of incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

 

MTech Holdings’ amended and restated certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty, actions under the Delaware general corporation law or under our certificate of incorporation, or actions asserting a claim governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation.

 

This choice of forum provision does not exclude stockholders from suing in federal court for claims under the federal securities laws but may limit a stockholder’s ability to bring such claims in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in MTech Holdings’ amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

 

Activities taken by affiliates of MTech or MJF to purchase, directly or indirectly, public shares will increase the likelihood of approval of the Business Combination Proposal and other proposals and may affect the market price of MTech’s securities during the buyback period.

 

The Sponsor, directors, officers, advisors of MTech or their affiliates or MJF or its directors, officers, advisors or their affiliates may purchase MTech’s public shares in privately negotiated transactions either prior to or following the consummation of the Business Combination. No such person will make any such purchases when such persons are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. Such a purchase would likely include a contractual acknowledgement that such stockholder, although still the record holder of MTech’s shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, directors, officers of MTech or their affiliates or MJF or its directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders of MTech who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Although none of the Sponsor, directors, officers, advisors of MTech or their affiliates or MJF or its directors, officers, advisors or their affiliates currently anticipate paying any premium purchase price for such public shares, in the event such parties do, the payment of a premium may not be in the best interest of those stockholders not receiving any such additional consideration. There is no limit on the number of shares that could be acquired by the Sponsor, directors, officers, advisors of MTech or their affiliates or MJF or its directors, officers, advisors or their affiliates, or the price such persons may pay.

 

If such transactions are affected, the consequence could be to cause the Business Combination to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the Business Combination Proposal and other proposals and would likely increase the chances that such proposals would be approved. If the market does not view the Business Combination positively, purchases of MTech public shares may have the effect of counteracting the market’s view, which would otherwise be reflected in a decline in the market price of MTech’s securities. In addition, the termination of the support provided by these purchases may materially adversely affect the market price of MTech’s securities.

  

In addition, the remaining public stockholders of MTech following the consummation of the Business Combination will bear the economic burden of the deferred underwriting fee which will be paid funds released to MTech from the trust account following the consummation of the Business Combination.

 

As of the date of this proxy statement/prospectus, no agreements with respect to the private purchase of public shares by the persons described above have been entered into with any such investor or holder. MTech will file a Current Report on Form 8-K with the SEC to disclose private arrangements entered into or significant private purchases made by any of the aforementioned persons that would affect the vote on the Business Combination Proposal or other proposals.

 

Since MTech’s Sponsor and its affiliates will lose their entire investment in MTech if the Business Combination is not completed, they may have had a conflict of interest in identifying and selecting MJF for MTech’s initial business combination in order to close the Business Combination. 

 

Our initial stockholders currently own an aggregate of 1,437,500 founder shares for an aggregate purchase price of $25,000. In addition, our Sponsor purchased an aggregate of 243,750 placement units in a Private Placement that occurred simultaneously with the consummation of our IPO and upon exercise of the underwriter’s over-allotment option. All of such founder shares and placement units will be worthless if an initial business combination is not consummated. The personal and financial interests of our Sponsor, and its affiliates may have influenced their motivation in identifying and selecting MJF for its target business combination and consummating the Business Combination in order to close the Business Combination.

 

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Since MTech’s Sponsor, executive officers and directors will not be eligible to be reimbursed for their out-of-pocket expenses if the Business Combination is not completed, a conflict of interest may arise in determining whether MJF is appropriate for MTech’s initial business combination in order to close the Business Combination.

 

At the Closing of the Business Combination, our Sponsor, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred in connection with activities on our behalf. These financial interests of the Sponsor, executive officers and directors of MTech may have influenced their motivation in identifying and selecting MJF for the Business Combination in order to close the Business Combination.

 

Risks Relating to Redemption

 

The ability to execute MTech’s strategic plan could be negatively impacted to the extent a significant number of stockholders choose to redeem their shares in connection with the Business Combination.

 

In the event the aggregate cash consideration MTech would be required to pay for all of its public shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the Merger Agreement exceeds the aggregate amount of cash available to MTech, MTech may be required to increase the financial leverage MTech’s business would have to support. This may negatively impact MTech’s ability to execute on its own future strategic plan.

 

There is no guarantee that an MTech stockholder’s decision whether to redeem their shares for a pro rata portion of the trust account will put the stockholder in a better future economic position.

 

No assurance can be given as to the price at which a stockholder may be able to sell the shares of MTech Holdings common stock in the future following the completion of the Business Combination or any alternative business combination. Certain events following the consummation of any business combination, including the Business Combination, may cause an increase in our share price, and may result in a lower value realized now than MTech stockholder might realize in the future had the stockholder not elected to redeem such stockholder’s shares. Similarly, if an MTech stockholder does not redeem its shares, the stockholder will bear the risk of ownership of the public shares after the consummation of any business combination, and there can be no assurance that a stockholder can sell its shares of MTech common stock in the future for a greater amount than the redemption price set forth in this proxy statement/prospectus. An MTech stockholder should consult its own tax and/or financial advisor for assistance on how this may affect its individual situation.

 

If MTech stockholders fail to comply with the redemption requirements specified in this proxy statement/prospectus, they will not be entitled to redeem their shares of MTech common stock for a pro rata portion of the funds held in MTech’s trust account.

 

Holders of public shares of MTech are required to affirmatively vote either for or against the Business Combination Proposal in order to exercise their rights to redeem their shares for a pro rata portion of the trust account. In addition, to exercise their redemption rights, they are required to submit a request in writing and deliver their stock (either physically or electronically) to our transfer agent at least two business days prior to the special meeting. Stockholders electing to redeem their shares will receive their pro rata portion of the trust account less franchise and income taxes payable, calculated as of two business days prior to the anticipated consummation of the Business Combination. See the section entitled “Special Meeting of MTech Stockholders – Redemption Rights” for additional information on how to exercise your redemption rights.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

We make forward-looking statements in this proxy statement/prospectus. These forward-looking statements relate to expectations for future financial performance, business strategies and expectations for our business, and the timing and ability for us to complete the Business Combination. Specifically, forward-looking statements may include statements relating to:

 

the benefits of the Business Combination;

 

the future financial performance of MTech Holdings and its subsidiaries, including MJF, following the Business Combination;

 

changes in the market for MJF products and services;

 

expansion and other plans and opportunities; and

 

other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek” or “target,” or similar expressions.

 

These forward-looking statements are based on information available as of the date of this proxy statement/prospectus, and expectations, forecasts and assumptions as of that date, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

In addition, you should not place undue reliance on forward-looking statements in deciding how to grant your proxy, instruct how your vote should be cast or vote your shares on the proposals set forth in this proxy statement/prospectus. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by our forward-looking statements. Some factors that could cause actual results to differ include, among others:

 

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

 

a delay in completing, or the inability to complete, the transactions contemplated by the proposed Business Combination, due to a failure to obtain the approval of the stockholders of MTech, a failure to satisfy other conditions to Closing in the Merger Agreement or some other reason;

 

the inability to obtain the listing of MTech Holdings’ common stock and warrants on Nasdaq or another exchange following the Business Combination;

 

the risk that the proposed Business Combination disrupts MJF’s current plans and operations;

 

the reaction of MJF’s customers to the Business Combination;

 

the inability to realize anticipated benefits of the Business Combination, which could result from, among other things, competition, the inability to integrate the MTech and MJF businesses or the inability of the combined business to grow and manage growth profitably;

 

costs related to the Business Combination;

 

the outcome of any legal proceedings that might be instituted against MTech or MJF, including any legal proceedings relating to the proposed Business Combination;

 

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changes in applicable laws or regulations;

 

the possibility that MTech or MJF might be adversely affected by other economic, business or competitive factors; and

 

other risks and uncertainties indicated in this proxy statement/prospectus, including those indicated under the section entitled “Risk Factors.”

 

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SPECIAL MEETING OF MTECH STOCKHOLDERS

 

General

 

MTech is furnishing this proxy statement/prospectus to its stockholders as part of the solicitation of proxies by the Board for use at the Special Meeting to be held on _____, 2019 and at any adjournment or postponement thereof. This proxy statement/prospectus provides MTech’s stockholders with information they need to know to be able to vote or direct their vote to be cast at the Special Meeting.

 

Date, Time and Place

 

The Special Meeting will be held at 10:00 a.m. Eastern Time on ______, 2019, at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York 10105, or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed.

 

Voting Power; Record Date

 

You will be entitled to vote or direct votes to be cast at the Special Meeting if you owned shares of MTech common stock as of the close of business on ______, 2019, which is the Record Date for the Special Meeting. You are entitled to one vote for each share of MTech common stock that you owned as of the close of business on the Record Date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. As of the date of this proxy statement/prospectus, there were 7,431,250 shares of MTech common stock issued and outstanding, consisting of 5,750,000 shares originally sold as part of units in the IPO, 243,750 shares originally sold as part of units to the Sponsor in a Private Placement that occurred simultaneously with the consummation of the IPO and 1,437,500 founder shares that were issued to the Sponsor prior to the IPO. MTech does not expect to issue any shares of common stock on or before the Record Date.

 

Vote of the Sponsor, Directors and Officers

 

In connection with the MTech IPO, MTech entered into agreements with each of its Sponsor, directors and officers pursuant to which each agreed to vote any shares of common stock owned by it in favor of the Business Combination Proposal. These agreements apply to the Sponsor as it relates to the founder shares and any placement shares and the requirement to vote such shares in favor of the Business Combination Proposal. Our Sponsor currently owns 243,750 shares of Class A common stock and 1,437,500 shares of Class B common stock, representing 22.62% of the issued and outstanding shares of common stock of MTech. Shares of Class B common stock will automatically convert into shares of Class A common stock on a one-for-one basis, subject to certain anti-dilution adjustments which have been waived by the Sponsor and will be exchanged into shares of common stock of MTech Holdings upon consummation of the Business Combination. As a result, we would need only 2,034,376, or approximately 35.38%, of the 5,750,000 public shares, to be voted in favor of the Business Combination in order to have the Business Combination approved.

 

Quorum and Required Vote for Proposals

 

A quorum of MTech stockholders is necessary to hold a valid meeting. A quorum will be present at the Special Meeting if a majority of the common stock outstanding and entitled to vote at the Special Meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum.

 

Approval of the Business Combination Proposal and the Charter Amendments Proposal requires the affirmative vote of a majority of the issued and outstanding shares of MTech common stock as of the Record Date. Accordingly, an MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or an abstention will have the same effect as a vote “AGAINST” the Business Combination Proposal and the Charter Amendments Proposal.

 

The Incentive Plan Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by stockholders present in person or represented by proxy at the Special Meeting. Accordingly, an MTech stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or the failure of an MTech stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee will result in that stockholder’s shares not being counted towards the number of shares of MTech common stock required to validly establish a quorum, but if a valid quorum is otherwise established, it will have no effect on the outcome of any vote on the Incentive Plan Proposal or the Adjournment Proposal. Abstentions will also have no effect on the outcome of the Incentive Plan Proposal or the Adjournment Proposal.

 

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The transactions contemplated by the Merger Agreement will be consummated only if the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal are approved at the Special Meeting. The Adjournment Proposal does not require the approval of any other proposal to be effective.

 

It is important for you to note that in the event that the Business Combination Proposal, the Charter Amendments Proposal and the Incentive Plan Proposal do not receive the requisite vote for approval, then we will not consummate the Business Combination. If we do not consummate the Business Combination and fail to complete an initial business combination by August 1, 2019, we will be required to dissolve and liquidate our trust account by returning the then remaining funds in such account to the public stockholders.

 

Abstentions and Broker Non-Votes

 

Under the rules of various national and regional securities exchanges, if you hold your stock in “street name” through a broker, bank or other nominee, that entity cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. We believe that all the proposals presented to our stockholders will be considered non-discretionary, and therefore your broker, bank or nominee cannot vote your shares without your instruction. If you do not provide instructions with your proxy, your bank, broker or other nominee may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker or nominee is not voting your shares is referred to as a “broker non-vote.” Broker non-votes will not be counted for the purpose of determining the existence of a quorum, and will not be counted for or against any particular proposal.

 

Abstentions will be considered present for the purposes of establishing a quorum, but will not be counted for or against any particular proposal. An abstention will have the same effect as a vote “AGAINST” the Business Combination Proposal and the Charter Amendments Proposal but will have no effect on the outcome of any vote on the Incentive Plan Proposal or the Adjournment Proposal.

 

Recommendation of MTech’s Board

 

The Board has unanimously determined that each of the proposals is fair to and in the best interests of MTech and its stockholders, and has unanimously approved such proposals. The Board unanimously recommends that stockholders:

 

  vote “FOR” the Business Combination Proposal;
     
  Vote “FOR” the Charter Amendments Proposal;
     
  vote “FOR” the Incentive Plan Proposal; and
     
  vote “FOR” the Adjournment Proposal, if it is presented to the meeting.

 

When you consider the recommendation of MTech’s Board in favor of approval of the Proposals, you should keep in mind that the Sponsor, members of MTech’s Board and officers have interests in the Business Combination that are different from or in addition to (or which may conflict with) your interests as a stockholder. These interests include, among other things:

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $25,000 for their founder shares and such securities should have a significantly higher value at the time of the Business Combination;

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $2,437,500 for the placement units and such securities should have a significantly higher value at the time of the Business Combination;

 

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if MTech is unable to complete a business combination within the required time period, our Chairman will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by MTech for services rendered or contracted for or products sold to MTech, but only if such a vendor or target business has not executed a waiver of claims against the trust account and except as to any claims under our indemnity of the underwriters;

 

unless MTech consummates an initial business combination, MTech’s officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account;

 

the fact that Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination;

 

the fact that the founder shares and placement units, including the placement shares and placement warrants, purchased by the Sponsor will be worthless if a business combination is not consummated;

 

the Sponsor has agreed that the placement units, and all of their underlying securities, will not be sold or transferred by it until MTech has completed a business combination, subject to limited exceptions;

 

the appointment of Scott Sozio, Tahira Rehmatullah and Douglas Rothschild as designees to the board of directors of MTech Holdings which will entitle such individuals to any cash fees, stock options or stock awards that MTech Holdings determines to pay to its non-executive directors in the future; and

 

the continued indemnification of current directors and officers of MTech and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

Voting Your Shares

 

Each MTech common stock that you own in your name entitles you to one vote. If you are a record owner of your shares, there are two ways to vote your shares of MTech common stock at the Special Meeting:

 

  You Can Vote by Signing and Returning the Enclosed Proxy Card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by MTech’s Board “FOR” the Business Combination Proposal, the Incentive Plan Proposal and the Adjournment Proposal (if presented). Votes received after a matter has been voted upon at the Special Meeting will not be counted.

 

  You Can Attend the Special Meeting and Vote in Person. When you arrive, you will receive a ballot that you may use to cast your vote.

 

If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. If you wish to attend the meeting and vote in person and your shares are held in “street name,” you must obtain a legal proxy from your broker, bank or nominee. That is the only way MTech can be sure that the broker, bank or nominee has not already voted your shares.

 

Revoking Your Proxy

 

If you are a record owner of your shares and you give a proxy, you may change or revoke it at any time before it is exercised by doing any one of the following:

 

  you may send another proxy card with a later date;

 

  you may notify MTech’s secretary in writing before the Special Meeting that you have revoked your proxy; or

 

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  you may attend the Special Meeting, revoke your proxy, and vote in person as described above.

 

If your shares are held in “street name” or are in a margin or similar account, you should contact your broker for information on how to change or revoke your voting instructions.

 

Who Can Answer Your Questions About Voting Your Shares?

 

If you are a stockholder and have any questions about how to vote or direct a vote in respect of your MTech common stock, you may call Advantage Proxy Inc., MTech’s proxy solicitor, at (206)870-8565 or email at www.advantageproxy.com.

 

No Additional Matters May Be Presented at the Special Meeting

 

The Special Meeting has been called only to consider the Business Combination Proposal, the Charter Amendments Proposal, the Incentive Plan Proposal and the Adjournment Proposal. Under MTech’s bylaws, other than procedural matters incident to the conduct of the Special Meeting, no other matters may be considered at the Special Meeting if they are not included in this proxy statement/prospectus, which serves as the notice of the Special Meeting.

 

Redemption Rights

 

Pursuant to MTech’s Amended and Restated Certificate of Incorporation, any holders of public shares may demand that such shares be redeemed in exchange for a pro rata share of the aggregate amount on deposit in the trust account, less franchise and income taxes payable and up to $15,000 for dissolution expenses, calculated as of two (2) business days prior to the consummation of the Business Combination. If demand is properly made and the Business Combination is consummated, these shares, immediately prior to the Business Combination, will cease to be outstanding and will represent only the right to receive a pro rata share of the aggregate amount on deposit in the trust account which holds the proceeds of the IPO (calculated as of two (2) business days prior to the consummation of the Business Combination, including interest earned on the funds held in the trust account and not previously released to it to pay the Company’s franchise and income taxes and up to $15,000 of any remaining interest for dissolution expenses). For illustrative purposes, based on funds in the trust account of $58,451,942 on December 31, 2018, the estimated per share redemption price would have been approximately $10.14 (net of income and franchise taxes). MTech anticipates the per share redemption price will be approximately $10.16 (net of income and franchise taxes) at the closing of the Business Combination, which is anticipated to occur during the second quarter of 2019. 

 

In order to exercise your redemption rights, you must

 

prior to 5:00 p.m. Eastern Time on ______, 2019 (two (2) business days before the Special Meeting), tender your shares physically or electronically and submit a request in writing that we redeem your public shares for cash to Continental Stock Transfer & Trust Company, MTech’s transfer agent, at the following address:

 

Continental Stock Transfer & Trust Company

One State Street Plaza, 30th Floor

New York, New York 10004

Attn: Mark Zimkind

E-mail: mzimkind@continentalstock.com

 

deliver your public shares either physically or electronically through DTC to MTech’s transfer agent at least two (2) business days before the Special Meeting. Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates should allot sufficient time to obtain physical certificates from the transfer agent and time to effect delivery. It is MTech’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, MTech does not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other nominee to have the shares certificated or delivered electronically. If you do not submit a written request and deliver your public shares as described above, your shares will not be redeemed.

 

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Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests (and submitting shares to the transfer agent) and thereafter, with MTech’s consent, until the vote is taken with respect to the Business Combination. If you delivered your shares for redemption to MTech’s transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that MTech’s transfer agent return the shares (physically or electronically). You may make such request by contacting MTech’s transfer agent at the phone number or address listed above.

 

Prior to exercising redemption rights, stockholders should verify the market price of MTech common stock as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their redemption rights if the market price per share is higher than the redemption price. We cannot assure you that you will be able to sell your shares of MTech common stock in the open market, even if the market price per share is higher than the redemption price stated above, as there may not be sufficient liquidity in MTech common stock when you wish to sell your shares.

 

If you exercise your redemption rights, your shares of MTech common stock will cease to be outstanding immediately prior to the Business Combination and will only represent the right to receive a pro rata share of the aggregate amount on deposit in the trust account. You will no longer own those shares and will have no right to participate in, or have any interest in, the future growth of MTech Holdings, if any. You will be entitled to receive cash for these shares only if you properly and timely demand redemption.

 

If the Business Combination is not approved and MTech does not consummate an initial business combination by August 1, 2019, MTech will be required to dissolve and liquidate its trust account by returning the then remaining funds in such account to the public stockholders and the warrants will expire worthless.

 

MTech Appraisal Rights

 

MTech stockholders may have appraisal rights in connection with the Business Combination. If MTech Holdings’ securities are not listed on a national securities exchange at the time the Business Combination is consummated, holders of shares of MTech common stock who do not vote in favor of the Business Combination Proposal and who properly demand appraisal of their shares will be entitled to appraisal rights in connection with the Business Combination under Section 262 of the DGCL. Holders of public shares electing to exercise redemption rights will not be entitled to appraisal rights. Additionally, appraisal rights are not available to holders of public warrants. For additional information, including the procedures for properly demanding appraisal, see “Summary of the Proxy Statement/Prospectus - MTech Appraisal Rights.”

 

MJF Appraisal Rights

 

MJF’s holders do not have appraisal rights in connection with the Business Combination under the Colorado Limited Liability Company Act.

 

Proxy Solicitation

 

MTech is soliciting proxies on behalf of its Board. This solicitation is being made by mail but also may be made by telephone or in person. MTech and its directors and officers may also solicit proxies in person. MTech will file with the SEC all scripts and other electronic communications as proxy soliciting materials.

 

MTech will pay the cost of soliciting proxies for the Special Meeting. MTech has engaged Advantage Proxy Inc. to assist in the solicitation of proxies for the Special Meeting. MTech has agreed to pay Advantage Proxy Inc. a fee of $12,500, plus disbursements. MTech will reimburse Advantage Proxy Inc. for reasonable out-of-pocket expenses and will indemnify Advantage Proxy Inc. and its affiliates against certain claims, liabilities, losses, damages and expenses.

 

MTech will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of MTech common stock for their expenses in forwarding soliciting materials to beneficial owners of the MTech common stock and in obtaining voting instructions from those owners. MTech’s directors and officers may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

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THE BUSINESS COMBINATION PROPOSAL

 

We are asking our stockholders to approve the Merger Agreement and the transactions contemplated thereby, including the Business Combination. Our stockholders should carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus. You are urged to read the Merger Agreement in its entirety before voting on this proposal.

 

We may consummate the Business Combination only if it is approved by the affirmative vote of the holders of a majority of the shares of our common stock that are voted at the Special Meeting.

 

Merger Agreement

 

This section describes the material provisions of the Merger Agreement 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 and the related agreements. MTech’s stockholders, warrant holders 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.

 

The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Merger Agreement or other specific dates, which may be updated prior to the Closing of the Business Combination. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Merger Agreement. The representations, warranties and covenants in the Merger Agreement are also modified in important part by the disclosure schedules attached thereto which are not filed publicly. The disclosure schedules were used for the purpose of allocating risk among the parties rather than establishing matters as facts. We do not believe that the disclosure schedules contain information that is material to an investment decision.

 

General Description of the Merger Agreement

 

On October 10, 2018, MTech entered into the Merger Agreement with MJF, MTech Holdings, Purchaser Merger Sub, Company Merger Sub, the Purchaser Representative and the Seller Representative. The Merger Agreement was amended on April 17, 2019. The Merger Agreement provides for (i) the merger of Purchaser Merger Sub with and into MTech, with MTech continuing as the surviving corporation (the “Purchaser Merger”), and with security holders of MTech receiving substantially equivalent securities of MTech Holdings and (ii) the merger of Company Merger Sub with and into MJF, with MJF continuing as the surviving entity (the “Company Merger”, and together with the Purchaser Merger, the “Mergers”), and with the members of MJF receiving shares of common stock of MTech Holdings (subject to the withholding of the escrow shares being deposited in an escrow account in accordance with the terms and conditions of the Merger Agreement). Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time: (a) each share of MTech common stock issued and outstanding immediately prior to the Effective Time will be converted automatically into and thereafter represent the right to receive one share of MTech Holdings common stock; (b) each issued and outstanding MTech warrant shall be automatically adjusted to become one MTech Holdings warrant; (c) the unit purchase option held by MTech’s underwriters will become an equivalent unit purchase option for MTech Holdings; (d) each Company Units will convert automatically into the right to receive the Merger Consideration (as defined below) (except that for MJF profits interest units that are unvested as of the Effective Time, the Merger Consideration will continue to be subject to vesting restrictions); and (e) each outstanding MJF convertible security that is not a Company Unit, if not exercised or converted prior to the Effective Time, shall be cancelled, retired and terminated. At the Closing, MTech Holdings will change its name to “Akerna Corp.”

 

MTech Sponsor LLC, MTech’s sponsor, is serving as the Purchaser Representative under the Merger Agreement, and in such capacity will represent the interests of MTech Holdings’ stockholders (other than the Sellers) after the Effective Time with respect to certain matters under the Merger Agreement, including the determination of any Merger Consideration adjustments or indemnification claims after the Closing. Jessica Billingsley, as successor to Harold Handelsman, is serving as the Seller Representative under the Merger Agreement, and in such capacity will represent the interests of the Sellers with respect to certain matters under the Merger Agreement, including the determination of any Merger Consideration adjustments or indemnification claims made after the Closing.

 

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Merger Consideration

 

The Merger Consideration to be paid pursuant to the Merger Agreement to the holders of Company Units as of immediately prior to the Effective Time (the “Sellers”) will be an amount equal to: (i) $70,000,000, plus (or minus if negative) (ii) the net working capital of MJF (which is the current assets of MJF (including cash but excluding any receivables from a Seller) less the current liabilities of MJF (excluding MJF’s indebtedness)) as of the close of business on the Closing Date, prior to giving effect to the Closing (the “Reference Time”) less the targeted amount of net working capital of $8,800,000, minus (iii) the aggregate indebtedness of MJF as of the Reference Time. The indebtedness calculation for MJF includes indebtedness for borrowed money (including outstanding principal and interest), the deferred purchase price of property or services other than ordinary course trade receivables, indebtedness evidenced by a note, bond, debenture, credit agreement or similar instrument, capital lease obligations, obligations under a line or letter of credit, banker’s acceptance, guarantee or similar credit transaction that have been drawn against, obligations in respect of acceptances issued or created, swaps and hedging transactions, obligations secured by a lien, premiums, prepayment fees or other penalties, fees costs or expenses with respect to indebtedness and all guarantees of indebtedness of other persons or entities.

 

The Merger Consideration to be delivered by MTech Holdings at the Closing is based on an estimate of the above adjustments in accordance with a statement to be delivered by MJF prior to the Closing, which is subject to the review and reasonable approval by MTech. The Merger Consideration is subject to a true-up adjustment based on a final confirmation of the above adjustments in accordance with a statement to be delivered by MTech Holdings’ chief financial officer within 90 days after the Closing and subject to a customary independent accountant dispute mechanism between the Seller Representative and the Purchaser Representative for any disagreements. If the post-Closing adjustment is (i) a negative adjustment in favor of MTech Holdings, MTech Holdings will make a claim against the Escrow Shares (as defined below) at the Closing Share Price (as defined below) per share or other escrow property in the Escrow Account (as defined below) on a dollar for dollar basis equal to the amount of the negative adjustment or (ii) a positive purchase price in favor of the Sellers, MTech Holdings will issue additional shares to the Sellers at the Closing Share Price per share on a dollar for dollar basis equal to the amount of the positive adjustment.

 

The Merger Consideration will be paid in the form of a number of shares of MTech Holdings common stock (the “Consideration Shares”), valued at $10.16 per share (the “Closing Share Price”). Notwithstanding the foregoing, ten percent (10%) of the Merger Consideration otherwise issuable to the Sellers at Closing (together with any equity securities paid as dividends or distributions with respect to such shares or into which such shares are exchanged or converted, the “Escrow Shares”) shall be held, along with any other dividends, distributions or other income on the Escrow Shares (other than regular ordinary dividends), in a segregated escrow account (the “Escrow Account”) to cover any negative post-Closing adjustments to the Merger Consideration or claims against the Sellers for indemnification pursuant to the Merger Agreement until 90 days after MTech Holdings files its Annual Report on Form 10-K with the SEC for the fiscal year ending June 30, 2019 (the “Expiration Date”), with the exception of Escrow Shares held to satisfy then pending claims which shall remain in the Escrow Account until the claims are resolved. Additionally, Merger Consideration Shares issued to the Sellers for unvested MJF profits interest units shall continue to be subject to the same vesting and forfeiture after the Closing as applicable to the profits interest units from which they are converted. Typically, the profits interest units of MJF vest in four equal 25% annual installments, with the first tranche vesting on the first anniversary of the date of grant. Vesting of each tranche is conditioned upon the holder thereof being employed by MJF on the vesting date. Assuming that 6,889,764 shares of MTech Holdings common stock are issued to the current unit holders of MJF in the business combination (using the aggregate merger consideration amount of $70 million (assuming that there are no adjustments to the merger consideration at the closing for net working capital or indebtedness) divided by the fixed price of $10.16 per share, and including the shares of MTech Holdings common stock to be held in escrow), an aggregate of 88,568 shares of MTech Holdings common stock will be issued to the holders of the unvested profit interests units of MJF.

 

On January 18, 2019, the parties to the Merger Agreement and certain of the holders of MJF’s outstanding preferred stock and common stock entered into an allocation agreement which served to modify the allocation of the merger consideration prescribed by the Merger Agreement. Under the terms of the allocation agreement, additional shares comprising the merger consideration shall be issued to holders of the profit interest units of MJF, which additional shares shall be funded from shares otherwise issuable to such holders of MJF’s preferred stock and common stock.

 

Representations and Warranties

 

The Merger Agreement contains customary representations and warranties by each of MTech, MJF, MTech Holdings and the Merger Subs. Many of the representations and warranties are qualified by materiality or Material Adverse Effect. “Material Adverse Effect” as used in the Merger Agreement means with respect to any specified person or entity, any fact, event, occurrence, change or effect that has had or would reasonably be expected to have a material adverse effect on the business, assets, liabilities, results of operations, prospects or condition (financial or otherwise) of such person or entity and its subsidiaries, taken as a whole, or the ability of such person or entity or any of its subsidiaries on a timely basis to consummate the transactions contemplated by the Merger Agreement or the ancillary documents to which it is a party or bound or to perform its obligations thereunder, in each case subject to certain customary exceptions. Certain of the representations are subject to specified exceptions and qualifications contained in the Merger Agreement or in information provided pursuant to certain disclosure schedules to the Merger Agreement.

 

The representations and warranties made by the parties survive the Closing until the Expiration Date, except that fraud claims survive indefinitely.

 

Indemnification

 

After the Closing, the Sellers are required to severally indemnify MTech Holdings, the Purchaser Representative and their respective affiliates, and each of their respective officers and directors, managers, employees, successors and permitted assignees for breaches of any representations, warranties or covenants of MFJ or any post-Closing covenants of the Purchaser Parties. After the Closing, MTech Holdings is required to indemnify the Sellers, the Seller Representative and their respective affiliates, and each of their respective officers and directors, managers, employees, successors and permitted assignees for breaches of any of representations or warranties by the Purchaser Parties or any pre-Closing covenants of the Purchaser Parties.

 

Except for fraud-based claims and certain fundamental representations and warranties, indemnification claims for breaches of representations and warranties are subject to an aggregate basket of $500,000 before any indemnification claims can be made, at which point the applicable indemnifying parties will be responsible for all claims from the first dollar of losses.

 

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The maximum aggregate amount of indemnification payments which (i) the Sellers will be obligated to pay (excluding fraud claims) is capped at the Escrow Shares or other escrow property in the Escrow Account at the time of determination and (ii) MTech Holdings will be obligated to pay (excluding fraud claims) will not exceed a number of shares of MTech Holdings common stock equal to the number of the Escrow Shares deposited in the Escrow Account at the Closing. Any indemnification payments by MTech Holdings will be made by issuance of new shares of MTech Holdings common stock at the then current market price and any indemnification payments by the Sellers (other than fraud claims) will be made solely from the Escrow Account, with any Escrow Shares valued at the then current market price. In the case of fraud, claims for indemnification are limited to the Merger Consideration actually paid.

 

Covenants of the Parties

 

Each party agreed in the Merger Agreement to use its commercially reasonable efforts to affect the Closing. The Merger Agreement also contains certain customary covenants by each of the parties 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, as well as certain customary covenants, such as confidentiality and publicity that will continue after the termination of the Agreement.

 

The Merger Agreement and the consummation of the transactions contemplated thereby requires the approval of both MTech’s stockholder and MJF’s members. In connection with the Mergers, MTech and MTech Holdings agreed to prepare, with the reasonable assistance of MJF, and use its commercially reasonable efforts to file with the SEC a registration statement on Form S-4 (as amended, the “Registration Statement”) containing a proxy statement/prospectus registering the issuance of MTech Holdings securities in the Mergers under the Securities Act, and soliciting proxies from MTech stockholders for use at the Special Meeting to approve the Merger Agreement and the transactions contemplated thereby and related matters (the “MTech Stockholder Approval”). The Prospectus/proxy statement will also be used as an information statement by MJF in connection with the consideration and vote by its members on the Merger.

 

Each of the Parties also agreed not to solicit or enter into any alternative competing transactions during the period from the date of the Merger Agreement and continuing until the earlier of the termination of the Merger Agreement or the Closing.

 

The Parties also agreed to take all necessary action so that the board of directors of MTech Holdings following the Closing will consist of eight individuals, a majority of whom shall be independent directors in accordance with Nasdaq requirements. Three of the members of the board of directors will be designated by MTech, at least two of whom will qualify as independent directors under the Nasdaq rules and five of the members of the board of directors will be designated by MJF, at least three of whom will qualify as independent directors under the Nasdaq rules. The MTech Holdings board of directors after the Closing will be classified into three classes, with each director holding office for a three-year term or until the next annual meeting of stockholders at which such director’s class is up for election and where his or her successor is elected and qualified. As of the Closing, one director designated by MTech and two directors designated by MJF shall be allocated to each of Class B and Class C and the Class A directors will include one director designated by MJF and one director designated by MTech.

 

Conditions to Consummation of the Merger

 

The obligations of the Parties to consummate the Merger is subject to various conditions, including the following mutual conditions of the parties unless waived: (i) the approval of the Merger Agreement and the transactions contemplated thereby and related matters by the requisite vote of MTech’s stockholders and MJF’s members (although as discussed below, MJF and MTech have already obtained voting agreements from MJF’s members); (ii) expiration of the applicable waiting period under any antitrust laws; (iii) receipt of requisite regulatory approvals and requisite third party consents; (iv) no law or order preventing or prohibiting the Merger or the other transactions contemplated by the Merger Agreement; (v) no pending litigation to enjoin or restrict the consummation of the Closing; (vi) MTech having at least $5,000,001 in net tangible assets as of the Closing, after giving effect to the Redemption; (vii) the election or appointment of members to MTech Holdings’ board of directors in accordance with the Merger Agreement; and (viii) the effectiveness of the Registration Statement.

 

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In addition, unless waived by MJF, the obligations of MJF to consummate the Company Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction of the following Closing conditions, in addition to customary certificates and other closing deliveries:

 

The representations and warranties of the Purchaser Parties being true and correct as of the date of the Merger Agreement and as of the Closing (subject to Material Adverse Effect);

The Purchaser Parties having performed in all material respects its obligations and complied in all material respects with its covenants and agreements under the Merger Agreement required to be performed or complied with on or prior the date of the Closing;

Absence of any Material Adverse Effect with respect to MTech since the date of the Merger Agreement which is continuing and uncured;

MTech Holdings having amended and restated its certificate of incorporation;

MJF having received a copy of the Escrow Agreement duly executed by the Purchaser Representative and the Escrow Agent;

MJF having received a copy of the Amended and Restated Registration Rights Agreement duly executed by MTech, MTech Holdings and Sponsor, and the Stock Escrow Agreement Amendment duly executed by MTech, MTech Holdings, Sponsor and the Escrow Agent;

MJF having received a copy of each Non-Competition Agreement and Lock-Up Agreement duly executed by MTech and the Purchaser Representative;

The MTech Holdings shares of common stock comprising the Merger Consideration shall have been accepted for listing upon the Closing on Nasdaq; and

Each Waiver Agreement shall be in full force and effect.

 

Unless waived by MTech, the obligations of MTech and the other Purchaser Parties to consummate the Purchaser Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction of the following Closing conditions, in addition to customary certificates and other closing deliveries:

 

The representations and warranties of MJF being true and correct as of the date of the Merger Agreement and as of the Closing (subject to Material Adverse Effect);

MJF having performed in all material respects its obligations and complied in all material respects with its covenants and agreements under the Merger Agreement required to be performed or complied with on or prior to the Closing Date;

Absence of any Material Adverse Effect with respect to MJF since the date of the Merger Agreement which is continuing and uncured;

MTech having received employment agreements between certain individuals and MJF or MTech Holdings, duly executed by the parties thereto;

MTech having received a copy of the Escrow Agreement duly executed by the Seller Representative and the Escrow Agent;

MTech having received copies of the Lock-Up agreements, Letters of Transmittal and other Transmittal Documents duly executed by each Seller;

MTech having received evidence that MJF has terminated, extinguished and cancelled in full all outstanding Company Convertible Securities;

MTech having received written resignations effective as of the Closing, for each of the managers and officers of MJF;

MTech having received a copy of Non-Competitions Agreements from each of Jessica Billingsley and Amy Poinsett duly executed by each such person and MJF, and

MTech having received evidence that certain contracts involving MJF and/or the Sellers shall have been terminated with no further obligation or liability of MJF.

 

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Termination

 

The Merger Agreement may be terminated under certain customary and limited circumstances at any time prior to the Closing, including:

 

by mutual written consent of MTech and MJF;

by written notice by either MTech or MJF if the Closing has not occurred on or prior to March 15, 2019;

by written notice by either MTech or MJF if a governmental authority of competent jurisdiction shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement, and such order or other action has become final and non-appealable;

by written notice by MTech or MJF if there has been a material breach by the other party of any of its representations, warranties, covenants or agreements contained in the Merger Agreement, such that the related closing condition would not be met, and such breach is incapable of being cured or is not cured within the earlier of (i) 20 days of the non-breaching party providing notice of such breach or (ii) by the Outside Date;

by written notice by MTech or MJF if there has been a Material Adverse Effect on the other party since the date of the Merger Agreement which is uncured and continuing;

by written notice by either MTech or MJF if MTech holds the Purchaser Special Meeting and it does not receive the Required Purchaser Stockholder Approval; or

by written notice by either MTech or MJF if MJF holds the Company Special Meeting and it does not receive the Required Company Member Approval.

 

If the Merger Agreement is terminated, all further obligations of the parties under the Merger Agreement will terminate and will be of no further force and effect (except that certain obligations related to public announcements, confidentiality, termination and termination fees, waiver of claims against the trust, and certain general provisions will continue in effect), and, except for the termination fees discussed below, no party will have any further liability to any other party thereto except for liability for any fraud claims or willful breach of the Merger Agreement prior to such termination.

 

In the event that the Merger Agreement is terminated by MTech as a result of a breach by MJF, then MJF shall pay to MTech a cash termination fee equal to $2,000,000, plus the expenses actually incurred by the Purchaser Parties in connection with the authorization, preparation, negotiation, execution and performance of the Merger Agreement and the transaction contemplated thereby.

 

In the event that the Merger Agreement is terminated by MJF as a result of a breach by a Purchaser Party, then MTech shall pay to MJF a cash termination fee equal to $2,000,000, plus the expenses actually incurred by MJF and its affiliates in connection with the authorization, preparation, negotiation, execution and performance of the Merger Agreement and the transaction contemplated thereby. The MTech termination fee shall however only be payable on the earlier of the completion of a business combination with a person or entity other than MJF or upon the liquidation of MTech (in each case solely to the extent of funds outside of MTech’s trust account after payment of amounts owned by MTech to its public stockholders.)

 

Trust Account Waiver

 

MJF has agreed that it and its affiliates will not have any right, title, interest or claim of any kind in or to any monies in MTech’s trust account held for its public stockholders, and agreed not to, and waived any right to, make any claim against the trust account (including any distributions therefrom) directly or indirectly to public stockholders.

 

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. Stockholders and other interested parties are urged to read such Related Agreements in their entirety. 

 

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Voting Agreements

 

Simultaneously with the execution of the Merger Agreement certain members of MJF entered into voting agreements with MTech and MJF (the “Voting Agreements”). Under the Voting Agreements, the MJF members agree to vote all of their Company Units in favor of the Merger Agreement and related transactions. The MJF members also agree to take certain other actions in support of the Merger Agreement and related transactions and refrain from taking actions that would adversely affect such MJF member’s ability to perform its obligations under the Voting Agreement. Each such MJF member also provides a proxy to MTech to vote its Company Unit in accordance with the foregoing. The Voting Agreements also prevent transfers of the MJF Company Units held by the MJF member party thereto between the date of the Voting Agreement and the date of the Company Special Meeting, except for certain permitted transfers.

 

Lock-Up Agreement

 

At the Closing, each of the Sellers will enter into a Lock-Up Agreement with MTech Holdings and the Purchaser Representative in substantially the form attached to the Merger Agreement (each, a “Lock-Up Agreement”). Under the Lock-Up Agreement, each such holder will agree not to, during the period commencing from the Closing and (A) with respect to fifty percent (50%) of the Merger Consideration securities to be received by the holder in the Transactions (together with any securities paid as dividends or distributions with respect to such securities or into which such securities are exchanged or converted, the “Restricted Securities”), ending on the earlier of (x) one (1) year after the date of the Closing, and (y) the date after the Closing on which MTech Holdings consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of MTech Holdings’ stockholders having the right to exchange their equity holdings in MTech Holdings for cash, securities or other property (a “Subsequent Transaction”) and (B) with respect to the remaining fifty percent (50%) of the Restricted Securities, ending on the earliest of (x) the one (1) year anniversary of the date of the Closing, (y) the date after the Closing on which MTech Holdings consummates a Subsequent Transaction and (z) the date on which the closing sale price of shares of MTech Holdings common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any twenty (20) trading days within any thirty (30) trading day period: (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. The lock-up is substantially the same as that entered into by the Sponsor in connection with the MTech IPO.

 

Non-Competition Agreement

 

At the Closing, Jessica Billingsley and Amy Poinsett, the founders of MJF (the “MJF Founders”), will each enter into a Non-Competition and Non-Solicitation Agreement in substantially the form attached to the Merger Agreement (each, a “Non-Competition Agreement”) in favor of MTech Holdings, MJF and their respective present and future affiliates, successors and direct and indirect subsidiaries (collectively, the “Covered Parties”). Ms. Billingsley shall also have non-competition and non-solicitation obligations under her employment agreement to be effective as of the consummation of the Mergers, as mentioned under “Executive Compensation of MJF Employment Agreements — Jessica Billingsley and Amy Poinsett”. Under each Non-Competition Agreement, for a period of four (4) years after the Closing (such period, the “Restricted Period”), the MJF Founder party thereto has agreed that she will not and will not permit her affiliates to, without MTech Holdings’ prior written consent, directly or indirectly engage in the business of creating and selling software, consulting and data solutions for cannabis businesses, including cultivation management, point of sale, patient management and inventory tracking systems (the “Business”) 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 in the United States, Australia, Canada, Chile, Columbia, Denmark, New Zealand, South Africa, Spain, Switzerland, Uruguay or in any other markets in which the Covered Parties are engaged, or are actively contemplating to become engaged in the Business as the Closing Date or doing the Restricted Period. However, such MJF Founder and her affiliates will be permitted to own passive investments of less than 3% of the total issued and outstanding equity interests of a competitor that is publicly traded, so long as the MJF Founder and her affiliates and their respective equity holders, directors, officers, managers and employees that were involved with the business of any Covered Party are not involved in the management or control of such competitor. Under each Non-Competition Agreement, the MJF Founder party thereto and her 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. Each MJF Founder 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.

 

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Escrow Agreement

 

At or prior to the Closing, MTech Holdings, the Seller Representative and Continental Stock Transfer & Trust Company or such other escrow agent mutually acceptable to MTech and MJF (the “Escrow Agent”) will enter into an escrow agreement (the “Escrow Agreement”) pursuant to which, 10% of the Merger Consider consideration otherwise issuable to the Sellers at Closing shall be held, along with any other dividends, distributions or other income on the Escrow Shares (other than regular ordinary dividends), in a segregated escrow account to cover any negative post-Closing Merger Consideration adjustment and any indemnification claims made against the Sellers under the Merger Agreement.

 

Letter of Transmittal

 

At the Closing, each MJF unitholder will provide MTech Holdings and with a completed and duly executed Letter of Transmittal, in substantially the form attached to the Merger Agreement (each, a “Letter of Transmittal”), with respect to their Company Units. In the Letter of Transmittal, each such holder makes customary representations and warranties, acknowledges its obligations with respect to the indemnification obligations and escrow provisions under the Merger Agreement, appoints the Seller Representative to act on its behalf in accordance with the terms of the Merger Agreement, provides a general release to MJF and its affiliates and certain related persons with respect to claims relating to the holder’s capacity as a holder of Company Units, and agrees to be bound by confidentiality obligations to MJF for two years after the Closing. Additionally, MTech Holdings grants to the Sellers under the Letter of Transmittal customary piggyback registration rights on any MTech Holdings share issued by MTech Holdings after the Closing for a positive post-Closing Merger Consideration adjustment or any indemnification claim made against MTech Holdings under the Merger Agreement.

 

Waiver Agreement

 

Simultaneously with the execution of the Merger Agreement, MTech, MJF and the Sponsor, entered into a Waiver Agreement in substantially (the “Waiver Agreement”) pursuant to which the Sponsor agreed to waive certain of its anti-dilution rights under MTech’s Amended and Restated Certificate of Incorporation that may have been otherwise triggered upon the consummation of the transactions contemplated by the Merger Agreement.

 

Amended Founders Registration Rights Agreement

 

At the Closing, MTech, MTech Holdings and the Sponsor, shall enter into a First Amendment to MTech’s Registration Rights Agreement, dated January 29, 2018, with the Sponsor (the “Registration Rights Agreement”), pursuant to which, among other things, MTech Holdings will be added as a party to the Registration Rights Agreement and the defined term Registrable Securities therein will be amended to include the shares of common stock and warrants of MTech Holdings issued by MTech Holdings to the Sponsor under the Merger Agreement.

 

Amendment to Stock Escrow Agreement

 

At the Closing, MTech, MTech Holdings, the Sponsor, and the Escrow Agent shall enter into an amendment to MTech’s Stock Escrow Agreement, dated January 29, 2018, with the Sponsor and EBC (the “Stock Escrow Agreement”), pursuant to which, among other things, MTech Holdings will be added as a party to the Stock Escrow Agreement and the defined term Escrow Shares therein will be amended to include the shares of common stock of MTech Holdings into which the Founder Shares on deposit with the Escrow Agent automatically convert upon the effectiveness of the Mergers.

 

Background of the Business Combination

 

MTech is a blank check company formed in Delaware on September 27, 2017 for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. The Business Combination was the result of an extensive search for a potential transaction using the network and investing and operating experience of the management team and board of directors of MTech. The terms of the Business Combination were the result of extensive negotiations between the Sponsor and MJF.

 

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Prior to the consummation of the MTech IPO, neither MTech, nor anyone on its behalf, had contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to a transaction with MTech.

 

After the MTech IPO, MTech conducted an active search for potential target companies with the objective of consummating a merger. Management of MTech contacted, and were contacted by, several individuals and entities with respect to acquisition and merger opportunities, including companies and financial advisors within the cannabis industry such as technology, distribution, hemp, brand development and media companies. MTech compiled a pipeline of high priority potential targets and updated and supplemented such pipeline from time to time. This pipeline was periodically shared with the MTech Board of Directors.

 

Specifically, the management of MTech:

 

Identified, evaluated and contacted 33 potential acquisition and merger targets, including MJF;

Conducted initial business and financial due diligence or had meaningful engagements with representatives, including meetings and conference calls to discuss potential business combinations, of five potential acquisition targets (other than MJF); and

Provided an initial non-binding indication of interest to one potential acquisition target (other than MJF).

 

MTech reviewed the potential acquisition targets based on the same criteria discussed below and used in evaluating the Business Combination. These criteria included established cannabis ancillary businesses with proven track records, experienced management teams and strong competitive positions with, or with the potential for, revenue and earnings growth and attractive free cash flow generation. MTech focused on sectors and companies that management believed would benefit from being a publicly traded company.

 

Description of negotiation process with candidates other than MJF

 

Beginning February 1, 2018, MTech began discussions with several target companies and moved quickly to in-depth meetings and diligence with Company A, a global product distributor to various retail outlets. MTech management met with Company A at the company headquarters on February 13, 2018 and executed a non-disclosure agreement with Company A on February 15, 2018 to begin diligence. MTech conducted due diligence on Company A from mid-February 2018 to late March 2018. On March 15, 2018, MTech submitted a non-binding letter of intent to Company A and was notified by Company A on March 29, 2018 that it would continue to pursue its IPO instead.

 

On March 6, 2018, MTech signed a non-disclosure agreement with Company B, a cannabis point-of-sale platform. Company B was introduced to MTech through an MTech board member who is also a shareholder in Company B. On March 8, 2018, Scott Sozio, CEO of MTech, Steve Van Dyke, Chairman of MTech, Tahira Rehmatullah, CFO of MTech, and Emily Paxhia, an MTech board member, met with the CEO of Company B at the company’s headquarters where Company B’s business plan, financials, and emerging products were discussed during the meeting. After discussing internally, MTech decided not to pursue the transaction as Company B’s operations, though growing quickly, were smaller than an anticipated target.

 

Messrs. Sozio and Van Dyke and Mses. Rehmatullah and Paxhia also met with Company C, a customer relationship management (CRM) platform, on March 6, 2018. MTech and Company C held preliminary conversations at Company C’s headquarters, but opted not to sign an NDA as Company C was moving forward with a term sheet requiring exclusivity with another company.

 

On March 28, 2018, the financial advisor to a target, referred to as Company D, contacted MTech to discuss a potential business combination. MTech spoke to Company D on April 5, 2018 along with its financial advisor to further understand its business, financial performance, and goals. Company D is a tobacco producer that was not in the cannabis industry, but is looking to utilize its primary product to transition into the industry given its similar production and distribution strategies. After consideration, MTech notified Company D on April 27, 2018 that it decided not to pursue the transaction. In the opinion of MTech, Company D did not represent the best opportunity for a successful business combination based on Company D’s need for extensive lead time to transition from tobacco into cannabis, and the fact that Company D’s proposed operations would involve the production of cannabis rather than the operation of a business auxiliary to the cannabis industry.

 

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On March 21, 2018, Mr. Sozio spoke to a representative from Company E, a provider of commercial hydroponic systems. Mr. Sozio was introduced by email to the representative of Company E by Vector Capital, who had worked with the CEO of Company E in the past. Mr. Sozio executed an NDA on March 21, 2018 with Company E and from mid-March to early May 2018, MTech conducted due diligence on Company E. On May 23, 2018, Mses. Rehmatullah and Paxhia met with Company E’s management team at their headquarters and received an in-depth review of the company, its financials, and growth strategy. After completing its review, MTech decided not to pursue a transaction with Company E as Company E had not advanced far enough on achieving its revenue projections.

 

On April 9, 2018, Doug Rothschild, advisor to MTech, contacted a representative of Company F, a wholesaler and manufacturer of hydroponics equipment and high-intensity grow lights. Mr. Rothschild and Company F’s representative had a follow-up conversation on April 11, 2018 to further evaluate Company F’s viability as a target for MTech and had another call on April 16, 2018, which call included Mr. Sozio. On April 20, 2018, Company F executed a non-disclosure agreement with MTech. On April 24, 2018 Company F’s representative notified MTech that due to its engagement in numerous transactions at the time, they would need some time to review a potential transaction with MTech. Company F ultimately decided on May 16, 2018 they were not ready to move forward, and discussions were terminated.

 

Between May 14 and May 16, 2018, Messrs. Sozio and Van Dyke and Ms. Rehmatullah visited or spoke to five hemp companies in Kentucky and Colorado to further understand the businesses, meet management teams, and assess viability of executing a transaction with a hemp company in the United States under current federal legislation. The meetings were arranged through Mr. Jonathan Miller, an attorney at Frost Brown Todd in Lexington, KY and contact of Mr. Van Dyke. Mr. Miller is the leader of the U.S. Hemp Roundtable, a coalition of dozens of hemp companies. Following these meetings, MTech decided that pursuing a transaction with a business that manufactures hemp was not in the best interest of stockholders given the uncertainty on federal regulations of hemp companies at that time.

 

Between February 2018 and June 2018, MTech representatives met with and spoke to dozens of additional companies in the cannabis ancillary space across the United States, ranging from technology firms to hemp farms. Potential targets were either not qualified for the proposed transaction for various reasons or not interested in a business combination at the time of communication.

 

Description of negotiation process with MJF

 

On April 2, 2018, Andrew Shapiro, an investor and board observer of MJF, introduced via email Messrs. Sozio and Rothschild to Jessica Billingsley, CEO and co-founder of MJF, and Amy Poinsett, Chairman and co-founder of MJF. On April 6, 2018, Messrs. Sozio and Rothschild had an introductory call with Ms. Billingsley, and shortly thereafter executed a non-disclosure agreement with MJF. Upon receiving the executed NDA, MTech received an in-depth investor presentation that included information such as client locations, business model, products, summary financial projections up to 2020, SaaS metrics, and competitor landscape. MTech conducted initial due diligence on MJF and held conference calls with the management team and Board of Directors of MJF between April 6 and April 22, 2018. MTech submitted to MJF a non-binding letter of intent (the “LOI”) for a business combination on April 22, 2018.

 

On April 26, 2018, Messrs. Sozio, Rothschild, and Van Dyke and Ms. Rehmatullah held a conference call with MJF’s Board of Directors, excluding one Board member, Roger McNamee, who was unable to attend, to further discuss the LOI and potential business combination. Following the conversation, Ms. Billingsley sent MTech access to the MJF data room for more in-depth diligence, which included and are not limited to, information about MJF’s business, historical and budget to actual financial statements, tax returns, investor updates, employment matters, material agreements, and prior financing documents. Review of these materials were part of MTech’s due diligence on the MJF to verify information that had been communicated by management, as well as to assess the company’s current operations and future potential. On April 30, 2018, Ms. Rehmatullah met with Andrew Shapiro in New York City to further discuss SPACs and the potential transaction between MTech and MJF. On May 1, 2018, MTech management spoke to the MJF Board member who was not present on the April 26th call to answer his questions about the potential transaction.

 

On May 8 and May 16, 2018, Scott Sozio and Tahira Rehmatullah, MTech’s CEO and CFO, respectively, met with Jessica Billingsley at MJF’s office in Denver, CO. The May 8th visit included an office tour and introductions to several senior management team members as well as further discussion about the LOI and process of the business combination.

 

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On May 25, 2018, MTech’s management team held a conference call with its Board of Directors to discuss the contemplated transaction with MJF, the terms, and several requested changes to the LOI from MJF. At that time, MTech’s Board of Directors determined the fair market value of MJF (on an enterprise value basis) to be $60 million based on prior capital raises’ post-money valuations (Series A Preferred = $12.6 million and Series B Preferred = $39.9 million) and revenue growth since the Series B Preferred raise, which was completed in 2015. Other terms considered by the Board of Directors included (i) the MJF equity holders’ rollover investment with no cash out, (ii) the post-closing board composition with MJF retaining four board seats and MTech retaining three, and (iii) the 45 day exclusivity period for both parties. The Board unanimously approved pursuing the transaction and contributed additional insights into MJF and its competitors based on their collective experiences in the industry.

 

Following the Board of Directors’ discussion on May 25, Mr. Sozio sent a revised LOI to Ms. Billingsley that included a mutual exclusivity provision and fully populated terms of the transaction.

 

On June 11, 2018, Messrs. Sozio and Rothschild spoke to Matt Bigliardi, an MJF Board member, about MTech’s capital structure. The same day, Messrs. Sozio and Rothschild spoke to Ms. Billingsley regarding the progress of the ongoing private placement of MJF’s Series C Preferred Units.

 

On June 19, 2018, Ms. Billingsley notified MTech that the MJF Board approved the LOI. Messrs. Sozio, Rothschild, and Van Dyke and Ms. Rehmatullah and Ms. Billingsley agreed to meet with a prospective investor in MJF’s Series C financing to address their questions on the LOI. On June 20, 2018, Messrs. Sozio and Rothschild and Mses. Billingsley and Rehmatullah spoke to confirm the MJF Board’s approval of the LOI and discuss the logistics for meeting with MJF’s private placement investor, Titan Capital.

 

On June 25, 2018, Doug Rothschild, Scott Sozio, and Tahira Rehmatullah traveled to Denver to meet with MJF’s senior managers and reviewed and discussed certain preliminary financials and other business information of MJF. The discussion covered updated financial information including budget to actual financial statements for 2017 and 2018 as well as projections for 2019 and 2020, sales and marketing, product demonstration and roadmap, and client services (onboarding, support and consulting). The financial information presented by MJF included information material to MTech in considering the Business Combination, specifically, MJF’s year-over-year dollar and percent revenue growth, gross profit and gross margin growth, operating expenses and line items contributing to increased expenses each year such as sales/marketing and human capital expenditures and potential impact on revenue growth, projected gain/loss from operations, and expectations for profitability in 2021. MJF’s financial projections were based on the most recent Series C Preferred financing to raise $10 million. MJF experienced 87% revenue growth from 2017 to 2018, and although expectations for 2018 to 2019 were only 5% growth due to the high first year revenue from state contracts recognized in 2018, 2019 to 2020 revenue projected 55% growth and 2020 to 2021revenue projected 59% growth. In addition, MJF projected healthy gross margins of 60% in 2019, 70% in 2020, and 69% in 2021, which all seemed reasonable since the gross margin in 2017 was 78% and in 2018 was 61%. These metrics were important in the MTech team’s analysis because they indicated that the business was on track to organically grow more than 50% each year for the next few years with only the use of the Series C Preferred proceeds. The projections did not include aggressive assumptions on new state contracts or new countries as clients outside of the current 12 countries that MJF operates in, which gave the MTech team confidence that the company had even higher growth potential than it projected and could grow significantly faster by using the cash proceeds from a potential business combination with MTech.

 

On June 27, 2018, Messrs. Sozio, Rothschild, and Van Dyke and Mses. Rehmatullah and Billingsley met with two representatives of Titan Capital, a prospective investor in MJF’s Series C financing, in New York City. Following the meeting, Mr. Sozio made non-substantial changes to the LOI and sent it to Ms. Billingsley for execution.

 

On June 28, 2018, MTech and MJF executed the LOI. Following the execution of the LOI on June 28, Messrs. Sozio and Rothschild and Ms. Rehmatullah held a conference call with counsel from Ellenoff Grossman & Schole LLP (“EGS”) to discuss the timeline and requirements for the proposed business combination with MJF.

 

On June 30, 2018, Mr. Sozio notified the MTech Board of Directors that the LOI had been executed.

 

On July 2, 2018, MTech held a conference call with Steve Levine of EBC, the underwriter for its IPO, to discuss the transaction timeline, immediate next steps in the process, and introduction of the proposed business combination to Nasdaq. Following the conversation, Ms. Rehmatullah sent EBC a summary of MJF and its business for Mr. Levine to share with Nasdaq for review.

 

From July 10, 2018 to October 16, 2018, Messrs. Sozio and Rothschild and Ms. Rehmatullah and Ms. Billingsley held weekly update calls among the management team and with counsel to discuss status of the transaction and pending items. During this period, MTech also continued its due diligence on MJF.

 

On July 20, 2018, Mr. Sozio and Mses. Rehmatullah and Paxhia from MTech held a conference call with John Justice from Thought Ensemble, a technology consulting firm. MTech sought to engage Though Ensemble to audit MJF’s technology platform and provide a report with confirmatory due diligence that MJF’s technology exists, works, is relevant and up to date, and has proper controls and security, as well as potential recommendations on how to improve MJF’s platform and processes, if necessary. Following the discussion on July 20, 2018, Mr. Justice provided an engagement plan that included two phases - Phase 1 to assess the key technology areas of user experience, security, scalability, performance, and maintainability and Phase 2 to be optional and to proceed with at a later date, if desired by MTech and MJF, with an assessment of best practices. MTech executed the engagement plan on July 23, 2018.

 

On July 23, 2018, Messrs. Sozio, Rothschild and Ms. Rehmatullah from MTech, Ms. Billingsley from MJF, and Emery Huang and Evan Huang representatives from Batu Capital held a conference call to discuss Batu Capital’s prospective investment in MJF and address questions about the SPAC structure and transaction timeline.

 

On July 26, 2018, Messrs. Sozio, Rothschild and Ms. Rehmatullah held a conference call with Ms. Amy Poinsett to discuss her work at MJF and anticipated future involvement following the Business Combination.

 

On July 26, 2018, Thought Ensemble began its audit process on MJF’ platform and services by engaging directly with MJF’s technology team.

 

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On July 30, 2018, Messrs. Sozio and Rothschild and Mses. Rehmatullah and Billingsley conducted a conference call with representatives from Cresco Capital, an investment fund and prospective investor in MJF, to discuss the SPAC structure, proposed transaction, and timeline for consummation.

 

On August 2, 2018, EGS provided Graubard Miller (“Graubard”), counsel to MJF, a request list to begin the legal due diligence process.

 

On August 4, 2018, Ms. Billingsley informed MTech by email that MJF had closed the first tranche of the private placement of $10 million of Series C Preferred Units on August 1, 2018 with $5,385,000 from Batu Capital. Ms. Billingsley also requested additional due diligence items from MTech pursuant to the request of Cresco Capital.

 

On August 6, 2018, MTech, MJF, and KCSA, a public relations firm, held an in-person meeting and conference call to begin the public relations engagement. It was agreed upon that the collective teams would hold a weekly conference call to discuss pending items as relevant beginning August 20, 2018.

 

On August 10, 2018, Mses. Billingsley and Rehmatullah and Mr. Sozio held a call to discuss MJF’s annual budget and financial projections previously shared with MTech to better understand the potential use of proceeds from the Series C Preferred financing and assumptions for revenue projections for 2019 and 2020.

 

On August 13, 2018, EGS sent Graubard the initial draft of the Merger Agreement by email.

 

On August 20, 2018, EGS sent Graubard via email the agreements ancillary to the Merger Agreement and requested an update on the status of MJF’s review of the Merger Agreement.

 

On August 27, 2018, Graubard emailed EGS to notify them that a meeting was held with MJF and its Board of Directors and provide updates on the Merger Agreement, MJF’s audit and MJF related disclosure for the Registration Statement on Form S-4.

 

On August 28, 2018, Messrs. Sozio and Rothschild and Ms. Rehmatullah from MTech spoke to Andrew Shapiro, a MJF board observer, and Matt Bigliardi and Ms. Billingsley, MJF board members. The discussion covered various deal terms including a request by the MJF board to revisit the valuation of MJF given the change in public market activity in the cannabis industry and the $10 million cash raised in the private placement of the Series C Preferred Units. MTech agreed to consider the additional factors presented by the MJF board and revisit with MJF after discussing internally. Previously, MTech and MJF had agreed to a $60 million enterprise valuation based on post-money valuations in prior capital raises (i.e., $12.6 million in Series A Preferred and $39.9 million in Series B Preferred) and revenue growth since the Series B Preferred raise, which was completed in 2015.

 

The internal discussion following the conversion on August 28, 2018 was among Messrs. Sozio and Rothschild and Ms. Rehmatullah to review MJF’s requests to increase the enterprise valuation due to the change in public market activity in the cannabis industry and the proceeds of $10 million raised from the Series C Preferred financing. The MTech team agreed that the increase in the $60 million valuation by the amount of cash raised in the Series C financing to $70 million was reasonable. The MTech team also considered the heightened interest in cannabis related company stock since MTech began its due diligence on MJF in April 2018 including the IPOs of dozens of cannabis or cannabis-related companies on stock exchanges in Canada as well as a small number of such companies on major U.S. exchanges between April 2018 and August 2018, thereby driving more investor interest and allowing for comparable company analysis. Although the MTech team considered these factors, the valuation was only raised by the amount of proceeds from the Series C Preferred financing. Messrs. Sozio and Rothschild and Ms. Rehmatullah deemed the positive change in public market activity in the cannabis industry as a signal that the $70 million enterprise valuation for MJF would be well received by investors.

 

Mr. Rothschild notified Mr. Shapiro of MTech’s decision on the revised valuation subject to the approval of the MTech Board of Directors. The revised valuation was presented to the MTech Board of Directors via email and was approved unanimously by written consent on August 31, 2018. The MJF board approved the $70 million valuation on September 1, 2018.

 

On August 29, 2018, Mr. Sozio and Ms. Rehmatullah held a conference call with representatives of Thought Ensemble to review its final report on the audit of MJF’s technology. MTech’s management and Board of Directors found the results of the report sufficient for the stated intent of confirming that MJF’s technology exists, works, is relevant and up to date, and has proper controls and security. The audit results were part of MTech’s due diligence of MJF and important in confirming that the technology was accurately presented to MTech by MJF.

 

EGS and Graubard continued to have discussions regarding the Merger Agreement and the various exhibits and ancillary documents.

 

On August 29, 2018, Graubard provided an initial markup of the Merger Agreement. From August 29, 2018 to September 4, 2018, MTech had various discussions via email and telephone with EGS on Graubard’s comments on the Merger Agreement and major pending items.

 

On September 6, 2018, Mr. Sozio and Ms. Rehmatullah of MTech, representative of Thought Ensemble, and Ms. Billingsley and Ike Hull and David McCullough of MJF met at the MJF office in Denver to review and discuss Thought Ensemble’s final report and discuss further enhancements to the MJF technology platform. MTech opted not to proceed with Phase 2 until a later date due to it not being necessary at that time.

 

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On September 11, 2018, Ms. Billingsley provided to Mr. Sozio via email the draft financial projections for MJF, which Mr. Sozio subsequently shared with Mr. Rothschild and Ms. Rehmatullah for review. Mr. Sozio further discussed the underlying assumptions with Ms. Billingsley and an MJF board member, and Ms. Billingsley updated the description of information underlying the projections. Such revised projections were provided to Mr. Sozio on September 13, 2018.

 

On September 12, 2018, Messrs. Sozio and Rothschild and Ms. Rehmatullah held a conference call with representatives from EBC to update the team on the status and ongoing strategy of the Business Combination with MJF and proposed investor outreach.

 

On September 14, 2018, Messrs. Sozio and Van Dyke and Mses. Rehmatullah and Billingsley met in-person during a cannabis conference in New York City to discuss MJF’s business strategies.

 

On September 19, 2018, EGS provided a revised draft of the Merger Agreement, and after further discussions among the parties and their respective counsels, Graubard sent a revised draft of the Merger Agreement on September 28, 2018. From September 28, 2018 to October 4, 2018, Graubard and EGS had various discussions regarding the Merger Agreement and exhibits, schedules, and ancillary documents and EGS sent a substantially final draft of the Merger Agreement to Graubard on October 4, 2018. On October 5, 2018, Mr. Sozio sent an email to the MTech Board with a draft of the Merger Agreement and exhibits and other ancillary documents for their review and request for a board call. On October 9, 2018, the MTech Board of Directors held a meeting with Messrs. Sozio, Rothschild, and Van Dyke and Ms. Rehmatullah and representatives from EGS to review the transaction with MJF, the public comparables, and the Merger Agreement and related agreements, copies of all of which were provided to the Board in advance of the meeting, and highlighted the key terms of the Merger Agreement for the Board. At the meeting, MTech’s Board of Directors approved the Merger Agreement and related agreements.

 

EGS and Graubard continued to finalize the Merger Agreement, exhibits, schedules and other ancillary documents. On the evening of October 10, 2018, the parties executed the Merger Agreement and other documentation related thereto. On the morning of October 11, 2018, MTech and MJF jointly announced the execution of the Merger Agreement in a press release. On the same day, MTech filed a Current Report on Form 8-K with the SEC announcing the execution of the Merger Agreement.

 

On October 16, 2018, MTech and MJ Freeway held an investor call to discuss the previously announced Merger Agreement. The conference call was broadcast live and available to all interested persons via a dial-in number. The conference call was available for replay for 14 days following the call.

 

On April 17, 2019, the Merger Agreement was amended to (i) increase the size of the MTech Holdings board of directors as of the Closing from seven (7) to eight (8) directors, (ii) increase the number of directors appointed prior to the Closing by MJF from four (4) to five (5) directors (which additional director will qualify as an independent director under Nasdaq rules) and (iii) revise the classification of directors so that the Class B directors will include two (2) MJF directors and one (1) MTech director.

  

In connection with the application to list on Nasdaq, MJF received an opinion of counsel, which concludes that MJF’s operations are in compliance with federal law as set forth in the opinion provided to Nasdaq in April 2019.

 

The parties have continued and expect to continue regular discussions regarding the execution and timing of the Business Combination.

 

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MTech’s Board of Directors’ Reasons for the Approval of the Business Combination

 

MTech was organized for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization, or similar business combination with one or more businesses. MTech has sought to capitalize on the ability of its management team to identify, acquire and partner with management to operate a business.

 

In considering the proposed Business Combination, MTech’s Board considered in particular the following positive factors, although not weighted or in any order of significance:

 

Proven Track Record. MJF is led by an experienced management team that has created proprietary and complex solutions for organic material tracking and regulatory compliance monitoring. As the creator of seed-to-sale tracking for the legal cannabis industry, MJF serves clients in 29 of the 33 U.S. states that have legalized cannabis in some form and 11 legalized countries with substantial growth opportunity.

 

Attractive Valuation: The fair market value of MJF was determined by MTech’s Board of Directors based upon standards generally accepted by the financial community, such as valuation in prior capital raises, potential sales and the price for which comparable public businesses had been valued. The initial valuation was determined to be $70 million taking into account the previous and most recent fundraise valuations by MJF and projected revenue growth of 50% or more in two of the next three years. The valuation implied a 5.4x multiple on 2019 estimated revenue and a 3.5x multiple on 2020 estimated revenue, which was an attractive valuation compared to publicly-traded comparable companies that were valued anywhere between 4.3x and 84.1x 2019 revenue and between 2.6x and 37.2x 2020 revenue.

 

  Strong Competitive Position. MTech focused on MJF’s growing market position in the tracking and compliance monitoring segment within the cannabis industry. MTech believes that MJF has large scale potential as the cannabis market continues to grow globally and is the only SaaS platform able to compete on this level because of (a) its nine years of experience in providing monitoring and compliance services to the cannabis industry, including several years of experience serving clients in 11 countries, (b) its understanding of foreign country cannabis markets, including client requirements, applicable laws and currency issues, (c) the availability of its platform in three languages, English, Spanish and French, and its ability to quickly adapt its platform to other languages with left to right reading format, and (d) its current standing as the only SaaS solution provider in the industry that provides extensive consulting and support services in the pre-operational phase through the complete business lifecycle. MJF’s nine years of operations have provided it with a statistically significant dataset of cannabis transaction information that MJF believes cannot be readily duplicated by new entrants into the marketplace. MJF uses this dataset to more accurately ensure compliance in the industry and to predict trends in the marketplace and makes this dataset available to users of its platforms, providing greater utility to customers in this regard than can be provided by competing platforms.

 

  Industry-leading Technology; High Barriers for New Entrants. Since its inception in 2010, MJF has led the market in delivering cannabis tracking and compliance management technology to commercial businesses and state government regulatory agencies. MJF’s products, MJ Platform® and Leaf Data Systems®, are highly-versatile platforms that provide clients with a central data management system for tracking regulated cannabis products — from seed to product to shelf to customer — throughout the complete supply chain, using a unique plant identifier method. New technology platforms will experience high barriers to enter this segment in light of the time it takes to develop technology platforms, their ability to understand the various cannabis markets and build programs that meet regulatory requirements, and their ability to penetrate markets that have multi-year contracts and/or prove that a new product is more impactful than MJF.

 

Opportunity for Significant Revenue and Earnings Growth. MJF has the potential for significant revenue and earnings growth through a combination of organic growth and acquisition opportunities. MTech believes MJF will continue to grow organically by further penetrating existing customers, expanding its customer base and developing and expanding its cross-selling efforts. MJF also aims to opportunistically acquire high-quality businesses that are synergistic to current business operations. In connection with MTech’s evaluation of MJF, MJF projected significant gross margins of 60% in 2019, 70% in 2020, and 69% in 2021, based on historic gross margins of 78% and 61% in 2017 and 2018, respectively, and an organic growth rate for MJF’s business of more than 50% each year for the next few years using only MJF’s current resources. MJF’s growth projections are not based on securing additional state contracts but on three concepts: (1) the economic environment in which MJF is operating; (2) MJF’s status as a leader and comprehensive compliance solution in its target markets; and (3) existing contracts that can be further monetized in the future.

 

oEconomic Environment. MJF’s clients operate and seek to comply with state laws in the cannabis, CBD and hemp markets, which are growing at rapid rates. According to a February 2018 report from Arcview Market Research, spending on legal cannabis is projected to grow in North America from $9.2 billion in 2017 to an estimated $47.3 billion in 2027, an 18% compound annual growth rate.  Internationally, the Rest of World markets are expected grow at a compound annual growth rate of 47%. According to a 2017 Gartner report, on average, companies spend 2.5% of their gross revenues on technology solutions. These data points, when applied to the forecasted $47.3 billion sales in North America, reflect a potential 2027 technology spend of $1.2 billion ($47.3 billion x 2.5%) without considering the international impact. Further, the report noted that 37% of respondents reported a preference for buy versus build which included SaaS and SaaS was reported as the most popular for significant investment. Industry studies show that current operators in the cannabis, CBD, and hemp market are underspending on technology compared to other industries. MJF believes those operators will be forced to automate their operations, compliance, and reporting with an integrated ERP system, such as MJF’s platforms, if they are to remain competitive in a rapidly growing marketplace.
   
oStatus of MJF in the Economic Environment. According to state tax agencies records and locator services, MJF was one of the first, if not the first, technology platforms built for ensuring and monitoring compliance in the cannabis, CBD, and hemp industries. Further, it is the only ERP solution built to scale nationally and internationally while providing technology compliance, monitoring and auditing products across the entire supply chain and all industry verticals of the cannabis, CBD and hemp markets. Importantly, MJF has already started serving businesses and governments globally. MJF currently services clients in 29 of the 33 US states that have legalized cannabis in some form and 11 legalized countries. These factors establish MJF as a mature, vetted solution for the coming global expansion in the industry. MJF expects to leverage its first-mover advantage and reputation among industry participants throughout the global supply chain to increase market share.
   
oFuture Monetization. In addition to the market advantages described above, MJF has existing contracts with its current clients that can be monetized in the future. 100% of MJF’s license agreements provide MJF with the right to aggregate and monetize client data. MJF to date has processed and compiled data related to more than $13 billion in sales, resulting in MJF owning and controlling substantial business intelligence data set that can be monetized for multiple purposes in the future. MJF believes this database represents the largest statistically relevant dataset of any competitor (by far) and expects to leverage this data to develop and provide additional service offerings to current and future clients.

 

Benefit from Being a Public Company. MTech believes that MJF, under public ownership, will have the flexibility and financial resources to pursue and execute a growth strategy to increase revenues and shareholder value. The company will benefit from being publicly traded, and can effectively utilize the broader access to capital and public profile that are associated with being a publicly traded company.

 

MTech’s directors also considered the following negative factors:

 

Threat from Competition. The landscape in which MJF competes is highly competitive and expected to continue to change. While innovation can help MJF’s business as it creates new offerings for MJF to sell and provide complementary services, it can also disrupt MJF’s business model and create new and stronger competitors. Additionally, to the extent MJF faces increased competition to gain and retain clients, MJF may be required to reduce prices, increase sales and marketing expenditures, or take other actions that could adversely affect its business, results of operations, or financial condition. MTech carefully considered the competitive landscape and believes that MJF is well positioned with respect to competition in the industry.

 

Growth through acquisitions and integration risk. MJF has never acquired a business and gone through a process integrating technologies, products, personnel, or operations of any acquired business. Any failure to successfully integrate the acquired business and any delay in achieving synergies from integration, could harm the company’s business, results of operations, or financial condition.

 

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Changes in industry landscape through technological developments. MJF’s primary markets are characterized by technological change, regulatory change, evolving industry standards, changing client preferences, and new product and service introductions. As a result, MTech considered the potentially adverse effects of these evolving technological developments on MJF’s business. These technologies could reduce and, over time, replace some of MJF’s current business. In addition, MJF’s clients may delay spending under existing contracts and engagements and may delay entering into new contracts while they evaluate new technologies. MTech believes that MJF has managed to adapt well to technological changes and MJF’s strong technical expertise will enable it to remain at the forefront of any such changes in the future.

 

Revenue growth and risks related to achievement of projected margins and growth. MJF has a relatively short operating history, which makes it difficult to evaluate its business and future prospects. MJF has been in existence since 2010, though much of its revenue growth has occurred during the past three years. MJF has encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, such as market acceptance of its current and future products and services, changing regulatory environments and costs associated with compliance, and existing client retention rates and the ability to upsell clients. The projections of gross margins and business growth for the next several years provided by MJF are based on what MJF’s management believes to be conservative assumptions, but these projections are only predictions based on information known to MJF and risks known and unknown to MJF at the time the projections were formulated. Any and all of the risks described in this proxy statement/prospectus regarding MJF and its business and industry, including but not limited to, adverse changes in the laws governing MJF or its clients or MJF’s target markets, advances in compliance technology offered by MJF’s competitors, MJF’s failure to efficiently manage growth or deploy its resources in an opportunistic manner and general economic trends, as well as the failure by MJF to fully monetize existing clients as projected, could cause MJF’s business to experience lower gross margins, revenues lower than those projected, and generally reduced growth or overall decline in its business operations.

 

Security concerns. MJF utilizes information technology systems, including third-party hosted servers and cloud-based servers, to host digital databases and client information, including business, financial and corporate records, internal and external electronic communications and other critical information, and to process operational functions integral to MJF’s internal operations and the provision of services to clients across its platforms. MJF has experienced data loss and theft in the past. Although MJF has taken steps to protect the security of data maintained in its information systems, its security measures may not prevent additional attacks in the future, prevent systems from improperly functioning, or prevent the improper disclosure of client information in the event of future cyberattacks or otherwise. If any of MJF’s internal systems or the systems of MJF’s third-party providers are compromised due to computer virus, unauthorized access, malware, and the like, then sensitive documents could be exposed or deleted, and MJF’s ability to conduct business could be impaired.

 

  Government contracts and regulatory changes. Leaf Data Systems is a compliance tracking system designed to give regulators visibility into the activity of licensed cannabis businesses in their jurisdiction. MJF currently has two clients for Leaf Data Systems, the State of Washington and the Commonwealth of Pennsylvania. Leaf Data Systems comprised 43% of MJF’s revenue for the year ended June 30, 2018 and 49% of MJF’s revenue for the six months ended December 31, 2018. MTech considered potentially adverse effects from changes in law, regulation, or the political climate of the cannabis industry, or an across-the-board change in government spending and purchasing policies that may result in MJF’s public sector clients reducing their purchases or even terminating their service contracts. MTech believes these risks are inherent in a government contracting environment and does not consider these risks to be significant.

 

In considering the Business Combination, MTech’s Board of Directors concluded the risks of proceeding with a transaction with MJF could be managed or mitigated and were unlikely to have a material impact on the Business Combination or MTech, and that, overall, the potentially negative factors or risks associated with the Business Combination were outweighed by the potential benefits of the Business Combination to MTech and its stockholders.

 

MJF’s Board of Directors’ Reasons for the Approval of the Business Combination

 

MJF believes that it will continue to experience rapid growth and that there are numerous opportunities for MJF to expand its business both organically and through acquisitions. MJF believes that becoming a public company provides it with the ability to capitalize on growth opportunities, and that the Business Combination presents the best route to this objective. In the course of reaching its decision to approve the Business Combination, the MJF board of directors consulted with its senior management, financial advisors and legal counsel, reviewed a significant amount of information, and considered a number of factors, including, among others:

 

Other Alternatives. It is the belief of MJF, after review of alternative strategic opportunities from time to time, that the proposed Business Combination represents the best potential transaction for MJF to create greater value for MJF’s holders, while providing MJF’s holders with greater liquidity by owning stock in a public company.

 

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Advantages over a Traditional IPO. Prior to executing the Merger Agreement, the MJF board of directors considered the alternative of a traditional initial public offering. The MJF board of directors considered that the Business Combination provided certain advantages over a traditional IPO. In particular, the MJF board of directors considered that, based on available information at the time, including with respect to the conditions of the IPO market for companies with MJF’s characteristics, the Business Combination with MTech was likely to provide for a more time- and cost- effective means to capital with less dilution to MJF’s existing holders.

 

Access to Capital. MJF expects that the Business Combination would be a more time- and cost-effective means to access capital than other options considered, including a traditional IPO.

 

Size of Post-Combination Company. MJF considered the Business Combination implied enterprise value of approximately $70 million for MJF, providing MJF’s holders with the opportunity to go-forward with ownership in a public company with a larger market capitalization.

 

Benefit from Being a Public Company. MJF believes that under public ownership it will have the flexibility and financial resources to pursue and execute a growth strategy to increase revenues and stockholder value. It will benefit from being publicly traded, and can effectively utilize the broader access to capital and public profile that are associated with being a publicly traded company.

 

In the course of reaching its decision to approve the Business Combination, the MJF board of directors, also considered negative factors, including, among others:

 

Uncertainty of Consummation of the Business Combination. The board considered the risk that the Business Combination may not be approved by the necessary vote of the MTech stockholders and that time and resources for other potential opportunities could be lost to the Business Combination process.

 

  Uncertainty as to Amount of Redemptions and cash in Trust following the Business Combination. The Board noted that the MTech stockholders have the right to redeem their shares for cash. Any such redemptions shall serve to reduce the amount of cash in Trust following the Business Combination and reduce the amount of capital available to operate and grow MJF’s operations. The amount of redemptions and the amount of cash that will remain in Trust following the Business Combination cannot be determined.

 

Diversion of Resources to the Business Combination Process. The board noted that MJF’s management and capital resources would be diverted in part to the Business Combination process at a time when such resources are required to shepherd MJF’s entrance into new markets and manage MJF’s organic business growth.

 

Expense of Being a Public Company. The board considered the added financial expense of being a public company, including greater legal and accounting expenses, and the requirement to dedicate personnel and other resources to quarterly, annual and other reporting obligations.

 

Certain Benefits of MTech’s Directors and Officers and Others in the Business Combination

 

When you consider the recommendation of our Board in favor of the Proposals, you should keep in mind that our directors and officers have interests in the Business Combination that are different from or in addition to (and which may conflict with) your interests as a stockholder. These interests include, among other things:

 

the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $25,000 for their founder shares and such securities should have a significantly higher value at the time of the Business Combination;

 

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the fact that our Sponsor, officers and directors and their affiliates paid an aggregate of $2,437,500 for the placement units and such securities should have a significantly higher value at the time of the Business Combination;

 

if MTech is unable to complete a business combination within the required time period, our Chairman will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by MTech for services rendered or contracted for or products sold to MTech, but only if such a vendor or target business has not executed a waiver of claims against the trust account and except as to any claims under our indemnity of the underwriters;

 

unless MTech consummates an initial business combination, MTech’s officers, directors and the Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account;

 

the fact that Sponsor has agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination;

 

the fact that the founder shares and placement units, including the placement shares and placement warrants, purchased by the Sponsor will be worthless if a business combination is not consummated;

 

the Sponsor has agreed that the placement units, and all of their underlying securities, will not be sold or transferred by it until MTech has completed a business combination, subject to limited exceptions;

 

the appointment of Scott Sozio, Tahira Rehmatullah and Douglas Rothschild as designees to the board of directors of MTech Holdings which will entitle such individuals to any cash fees, stock options or stock awards that MTech Holdings determines to pay to its non-executive directors in the future; and

 

the continued indemnification of current directors and officers of MTech and the continuation of directors’ and officers’ liability insurance after the Business Combination.

 

Total Shares to be Issued in the Business Combination

 

MTech’s public stockholders currently own approximately 77.38% of MTech’s issued and outstanding capital stock and the Sponsor currently owns approximately 22.62% of MTech’s issued and outstanding capital stock. It is anticipated that, immediately after the Business Combination and if there are no redemptions, MTech’s public stockholders will own approximately 40.15% of MTech Holdings’ issued and outstanding capital stock, the Sponsor will own approximately 11.74% of MTech Holdings’ issued and outstanding capital stock and the Sellers will own approximately 48.11% of MTech Holdings’ issued and outstanding capital stock. If any of MTech’s public stockholders exercise their redemption rights, the ownership interest in MTech Holdings of MTech’s public stockholders will decrease and the ownership interest in MTech Holdings of the Sellers and the Sponsor will increase, and if there are redemptions by MTech’s public stockholders up to the maximum level that would permit completion of the Business Combination, MTech’s public stockholders will own 8.89% of MTech Holdings’ issued and outstanding capital stock, the Sponsor will own approximately 17.87% of MTech Holdings’ issued and outstanding capital stock and the Sellers will own approximately 73.24% of MTech Holdings’ issued and outstanding capital stock. If the actual facts are different than these assumptions (based on redemptions by MTech’s public stockholders, changes in the terms of the Business Combination, adjustments to the MJF purchase price pursuant to the Merger Agreement or otherwise), the percentage ownership interests in MTech Holdings post-Business Combination may be different.

 

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The ownership percentage set forth above with respect to MTech Holdings includes the shares issuable to the Sellers that are held in escrow, as well as shares issued in exchange for unvested MJF profits interest units that are subject to continued vesting, and does not take into account (i) the issuance of any shares under the Incentive Plan, (ii) the issuance of any shares upon the exercise of warrants to purchase up to a total of 5,993,750 shares of MTech Holdings common stock that will remain outstanding following the Business Combination or any additional warrants that are issued to our Sponsor pursuant to the conversion of its working capital loans that were made to MTech, (iii) any adjustments to the merger consideration payable to the Sellers as a result of MJF’s working capital and/or debt as of the completion of the Business Combination varying from certain specified targets set forth in the Merger Agreement, (iv) the issuance of any underlying shares upon the exercise of the underwriter’s option to purchase up to 250,000 units and (v) any indemnification payments that are made after the consummation of the Business Combination by delivery of shares of MTech Holdings’ common stock. See “Unaudited Pro Forma Combined Financial Information” for further information.

 

The following table illustrates varying ownership levels of the issued and outstanding capital stock of MTech Holdings, assuming varying levels of redemptions by MTech’s public stockholders:

 

    Ownership 
Percentage Assuming No Redemption of Shares
    Ownership Percentage Assuming Maximum Redemption of Shares  
Sellers     48.11 %     73.24 %
Sponsor     11.74 %     17.87 %
MTech’s public stockholders     40.15 %     8.89 %

 

Sources and Uses of Funds for the Business Combination

 

The following table summarizes the sources and uses for funding the Business Combination assuming no redemptions:

 

Sources         Uses      
($ in Millions)                
MTech Cash   $ 58.4     New Equity to the Sellers   $ 70  
Cash from MJF     9.9     Deferred Underwriting Fees     2.3  
New Equity to the Sellers     70     Transaction Expenses     2.2  
            Cash to Balance Sheet     63.8  
Total Sources   $ 138.3      Total Uses   $ 138.3  

 

The following table summarizes the sources and uses for funding the Business Combination assuming MTech stockholders exercise their redemption rights assuming maximum redemption:

 

Sources         Uses      
($ in Millions)                
MTech Cash   $ 5     New Equity to the Sellers   $ 70  
Cash from MJF     9.9              
New Equity to the Sellers     70     Deferred Underwriting Fees     2.3  
            Transaction Expenses     2.2  
            Cash to Balance Sheet     10.4  
Total Sources   $ 84.9     Total Uses   $ 84.9  

 

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Accounting Treatment

 

The Business Combination will be accounted for as a “reverse merger” in accordance with U.S. GAAP. Under this method of accounting MTech will be treated as the “acquired” company for financial reporting purposes. This determination is primarily based on MJF shareholders expecting to have a majority of the voting power of the combined company, MJF comprising the ongoing operations of the combined entity, MJF comprising a majority of the governing body of the combined company, and MJF’s senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of MJF issuing stock for the net assets of MTech, accompanied by a recapitalization. The net assets of MTech will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of MJF.

 

Material U.S. Federal Income Tax Considerations

 

The following is a discussion of the material U.S. federal income tax considerations for U.S. Holders (as defined below) of MTech common stock that elect either (1) to participate in the Business Combination or (2) to have their MTech common stock redeemed for cash if the Business Combination is completed. Unless otherwise noted in the following discussion, the following is the opinion of Ellenoff Grossman & Schole LLP with respect to U.S. Holders of MTech common stock. This discussion is based upon the Code, the regulations promulgated by the U.S. Treasury Department, current administrative interpretations and practices of the Internal Revenue Services (the “IRS”) (including administrative interpretations and practices expressed in private letter rulings which are binding on the IRS only with respect to the particular taxpayers who requested and received those rulings) and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax considerations described below. No ruling has been or will be sought from the IRS regarding any matter discussed in this discussion. This discussion does not discuss the impact that U.S. state and local taxes or taxes imposed by non-U.S. jurisdictions could have on the matters discussed below. This discussion does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular stockholder in light of its investment or tax circumstances or to stockholders subject to special tax rules, such as:

 

  MTech stockholders who are not U.S. Holders;

 

  traders in securities that elect mark-to-market treatment;

 

  S corporations;

 

  U.S. Holders whose functional currency is not the U.S. dollar;

 

  financial institutions;

 

  mutual funds;

 

  qualified plans, such as 401(k) plans, individual retirement accounts, etc.;

 

  insurance companies;

 

  broker-dealers;
     
  regulated investment companies (or RICs);

 

  real estate investment trusts (or REITs);

 

  persons holding MTech common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;

 

  persons subject to the alternative minimum tax provisions of the Code;

 

  tax-exempt organizations;

 

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  persons that actually or constructively own 5 percent or more of MTech common stock;

 

  U.S. Holders who acquired their shares of MTech common stock through the exercise of an employee stock option or otherwise in connection with the performance of services; and
     
  the Sponsor.  

 

For purposes of this discussion, a “U.S. Holder” is a beneficial owner that is:

 

  a citizen or resident of the United States;

 

  a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof;

 

  an estate whose income is subject to U.S. federal income taxation regardless of its source; or

 

  any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.

 

If any partnership (including for this purpose, any entity treated as a partnership for U.S. federal income tax purposes) holds MTech common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partner and the partnership. If you are a partner of a partnership holding MTech common stock, you should consult your tax advisor. This discussion assumes that stockholders hold MTech common stock as capital assets within the meaning of Section 1221 of the Code, which generally means as property held for investment and not as a dealer or for sale to customers in the ordinary course of the stockholder’s trade or business.

 

WE URGE HOLDERS OF MTECH COMMON STOCK CONTEMPLATING PARTICIPATION IN THE BUSINESS COMBINATION OR EXERCISE OF THEIR REDEMPTION RIGHTS TO CONSULT THEIR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES THEREOF.

 

U.S. Federal Income Tax Considerations of Participating in the Business Combination

 

This section is addressed to U.S. Holders of MTech common stock that elect to participate in the Business Combination, as described in the section entitled “The Business Combination Proposal.” MTech shall receive an opinion of its counsel, Ellenoff, Grossman & Schole LLP, to the effect that the merger of Purchaser Merger Sub and MTech, taken together with the merger of Company Merger Sub with MJF, will qualify as part of an exchange described in Section 351(a) of the Code. In rendering this opinion, counsel may require and rely upon representations contained in letters and certificates to be received from MTech and MJF. If the letters or certificates are incorrect, the conclusions reached in the tax opinion could be jeopardized. In addition, the opinion will be subject to certain qualifications and limitations as set forth therein. 

 

The tax opinion given in connection with the Business Combination will not be binding on the IRS. In addition, neither MTech nor MJF intends to request any ruling from the IRS as to the U.S. federal income tax consequences of the Business Combination. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those set forth below. In addition, if any of the representations or assumptions upon which the opinion is based is inconsistent with the actual facts, the U.S. federal income tax consequences of the Business Combination could be adversely affected.

 

The Business Combination will qualify as an exchange described in Section 351 of the Code. If the Mergers so qualify, a U.S. Holder of MTech common stock will not recognize gain or loss upon the exchange of MTech common stock for MTech Holdings common stock pursuant to the Business Combination. The aggregate tax basis of the MTech Holdings common stock the U.S. Holder of MTech common stock receives will be equal to the aggregate tax basis of the MTech common stock exchanged therefor, and the holding period of the MTech Holdings common stock will include the U.S. Holder’s holding period of the MTech common stock surrendered in exchange therefor.

 

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Reporting Requirements

 

U.S. Holders of MTech common stock who receive MTech Holdings common stock and, upon consummation of the Business Combination, own MTech Holdings common stock representing at least 5% of the total combined voting power or value of the total outstanding MTech Holdings common stock, are required to attach to their tax returns for the year in which the Business Combination is consummated, and maintain a permanent record of, a complete statement of all the facts relating to the exchange of stock in connection with the Business Combination containing the information listed in Treasury regulations section 1.351-3. The facts to be disclosed by a U.S. Holder include the aggregate fair market value of, and the U.S. Holder’s basis in, the MTech common stock exchanged pursuant to the Business Combination.

 

U.S. Federal Income Tax Considerations of Exercising Redemption Rights

 

This section is addressed to U.S. Holders of MTech common stock that elect to have their MTech common stock redeemed for cash as described in the section entitled “Special Meeting of MTech Stockholders – Redemption Rights” (we refer to these U.S. Holders as “Redeeming U.S. Holders”). A Redeeming U.S. Holder will generally recognize capital gain or loss equal to the difference between the amount realized on the redemption and such stockholder’s adjusted basis in the MTech common stock exchanged therefor if the Redeeming U.S. Holder’s ownership of stock in MTech is completely terminated or if the redemption meets certain other tests described below. Special constructive ownership rules apply in determining whether a Redeeming U.S. Holder’s ownership of stock in MTech is treated as completely terminated. If gain or loss treatment applies, such gain or loss will be long-term capital gain or loss if the holding period of such stock is more than one year at the time of the exchange. Stockholders who hold different blocks of MTech common stock (generally, shares of MTech common stock purchased or acquired on different dates or at different prices) should consult their tax advisors to determine how the above rules apply to them.

 

Cash received upon redemption that does not completely terminate the Redeemed U.S. Holder’s interest will still give rise to capital gain or loss, if the redemption is either (i) “substantially disproportionate” or (ii) “not essentially equivalent to a dividend.” In determining whether the redemption is substantially disproportionate or not essentially equivalent to a dividend with respect to a Redeeming U.S. Holder, that Redeeming U.S. Holder is deemed to own not just stock actually owned but also, in some cases, stock owned by certain family members, certain estates and trusts of which the Redeeming U.S. Holder is a beneficiary, and certain affiliated entities.

 

Generally, the redemption will be “substantially disproportionate” with respect to the Redeeming U.S. Holder if (i) the Redeeming U.S. Holder’s percentage ownership of the outstanding voting stock (including all classes which carry voting rights) of MTech is reduced immediately after the redemption to less than 80% of the Redeeming U.S. Holder’s percentage interest in such stock immediately before the redemption; (ii) the Redeeming U.S. Holder’s percentage ownership of the outstanding common stock (both voting and nonvoting) immediately after the redemption is reduced to less than 80% of such percentage ownership immediately before the redemption; and (iii) the Redeeming U.S. Holder owns, immediately after the redemption, less than 50% of the total combined voting power of all classes of stock of MTech entitled to vote. Whether the redemption will be considered “not essentially equivalent to a dividend” with respect to a Redeeming U.S. Holder will depend upon the particular circumstances of that U.S. Holder. At a minimum, however, the redemption must result in a meaningful reduction in the Redeeming U.S. Holder’s actual or constructive percentage ownership of MTech. The IRS has ruled that any reduction in a stockholder’s proportionate interest is a “meaningful reduction” if the stockholder’s relative interest in the corporation is minimal and the stockholder does not have meaningful control over the corporation.

 

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If none of the redemption tests described above give rise to capital gain or loss, the consideration paid to the Redeeming U.S. Holder will be treated as dividend income for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits. However, for the purposes of the dividends-received deduction and of “qualified dividend” treatment, due to the redemption right, a Redeeming U.S. Holder may be unable to include the time period prior to the redemption in the stockholder’s “holding period.” Any distribution in excess of our earnings and profits will reduce the Redeeming U.S. Holder’s basis in the MTech common stock (but not below zero), and any remaining excess will be treated as gain realized on the sale or other disposition of the MTech common stock.

 

As these rules are complex, U.S. Holders of MTech common stock considering exercising their redemption rights should consult their own tax advisors as to whether the redemption will be treated as a sale or as a distribution under the Code.

 

Certain Redeeming U.S. Holders who are individuals, estates or trusts pay a 3.8% tax on all or a portion of their “net investment income” or “undistributed net investment income” (as applicable), which may include all or a portion of their capital gain or dividend income from their redemption of MTech common stock. Redeeming U.S. Holders should consult their tax advisors regarding the effect, if any, of the net investment income tax.

 

Backup Withholding

 

In general, proceeds received from the exercise of redemption rights will be subject to backup withholding for a non-corporate U.S. Holder that:

 

  fails to provide an accurate taxpayer identification number;

 

  is notified by the IRS regarding a failure to report all interest or dividends required to be shown on his or her federal income tax returns; or

 

  in certain circumstances, fails to comply with applicable certification requirements.

 

Any amount withheld under these rules will be creditable against the U.S. Holder’s U.S. federal income tax liability or refundable to the extent that it exceeds this liability, provided that the required information is timely furnished to the IRS and other applicable requirements are met.  

 

Vote Required for Approval

 

Adoption of this proposal requires the affirmative vote of a majority of the issued and outstanding shares of common stock of MTech represented in person or by proxy at the meeting and entitled to vote thereon. Failure to vote by proxy or to vote in person at the Special Meeting or an abstention from voting will have the same effect as a vote “AGAINST” the Business Combination Proposal.

 

This proposal is conditioned upon the approval of the Incentive Plan Proposal and the Charter Amendments Proposal. Unless this proposal, the Charter Amendments Proposal and the Incentive Plan Proposal are approved, the Business Combination will not occur.

 

Recommendation of the Board

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE BUSINESS COMBINATION PROPOSAL.

 

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THE CHARTER AMENDMENTS PROPOSAL

 

The following table sets forth a summary of the principal changes proposed to be made between MTech’s certificate of incorporation and the proposed MTech Holdings amended and restated certificate of incorporation. This summary is qualified by reference to the complete text of the proposed MTech Holdings amended and restated certificate of incorporation, a copy of which is attached to this proxy statement/prospectus as Annex B. All stockholders are encouraged to read the proposed MTech Holdings amended and restated certificate of incorporation in its entirety for a more complete description of its terms.

 

  MTech Certificate of Incorporation MTech Holdings Amended and Restated Certificate of Incorporation
Common Stock MTech’s current charter currently authorizes two classes of common stock – Class A common stock and Class B common stock. MTech has 18,000,000 authori