Item 1.01. Entry into a Material
Definitive Agreement.
On August 5, 2020,
American Virtual Cloud Technologies, Inc. (“AVCT”) entered into a Purchase Agreement (the “Purchase Agreement”)
with Ribbon Communications, Inc. (“Ribbon”), Ribbon Communications Operating Company, Inc. (“RCOCI”) and
Ribbon Communications International Limited (together with RCOCI, the “Sellers”, and together with Ribbon, the “Ribbon
Parties”), pursuant to which AVCT has agreed to purchase the Sellers’ cloud-based enterprise services business (also
known as the Kandy Communications business) (the “Business”) by acquiring certain of the Sellers’ and their respective
affiliates’ assets (and assuming certain of the Sellers’ and their respective affiliates’ liabilities) primarily
associated with the Business, and acquiring all of the outstanding interests of Kandy Communications LLC (the “Transaction”).
Under the terms of
the Purchase Agreement, AVCT has agreed to issue to Ribbon 13.0 million shares of AVCT’s common stock (the “Issued
Shares”), subject to certain adjustments, as consideration for the Transaction (the “Purchase Price”).
Pursuant to the terms
of the Purchase Agreement, AVCT is required to complete an equity offering (the “Equity Offering”) prior to, or simultaneously
with, the closing of the Transaction (the “Closing”), and in the event AVCT is successful in raising at least $100.0
million in the Equity Offering, AVCT will sell additional securities in the Equity Offering resulting in proceeds in an amount
up to the value of 20% of the Issued Shares being issued to Ribbon, with the value of each Issued Share being equal to (i) the
value of the AVCT common stock or other securities convertible into a share of AVCT common stock that is being sold in the Equity
Offering, or (ii) in the event another form of securities is being offered in the Equity Offering, or if the Equity Offering is
consummated more than five days prior to the Closing, the volume weighted average price of AVCT common stock for the ten trading
days immediately prior to the Closing (the equivalent shares sold, “Sold Shares”). AVCT will deliver to Ribbon, as
part of the Purchase Price, the gross proceeds from the sale of additional securities in the Equity Offering in excess of $100.0
million, in lieu of the Sold Shares at the Closing. In the event that AVCT’s Pro Forma Total Enterprise Value (as defined
in the Purchase Agreement), after taking into account the Equity Offering proceeds, would be below $275.0 million, AVCT and Ribbon
have agreed to negotiate a potential change in the number of Issued Shares. If an agreement cannot be reached on any change in
the number of Issued Shares, AVCT will not proceed with the Equity Offering.
The obligations of
each of the Ribbon Parties and AVCT are subject to specified conditions, including, among other matters: (i) the approval
by AVCT’s shareholders of the issuance to Ribbon of the Issued Shares (the “Share Issuance”), (ii) the successful
completion of the Equity Offering, and (iii) the absence of any injunctions being entered into or law being adopted that would
make the Transaction illegal.
The Purchase Agreement
contains customary representations and warranties from the Ribbon Parties and AVCT. It also contains customary covenants, including
(i) covenants providing for each of the parties to use its commercially reasonable efforts to cause the Transaction to be consummated,
and for each of the Sellers and AVCT to carry on their respective businesses in the ordinary course of business consistent with
past practice during the period between the execution of the Purchase Agreement and the Closing, (ii) non-competition and non-solicitation
of employee covenants applicable to Ribbon for a period of three years following the Closing and (iii) non-solicitation of employee
covenants applicable to AVCT for a period of three years following the Closing. The Sellers have also agreed not to initiate, solicit,
knowingly encourage the submission of any proposal or offer relating to alternate transactions or, engage in any discussions or
negotiations with respect to alternate transactions regarding the Business, during the period between the execution of the Purchase
Agreement and the Closing. AVCT is required to seek stockholder approval of the issuance of the Issued Shares pursuant to
Nasdaq listing rules.
The Purchase Agreement
contains termination rights for each of the Sellers and AVCT, including, without limitation, in the event that (i) the Transaction
is made illegal or any governmental entity issues a non-appealable final order permanently enjoining the Transaction; (ii) the
Transaction is not consummated by December 4, 2020; or (iii) the other party breaches its representations, warranties or covenants
under the Purchase Agreement which would give rise to the failure of a closing condition and such breach is not cured with 30-days
of receipt of written notice of such breach.
The Purchase Agreement
provides that AVCT will be obligated to pay Ribbon a termination fee of $1.0 million if the Purchase Agreement is terminated under
certain circumstances at a time when the Equity Offering has not been completed.
The Purchase
Agreement contemplates that Ribbon and AVCT will enter into an Investor Rights Agreement (the “Investor Rights Agreement”)
at the Closing pursuant to which Ribbon will receive customary registration rights with respect to the Issued Shares. In addition,
under the Investor Rights Agreement, so long as Ribbon holds at least 25% of the shares of AVCT common stock issued to Ribbon at
Closing, Ribbon will have the right to nominate one director to the AVCT board of directors. The Investor Rights Agreement also
provides that each of Pensare Sponsor Group, LLC and Stratos Management Systems Holdings, LLC (each, a “Significant Stockholder”)
will agree to support AVCT’s obligation to nominate and have elected Ribbon’s director nominee.
The foregoing description
of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the
Purchase Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The Purchase
Agreement contains representations, warranties, covenants and other terms, provisions and conditions that the parties made to each
other as of specific dates. The assertions embodied therein were made solely for purposes of the Purchase Agreement and may be
subject to important qualifications and limitations agreed to by the parties in connection with negotiating their respective terms.
Moreover, they may be subject to a contractual standard of materiality that may be different from what may be viewed as material
to stockholders, or may have been used for the purpose of allocating risk between the parties rather than establishing matters
as facts. For the foregoing reasons, no person should rely on such representations, warranties, covenants or other terms, provisions
or conditions as statements of factual information at the time they were made or otherwise.
Simultaneously with
the execution of the Purchase Agreement, the Ribbon Parties entered into voting agreements (the “Voting Agreements”)
with each Significant Stockholder. The Significant Stockholders hold in the aggregate approximately 70% of AVCT’s outstanding
shares. Pursuant to the Voting Agreements, each Significant Stockholder has agreed, with respect to all of the voting securities
of AVCT that such Significant Stockholder beneficially owns as of the date thereof or thereafter, to vote in favor of the Share
Issuance. The Voting Agreements will terminate on the date the Purchase Agreement is terminated in accordance with its terms or
upon the consummation of the Transaction.
The foregoing description
of the Voting Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the
Voting Agreements, which are filed as Exhibit 10.1 and Exhibit 10.2 to this Current Report on Form 8-K and are incorporated
herein by reference.