Item 1.01. Entry into a Material Definitive Agreement.
Share Exchange Agreement
On February 16, 2021, Madison Technologies Inc., a Nevada corporation (the
"Company") entered into a Share Exchange Agreement (the "Share Exchange
Agreement") with Sovryn Holdings, Inc. ("Sovryn") and the holders (the "Sovryn
Shareholders") of Sovryn's issued and outstanding shares of common stock, par
value $0.0001 per share ("Sovryn Common Shares"), pursuant to which the
Shareholders exchanged 100% of the outstanding Sovryn Common Shares, for (i) 100
shares of series B preferred stock, par value $0.001 per share ("Series B
Preferred Stock"), of the Company which was transferred by Jeffrey Canouse, the
Company's controlling shareholder and existing Chief Executive Officer (the
"Controlling Shareholder"), to the designee of Sovryn and (ii) 1,000 shares of
series E convertible preferred stock, par value $0.001 per share of Sovryn
("Series E Preferred Stock," and together with Series B Preferred Stock, the
"Preferred Exchange Shares," and the foregoing exchange of Sovryn Common Shares
for Preferred Exchange Shares being the "Equity Exchange").
Upon the effectiveness of an amendment to our Articles of Incorporation to
increase the Company's authorized common stock, par value $0.0001 per share,
from 500,000,000 shares to 7,000,000,000 shares, all shares of Series E
Preferred Stock issued to the Shareholders shall automatically convert into
approximately 2,305,000,000 shares of common stock of the Company ("Shareholder
Approval"). The Series E Convertible Preferred Stock votes on an as-converted
basis with the common stock prior to their conversion. The Series E Preferred
Stock shall represent approximately 59% of the fully-diluted shares of common
stock of the Company after the closing of the transactions contemplated by the
Securities Purchase Agreement (as defined below).
The foregoing description of the Share Exchange Agreement and Series E Preferred
Stock does not purport to be a complete description of the rights and
obligations of the parties thereunder and is qualified in its entirety by
reference to the full text of such agreements, copies of which will be filed as
exhibits to the Company's annual report on Form 10-K for the fiscal year ended
December 31, 2020.
Share Transfer Agreement
Immediately prior to the closing of, and as a condition to, the Share Exchange
Agreement, the Company entered into a Share Transfer Agreement (the "Share
Transfer Agreement"), pursuant to which the Controlling Shareholder transferred
all of the shares of Series B Preferred Stock held by him to an entity
controlled by Philip Falcone, the Company's new chief executive officer. The
Series B Preferred Stock entitles the holder thereof to majority voting control
of the Company by virtue of the 51% super voting rights attributed to the holder
of the Series B Preferred Stock. The Controlling Shareholder owned all 100
Shares of Series B Preferred Stock, entitling him to 51% of the aggregate votes
taken by shareholders of any class on all matters being voted upon.
The foregoing description of the Share Transfer Agreement with the Controlling
Shareholder does not purport to be a complete description of the rights and
obligations of the parties thereunder and is qualified in its entirety by
reference to the full text of such agreements, copies of which will be filed as
exhibits to the Company's annual report on Form 10-K for the fiscal year ended
December 31, 2020.
Exchange Agreements with Holders of Convertible Notes and Series A Convertible
Preferred Stock
Immediately prior to the closing of the Share Exchange Agreement, we entered
into Exchange Agreements (the "Convertible Note Exchange Agreements") with the
holders of our outstanding $764,000 principal amount of convertible notes (the
"Convertible Notes"). Pursuant to Convertible Note Exchange Agreements, the
holders of the Convertible Notes were issued, in exchange for their Convertible
Notes, a total of 230,000 shares of our newly-designated Series D Convertible
Preferred Stock. Our new Series D Convertible Preferred Stock is convertible
into common stock at a ratio of 1,000 shares of common stock for each share of
preferred stock held. Immediately prior to the closing of the Share Exchange
Agreement, we entered into Exchange Agreements (the "Preferred Stock Exchange
Agreements" and together with the Convertible Note Exchange Agreements, the
"Exchange Agreements") with the holders of our outstanding series A convertible
preferred stock (the "Series A Preferred Stock"). Pursuant to the Preferred
Stock Exchange Agreements, the holders of the Series A Convertible Preferred
Stock were issued, in exchange for their Series A Preferred Stock, options to
purchase a majority of the outstanding shares of common stock of a newly to be
formed wholly owned subsidiary of the Company.
The foregoing description of the Exchange Agreements and the Series D
Convertible Preferred Stock does not purport to be a complete description of the
rights and obligations of the parties thereunder and is qualified in its
entirety by reference to the full text of such agreements, copies of which will
be filed as exhibits to the Company's annual report on Form 10-K for the fiscal
year ended December 31, 2020.
Secured Note Financing
On February 17, 2021, we entered into a securities purchase agreement with funds
affiliated with Arena Investors LP (the "Investors") pursuant to which we
pursuant to which it issued convertible notes in an aggregate principal amount
of $16.5 million for an aggregate purchase price of $15 million (collectively,
the "Notes"). In connection with the issuance of the Notes, we issued to the
Investors warrants to purchase an aggregate of 192,073,017 shares of Common
. . .
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
Information concerning the Company's issuance of the Notes pursuant to the
Purchase Agreement set forth in Item 1.01 above is hereby incorporated into this
Item 2.03 by reference.
Item 3.02. Unregistered Sales of Equity Securities.
Information concerning the Company's issuance of (i) Series D Preferred Stock
pursuant to the Exchange Agreements as set forth in Item 1.01 above, (ii) Series
E Preferred Stock pursuant to the Share Exchange Agreement as set forth in Item
1.01 above and (ii) Notes, Warrants and Series F Preferred Stock pursuant to the
Purchase Agreement as set forth in Item 1.01 above, is hereby incorporated into
this Item 3.02 by reference.
The securities issued and sold is this transaction were not registered under the
Securities Act, or the securities laws of any state, and were offered and sold
in reliance on the exemption from registration afforded by Section 3(a)(9) or
Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder
and corresponding provisions of state securities laws, which exempt transactions
by an issuer not involving any public offering. The Investors are an "accredited
investor" as such term is defined in Regulation D promulgated under the
Securities Act. This Current Report shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall such securities be offered or sold in
the United States absent registration or an applicable exemption from the
registration requirements and certificates evidencing such shares contain a
legend stating the same.
Item 5.01. Changes in Control of Registrant.
As result of the issuance of the transfer of the Series B Preferred Stock and
the issuance of the shares of Series E Preferred Stock pursuant to the Share
Exchange Agreement, a change in control of the Company occurred on February 16,
2021. Under the terms of the Share Exchange Agreement, Sovryn has appointed two
(2) members of the Board of Directors of the Company as discussed in Item 5.02
below. The appointment of these members is subject to compliance with Rule 14f-1
under the Exchange Act.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
Concurrently with the closing of the Asset Purchase Agreement, the Board of
Directors of the Company appointed the Chief Executive Officer of Sovryn, Phil
Falcone, to serve as the Company's new Chief Executive Officer and member of the
Board of Directors, Henry Turner shall be appointed as Chief Technology Officer
and Chief Operating Officer of the Company, and Warren Zenna as a member of the
Board of Directors of the Company, subject to compliance with Rule 14f-1 under
the Exchange Act. In addition, Jeffrey Canouse, resigned from his position as
Chief Executive Officer of the Company, effective immediately, was appointed
Chief Compliance Officer and Secretary of the Company and will continue to serve
the Company as a member of the Board of Directors. Effective ten (10) days after
mailing to shareholders of a Schedule 14f-1 regarding the proposed changes in
the Company's Board of Directors, Jeffrey Canouse will resign as a director of
the Company and Warren Zenna will become a director of the Company.
Mr. Falcone does not have any family relationship with any director, executive
officer or person nominated or chosen by us to become a director or executive
officer. There is no understanding or arrangement between Mr. Falcone and any
other person pursuant to which Mr. Falcone was selected as an executive officer.
There are no transactions in which Mr. Falcone has an interest requiring
disclosure under Item 404(a) of Regulation S-K.
Mr. Falcone is the Chief Investment Officer and Chief Executive Officer of
Harbinger Capital, and is the Chief Investment Officer of other Harbinger
Capital-affiliated funds. Mr. Falcone co-founded the funds affiliated with
Harbinger Capital in 2001.Mr. Falcone served as a director of HC2 Holdings, Inc.
(NYSE: HCHC), a diversified holding company ("HC2"), from January 2014 until
July 2020, as President and CEO of HC2 from May 2014 to June 2020 and as
Chairman of the Board of HC2 from May 2014 until April 2020. Mr. Falcone served
as a director, Chairman of the Board and Chief Executive Officer of HRG Group,
Inc. (f/k/a Harbinger Group Inc., "HRG") from July 2009 to November 2014. From
July 2009 to July 2011, Mr. Falcone also served as the President of HRG. Mr.
Falcone has over two decades of experience in leveraged finance, distressed debt
and special situations. Prior to joining the predecessor of Harbinger Capital,
Mr. Falcone served as Head of High Yield trading for Barclays Capital. From 1998
to 2000, he managed the Barclays High Yield and Distressed trading operations.
Mr. Falcone held a similar position with Gleacher Natwest, Inc., from 1997 to
1998. Mr. Falcone began his career in 1985, trading high yield and distressed
securities at Kidder, Peabody & Co. Mr. Falcone served as a member of the board
of directors of Inseego Corp. (NASDAQ: INSG), a provider of intelligent wireless
solutions for the worldwide mobile communications market from 1994 through
August 2018, as its Chairman of the Board from May 2017 through August 2018, and
as a member of its Audit Committee from June 2017 through August 2018. Mr.
Falcone received an A.B. in Economics from Harvard University.
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