Item 1.01 Entry into a Material definitive
Agreement.
The Merger Agreement
On January 27, 2022, Mountain Crest Acquisition
Corp. III, a Delaware corporation (“MCAE” or “Parent”), entered into that certain
Agreement and Plan of Merger (as may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”),
by and among MCAE, Etao International Group, a Cayman Islands corporation (the “Company”), and Wensheng Liu,
in his capacity as the Company Shareholders’ Representative (the “Shareholders’ Representative”),
pursuant to which, among other things, (1) the Parent will merge with and into a to be formed Cayman Islands company (“Purchaser”),
with the Purchaser being the surviving corporation in the merger (the “Redomestication Merger”) and (2) the
Company will merge with and into a to be formed Cayman Islands company named (“Merger Sub”), with the Company
as the surviving corporation in the merger (the “Acquisition Merger”), and, after giving effect to the Acquisition
Merger, the Company being a wholly owned subsidiary of Purchaser and the Purchaser will change its name to Etao International Co., Ltd.
(collectively, the “Business Combination”). Following the Business Combination, Purchaser expects to trade
on the New York Stock Exchange.
Based upon the execution of the Merger Agreement,
the period of time for MCAE to complete a business combination under its certificate of incorporation is extended for a period of 6 months
from May 20, 2022 to November 20, 2022.
Consideration
In consideration of the Acquisition Merger, Purchaser
will issue 250,000,000 ordinary shares at a per share price of US$10.00 as agreed by the parties to the shareholders of the Company in
exchange for 100% of the issued and outstanding ordinary shares of the Company.
The Closing
MCAE and the Company have agreed that the closing
of the Business Combination (the “Closing”) shall occur no later than
May 31 2022 (the “Outside Date”). The Outside Date may be extended
upon the written agreement of MCAE and the Company.
Representations and Warranties
In the Merger Agreement, the Company makes certain
representations and warranties (with certain exceptions set forth in the disclosure schedule to the Merger Agreement) relating to, among
other things: (a) proper corporate existence and power of the Company and its subsidiaries (together, the “Company
Parties”) and similar corporate matters; (b) authorization, execution, delivery and enforceability of the Merger Agreement
and other transaction documents; (c) capital structure; (d) no need for governmental authorization for the execution, delivery or performance
of the Merger Agreement and additional agreements thereto (the “Additional Agreements”);
(e) no violations; (f) financial statements and liabilities; (g) absence of changes; (h) compliance with laws and permits; (i) litigation
and government orders; (j) taxes; (k) employee benefits; (l) employee matters; (m) intellectual property; (n) IT systems; (o) material
contracts; (p) real property; (q) insurance; (r) data protection and cybersecurity; (s) fees to brokers and finders; (t) sufficiency of
assets; (u) affiliate transactions; (v) banking relationships; (w) no other representations or warranties.
In the Merger Agreement, MCAE, on its behalf and
also on behalf of Purchaser and Merger Sub when formed (together, the “Parent Parties”)
make certain representations and warranties relating to, among other things: (a) organization and qualification; (b) authorization, execution,
delivery and enforceability of the Merger Agreement and other transaction documents; (c) SEC reports and financial statements; (d) governmental
filings and consents; (e) no violations; (f) no prior operations; (g) valid issuance of Parent common stock; (h) litigation; (i) fees
to brokers and finders; (j) redomestication intended tax treatment; and (k) no other representations or warranties.
Conduct Prior to Closing; Covenants Pending
Closing
The Company and the Parent Parties have agreed
to operate their respective business in the ordinary course, consistent with past practices, prior to the closing of the transactions
(with certain exceptions) and not to take certain specified actions without the prior written consent of the other party.
The Merger Agreement also contains customary closing
covenants.
Conditions
to Closing
General Conditions to Closing
Consummation of the Merger Agreement and the transactions
herein is conditioned on, among other things, (i) no provisions of any applicable law and no order prohibiting or preventing the consummation
of the closing; (ii) Company shareholder approval; (iii) parent shareholder approval; (iv) regulatory and governmental approvals, including
if applicable, the expiration or termination of any waiting periods under the HSR Act; (v) as of the closing date the Parent shall have
at least $5,000,001 in net tangible assets; (vi) the SEC having declared the registration
statement with respect to the Business Combination effective.
Company’s Conditions to Closing
The obligations of the Company to consummate the
transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon each of the following,
among other things:
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the Parent complying with all of obligations under the Merger Agreement in all material respects;
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the representations and warranties of the Parent being true on and as of the date of the Merger Agreement and the closing date of the transactions except as would not be expected to have a material adverse effect;
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the
covenants of the Parent have been performed or complied with; and
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approval of Parent’s initial listing application with the NYSE.
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Parent Parties’ Conditions to Closing
The obligations of the Parent Parties to consummate
the transactions contemplated by the Merger Agreement, in addition to the conditions described above in the first paragraph of this section,
are conditioned upon each of the following, among other things:
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the representations and warranties of the Company being true on and as of the date of the Merger Agreement and the closing date of the transactions except as would not be expected to have a material adverse effect;
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the covenants of the Company have been performed or complied with;
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there having been no material adverse effect to the Company;
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the Company shall have
received the requisite shareholder approval;
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the Parent Parties having received copies of all governmental approvals, and no such governmental approval shall have been revoked.
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the Parent Parties having received a copy of each of the Ancillary Agreements to which the Company
is a party, duly executed by the Company and in full force and effect, as well as a copy of each of the Additional Agreements duly
executed by all required parties thereto, other than Parent or the Company.
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the aggregate cash proceeds available to the Parent Parties from a private placement or other financing to be consummated simultaneously with the closing of the Acquisition Merger (the “PIPE Investment”) being not less than $200,000,000.
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Termination
The Merger Agreement may be terminated and/or
abandoned at any time prior to the closing, whether before or after approval of the proposals being presented to the shareholders of Purchaser,
by:
● by
mutual written consent of Parent and the Shareholders’ Representative;
● by
Parent or the Shareholders’ Representative, if the Closing has not occurred on or before the Outside Date unless the absence
of such occurrence shall be due to the failure of Parent, on the one hand, or the Company or the Shareholders’ Representative, on
the other hand, to materially perform its obligations under this Agreement required to be performed by it on or prior to the Outside Date;
● by
Parent or the Shareholders’ Representative if (i) there shall be any Law that makes consummation of the transactions contemplated
by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmental Order restraining
or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable;
● by
Parent if (i) the Parent Parties are not in material breach of any of its obligations hereunder and (ii) the Company is in material breach
of any of its representations, warranties or obligations hereunder that renders or would render the conditions to closing incapable of
being satisfied on the Outside Date, and such breach is either (A) not capable of being cured prior to the Outside Date or (B) if curable,
is not cured within the earlier of (x) thirty (30) Business Days after the giving of written notice by Parent to the Shareholders’
Representative and (y) two (2) Business Days prior to the Outside Date;
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the Shareholders’ Representative if (i) the Company is not in material breach of any of its obligations hereunder and (ii) Parent
or Merger Sub is in material breach of any of its representations, warranties or obligations hereunder that renders or would render the
conditions to closings incapable of being satisfied on the Outside Date, and such breach is either (A) not capable of being cured prior
to the Outside Date or (B) if curable, is not cured within the earlier of (x) thirty (30) Business Days after the giving of written notice
by the Shareholders’ Representative to Parent and (y) two (2) Business Days prior to the Outside Date;
the Shareholders’
● by
the Parent Parties if the Requisite Company Stockholder Approval shall not have been obtained within five (5) Business Days of the delivery
to Purchaser’s shareholders of the Proxy Statement/Prospectus, provided that the termination right shall be of no further force
or effect if such Requisite Company Stockholder Approval is delivered to the Parent Parties prior to the termination of the Agreement
(even if after the five (5) Business Day period provided above); or
● by
the Parent Parties, in the event that the Company’s Audited 2020/2021 Financial Statements have not been delivered by March 15,
2022.
Indemnification
The Merger Agreement provide for indemnification
by the Company Stockholders to hold the Parent and its Affiliates harmless form any and all losses arising out of or by reason of the
following, among other things:
● any
inaccuracy in or breach of any Company Fundamental Representation, any of the representations or warranties set forth in the Merger Agreement
(other than any Company Fundamental Representation) and any of the representations or warranties or any breach or non-fulfillment of any
covenant, agreement or obligation to be performed by a Company Stockholder set forth in the Support Agreement;
● any
breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Company or the Stockholder’s Representative
prior to or following the Closing pursuant to the Merger Agreement;
● any
Indemnified Taxes;
● any
inaccuracy in the amount of Closing Company Indebtedness or Closing Company Cash, in each case, as reflected in the Closing Statement;
● any
claims made by Company Stockholders in their capacities as such in respect of the allocation of the Aggregate Merger Consideration, or
for any events, facts or circumstances occurring at or prior to the Closing;
● the
defense by Parent or, following the Closing, Parent or the Company of an action for appraisal rights under the DGCL made by any holder
of Dissenting Shares;
● any
actual or threatened Action brought by or on behalf of any Company Service Provider or Governmental Authority alleging breach of Contract
or violation of any applicable Law pertaining to wages and hours, worker classification, workers’ compensation, work authorization
or immigration, in each case, in connection with any period prior to the Closing; or
● any
Liabilities of the Company (other than Indebtedness) incurred or accrued in the ordinary course of business in an aggregate amount in
excess of $100,000 that would be required by GAAP to be reflected on a balance sheet of the Company as of the Closing Date if such balance
sheet were to be prepared as of the Closing Date
The foregoing description of the Merger Agreement
does not purport to be complete and is qualified in its entirety by the terms and conditions of the actual agreement, which is filed as
Exhibit 2.1 hereto and incorporated by reference herein.
Additional Agreements Executed at the Signing
of the Merger Agreement
PIPE Subscription Agreement
In connection with the proposed Merger, MCAE
and the Company obtained a commitment from an interested accredited investor (each a “Subscriber”) to purchase
ordinary shares of Purchaser in connection with the Closing (the “PIPE Shares”), for an aggregate cash amount
of $250,000,000 at a purchase price of $10.00 per share, in a private placement (the “PIPE”). Such commitment
was made by way of a Subscription Agreement (the “PIPE Subscription Agreement”), by and among the Subscriber,
MCAE and the Company. Revere Securities, LLC acted as the placement agent in connection with the PIPE for a fee equal to 1% of the aggregate
purchase price paid for the PIPE Shares sold in the PIPE. The purpose of the sale of the PIPE Shares is to raise additional capital for
use in connection with the Merger. The PIPE Shares will be identical to the shares that will be issued to the Company at Closing in connection
with the Business Combination, except that the PIPE Shares will not be registered with the SEC. The closing of the sale of PIPE Shares
(the “PIPE Closing”) will be contingent upon the substantially concurrent consummation of the Merger.
Pursuant to the PIPE Subscription Agreement,
Purchaser shall file (at Purchaser’s sole cost and expense) a registration statement registering the resale of the ordinary shares
of Purchaser to be purchased in the private placement (the “PIPE Resale Registration Statement”) with the Securities
and Exchange Commission (the “SEC”) no later than forty-five (45) calendar days following the Closing.
Purchaser will use its commercially reasonable efforts to have the PIPE Resale Registration Statement declared effective as soon as practical
but no later than the 5th business day after the date Purchaser is notified by the SEC that the PIPE Resale Registration Statement
will not be “reviewed” or will not be subject to further review. (The rights set forth above granted to the Subscribers pursuant
to the PIPE Subscription Agreements are defined as the “PIPE Registration Rights”).
The PIPE Subscription Agreement will terminate
upon the earlier to occur of (i) such date and time as the Merger Agreement is terminated in accordance with its terms, (ii) upon the
mutual written agreement of each of the parties to the PIPE Subscription Agreements, (iii) any of the conditions to the PIPE Closing are
not satisfied or waived on or prior to the PIPE Closing and, as a result thereof, the transactions contemplated by the Subscription Agreement
are not consummated at the PIPE Closing or (iv) the Outside Date (as defined in the Transaction Agreement and as it may be extended as
described therein).
The foregoing description of the Subscription
Agreements does not purport to be complete and is qualified in its entirety by the terms and conditions of the form of the Subscription
Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
Support Agreement
Contemporaneously with the execution of the Merger
Agreement, certain holders of Company ordinary shares entered into a support agreement (the “Company
Stockholder Support Agreement”), pursuant to which such holders agreed to, among other things, approve the Merger Agreement
and the proposed Business Combination.
The foregoing description of the Company Stockholder
Support Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the actual agreement,
a form of which is included as Exhibit A to the Merger Agreement and as 10.2 to this Current Report on Form 8-K, and incorporated herein
by reference.
Lock-Up Agreements
Contemporaneously with the execution of the Merger
Agreement, all holders of Company ordinary shares have agreed to execute lock-up agreements (the “Lock-up
Agreements”) at the Closing. Pursuant to the Lock-Up Agreements such holders have agreed, subject to certain customary
exceptions, not to (i) sell, offer to sell, contract or agree to sell, pledge or otherwise dispose of, directly or indirectly, any shares
of Parent Common Stock or Purchaser Ordinary Shares held by them (such shares, together with any securities convertible into or exchangeable
for or representing the rights to receive Parent Common Stock or Purchaser Ordinary Shares if any, acquired during the Lock-Up Period
(as defined below)), the “Lock-up Shares”), provided, however, that
such Lock-up Shares shall not include shares of Parent Common Stock or Purchaser Ordinary Shares acquired by such Holder in open market
transactions during the Lock-up Period until the date that is six months after the date of the Closing (the “Lock-Up
Period”). Certain transfers, subject to certain customary conditions as set forth in the Lock-up Agreements are allowed
during the Lock-Up Period.
The foregoing description of the Lock-Up Agreements
does not purport to be complete and is qualified in its entirety by the terms and conditions of the actual agreements, a form of which
is included as Exhibit C to the Merger Agreement and as Exhibit 10.3 to this Current Report on Form 8-K, and incorporated herein by reference.
Stock Purchase Agreement
In connection with the execution of the Merger
Agreement, Mountain Crest Holdings III LLC, a Delaware limited liability company (the “Sponsor”)
and ETAO International Group, Inc., a Delaware corporation (“EIG”),
entered into a stock purchase agreement, dated December 16, 2021 (the “EIG Stock Purchase
Agreement”), pursuant to which EIG purchased 200,000 shares of MCAE common stock (the “EIG
Shares”) from the Sponsor for a purchase price of $2,500,000. Subject to the satisfaction of conditions set forth in
the EIG Stock Purchase Agreement, the Sponsor shall cause the EIG Shares to be transferred on the books and records of MCAE to EIG upon
the Closing of the Business Combination.
Additional Agreements to be Executed at Closing
Amended and Restated Registration Rights
Agreement
At the closing of the Business Combination, Purchaser
will enter into an amended and restated registration rights agreement (the “Amended and Restated Registration Rights Agreement”)
with certain existing stockholders of MCAE with respect to certain securities they own at the Closing. The Amended and Restated Registration
Rights Agreement provides certain demand registration rights and piggyback registration rights to the stockholders, subject to underwriter
cutbacks and issuer blackout periods. Purchaser will agree to pay certain fees and expenses relating to registrations under the Purchaser
Amended and Restated Registration Rights Agreement.
The foregoing description of the Amended and Restated
Registration Rights Agreement is qualified in its entirety by reference to the full text of the form of Amended and Restated Registration
Rights Agreement, a copy of which is included as Exhibit 10.4 to this Current Report on Form 8-K, and incorporated herein by reference.