Item 1.01 Entry into Definitive Material Agreement
On September 15, 2021, Communications Systems, Inc. ("CSI" or the "Company")
entered into an amended and restated securities purchase agreement with a group
of institutional investors (the "PIPE Investors") to make a $32.0 million
private placement investment ("PIPE Offering") in CSI in connection with the
closing of the previously announced merger between CSI and Pineapple Energy, LLC
("Pineapple"). Proceeds of this investment will be used primarily to fund
Pineapple strategic initiatives following consummation of the merger. The
closing of the PIPE Offering is subject to approval of CSI's shareholders. This
amended and restated securities purchase agreement replaces a $25.0 million
original securities purchase agreement dated June 28, 2021.
CSI and one of the original PIPE Investors, CrowdOut Capital LLC ("CrowdOut"),
had agreed that CrowdOut would purchase $9.0 million of the original $25.0
million of Series A Convertible Preferred Stock, and also entered into a
non-binding letter of intent for a $20.0 million term loan (the "Debt
Transaction") from CrowdOut to the Company to assist the combined CSI-Pineapple
company fund the acquisitions of Hawaii Energy Connection ("HEC") and E-GEAR,
which are expected to close concurrently with the CSI-Pineapple merger.
CrowdOut's obligation to consummate the transactions in the PIPE Offering was
expressly conditioned on CrowdOut closing and funding the Debt Transaction
pursuant to fully executed credit documents that were mutually acceptable to CSI
and CrowdOut. On September 14, 2021, CSI and CrowdOut terminated all agreements
for CrowdOut to provide debt financing and participate in the PIPE offering. The
amended and restated securities purchase agreement replaces CrowdOut with new
investors and has increased to $32.0 million.
Under the terms of the amended and restated securities purchase agreement and
the PIPE Offering, the PIPE Investors have agreed to purchase $32.0 million in
newly authorized CSI Series A Convertible Preferred Stock convertible at a price
of $3.40 per share into CSI common stock, with five-year warrants to purchase an
additional $32.0 million of common shares at that same price. The PIPE Offering
is expected to close immediately following the consummation of the CSI-Pineapple
merger. Therefore, the PIPE Investors will invest in the post-merger company,
will not be entitled to receive any cash dividends paid prior to closing and
will not receive the Contingent Value Rights ("CVRs") to be issued to pre-merger
CSI shareholders in the CSI-Pineapple merger transaction.
The Series A Convertible Preferred Stock will have no liquidation or dividend
preference over CSI common stock and no voting rights until after converted into
CSI common stock. Assuming conversion of the Series A Convertible Preferred
Stock, the PIPE Investors would own approximately 9.41 million shares of the
Company's outstanding common stock immediately following the closing of the PIPE
Offering, representing approximately 27% of CSI's outstanding Common Stock after
giving effect to the issuance of shares in the merger, and approximately 18.82
million shares assuming exercise of all the warrants for cash, representing
approximately 43% of CSI's outstanding Common Stock after giving effect to the
issuance of shares in the merger and exercise of the warrants.
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The Series A Convertible Preferred Stock and warrants will have anti-dilution
provisions that would increase the number of shares issuable upon conversion or
exercise, and lower the conversion or exercise price, if CSI issues equity
securities at a price less than the conversion or exercise price at the time of
such issuance. The amended and restated securities purchase agreement also
prohibits the combined company from conducting a new equity offering within 45
days of the closing, gives the PIPE Investors in the aggregate the right to
purchase up to 25% of the equity securities in future CSI-Pineapple offerings
within one year of closing of the amended and restated securities purchase
agreement and requires 30-day lock-up agreements of CSI common stock by certain
CSI-Pineapple officers, directors and major shareholders following the closing.
In connection with the transaction, CSI has agreed to file a registration
statement on behalf of the PIPE Investors allowing them to resell the common
stock into which the Series A Convertible Preferred Stock is convertible and the
warrants are exercisable immediately after issuance. Closing is subject to the
effectiveness of this registration statement, consummation of the CSI-Pineapple
merger and other customary closing conditions.
The foregoing descriptions of the (i) amended and restated securities purchase
agreement, (ii) the CSI Series A Convertible Preferred Stock, (iii) the warrant,
and (iv) the amended and restated registration rights agreement, do not purport
to be complete and are qualified in their entirety to the full extent of these
agreements, which are filed as Exhibits 10.1, 4.1, 4.2, and 4.3 to this Current
Report on Form 8-K and are incorporated herein by reference.
The amended and restated securities purchase agreement provides that the
agreement may be terminated by any PIPE Investor with respect to that PIPE
Investor's obligation if the PIPE Offering has not closed by March 31, 2022.
Item 1.02. Termination of a Definitive Material Agreement
See Item 1.01 for a description of the termination of the securities purchase
agreement dated June 28, 2021 between CSI and CrowdOut and other agreements
between the two parties.
Significance of the PIPE Offering for the CSI- Pineapple Merger
On March 1, 2021, CSI, which has operated as an IoT intelligent edge products
and services company, entered into a definitive merger agreement with privately
held Pineapple, a growing U.S. operator and consolidator of residential solar,
battery storage, and grid services solutions. A meeting of the Company's
shareholders to approve the Merger agreement. During the same meeting, CSI will
also be requesting shareholder approval of the issuance of the Series A
Convertible Preferred Stock and warrants. If the Merger is approved by CSI
shareholders, upon closing, CSI will commence doing business as Pineapple
Energy, with a business model focused on the rapidly growing home solar
industry.
Summary of CSI Shares to be Outstanding after CSI-Pineapple Merger and PIPE
Offering
As September 15, 2021, CSI has approximately 9.7 million shares outstanding. CSI
will initially issue 15.6 million shares in the CSI-Pineapple Merger and may
issue up to an additional 3.0 million shares to the Pineapple shareholders if
specific post-Merger milestones are achieved in accordance with the Merger
agreement. As noted above, immediately after the closing of CSI-Pineapple merger
and PIPE Offering, the PIPE Investors would own Series A Convertible Preferred
Stock immediately convertible into 9.41 million shares of Company common stock,
representing approximately 27% of CSI's outstanding common stock after giving
effect to the issuance of shares in the Merger, and also own warrants
immediately exercisable for an additional 9.41 million shares of Company common
stock, representing approximately 43% of CSI's outstanding common stock after
giving effect to the issuance of shares in the Merger and exercise of the
warrants. In both cases, the PIPE Investors' percentages set forth above do not
reflect any not shares that may be issued to Pineapple shareholders pursuant to
the earnout provision of the Merger agreement.
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The following chart summarizes the treatment of the different shareholders of
CSI.
Type of Share Purchase Price Right to Receive Dividends Shares of the
Shareholder and CVR relating to combined company held
Pre-Merger CSI immediately after the
merger with Pineapple
CSI Various, based on Dividends will consist of 9,717,813 shares
Shareholders purchases in the the $3.50 per share to be outstanding as
immediately public market on the paid on October 15, 2021 to September 15, 2021,
prior to the Nasdaq Capital shareholders of record as Existing CSI
CSI-Pineapple Market. of September 30, 2021. In shareholders will
Merger addition, these continue to hold the
shareholders will receive same numbers of
any cash generated on the shares in the
sale of CSI's Services & CSI-Pineapple
Support segment, real post-Merger company
estate holdings,
investments, and remaining
cash - either through a
cash dividend or through
distributions pursuant to
the CVR
PIPE $32.0 million in No rights to pre-Merger 9.41 million shares
Investors newly authorized CSI dividends or distributions of outstanding common
Series A Convertible under CVR relating to CSI stock upon conversion
Preferred Stock assets existing prior to of Series A
convertible at a the CSI-Pineapple Merger Convertible Preferred
price of $3.40 per Stock
share into CSI Approximately 18.82
common stock, with million shares
five-year warrants assuming exercise of
to purchase an all the warrants
additional $32.0
million of shares of
common stock at that
same price, in each
case subject to
adjustment for
certain dilutive
issuances.
Shareholders Shares to be issued No rights to dividends or Initially 15.6
of Pineapple pursuant to the distributions under CVR million shares with
entities Merger agreement relating to CSI assets the potential for
existing prior to the additional earnout
CSI-Pineapple Merger shares based on the
terms of Merger
agreement
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Item 8.01 Other Events
On September 15, 2021, CSI issued a press release announcing that it had entered
into the amended and restated securities purchase agreement discussed in Item
1.01 of this Form 8-K. A copy of that press release is filed as Exhibit 99.1 to
this Form 8-K.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits.
The following exhibits are filed with this Form 8-K.
Exhibit Number Exhibit
4.1 Form of Certificate of Designation of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock of
Communications Systems, Inc.
4.2 Form of Communications Systems, Inc. Warrant to be issued to the
PIPE Investors
4.3 Amended and Restated Registration Rights Agreement dated as of
September 15, 2021, between Communications Systems, Inc. and PIPE
Investors
10.1 Amended and Restated Securities Purchase Agreement dated as of
September 15, 2021, between Communications Systems, Inc. and the
purchasers identified on the signature pages to the Securities
Purchase Agreement ("PIPE Investors")
10.2 Form of Lock-up Agreement by and among the Company, certain
Company directors, officers and shareholders and the PIPE
Investors, incorporated by reference to Exhibit 10.2 to Form 8-K
dated June 28, 2021
99.1 Press Release of Communications Systems, Inc. dated September
15, 2021
* All schedules to the amended and restated securities purchase agreement have
been omitted pursuant to Item 601(b)(2) of Regulation S-K. CSI hereby agrees to
furnish supplementally a copy of any omitted schedule to the SEC upon request.
Additional Information
A full description of the terms of the proposed Merger will be provided in a
Form S-4 Registration Statement/Proxy Statement for the shareholders of CSI (the
"Proxy Statement") to be filed with the Securities and Exchange Commission (the
"SEC"). CSI URGES INVESTORS, SHAREHOLDERS AND OTHER INTERESTED PERSONS TO READ,
WHEN AVAILABLE, THE PRELIMINARY REGISTRATION STATEMENT/PROXY STATEMENT AS WELL
AS OTHER DOCUMENTS FILED WITH THE SEC BECAUSE THESE DOCUMENTS WILL CONTAIN
IMPORTANT INFORMATION ABOUT CSI, THE BUSINESS AND THE PROPOSED MERGER. The
definitive Registration Statement/Proxy Statement will be mailed to CSI
shareholders as of a record date to be established for voting on the proposed
Merger. Shareholders will also be able to obtain a copy of the definitive proxy
statement (when available), without charge, by directing a request to:
Communications Systems, Inc., 10900 Red Circle Drive, Minnetonka, MN 55343. The
preliminary and definitive proxy statement, once available, can also be
obtained, without charge, at the SEC's website (www.sec.gov).
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Participants in the Solicitation
Communications Systems, Inc. and its directors and executive officers may be
considered participants in the solicitation of proxies by CSI in connection with
approval of the proposed PIPE Offering and Pineapple merger. Information about
the directors and executive officers of CSI is set forth in its Annual Report on
Form 10-K for the fiscal year ended December 31, 2020 and its Amendment No. 1 on
Form 10-K/A, which were filed with the SEC on March 31, 2021, and April 30,
2021, respectively, and will be set forth in its proxy statement for the
shareholders meeting relating to approval of the merger and the issuance of
shares pursuant to the securities purchase agreement, which will be filed with
the SEC when it becomes available. You may obtain these documents (when they
become available, as applicable) free of charge through the sources indicated
above.
Non-Solicitation
This document shall not constitute an offer to sell or the solicitation of an
offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of any such
jurisdiction.
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