Item 1.01 Entry into a Material Definitive Agreement.
As previously reported, on December 31, 2019, Red Cat Holdings, Inc., a Nevada
corporation (the "Company"), entered into an Agreement of Merger (the "Merger
Agreement") with Rotor Riot Acquisition Corp., a wholly owned Ohio subsidiary of
the Company (the "Ohio Acquisition Sub"), Rotor Riot, LLC, an Ohio limited
liability company ("Rotor Riot"), and the three members of Rotor Riot (the
"Members"). Pursuant to the terms of the Merger Agreement, upon consummation of
the merger contemplated by the Merger Agreement (the "Merger"), the Ohio
Acquisition Sub would merge with and into Rotor Riot, with Rotor Riot continuing
as the surviving entity and a wholly owned subsidiary of the Company. At the
effective time of the Merger, the issued and outstanding membership interests of
Rotor Riot held by the Members, which represented 100% of Rotor Riot's issued
and outstanding membership interests, would be converted into shares of common
stock of the Company. In accordance with its terms, the Merger Agreement would
terminate if a closing did not occur on or before January 14, 2020 (the
"Termination Date"), unless such Termination Date was extended by mutual consent
of the parties.
On January 14, 2020, the parties to the Merger Agreement entered into a first
amendment to the Merger Agreement (the "First Amendment"), pursuant to which the
Termination Date for the Merger was extended to January 17, 2020.
On January 22, 2020, the parties to the Merger Agreement entered into a second
amendment to the Merger Agreement (the "Second Amendment"), joined in by Rotor
Riot Acquisition Corp., a newly formed, wholly owned Delaware subsidiary of the
Company (the "Delaware Acquisition Sub"). Pursuant to the terms of the Second
Amendment, (a) the Delaware Acquisition Sub replaced the Ohio Acquisition Sub as
the acquisition subsidiary to merge with and into Rotor Riot in connection with
the Merger, and (b) the Termination Date for the Merger was further extended to
January 24, 2020.
The Merger was consummated as of January 23, 2020 (the "Effective Date"), as
further described in Item 2.01 below. At the closing of the Merger, the Company
entered into a Make Whole Agreement (the "Make Whole Agreement") with Rotor
Riot, Brains Riding in Tanks, LLC, an Ohio limited liability company and the
majority owner of Rotor Riot ("BRIT"), and Chad Kapper, the Chief Executive
Officer and Manager of Rotor Riot, and the Chief Executive Officer and
beneficial owner of 100% of the membership interests of BRIT ("Kapper"),
pursuant to which the Company agreed to pay all obligations of Rotor Riot, which
were approximately $915,563 as of the Effective Date. This included the issuance
to BRIT of a promissory note (the "BRIT Promissory Note"), as of the Effective
Date, in the principal amount of $175,000 (the "Principal Amount"), at an
interest rate of 4.75% per annum ("Interest"), with $3,500 of the Principal
Amount to be paid monthly, and the remaining Principal Amount and any accrued
and unpaid Interest to be paid on the earlier of (A) twelve months from the date
of issuance, and (B) the closing of an equity offering by the Company of no less
than $3,000,000.
The foregoing summaries of the Merger Agreement, the First Amendment, the Second
Amendment, the Make Whole Agreement and the BRIT Promissory Note, do not purport
to be complete and are qualified in their entirety by reference to the complete
text of the Merger Agreement, the First Amendment, the Second Amendment, the
Make Whole Agreement and the BRIT Promissory Note, copies of which are filed as
Exhibits 10.1, 10.2, 10.3, 10.4 and 4.1 to this Current Report on Form 8-K (this
"Report"), respectively, and incorporated herein by reference.
Item 2.01 Completion of Acquisition or Disposition of Assets.
Reference is made to the disclosure set forth under Item 1.01 above, which
disclosure is incorporated herein by reference.
On January 23, 2020, the Effective Date, pursuant to the terms of the Merger
Agreement, as amended, the Delaware Acquisition Sub merged with and into Rotor
Riot. Rotor Riot was the surviving corporation in the Merger and, as a result of
the Merger, became a wholly owned subsidiary of the Company.
Rotor Riot sells products and services in the drone marketplace, primarily
focused on FPV (First Person View), including unmanned aircraft systems,
components, and accessories.
In accordance with the terms of the Merger Agreement, at the closing of the
Merger, each Member of Rotor Riot was to receive its pro rata portion of the
total number of shares of the Company's common stock issued based on: (A)(i) the
purchase price of $3,700,000, minus, (ii) the aggregate amount of debt and other
payables of Rotor Riot, including those of BRIT and Kapper, divided by (B) the
volume weighted average price ("VWAP") of the Company's common stock for the
twenty trading days prior to the closing date of the Merger. As of the Effective
Date, the aggregate amount of debt and other payables of Rotor Riot was
approximately $915,563, and the VWAP of the Company's common stock for the
twenty trading days prior to the Effective Date was $1.25445 per share. As a
result, the Company issued an aggregate of 2,219,650 shares of its common stock
(the "Shares") to the Members of Rotor Riot.
Pursuant to the terms of the Make Whole Agreement, as of the Effective Date, the
Company agreed to pay all obligations of Rotor Riot, including those of BRIT and
Kapper, in the aggregate amount of approximately $915,563. This included the
issuance to BRIT of the BRIT Promissory Note, in the principal amount of
$175,000.
The Merger Agreement, as amended, contained customary representations and
warranties and pre- and post-closing covenants of each party and customary
closing conditions. Breaches of the representations and warranties are subject
to indemnification provisions.
Immediately following the Merger, the Company had 19,148,698 shares of common
stock issued and outstanding. In connection with the Merger, BRIT, received
1,997,684 of the Shares, which represented approximately 10.4% of the Company
following the consummation of the Merger.
The Merger was intended to be treated as a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
Reference is made to the disclosure set forth under Items 1.01 and 2.01 above,
which disclosure is incorporated herein by reference.
In connection with the Merger, the Company entered into the Make Whole Agreement
with Rotor Riot, BRIT, and Chad Kapper, pursuant to which the Company agreed to
pay all obligations of Rotor Riot, including those of BRIT and Kapper, which
were approximately $915,563 as of the Effective Date. This included the issuance
to BRIT of the BRIT Promissory Note in the Principal Amount of $175,000, at an
Interest rate of 4.75% per annum, with $3,500 of the Principal Amount to be paid
monthly, and the remaining Principal Amount and any accrued and unpaid Interest
to be paid on the earlier of (A) twelve months from the date of issuance, and
(B) the closing of an equity offering by the Company of no less than $3,000,000.
Item 3.02 Unregistered Sales of Equity Securities.
Issuance of the Shares in Connection with the Merger
Reference is made to the disclosure set forth under Items 1.01 and 2.01 above,
which disclosure is incorporated herein by reference.
In connection with the Merger, as further described in Item 2.01 above, the
Company issued an aggregate of 2,219,650 Shares of its common stock to the
Members of Rotor Riot, on a pro rata basis, based on their percentage ownership
of membership interests of Rotor Riot.
The issuances of the Shares in connection with the Merger were exempt from
registration under Section 4(a)(2) and/or Rule 506(b) of Regulation D as
promulgated by the Securities and Exchange Commission (the "SEC") under of the
Securities Act of 1933, as amended (the "Securities Act"), as transactions by an
issuer not involving any public offering.
Grant of the Hernon Stock Options
Reference is made to the disclosure set forth under Item 5.02 below, which
disclosure is incorporated herein by reference.
In connection with the appointment of Joseph Hernon as the Company's Chief
Financial Officer, Secretary and Treasurer on January 23, 2020, as further
described in Item 5.02 below, the Company granted Mr. Hernon 10-year stock
options to purchase 1,100,000 shares of the Company's common stock (the "Hernon
Stock Options") under the Company's 2019 Equity Incentive Plan (the "2019
Plan"). The Hernon Stock Options, which are exercisable at a per share exercise
price of $0.821, the closing sale price of the Company's common stock on the OTC
Market Group's OTC Pink marketplace on the date of grant, will vest on a ratable
basis quarterly over a three year period.
The issuance of the Hernon Stock Options in connection with the appointment of
Joseph Hernon as the Company's Chief Financial Officer, Treasurer and Secretary
was exempt from registration under Section 4(a)(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On January 23, 2020, Joseph Hernon was appointed as the Company's Chief
Financial Officer, Secretary and Treasurer, to serve in such offices at the
pleasure of the Company's board of directors (the "Board"), and until his
successor has been appointed by the Board. Prior to Mr. Hernon's appointment,
Jeffrey Thompson, the Company's President and Chief Executive Officer, and a
member of the Company's Board, had served as Interim Chief Financial Officer
(since May 31, 2019) and Secretary (since May 15, 2019). In connection with his
appointment as Chief Financial Officer, Mr. Hernon also replaced Mr. Thompson as
the Company's Principal Financial and Accounting Officer for SEC reporting
purposes.
Mr. Hernon, 60, has gained extensive experience in financial services over the
course of his 30-year career. From May 2016 through the date of his appointment
as the Company's Chief Financial Officer, Secretary and Treasurer, Mr. Hernon
was a financial consultant to various private companies. Prior to that, Mr.
Hernon was the Chief Financial Officer for three public companies, including,
most recently, Towerstream Corporation from May 2008 through May 2016. Earlier
in his career, Mr. Hernon was employed for almost 10 years by
PricewaterhouseCoopers in its audit practice and was a Senior Business Assurance
Manager during his last five years with the firm. Mr. Hernon is a certified
public accountant and earned a Master's degree in Accountancy from Bentley
University in 1986.
In connection with his appointment as Chief Financial Officer, Secretary and
Treasurer, the Company granted Mr. Hernon the Hernon Stock Options under the
2019 Plan. The Hernon Stock Options, which are exercisable at a per share
exercise price of $0.821, the closing sale price of the Company's common stock
on the OTC Market Group's OTC Pink marketplace on the date of grant, will vest
on a ratable basis quarterly over a three year period.
Mr. Hernon's initial compensation shall be $120,000 annually and he will be
eligible to participate in bonus and benefit programs, if and when implemented.
Except as otherwise disclosed in this Report, there are no arrangements or
understandings between Mr. Hernon and any other person pursuant to which he was
appointed as an officer of the Company. In addition, there are no family
relationships between Mr. Hernon and any of the Company's other officers or
directors. Further, except as otherwise disclosed in this Report, there are no
transactions since the beginning of our last fiscal year, or any currently
proposed transaction, in which the Company is a participant, the amount involved
exceeds $120,000, and in which Mr. Hernon had, or will have, a direct or
indirect material interest.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The Company intends to file the financial statements of Rotor Riot required by
Item 9.01(a) as part of an amendment to this Report no later than 71 calendar
days after the required filing date for this Report.
(b) Pro Forma Financial Information.
The Company intends to file the pro forma financial information required by Item
9.01(b) as part of an amendment to this Report no later than 71 days after the
required filing date for this Report.
(d) Exhibits.
Exhibit No. Description
4.1 Promissory Note, dated January 23, 2020
10.1 Agreement of Merger, dated December 31, 2019
10.2 Amendment No. 1 to Agreement of Merger, dated January 14, 2020
10.3 Amendment No. 2 to Agreement of Merger, dated January 22, 2020
10.4 Make Whole Agreement, dated January 23, 2020
© Edgar Online, source Glimpses