Item 1.01 Entry into a Material Definitive Agreement.
On January 11, 2021, Red Cat Holdings, Inc. (the "Company") and Fat Shark
Holdings, Ltd., a Cayman Islands exempted company, and a wholly owned subsidiary
of the Company ("Fat Shark"), entered into a one-year executive employment
agreement (the "Employment Agreement") with Allan Evans ("Executive"), to serve
as chief executive officer of Fat Shark. The Employment Agreement will
automatically renew for successive one-year terms unless either party notifies
the other party at least three months prior to the expiration of the then
current term of its desire to terminate the Employment Agreement.
In consideration therefor, Executive will be paid a base salary equal to 70%
percent of the salary of the Company's Chief Executive Officer in effect from
time to time ("Base Salary"), in periodic installments in accordance with the
Company's regular payroll practices. Base Salary may not be decreased without
the written consent of Executive. Executive will also be eligible to receive an
annual cash bonus of up to 100% percent of Base Salary ("Annual Bonus").
Executive also received a grant of 1,000,000 shares of the Company's common
stock, par value $0.001 per share ("Common Stock"), 250,000 of which shares vest
on January 11, 2021, and the remaining 750,000 shares vest in 36 equal monthly
installments commencing on February 28, 2021, subject to Executive's continued
employment by Fat Shark or its parent or any subsidiary. the grant of shares
will also vest: (i) immediately upon a change of control, as defined in the
Company's 2019 Equity Incentive Plan (the "Plan"); (ii) as to 250,000 shares,
upon the final closing price of the Common Stock for 30 consecutive days at or
above $5.00 per share; (iii) as to 125,000 shares, upon receipt of payment in
full by Fat Shark from an unrelated third-party purchaser of goods or services
in an amount of $250,000 or more at a net profit margin no less than the average
net profit margin of Fat Shark for similar goods or services during the
preceding 12 months; and (iv) as to 125,000 shares, upon receipt of payment in
full by Fat Shark from any unrelated third-party purchaser of goods or services
in an amount of $1,000,000 (exclusive of any purchase described in (iii) above)
at a net profit margin no less than the average net profit margin of Fat Shark
for similar goods or services during the preceding 12 months. Executive will
also be eligible for additional awards under the Plan.
Upon termination of employment for any reason, the Executive shall be entitled
to Base Salary and a pro-rata portion of the Annual Bonus earned through the
date of termination. Upon termination by the Company for any reason other than
for "cause" or by Executive for "good reason", as such terms are defined in the
Employment Agreement, Executive will be entitled to all vested and unvested
shares in accordance with the award vesting as if no termination occurred.
Upon termination by the Company without cause, by Executive for good reason or
by Executive within 180 days of a change of control, as defined in the
Employment Agreement, Executive will also be entitled to the): (i) the greater
of Base Salary through the balance of the term, or 12 months of Base Salary;
(ii) continued participation in Company benefit plans (including health
benefits) for at least twelve months and (iii) immediate vesting of all stock
options or equity awards. Fat Shark will also pay for Executive's COBRA premiums
so long as Executive qualifies therefor.
During the term of employment and for three years thereafter, if there is a
restatement of any financial results resulting from material non-compliance of
Fat Shark with financial reporting requirements under the federal securities
laws from which any metrics were determined to be achieved which were the basis
of the granting and calculation of the Annual Bonus and any stock-based
compensation, Executive agrees to repay any amounts which were determined by
reference to any Fat Shark financial results which were later restated.
Executive is entitled to participate in all benefit plans at substantially the
same levels as the Company's senior executive officers.
Executive may terminate the Employment Agreement without Good Reason and other
than for a change of control upon thirty days prior written notice. Upon such
termination, Fat Shark will have no further obligations or liability to
Executive, except for the Base Salary and pro-rata Annual Bonus earned prior to
the date of termination.
The Employment Agreement contains for customary confidentiality provisions
during and after the term of employment of Executive.
The foregoing description of the Employment Agreement is qualified in its
entirety by reference to the full text of such Employment Agreement, a copy of
which is attached hereto as Exhibit 10.1 and is incorporated herein by reference
in its entirety.
Item 3.02 Unregistered Sales of Equity Securities
On January 11, 2021, the Company issued a ten-year option to purchase 100,000
shares of Common Stock at an exercise price of $2.01 per share under the Plan to
Joseph Freedman upon his acceptance of appointment as a director of the Company.
Fifty percent of these options are vested immediately, with twenty-five percent
of the options vesting on each of the first and second anniversary of the grant
date.
On January 11, 2012, the Company issued 1,000,000 shares of Common Stock to
Allan Evans under the Plan pursuant to the Employment Agreement as described in
Item 1.01.
The above issuances did not involve any underwriters, underwriting discounts or
commissions, or any public offering and we believe are exempt from the
registration requirements of the Securities Act of 1933, as amended, by virtue
of Section 4(2) thereof.
Item 5.02 Election of Directors; Appointment of Principal Officers.
On January 11, 2021, the Company's board of directors (the "Board") approved the
increase in the size of the Board to five from four directors and appointed
Joseph Freedman to the Board. On January 11, 2021 the Board established the
Audit, Nominating and Governance and Compensation Committees and Mr. Freedman
was appointed to each such committee. Mr. Freedman was appointed for a term of
one year and until his successor is duly elected and qualified.
Mr. Freedman is an entrepreneur with experience launching and exiting companies
in the legal recruitment, technology and hospitality sectors, several of which
have been acquired by NYSE listed, private equity and privately held companies.
Four such companies were listed on the Inc. 500/5000, 14 times, with one being
listed in the top 100. In 2006, Mr. Freedman co-founded and currently serves on
the board of Peachtree Tents & Events Holdings, LLC, a full-service event rental
equipment company. Mr. Freedman co-founded and served as the chief executive
officer of Richmond Title, LLC until its acquisition in 2006, and founded and
served as chief executive officer of AMICUS Legal Staffing, Inc. until its
acquisition in 1996. In 2009 Mr. Freedman co-founded and served on the board of
RFx Legal, LLC, a company which used proprietary technology to automate the way
corporations sourced and procured legal services, until its acquisition in 2013.
Mr. Freedman also co-founded eConception, LLC, Weberize, LLC, and Acymtech LLC.
Mr. Freedman currently serves as an advisor to Headsets.com and sits on numerous
privately held company boards. Mr. Freedman is the past president of the
Nashville Chapter of the Entrepreneurs Organization and currently serves on
their Strategic Council. Mr. Freedman earned a B.S. degree in Finance from
Louisiana State University.
Mr. Freedman's legal, business and financial experience provide the basis upon
which the Company has appointed him to the Board.
There is no arrangement or understanding between Mr. Freedman or any other
person pursuant to which he was appointed as a director of the Company, and
there are no familial relationships between Mr. Freedman and any of the
Company's directors or executive officers. Mr. Freedman, including his immediate
family members, is not a party, directly or indirectly, to any related person
transaction required to be reported pursuant to Item 404(a) of Regulation S-K.
Board Committees
On January 11, 2021, the Board established an Audit Committee, Nominating and
Governance Committee and a Compensation Committee.
The Audit Committee is responsible for assisting the Board in its oversight
responsibilities regarding the Company's accounting and financial reporting
processes, the audits of the Company's financial statements and the independent
auditors' qualifications and independence.
The Nominating and Governance Committee is responsible for, among other things,
identifying qualified board candidates and nominees, and corporate officers of
the Company and other matters with respect to governance of the Company.
The Compensation Committee is responsible for the approval and implementation of
the executive compensation for officers and other key executives of the Company.
The members of the Compensation Committee are Mr. Freedman and Liuzza.
The members of the Audit Committee, the Nominating and Governance Committee, and
the Compensation Committee are Mr. Freedman and Mr. Liuzza, both of whom are
"independent" directors as such term is defined for directors in the listing
standards of NASDAQ.
The descriptions of the Audit Committee, the Nominating and Governance Committee
and Compensation committee, are qualified in their entirety by reference to the
full text of the Charter for each such Committee, a copy of which are attached
hereto as Exhibit 10.2, 10.3 and 10.4, respectively.
Corporate Policies
On January 11, 2021, the Audit Committee adopted a Whistleblower Policy
concerning the receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls, or auditing matters
and the submission by employees of the Company and others, on a confidential and
anonymous basis, of good faith concerns regarding such matters.
The Board has also adopted Corporate Governance Guidelines and a Corporate
Communications Policy.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
Exhibit 10.1 Executive Employment Agreement, dated January 11, 2021, among the
Company, Fat Shark Holdings, Ltd. and Allan Evans
Exhibit 10.2 Audit Committee Charter
Exhibit 10.3 Compensation Committee Charter
Exhibit 10.4 Nominating and Governance Committee Charter
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