DUKE Robotics Corp 8-K, filed Mar 10, 2020
DUKE Robotics Corp. (DUKR)
About this 8-K
DUKE Robotics Corp filed this 8-K on March 10, 2020, reporting on events of March 4, 2020.
Items reported
- Item 1.01: Entered into a material agreement
- Item 2.01: Completed an acquisition or sale of assets
- Item 2.02: Financial results
- Item 3.02: Unregistered sale of equity
- Item 5.01: Change in control
- Item 5.02: Director or officer change, or executive pay
- Item 5.03: Charter or bylaw amendment, or fiscal year change
- Item 5.06: Change in shell company status
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 10, 2020 (March 4, 2020)
UAS Drone Corp.
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation)
000-55504 |
47-3052410 | |
| (Commission File Number) | (IRS Employer Identification No.) |
| 1 Etgar Street, Tirat-Carmel, Israel | 3903212 | |
| (Address of Principal Executive Offices) | (Zip Code) |
011-972-4-8124101
(Registrant’s Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
FORWARD-LOOKING STATEMENTS
The statements contained in this Current Report on Form 8-K (the “Current Report”) that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Words such as “expects,” “anticipates,” “intends,” “plans,” “planned expenditures,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Current Report and the documents we incorporate by reference. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this Current Report reflect the good faith judgment of management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Current Report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Current Report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
In this Current Report, unless otherwise specified, all dollar amounts are expressed in United States dollars. Except as otherwise indicated by the context, references in this Current Report to “Duke”, “we,” “us” and “our” are references to Duke Robotics, Inc., including the operating and financial results of Duke, and references to “Company” are references to the post-Share Exchange entity.
BACKGROUND
On March 4, 2020, UAS Drone Corp., a Nevada Corporation (the “Company”), consummated a Share Exchange Agreement with Duke Robotics, Inc., a Delaware corporation (“Duke”), and the shareholders of Duke who executed and delivered the Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which Duke became a majority-owned subsidiary of the Company (the “Share Exchange”). The Share Exchange closed on March 10, 2020. Such closing date is referred to as the “Effective Time.”
Pursuant to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke stockholders in exchange for 22,920,107 shares of Duke’s issued and outstanding shares of common stock, representing approximately 99% of Duke’s issued and outstanding shares of common stock. Accordingly, each outstanding share of Duke common stock was exchanged for the right to receive 1.2421 shares of the Company’s common stock (the “Exchange Ratio”). Of the shares of Duke common stock that were exchanged for shares of the Company’s common stock, 51,410 (representing 63,856 shares of the Company’s common stock post-Share Exchange) shall be issued but remain in escrow until the Company completes a short-form merger, or other similar transaction, pursuant to which, such shares will be issued to their respective holders. These Duke stockholders not receiving shares of the Company’s common stock in exchange for their shares of Duke common stock at the Effective Time are referred to as the Non-Participating Duke Holders.
As such, at the Effective Time, the Duke stockholders owned an equivalent of approximately 71% of the Company’s common stock. After giving effect to the Share Exchange, Duke became a subsidiary of the Company. Following the Share Exchange, the Company adopted the business plan of Duke. Duke is a robotics company dedicated to the development of an advanced robotics system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons.
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Following the consummation of the Share Exchange, the Company intends to incorporate a wholly-owned subsidiary, which, according to the Company’s current plan, would then merge into, and acquire, the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate in the Share Exchange. The proposed acquisition of the shares of Duke common stock from the Non-Participating Duke Holders is expected to occur at the Exchange Ratio; however, there is and can be no guarantee that the Company is able to successfully conduct such second phase of the Share Exchange thereby causing Duke to become a wholly-owned subsidiary.
In conjunction with the consummation of the Share Exchange, and as a condition thereof, the Company entered into the following agreements: (i) several convertible loan agreements, on the same terms, in the aggregate amount of $965,000 (each, a ”Convertible Loan Agreement”), (ii) securities exchange agreements (each, an “Exchange Agreement”) with outstanding debt holders of the Company, Alpha Capital Anstalt (“Alpha”) and GreenBlock Capital LLC (“GBC”) to respectively cancel existing debentures or debt and in exchange issue new debentures in the aggregate amount of $400,000 (the “New Debentures”) and issue 698,755 and 65,198 shares of common stock to each of Alpha and GBC, respectively, (iii) several Securities Exchange Agreements, on the same terms, to exchange a Promissory Note, dated September 2, 2019, with a maturity date of September 2, 2021 in the amount of $35,000 (the “Promissory Note”) for 9,623,621 shares of Company common stock (the “Note Conversion”) and (iv) a Registration Rights Agreement (the “Registration Rights Agreement”) with GBC, Alpha, the Primary Lenders (as defined below) and certain Duke shareholders. The deemed beneficial owners of the common stock, or other securities, issuable under parties to the Convertible Loan Agreements and the Note Conversion are identical and, as such, we refer to these parties as the “Primary Lenders.”
FORM 10 DISCLOSURE
As disclosed elsewhere in this Current Report, the Company acquired a majority of the issued and outstanding shares of Duke upon the consummation of the Share Exchange. Item 2.01(f) of Form 8-K provides that if the Company was a “shell company,” other than a business combination related shell company (as those terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately before the Share Exchange, then the Company must disclose the information that would be required if the Company were filing a general form for registration of securities on Form 10 under the Exchange Act reflecting all classes of the Company’s securities subject to the reporting requirements of Section 13 of the Exchange Act upon consummation of the acquisition transaction.
To the extent that the Company was considered to be a shell company immediately before the acquisition transaction, we are providing below the information that we would be required to disclose on Form 10 under the Exchange Act if we were to file such form. Please note that, unless the context otherwise requires, the information provided below relates to the combined Company after the acquisition of the majority of the issued and outstanding shares of Duke.
| Item 1.01. | Entry into a Material Definitive Agreement |
Share Exchange
On March 10, 2020, the Company consummated the Share Exchange. For a description of the Share Exchange, and the material agreements entered into therewith, please see Item 2.01 of this Current Report, which disclosure is incorporated herein by reference.
In conjunction with the consummation of the Share Exchange, the Company entered into and closed on several other agreements. These agreements included the Securities Exchange Agreement, Convertible Loan Agreements and the Exchange Agreement.
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Convertible Loan Agreements
On March 9, 2020, the Company entered into the Convertible Loan Agreements with each of the Primary Lenders, pursuant to which, the Primary Lenders agreed, subject to the satisfaction or waiver of the conditions set forth in each of the Convertible Loan Agreements, to provide the Company with an aggregate loan of $965,000.
The Primary Lenders will have the option to convert the unpaid balance of their respective Convertible Loan Agreements into shares of the Company’s common stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following the Effective Time (“Effective price” per share means (i) if only shares of Company common stock are sold in a transaction, the amount actually received in cash by the Company and (ii) if shares of Company common stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Company common stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Company common stock issued in such transaction); (B) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six (6) months following the Effective Time until such time as the Loans are fully repaid or otherwise converted (provided however that such price per share shall not be available in the event of an issuance of Alternative Securities (as defined below) to the Primary Lender); (C) a price per share reflecting a post-money valuation of the Company of $15,000,000 following the next investment in the Company following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. The conversion price is currently $0.374.
If the Company issues shares of stock other than common stock or other securities (“Alternate Securities”) prior to the full conversion or repayment of the loan amount under each Convertible Loan Agreement, then the Primary Lender shall be entitled to declare that the shares issued pursuant to a conversion shall be Alternate Securities having the same class, rights, preferences and privileges as will be attached to such class of Alternate Securities; provided that in order to receive such Alternate Securities, the Primary Lender shall be required to convert the unpaid balance and accrued and unpaid interest then outstanding under the Convertible Loan Agreement in full. The Convertible Loan Agreements contain a beneficial ownership limitation set at 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of the loan provided by the Primary Lender under their respective Convertible Loan Agreement; provided, however that each Primary Lender may increase such beneficial ownership limitation to 19.99% upon prior notice to the Company.
In addition, pursuant to the Convertible Loan Agreements, if prior to the maturity date of such loans, the Company enters into an event of default (as defined in the agreements), then the Primary Lenders shall have the right to convert the amount then outstanding under their respective Convertible Loan Agreements at the nominal price of the shares of common stock ($0.0001 per share of common stock).
Debenture Exchange
In addition, the Company entered into Exchange Agreements with each of Alpha and GBC, whereby the parties to the separate Exchange Agreements agreed to amend the terms of the debentures issued to such lenders in April 2015, 2016 and 2017 (the “Old Alpha Debentures”) and for advances made by GBC from February 2016 to the date hereof (the “GBC Debt Advances”) respectively, pursuant to separate SPAs, by way of cancellation of the Old Alpha Debentures and GBC Debt Advances and entering into the Exchange Agreement providing for the issuance of the New Debentures and the issuance of 698,755 and 65,198 shares of common stock to each of Alpha and GBC, respectively.
The New Debentures are in the aggregate amount of $400,000, mature three years from the date of their issuance, or on March 9, 2023, years, bear interest at a rate of 8% per year and are only convertible into shares of the Company’s common stock, at an original conversion price of $0.3740 (the “Original Conversion Price”); provided, however, that such Original Conversion Price shall be adjusted downward in the event that the Company, as applicable, sells or grants any options to purchase or sells or grants any right to reprice, or otherwise dispose or issues any common stock or common stock equivalents entitling any purchaser to acquire shares of the Company’s common stock at an effective price per share that is lower than the Original Conversion Price (such issuance, a “Dilutive Event”). In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment shall occur immediately after the completion of such period. The Exchange Agreement contains customary representations, warranties and covenants of the Company and purchaser for similar transactions.
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Note Conversions
Immediately prior to the Effective Time, as a condition to the closing of the Share Exchange, the Company issued to the Primary Lenders of the Promissory Notes such number of the Company’s common stock equal to approximately 24% of the post-Exchange shares of the Company’s common stock, or an aggregate amount of 9,623,621 shares of the Company common stock, equal to a price of approximately $0.00367 per share, with the purpose of the recapitalization being to allow the Company to satisfy the conditions to completing the Share Exchange.
The foregoing descriptions of the above referenced agreements do not purport to be complete. For an understanding of their terms and provisions, reference should be made to the Convertible Loan Agreements, the Securities Exchange Agreements attached as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to this Current Report.
Registration Rights
Immediately prior to the Effective Time, and effective at such time, the Company entered into the Registration Rights Agreement with, among others, Alpha, GBC and the Primary Lenders, to permit them to have their securities in the Company included in a registration statement for resale by the holder when filed by the Company on a piggyback basis and one demand registration right. The Company is responsible for bearing the costs of any of these acts of registration of the securities.
The foregoing description of the above referenced Registration Rights Agreement does not purport to be complete. For an understanding of their terms and provisions, reference should be made to the Registration Rights Agreement attached as Exhibit 10.5, respectively, to this Current Report.
| Item 2.01. | Completion of Acquisition or Disposition of Assets |
SHARE EXCHANGE WITH DUKE ROBOTICS, INC.
On March 9, 2020, the Company consummated a share exchange agreement with Duke and the shareholders of Duke who executed and delivered the Share Exchange Agreement, pursuant to which Duke became a subsidiary of the Company. The Share Exchange closed at the Effective Time.
Pursuant to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke stockholders in exchange for 22,920,107 shares of Duke’s issued and outstanding shares of common stock, representing approximately 99% of Duke’s issued and outstanding shares of common stock. Accordingly, each outstanding share of Duke common stock was exchanged for the right to receive 1.2421 shares of the Company’s common stock. Of the shares of Duke common stock that were exchanged for shares of the Company’s common stock, 51,410 (representing 63,856 shares of the Company’s common stock post-Share Exchange) shall be issued but remain in escrow until the Company completes a short-form merger, or other similar transaction, pursuant to which, such shares will be issued to their respective holders. These Duke stockholders not receiving shares of the Company’s common stock in exchange for their shares of Duke common stock at the Effective Time are referred to as the Non-Participating Duke Holders.
As such, at the Effective Time, the Duke stockholders (excluding the Remaining Duke Shares) owned an equivalent of approximately 71% of the Company’s common stock. After giving effect to the Share Exchange, Duke became a subsidiary of the Company. Following the Share Exchange, the Company adopted the business plan of Duke. Duke is a robotics company dedicated to the development of an advanced robotics system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons.
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As a condition for the consummation of the Share Exchange, the Company and Duke agreed to the following covenants and closing conditions: (i) a requirement that a closing of a convertible loan for aggregate gross proceeds of not less than $965,000 shall have occurred immediately prior to the Effective Time; (ii) the Company and each of GBC and Alpha revise the terms of each of their outstanding debt in the Company as of the Effective Time; (iii) at the Effective Time, the resignation of Messrs. Grant A. Begley, Christopher Leith and Chris Nelson as directors and/or officers of the Company and the appointment of Yariv Alroy, Erez Nachtomy, Eran Antebi and Sagiv Aharon as directors of the Company and Sagiv Aharon as an officer of the Company; and (v) the receipt of executed pay-off letters and releases relating to liabilities of the Company.
Following the consummation of the Share Exchange, the Company intends to incorporate a wholly-owned subsidiary, which, according to the Company’s current plan, would then merge into, and acquire, the remaining outstanding shares of Duke held by the Non-Participating Duke Holders. The proposed acquisition of the shares of Duke common stock from the Non-Participating Duke Holders is expected to occur at the Exchange Ratio.
In addition, immediately prior to the Effective Time, as a condition to the closing of the Share Exchange, the Company closed the (i) Convertible Loan Agreements, (ii) Note Conversion and (iii) and issuance of the New Debentures to Alpha and GBC along with 698,755 and 65,198 shares of common stock to each of Alpha and GBC, respectively, pursuant to the respective Exchange Agreements.
At the Effective Time, Messrs. Grant A. Begley, Christopher Leith and Chris Nelson resigned as directors and/or officers of the Company, and immediately thereafter, as of the Effective Time, the Company’s board of directors and executive officers were reconstituted by the appointment of Sagiv Aharon, Yariv Alroy, Erez Nachtomy and Eran Antebi as directors and Sagiv Aharon as both Chief Executive Officer (the “CEO”), Chief Technology Officer (the “CTO) and President.
Pro Forma Ownership
Following the issuance of the Company’s shares of common stock in exchange for shares of Duke common stock, as of the Effective Time, there was an equivalent of approximately 22,920,107 shares of Duke’s common stock issued and outstanding. As a result of the Share Exchange, Duke’s pre-Share Exchange Agreement stockholders hold approximately 71% of the Company’s issued and outstanding shares of common stock.
For financial accounting purposes, the Share Exchange between the Company and Duke was accounted for as a reverse recapitalization and, as a result of the Share Exchange, the Company ceased to be a shell company. As the shareholders of Duke received the largest ownership interest in the Company, Duke was determined to be the “accounting acquirer” in the reverse recapitalization. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Duke.
In addition, Duke previously entered into agreements with certain persons pursuant to which Duke agreed to issue both options to purchase shares of its common stock as well as restricted shares. In connection with the Share Exchange, Duke entered into side letters with such persons pursuant to which Duke and such persons agreed that such options to purchase shares of Duke common stock and restricted stock shall be issued subsequent to the Effective Date for securities of a similar type. Accordingly, we intend to issue options to purchase 995,000 shares of our common stock and 133,333 restricted shares, in addition to any other options to purchase shares of the Company’s common stock that the Company may issue from time to time under a yet to be approved equity incentive plan. None of the aforementioned issuances are to our current or previous executive officers or directors.
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DESCRIPTION OF BUSINESS OF DUKE ROBOTICS, INC.
Corporate Overview
Duke was incorporated under the laws of the State of Delaware in March 2016. Prior to incorporating in Delaware, we operated through Duke Airborne Systems Ltd. (“Duke Israel”), which was formed under the laws of the State of Israel in March 2014. As a result of our incorporation in the State of Delaware in 2016, Duke Israel became our wholly-owned subsidiary. At the Effective Time of the Share Exchange, Duke became a subsidiary of the Company.
Company Overview
Duke is a robotics company dedicated to the development of an advanced robotics stabilization system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. Our advanced robotics system is able to achieve pinpoint accuracy regardless of the movement of the weapons platform or the target.
Although our first product has been designed to be used by an unmanned aerial system (a “UAS”), our robotic solutions are also adaptable to other military vehicles, boats and stationary environments, as well as civilian purposes, such as, high definition, high-end stabilized cameras. We believe that our system is to small arms and light weapons (e.g., weapons weighing less than 9 kilograms, or kg, or approximately 19.9 pounds) as drones are to air-to-ground missiles.
We have completed our first generation of our robotic systems. Prior to marketing our systems to potential customers, for security reasons, we are required to obtain various governmental approvals for each sale. We have filed marketing applications with the Israeli Ministry of Defense (“IMOD”)and as a result thereof, currently hold marketing approvals for about 50 countries, including the United States. Currently, our commercialization efforts are primarily focused on the U.S. market, with secondary efforts outside of the United States focused primarily on Western Europe.
Market Opportunity
The classic confrontation of army against army has become rare, while guerilla (or asymmetric) warfare has unfortunately become commonplace. Further, the foreign policy of the United States and other countries is increasingly designed around the parameter of not employing “boots on the ground” while at the same time minimizing collateral damage. The United States and other countries around the world have significantly increased their use of UASs for intelligence gathering, surveillance and tactical applications, such as delivery of heavy ordnance bombs and missiles. The use of UASs to fire small arms and light weapons from the air, however, has not yet become a viable option. Our technology thus addresses a crucial need of modern warfare to bring a wide range of weapons other than bombs and missiles to bear on remote hostile targets without risk to the military personnel deploying the weapons, while at the same time minimizing collateral damage. In addition, the rapid evolution of small unmanned air systems (“sUAS”) technologies, along with their size and low cost, enables novel concepts of employment that present challenges to current defense systems, creating new asymmetric threats for warfighters. Our system also addresses this crucial need for counter sUAS solutions and offers a kinetic interception, or “drone kill drone,” capability for defeating enemy sUAS.
Our system was designed with input from veterans of Israel’s elite special mission units. It is operated intuitively via a touch-based tablet, which serves as its control unit. Minimal prior training is required in order to operate the robot. In June 2016, our robot mounted on our UAS Octocopter platform was awarded the top prize at the Combating Terrorism Technology Conference sponsored by the United States Defense Department’s Combating Terrorism Technical Support Office, Israel’s Ministry of Defense Directorate of Defense Research and Development and the MIT Enterprise Forum of Israel.
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Products
UAS Octocopter Integrated with Six Degrees of Freedom (“6 DOF”) Robotic Gimbal
Our special purpose UAS Octocopter (DK-HIPPOGRIFF) integrates for operational usage with our 6 DOF robot and is intended primarily for Military and homeland security purposes. Our lightweight robot allows accurate firing from various configurations consisting of UAS-mounted, land-mounted on light all-terrain vehicles and sea-mounted on boats. The robot is mounted on our UAS Octocopter platform, a combined system which we market under the commercial name “TIKAD.”
In addition to the various configurations and mounting options, the robots also permit the utilization of a wide range of small arms, light weapons and shotguns, with lethal and less lethal ammunition, with a maximum weight of nine (9) kilograms (approximately twenty (20) pounds). The combination of our robot, along with our stabilization platform and software, provides a unique firing platform that permits precision firing regardless of weather conditions or other variables.
Additionally, our robot may also be utilized as a ground sniper platform. Since the robot is a standalone unit, it can be mounted on a patrol or attack vehicle or be positioned at a strategic location. The capability of remote operation without the need to expose the operator to tactical danger can replace troops in different settings. This capability may reduce the number of casualties due to “friendly fire” incidents and may also significantly reduce exposure and risk to combat troops. Our robot is controlled by a remote-control device that permits the user to exert full control over its functions, including arming the robot as well as control the firing mechanism.
Our lightweight robot can also be used for civilian purposes and bring solutions that do not yet exist for different tasks that require high-end stabilization, such as: vertical takeoff and landing (“VTOL”) robotic landing gear for drones, VTOL aircrafts and medical aid robotic uses. We do not initially intend to focus on the sale of the robot for civilian purposes but expect our sales of the robot to increase as additional product options expand. We will also address, as needed, evolving regulation of civilian UASs.
TIKAD mounted with M4 5.56mm Assault Rifle and the Control Unit
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Assembly and Testing
Currently, we assemble both our robots and UAS Octocopter at our facilities in Israel. We outsource the production of certain components to third-party manufacturers, from which we purchase supplies and custom-made machined parts required for the production of our robots and UAS Octocopter, all of which we assemble with the final product in our facilities. We currently source our parts and materials from approximately twenty (20) suppliers located primarily in the United States, Europe, Israel and China. We are not, however, dependent on any single manufacturer. In addition, while the components we purchase are built according to our specific designs and requests, we believe the components and materials we purchase are common in nature and can easily be obtained from alternative suppliers, if necessary. Components are tested and approved against the expected points of failure during extended and aggressive operations. For example, we test items such as the load carrying capacity of our products as well as various software components. After the lab testing phase, the robot and UASs undergoes a series of field tests which examine the operation of each function. Results are combined with multi-phased airborne testing.
In addition, we have not executed supply agreements with our third-party suppliers. More importantly, our proprietary and confidential complex kinematic algorithms and control software is our most valuable intellectual property. We have built an in-house laboratory to support the assembly and commercialization of our products. We believe that the current size and capacity of our in-house laboratory, located at our facilities in Israel, will be sufficient to support all of our commercialization activities in the near future.
Market Strategy
We expect that our growth will initially derive from sales of TIKAD (our robot mounted on UAS Octocopter platform), and later from sales of our robot mounted on other platforms, such as light all-terrain vehicles and sea-mounted on boats.
| ● | Focus on sales in the United States. We believe that the United States military will be our lead and reference customer. The United States alone presents a significant and diverse market opportunity – special operation forces units, various counter-terrorism (federal, state and city) units, regular local police forces (the use of less-lethal weapons), U.S. Army, National Guard, US Navy, Coast Guard and the Border Police. |
| ● | Sales to NATO. We believe adoption of our products in the United States will open the markets in countries that are U.S. allies such as the NATO countries. |
| ● | Civilian Market. We believe that our robot, due to its novel and unique capabilities, including stabilization of six degrees of freedom in real-time, can bring solutions that do not yet exists for different tasks that require high end stabilization, such as VTOL robotic landing gear for drones and aircraft that enables take-offs and landings on uneven terrain and on steep slopes and medical uses for robotic procedures which need high accuracy. |
Intellectual Property
Our success depends, at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate without infringing or violating the proprietary rights of others. We rely on a combination of trade-secrets, know-how, and other contractual rights (including confidentiality and invention assignment agreements) to protect our intellectual property rights. We also restrict access to our sensitive intellectual property information to our most senior management.
To protect certain key technologies, we have submitted a US patent Application for Stabilization System patents, which is pending. We do not know whether any of our current or future patent applications will result in the issuance of any patents.
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Sales and Marketing
Marketing and sales efforts are currently concentrated on TIKAD. Our robot has been designated as a unique system by the IMOD and has received official approval as the sole supplier of this solution to the IMOD. The IMOD has also publicly endorsed our combined robotic and UAS system, which we market under the commercial name TIKAD, as an innovative future battlefield technology that may be implemented by the Israeli Defense Forces (the “IDF”).
We are currently in the process of building up our sales and marketing infrastructure primarily in the United States. This includes cooperation with agents, distributors and resellers of products that are experienced in our market. We have engaged an experienced U.S.-based strategic consultant for U.S. Government and Customer relations with a proven track record in the Defense market. We intend to focus our sales efforts in the United States because the U.S. military in general and special operation forces units in particular are expected to be our largest customers, both in our early commercialization stage and for the foreseeable future.
Competition
While we believe that our products are novel, and that we have unique knowledge of military operational demands and challenges and years of developing complex military airborne systems and advanced robotics, the defense industry is a competitive environment. Competition is based on product and program performance, price, reputation, reliability, life cycle costs, overall value to the customer and responsiveness to customer requirements. This includes the ability to respond to rapid changes in technology. In addition, our competitive position sometimes may be affected by specific requirements in particular geographic and product markets.
Continuing consolidation in the defense industry has affected competition. In addition, many major prime contractors are increasing their in-house capabilities. These factors have decreased the number but increased the relative size and resources of our competitors. We plan to continually adapt to market conditions by adjusting our business strategy to changing market conditions. In addition, we plan to seek to enter into strategic partnership and cooperation agreements that we believe can assist us in overcoming the challenges of competing in our industry. We also anticipate continued competition in defense markets due to declining defense budgets in many countries.
Our competitors, either alone or through their strategic partners, might have substantially greater name recognition and financial, technical, manufacturing, marketing and human resources than we do. These entities may also have significantly greater experience and infrastructure in commercializing defense products, obtaining regulatory approval for those products and commercializing those products around the world.
Government Regulation
Government Contracting Regulations. We operate under laws, regulations and administrative rules governing defense and other government contracts, mainly in Israel and the United States. Some of these carry major penalty provisions for non-compliance, including disqualification from participating in future contracts. In addition, our participation in governmental procurement processes in Israel, the United States and other countries is subject to specific regulations governing the conduct of the process of procuring defense and homeland security contracts.
Israeli Export Regulations. Israel’s defense export policy regulates the sale of a number of our systems and products. Current Israeli policy encourages exports to approved customers of defense systems and products such as ours, as long as the export is consistent with Israeli government policy. Subject to certain exemptions, a license is required to initiate marketing activities. We also must receive a specific export license for defense related hardware, software and technology exported from Israel. Israeli law also regulates export of “dual use” items (items that are typically sold in the commercial market but that also may be used in the defense market). We have filed marketing applications with the IMOD and have already received marketing approvals for about fifty (50) countries including the U.S. It is expected that in the mid-term more than seventy-five (75%) of our revenue will be derived from exports subject to Israeli export regulations.
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Approval of Israeli Defense Acquisition. The Israeli Defense Entities Law (Protection of Defense Interests) establishes conditions for the approval of an acquisition or transfer of control of an entity that is determined to be an Israeli “defense entity” under the terms of the law. Designation as a “defense entity” is to occur through an order to be issued jointly by the Israeli Prime Minister, Defense Minister and Economy Minister. Although no such orders relating to us have been issued as of the date hereof, it is possible that our Israeli subsidiary may be designated as a “defense entity” under the law. An order (pursuant to the law) would establish conditions and restrictions regarding non-Israeli control of our Israeli subsidiary. For example, Israeli government approval might be required for acquisition of twenty-five percent (25%) or more of the voting securities or a smaller percentage of shares of common stock that grant “means of control” in the Company, if such were to directly affect the control of our Israeli subsidiary. Means of Control for the purposes of the law includes the right to control the vote at a shareholders’ meeting or to appoint a director.
Approval of U.S. and Other Defense Acquisitions. Many countries in addition to Israel also require governmental approval of acquisitions of local defense companies or assets by foreign entities. Mergers and acquisitions of certain types of defense related businesses in the U.S. are subject to the Foreign Investment and National Security Act (“FINSA”). Under FINSA, foreign acquisitions of certain types of defense related businesses in the U.S. require review, and in some cases approval, by the Committee on Foreign Investment in the United States (“CFIUS”). In that regard, if a foreign entity attempts to acquire us or all of our domestic assets, such transactions may be subject to FINSA, and in certain instances CFIUS has the authority to order divestment and cancellation of the transaction.
“Buy American” Laws. The U.S. “Buy American” laws impose price differentials or prohibitions on procurement of products purchased under U.S. government programs. The price differentials or prohibitions apply to products that are not made in the United States or that do not contain U.S. components making up at least fifty percent (50%) of the total cost of all components in the product. However, a Memorandum of Agreement between the United States and Israeli governments waives the “Buy American” laws for specified products, including most of the products we are currently selling in the United States.
Procurement Regulations. Solicitations for procurements by governmental purchasing agencies in Israel, the United States and other countries are governed by laws, regulations and procedures relating to procurement integrity, including avoiding conflicts of interest, corruption, human trafficking and conflict minerals in the procurement process. Such regulations also include provisions relating to information assurance and for the avoidance of counterfeit parts in the supply chain.
Anti-Bribery Regulations. We conduct operations in a number of markets that are considered high risk from an anti-bribery compliance perspective. Laws and regulations such as the Israel Penal Code, the Organization for Economic Cooperation and Development (“OECD”) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and corresponding legislation in other countries, prohibit providing personal benefits or bribes to government officials in connection with the governmental procurement process. Israeli defense exporters, like ourselves, are required to maintain an anti-bribery compliance program, including specific procedures, record keeping and training.
Audit Regulations. The IMOD may audit our books and records relating to its contracts with us. Our books and records and other aspects of projects that will be related to the U.S. defense contracts will be subject to audit by U.S. government audit agencies. Such audits review compliance with government contracting cost accounting and other applicable standards. If discrepancies are found this could result in a downward adjustment of the applicable contract’s price. Some other customers have similar rights under specific contract provisions.
Civil Aviation Regulations. Several of our products for commercial aviation applications are subject to flight safety and airworthiness standards of the U.S. Federal Aviation Administration and similar civil aviation authorities in Israel, Europe and other countries.
Environmental, Health and Safety Regulations. We are subject to a variety of environmental, health and safety laws and regulations in the jurisdictions in which we have operations. This includes regulations relating to air, water and ground contamination, hazardous waste disposal and other areas with a potential environmental or safety impact.
Employees
We currently have no full-time employees and only have one (1) executive officer. We hire freelance contractors and consultants in order to limit our operating expenses and therefore allowing us to scale as necessary. We maintain long-term relationships with these freelance contractors and consultants. Following the Share Exchange, the Company may enter into an employment or service agreements with its CEO, CTO and President.
All of our consulting agreements include undertakings with respect to non-competition and assignment to us of intellectual property rights developed in the course of employment and confidentiality. The enforceability of such provisions is limited for some employees by Israeli law.
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RISK FACTORS
The following risk factors, among others, could affect our actual results of operations and could cause our actual results to differ materially from those expressed in forward-looking statements made by us. These forward-looking statements are based on current expectations and except as required by law we assume no obligation to update this information. You should carefully consider the risks described below and elsewhere in this Current Report before making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Our common stock is considered speculative and the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The following risk factors are not the only risk factors facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.
Risks Related to our Business and Industry
We have a limited operating history and have generated limited revenues to date.
Our limited operating history makes evaluating the business and future prospects difficult, and may increase the risk of your investment. Our operating subsidiary in Israel was formed in March 2014. To date, we have generated limited revenues and have not yet begun meaningful commercialization efforts with respect to our products. We intend in the long-term to derive substantial revenues from the sales of our products as well as future models of other robots and our UAS platforms for both military and civilian use, but there can be no assurance that we will be able to do so.
We may not be able to obtain adequate financing to continue our operations.
We expect that we will need to raise additional funds to continue the design, manufacture, sale and servicing of our TIKAD as well as develop future robot products and other platforms for the implementation of our robot. We believe that we will need to raise additional capital in the future to fund our research and development and commercialization efforts. If we seek to raise additional capital, we may do so through the issuance of equity, equity-related, or debt securities or through obtaining credit from government or financial institutions or other persons. This capital will be necessary to fund ongoing operations, continue research, development and design efforts, establish a sales infrastructure and make the investments in tooling and equipment required to develop and manufacture our products. Moreover, the terms of any financing may adversely affect the holdings or the rights of holders of our securities and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common shares to decline. The New Debentures and the terms of the Convertible Loan Agreements each include terms that could create further dilution to other holders if we were to raise capital at a lower price per share or upon other terms, which could also make closing any such future financing, if any, more difficult. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
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A pandemic, epidemic or outbreak of an infectious disease in the United States, Israel or elsewhere may adversely affect our business.
If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States, Israel or elsewhere, our business may be adversely affected. In December 2019, a novel strain of coronavirus (also known as COVID-19), was identified in Wuhan, China. This virus continues to spread globally and, as of March 2020, has spread to over 50 countries, including the United States and Israel. While the spread of COVID-19 has not yet directly impacted our operations, we continue to monitor our operations and government recommendations and may elect to temporarily close our office and/or manufacturing space. The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis. In addition, our customers may reduce or postpone certain purchases in response to the spread of an infectious disease and budgeting issues as a result thereof. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others
We have inadequate capital and need for additional financing to accomplish our business and strategic plans. Terms of subsequent financing, if any, may adversely impact your investment.
We have very limited funds, and such funds are not adequate to develop our current business plan. Our ultimate success may depend on our ability to raise additional capital. In the absence of additional financing or significant revenues and profits, the Company will have to approach its business plan from a much different and much more restricted direction, attempting to secure additional funding sources to fund its growth, borrowing money from lenders or elsewhere or to take other actions to attempt to provide funding.
We may have to engage in common equity, debt, or preferred stock financings in the future. Your rights and the value of your investment in the common stock could be reduced by the dilution caused by future equity issuances. Interest on debt securities could increase costs and negatively impact operating results. In the event we are permitted to issue preferred stock pursuant to the terms of our articles of incorporation, preferred stock could be issued in series from time to time with such designation, rights, preferences, and limitations as needed to raise capital. The terms of preferred stock would be more advantageous to those investors than to the holders of common stock. In addition, if we need to raise more equity capital from the sale of common stock, institutional or other investors may negotiate terms possibly less favorable to us, or which trigger dilutive issuances of our common stock to the holders of the New Debentures or the Primary Lenders, and thereby adversely impact your investment. Shares of common stock which we sell from time to time could be sold into any market that develops, which could adversely affect the market price of our common stock.
Duke’s independent auditor firm has expressed in its report to Duke’s 2018 audited financial statements for the year ended December 31, 2018, a substantial doubt about its ability to continue as a going concern.
We only recently entered the commercialization stage and the development and commercialization of our products are uncertain and expected to require substantial expenditures. We have not yet generated sufficient revenues from our operations to fund our activities, and are therefore dependent upon external sources for financing our operations. There is a risk that we will be unable to obtain necessary financing to continue our operations on terms acceptable to us or at all. As a result, Duke’s independent auditor firm has expressed in its auditors’ report on the financial statements for December 31, 2018, a substantial doubt regarding Duke’s ability to continue as a going concern. Duke’s financial statements for December 31, 2018, do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. If we cannot continue as a going concern, our stockholders may lose their entire investment in the common stock.
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Our revenues will depend heavily on government contracts
We expect to derive most of our future revenues directly or indirectly from government agencies, mainly the U.S. Department of Defense (“DoD”). In addition, we offer our products to IMOD and intend to offer these to other governmental and quasi-governmental agencies around the world, including U.S. allies such as the NATO and equivalent authorities of various countries pursuant to contracts awarded to us under defense and homeland security-related programs. Technology products from foreign countries have an inherent disadvantage against domestic offerings. The funding of government programs could be reduced or eliminated due to numerous factors, including geo-political events and macro-economic conditions that are beyond our control. Reduction or elimination of government spending under our contracts would imperil the sales of our products and may cause a negative effect on our revenues, results of operations, cash flow and financial condition.
We face other risks in our expected international sales.
We expect to derive a significant portion of our revenues ultimately from international sales. Changes in international, political, economic or geographic events could cause significant reductions in our revenues, which could harm our business, financial condition and results of operations. In addition to the other risks from international operations set forth elsewhere in these Risk Factors, some of the risks of doing business internationally include imposition of tariffs and other trade barriers and restrictions, political and economic instability in the countries of our customers and suppliers, changes in diplomatic and trade relationships and increasing instances of terrorism worldwide. Due to our subsidiary being located in the State of Israel, some of these risks may be affected by Israel’s overall political situation. (See “Risks Related to Israeli Law and Our Operations in Israel” below.)
We operate in a competitive industry.
While we believe that we are the only developer and manufacturer of UASs capable of pinpoint accurate firing of light weapons, the UAS market generally in which we participate is highly competitive and becoming more so. This market is also characterized by rapid and innovative technological change. If we are unable to improve existing systems and products and develop new systems and technologies in order to meet evolving customer demands, our business could be adversely affected. In addition, our competitors could introduce new products with innovative capabilities, which could adversely affect our business. We compete with many large and mid-tier defense companies on the basis of system performance, cost, overall value, delivery and reputation. Many of these competitors are larger and have greater resources than us, and therefore may be better positioned to take advantage of economies of scale and develop new technologies.
We may experience production delays if suppliers fail to make compliant or timely deliveries.
The manufacturing process for some of our products largely consists of the assembly, integration and testing of purchased components. If a supplier stops delivery of such components, finding another source could result in added cost and manufacturing delays. Moreover, if our subcontractors fail to meet their design, delivery schedule or other obligations we could be held liable by our customers, and we may be unable to obtain full or partial recovery from our subcontractors for those liabilities. The foregoing risks could have a material adverse effect on our operating results.
Undetected problems in our products could impair our financial results and give rise to potential product liability claims.
If there are defects in the design, production or testing of our products and systems, we could face substantial repair, replacement or service costs, potential liability and damage to our reputation. Defects or malfunctioning of our products, if they were to occur, would likely result in significant damage and loss of life. We may not be able to obtain product liability or other insurance to fully cover such risks, and our efforts to implement appropriate design, testing and manufacturing processes for our products or systems may not be sufficient to prevent such occurrences, which could have a material adverse effect on our business, results of operations and financial condition.
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Our business depends on proprietary technology that may be infringed.
Many of our systems and products depend on our proprietary technology for their success. Like other technology-oriented companies, we rely on a combination of trade secrets, copyrights and trademarks, together with non-disclosure agreements, confidentiality provisions in sales, procurement, employment and other agreements and technical measures to establish and protect proprietary rights in our products. While we are in the process of seeking patents for our technology, there is no guarantee that such patents will be granted. Our ability to successfully protect our technology may be limited because:
| ● | intellectual property laws in certain jurisdictions may be relatively ineffective; |
| ● | detecting infringements and enforcing proprietary rights may divert management’s attention and company resources; |
| ● | contractual measures such as non-disclosure agreements and confidentiality provisions may afford only limited protection; |
| ● | any patents we may receive will expire, thus providing competitors access to the applicable technology; |
| ● | competitors may independently develop products that are substantially equivalent or superior to our products or circumvent our intellectual property rights; and |
| ● | competitors may register patents in technologies relevant to our business areas; |
In addition, various parties may assert infringement claims against us. The cost of defending against infringement claims could be significant, regardless of whether the claims are valid. If we are not successful in defending such claims, we may be prevented from the use or sale of certain of our products, or liable for damages and required to obtain licenses, which may not be available on reasonable terms, any of which may have a material adverse impact on our business, results of operation or financial condition.
Potential product liability claims could adversely affect our future earnings and financial condition.
We face an inherent business risk of exposure to product liability claims in the event that the use of our products results in adverse effects. We may not be able to maintain adequate levels of insurance for these liabilities at reasonable cost and/or reasonable terms. Excessive insurance costs or uninsured claims would add to our future operating expenses and adversely affect our financial condition.
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire additional qualified personnel, we may not be able to grow effectively.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively depends on our ability to retain and motivate existing employees. Due to our reliance upon skilled laborers, the failure to attract, integrate, motivate, and retain current and/or additional key employees could have a material adverse effect on our business, operating results and financial condition. We do not maintain key person life insurance for any of our employees.
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If we fail to manage growth or to prepare for product scalability effectively, it could have an adverse effect on our employee efficiency, product quality, working capital levels and results of operations.
Any significant growth in the market for our products or our entry into new markets may require an expansion of our employee base for managerial, operational, financial, and other purposes. As of March 1, 2020, we had only one (1) employee. During any period of growth, we may face problems related to our operational and financial systems and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.
Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the development of new products, and the hiring of additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.
Our management team may not be able to successfully implement our business strategies.
If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and marketing activities would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.
Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.
A significant invasion, interruption, destruction or breakdown of our information technology systems and/or infrastructure by persons with authorized or unauthorized access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational damage from cyber-attacks, which may compromise our systems and lead to data leakage either internally or at our third party providers. Our systems have been, and are expected to continue to be, the target of malware and other cyber-attacks. Although we have invested in measures to reduce these risks, we cannot assure that these measures will be successful in preventing compromise and/or disruption of our information technology systems and related data.
We have applied for a patent for certain of our key technologies and may apply for additional patents in the future. Our ability to protect our intellectual property and proprietary technology is uncertain and may be inadequate, which may have a material and adverse effect on us.
Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We applied for a patent with the United States Office Patent and Trademark Office to protect certain of our key technologies, however, we cannot assure you that we will be able to control all of the rights for all of our intellectual property. We do not know whether any of our current or future patent applications, if any, will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not provide a competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for, or may have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours. Both the patent application process and the process of managing patent disputes can be time-consuming and expensive. Competitors may be able to design around our patents or develop products which provide outcomes which are comparable or may even be superior to ours.
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In the event a competitor infringes upon our intellectual property rights, enforcing those rights may be costly, uncertain, difficult and time consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time consuming and could divert our management’s attention. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents rights against a challenge. The failure to obtain patents and/or protect our intellectual property rights could have a material and adverse effect on our business, results of operations and financial condition.
In addition, we have taken steps to protect our intellectual property and proprietary technology, including entering into confidentiality agreements and intellectual property assignment agreements with all of our executive officers, employees, consultants and advisors, however, such agreements may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. However, we have not executed confidentiality agreement or non-compete agreements with our third-party suppliers and there is no restriction on their working with our competitors or selling our component designs to other parties. In that regard, we deem our complex kinematic algorithms and control software to be our most valuable intellectual property and is done in-house only with no sub-contractor involved.
We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from developing our products, require us to obtain licenses from third parties or to develop non-infringing alternatives and subject us to substantial monetary damages.
Third parties could, in the future, assert infringement or misappropriation claims against us with respect to products we develop. Whether a product infringes a patent or misappropriates other intellectual property involves complex legal and factual issues, the determination of which is often uncertain. Therefore, we cannot be certain that we have not infringed the intellectual property rights of others. Our potential competitors may assert that some aspect of our product infringes their patents. Because patent applications may take years to issue, there also may be applications now pending of which we are unaware that may later result in issued patents upon which our products could infringe. There also may be existing patents or pending patent applications of which we are unaware upon which our products may inadvertently infringe.
Any infringement or misappropriation claim could cause us to incur significant costs, place significant strain on our financial resources, divert management’s attention from our business and harm our reputation. If the relevant patents in such claim were upheld as valid and enforceable and we were found to infringe them, we could be prohibited from selling any product that is found to infringe unless we could obtain licenses to use the technology covered by the patent or are able to design around the patent. We may be unable to obtain such a license on terms acceptable to us, if at all, and we may not be able to redesign our products to avoid infringement. A court could also order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in addition, treble the compensatory damages and award attorney fees. These damages could be substantial and could harm our reputation, business, financial condition and operating results. A court also could enter orders that temporarily, preliminarily or permanently enjoin us and our customers from making, using, or selling products, and could enter an order mandating that we undertake certain remedial activities. Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties.
The sale of our products is subject to various regulatory requirements of the Israeli Ministry of Defense and will also be subject to regulatory requirements in countries in which we seek to sell our products.
Due to the fact that we sell products used that may be purchased in the defense and/ or military industry, and otherwise conduct business with the IMOD, we may be required to obtain approval from the IMOD with respect to each agreement for the sale of our products. In that regard, we are required to secure the approval of the IMOD prior to offering the sale of our products to any third party. In addition, we are required to obtain approvals from the IMOD prior to the execution and performance of any such agreement. If we fail to obtain approvals in the future, if approvals previously obtained are revoked or expire and are not renewed or if government policies change, our ability to sell our products and services to customers would be impacted, resulting in a material adverse effect on our business, revenues, assets, liabilities and results of operations.
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Risks Related to our Common Stock
In connection with the Share Exchange, Duke obtained a ruling (the “Ruling”) from the Israeli Tax Authority with regard to the exemption of the Share Exchange from being considered as a tax event for Israeli stockholder of Duke. The Ruling we obtained in connection with the Share Exchange imposes conditions that may limit our flexibility in operating our business and our ability to enter into certain corporate transactions.
The Ruling we obtained in connection with the Share Exchange imposes a number of conditions that limit our flexibility in operating our business and in engaging in certain corporate transactions. In accordance with the terms of the Ruling, until the two year anniversary of the Effective Time, we agreed to maintain (and, to the extent that our operations expand, likewise expand) the same economic activity for the Company after the Share Exchange as conducted by Duke prior to such transaction and that the Israeli Duke stockholders continue to hold at least twenty-five percent (25%) of their holding in the Company’s issued and outstanding stock at the Effective Time. Under certain circumstances, these conditions may not allow us the flexibility that we need to operate our business and may prevent us from taking advantage of strategic opportunities that would benefit our business and our stockholders.
Our executive officer, directors and certain stockholders who are beneficial owners of more than 5% of our outstanding common shares possess the majority of our voting power, and through this ownership, have the ability to control our Company and our corporate actions.
Following the Share Exchange, our current executive officer and directors hold approximately 30% of the issued and outstanding voting power of the Company’s outstanding shares. These persons have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. As such, our directors and executive officer may have the power, acting alone or together, to prevent or cause a change in control; therefore, without their consent we could be prevented from entering into transactions that could be beneficial to us. The interests of our executive officer may give rise to a conflict of interest with the Company and the Company’s shareholders.
In addition, we have a number of stockholders who are beneficial owners of more than 5% of our outstanding common shares, as of the Effective Time, including one such shareholder who beneficially owns approximately 19% of our issued and outstanding shares, and as such, also may have the ability to prevent us from entering into transactions that could be beneficial to us and/or other shareholders. In addition, we have four additional non-affiliated stockholders who are beneficial owners of more than 5% of our outstanding common shares. Although none of these non-affiliated stockholders currently have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions, obtaining their vote on certain matters may be necessary to effect certain actions that our management and directors otherwise deem to be in the best interests of the Company.
For additional details concerning beneficial ownership of our securities, please refer to the section below entitled “Post-Share Exchange Beneficial Ownership of the Company’s Common Stock” and with respect to voting power, please refer to the section below entitled “Description of Securities.”
There is a substantial lack of liquidity of our common stock and volatility risks.
Our common stock is traded on the over-the-counter market with quotations published on the OTC Pink Current Information tier of the OTC Bulletin Board (the “OTCBB”), under the symbol “USDR”. The trading volume of our common stock historically has been limited and sporadic, and the stock prices have been volatile. As a result of the limited and sporadic trading activity, the quoted price for our common stock on the over-the-counter market is not necessarily a reliable indicator of its fair market value. The price at which our common stock will trade in the future may be highly volatile and may fluctuate as a result of a number of factors, including, without limitation, any potential business combination that we announce, as well as the number of shares available for sale in the market.
The trading volume of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. As a result of such trading activity, the quoted price for our common stock on the OTCBB may not necessarily be a reliable indicator of our fair market value. In addition, if our shares of common stock cease to be quoted, holders would find it more difficult to dispose of or to obtain accurate quotation as to the market value of, our common stock and as a result, the market value of our common stock likely would decline.
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Other factors that could have a similar impact include, but are not limited to:
| ● | the increased concentration of the ownership of our shares by a limited number of affiliated stockholders following the Share Exchange may limit interest in our securities; |
| ● | limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock; |
| ● | variations in quarterly operating results from the expectations; |
| ● | revisions in securities analysts’ estimates or reductions; |
| ● | our ability to obtain working capital financing; |
| ● | announcements of new products or services by us or our competitors and changes in our industry; |
| ● | reductions in the market share of our products; |
| ● | announcements by us or our competitors of significant strategic acquisitions; |
| ● | loss of any strategic relationship; |
| ● | regulatory developments; |
| ● | general technological, market or economic trends; |
| ● | investor perception of our industry or prospects; |
| ● | insider selling or buying; |
| ● | investors entering into short sale contracts; |
| ● | regulatory developments affecting our industry; and |
| ● | additions or departures of key personnel. |
Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.
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Because we became public by means of a “reverse merger,” we may not be able to attract the attention of major brokerage firms.
There may be risks associated with us becoming public through a “reverse merger.” Securities analysts of major brokerage firms and securities institutions may not provide coverage of us because there were no broker-dealers who sold our stock in a public offering that would be incentivized to follow or recommend the purchase of our common stock. The absence of such research coverage could limit investor interest in our common stock, resulting in decreased liquidity. No assurance can be given that established brokerage firms will, in the future, want to cover our securities or conduct any secondary offerings or other financings on our behalf.
Our common stock may never be listed on a major stock exchange.
While we may seek the listing of our common stock on a national or other securities exchange at some time in the future, we currently do not satisfy the initial listing standards and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.
Our common stock is subject to price volatility unrelated to us or our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including quarterly operating results of other companies in the same industry, changes in general conditions in the economy and the financial markets, including COVID-19 or other developments affecting the Company’s competitors. In addition, the OTCBB is subject to extreme price and volume fluctuations in general. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
A decline in the price of our common stock could affect our ability to raise working capital and adversely impact our ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new services and continue our current operations. If our common stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.
Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price of the shares of our common stock.
A substantial portion of the outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six (6) months may sell their shares of common stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six (6) months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTCBB). A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.
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The securities issued in connection with the Share Exchange are restricted securities and may not be transferred in the absence of registration or the availability of a resale exemption.
The shares of common stock being issued in connection with the Share Exchange are being issued in reliance on an exemption from the registration requirements under Section 4(a)(2) of the Securities Act. Consequently, these securities will be subject to restrictions on transfer under the Securities Act and may not be transferred in the absence of registration or the availability of a resale exemption. In particular, in the absence of registration, such securities cannot be resold to the public until certain requirements under Rule 144 promulgated under the Securities Act have been satisfied, including certain holding period requirements. As a result, a purchaser who receives any such securities issued in connection with the Share Exchange may be unable to sell such securities at the time or at the price or upon such other terms and conditions as the purchaser desires, and the terms of such sale may be less favorable to the purchaser than might be obtainable in the absence of such limitations and restrictions.
We do not plan to declare or pay any dividends to our stockholders in the near future.
We have not declared any dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
The requirements of being a public company may strain our resources and distract management.
As a public company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.
We may incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
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Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.
“Penny Stock” rules may make buying or selling our common stock difficult.
Trading in our common stock is subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.
The sales practice requirements of the Financial Industry Regulatory Authority (“FINRA”) may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted Rule 2111 that requires a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer before recommending the investment. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy the Company’s common stock, which may limit your ability to buy and sell the Company’s stock and have an adverse effect on the market for our shares.
Risks Related to Israeli Law and Our Operations in Israel
We have offices and other significant operations are located in Israel, and, therefore, our results may be adversely affected by political, economic and military instability in Israel.
While our executive offices are located in the United States, we maintain offices in Israel. In addition, many of our officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighbouring countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. During November 2012, July 2014 and as recently as November 2019, Israel was engaged in an armed conflict with militia groups, one of which is a political party who control the Gaza Strip. In addition, recent political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East. This instability has raised concerns regarding security in the region and the potential for armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been increasing efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant (“ISIL”) a violent jihadist group, is involved in hostilities in Iraq and Syria and has been growing in influence. Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any potential future conflict could also include missile strikes against parts of Israel, including our offices and facilities. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
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Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government has in the past covered the reinstatement value of certain damages that were caused by terrorist attacks or acts of war, we cannot assure that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial conditions or the expansion of our business.
Our operations are subject to currency and interest rate fluctuations.
We incur expenses in U.S. dollars and NIS, but our financial statements are denominated in U.S. dollars. The U.S. dollar is our functional currency. However, as we also incur expenses in NIS, we are affected by foreign currency exchange fluctuations through both translation risk and transaction risk. As a result, we are exposed to the risk that the NIS may appreciate relative to the dollar, or, if the NIS instead devalues relative to the dollar, that the inflation rate in Israel may exceed such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected.
It may be difficult to enforce a judgment of a United States court against us and our officers and directors to assert United States securities laws claims in Israel or to serve process on our officers and directors and these experts.
Our executive office, corporate headquarters and manufacturing facilities are located in Israel. In addition, all of our officers and directors are residents of Israel. All of our assets and most of the assets of these persons are located in Israel. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It also may be difficult to affect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to United States securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United States law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a United States or foreign court.
Our operations may be disrupted as a result of the obligation of management or key personnel to perform military service.
Our employees and consultants in Israel, including members of our senior management, may be obligated to perform one month, and in some cases longer periods, of military reserve duty until they reach the age of 40 (or older, for citizens who hold certain positions in the Israeli armed forces reserves) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our officers, directors, employees and consultants. Such disruption could materially adversely affect our business and operations.
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LEGAL MATTERS
On February 14, 2018, a complaint was filed against the: (i) Duke, (ii) Duke Israel, (iii) Aphek Trading Kadosh and Razi Ltd. (“Aphek”) an Israeli corporation owned by Raziel Atuar and Amir Kadosh, and (iv) Mr. Sagiv Aharon, currently, Duke’s CTO, CEO, President and Director by Blackhawk Laboratories (the “Plaintiff”), a U.S. based company, in the Central District of Israel (Case No. 31727-02-18). Following a procedural agreement between the Plaintiff and defendants, the complaint was transferred to the District Court in Tel Aviv.
The complaint asserts a claim for breach of contract, breach of duty, negligence and unjust enrichment with regards to a services agreement dated June 13, 2014, between the Plaintiff and Duke Israel. The complaint asserts that Duke Israel agreed to pay for certain services alleged to have been performed by the Plaintiff and that the Plaintiff was entitled to receive 8% of the issued and outstanding shares of common stock of Duke Israel over a 12 month period from June 2014 to June 2015.
The Plaintiff’s complaint seeks an order requiring either Duke Israel to issue to the Plaintiff 8% of its issued and outstanding shares of our common stock; or alternatively for Duke to issue to the plaintiff 4.8% of its issued and outstanding shares of our common stock; or alternatively for Aphek and Mr. Aharon Sagiv to transfer 8% of their shareholdings in Duke to the Plaintiff.
The defendants believe the Plaintiff’s complaint has no merit and they intend to vigorously defend the lawsuit.
Duke does not believe the lawsuit will have a material effect on the Company as Mr. Raziel Atuar, Mr. Amir Kadosh and Mr. Sagiv Aharon have agreed to indemnify the Company and Duke Israel for any losses to the Company and Duke Israel as a result thereof, including, but not limited to monetary damages and be responsible for the issuance of any shares of common stock of Duke Israel or Duke in the event the Plaintiff is successful in its lawsuit.
PROPERTIES
Our principal executive office is currently located at 1 Etgar Street, Tirat-Carmel, Israel. In July 2018 and June 2019, Duke Israel executed two independent lease agreements (the “2018 Lease” and the “2019 Lease”) to lease separate spaces at the address of our principal executive office. The July 2018 Lease is in effect until June 30, 2020 while the June 2019 Lease is in effect for 12 months from the date thereof and includes two successive optional extension periods of 12 months each. In addition, pursuant to an agreement entered into by Duke, we have the right to use office space and receive other administrative services at a location in the State of Florida.
POST-SHARE EXCHANGE BENEFICIAL OWNERSHIP OF THE COMPANY’S COMMON STOCK
The following table provides information as of March 10, 2020, regarding beneficial ownership of our common stock by: (i) each person known by us to be the beneficial owner of more than 5% of our common stock, (i) each of our directors; (ii) our executive officer; and (iii) all of our directors and executive officer as a group.
The number of shares beneficially owned is determined under rules promulgated by the SEC, and includes voting or investment power with respect to shares beneficially owned. The information is not necessarily indicative of beneficial ownership for any other purpose. The shares in the tables does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares.
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We believe that the shareholders named in this table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise indicated, each beneficial owner’s address is: c/o Duke Robotics, 1 Etgar Street (1st Floor), Tirat-Carmel, Israel 3903212.
| Name and Address | Beneficial Ownership | Percent of Class(1) | ||||||
| 5% Stockholders | ||||||||
| Afek Trading – Kadosh and Razi Ltd. (2) | 7,659,536 | 19.10 | % | |||||
| Elisheva Ansbacher (3) | 3,050,959 | 7.49 | % | |||||
| Ximena Benitez Garcia (4) | 3,050,959 | 7.49 | % | |||||
| Moshe Zuk (5) | 2,423,901 | 5.97 | % | |||||
| Eran Meytal (6) | 2,033,974 | 5.02 | % | |||||
| Officers and Directors | ||||||||
| Sagiv Aharon | 5,061,631 | 12.62 | % | |||||
| Yariv Alroy | 5,813,266 | 14.50 | % | |||||
| Erez Nachtomy | 1,316,801 | 3.29 | % | |||||
| Eran Antebi | - | - | % | |||||
| Officers and Directors as a group (4 persons) | 12,191,698 | 30.41 | % | |||||
| (1) | Applicable percentage ownership is based on 40,097,607 shares of common stock outstanding as of March 9, 2020, together with securities exercisable or convertible into shares of common stock within 60 days of March 9, 2020 for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 9, 2020 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. |
| (2) | Address: C/O Mr. Amir Kadosh, Zabotinsky 50, Givat Shmuel, Israel. |
| (3) | Includes 645,053 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by the shareholder at the conversion price in effect as of the date of this Current Report. Address: 5201 Pine Tree Dr., Miami Beach, FL,33140, USA. |
| (4) | Includes 645,053 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by the shareholder at the conversion price in effect as of the date of this Current Report. Address: Protasio Tagle 59, San Miguel Chapultepec, 11850, Miguel Hidalgo, CDMX, Mexico. |
| (5) | Includes 512,476 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by an affiliate of the shareholder at the conversion price in effect as of the date of this Current Report. Zuk Marble Products 1998 Ltd. is the lender under the Convertible Loan Agreement, and to the Company’s knowledge, this is a company held and controlled by Moshe Zuk and as a result thereof, Mr. Zuk may be deemed to be the beneficial owner of such shares. Address: 22 Hataas Street, Kfar Saba, Israel. |
| (6) | Includes 430,037 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by an affiliate of the shareholder at the conversion price in effect as of the date of this Current Report. Alonim Marketing and Sales Promotion Ltd. is the lender under the Convertible Loan Agreement, and to the Company’s knowledge, this is a company held and controlled by Eran Meytal and as a result thereof, Mr. Meytal may be deemed to be the beneficial owner of such shares. Address: 31 Mordekhai Elkakhi Street, Tel Aviv, Israel. |
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MANAGEMENT
Our directors and executive officer and their ages as of March 9, 2020, are as follows:
| Name | Age | Position | ||
| Yariv Alroy | 59 | Chairman | ||
| Sagiv Aharon | 39 | Chief Executive Officer, Chief Technology Officer, President and Director | ||
| Erez Nachtomy | 58 | Vice Chairman | ||
| Eran Antebi | 49 | Director |
Yariv Alroy, Director and Chairman. Mr. Yariv Alroy is the Managing Director of T.N.S.A Consulting and Management LTD., a private consulting services and investments firm. From 1989 to 1993 Mr. Alroy worked for an Israeli law firm, with his last position as a partner. From 1993 to 1997, Mr. Alroy served as COO of SHAHAL Medical Services, and from 1997 to 2000 as Managing Director of SHL International Ltd. From 2000 until January 2016 Mr. Alroy served as Co-CEO of SHL Telemedicine LTD a company in the field of medical technology development and provision of global telemedicine services, including in the United States, Germany, India, Japan and Israel, traded in the Swiss Stock exchange (SWX:SHLTN). In December 2018 Mr. Alroy was nominated as member of the board of directors and Chairman of SHL Telemedicine. Yariv Alroy holds an LL.B from Tel Aviv University.
Sagiv Aharon, CEO, CTO, President and Director. Mr. Sagiv Aharon co-founded Duke Israel. From 2008 to 2010, Mr. Aharon worked at the Israeli Aerospace Industry as a structural design engineer on a classified hybrid structure (composite/metal) air vehicle. From 2010 to 2011, Mr. Aharon worked at Rafael Advanced Weapon Systems Ltd. as a mechanical design engineer for complex active/reactive armor solutions for land vehicles. From 2011 to 2012, Mr. Aharon worked for Elbit Systems Ltd. (NASDAQ:ESLT) as a mechanical design engineer and a system integrator at several remotely operated weapon systems upon land vehicles. Mr. Aharon also serves as the CEO of Axis Aerospace Mechanical Design Ltd., a company working in the field of airborne structural projects and flight experiments, following strict aerospace level quality standards (AS9100). Mr. Aharon holds a B.Sc. in mechanical engineering with specialty in control and robotics from the Technion – Israel Institute of Technology.
Erez Nachtomy, Director and Vice Chairman. Mr. Erez Nachtomy is the Managing Director of Ermi Nachtomy Assets Ltd., a private consulting services and investments firm. From 1989 until 2001, Mr. Nachtomy practiced law as an associate in one of the leading law firms in Israel, becoming a partner in the firm in 1994 and later on promoted to a senior partner. In March 2001, Mr. Nachtomy joined the executive team of SHL Telemedicine Ltd. (SWX:SHLTN), as Vice President, and from January 2005 to December 2016 he served as Executive Vice President. SHL Telemedicine Ltd. is active in the field of medical technology development and provision of global telemedicine services, including in the United States, Germany, India and Japan. In December 2018 Mr. Nachtomy was nominated as Member of the Board of SHL Telemedicine. Mr. Nachtomy holds an LL.B. from Tel Aviv University, Israel.
Eran Antebi, Director. Mr. Antebi is the Finance Director Omrix Biopharmaceuticals Ltd. (a Johnson & Johnson company) since February 2017. Prior to that he was CFO of SHL Telemedicine Ltd. (SWX:SHLTN) since 2008. Mr. Antebi joined SHL in May 2004 as CFO of ShahalIsrael. Prior to joining SHL, from 2000 to 2004, Mr. Antebi was a manager with Ernst & Young in Israel. Mr. Antebi is a certified public accountant (CPA) in Israel and holds a B.A. in Accounting and Economics from Tel Aviv University, Israel.
In addition to our officers and directors, the following persons serve as advisory board members.
Thurston “Eric” Womble – Advisory Board Member (since June 2018). Mr. Womble brings many years of experience in the defense industry and the executive and legislative branches of the U.S. federal government and currently serves as a consultant with Elbit Systems of America LLC. Prior to that Mr. Womble served as President and Chief Executive Officer of ELTA North America from February 2015 until February 2018. Prior to that, Mr. Womble served in leading executive roles at Northrop Grumman Corporation (NGC) – Huntington Ingalls Industries. He joined NGC with over twenty-three years of experience serving in the Executive and Legislative Branches of the United States federal government.
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Leslie Jay Cohen, Ph.D., Advisory Board Member (since January 1, 2017). From 1984 to 1989, Mr. Cohen worked at McDonnell Douglas Aerospace, as Director of Technical Operations and then as Director of Advance Launch System. From 1989 to 1996, Mr. Cohen served as Vice President of Advance Programs for McDonnell Douglas in Russia, working closely with launch vehicle manufacturers and strategic weapon systems designers, and in the United States as Director of the Army/Grumman/McDonnell Douglas Neutral Particle Beam Experiment. From 1996 to 2001, Mr. Cohen served as Director of Advance Program Development for Cytec Fiberite Inc. & AMT I and was responsible for the Aerospace Advanced Program development. From 2001 to 2018, Mr. Cohen served as Senior Vice President of New Business Development and Strategic Technology for Hitco Carbon Composites, a major supplier to the aerospace and industrial markets, where he was responsible for all business development and strategic technology. Mr. Cohen was a Fullbright Hayes Post Doctoral Fellow at the Israel Institute of Technology, and has published over 40 professional papers over the course of his career. Mr. Cohen holds a B.S., M.S., and Ph.D. in Civil Engineering (Structures & Materials) from the Carnegie Institute of Technology.
Danny Rothschild (Major General, Res.), Advisory Board Member (since January 1, 2017). Gen. Rothschild served in the IDF intelligence corps for over thirty years, in various capacities, including Assistant to the IDF Chief of Staff, commander of the IDF Units in Southern Lebanon, Deputy Director of Military Intelligence and Chief of Intelligence Research and Analysis. In 1995, upon retiring from the IDF, Gen. Rothschild co-founded Netacs Security Ltd. where he continues to serve as President. Gen. Rothschild was most recently the Director of the Institute for Policy and Strategy at the Interdisciplinary Center Herzliya and is currently the Chairman of the Annual Herzliya Conference Series on the Balance of Israel’s National Security. Gen. Rothschild has served as a member of the advisory board of the Central Bank of Israel, chairman of the board of trustees of the Afeka Tel Aviv Academic College of Engineering, chairman of the Israeli Board of the America-Israel Friendship League and member of the board of governors of the Hebrew University Jerusalem.
Tal Russo (Major General, Res.), Advisory Board Member (since August 15, 2017). Gen. Russo served in many positions of command in the IDF and was a former GOC Southern Commander and member of the IDF General Staff. He played an integral role in the planning and construction of the southern border fence project that has been responsible for preventing further infiltration by illegal migrants and terrorists. Since his retirement from the IDF in 2013, Gen. Russo has been providing strategic consultancy services to various companies in Israel and abroad. He holds a B.A. in political science from the University of Haifa and an M.B.A. from Tel Aviv University.
Family Relationship
There is no family relationship among the directors and officers of the Company.
Involvement in Certain Legal Proceedings
Over the past ten (10) years, none of our directors or our executive officer, as in place at the Effective Time, have been (i) involved in any petition under Federal bankruptcy laws or any state insolvency law, (ii) convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses), (iii) subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from (a) acting as a future’s commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity, (b) engaging in any type of business practice, or (c) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws, or (d) subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right to engage in any activity described in (iii)(a), (iv) found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated, (v) found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. (vi) subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation, (b) any law or regulation respecting financial institutions or insurance companies, or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity, or (vii) the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. Except as set forth in our discussion below in “Transactions with Related Persons; Promoters and Certain Control Persons; Director Independence,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
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Corporate Governance
Committees
We do not have an audit or compensation committee and have no independent directors that examines transactions of the nature described herein this item. We do not have any audit or compensation committee. the board of directors performs these functions as a whole. Thus, there is a potential conflict in that board members who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions. To the extent possible, a majority of the disinterested members of our board of directors will approve future affiliated transactions. Additionally, because the Company’s common stock is not listed for trading or quotation on a national securities exchange, we are not required to have such committees.
Code of Ethics
We uphold a set of basic values to guide our actions and are committed to maintaining the highest standards of business conduct and corporate governance. At the Effective Time, we adopted an Amended and Restated Code of Business Conduct and Ethics for directors, officers (including our principal executive officer and principal financial officer) and employees, which, in conjunction with our articles of incorporation, and bylaws, form the framework for governance of our Company. The Code of Ethics and Business Conduct, bylaws and article of incorporation are available at our corporate offices.
Director Independence
As our common stock is currently traded on the OTCBB, we are not subject to the rules of any national securities exchange which require that a majority of a listed Company’s directors and specified committees of the board of directors meet independence standards prescribed by such rules. nonetheless, none of the directors currently serving on the board of directors is an independent director within the meaning of NASDAQ Rule 5605(a)(2).
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers
The following table sets forth all of the compensation awarded to, earned by or paid to each individual serving as Duke’s principal executive officers during the last completed fiscal years ending December 31, 2019 and 2019. No other executive officer received total annual salary and bonus compensation in excess of $100,000.
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Summary Compensation Table
(dollars in thousands)
| Name and Principal Position | Year | Salary | Bonus | Equity Awards | Option Awards | All Other Compensation | Total | |||||||||||||||||||
| Sagiv Aharon | 2019 | - | - | - | - | - | - | |||||||||||||||||||
| Chief Executive Officer, Chief Technology Officer and Director | 2018 | - | - | - | - | - | - | |||||||||||||||||||
| Raziel Atuar | 2019 | - | - | - | - | |||||||||||||||||||||
| Former Chief Executive Officer | 2018 | - | - | - | - | 30 | 30 | |||||||||||||||||||
Outstanding Equity Awards at Fiscal Year-End
Our named executive officer does not have any currently outstanding equity awards.
Employee Equity Incentive Option Plan
We do not have any employee equity incentive plans; however it is the Company’s intention to adopt such a plan or plans.
Compensation of Directors
The Company does not pay any fees to its respective directors for attendance at meetings of the board; however, the Company may adopt a policy of making such payments in the future. The Company may reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings.
Compensation Committee Interlocks and Insider Participation
We do not have an audit or compensation committee and have no independent directors that would otherwise review matters of compensation of our executive officer. Our board of directors performs this function as a whole. Thus, there is a potential conflict in that members of the board of directors who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions. All directors participated in deliberations concerning executive officer compensation, including a director who is also an executive officer, however, such executive officer, our only executive officer, did not receive any compensation during the last fiscal year. Our executive officer (serving as both the CTO and CEO) has not served on the board of directors or compensation committee (or other committee serving an equivalent function) of any other entity, any of whose executive officers served on our board of directors or compensation committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Loan Agreements
On January 1, 2015 the Company executed a Loan Agreement with Aphek, whereby Aphek agreed to provide a loan up to an amount of approximately $132,000 (the “Aphek Loan”). On January 1, 2015 the Company executed a Loan Agreement with Sagiv Aharon whereby he agreed to provide a loan of approximately $55,000 (the “Sagiv Loan”). The Aphek Loan and Sagiv Loan bear interest rates as defined in Section 3(j) of the Israeli tax ordinance (the interest rate for 2015 is 3.05% and 2.56% for 2016). On June 5, 2016, the Company executed a Loan Agreement with Iki Alroy Investment Ltd., Erez Alroy Investment Ltd. and Ermi Nachtomy Assets Ltd. (collectively, the “Lenders”), whereby the Lenders agreed to provide a loan in an aggregate amount of $100,000 to $500,000 in the aggregate (the “Group Loan”). Pursuant to the terms of the Group Loan, the Lenders were scheduled to provide monthly installments of between $20,000 and $40,000, subject to the Lender’s discretion. The Group Loan bears an annual fixed interest rate of 3%. Any additional amounts lent to Duke in 2017 by Aphek, Sagiv or the Lenders, over the amounts stated in the Aphek Loan and Sagiv Loan agreements or the Group Loan agreement, were made available to Duke on the same terms as stated in the respective agreements.
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On November 20, 2017, Duke Israel made available to Mr. Sagiv Aharon, Duke’s CEO and CTO and Director, a loan in the amount of $10,000. This loan shall bear interest rates as defined in the Israeli tax ordinance. The Loan, including the accumulated interest amount, shall be repaid at the earlier of the following dates: (i) December 31, 2019; or (ii) at the date of repayment of the loan made available by Mr. Aharon to the Company according to a loan agreement dated January 1, 2015; or (iii) from any dividend or other distribution to be made by Duke to its shareholders. Mr. Aharon is entitled to repay the outstanding amount of the loan at any time.
On November 20, 2017, Duke made available to Mr. Raziel Atuar, then Duke’s CEO, a loan in the amount of $10,000. The loan shall bear an annual fixed interest of 3.25%. This loan, including the accumulated interest, shall be repaid at the earlier of the following dates: (i) December 31, 2019; or (ii) at the date of repayment of the loan made available by Aphek to Duke Israel, according to a loan agreement dated January 1, 2015; (iii) from any dividend or other distribution to be made by the Company to its shareholders. Mr. Atuar is entitled to prepay the outstanding amount of the loan at any time. The loans made from Duke to each of Messrs. Aharon and Sagiv were extinguished in connection with the Debt Cancellation Letters (as defined below) and are referred to as the Personal Loans.
Before entering into the Share Exchange Agreement, Duke entered into debt cancellation letters (the “Debt Cancellation Letters”) with each of the Lenders who are parties to the Group Loan and with each of Aphek and Sagiv Aharon under each of the Aphek and Sagiv Loans and their respective Personal Loans. Pursuant to the Debt Cancellation Letters, (i) 166,602 shares of Duke common stock were issued in exchange for the cancellation of $123,286 in debt, leaving $55,394 outstanding under the Aphek Loan, (i) 75,059 shares of Duke common stock were issued in exchange for the cancellation of $55,544 in debt, leaving $24,956 outstanding under the Sagiv Loan and (i) 600,474 shares of Duke common stock were issued in exchange for the cancellation of $444,350 in debt, leaving $199,650 outstanding under the Group Loan (collectively, the “Outstanding Duke Debt”).
The Outstanding Duke Debt, including interest (which shall bear an annual fixed interest rate of 3% as of January 1, 2020), shall be repaid at the date upon which Duke or the Company raises at least $15 million and has achieved earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year anniversary of the Effective Time and the full repayment of the amounts outstanding under the Convertible Loan Agreements, unless such repayment is otherwise waived by the parties to the Convertible Loan Agreements.
Registration Rights Agreement
The Company entered into the Registration Rights Agreement with, among others, Alpha, GBC, the Primary Lenders, to permit them to have their securities in the Company included in a registration statement for resale by the holder when filed by the Company on a piggyback basis and one demand registration right. The Company is responsible for bearing the costs of any of these acts of registration of the securities.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below are the sales of all securities by the Company since March 2017, which were not registered under the Securities Act. The Company believes that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, Rule 701 and/or Regulation S under the Securities Act.
On March 10, 2020, pursuant to the Share Exchange, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke stockholders in exchange for 22,920,107 shares of Duke’s issued and outstanding shares of common stock.
In addition, also on March 6, 2020, subject to the closing of the Share Exchange, in connection with the Share Exchange, the Company issued (i) an aggregate of 9,623,621 shares of its common stock to the Primary Lenders in connection with the Note Conversion, (ii) an aggregate of 763,953 shares of common stock to Alpha and GBC and (iii) 45,968 shares of common stock in connection with the exercise of an outstanding employee stock option. In addition, we entered into the Convertible Loan Agreements, pursuant to which we may issue additional shares of common stock, in accordance with the conversion price as then in effect and the principal amount then outstanding.
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MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is currently no established public trading market for our shares of common stock. Our common stock is quoted on and trades in the OTCQB of the OTC Marketplace under the symbol of “USDR”. The OTC Market is a computer network that provides information on current “bids” and “asks”, as well as volume information. Trading in stocks quoted on the OTC Markets is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects. Furthermore, quotations on the OTC Marketplace reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders
As of March 9, 2020, there were approximately 57 holders of record of our common stock.
Dividends
We have not paid dividends on our common stock since inception and the Company does not intend to pay any dividends to its stockholders in the foreseeable future. The Company currently intends on retaining earnings, if any, to reinvest in its development and growth. The declaration of dividends in the future will be at the election of our board of directors and will depend upon our earnings, capital requirements, financial position, general economic conditions, and other factors the board of directors deems relevant.
Equity Compensation Plans
We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding stock options.
DESCRIPTION OF SECURITIES
General
The Company’s authorized capital stock consists of 110,000,000 shares comprised of 100,000,000 shares of common stock, $0.0001 par value; and 10,000,000 shares of preferred stock, $0.0001 par value. As of the Effective Time, the Company had 40,097,607 shares of common stock issued and outstanding while no shares of the Company’s preferred stock are outstanding.
Common Stock
Holders of Company’s common stock are entitled to one (1) vote per share on each matter submitted to vote at a meeting of Company’s stockholders. Holders of common stock do not have cumulative voting rights. Stockholders do not have any preemptive rights or other similar rights to acquire additional shares of Company’s common stock or other securities. Subject to preferences that may be applicable to any then-outstanding preferred stock, if any, holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, subject to preferences that may be applicable to any then-outstanding preferred stock, each outstanding share of common stock entitles its holder to participate ratably in all remaining assets of the Company that are available for distribution to stockholders after providing for each class of stock, if any, having preference over the common stock.
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Preferred Stock
Our articles of incorporation permit us to issue up to ten (10) million shares of preferred stock with such rights and preferences as the board of directors may designate. As a result, our board of directors may authorize a series of preferred stock that would grant to preferred stockholders’ preferential rights to our assets upon liquidation; the right to receive dividends before dividends become payable to our common stockholders; the right to redemption of the preferred stock prior to the redemption of our common stock; and super-voting rights to our preferred stockholders. To the extent that we designate and issue such a class or series of preferred stock, the rights of our common stockholders may be impaired.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our articles of incorporation provide for the indemnification of directors to the fullest extent permissible under Nevada law. Our bylaws provide for the indemnification of officers, directors and other agents acting on our behalf to an extent consistent with applicable provisions of the Nevada Revised Statutes (“NRS”).
Section 78.7502(1) of the NRS authorizes a Nevada corporation to indemnify any director, officer, employee or corporate agent "who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation" due to his or her corporate role. Section 78.7502(1) extends this protection "against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding if he or she acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful."
Section 78.7502(2) of the NRS also authorizes indemnification of the reasonable defense or settlement expenses of a corporate director, officer, employee or agent who is sued, or is threatened with a suit, by or in the right of the corporation. The party must have been acting in good faith and with the reasonable belief that his or her actions were not opposed to the corporation's best interests. Unless the court rules that the party is reasonably entitled to indemnification, the party seeking indemnification must not have been found liable to the corporation.
To the extent that a corporate director, officer, employee or agent is successful on the merits or otherwise in defending any action or proceeding referred to in Section 78.7502(1) or 78.7502(2), Section 78.7502(3) of the NRS requires that he or she be indemnified "against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense."
Section 78.751(1) of the NRS limits indemnification under Sections 78.7502(1) and 78.7502(2), with the exception of court-ordered indemnification or advancement pursuant to Section 78.751(3) of the NRS, to situations in which either (1) the stockholders, (2) the majority of a disinterested quorum of directors, or (3) independent legal counsel determine that indemnification is proper under the circumstances.
Pursuant to Section 78.751(2) of the NRS, the corporation may advance an officer's or director's expenses incurred in defending any action or proceeding upon receipt of an undertaking. Section 78.751(3)(a) provides that the rights to indemnification and advancement of expenses shall not be deemed exclusive of any other rights under any bylaw, agreement, stockholder vote or vote of disinterested directors. Section 78.751(3)(b) extends the rights to indemnification and advancement of expenses to former directors, officers, employees and agents, as well as their heirs, executors, and administrators.
Regardless of whether a director, officer, employee or agent has the right to indemnity, Section 78.752 allows the corporation to purchase and maintain insurance on his or her behalf against liability resulting from his or her corporate role. We have obtained directors and officers insurance for the benefit of our directors and officers.
To the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of our company in the successful defense of any action, suit or proceeding) is asserted by any of our directors, officers or controlling persons in connection with such liabilities, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.
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Prior to the Effective Time, and pursuant to Article VIII of the Company’s Articles of Incorporation and Article VIII of the Company’s Bylaws, and to the fullest extent allowable under Nevada law, the Company agreed to indemnify and hold harmless all of its directors, officers, employees and agents of any kind whatsoever from and against any action or liability of any type or nature whatsoever by reason of the fact that the person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amount paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding, unless prohibited by the NRS.
| Item 2.02. | Results of Operations and Financial Condition. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On March 9, 2020, Duke entered into the Share Exchange with the Company, pursuant to which a majority of the issued and outstanding shares of common stock of Duke were purchased by the Company in exchange for shares of the Company’s common stock, resulting in Duke becoming a subsidiary of the Company. Following the Share Exchange, the Company has adopted the business plan of Duke.
As the result of the Share Exchange and the change in business and operations of the Company, a discussion of the past financial results of the Company is not pertinent, and under applicable accounting principles the historical financial results of Duke, the accounting acquirer, prior to the Share Exchange are considered the historical financial results of the Company.
As a result of the Share Exchange, we are now a robotics company dedicated to the development of an advanced robotics system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. Our advanced robotics system is able to achieve pinpoint accuracy regardless of the movement of the weapons platform or the target.
To date, we have generated limited revenue and do not anticipate generating any significant revenue for an extended period of time. Our financing activities are described below under “Liquidity and Capital Resources.”
Operating Results
The selected historical financial information presented below is derived from our audited consolidated financial statements for the year ended December 31, 2018 and our unaudited consolidated financial statements for the period ended September 30, 2019. The data set forth below should be read in conjunction with the financial statements and accompanying notes elsewhere in this Current Report.
Comparison of the nine months ended September 30, 2019 to the nine months ended September 30, 2018
Revenues. For the nine months ended September 30, 2019 and 2018, we derived revenues from demonstrations of our technology to a potential customer of $112,000 and $115,000, respectively, which represented a slight decrease compared to the nine month period ended September 30, 2018, of $3,000.
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Cost of Revenues. For the nine months ended September 30, 2019 and 2018, the direct costs relating to the demonstration projects amounted to $105,000 and $82,000 respectively, which represented an increase compared to the nine month period ended September 30, 2018, of $23,000. This increase in the direct cost of revenues was mainly due to changes in specifications to the demonstrations in 2019.
Research and Development. For the nine months ended September 30, 2019 and 2018, our research and development expenses, which consisted primarily of professional services and equipment, amounted to $58,000 and $101,000, respectively, which represented a decrease compared to the nine month period ended September 30, 2018, of $43,000. This decrease in research and development expenses was mainly due to the completion of the major part of a research and development project from the prior year.
General and Administrative Expenses. For the nine months ended September 30, 2019 and 2018, our general and administrative expenses amounted to $632,000 of which $443,000 related to stock-based compensation expense, and $756,000, respectively, of which $543,000 related to stock-based compensation. This decrease of $124,000 in general and administrative expenses was mainly due to a decrease in stock-based compensation expenses of $100,000 and reductions in professional fees compared to the nine month period ended September 30, 2018.
Financial Expenses. For the nine months ended September 30, 2019 and 2018, our financial expense amounted to $81,000 and $108,000, respectively, which represented a decrease compared to the nine month period ended September 30, 2018, of $27,000. Finance expenses included the interest payments made on loans received by Duke to finance its activities as well as exchange rate differences resulting from variations in the shekel exchange rate to the dollar during the periods.
Net Loss. For the nine months ended September 30, 2019 and 2018, we recorded a net loss of $764,000 and $932,000, respectively, which represented a decrease compared to the nine month period ended September 30, 2018, of $168,000. The decrease in the net loss was mainly due to the reductions in general and administrative expenses and financial expenses compared to the nine month period ended September 30, 2018.
Comparison of the year ended December 31, 2018 to the year ended December 31, 2017
Revenues. For the year ended December 31, 2018 and 2017, we derived revenues from demonstrations of our technology to a potential customer of $450,000 and $195,000, respectively, which represented an increase compared to the year ended December 31, 2017, of $255,000. This increase in revenues was mainly due to commencement of demonstrations of our technology to a potential customer.
Cost of Revenues. For the year ended December 31, 2018 and 2017, the direct costs relating to the demonstration projects including components and equipment purchased from suppliers, sub-contractors and labor costs, amounted to $330,000 and $162,000 respectively, which represented an increase compared to the year ended December 31, 2017, of $168,000. This increase in the direct cost of revenues was mainly due to the commencement of demonstrations of our technology to a new potential customer.
Research and Development. For the year ended December 31, 2018 and 2017, our research and development expenses, which consisted primarily of professional services and equipment, amounted to $133,000 and $207,000, respectively, which represented a decrease for the year of $74,000. This decrease in research and development expenses was mainly due to the completion of an earlier research and development project and the slower implementation of a new project.
General and Administrative Expenses. For the year ended December 31, 2018 and 2017, our general and administrative expenses amounted to $1,120,000 of which $748,000 related to stock-based compensation expense, and $689,000, respectively, of which $477,000 related to stock-based compensation, for the year ended December 31, 2017. The increases in expenses compared to the year ended December 31, 2017, of $160,000, excluding the stock-based compensation, was due mainly to professional and other fees.
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Financial Expenses. For the year ended December 31, 2018 and 2017, our financial expense amounted to $40,000 from $61,000, respectively, which represented a decrease compared to the year ended December 31, 2017, of $21,000. Finance expenses included the interest payments made on loans received by Duke to finance its activities as well as exchange rate differences resulting from variations in the shekel exchange rate to the U.S. dollar.
Net Loss. For the year ended December 31, 2018 and 2017, we recorded a net loss of $1,173,000 and $924,000, respectively, which represented an increase compared to the year ended December 31, 2017, of $249,000. The increase in the net loss was mainly due to the increase in general and administrative expenses which were offset by an increase in gross profit and decrease in research and development expenses.
Critical Accounting Policies
This MD&A of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. As applicable to the consolidated financial statements included elsewhere in this Current Report, the most significant estimates and assumptions relate to the going concern assumptions and stock based compensation.
Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” of the notes to consolidated financial statements included elsewhere in this Current Report. Our management believes that, as for the financial statements for the periods included in this Current Report, the “going concern” assessment is a critical accounting policy. However, due to the early stage of operations of the Company, there are no other accounting policies that are considered to be critical accounting policies by management.
Going Concern Uncertainty
The development and commercialization of our product will require substantial expenditures. We have not yet generated any material revenues and have incurred substantial accumulated deficit and negative operating cash flows. We currently have no sources of recurring revenue and are therefore dependent upon external sources for financing our operations. There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. As a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Liquidity and Capital Resources
Since inception, we have devoted substantially all our efforts to research and development and are still in the development stage. We have incurred accumulated losses since inception of $3,416,000 and the extent of our future operating losses and the timing of becoming profitable are uncertain. These conditions raise substantial doubt about our ability to continue to operate as a going concern. Our ability to continue operating as a “going concern” is dependent on several factors, among them is the ability to raise sufficient additional funding.
Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
During the nine months ended September 30, 2019 our loss of $764,000 included non-cash stock-based compensation of $443,000. There was an improvement in working capital of $145,000 as well as benefits from exchange differences between the Israeli shekel and the US dollar of $62,000.
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As a result of the above and after repaying bank loans of $23,000, our cash balance declined during the nine months ended September 30, 2019 by $135,000 and as of September 30, 2019 we had a cash balance of $55,000 compared to the cash balance of $190,000 as of December 31, 2018. We have no cash equivalents.
Since our inception we have funded our operations through bank loans, loans provided by our shareholders and demonstration projects of our technology to potential customers.
On February 29, 2016, we signed a loan agreement with an Israeli bank pursuant to which NIS 500,000 ($128,000) was provided at a variable annual rate of 4.25%. The outstanding loan is being repaid in 60 equal installments through February 28, 2021. The loan is collateralized by substantially all of the assets of Duke Israel and its common stock.
On August 5, 2015, we obtained a loan from an Israeli bank pursuant to which NIS 250,000 ($65,000) was provided at a variable annual rate of 3.6%. The outstanding loan is being repaid in 60 equal installments through August 15, 2020.
On November 19, 2014, we signed a loan agreement with an Israeli bank pursuant to which NIS 260,000 ($67,000) was provided at a variable annual rate of 6.5%. The outstanding loan was repaid in 54 equal installments through April 30, 2019.
As of September 30, 2019, the outstanding balance of the bank loans stood at $43,000 and as of December 31, 2018 at $66,000.
Since our inception until 2017, certain Duke stockholders provided loans on an as needed basis. Loans in the amount of $685,000 bear an annual fixed interest of 3% and loans in the amount of $313,000 bear an annual interest rate as defined in Section 3(j) of the Israeli tax ordinance, which is currently at 2.56%. As of September 30, 2019 and December 31, 2018, the outstanding balances of such stockholders’ loans were $998,000 and $954,000, respectively.
As of the Effective Time, except for stockholders’ loans in an amount of $280,000 (the “Outstanding Stockholders’ Loans”), the accumulated interest on the stockholders’ loans was waived, and the principal of the stockholders’ loans was converted into equity. The Outstanding Stockholders’ Loans, including the accumulated interest amount, shall be repaid on the earlier of the following: (i) three years after the Effective Date; or (ii) the Company raised capital amounting to at least $15 million following the Effective Date and the Earnings before interest, tax, depreciation and amortization of the Company has reached an amount of $3 million.
On August 9, 2017, our Regulation A Offering Circular was qualified by the SEC. The Reg A Offering ended on August 3, 2018. Pursuant to this Reg A Offering, we issued 93,077 shares of common stock for total proceeds of $75,000, net of issuance and registration expenses.
On January 25, 2018, the Company and a private investor entered into a convertible loan agreement in the amount of $400,000, bearing an annual interest rate of 6% (the “2018 CLA”). The 2018 CLA, including accumulated interest, was converted into equity at the Effective Time.
In connection with the Share Exchange, immediately prior to the Effective Time, the Company entered into the Convertible Loan Agreements. The terms of the Convertible Loan Agreements require repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at the Company’s discretion, and subject to its compliance with any and all terms of the material terms of the Convertible Loan Agreements, the term of such loans is extended for an additional twelve (12) month period. The terms of the Convertible Loan Agreements also provide that we may repay any portion of the remaining outstanding loan amount, without penalty, provided, however, that we provide the specific Primary Lender with three business days’ written notice prior to such repayment, during which time the Primary Lender may elect to convert any or all of the outstanding loan amount into shares of common stock of the Company. The Convertible Loan Agreements bear simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month.
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The Primary Lenders will have the option to convert the unpaid balance of their respective Convertible Loans into shares of the Company’s common stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following the Effective Time. “Effective price” per share means (i) if only shares of Company common stock are sold in a transaction, the amount actually received in cash by the Company and (ii) if shares of Company common stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Company common stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Company common stock issued in such transaction; (B) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six (6) months following the Effective Time until such time as the loans outstanding under all of the Convertible Loan Agreements are fully repaid or otherwise converted provided, however, that such price per share shall not be available in the event of an issuance of Alternative Securities to the Primary Lender); (C) a price per share reflecting a post-money valuation of the Company of $15,000,000 following the next investment in the Company following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. The conversion price is currently $0.374.
Also in connection with the Share Exchange, the Company entered into the Alpha Agreement and GBC Agreement, pursuant to which it issued to each party shares of common stock and the New Debentures in the aggregate amount of $400,000, which mature three years from the Effective Time and have an interest rate of 8% per year. The New Debentures have an Original Conversion Price but may be adjusted in the event of a Dilutive Event.
We believe that the result of the Share Exchange provides us with a platform to be utilized to raise funding that is required to further sustain and develop our operations. Therefore, in the forthcoming period we intend to continue to undertake efforts to raise additional funding; provided, however, that there can be no assurance that we will be able to raise capital, or that any capital raise will be on favorable terms or on terms that do not create further dilution to the Company’s stockholders.
Financing Needs
In view of our cash balance following the above transactions, we anticipate that our cash balances will be sufficient to permit us to conduct our operations up to the second half of 2021. The Company may also satisfy its liquidity through the sale of its securities, either in public or private transactions.
If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.
| Item 3.02. | Unregistered Sales of Equity Securities. |
As disclosed in Item 2.01 of this Current Report, pursuant to the Share Exchange, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke stockholders in exchange for 22,920,107 shares of Duke’s issued and outstanding shares of common stock.
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In addition, as disclosed in Item 2.01, in connection with the Share Exchange, prior to the Effective Time, subject to the closing of the Share Exchange, the Company issued (i) an aggregate of 9,623,621 shares of its common stock to the Primary Lenders in connection with the Note Conversion, (ii) an aggregate of 763,953 shares of common stock to Alpha and GBC and (iii) 45,968 shares of common stock in connection with the exercise of an outstanding employee stock option.
As disclosed in Item 2.01, the Company believes that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act, Rule 701 and/or Regulation S under the Securities Act. In addition, we entered into the Convertible Loan Agreements, pursuant to which we may issue additional shares of common stock, in accordance with the conversion price as then in effect and the principal amount then outstanding.
The disclosures set forth in Item 2.01 are hereby incorporated by reference into this Item 3.02.
| Item 5.01. | Changes in Control of Registrant |
The disclosures set forth in Item 2.01 are hereby incorporated by reference into this Item 5.01.
| Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers, Compensatory Arrangements of Certain Officers. |
The disclosures set forth in Item 2.01 are hereby incorporated by reference into this Item 5.02.
| Item 5.03. | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On March 4, 2020, the board of directors of the Company approved an amendment to the Bylaws of the Company (the “Bylaws”) to add a provision stating that the Company will not transfer shares of its common stock that are issued and outstanding pursuant to Regulation S under the Securities Act, unless such transfer is registered with the U.S. Securities and Exchange Commission.
A copy of the Bylaws is attached hereto as Exhibit 3.2 and incorporated herein by reference.
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| Item 5.06. | Change in Shell Company Status. |
As a result of the Share Exchange, the Company ceased being a “shell company” as defined in Rule 12b-2 under the Exchange Act. The information with respect to the transaction set forth in Items 1.01 and 2.01 is incorporated herein by reference.
| Item 9.01. | Financial Statements and Exhibits. |
| (a) | Financial Statements of Business Acquired. |
The audited financial statements of Duke for the years ended December 31, 2018 and December 31, 2017 and the unaudited financial statements of Duke for the nine months ended September 30, 2019 and 2018 is filed herewith as Exhibit 99.1, respectively, and is incorporated herein by reference.
| (b) | Pro Forma Financials |
The unaudited pro forma balance sheet and statement of operations of the Company and Duke and notes thereto are filed herewith as Exhibit 99.2 hereto and are incorporated herein by reference.
| (d) | The following Exhibits are filed with this Current Report on Form 8-K: |
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report to be signed on its behalf by the undersigned hereunto duly authorized.
| UAS DRONE CORP. | |||
| Dated: March 10, 2020 | |||
| By: | /s/ Sagiv Aharon | ||
| Name: | Sagiv Aharon | ||
| Title: | Chief
Executive Officer, Chief Technology Officer, President and Director |
||
39
Exhibit 2.1
SHARE EXCHANGE AGREEMENT
by and among
UAS DRONE CORP.,
DUKE ROBOTICS, INC.
and
THE
SHAREHOLDERS OF DUKE ROBOTICS, INC. WHO EXECUTE AND DELIVER THIS
SHARE EXCHANGE AGREEMENT
dated as of March 4, 2020
TABLE OF CONTENTS
| article I Exchange of Shares | 1 | |
| Section 1.1 | Share Exchange | 1 |
| Section 1.2 | Closing | 1 |
| article II Representations and Warranties of the Shareholders | 2 | |
| Section 2.1 | Good Title | 2 |
| Section 2.2 | Power and Authority | 2 |
| Section 2.3 | No Conflicts | 2 |
| Section 2.4 | Litigation | 2 |
| Section 2.5 | No Finder’s Fee | 2 |
| Section 2.6 | Purchase Entirely for Own Account | 2 |
| Section 2.7 | Available Information | 2 |
| Section 2.8 | Non-Registration | 3 |
| Section 2.9 | Restricted Securities | 3 |
| Section 2.10 | Regulation S | 3 |
| Section 2.11 | Shareholder Status | 4 |
| Section 2.12 | Legends | 4 |
| Section 2.13 | Opinion | 4 |
| Section 2.14 | Disclosure | 4 |
| article III Representations and Warranties of Duke | 5 | |
| Section 3.1 | Organization and Qualification | 5 |
| Section 3.2 | Subsidiaries | 5 |
| Section 3.3 | Authorization; Enforcement | 5 |
| Section 3.4 | No Conflicts | 5 |
| Section 3.5 | Filings, Consents and Approvals | 6 |
| Section 3.6 | Capitalization | 6 |
| Section 3.7 | Financial Statements | 6 |
| Section 3.8 | Material Changes; Undisclosed Events, Liabilities or Developments | 7 |
| Section 3.9 | Litigation | 7 |
| Section 3.10 | Labor Relations | 7 |
| Section 3.11 | Compliance | 7 |
| Section 3.12 | Regulatory Permits | 7 |
| Section 3.13 | Title to Assets | 8 |
| Section 3.14 | Intellectual Property | 8 |
| Section 3.15 | Insurance | 8 |
| Section 3.16 | Transactions with Affiliates and Employees | 8 |
| Section 3.17 | Certain Fees | 8 |
| Section 3.18 | Tax Status | 9 |
| Section 3.19 | Foreign Corrupt Practices | 9 |
| Section 3.20 | No Disagreements with Accountants and Lawyers | 9 |
| Section 3.21 | Application of Takeover Protections | 9 |
| Section 3.22 | Office of Foreign Assets Control | 9 |
| Section 3.23 | Money Laundering | 9 |
| Section 3.24 | No Disqualification Events | 10 |
i
TABLE OF CONTENTS
| Section 3.25 | Solvency | 10 |
| Section 3.26 | Disclosure | 10 |
| Section 3.27 | SEC Filings | 10 |
| Section 3.28 | Compliance with Applicable Laws | 10 |
| Section 3.29 | Contracts | 10 |
| Section 3.30 | Internal Accounting Controls | 11 |
| Section 3.31 | No Additional Agreements | 11 |
| article IV Representations and Warranties of UAS | 11 | |
| Section 4.1 | Organization, Standing and Power | 11 |
| Section 4.2 | Subsidiaries; Equity Interests | 11 |
| Section 4.3 | Capital Structure | 12 |
| Section 4.4 | Authority; Execution and Delivery; Enforceability | 12 |
| Section 4.5 | No Conflicts; Consents | 12 |
| Section 4.6 | Taxes | 13 |
| Section 4.7 | Benefit Plans | 13 |
| Section 4.8 | ERISA Compliance; Excess Parachute Payments | 13 |
| Section 4.9 | Litigation | 13 |
| Section 4.10 | Compliance with Applicable Laws | 14 |
| Section 4.11 | Contracts | 14 |
| Section 4.12 | Title to Properties | 14 |
| Section 4.13 | Intellectual Property | 14 |
| Section 4.14 | Labor Matters | 14 |
| Section 4.15 | SEC Documents; Undisclosed Liabilities | 14 |
| Section 4.16 | Transactions With Affiliates and Employees | 15 |
| Section 4.17 | Internal Accounting Controls | 15 |
| Section 4.18 | Accountants | 15 |
| Section 4.19 | No Disqualification Events | 15 |
| Section 4.20 | Solvency | 16 |
| Section 4.21 | Application of Takeover Protections | 16 |
| Section 4.22 | Investment Company | 16 |
| Section 4.23 | Foreign Corrupt Practices | 16 |
| Section 4.24 | Office of Foreign Assets Control | 16 |
| Section 4.25 | U.S. Real Property Holding Corporation | 16 |
| Section 4.26 | Money Laundering | 17 |
| Section 4.27 | Absence of Certain Changes or Events | 17 |
| Section 4.28 | Certain Registration Matters | 18 |
| Section 4.29 | Listing and Maintenance Requirements | 18 |
| Section 4.30 | Disclosure | 18 |
| Section 4.31 | No Undisclosed Events, Liabilities, Developments or Circumstances | 18 |
| Section 4.32 | No Additional Agreements | 18 |
| article V Conditions to Closing | 18 | |
| Section 5.1 | UAS Conditions Precedent | 18 |
| Section 5.2 | Duke and Shareholders Conditions Precedent | 21 |
ii
TABLE OF CONTENTS
| article VI Covenants | 22 | |
| Section 6.1 | Public Announcements | 22 |
| Section 6.2 | Fees and Expenses | 22 |
| Section 6.3 | Continued Efforts | 23 |
| Section 6.4 | Exclusivity | 23 |
| Section 6.5 | Access | 23 |
| Section 6.6 | Preservation of Business | 23 |
| Section 6.7 | Resignations and Appointments | 23 |
| Section 6.8 | Filing of 8-K | 23 |
| article VII Miscellaneous | 24 | |
| Section 7.1 | Notices | 24 |
| Section 7.2 | Amendments; Waivers; No Additional Consideration | 24 |
| Section 7.3 | Termination | 25 |
| Section 7.4 | Replacement of Securities | 25 |
| Section 7.5 | Remedies | 25 |
| Section 7.6 | Limitation of Liability | 25 |
| Section 7.7 | Interpretation | 26 |
| Section 7.8 | Severability | 26 |
| Section 7.9 | Counterparts; Facsimile Execution | 26 |
| Section 7.10 | Entire Agreement; Third Party Beneficiaries | 26 |
| Section 7.11 | Governing Law | 26 |
| Section 7.12 | Assignment | 26 |
| Annex A | Capitalization Table (Issued, Converted and Exchanged Shares and Duke Funding) |
| Annex B | Definitions |
| Annex C | Schedule of Directors and Officers of UAS Post Stock Exchange |
| Annex D | Form of Registration Rights Agreement |
| Annex E | Form of Securities Exchange Agreements and Debentures |
iii
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (this “Agreement”), dated as of March 4, 2020, is by and among UAS Drone Corp., a Nevada corporation (“UAS”), Duke Robotics, Inc., a Delaware corporation (“Duke”), and the several shareholders of Duke identified on Annex A hereto who are anticipated to execute and deliver this Agreement (those shareholders that identify as U.S. shareholders, the “U.S. Shareholders”, those shareholders that identify as non-U.S. shareholders, the “Non-U.S. Shareholders” and collectively the “Shareholders” or individually as the “Shareholder,” “it,” “its,” “itself” or words of similar import that refer to a Shareholder). Each of the parties to this Agreement is individually referred to herein as a “Party” and collectively, as the “Parties.” Capitalized terms used herein that are not otherwise defined herein shall have the meanings ascribed to them in Annex B hereto.
BACKGROUND
A. Duke has 22,868,697 shares of common stock (the “Duke Stock”) issued and outstanding, 99.78% of which Duke Stock is held by the Shareholders. The Shareholders are the record and beneficial owners of the number of shares of Duke Stock set forth opposite the Shareholder’s name on Annex A hereto. The Shareholders have agreed to transfer all of their respective shares of Duke Stock in exchange for a number of newly issued shares of the common stock, $0.0001 par value per share, of UAS (the “UAS Stock”) that will constitute approximately 71% of the issued and outstanding capital stock of UAS on a fully diluted basis after giving effect to the closing of the transactions contemplated by this Agreement; provided, however that a portion of such UAS Stock shall be issued and held in escrow by the Escrow Agent pending a subsequent share exchange between UAS and Duke that may occur after the closing of the transactions contemplated by this Agreement (the “Escrowed UAS Stock”). The number of shares of UAS Stock to be received by the Shareholders is listed opposite the Shareholder’s name on Annex A. The aggregate number of shares of UAS Stock to be issued to the Shareholders that is reflected on Annex A is referred to herein as the “Shares.”
B. The Board of Directors of each of UAS and Duke has determined that it is desirable to effect this plan of reorganization by means of a share exchange.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:
article
I
Exchange of Shares
Section 1.1 Share Exchange. At the Closing, each of the Shareholders shall sell, transfer, convey, assign and deliver to UAS its Duke Stock, free and clear of all Liens, in exchange for the UAS Stock listed on Annex A opposite the Shareholder’s name.
Section 1.2 Closing. The closing (the “Closing”) of the transactions contemplated hereby (the “Transactions”) shall take place at the offices of ZAG/Sullivan & Worcester in New York, New York, commencing at 10:00 a.m. local time on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the Transactions (other than conditions with respect to actions that the respective parties will take at Closing) or such other date and time as the Parties may mutually determine (the “Closing Date”).
Section 1.3 Subsequent Share Exchange. Following the closing of the Transactions set forth in this Agreement, to the extent any Escrowed UAS Stock is issued at Closing, UAS intends to conduct a subsequent share exchange with the remaining shareholders of Duke such that all of the issued and outstanding shares of Duke shall be owned by UAS.
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article
II
Representations and Warranties of the Shareholders
Subject to the exceptions set forth in the Shareholder Disclosure Letter (regardless of whether or not the Shareholder Disclosure Letter is referenced below with respect to any particular representation of warrant), each of the Shareholders hereby, severally and not jointly, represents and warrants to UAS with respect to itself only and not as to any other Shareholder, as follows.
Section 2.1 Good Title. The Shareholder is the record and beneficial owner, and has good title to its Duke Stock as set forth in Annex A and Schedule 3.6, with the right and authority to sell and deliver such Duke Stock pursuant to this Agreement. The Duke Stock was duly issued to the Shareholder. Upon delivery of any certificate or certificates duly assigned, representing the same as herein contemplated and/or upon registering of UAS as the new owner of such Duke Stock in the share register of Duke, UAS will receive good title to such Duke Stock, free and clear of all Liens.
Section 2.2 Power and Authority. The Shareholder has the legal power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All acts required to be taken by the Shareholder to enter into this Agreement and to carry out the Transactions have been properly taken. This Agreement constitutes a legal, valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with the terms hereof.
Section 2.3 No Conflicts. The execution and delivery of this Agreement by the Shareholder and the performance by the Shareholder of its obligations hereunder in accordance with the terms hereof: (a) will not require the consent of any third party or Governmental Entity under any Laws; (b) will not violate any Laws applicable to the Shareholder; and (c) will not violate or breach any contractual obligation to which the Shareholder is a party.
Section 2.4 Litigation. Except as otherwise disclosed to UAS, there is no pending proceeding against the Shareholder that involves the Duke Stock or that challenges, or may have the effect of preventing, delaying or making illegal, or otherwise interfering with, any of the Transactions and, to the knowledge of the Shareholder, no such proceeding has been threatened, and no event or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such proceeding.
Section 2.5 No Finder’s Fee. Except as set forth on Schedule 3.17, the Shareholder has not created any obligation for any finder’s, investment banker’s or broker’s fee in connection with the Transactions that are not payable entirely by the Shareholder.
Section 2.6 Purchase Entirely for Own Account. The Shareholder is acquiring the UAS Stock proposed to be acquired hereunder for investment for its own account and not with a view to the resale or distribution of any part thereof, and the Shareholder has no present intention of selling or otherwise distributing the UAS Stock, except in compliance with applicable securities laws.
Section 2.7 Available Information. The Shareholder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in UAS and has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the UAS Stock, including, but not limited to the UAS SEC Reports and the Form 8-K Current Report to be filed with the SEC reflecting the post-Closing combination of UAS and Duke.
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Section 2.8 Non-Registration. The Shareholder understands that the UAS Stock has not been registered under the Securities Act and, if issued in accordance with the provisions of this Agreement, will be issued by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Shareholder’s representations as expressed herein. Other than as stated in the Transaction Documents, the Shareholder understands that it has no right to cause or otherwise request that the UAS Stock be registered for resale under the United States or individual state securities laws, and may have to hold the UAS Stock for an indefinite period. The non-registration shall have no prejudice with respect to any rights, interests, benefits and entitlements attached to the UAS Stock in accordance with UAS’s charter documents or the laws of its jurisdiction of incorporation.
Section 2.9 Restricted Securities. The Shareholder understands that the UAS Stock that it will acquire is characterized as “restricted securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Shareholder pursuant hereto, the UAS Stock would be acquired in a transaction not involving a public offering. The issuance of the UAS Stock hereunder is being effected in reliance upon an exemption from registration afforded under Section 4(a)(2) of the Securities Act for transactions by an issuer not involving a public offering, and, in reliance on Regulation S of the SEC, as may be applicable. The Shareholder further acknowledges that if the UAS Stock is issued to the Shareholder in accordance with the provisions of this Agreement, such UAS Stock may not be resold without registration under the Securities Act or the existence of an exemption therefrom. The Shareholders represents that it is familiar with SEC Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act, and specifically with respect to a “shell company” as defined SEC Rule 12b-2 under the Exchange Act and in subparagraph (i) of Rule 144, a definition which encompasses UAS, which has no current business or assets and has substantial liabilities. The Shareholder further acknowledges that: (i) there a limited public market for the UAS Stock; (ii) a limited public float in the UAS Stock; (iii) that the exchange ratio of the Shares for Duke Stock bears no relationship to assets, liabilities, book value or other established criteria of value of either UAS or Duke; (iv) that there is no assurance that any public market for the Shares will develop in the future or otherwise; and (v) the Closing of the Agreement will result in substantial dilution to the ownership interest of the Shareholders as outlined in Annex A.
Section 2.10 Regulation S. This Section 2.10 shall apply only to the Non-U.S. Shareholders. No offer to enter into this Agreement has been made by UAS to the Shareholder in the United States. Neither the Shareholder nor any of its respective affiliates or any persons acting on its behalf or on behalf of any affiliate, has engaged or will engage in any activity undertaken for the purpose of, or that reasonably could be expected to have the effect of, conditioning the markets in the United States for the UAS Stock, including, but not limited to, effecting any sale or short sale of securities, prior to the expiration of any restricted period contained in Regulation S promulgated under the Securities Act (any such activity being defined herein as a “Directed Selling Effort”). To the best knowledge of the Shareholder, this Agreement and the transactions contemplated herein are not part of a plan or scheme to evade the registration provisions of the Securities Act, and the UAS Stock is being acquired for investment purposes by the Shareholder. The Shareholder agrees that all offers and sales of the UAS Stock from the date hereof and through the expiration of any restricted period set forth in Rule 903 of Regulation S (as the same may be amended from time to time hereafter) shall not be made to U.S. Persons (within the meaning of Regulation S) or for the account or benefit of U.S. Persons and shall otherwise be made in compliance with the provisions of Regulation S and any other applicable provisions of the Securities Act. Neither the Shareholder or any of its representatives has conducted any Directed Selling Effort as that term is used and defined in Rule 902 of Regulation S and neither of them nor any of their respective representatives will engage in any such Directed Selling Effort within the United States through the expiration of any restricted period set forth in Rule 903 of Regulation S.
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Section 2.11 Shareholder Status. At the time each U.S. Shareholder was offered the UAS Stock, it was, and as of the date hereof it is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.
Section 2.12 Legends. It is understood that the UAS Stock will bear the following legend or one that is substantially similar to the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
Section 2.13 Opinion. The Shareholder shall not transfer any or all of the UAS Stock pursuant to Regulation S or Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, or absent an effective registration statement under the Securities Act and applicable state securities law covering the disposition of Shareholder’s UAS Stock, without first providing UAS with an opinion of counsel (which counsel and opinion are reasonably satisfactory to UAS) to the effect that such transfer will be made in compliance with Regulation S, Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder, or will be exempt from the registration and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable U.S. state securities laws.
Section 2.14 Disclosure. This Agreement, the schedules hereto and any certificate attached hereto or delivered in accordance with the terms hereof by or on behalf of the Shareholder in connection with the Transactions, when taken together, do not contain any untrue statement of a material fact relating to such Shareholder or omit any material fact necessary in order to make the statements contained herein and/or therein not misleading.
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article
III
Representations and Warranties of Duke
Subject to the exceptions set forth in the Duke Disclosure Letter (regardless of whether or not the Duke Disclosure Letter is referenced below with respect to any particular representation or warranty), Duke represents and warrants to UAS as follows.
Section 3.1 Organization and Qualification. Duke and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither Duke nor any Subsidiary is in violation or default of any of the provisions of its respective Constituent Instruments. Each of Duke and the Subsidiaries is duly qualified to conduct business in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing or similar ongoing organizational requirement, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or otherwise) of Duke and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on Duke’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and to the knowledge of Duke no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
Section 3.2 Subsidiaries. All of the direct and indirect subsidiaries of Duke are set forth on Schedule 3.2. Duke owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.
Section 3.3 Authorization; Enforcement. Duke has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations thereunder. The execution and delivery of this Agreement by Duke and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of Duke and no further action is required by Duke, the Board of Directors or Duke’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement has been (or upon delivery will have been) duly executed by Duke and, when delivered in accordance with the terms hereof and thereof, this Agreement will constitute the valid and binding obligation of Duke enforceable against Duke in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
Section 3.4 No Conflicts. The execution, delivery and performance by Duke of this Agreement, and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of Duke’s or any Subsidiary’s Constituent Instruments, (ii) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of Duke or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Duke or Subsidiary debt or otherwise) or other understanding to which Duke or any Subsidiary is a party or by which any property or asset of Duke or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Duke or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of Duke or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
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Section 3.5 Filings, Consents and Approvals. Duke is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by Duke of the Transaction Documents (the “Required Approvals”).
Section 3.6 Capitalization. The capitalization of Duke as of the date hereof is as set forth on Schedule 3.6. Duke has not issued any capital stock other than as set forth on such Schedule. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. Except as set forth on Schedule 3.6, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Duke Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which Duke or any Subsidiary is or may become bound to issue additional shares of Duke Stock or Duke Capital Stock Equivalents or other securities of Duke or capital stock of any Subsidiary. The consummation of the transactions contemplated by this Agreement will not obligate Duke or any Subsidiary to issue shares of Duke Stock or other securities of any kind whatsoever to any Person and will not result in a right of any holder of Duke securities to adjust the exercise, conversion, exchange or reset the price or otherwise under any of such securities. There are no outstanding securities or instruments of Duke or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which Duke or any Subsidiary is or may become bound to redeem a security of Duke or such Subsidiary. Except for the options disclosed on Schedule 3.6, Duke does not have any stock option plan, stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of Duke are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all applicable securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No approval or authorization of any stockholder, the Board of Directors or others, which has not been taken, is required for the completion of the share exchange. Except as set forth on Schedule 3.6, there are no stockholders agreements, voting agreements or other similar agreements with respect to Duke’s capital stock to which Duke is a party or, to the knowledge of Duke, between or among any of Duke’s stockholders, which will survive the closing of the share exchange.
Section 3.7 Financial Statements. The financial statements of Duke for the years ended December 31, 2018, and 2017, and unaudited financial statements for the nine months ended September 30, 2019, are attached as Schedule 3.7 and presented pursuant to the U.S. generally accepted accounting principles (“GAAP”). The financial statements fairly present in all material respects the financial position of Duke and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
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Section 3.8 Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within Schedule 3.7, except as set forth on Schedule 3.8, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) Duke has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in Duke’s financial statements, (iii) Duke has not altered its method of accounting, (iv) Duke has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) Duke has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing stock option plans.
Section 3.9 Litigation. There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither Duke nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under applicable laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of Duke, there is not pending or contemplated, any investigation by any governmental body involving Duke or any current or former director or officer of Duke.
Section 3.10 Labor Relations. No labor dispute exists or, to the knowledge of Duke, is imminent with respect to any of the employees of Duke, which could reasonably be expected to result in a Material Adverse Effect. None of Duke’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with Duke or such Subsidiary, and neither Duke nor any of its Subsidiaries is a party to a collective bargaining agreement, and Duke and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of Duke, no executive officer of Duke or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject Duke or any of its Subsidiaries to any liability with respect to any of the foregoing matters. Duke and its Subsidiaries are in compliance with all applicable laws and regulations applicable to them relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.11 Compliance. Neither Duke nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a material default by Duke or any Subsidiary under), nor has Duke or any Subsidiary received written notice of a claim that it is in material default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in material violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
Section 3.12 Regulatory Permits. Duke and the Subsidiaries possess all certificates, authorizations and permits issued by the regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither Duke nor any Subsidiary has received any written notice of proceedings relating to the revocation or modification of any Material Permit.
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Section 3.13 Title to Assets. Except as disclosed in Schedule 3.13, Duke and the Subsidiaries do not own or lease any real property and have good and marketable title in all personal property owned by them that is material to the business of Duke and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by Duke and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties, but in the event of each of (i) and (ii) listed above, except where such Liens could not have or reasonably be expected to result in a Material Adverse Effect.
Section 3.14 Intellectual Property. Duke and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither Duke nor any Subsidiary has received a written notice that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither Duke nor any Subsidiary has received a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of Duke, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. Duke and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.15 Insurance. Duke and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which Duke and the Subsidiaries are engaged. Neither Duke nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
Section 3.16 Transactions with Affiliates and Employees. Except as set forth on Schedule 3.16, none of the officers or directors of Duke or any Subsidiary and, to the knowledge of Duke, none of the employees of Duke or any Subsidiary is presently a party to any transaction with Duke or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of Duke, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of Duke and (iii) other employee benefits, including stock option agreements under any stock option plan of Duke.
Section 3.17 Certain Fees. Except as set forth on Schedule 3.17, no brokerage or finder’s fees or commissions are or will be payable by Duke or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement.
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Section 3.18 Tax Status. Except as set forth on Schedule 3.18 and except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, Duke and its Subsidiaries each (i) has made or filed all income and all other tax returns reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of Duke or of any Subsidiary know of no basis for any such claim.
Section 3.19 Foreign Corrupt Practices. Neither Duke nor any Subsidiary, nor to the knowledge of Duke or any Subsidiary, any agent or other person acting on behalf of Duke or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, or (iii) failed to disclose fully any contribution made by Duke or any Subsidiary (or made by any person acting on its behalf of which Duke is aware) which is in violation of law.
Section 3.20 No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by Duke to arise, between Duke and the accountants and lawyers formerly or presently employed by Duke and Duke is current with respect to any fees owed to its accountants and lawyers which could affect Duke’s ability to perform any of its obligations under any of the Transaction Documents.
Section 3.21 Application of Takeover Protections. Duke has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Duke and its Subsidiaries Charters or the laws of their state or country of incorporation that is or could become applicable to Duke or its Subsidiaries as a result of the Shareholders and Duke fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, the issuance of the Shares and the Shareholders’ ownership of the Shares.
Section 3.22 Office of Foreign Assets Control. Neither Duke nor any Subsidiary nor, to Duke’s knowledge, any director, officer, agent, employee or affiliate of Duke or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
Section 3.23 Money Laundering. The operations of Duke and its Subsidiaries are and have been conducted at all times in compliance with applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and to the knowledge of Duke, no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving Duke or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of Duke or any Subsidiary, threatened.
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Section 3.24 No Disqualification Events. None of Duke, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of Duke, any beneficial owner of 10% or more of Duke’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with Duke in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). Duke has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. Duke has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.
Section 3.25 Solvency. As of the Closing Date and receipt of the proceeds from the Duke Funding, (a) Duke’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of Duke’s existing debts and other liabilities (including known contingent liabilities) as they mature, (b) Duke’s assets do not constitute an unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted, including its capital needs, and (c) the current cash flow of Duke, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.
Section 3.26 Disclosure. Except as set forth in the Duke Disclosure Letter, none of the representations and warranties in this Section 3 contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
Section 3.27 SEC Filings. Except as set forth in Schedule 3.27, filings made by Duke with the SEC under applicable provisions of the Securities Act and the Exchange Act, as applicable, prior to the Transactions do not contain any untrue statement of a material fact of omit to state a material fact necessary in order to make the statements made therein no misleading in light of the circumstances in which they were made.
Section 3.28 Compliance with Applicable Laws. Duke is in compliance with all applicable Laws, including those relating to occupational health and safety, the environment, export controls, trade sanctions and embargoes, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect. Duke has not received any written communication during the past two years from a Governmental Entity that alleges that Duke is not in compliance in any material respect with any applicable Law. Duke is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a Material Adverse Effect. This Section 3.26 does not relate to matters with respect to Taxes, which are the subject of Section 3.18.
Section 3.29 Contracts. Except as disclosed in Schedule 3.27, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of Duke taken as a whole. Duke is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or to which it or any of its properties or assets is subject, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
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Section 3.30 Internal Accounting Controls. Duke maintains a system of internal accounting controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (c) access to assets is permitted only in accordance with management’s general or specific authorization, and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Duke has established disclosure controls and procedures for Duke and designed such disclosure controls and procedures to ensure that material information relating to Duke is made known to the officers by others within Duke.
Section 3.31 No Additional Agreements. Duke does not have any agreement or understanding with the Shareholders with respect to the Transactions other than as specified in this Agreement.
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IV
Representations and Warranties of UAS
Subject to the exceptions set forth in the UAS Disclosure Letter (regardless of whether or not the UAS Disclosure Letter is referenced below with respect to any particular representation or warranty), UAS represents and warrants as follows to Duke and the Shareholders.
Section 4.1 Organization, Standing and Power.UAS is duly organized, validly existing and in good standing under the laws of the State of Nevada and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or otherwise) of UAS and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on UAS’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “UAS Material Adverse Effect”). UAS is duly qualified to do business in each jurisdiction where the nature of its business or its ownership or leasing of its properties makes such qualification necessary and where the failure to so qualify would reasonably be expected to have a UAS Material Adverse Effect. UAS has delivered to Duke or its counsel true and complete copies of the UAS Charter and the UAS Bylaws.
Section 4.2 Subsidiaries; Equity Interests. As of the date of this Agreement but not as of the Closing Date, all of the direct and indirect subsidiaries of UAS are set forth on Schedule 4.2. As of the date of this Agreement, but not immediately after the Closing Date, UAS owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. As of immediately after the Closing Date, UAS does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person.
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Section 4.3 Capital Structure. The authorized capital stock of UAS consists of 110,000,000 shares divided into 100,000,000 shares of common stock, $0.0001 par value; and 10,000,000 shares of preferred stock, $0.0001 par value. As of the date of this Agreement, 1,172,544 shares of UAS’s common stock are issued and outstanding, and no shares of preferred stock are issued or and outstanding. All outstanding shares of the capital stock of UAS are, and all such shares that may be issued prior to the date hereof or simultaneous with the Closing as outlined in Annex A will be when issued and delivered, duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the corporate law of Nevada, the UAS Charter, the UAS Bylaws or any Contract to which UAS is a party or otherwise bound. As of the date of this Agreement, there are no bonds, debentures, notes or other indebtedness of UAS outstanding having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of UAS’s common stock may vote. As of the date of this Agreement, and except as set forth in Schedule 4.3, there are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which UAS is a party or by which it is bound (a) obligating UAS to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, UAS, (b) obligating UAS to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (c) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock of UAS. As of the date of this Agreement, and except as set forth in Schedule 4.3, there are no outstanding contractual obligations of UAS to repurchase, redeem or otherwise acquire any shares of capital stock of UAS. The stockholder list of UAS provided to Duke is a current stockholder list generated by its stock transfer agent, and such list accurately reflects all of the issued and outstanding shares of the UAS’s common stock.
Section 4.4 Authority; Execution and Delivery; Enforceability. UAS has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations thereunder. The execution and delivery of this Agreement by UAS and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of UAS and no further action is required by UAS, the Board of Directors or UAS’ stockholders in connection herewith or therewith other than in connection with the UAS Required Approvals (as defined herein). This Agreement has been (or upon delivery will have been) duly executed by UAS and, when delivered in accordance with the terms hereof and thereof, this Agreement will constitute the valid and binding obligation of UAS enforceable against UAS in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
Section 4.5 No Conflicts; Consents.
(a) The execution and delivery by UAS of this Agreement does not, and the consummation of Transactions and compliance with the terms hereof will not, contravene, conflict with or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a material benefit under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any person under, or result in the creation of any Lien upon any of the properties or assets of UAS under, any provision of (i) the UAS Charter or UAS Bylaws, (ii) any material Contract to which UAS is a party or to which any of its properties or assets is subject, or (iii) subject to the filings and other matters referred to in Section 4.5(b), any material order or material Law applicable to UAS or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a UAS Material Adverse Effect.
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(b) UAS is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by UAS of the Transaction Documents (the “UAS Required Approvals”).
Section 4.6 Taxes.
(a) UAS has timely filed, or has caused to be filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file, any delinquency in filing or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a UAS Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed, have been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a UAS Material Adverse Effect.
(b) The most recent financial statements contained in the SEC Reports reflect an adequate reserve for all Taxes payable by (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements. No deficiency with respect to any Taxes has been proposed, asserted or assessed against UAS, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have a UAS Material Adverse Effect.
(c) There are no Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of UAS. UAS is not bound by any agreement with respect to Taxes.
Section 4.7 Benefit Plans. Except as set forth in Schedule 4.7, UAS does not, and since its inception never has, maintained or contributed to any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of UAS As of the date of this Agreement, there are not any employment, consulting, indemnification, severance or termination agreements or arrangements between UAS and any current or former employee, officer or director of UAS, nor does UAS have any general severance plan or policy.
Section 4.8 ERISA Compliance; Excess Parachute Payments. UAS does not, and since its inception never has, maintained or contributed to any “employee pension benefit plans” (as defined in Section 3(2) of ERISA), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) or any other benefit plan for the benefit of any current or former employees, consultants, officers or directors of UAS.
Section 4.9 Litigation. There is no Action against or affecting UAS or any of its properties which (a) adversely affects or challenges the legality, validity or enforceability of either of this Agreement or the Shares or (b) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a UAS Material Adverse Effect. Neither UAS nor any director or officer (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.
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Section 4.10 Compliance with Applicable Laws. UAS is in compliance with all applicable Laws, including those relating to occupational health and safety, the environment, export controls, trade sanctions and embargoes, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a UAS Material Adverse Effect. UAS has not received any written communication during the past two years from a Governmental Entity that alleges that UAS is not in compliance in any material respect with any applicable Law. UAS is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a UAS Material Adverse Effect. This Section 4.10 does not relate to matters with respect to Taxes, which are the subject of Section 4.6.
Section 4.11 Contracts. Except as set forth in Schedule 4.11, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of UAS taken as a whole. UAS is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or to which it or any of its properties or assets is subject, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a UAS Material Adverse Effect.
Section 4.12 Title to Properties. UAS has good title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses. All such assets and properties, other than assets and properties in which UAS has leasehold interests, are free and clear of all Liens, except for Liens that, in the aggregate, do not and will not materially interfere with the ability of UAS to conduct business as currently conducted. UAS has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect. UAS enjoys peaceful and undisturbed possession under all such material leases.
Section 4.13 Intellectual Property. UAS does not own, nor is validly licensed nor otherwise has the right to use, any Intellectual Property Rights. No claims are pending or, to the knowledge of UAS, threatened that UAS is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right.
Section 4.14 Labor Matters. There is no collective bargaining or other labor union agreements to which UAS is a party or by which it is bound. No material labor dispute exists or, to the knowledge of UAS, is imminent with respect to any of the employees of UAS.
Section 4.15 SEC Documents; Undisclosed Liabilities.
(a) UAS has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC since January 1, 2016, pursuant to Sections 13(a), 14(a) and 15(d) of the Exchange Act (the “SEC Reports”).
(b) As of its respective filing date, each SEC Report complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Report. Except to the extent that information contained in any SEC Report has been revised or superseded by a later SEC Report, none of the SEC Reports contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of UAS included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with the U.S. generally accepted accounting principles (except, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of UAS and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods shown (subject, in the case of unaudited statements, to normal year-end audit adjustments).
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(c) Except as set forth in Schedule 4.15(c), UAS has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by U.S. generally accepted accounting principles to be set forth on a balance sheet of UAS or in the notes thereto. There are no financial or contractual obligations and liabilities (including any obligations to issue capital stock or other securities) due after the date hereof. Except as set forth on Schedule 4.15(c) or Annex A, all liabilities of UAS shall have been paid off and shall in no event remain liabilities of UAS, Duke or the Shareholders following the Closing.
Section 4.16 Transactions With Affiliates and Employees. Except as disclosed in the Schedule 4.16, none of the officers or directors of UAS and, to the knowledge of UAS, none of the employees of UAS is presently a party to any transaction with UAS (other than for services as employees, officers and directors), including any Contract or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of UAS, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
Section 4.17 Internal Accounting Controls. UAS maintains a system of internal accounting controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (c) access to assets is permitted only in accordance with management’s general or specific authorization, and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. UAS has established disclosure controls and procedures for UAS and designed such disclosure controls and procedures to ensure that material information relating to UAS is made known to the officers by others within UAS. UAS’s officers have evaluated the effectiveness of UAS’s controls and procedures, and have determined these controls and procedures are not effective as set forth in Schedule 4.17. Since the date of the most recent financial statements contained in the SEC Reports, there have been no significant changes in UAS’s internal controls or, to UAS’s knowledge, in other factors that could significantly affect UAS’s internal controls.
Section 4.18 Accountants. UAS’s accounting firm is set forth on Schedule 4.18. Such accounting firm (i) is a PCAOB registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending December 31, 2018. There have been no and currently are no disagreements of any kind, or reasonably anticipated by UAS to arise, between UAS and the accountants formerly or presently employed by UAS, and UAS is current with respect to any fees owed to its accountants which could affect UAS’s ability to perform any of its obligations under any of the Transaction Documents.
Section 4.19 No Disqualification Events. Except as set forth on Schedule 4.19, none of UAS, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of UAS, any beneficial owner of 10% or more of UAS’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with UAS in any capacity at the time of sale is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). UAS has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. UAS has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.
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Section 4.20 Solvency. Except as disclosed Schedule 4.20, based on the financial condition of UAS as of the Closing Date (assuming (i) that the Closing shall have occurred, (ii) the receipt of the proceeds of the Duke Funding and the conversion of the UAS Convertible Notes that are conditions precedent to the Closing as provided in Sections 5.1 and 5.2 and Annex A hereof as of the Closing Date, and (iii) excluding Duke), (a) UAS’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of UAS’s existing debts and other liabilities (including known contingent liabilities) as they mature, (b) UAS’s assets do not constitute an unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted, including its capital needs, and (c) the current cash flow of UAS, together with the proceeds UAS would receive were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.
Section 4.21 Application of Takeover Protections. UAS has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the UAS Charter or the laws of its state of incorporation that is or could become applicable to the Shareholders as a result of the Shareholders, Duke and UAS fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, the issuance of the Shares and the Shareholders’ ownership of the Shares.
Section 4.22 Investment Company. UAS is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 4.23 Foreign Corrupt Practices. Neither UAS, nor to UAS’s knowledge, any director, officer, agent, employee or other person acting on behalf of UAS has, in the course of its actions for, or on behalf of, UAS (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, (b) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (c) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended or (d) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
Section 4.24 Office of Foreign Assets Control. Neither UAS nor any Subsidiary of UAS nor, to UAS’s knowledge, any director, officer, agent, employee or affiliate of UAS or any Subsidiary of UAS is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
Section 4.25 U.S. Real Property Holding Corporation. UAS is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended.
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Section 4.26 Money Laundering. The operations of UAS and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Money Laundering Laws, applicable money laundering statutes and applicable rules and regulations thereunder, and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
Section 4.27 Absence of Certain Changes or Events. Except as disclosed in Schedule 4.27, from the date of the most recent financial statements contained in the SEC Reports to the date of this Agreement, UAS has conducted its business only in the ordinary course, and during such period there has not been:
(a) any change in the assets, liabilities, financial condition or operating results of UAS from that reflected in the financial statements contained in the SEC Reports, except changes in the ordinary course of business that have not caused, in the aggregate, a UAS Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by insurance, that would have a UAS Material Adverse Effect;
(c) any waiver or compromise by UAS of a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by UAS, except in the ordinary course of business and the satisfaction or discharge of which would not have a UAS Material Adverse Effect;
(e) any material change to a material Contract by which UAS or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;
(g) any resignation or termination of employment of any officer of UAS;
(h) any mortgage, pledge, transfer of a security interest in or lien created by UAS with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and that do not materially impair UAS’s ownership or use of such property or assets;
(i) any loans or guarantees made by UAS to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;
(j) any declaration, setting aside or payment or other distribution in respect of any of UAS’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by UAS;
(k) any alteration of UAS’s method of accounting or the identity of its auditors;
(l) any issuance of equity securities to any officer, director or affiliate, except pursuant to existing UAS stock option plans; or
(m) any arrangement or commitment by UAS to do any of the things described in this Section 4.27.
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Section 4.28 Certain Registration Matters. Other than as described in Schedule 4.28, UAS has not granted or agreed to grant to any person any rights (including “piggy-back” registration rights) to have any securities of UAS registered with the SEC or any other governmental authority that have not been satisfied.
Section 4.29 Listing and Maintenance Requirements. UAS is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the UAS Stock on the trading market on which the UAS Stock is currently listed or quoted. The issuance and sale of the Shares under this Agreement does not contravene the rules and regulations of the trading market on which the UAS Stock are currently listed or quoted, and no approval of the stockholders of UAS is required for UAS to issue and deliver to the Shareholders the Shares contemplated by this Agreement.
Section 4.30 Disclosure. UAS confirms that neither it nor any person acting on its behalf has provided the Shareholders or its agents or counsel with any information that UAS believes constitutes material, non-public information except insofar as the existence and terms of the proposed Transactions hereunder may constitute such information and except for information that will be disclosed by UAS under a current report on Form 8-K filed within four business days after the Closing. UAS understands and confirms that the Shareholders will rely on the foregoing representations and covenants in effecting transactions in securities of UAS. All of the representations and warranties set forth in this Agreement are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.
Section 4.31 No Undisclosed Events, Liabilities, Developments or Circumstances. No material event, liability, development or circumstance has occurred or exists, or is contemplated to occur with respect to UAS, or its businesses, properties, prospects, operations or financial condition, that would be required to be disclosed by UAS under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by UAS of its common stock and which has not been publicly announced or will not be publicly announced in a current report on Form 8-K filed within four business days after the Closing.
Section 4.32 No Additional Agreements. UAS does not have any agreement or understanding with the Shareholders with respect to the Transactions other than as specified in this Agreement.
article
V
Conditions to Closing
Section 5.1 UAS Conditions Precedent. The obligations of the Shareholders and Duke to enter into and complete the Closing are subject, at the option of the Shareholders and Duke, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Duke and the Shareholders in writing.
(a) Representations and Covenants. The representations and warranties of UAS contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. UAS shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by UAS on or prior to the Closing Date. UAS shall have delivered to the Shareholders and Duke a certificate, dated the Closing Date, to the foregoing effect.
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(b) Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of Duke or the Shareholders, a material adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of UAS. As of the Closing Date, UAS is not subject to any other action, suit or proceeding before any court or governmental or regulatory body that has been instituted or threatened in respect of its business operations and the operations of its Subsidiary.
(c) Consents. All material consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made, by UAS for the authorization, execution and delivery of this Agreement and the consummation by it of the Transactions shall have been obtained and made by UAS, including any filings or submissions with FINRA, except where the failure to receive such consents, waivers, approvals, authorizations or orders or to make such filings would not have a UAS Material Adverse Effect.
(d) No Material Adverse Change. There shall not have been any occurrence, event, incident, action, failure to act, or transaction since September 30, 2019, which has had or is reasonably likely to cause a UAS Material Adverse Effect.
(e) Post-Closing Capitalization. At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of the capital stock of UAS, on a fully-diluted basis, as indicated on a schedule to be delivered by the Parties at or prior to the Closing and as adjusted pursuant to Annex A as of the Closing, shall be acceptable to Duke and the Shareholders.
(f) Satisfactory Completion of Due Diligence. Duke and the Shareholders shall have completed their legal, accounting and business due diligence of UAS and the results thereof shall be satisfactory to Duke and the Shareholders in their sole and absolute discretion.
(g) SEC Reports. UAS shall have filed all reports and other documents required to be filed by it under the U.S. federal securities laws through the Closing Date.
(h) OTC Quotation. UAS shall have maintained its status as a company whose common stock is quoted on the OTC Bulletin Board maintained by the OTC Markets Group, Inc. (the “OTC Markets Group”) and no reason shall exist as to why such status shall not continue immediately following the Closing.
(i) No Suspensions of Trading in UAS Stock; Listing. Trading in the UAS Stock shall not have been suspended by the SEC or by any trading market (except for any suspensions of trading of not more than one trading day solely to permit dissemination of material information regarding UAS) at any time since the date of execution of this Agreement, and the UAS Stock shall have been at all times since such date listed for trading on a trading market.
(j) Secretary’s Certificate. UAS shall have delivered to Duke a certificate, signed by its Secretary, certifying that the attached copies of the UAS Charter, UAS Bylaws and resolutions of its Board of Directors approving this Agreement and the Transactions, and appointing the directors and officers that will be continuing after the Closing as set forth on Annex C hereto, subject to resignations, in seriatim, by the UAS current directors and officers, are all true, complete and correct and remain in full force and effect.
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(k) Good Standing Certificate. UAS shall have delivered to Duke a certificate of good standing of UAS dated within five (5) business days of Closing, issued by the Secretary of State of Nevada.
(l) Pre-Closing Share Issuance. Subject to delivery at the Closing, the $0.0001 par value shares of common stock of UAS that are outlined in Annex A shall have been authorized and issued for the exercise of outstanding UAS stock options, the conversion of principal and interest of certain UAS Convertible Debt and the conversion of the Bridge.
(m) Funding Requirements. The Duke Funding shall have been completed and deposited into an escrow, with the release of such funding subject only to the Closing and no other condition whatsoever.
(n) Payoff Letters and Releases. UAS shall have delivered to Duke the following pay-off letters and releases relating to liabilities of UAS as Duke, in form and substance satisfactory to Duke: (i) releases from each of Grant A. Begley, Christopher Leith and Chris Nelson to UAS for the payment of accrued salary through the Closing Date; and (ii) a payoff letter from Burningham Law Group to UAS for the payment of their fees and expenses through the Closing Date. As of the Closing Date, UAS will have not outstanding liabilities that have not been fully satisfied or for which it has not provided for in cash to Duke for its satisfaction of such obligations, other than the UAS Convertible Debt in the aggregate amount of $400,000 as of the Closing Date. UAS shall also deliver to Duke a release and waiver of the registration rights of Alpha Capital Anstalt granted in respect of its UAS Convertible Debt, including the authorization to withdraw all shares of common stock of the Company underlying any registration statement filed with the SEC in respect of any underlying registration rights, with all such remaining UAS Convertible Debt being afforded registration rights for the underlying shares into which they may be converted as outlined in the Registration Rights Agreement.
(o) UAS Convertible Debt. UAS and Alpha Capital Anstalt shall revise the terms of the UAS Convertible Debt upon terms and conditions agreeable to Duke, in the forms of the Securities Exchange Agreements and Debentures attached hereto as Annex E.
(p) Bank Accounts and Vendors. UAS will have provided to Duke a list of all bank accounts and vendors, and copies of the notices that have been sent or are to be sent to all banks and vendors doing business with UAS indicating the change of management of UAS and providing for the substitution of a designated person of Duke to be the signatory or authorized person over the relationship for the purposes of carrying on the activities of UAS and that such bank accounts shall have no outstanding or pending debits as of, or immediately prior to, the Closing Date.
(q) Corporate Records. UAS will provide to Duke, at or prior to the Closing Date a complete set of the corporate records of UAS, including the official minute book, past financial records and transfer agent records of UAS.
(r) Issuance of Stock Certificates. UAS shall have delivered to the Shareholders certificates representing the new shares of UAS Stock issued to the Shareholders in accordance with Annex A.
(s) Shareholder List of UAS. UAS will have provided to Duke a copy of the shareholder list of the common stock of UAS as of a date that is not more than 5 days prior to the Closing Date.
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(t) Escrow Shares. To the extent that the UAS Stock issuable to the Shareholders shall equal less than 98% of the issued and outstanding shares of UAS, then the Escrowed UAS Stock shall be issued on the Closing Date in the name of Duke and held in escrow by UAS’ transfer agent.
(u) Lock Up Agreements. GreenBlock Capital, LLC shall have agreed to a six (6) month lock-up period of all of its UAS Stock in its Securities Purchase Agreement that is a part of the Transaction Documents.
(v) Termination of Material Agreements. UAS shall have terminated the Manufacturing Agreement and Distribution Agreement, each executed by and between UAS and Havis, Inc., dated October 21, 2015.
(w) Legal Opinion. UAS shall deliver a form of opinion of counsel regarding the validity and exemption from registration of the UAS Stock and the shares issuable upon conversion of the Bridge Loan.
Section 5.2 Duke and Shareholders Conditions Precedent. The obligations of UAS to enter into and complete the Closing is subject, at the option of UAS, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by UAS in writing.
(a) Representations and Covenants. The representations and warranties of Duke contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Duke on or prior to the Closing Date. Duke shall have delivered to UAS a certificate, dated the Closing Date, to the foregoing effect.
(b) Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of UAS, a material adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of Duke.
(c) Consents. All material consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made, by the Shareholders or Duke for the authorization, execution and delivery of this Agreement and the consummation by them of the Transactions, shall have been obtained and made by the Shareholders or Duke, except where the failure to receive such consents, waivers, approvals, authorizations or orders or to make such filings would not have a Material Adverse Effect of Duke.
(d) No Material Adverse Change. There shall not have been any occurrence, event, incident, action, failure to act, or transaction since the date of the Financial Statements of Duke which has had or is reasonably likely to cause a Material Adverse Effect on Duke.
(e) Satisfactory Completion of Due Diligence. UAS shall have completed its legal, accounting and business due diligence of Duke and the Shareholders and the results thereof shall be satisfactory to UAS in its sole and absolute discretion.
(f) Secretary’s Certificate. Duke shall have delivered to UAS a certificate, signed by its Secretary (or authorized director or officer), certifying that the attached copies of the Duke Constituent Instruments and resolutions of the Board of Directors of Duke approving this Agreement and the Transactions are all true, complete and correct and remain in full force and effect.
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(g) Certificate of Good Standing. Duke shall have delivered to UAS a certificate of Good Standing of Duke, dated within five (5) business days of Closing, issued by the Secretary of State of Delaware.
(h) Delivery of Audit Report and Financial Statements. Duke shall have delivered to UAS financial statements prepared in accordance with generally accepted accounting principles, audited for the years ended December 31, 2018, and 2017, and reviewed for the nine-month period ended September 30, 2019.
(i) Form 8-K. Duke shall have provided UAS with reasonable assurances that UAS will be able to comply with its obligation to file a current report on Form 8-K Current Report within one (1) business days following the Closing containing the requisite disclosure describing the Transaction and containing the “Form 10 Information” required by Rule 144(i) regarding the Transaction.
(j) Share Transfer Documents. The Shareholders shall have instructed Duke’s transfer agent to transfer its Duke Stock to UAS, such that the shares of UAS Stock exchanged for the Duke Stock exchanged by the Shareholders will be in book-entry form.
(k) Duke Funding. The Duke Funding shall have been completed and deposited into an escrow satisfactory to UAS, with the release of such funding being subject only to the Closing and no other condition whatsoever.
(l) Pay-Off Letters. As a condition of the Closing, the following shall be paid from the proceeds of the Duke Funding: (i) Messrs. Begley, Nelson and Leith shall be paid $100 each to compromise and settle all claims they have or have had against UAS, (ii) the legal fees of Burningham Law Group shall be paid to the date of the Closing, (iii) $30,000 in the aggregate shall be paid to counsel for the Bridge Loan investors; (iv) an amount shall be paid to counsel for Duke; and (v) consideration of a pay-off letter from UAS’ accountants, the filings of UAS to ensure UAS is in good standing in the State of Nevada and such other invoices of UAS and UAS and Duke may agree pursuant to a schedule to be provided at Closing, provided, however that all such expenses in this Section 5.2(l)(v) shall not exceed $10,600 in the aggregate.
article
VI
Covenants
Section 6.1 Public Announcements. UAS and Duke will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press releases or other public statements (including public reports to be filed with the SEC) with respect to this Agreement and the Transactions and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchanges.
Section 6.2 Fees and Expenses. All fees and expenses incurred in connection with this Agreement shall be paid by the Party incurring such fees or expenses, whether or not this Agreement or the Transactions contemplated hereby are consummated. This provision will survive any termination of this Agreement.
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Section 6.3 Continued Efforts. Each Party shall use commercially reasonable efforts to (a) take all action reasonably necessary to consummate the Transactions, and (b) take such steps and do such acts as may be necessary to keep all of its representations and warranties true and correct as of the Closing Date with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date.
Section 6.4 Exclusivity. Neither UAS nor Duke shall (a) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to the acquisition of any capital stock or other voting securities of UAS or Duke (as applicable), or any assets of UAS or Duke (as applicable) (including any acquisition structured as a merger, consolidation, share exchange or other business combination), (b) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing, or (c) take any other action that is inconsistent with the Transactions and that has the effect of avoiding the Closing contemplated hereby. Each shall notify the other immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.
Section 6.5 Access. Each Party shall permit representatives of any other Party to have full access to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to such Party.
Section 6.6 Preservation of Business. From the date of this Agreement until the Closing Date, each of UAS and Duke shall, except as otherwise permitted by the terms of this Agreement, operate only in the ordinary and usual course of business consistent with its past practices and shall use reasonable commercial efforts to (a) preserve intact its business organization, (b) preserve the good will and advantageous relationships with customers, suppliers, independent contractors, employees and other Persons material to the operation of its business, (c) pursue the collection of service reimbursement claims, and (d) not permit any action or omission that would cause any of its representations or warranties contained herein to become inaccurate or any of its covenants to be breached in any material respect.
Section 6.7 Resignations and Appointments. Upon execution of this Agreement, UAS shall deliver to Duke evidence of the resignations of Messrs. Grant A. Begley, Christopher Leith and Chris Nelson as directors and/or officers of UAS and the appointment of Yariv Alroy, Erez Nachtomy and Sagiv Aharon as directors of UAS and Sagiv Aharon as an officer of UAS, with each resignation and appointment to be effective as of the Closing Date.
Section 6.8 Filing of 8-K. UAS shall file, within one (1) business day of the Closing Date, a current report on Form 8-K Current Report and attach as exhibits all relevant agreements with the SEC disclosing the terms of this Agreement and other requisite disclosure regarding the Transactions and containing the requisite disclosure containing the “Form 10 Information” required by Rule 144(i) regarding the Transaction. In addition, UAS shall issue a mutually agreeable press release at a mutually agreeable time following the Closing Date.
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article
VII
Miscellaneous
Section 7.1 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):
If to UAS, prior to the Closing Date to:
UAS Drone Corp.
420 Royal Palm Way, Suite #100
Palm Beach, Florida 33480
Attention: Grant A. Begley
Chief Executive Officer and President
with a copy (which shall not be considered notice for any reason) to:
Burningham Law Group
2150 South 1300 East, Suite 500
Salt Lake City, Utah 84106
Attention: Branden T. Burningham, Esq.
If to Duke, to:
Duke Robotics, Inc.
1 Etgar Street, 1st Floor
Tirat-Carmel, Israel 3903212
Attention:
Erez Nachtomy, Vice Chairman
with a copy (which shall not be considered notice for any reason) to:
ZAG/Sullivan & Worchester
1633 Broadway, New York, NY 10019
Attention: Oded Har-Even, Esq.
If to the Shareholders at the addresses set forth in Annex A hereto.
Section 7.2 Amendments; Waivers; No Additional Consideration. No provision of this Agreement may be waived or amended except in a written instrument signed by UAS, Duke and the Shareholders. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.
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Section 7.3 Termination.
(a) The Parties may terminate this Agreement as provided below:
(i) UAS, Duke and the Shareholders may terminate this Agreement by mutual written consent at any time prior to the Closing;
(ii) UAS may terminate this Agreement by giving written notice to Duke and the Shareholders at any time prior to the Closing (A) in the event Duke has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, UAS has notified Duke of the breach, and the breach has continued without cure for a period of twenty (20) days after the notice of breach; or (B) if the Closing shall not have occurred on or before March 16, 2020, by reason of the failure of any condition precedent under Section 5.2 (unless the failure results primarily from UAS itself breaching any representation, warranty, or covenant contained in this Agreement); and
(iii) Duke may terminate this Agreement by giving written notice to UAS and the Shareholders at any time prior to the Closing (A) in the event UAS has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Duke has notified UAS of the breach, and the breach has continued without cure for a period of twenty (20) days after the notice of breach; or (B) if the Closing shall not have occurred on or before March 16, 2020, by reason of the failure of any condition precedent under Section 5.1 hereof (unless the failure results primarily from Duke or the Shareholders breaching any representation, warranty, or covenant contained in this Agreement).
(b) If any Party terminates this Agreement pursuant to Section 7.3(a) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach).
Section 7.4 Replacement of Securities. If any certificate or instrument evidencing any Shares is mutilated, lost, stolen or destroyed, UAS shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to UAS of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Shares. If a replacement certificate or instrument evidencing any Shares is requested due to a mutilation thereof, UAS may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.
Section 7.5 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Shareholders, UAS and Duke will be entitled to specific performance under this Agreement. The Parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
Section 7.6 Limitation of Liability. Notwithstanding anything herein to the contrary, each of UAS and Duke acknowledges and agrees that the aggregate liability of each Shareholder arising directly or indirectly, under any Transaction Document of any and every nature whatsoever related to the Transactions contemplated hereby shall be satisfied solely out of the Shares owned by such Shareholder, and that no trustee, officer, other investment vehicle or any other affiliate of any Shareholder or any investor, shareholder or holder of shares of beneficial interest of the Shareholders shall be personally liable for any liabilities of such Shareholder. For the avoidance of doubt, each of the Shareholder representations and warranties and covenants herein are several from each other Shareholder and from Duke’s representations and warranties and covenants. Each Shareholder representation and warranty herein shall survive until the Closing.
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Section 7.7 Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”.
Section 7.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the Transactions are fulfilled to the extent possible.
Section 7.9 Counterparts; Facsimile Execution. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties. Facsimile execution and delivery of this Agreement is legal, valid and binding for all purposes.
Section 7.10 Entire Agreement; Third Party Beneficiaries. This Agreement, taken together with the Disclosure Letters of each of UAS and Duke, (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the Transactions and (b) are not intended to confer upon any person other than the Parties any rights or remedies.
Section 7.11 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent the laws of Nevada and/or Delaware are mandatorily applicable to the Transactions.
Section 7.12 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the Parties without the prior written consent of each of the other Parties. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Share Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| UAS DRONE CORP. | |||
| By: | /s/ Grant A. Begley | ||
| Name: | Grant A. Begley | ||
| Title: | Chief Executive Officer | ||
| DUKE ROBOTICS, INC. | |||
| By: | /s/ Sagiv Aharon | ||
| Name: | Sagiv Aharon | ||
| Title: | Chief Executive Officer | ||
| DUKE ROBOTICS INC | |||
| U.S. SHAREHOLDERS: | |||
| D-Beta One EQ Ltd. | |||
| By: | /s/ David Gonzalez | ||
| Name: | David Gonzalez, Member | ||
| Womble Enterprises LLC | |||
| By: | /s/ Thurston Eric Womble | ||
| Name: | Thurston Eric Womble | ||
| Kendall Almerico | |||
| By: | /s/ Kendall Almerico | ||
| Name: | Kendall Almerico | ||
| DUKE ROBOTICS INC | |||
| NON-U.S. SHAREHOLDERS: | |||
| Sagiv Aharon | |||
| By: | /s/ Sagiv Aharon | ||
| Yariv Alroy | |||
| By: | /s/ Yariv Alroy | ||
| Iki Alroy Investments Ltd. | |||
| By: | /s/ Yariv Alroy | ||
| Name: | Yariv Alroy | ||
| Afek Trading – Kadosh and Razi Ltd. | |||
| By: | /s/ Razi Atuar | ||
| Name: | Razi Atuar | ||
| Erez Alroy | |||
| By: | /s/ Erez Alroy | ||
| Erez Alroy Investments Ltd. | |||
| By: | /s/ Erez Alroy | ||
| Name: | Erez Alroy | ||
| Erez Nachtomy | |||
| By: | /s/ Erez Nachtomy | ||
| ERMI Nachtomy Assets Ltd. | |||
| By: | /s/ Erez Nachtomy | ||
| Name: | Erez Nachtomy, CEO | ||
| RUNUMAN Ltd. | |||
| By: | /s/ Eyal Segal | ||
| Name: | Eyal Segal, CEO | ||
| Shmuel Yanay | |||
| By: | /s/ Shmuel Yanay | ||
| Yoram Alroy | |||
| By: | /s/ Yoram Alroy | ||
| Tom Alroy | |||
| By: | /s/ Tom Alroy | ||
| Noy Alroy | |||
| By: | /s/ Noy Alroy | ||
| Shaked Rakach | |||
| By: | /s/ Shaked Rakach | ||
ANNEX A
Capitalization Table
UAS-Duke Share Exchange Capitalization Table
Annex A
| Names and Addresses | Current Ownership | Shares to be Issued | Consideration (1) | Total Shares Pre-Closing or Post-Closing | Pre-Closing % | Post-Closing Sub-Total % | ||||||||||||||||||
| UAS Drone Corp.: | ||||||||||||||||||||||||
| Prior Management | 640,000 | 0 | - | 640,000 | 31.9 | % | 1.6 | % | ||||||||||||||||
| Prior S-1 Investors | 117,500 | 0 | - | 117,500 | 5.9 | % | 0.3 | % | ||||||||||||||||
| Grant A. Begley, President | 0 | 45,968 | $ | 167.86 | (2) | 45,968 | 2.2 | % | 0.1 | % | ||||||||||||||
| GreenBlock Capital, LLC | 437,500 | 65,198 | $ | 239.27 | (3) | 502,698 | 25.1 | % | 1.3 | % | ||||||||||||||
| Alpha Capital Anstalt | 0 | 698,755 | $ | 2,564.43 | (4) | 698,755 | 34.9 | % | 1.7 | % | ||||||||||||||
| UAS Drone Corp Sub- Total: | 1,195,000 | 809,921 | $ | 2,971.56 | 2,004,921 | 100 | % | 5.0 | % | |||||||||||||||
| Zuk Marble Group: | ||||||||||||||||||||||||
| Elisheva Ansbacher | 0 | 2,405,906 | $ | 8,750 | 2,405,906 | (5) | 25.0 | % | 6.0 | % | ||||||||||||||
| Ximena Benitez Garcia | 0 | 2,405,906 | $ | 8,750 | 2,405,906 | (5) | 25.0 | % | 6.0 | % | ||||||||||||||
| Noam Danenberg | 0 | 1,296,447 | $ | 4,715 | 1,296,447 | (5) | 13.5 | % | 3.233 | % | ||||||||||||||
| Moshe Zuk | 0 | 1,911,425 | $ | 6,952 | 1,911,425 | (5) | 19.9 | % | 4.767 | % | ||||||||||||||
| Eran Mevtal | 0 | 1,603,937 | $ | 5,833 | 1,603,937 | (5) | 16.7 | % | 4.0 | % | ||||||||||||||
| Zuk Marble Group Sub- Total: | 9,623,621 | $ | 35,000 | 9,623,621 | 100 | % | 24 | % | ||||||||||||||||
| Duke Shareholders: | - | |||||||||||||||||||||||
| Share Exchange basis of 1.2421 | 28,469,065 | (6) | 100 | % | 71 | % | ||||||||||||||||||
| Duke Shareholders Sub-Total | - | - | 100 | % | 71 | % | ||||||||||||||||||
| TOTAL | 40,097,607 | 100 | % | 40,097,607 | ||||||||||||||||||||
| (1) | The share price for all of these issued shares was based upon $0.00367 per share, as approved by the Board of Directors of UAS. |
| (2) | Begley will compromise $32,332.14 in accrued salary of $32,500 and has paid the option exercise price above by credit in such amount to his accrued salary in payment of these shares, all of which shares were issued pursuant to the letter agreement between UAS and Begley dated March 1, 2015, following the re-valuing the UAS shares at par value or $0.0001 per share. These shares will be issued pre-closing of the share exchange, and if there is no closing of the share exchange under this Agreement, along with the simultaneous closing of the Duke Funding as defined in Annex B, this share issuance will be subject to forfeiture. |
| (3) | GBC credited UAS $239.27 on accrued advances of $208,308, compromised $7,679 of which was not booked and exchanged the balance for an 8% Convertible Debenture in the amount of $99,054, with a three year Maturity Date, convertible for shares only, at a conversion price of $0.3740, subject to reduction in the event of dilutive issuances. The GBC 8% Convertible Debenture comprises a portion of the UAS Convertible Debt defined in Annex B. These shares will be issued pre-closing of the share exchange, and if there is no closing of the share exchange under this Agreement, along with the simultaneous closing of the Duke Funding, this share issuance will be subject to forfeiture. |
| (4) | Alpha Capital credited UAS $2,564.43 on three outstanding convertible debentures with an aggregate principal value of $450,015 and exchanged the outstanding debentures for an 8% Convertible Debenture in the amount of $300,946, with a three year Maturity Date, convertible for shares only, at a conversion price of $0.3740, subject to reduction in the event of dilutive issuances. The Alpha Capital 8% Convertible Debenture comprises a portion of the UAS Convertible Debt defined in Annex B. These shares will be issued pre-closing of the share exchange, and if there is no closing of the share exchange under this Agreement, along with the simultaneous closing of the Duke Funding, this share issuance will be subject to forfeiture. |
| (5) | All of these shares are being issued in conversion of the Duke Funding parties advance of $35,000 to UAS, which was memorialized in a $35,000 promissory note of UAS dated September 2, 2019, and which was a part of the Duke Funding whereby the funding parties negotiated a 24% interest in the pre-Closing UAS, subject to forfeiture if there was no closing of the Share Exchange Agreement and the Duke Funding, the latter of which is defined in Annex B. These shares will be issued pre-closing of the share exchange, and if there is no closing of the share exchange under this Agreement, along with the simultaneous closing of the Duke Funding, all of these share issuances shall be subject to forfeiture. |
| (6) | The closing of the share exchange under this Agreement is subject to the simultaneous closing of the Duke Funding. These shares will be issued post-closing of the share exchange and pre-closing of the Duke Funding, and if there is no closing of the Duke Funding under this Agreement, along with the simultaneous closing of the Duke Funding, all of these share issuances shall be subject to forfeiture. |
ANNEX B
Definitions
“Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or, to the knowledge of the person making the representation, threatened in writing before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Agreement” has the meaning set forth in the Preamble of this Agreement.
“Bridge Loan” means a loan of $35,000 to UAS on or about September 2, 2019, made by each of the lenders that are a party to the Duke Funding Convertible Loan Agreements to Duke.
“Closing” has the meaning set forth in Section 1.2 of this Agreement.
“Closing Date” has the meaning set forth in Section 1.2 of this Agreement.
“Capital Stock Equivalents” means any stock option, warrant, convertible bond, note or otherwise that can be converted into a security of a Party.
“Consent” means any material consent, approval, license, permit, order or authorization.
“Constituent Instruments” means the memorandum and articles of association and such other constituent instruments as may exist, each as amended to the date of this Agreement, as required under the laws of its formation, which in the case of Duke will that of the State of Israel.
“Contract” means any contract, lease, license, indenture, note, bond, agreement, permit, concession, franchise or other instrument.
“Directed Selling Effort” has the meaning set forth in Section 2.10 of this Agreement.
“Disclosure Letter” means the letter delivered from Duke to UAS or from UAS to Duke in respect of exceptions to the representations and warranties of a Party.
“Disqualification Event” has the meaning set forth in Section 3.23 of this Agreement.
“Duke” has the meaning set forth in the Preamble of this Agreement.
“Duke Funding” means, collectively, those certain Convertible Loan Agreements to a series of investors in the principal amount of $965,000, having a maturity date of one (1) year from the Closing, subject to extension, and shall be convertible into shares of UAS Stock at a conversion price as set forth in such CLAs, subject to adjustment.
“Duke Stock” has the meaning set forth in the Background Section of this Agreement.
“Escrow Agent” shall mean VStock Transfer LLC or another escrow agent selected by Duke.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Governmental Entity” means any federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign.
“GAAP” has the meaning set forth in Section 3.7 of this Agreement.
“Intellectual Property Rights” has the meaning set forth in Section 3.14 of this Agreement, including for the avoidance of doubt any patent, patent right, trademark, trademark right, trade name, trade name right, service mark, service mark right, copyright and other proprietary intellectual property right and computer program.
“Issuer Covered Person(s)” has the meaning set forth in Section 3.23 of this Agreement.
“Law” means any statute, law, ordinance, rule, regulation, order, writ, injunction, judgment, or decree.
“Lien” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Material Adverse Effect” has the meaning set forth in Section 3.1 of this Agreement.
“Material Permits” has the meaning set forth in Section 3.12 of this Agreement.
“Money Laundering Laws” has the meaning set forth in Section 3.22 of this Agreement.
“OFAC” has the meaning set forth in Section 3.21 of this Agreement.
“Party” has the meaning set forth in the Preamble of this Agreement.
“PCAOB” means the Public Company Accounting Oversight Board, a private-sector, nonprofit corporation, created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Registration Rights Agreement” means that Registration Rights Agreement, to be entered into as of the date of the Closing, between UAS and Alpha Capital Anstalt and GreenBlock Capital, LLC (the “UAS Convertible Note Holders”) and certain other securities holders of UAS in form and substance as set forth on Annex D hereto.
“Required Approvals” has the meaning set forth in Section 3.5 of this Agreement.
“SEC” means the Securities and Exchange Commission.
“SEC Reports” has the meaning set forth in Section 4.15 of this Agreement.
“Securities Act” means the Securities Act of 1933, as amended.
“Shareholders” has the meaning set forth in the Preamble of this Agreement.
“Shares” has the meaning set forth in the Background Section of this Agreement.
“Subsidiary” or “Subsidiaries” are those companies of either UAS or Duke as the case may be which under US GAAP would be consolidated with UAS or Duke as the case may be in the financial statements of such company.
“Taxes” means all forms of taxation, whenever created or imposed, and whether of the United States, the State of Israel or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federal or other Governmental Entity, or in connection with any agreement with respect to Taxes, including all interest, penalties and additions imposed with respect to such amounts.
“Tax Return” means all federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes.
“Transactions” has the meaning set forth in Section 1.2 of this Agreement.
“Transaction Documents” means this Agreement and any other documents or agreements executed in connection with the Transactions.
“UAS” has the meaning set forth in the Preamble of this Agreement.
“UAS Bylaws” means the Bylaws of UAS, as amended to the date of this Agreement.
“UAS Charter” means the Certificate of Incorporation of UAS, as amended to the date of this Agreement.
“UAS Convertible Debt” means, collectively: (i) one 8% Convertible Debenture to be held by Alpha Capital Anstalt in the principal amount of $300,946; and (ii) one 8% Convertible Debenture to be held by Greenblock Capital, LLC in the principal amount of $99,054 (collectively totaling $400,000), each of which Debentures shall have a Maturity Date of three (3) years from the Closing and shall only be convertible into shares of UAS Stock at a conversion price of $0.3740 per share or the applicable conversion price on the Maturity Date.
“UAS Material Adverse Effect” has the meaning set forth in Section 4.1 of this Agreement.
“UAS Stock” has the meaning set forth in the Background Section of this Agreement.
ANNEX C
Schedule Of Directors and Officers of UAS Post Stock Exchange
| Directors: | Yariv Alroy |
Erez Nachtomy
Sagiv Aharon
Eran Antebi
Officers: Sagiv Aharon, President, CEO and CTO
ANNEX D
Form of Registration Rights Agreement
ANNEX E
Form of Securities Exchange Agreement and Debentures
Exhibit 3.2
AMENDED BYLAWS
OF
UAS DRONE CORP.
ARTICLE I
OFFICES
Section 1.01 Location of Offices. The corporation may maintain such offices within or without the State of Nevada as the Board of Directors may from time to time designate or require.
Section 1.02 Principal Office. The address of the principal office of the corporation shall be at the address of the registered office of the corporation as so designated in the office of the Lieutenant Governor/Secretary of State of the state of incorporation, or at such other address as the Board of Directors shall from time to time determine.
ARTICLE II
SHAREHOLDERS
Section 2.01 Annual Meeting. The annual meeting of the shareholders shall be held in June of each year or at such other time designated by the Board of Directors and as is provided for in the notice of the meeting, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall not be held on the day designated for the annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as may be convenient.
Section 2.02 Special Meetings. Special meetings of the shareholders may be called at any time by the chairman of the board, the president, or by the Board of Directors, or in their absence or disability, by any vice president, and shall be called by the president or, in his or her absence or disability, by a vice president or by the secretary on the written request of the holders of not less than 25% of all the shares entitled to vote at the meeting, such written request to state the purpose or purposes of the meeting and to be delivered to the president, each vice-president, or secretary. In case of failure to call such meeting within 60 days after such request, such shareholder or shareholders may call the same.
Section 2.03 Place of Meetings. The Board of Directors may designate any place, either within or without the state of incorporation, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the state of incorporation, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be at the principal office of the corporation.
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Section 2.04 Notice of Meetings. The secretary or assistant secretary, if any, shall cause notice of the time, place, and purpose or purposes of all meetings of the shareholders (whether annual or special), to be mailed at least ten days, but not more than 60 days, prior to the meeting, to each shareholder of record entitled to vote.
Section 2.05 Waiver of Notice. Any shareholder may waive notice of any meeting of shareholders (however called or noticed, whether or not called or noticed and whether before, during, or after the meeting), by signing a written waiver of notice or a consent to the holding of such meeting, or an approval of the minutes thereof. Attendance at a meeting, in person or by proxy, shall constitute waiver of all defects of call or notice regardless of whether waiver, consent, or approval is signed or any objections are made. All such waivers, consents, or approvals shall be made a part of the minutes of the meeting.
Section 2.06 Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any annual meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the share transfer books shall be closed, for the purpose of determining shareholders entitled to notice of or to vote at such meeting, but not for a period exceeding sixty (60) days. If the share transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at such meeting, such books shall be closed for at least ten (10) days immediately preceding such meeting.
In lieu of closing the share transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty (60) and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the share transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting or to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. Failure to comply with this Section shall not affect the validity of any action taken at a meeting of shareholders.
Section 2.07 Voting Lists. The officer or agent of the corporation having charge of the share transfer books for shares of the corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of, and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder during the whole time of the meeting. The original share transfer book shall be prima facie evidence as to the shareholders who are entitled to examine such list or transfer books, or to vote at any meeting of shareholders.
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Section 2.08 Quorum. A majority of the total voting power of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders. If a quorum is present, the affirmative vote of the majority of the voting power represented by shares at the meeting and entitled to vote on the subject shall constitute action by the shareholders, unless the vote of a greater number or voting by classes is required by the laws of the state of incorporation of the corporation or the Articles of Incorporation. If less than a majority of the outstanding voting power is represented at a meeting, a majority of the voting power represented by shares so present may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed.
Section 2.09 Voting of Shares. Each outstanding share of the corporation entitled to vote shall be entitled to one vote on each matter submitted to vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or series of stock are determined and specified as greater or lesser than one vote per share in the manner provided by the Articles of Incorporation.
Section 2.10 Proxies. At each meeting of the shareholders, each shareholder entitled to vote shall be entitled to vote in person or by proxy; provided, however, that the right to vote by proxy shall exist only in case the instrument authorizing such proxy to act shall have been executed in writing by the registered holder or holders of such shares, as the case may be, as shown on the share transfer of the corporation or by his or her or her attorney thereunto duly authorized in writing. Such instrument authorizing a proxy to act shall be delivered at the beginning of such meeting to the secretary of the corporation or to such other officer or person who may, in the absence of the secretary, be acting as secretary of the meeting. In the event that any such instrument shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or if only one be present, that one shall (unless the instrument shall otherwise provide) have all of the powers conferred by the instrument on all persons so designated. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held and the persons whose shares are pledged shall be entitled to vote, unless in the transfer by the pledge or on the books of the corporation he or she shall have expressly empowered the pledgee to vote thereon, in which case the pledgee, or his or her or her proxy, may represent such shares and vote thereon.
Section 2.11 Written Consent to Action by Shareholders. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting, if a consent in writing, setting forth the action so taken, shall be signed by a majority of the shareholders entitled to vote with respect to the subject matter thereof.
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ARTICLE III
DIRECTORS
Section 3.01 General Powers. The property, affairs, and business of the corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the corporation whether derived from law or the Articles of Incorporation, except such powers as are by statute, by the Articles of Incorporation or by these Bylaws, vested solely in the shareholders of the corporation.
Section 3.02 Number, Term, and Qualifications. The Board of Directors shall consist of one to nine persons. Increases or decreases to said number may be made, within the numbers authorized by the Articles of Incorporation, as the Board of Directors shall from time to time determine by amendment to these Bylaws. An increase or a decrease in the number of the members of the Board of Directors may also be had upon amendment to these Bylaws by a majority vote of all of the shareholders, and the number of directors to be so increased or decreased shall be fixed upon a majority vote of all of the shareholders of the corporation. Each director shall hold office until the next annual meeting of shareholders of the corporation and until his or her successor shall have been elected and shall have qualified. Directors need not be residents of the state of incorporation or shareholders of the corporation.
Section 3.03 Classification of Directors. In lieu of electing the entire number of directors annually, the Board of Directors may provide that the directors be divided into either two or three classes, each class to be as nearly equal in number as possible, the term of office of the directors of the first class to expire at the first annual meeting of shareholders after their election, that of the second class to expire at the second annual meeting after their election, and that of the third class, if any, to expire at the third annual meeting after their election. At each annual meeting after such classification, the number of directors equal to the number of the class whose term expires at the time of such meeting shall be elected to hold office until the second succeeding annual meeting, if there be two classes, or until the third succeeding annual meeting, if there be three classes.
Section 3.04 Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately following, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide by resolution the time and place, either within or without the state of incorporation, for the holding of additional regular meetings without other notice than such resolution.
Section 3.05 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the president, vice president, or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the state of incorporation, as the place for holding any special meeting of the Board of Directors called by them.
Section 3.06 Meetings by Telephone Conference Call. Members of the Board of Directors may participate in a meeting of the Board of Directors or a committee of the Board of Directors by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting.
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Section 3.07 Notice. Notice of any special meeting shall be given at least ten (10) days prior thereto by written notice delivered personally or mailed to each director at his or her regular business address or residence, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting solely for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
Section 3.08 Quorum. A majority of the number of directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than a majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.
Section 3.09 Manner of Acting. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, and the individual directors shall have no power as such.
Section 3.10 Vacancies and Newly Created Directorship. If any vacancies shall occur in the Board of Directors by reason of death, resignation or otherwise, or if the number of directors shall be increased, the directors then in office shall continue to act and such vacancies or newly created directorships shall be filled by a vote of the directors then in office, though less than a quorum, in any way approved by the meeting. Any directorship to be filled by reason of removal of one or more directors by the shareholders may be filled by election by the shareholders at the meeting at which the director or directors are removed.
Section 3.11 Compensation. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
Section 3.12 Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his or her or her dissent shall be entered in the minutes of the meeting, unless he or she shall file his or her or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or shall forward such dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
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Section 3.13 Resignations. A director may resign at any time by delivering a written resignation to either the president, a vice president, the secretary, or assistant secretary, if any. Unless the resignation provides otherwise, it shall become effective on its acceptance by the Board of Directors; provided, that if the board has not acted thereon within ten days from the date presented, the resignation shall be deemed accepted.
Section 3.14 Written Consent to Action by Directors. Any action required to be taken at a meeting of the directors of the corporation or any other action which may be taken at a meeting of the directors or of a committee, may be taken without a meeting, if a consent in writing, setting forth the action so taken, shall be signed by all of the directors, or all of the members of the committee, as the case may be. Such consent shall have the same legal effect as a unanimous vote of all the directors or members of the committee.
Section 3.15 Removal. At a meeting expressly called for that purpose, one or more directors may be removed by a vote of a majority of the shares of outstanding stock of the corporation entitled to vote at an election of directors.
ARTICLE IV
OFFICERS
Section 4.01 Number. The officers of the corporation shall be a president, one or more vice-presidents, as shall be determined by resolution of the Board of Directors, a secretary, a treasurer, and such other officers as may be appointed by the Board of Directors. The Board of Directors may elect, but shall not be required to elect, a chairman of the board and the Board of Directors may appoint a general manager.
Section 4.02 Election, Term of Office, and Qualifications. The officers shall be chosen by the Board of Directors annually at its annual meeting. In the event of failure to choose officers at an annual meeting of the Board of Directors, officers may be chosen at any regular or special meeting of the Board of Directors. Each such officer (whether chosen at an annual meeting of the Board of Directors to fill a vacancy or otherwise) shall hold his or her office until the next ensuing annual meeting of the Board of Directors and until his or her successor shall have been chosen and qualified, or until his or her death, or until his or her resignation or removal in the manner provided in these Bylaws. Any one person may hold any two or more of such offices. The chairman of the board, if any, shall be and remain a director of the corporation during the term of his or her office. No other officer need be a director.
Section 4.03 Subordinate Officers, Etc. The Board of Directors from time to time may appoint such other officers or agents as it may deem advisable, each of whom shall have such title, hold office for such period, have such authority, and perform such duties as the Board of Directors from time to time may determine. The Board of Directors from time to time may delegate to any officer or agent the power to appoint any such subordinate officer or agents and to prescribe their respective titles, terms of office, authorities, and duties. Subordinate officers need not be shareholders or directors.
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Section 4.04 Resignations. Any officer may resign at any time by delivering a written resignation to the Board of Directors, the president, or the secretary. Unless otherwise specified therein, such resignation shall take effect on delivery.
Section 4.05 Removal. Any officer may be removed from office at any special meeting of the Board of Directors called for that purpose or at a regular meeting, by vote of a majority of the directors, with or without cause. Any officer or agent appointed in accordance with the provisions of Section 4.03 hereof may also be removed, either with or without cause, by any officer on whom such power of removal shall have been conferred by the Board of Directors.
Section 4.06 Vacancies and Newly Created Offices. If any vacancy shall occur in any office by reason of death, resignation, removal, disqualification, or any other cause, or if a new office shall be created, then such vacancies or new created offices may be filled by the Board of Directors at any regular or special meeting.
Section 4.07 The Chairman of the Board. The Chairman of the Board, if there be such an officer, shall have the following powers and duties.
(a) He or she shall preside at all shareholders’ meetings;
(b) He or she shall preside at all meetings of the Board of Directors; and
(c) He or she shall be a member of the executive committee, if any.
Section 4.08 The President. The president shall have the following powers and duties:
(a) If no general manager has been appointed, he or she shall be the chief executive officer of the corporation, and, subject to the direction of the Board of Directors, shall have general charge of the business, affairs, and property of the corporation and general supervision over its officers, employees, and agents;
(b) If no chairman of the board has been chosen, or if such officer is absent or disabled, he or she shall preside at meetings of the shareholders and Board of Directors;
(c) He or she shall be a member of the executive committee, if any;
(d) He or she shall be empowered to sign certificates representing shares of the corporation, the issuance of which shall have been authorized by the Board of Directors; and
(e) He or she shall have all power and shall perform all duties normally incident to the office of a president of a corporation, and shall exercise such other powers and perform such other duties as from time to time may be assigned to him or her by the Board of Directors.
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Section 4.09 The Vice Presidents. The Board of Directors may, from time to time, designate and elect one or more vice presidents, one of whom may be designated to serve as executive vice president. Each vice president shall have such powers and perform such duties as from time to time may be assigned to him or her by the Board of Directors or the president. At the request or in the absence or disability of the president, the executive vice president or, in the absence or disability of the executive vice president, the vice president designated by the Board of Directors or (in the absence of such designation by the Board of Directors) by the president, the senior vice president, may perform all the duties of the president, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president.
Section 4.10 The Secretary. The secretary shall have the following powers and duties:
(a) He or she shall keep or cause to be kept a record of all of the proceedings of the meetings of the shareholders and of the board or directors in books provided for that purpose;
(b) He or she shall cause all notices to be duly given in accordance with the provisions of these Bylaws and as required by statute;
(c) He or she shall be the custodian of the records and of the seal of the corporation, and shall cause such seal (or a facsimile thereof) to be affixed to all certificates representing shares of the corporation prior to the issuance thereof and to all instruments, the execution of which on behalf of the corporation under its seal shall have been duly authorized in accordance with these Bylaws, and when so affixed, he or she may attest the same;
(d) He or she shall assume that the books, reports, statements, certificates, and other documents and records required by statute are properly kept and filed;
(e) He or she shall have charge of the share books of the corporation and cause the share transfer books to be kept in such manner as to show at any time the amount of the shares of the corporation of each class issued and outstanding, the manner in which and the time when such stock was paid for, the names alphabetically arranged and the addresses of the holders of record thereof, the number of shares held by each holder and time when each became such holder or record; and he or she shall exhibit at all reasonable times to any director, upon application, the original or duplicate share register. He or she shall cause the share book referred to in Section 6.04 hereof to be kept and exhibited at the principal office of the corporation, or at such other place as the Board of Directors shall determine, in the manner and for the purposes provided in such Section;
(f) He or she shall be empowered to sign certificates representing shares of the corporation, the issuance of which shall have been authorized by the Board of Directors; and
(g) He or she shall perform in general all duties incident to the office of secretary and such other duties as are given to him or her by these Bylaws or as from time to time may be assigned to him or her by the Board of Directors or the president.
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Section 4.11 The Treasurer. The treasurer shall have the following powers and duties:
(a) He or she shall have charge and supervision over and be responsible for the monies, securities, receipts, and disbursements of the corporation;
(b) He or she shall cause the monies and other valuable effects of the corporation to be deposited in the name and to the credit of the corporation in such banks or trust companies or with such banks or other depositories as shall be selected in accordance with Section 5.03 hereof;
(c) He or she shall cause the monies of the corporation to be disbursed by checks or drafts (signed as provided in Section 5.04 hereof) drawn on the authorized depositories of the corporation, and cause to be taken and preserved property vouchers for all monies disbursed;
(d) He or she shall render to the Board of Directors or the president, whenever requested, a statement of the financial condition of the corporation and of all of this transactions as treasurer, and render a full financial report at the annual meeting of the shareholders, if called upon to do so;
(e) He or she shall cause to be kept correct books of account of all the business and transactions of the corporation and exhibit such books to any director on request during business hours;
(f) He or she shall be empowered from time to time to require from all officers or agents of the corporation reports or statements given such information as he or she may desire with respect to any and all financial transactions of the corporation; and
(g) He or she shall perform in general all duties incident to the office of treasurer and such other duties as are given to him or her by these Bylaws or as from time to time may be assigned to him or her by the Board of Directors or the president.
Section 4.12 General Manager. The Board of Directors may employ and appoint a general manager who may, or may not, be one of the officers or directors of the corporation. The general manager, if any shall have the following powers and duties:
(a) He or she shall be the chief executive officer of the corporation and, subject to the directions of the Board of Directors, shall have general charge of the business affairs and property of the corporation and general supervision over its officers, employees, and agents:
(b) He or she shall be charged with the exclusive management of the business of the corporation and of all of its dealings, but at all times subject to the control of the Board of Directors;
(c) Subject to the approval of the Board of Directors or the executive committee, if any, he or she shall employ all employees of the corporation, or delegate such employment to subordinate officers, and shall have authority to discharge any person so employed; and
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(d) He or she shall make a report to the president and directors as often as required, setting forth the results of the operations under his or her charge, together with suggestions looking toward improvement and betterment of the condition of the corporation, and shall perform such other duties as the Board of Directors may require.
Section 4.13 Salaries. The salaries and other compensation of the officers of the corporation shall be fixed from time to time by the Board of Directors, except that the Board of Directors may delegate to any person or group of persons the power to fix the salaries or other compensation of any subordinate officers or agents appointed in accordance with the provisions of Section 4.03 hereof. No officer shall be prevented from receiving any such salary or compensation by reason of the fact that he or she is also a director of the corporation.
Section 4.14 Surety Bonds. In case the Board of Directors shall so require, any officer or agent of the corporation shall execute to the corporation a bond in such sums and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his or her duties to the corporation, including responsibility for negligence and for the accounting of all property, monies, or securities of the corporation which may come into his or her hands.
ARTICLE V
EXECUTION OF INSTRUMENTS, BORROWING OF MONEY,
AND DEPOSIT OF CORPORATE FUNDS
Section 5.01 Execution of Instruments. Subject to any limitation contained in the Articles of Incorporation or these Bylaws, the president or any vice president or the general manager, if any, may, in the name and on behalf of the corporation, execute and deliver any contract or other instrument authorized in writing by the Board of Directors. The Board of Directors may, subject to any limitation contained in the Articles of Incorporation or in these Bylaws, authorize in writing any officer or agent to execute and deliver any contract or other instrument in the name and on behalf of the corporation; any such authorization may be general or confined to specific instances.
Section 5.02 Loans. No loans or advances shall be contracted on behalf of the corporation, no negotiable paper or other evidence of its obligation under any loan or advance shall be issued in its name, and no property of the corporation shall be mortgaged, pledged, hypothecated, transferred, or conveyed as security for the payment of any loan, advance, indebtedness, or liability of the corporation, unless and except as authorized by the Board of Directors. Any such authorization may be general or confined to specific instances.
Section 5.03 Deposits. All monies of the corporation not otherwise employed shall be deposited from time to time to its credit in such banks and or trust companies or with such bankers or other depositories as the Board of Directors may select, or as from time to time may be selected by any officer or agent authorized to do so by the Board of Directors.
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Section 5.04 Checks, Drafts, Etc. All notes, drafts, acceptances, checks, endorsements, and, subject to the provisions of these Bylaws, evidences of indebtedness of the corporation, shall be signed by such officer or officers or such agent or agents of the corporation and in such manner as the Board of Directors from time to time may determine. Endorsements for deposit to the credit of the corporation in any of its duly authorized depositories shall be in such manner as the Board of Directors from time to time may determine.
Section 5.05 Bonds and Debentures. Every bond or debenture issued by the corporation shall be evidenced by an appropriate instrument which shall be signed by the president or a vice president and by the secretary and sealed with the seal of the corporation. The seal may be a facsimile, engraved or printed. Where such bond or debenture is authenticated with the manual signature of an authorized officer of the corporation or other trustee designated by the indenture of trust or other agreement under which such security is issued, the signature of any of the corporation’s officers named thereon may be a facsimile. In case any officer who signed, or whose facsimile signature has been used on any such bond or debenture, should cease to be an officer of the corporation for any reason before the same has been delivered by the corporation, such bond or debenture may nevertheless be adopted by the corporation and issued and delivered as through the person who signed it or whose facsimile signature has been used thereon had not ceased to be such officer.
Section 5.06 Sale, Transfer, Etc. of Securities. Sales, transfers, endorsements, and assignments of stocks, bonds, and other securities owned by or standing in the name of the corporation, and the execution and delivery on behalf of the corporation of any and all instruments in writing incident to any such sale, transfer, endorsement, or assignment, shall be effected by the president, or by any vice president, together with the secretary, or by any officer or agent thereunto authorized by the Board of Directors.
Section 5.07 Proxies. Proxies to vote with respect to shares of other corporations owned by or standing in the name of the corporation shall be executed and delivered on behalf of the corporation by the president or any vice president and the secretary or assistant secretary of the corporation, or by any officer or agent thereunder authorized by the Board of Directors.
ARTICLE VI
CAPITAL SHARES
Section 6.01 Share Certificates. Every holder of shares in the corporation shall be entitled to have a certificate, signed by the president or any vice president and the secretary or assistant secretary, and sealed with the seal (which may be a facsimile, engraved or printed) of the corporation, certifying the number and kind, class or series of shares owned by him or her in the corporation; provided, however, that where such a certificate is countersigned by (a) a transfer agent or an assistant transfer agent, or (b) registered by a registrar, the signature of any such president, vice president, secretary, or assistant secretary may be a facsimile. In case any officer who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate, shall cease to be such officer of the corporation, for any reason, before the delivery of such certificate by the corporation, such certificate may nevertheless be adopted by the corporation and be issued and delivered as though the person who signed it, or whose facsimile signature or signatures shall have been used thereon, has not ceased to be such officer. Certificates representing shares of the corporation shall be in such form as provided by the statutes of the state of incorporation. There shall be entered on the share books of the corporation at the time of issuance of each share, the number of the certificate issued, the name and address of the person owning the shares represented thereby, the number and kind, class or series of such shares, and the date of issuance thereof. Every certificate exchanged or returned to the corporation shall be marked “Canceled” with the date of cancellation.
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Section 6.02 Transfer of Shares. Transfers of shares of the corporation shall be made on the books of the corporation by the holder of record thereof, or by his or her attorney thereunto duly authorized by a power of attorney duly executed in writing and filed with the secretary of the corporation or any of its transfer agents, and on surrender of the certificate or certificates, properly endorsed or accompanied by proper instruments of transfer, representing such shares. Except as provided by law, the corporation and transfer agents and registrars, if any, shall be entitled to treat the holder of record of any stock as the absolute owner thereof for all purposes, and accordingly, shall not be bound to recognize any legal, equitable, or other claim to or interest in such shares on the part of any other person whether or not it or they shall have express or other notice thereof.
Section 6.03 Regulations. Subject to the provisions of this Article VI and of the Articles of Incorporation, the Board of Directors may make such rules and regulations as they may deem expedient concerning the issuance, transfer, redemption, and registration of certificates for shares of the corporation.
Section 6.04 Maintenance of Stock Ledger at Principal Place of Business. A share book (or books where more than one kind, class, or series of stock is outstanding) shall be kept at the principal place of business of the corporation, or at such other place as the Board of Directors shall determine, containing the names, alphabetically arranged, of original shareholders of the corporation, their addresses, their interest, the amount paid on their shares, and all transfers thereof and the number and class of shares held by each. Such share books shall at all reasonable hours be subject to inspection by persons entitled by law to inspect the same.
Section 6.05 Transfer Agents and Registrars. The Board of Directors may appoint one or more transfer agents and one or more registrars with respect to the certificates representing shares of the corporation, and may require all such certificates to bear the signature of either or both. The Board of Directors may from time to time define the respective duties of such transfer agents and registrars. No certificate for shares shall be valid until countersigned by a transfer agent, if at the date appearing thereon the corporation had a transfer agent for such shares, and until registered by a registrar, if at such date the corporation had a registrar for such shares.
Section 6.06 Closing of Transfer Books and Fixing of Record Date.
(a) The Board of Directors shall have power to close the share books of the corporation for a period of not to exceed sixty (60) days preceding the date of any meeting of shareholders, or the date for payment of any dividend, or the date for the allotment of rights, or capital shares shall go into effect, or a date in connection with obtaining the consent of shareholders for any purpose.
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(b) In lieu of closing the share transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of shareholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital shares shall go into effect, or a date in connection with obtaining any such consent, as a record date for the determination of the shareholders entitled to a notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent.
(c) If the share transfer books shall be closed or a record date set for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for, or such record date shall be, at least ten (10) days immediately preceding such meeting.
Section 6.07 Lost or Destroyed Certificates. The corporation may issue a new certificate for shares of the corporation in place of any certificate theretofore issued by it, alleged to have been lost or destroyed, and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate or his or her legal representatives, to give the corporation a bond in such form and amount as the Board of Directors may direct, and with such surety or sureties as may be satisfactory to the board, to indemnify the corporation and its transfer agents and registrars, if any, against any claims that may be made against it or any such transfer agent or registrar on account of the issuance of such new certificate. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper to do so.
Section 6.08 No Limitation on Voting Rights; Limitation on Dissenter’s Rights. To the extent permissible under the applicable law of any jurisdiction to which the corporation may become subject by reason of the conduct of business, the ownership of assets, the residence of shareholders, the location of offices or facilities, or any other item, the corporation elects not to be governed by the provisions of any statute that (i) limits, restricts, modified, suspends, terminates, or otherwise affects the rights of any shareholder to cast one vote for each share of common stock registered in the name of such shareholder on the books of the corporation, without regard to whether such shares were acquired directly from the corporation or from any other person and without regard to whether such shareholder has the power to exercise or direct the exercise of voting power over any specific fraction of the shares of common stock of the corporation issued and outstanding or (ii) grants to any shareholder the right to have his or her stock redeemed or purchased by the corporation or any other shareholder on the acquisition by any person or group of persons of shares of the corporation. In particular, to the extent permitted under the laws of the state of incorporation, the corporation elects not to be governed by any such provision, including the provisions of the Nevada Control Share Acquisitions Act, Sections 78.378 to 78.3793, inclusive, of the Nevada Revised Statutes, or any statute of similar effect or tenor.
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Section 6.09 Transfer of Shares Issued Pursuant to Regulation S of the Securities and Exchange Commission. The Company will not transfer any shares of its authorized and issued common stock that are issued pursuant to Regulation S of the SEC unless any such transfer shall be made pursuant to a transaction that is registered with the Securities Exchange Commission or exempt from such registration under the Securities Act of 1933, as amended.
ARTICLE VII
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 7.01 How Constituted. The Board of Directors may designate an executive committee and such other committees as the Board of Directors may deem appropriate, each of which committees shall consist of two or more directors. Members of the executive committee and of any such other committees shall be designated annually at the annual meeting of the Board of Directors; provided, however, that at any time the Board of Directors may abolish or reconstitute the executive committee or any other committee. Each member of the executive committee and of any other committee shall hold office until his or her successor shall have been designated or until his or her resignation or removal in the manner provided in these Bylaws.
Section 7.02 Powers. During the intervals between meetings of the Board of Directors, the executive committee shall have and may exercise all powers of the Board of Directors in the management of the business and affairs of the corporation, except for the power to fill vacancies in the Board of Directors or to amend these Bylaws, and except for such powers as by law may not be delegated by the Board of Directors to an executive committee.
Section 7.03 Proceedings. The executive committee, and such other committees as may be designated hereunder by the Board of Directors, may fix its own presiding and recording officer or officers, and may meet at such place or places, at such time or times and on such notice (or without notice) as it shall determine from time to time. It will keep a record of its proceedings and shall report such proceedings to the Board of Directors at the meeting of the Board of Directors next following.
Section 7.04 Quorum and Manner of Acting. At all meeting of the executive committee, and of such other committees as may be designated hereunder by the Board of Directors, the presence of members constituting a majority of the total authorized membership of the committee shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of such committee. The members of the executive committee, and of such other committees as may be designated hereunder by the Board of Directors, shall act only as a committee and the individual members thereof shall have no powers as such.
Section 7.05 Resignations. Any member of the executive committee, and of such other committees as may be designated hereunder by the Board of Directors, may resign at any time by delivering a written resignation to either the president, the secretary, or assistant secretary, or to the presiding officer of the committee of which he or she is a member, if any shall have been appointed and shall be in office. Unless otherwise specified herein, such resignation shall take effect on delivery.
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Section 7.06 Removal. The Board of Directors may at any time remove any member of the executive committee or of any other committee designated by it hereunder either for or without cause.
Section 7.07 Vacancies. If any vacancies shall occur in the executive committee or of any other committee designated by the Board of Directors hereunder, by reason of disqualification, death, resignation, removal, or otherwise, the remaining members shall, until the filling of such vacancy, constitute the then total authorized membership of the committee and, provided that two or more members are remaining, continue to act. Such vacancy may be filled at any meeting of the Board of Directors.
Section 7.08 Compensation. The Board of Directors may allow a fixed sum and expenses of attendance to any member of the executive committee, or of any other committee designated by it hereunder, who is not an active salaried employee of the corporation for attendance at each meeting of said committee.
ARTICLE VIII
INDEMNIFICATION, INSURANCE, AND
OFFICER AND DIRECTOR CONTRACTS
Section 8.01 Indemnification: Third Party Actions. The corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees) judgments, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with any such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, he or she had reasonable cause to believe that his or her conduct was unlawful.
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Section 8.02 Indemnification: Corporate Actions. The corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such a person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine on application that, despite the adjudication of liability but in view of all circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
Section 8.03 Determination. To the extent that a director, officer, employee, or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Sections 8.01 and 8.02 hereof, or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith. Any other indemnification under Sections 8.01 and 8.02 hereof, shall be made by the corporation upon a determination that indemnification of the officer, director, employee, or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Sections 8.01 and 8.02 hereof. Such determination shall be made either (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding; or (ii) by independent legal counsel on a written opinion; or (iii) by the shareholders by a majority vote of a quorum of shareholders at any meeting duly called for such purpose.
Section 8.04 General Indemnification. The indemnification provided by this Section shall not be deemed exclusive of any other indemnification granted under any provision of any statute, in the corporation’s Articles of Incorporation, these Bylaws, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent, and shall inure to the benefit of the heirs and legal representatives of such a person.
Section 8.05 Advances. Expenses incurred in defending a civil or criminal action, suit, or proceeding as contemplated in this Section may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding upon a majority vote of a quorum of the Board of Directors and upon receipt of an undertaking by or on behalf of the director, officers, employee, or agent to repay such amount or amounts unless if it is ultimately determined that he or she is to indemnified by the corporation as authorized by this Section.
Section 8.06 Scope of Indemnification. The indemnification authorized by this Section shall apply to all present and future directors, officers, employees, and agents of the corporation and shall continue as to such persons who ceases to be directors, officers, employees, or agents of the corporation, and shall inure to the benefit of the heirs, executors, and administrators of all such persons and shall be in addition to all other indemnification permitted by law.
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8.07. Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against any such liability and under the laws of the state of incorporation, as the same may hereafter be amended or modified.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
ARTICLE X
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and on the terms and conditions provided by the Articles of Incorporation and these Bylaws.
ARTICLE XI
AMENDMENTS
All Bylaws of the corporation, whether adopted by the Board of Directors or the shareholders, shall be subject to amendment, alteration, or repeal, and new Bylaws may be made, except that:
(a) No Bylaws adopted or amended by the shareholders shall be altered or repealed by the Board of Directors.
(b) No Bylaws shall be adopted by the Board of Directors which shall require more than a majority of the voting shares for a quorum at a meeting of shareholders, or more than a majority of the votes cast to constitute action by the shareholders, except where higher percentages are required by law; provided, however that (i) if any Bylaw regulating an impending election of directors is adopted or amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors, the Bylaws so adopted or amended or repealed, together with a concise statement of the changes made; and (ii) no amendment, alteration or repeal of this Article XI shall be made except by the shareholders.
CERTIFICATE OF SECRETARY
The undersigned does hereby certify that he is the CEO and President of UAS Drone Corp., a corporation duly organized and existing under and by virtue of the laws of the State of Nevada; that the above and foregoing Bylaws of said corporation were duly and regularly adopted as such by the Board of Directors of the corporation by Unanimous Written Consent of the Board of Directors effective the date inscribed below, and that the above and foregoing Bylaws are now in full force and effect.
DATED THIS __day of March, 2020.
| Grant A. Begley, CEO and President |
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Exhibit 10.1
NEITHER THIS CONVERTIBLE LOAN AGREEMENT NOR THE SECURITIES INTO WHICH THE LOANS MADE PURSUANT HERETO ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Convertible Loan Agreement
This Convertible Loan Agreement (the “Agreement”) is made and entered into as of March 9, 2020 (the “Effective Date”), by and among UAS Drone Corp., an OTC corporation having its registered office at 420 Royal Palm Way, Palm Beach FL 33480, USA (the “Company”) and [________] (the “Lender”).
| Whereas, | the Company and Duke Robotics, Inc., a company with its headquarters at 515 Las Olas Blvd., Ft. Lauderdale, FL 33301 (“Duke”), entered into that certain Share Exchange Agreement, dated March 4, 2020 attached hereto as Exhibit A (the “Share Exchange Agreement”), pursuant to which Duke shall become a majority owned subsidiary of the Company (the “Share Exchange”); |
| Whereas, | as part of the Share Exchange, the Board of Directors of the Company has determined that it is in the best interest of the Company to raise capital by means of convertible loans, in an aggregate principal amount of USD $965,000; |
| Whereas, | the Company desires to issue and sell to the Lender, and the Lender, severally and not jointly with any other security holder of the Company, desires to purchase from the Company, the Securities (as defined herein) subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506(b) of Regulation D and Rule 903 of Regulation S (“Regulation S”) promulgated thereunder; |
| Whereas, | the Loan and the Conversion Shares, collectively are referred to herein as the “Securities”); and |
| Whereas, | the Lender desires to provide the Loan to the Company pursuant to the terms and conditions set forth herein. |
Now Therefore, the Company and the Lender (each, a “Party” and collectively, the “Parties”), agree as follows.
| 1. | Interpretation; Definitions |
| 1.1. | The recitals above and schedules hereto constitute an integral part hereof. |
| 1.2. | The headings of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. |
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| 2. | The Loan |
| 2.1. | At the closing of the Share Exchange, the Lender shall provide the Company a convertible loan (the “Loan”) in the amount of $241,250 (the “Loan Principal”). |
| 2.2. | At the Closing (as such term is defined below) the Lender shall pay the Loan Principal in U.S. dollars, to the Company by way of a bank transfer. Prior to the Closing, the Lender shall deposit the Loan Principal with an escrow agent, pursuant to the terms of the Escrow Agreement annexed hereto as Exhibit B. |
| 2.3. | The Loan Principal shall bear simple interest at a rate equal to 15% per annum commencing on the date the Company receives the Loan Principal and until full repayment thereof in accordance with the terms hereof (the “Interest”, and the Loan Principal and the Interest accrued thereon, the “Loan Amount”). The Interest shall be computed on the basis of a 360-day year, comprised of twelve months counting 30 days each. For periods of indebtedness of less than one month the Interest shall be calculated pro rata to the actual number of days of the month then elapsed. For the avoidance of doubt, the Interest is not contingent on inter alia the receipts, sales, income, profits, cash flow, receivables or property of the Company, or any dividends, distributions, or similar payments thereby. |
| 2.4. | The Company shall bear all bank costs, charges, fees, conversion costs and commissions imposed on the Lender related to the transfer of each payment to and from the Lender hereunder. |
| 3. | Repayment |
| 3.1. | The Loan Principal shall be due and repaid by the Company to the Lender on the one-year anniversary of receiving the Loan Principal, subject to any permitted extensions as set forth herein (the “Maturity Date”). |
| 3.2. | Subject to its compliance with any and all terms of the material terms of this Agreement, the Company may extend the Maturity Date for one year by providing written notice to the Lenders up to two months prior to the Maturity Date; in such event, all the provisions of this Agreement will continue to apply. The Company shall not be entitled to extend the Maturity Date, if, following the Closing, it has funded its operations in any manner other than the sale and issuance of its Common Stock (“Equity Funding”). For the avoidance of doubt, the issuance of convertible debentures or other forms of indebtedness, whether convertible into equity of the Company or not, shall not be deemed Equity Funding. |
| 3.3. | The Interest shall be paid by the Company on a monthly basis by no later than the 15th day of each calendar month. |
| 3.4. | The Company may repay the outstanding Loan Amount in full, and any part thereof, at any time, with no prepayment penalty. However, the Company shall provide the Lender with 3 business days written notice prior to such repayment, during which time the Lender may elect to convert any or all of the outstanding Loan Amount into Conversion Shares as provided herein. |
| 3.5. | Any payments to be made by the Company to the Lender hereunder shall be paid by way of a bank transfer to the Lender’s bank account pursuant to wiring instructions given in writing by the Lender, in U.S. dollars. |
| 3.6. | The Company shall pay any and all amounts due hereunder without setoff, deduction, counterclaim or defence of any kind, unless such deduction or withholding is required by law. |
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| 3.7. | All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this Agreement, including (without limitation) reasonable attorney’s fees, then to the payment in full of any late charges, then to the payment of interest and finally to the reduction of the unpaid principal balance of the Loan. |
| 3.8. | Mandatory Payments. In addition to all other principal and interest payments provided for in this Agreement, the Company shall also make mandatory payments in accordance with the provisions in this Section. |
(a) Disposition of Assets. Upon the sale or other disposition or encumbrance of any material assets by the Company or any subsidiary of the Company, the Company shall make a mandatory prepayment, on the date of such sale or other disposition, in an amount equal to one hundred percent (100%) of the proceeds of such disposition net of amounts required to pay taxes and reasonable costs applicable to such sale or disposition. The foregoing shall not apply to the sale of products by the Company or its subsidiary to their customers in the ordinary course of business. All references in this Agreement to a subsidiary of the Company, shall refer to Duke and its subsidiary, Duke Airborne Systems Ltd. Israeli Company number 515051282.
(b) Change of Control. The Company shall make a mandatory prepayment of the entire Loan Amount, on the date following the Closing upon which it ceases to own free of pledges, liens or other encumbrances 95% (ninety five Percent) of the issued and outstanding securities of Duke Robotics, Inc, in an amount equal to one hundred percent (100%) of the then unpaid Deemed Outstanding Portion of the Term Loan and the interest of the Term Loan; provided, however that the parties agree that the implementation of the second stage of the acquisition of Duke as contemplated by the Share Exchange Agreement, or the transfer of the shares of Duke to a wholly owned subsidiary of the Company, shall not trigger this Section 3.8(c).
(c) Additional Indebtedness/Financing. In any event following in which the Company or its subsidiary obtains debt financing of any kind or receives monies in consideration for any redeemable securities or other forms of indebtedness, 25% of all proceeds received by the Company or its subsidiary in connection with such financing shall be used to repay the Loan, and such amount of the Loan Amount shall be deemed due and payable.
| 4. | Conversion of the Loan Amount |
| 4.1. | Conversion. At any time prior to the full repayment of the Loan Amount to the Lender, the Lender shall have the right to convert all or any of the then outstanding and unpaid portion of the Loan Amount into shares of the Company’s stock (the “Conversion Shares”) upon prior written notice to the Company. |
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| 4.2. | The Conversion Shares shall have the same rights, preferences and privileges attached to the shares of common stock shares of the Company, having a par value of 0.0001 each (“Common Stock”), as set forth in the Certificate of Incorporation of the Company, as amended and as in affect at such time. Notwithstanding the preceding sentence, if the Company issues shares of stock other than Common Stock or other securities (“Alternate Securities”) prior to the full conversion or repayment of the Loan Amount, then the Lender shall be entitled to declare that the Conversion Shares shall be Alternate Securities having the same class, rights, preferences and privileges as will be attached to such class of Alternate Securities; provided that in order to receive Alternate Securities, the Lender shall be required to convert the unpaid balance and accrued and unpaid Interest of the Loan in full. For the avoidance of doubt, if the Company issues, in connection with a financing or otherwise, various securities, whether independently issued or bundled together, stocks, options, warrants, debentures or any other securities, the Lender shall be entitled to elect to convert the Loan Amount into any of the debentures, warrants or securities or any bundling thereof, at the Conversion Price, as applicable thereto. Upon the conversion of the Loan and accrued and unpaid Interest into Alternate Securities, the Loan and this Agreement shall be deemed terminated and the Loan and Interest shall be deemed to be satisfied in full. |
| 4.3. | Conversion Price. The conversion price for the Loan Amount (the “Conversion Price”) shall be determined, with respect to each conversion of the Loan Amount, at the time of such conversion, as a price per share equal to the lower of: |
(i) the lowest effective price per share set in connection with any funds raised by the Company during the six months following the Closing. Effective price per share means (i) if only shares of Company Common Stock are sold in a transaction, the amount actually received in cash by the Company and (ii) if shares of Company Common Stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Company Common Stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Company Common Stock issued in such transaction;
(ii) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six months following Closing until such time as the Loans are fully repaid or otherwise converted;
(iii) a price per share reflecting a post-money valuation of the Company of USD $15,000,000 following the next investment in the Company following Closing; or,
(iv) the New Conversion Price as such term is defined in the debentures dated as of even date herewith between the Company and Alpha Capital Anstalt and GreenBlock Capital.
Item (ii) above shall not be available to the Lender if the Lender elected that the Conversion Shares into which that part of the Loan Amount is being converted is an Alternate Security.
| 4.4. | Conversion Upon Liquidity Event. Without derogating from the foregoing, if prior to the Maturity Date, the Company enters into a definitive agreement to consummate an M&A Transaction (as defined below) or an underwritten public offering (an “Public Offering” and together with an M&A Transaction, a “Liquidity Event”), and if the Loan Amount has not previously converted or been repaid pursuant to the terms provided herein, the Lender shall have the right to elect (i) to convert the entire Loan Amount into the most senior class of shares issued by the Company immediately prior to the closing of the Liquidity Event; or (ii) have the entire Loan Amount repaid. The conversion price for the Loan Amount in a Liquidity Event shall be a price per share equal to the lower of: (a) a price per share reflecting the valuation of the Company in the Liquidity Event, on a fully diluted basis, 80% (eighty percent) of the price per share determined in such Liquidity Event as follows: (i) when such Liquidity Event is Public Offering, the lowest offer/issue price; (ii) when such Liquidity Event is an M&A Transaction, as calculated by dividing the aggregate consideration payable to the shareholders of the Company or as applicable, to the Company, by the number of issued and outstanding shares of the Company at the time of such Liquidity Event, on a fully diluted and as converted basis. In the event of a Liquidity Event in which a number of valuations are used for determining the consideration to be paid to shareholders, the lowest valuation shall apply; and (b) the Conversion Price determined in accordance with Section 4.3 above. |
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The Company shall notify the Lender in writing at least 21 days ahead of the proposed consummation of the Liquidity Event. Within 7 days of the date of the Company’s notice, the Lender shall notify the Company in writing, as to whether its Loan Amount shall be converted or repaid in accordance with this Section 4.4. Should the Lender not notify the Company within the prescribed period, it shall be deemed to have elected to convert its Loan Amount.
For the purpose herein an “M&A Transaction” shall mean: (i) a merger, reorganization or consolidation or any other similar transaction or acquisition of the Company, as a result of which the shareholders of Duke prior to the Closing of the Share Exchange, do not own, by virtue of their shareholdings in the Company prior to such event, a majority of the voting shares of the surviving entity (which surviving entity may be the Company) or acquiring entity or the parent company of such surviving or acquiring entity, or (ii) the disposition of all or substantially all of the assets of the Company (including by way of a grant of an exclusive license or lease to all or substantially all of the Company’s or any subsidiary’s intellectual property), or (iii) a sale or other disposition of all or substantially all of the shares (including without limitation by way of repurchase or redemption by the Company) or a sale or any other transaction or series of related transactions in which all or substantially all of the issued and outstanding share capital of the Company is acquired by any person (other than a Public Offering). For clarification purposes only, any subsequent merger or consolidation between the Company and Duke that occurs subsequent to the closing of the Share Exchange shall not be considered an M&A Transaction. For the purpose herein a “Qualified Financing” shall mean shall mean the first equity raising by the Company after the Closing of at least $4,000,000 (four million US dollars) in equity by third parties who are not shareholders of the Company, or at the election of the Lender, any capital or debt raising of less than $4,000,000 and/or invested by shareholders of the Company; provided that, if prior to the occurrence of a Qualified Financing as per the foregoing, the Company issues equity securities but does not receive proceeds in the aggregate amount of US$4,000,000, the Lender shall be entitled to determine, in its sole discretion, that such issuance be deemed the Qualified Financing for the purpose hereof.
| 4.5. | Conversion Upon Event of Default. Without derogating from the foregoing, if prior to the Maturity Date, the Company enters into Event of Default (as defined below), then the Lender shall have the right to convert the Loan Amount at the nominal price of the shares ($0.0001 each). |
| 4.6. | Upon conversion of the Loan Amount, the Company shall issue the Conversion Shares to the Lender, free and clear of any lien, pledge, claim, charge, encumbrance or third party rights of any kind, except for any restrictions and limitations under the Company’s Certificate of Incorporation, as amended from time to time (the “Articles”). No fractional shares shall be issued upon conversion, and the number of Conversion Shares due upon conversion shall be rounded to the nearest whole number. |
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| 4.7. | Adjustment. The number and kind of securities purchasable initially upon the conversion of the Loan Amount shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: |
| 4.7.1 | Adjustment for Shares Splits and Combinations. If the Company at any time or from time to time effects a subdivision of the outstanding shares, the number of shares issuable upon conversion of the Loan Amount immediately before the subdivision shall be proportionately increased, and conversely, if the Company at any time or from time to time combines the outstanding shares, the number of shares issuable upon conversion of the Loan Amount immediately before the combination shall be proportionately decreased. Any adjustment under this Section 4.7.1 shall become effective at the close of business on the date the subdivision or combination becomes effective. |
| 4.7.2 | Adjustment for Certain Dividends and Distributions. In the event the Company at any time, or from time to time makes, or fixes a record date for the determination of holders of shares entitled to receive a dividend or other distribution payable in additional shares of the Company, then and in each such event the number of shares issuable upon conversion of the Loan Amount shall be increased as of the time of such issuance or, in the event such a record date is fixed, as of the close of business on such record date, by multiplying the number of shares issuable upon conversion of the Loan Amount by a fraction: (i) the numerator of which shall be the total number of shares of the Company issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares issuable in payment of such dividend or distribution, and (ii) the denominator of which is the total number of shares of the Company issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed thereof, the number of shares issuable upon conversion of the Loan Amount shall be recomputed accordingly as of the close of business on such record date and thereafter the number of shares issuable upon conversion of the Loan Amount shall be adjusted pursuant to this Section 4.7.2 as of the time of actual payment of such dividends or distributions. |
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| 4.7.3 | Adjustments for Other Dividends and Distributions. In the event the Company at any time or from time to time makes, or fixes a record date for the determination of holders of shares entitled to receive a dividend or other distribution payable in securities of the Company other than shares, then in each such event provision shall be made so that the Lender shall receive upon conversion of the Loan Amount, in addition to the number of shares receivable thereupon, the amount of securities of the Company that the Lender would have received had the Loan Amount being exercised, had been exercised for Conversion Shares immediately prior to such event (or the record date for such event) and had the Lender thereafter, during the period from the date of such event to and including the date of exercise, retained such securities receivable by it as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4.7 and the Articles with respect to the rights of the Lender. The Company shall not make any cash dividends or distributions to its shareholders until the entire Loan Amount has been repaid to the Lender. |
| 4.7.4 | Other Transactions. Subject to Section 3.8, in the event that the Company shall issue shares to its shareholders as a result of a split-off, spin-off or the like, then the Company shall only complete such issuance or other action if, as part thereof, allowance is made to protect the economic interest of the Lender either by increasing the number of Conversion Shares, adjusting the Conversion Price, and/or by procuring that the Lender shall be entitled, on economically proportionate terms, determined in good faith by the Company’s Board of Directors, to acquire additional shares of the spun-off or split-off entities, in the event of an conversion of the Loan Amount. |
| 4.7.5 | Other Dilutive Events. In case any event shall occur as to which the preceding Sections 4.7.1 through 4.7.4 are not strictly applicable but as to which the failure to make any adjustment would not fairly protect the rights to receive shares represented by this Agreement in accordance with the essential intent and principles hereof, then, in each such case, the Company's Board of Directors shall, in good faith, determine what adjustments are necessary to preserve the rights of the Lender to receive shares represented by this Agreement. |
| 4.7.6 | Adjustment of Exercise Price. Upon each adjustment in the number of Conversion Shares purchasable hereunder, the Conversion Price shall be proportionately increased or decreased, as the case may be, in a manner that is the inverse of the manner in which the number of Conversion Shares purchasable hereunder shall be adjusted. |
| 4.7.7 | Share Swap. Subject to Section 3.8, other than pursuant to the Share Exchange Agreement, the Company undertakes not to enter into any share swap agreement or arrangement (such as a merger, reorganization, or sale of all, or substantially all, of the Company’s shares) (“Share Swap”), unless the other company to such a Share Swap agreement undertakes to allot to the Lender, upon, and subject to, the conversion of the Loan Amount, such securities as were swapped for the shares of the Company, as though the Lender had held the Conversion Shares on the record date of the Share Swap. In the event of a Share Swap, the securities issuable upon conversion of the Loan Amount shall be the swapped securities of such other company (not the Company’s shares). Nothing in this Section 4.7.7 shall derogate from any other provision of this Agreement or confer any other interpretation to any other obligation herein. |
| 4.7.8 | Notice of Adjustment. Upon any adjustment to the kind of securities purchasable initially upon the conversion of the Loan Amount is triggered pursuant to this Agreement, the Company shall promptly deliver to the Lender by facsimile or email a notice setting forth a brief statement of the facts requiring such adjustment and the relevant conversion price resulting from such adjustment. |
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| 5. | Immediate Repayment of the Loan |
| 5.1. | Notwithstanding the foregoing, the Loan Amount shall become due and payable in cash upon the occurrence of any of the following events prior to the Maturity Date (each, an “Event of Default”): |
| (i) | the liquidation, dissolution or winding up of the Company or any subsidiary of the Company; |
| (ii) | the filing by the Company or any subsidiary of the Company of any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of debtors, now or hereafter in effect, or seeks the appointment of a custodian, receiver, trustee (or other similar official) of the Company or a subsidiary of the Company or all or any substantial portion of the Company’s assets or such subsidiary’s assets, or makes any general assignment for the benefit of creditors or takes any action in furtherance of any of the foregoing; |
| (iii) | the filing, other than by the Lender, of an involuntary petition, or any proceeding or case is commenced, against the Company or a subsidiary of the Company (unless such proceeding or case is dismissed or discharged within 30 days of the filing or commencement thereof) under any bankruptcy, reorganization, arrangement, insolvency, liquidation or moratorium statute now or hereafter in effect; or |
| (iv) | the appointment of a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) appointed for the Company or a subsidiary of the Company or to take possession, custody or control of all or substantially all of the property of the Company or a subsidiary of the Company. |
| (v) | the breach by the Company or its subsidiary of any material undertaking or obligation under (1) any financing agreement or credit facility or (2) any other kind of agreement to which the Company is party and such default is deemed an event of default under such agreement or may have a Material Adverse Effect on the Company or its subsidiary, unless such breach is cured within the time prescribed in such agreement. The term Material Adverse Effect means a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), or financial condition of the Company or its subsidiary. |
| (vi) | the failure by the Company to fully or timely discharge its duties and obligations under this Agreement. A failure to make payments in full and in a timely manner, shall not be deemed an Event of Default unless the Company has failure to cure such default within five (5) business days. Any other failure set forth in this Section 5 shall not be deemed an Event of Default unless such failure or breach has not been cured within 14 (fourteen) calendar days. |
| 6. | Discharge of the Loan |
Upon full and complete repayment of the Loan Amount, or full and complete conversion of the Loan Amount into Conversion Shares, the Loan Amount shall be deemed fully discharged, and the Company shall not have any further duties or obligations with respect thereto.
| 7. | Closing |
| 7.1. | Closing. Unless any of the representations or warranties of the Company are incorrect at such time, or the Company is non-compliant with any covenants pursuant hereto or representation, warranties or covenants set forth in the Share Exchange Agreement in the form attached to this Agreement (as is, without waivers, consents or modification) the closing of this Agreement (“Closing”) shall take place concurrent with the closing of the Share Exchange. In the event the Share Exchange is not consummated within thirty (30) days from the date hereof, or, is consummated pursuant to or following a waiver of terms, modification of terms, updating of disclosures or any provision allowing the parties thereto to make a determination in accordance with the terms of the Share Exchange Agreement, the Closing of this Agreement shall only occur with the affirmative written consent of the Lender. |
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| 7.2. | At the Closing, the following transactions shall occur simultaneously (no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered): |
| (i) | Board Resolution. Copies of a duly executed resolution of the Board of Directors shall be delivered to the Lender, by which, inter alia (i) the execution and performance by the Company of this Agreement shall have been approved, and (ii) the issuance and allotment of the Conversion Shares to the Lender upon conversion of the Loan Amount shall have been approved; and |
| (ii) | Payment. The Lender shall either make the Loan Principal available to the Company by wire transfer, or instruct the Escrow Agent to release the Loan Principal to the Company; |
| 8. | Representations, Warranties, Undertakings and Covenants of the Company |
The Company hereby represents and warrants to the Lender that the statements contained in this Section 8 are true and correct as of the Closing:
| 8.1. | Organization. The Company is duly organized and validly existing under the laws of State of Nevada. The Company has full corporate power and authority to own, lease and operate its properties and assets and to conduct its business as now being conducted, and to execute the Agreement, and to consummate the transactions contemplated hereby and thereby. |
The Company is not insolvent, has not committed an act of bankruptcy, has not proposed a compromise/arrangement with its creditors generally, and no proceedings of liquidation/dissolution/winding-up, stay of proceedings, receivership, bankruptcy, nomination of any officer of the court, or similar proceedings, have been taken against Company or in connection with any of its assets.
| 8.2. | Articles. The Articles which will be in effect upon the Closing are as filed with the SEC Reports (as defined herein). |
| 8.3. | Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement or the Escrow Agreement (collectively the “Transaction Documents”), the performance of all obligations of the Company hereunder and thereunder, has been taken or will be taken prior to, or at, the Closing. No third-party consents or authorizations are required on the part of the Company in connection with the consummation of the transactions contemplated by this Agreement. This Agreement is duly executed and constitutes valid and legally binding obligations, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, or (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. |
| 8.4. | No Breach. Neither the execution of the Agreement or any other Transaction Document, nor the consummation of the transactions contemplated hereby or thereby nor compliance by the Company with the terms and provisions hereof and thereof will conflict with, or result in a material breach or violation of (i) any note, contract, lease, instrument, document or agreement to which the Company is a party of, (ii) the Articles or any other governing instruments, or (iii) any law, statute, ordinance, regulation, order, injunction, decree, or judgment of any court, arbitrator or other competent judicial or governmental authority, applicable to the Company. |
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| 8.5. | Share Capital. The registered share capital of the Company is 110,000,000 shares divided into 100,000,000 shares of common stock, $0.0001 par value; and 10,000,000 shares of preferred stock, $0.0001 par value. |
The issued share capital of the Company and all warrants, options, convertible securities and/or other rights in the Company, on a fully diluted basis, as of and immediately following the Closing, shall be as set forth in the capitalization table attached as Schedule 8.5 (the “Cap Table”). The shareholders identified in the Cap Table as being shareholders as of the Effective Date, are the lawful owners of record of all of the issued and outstanding share capital of the Company and of all rights thereto.
Except for the transactions contemplated by this Agreement, and except as set forth in the Cap Table and the Articles, there are no other shares, convertible securities or outstanding or committed warrants, options or other rights to subscribe for, purchase or acquire securities from the Company, including without limitation, pre-emptive rights, participation rights, anti-dilution rights or rights of first refusal.
| 8.6. | Conversion Shares. The Conversion Shares, when issued in accordance with the provisions hereof, shall be duly and validly authorized and issued, shall be issued in compliance with all applicable laws, including the relevant securities laws of the United States, shall be fully paid and non-assessable and shall be issued free and clear of any security interest or pre-emptive rights, except for any restrictions and limitations set forth in the Articles and will be duly registered in the name of the Lenders in the Company’s Shareholders Register. |
| 8.7. | SEC Documents; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission (the “SEC”) under Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the 2 years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (all of the foregoing filed within the 2 years preceding the date hereof as amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “SEC Documents”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration of any such extension (including pursuant to SEC from 12b-25). The Company has delivered to the Lender or its representatives, or made available through the SEC’s website at http://www.sec.gov, true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company and its subsidiaries included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. |
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| 8.8. | 10(b)-5. The SEC Documents do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading. |
| 8.9. | Sarbanes-Oxley Act. The Company and its subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act, that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are applicable to the Company and its subsidiaries and effective as of the date hereof. |
| 8.10. | Investment Company. The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Securities, will not be or be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act. |
| 8.11. | Registration Rights. Other than as set forth on Schedule 8.11, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. There are no outstanding registration statements not yet declared effective and there are no outstanding comment letters from the SEC or any other regulatory agency. At Closing the Company and Lender will execute the Registration Rights Agreement in the form attached as Exhibit C (the “Registration Rights Agreement”), providing, inter alia, for the registration, of the Conversion Shares. Certificates evidencing the Conversion Shares shall not contain any legend: (i) while a registration statement covering the resale of such security is effective under the Securities Act (provided that if the holder is selling pursuant to the effective registration statement registering the securities for resale, the holder agrees to only sell such securities during such time that such registration statement is effective and such holder is not aware or has not been notified by the Company that such registration statement has been withdrawn or suspended, and only as permitted by such registration statement), or (ii) following any sale of such Conversion Shares pursuant to Rule 144, or (iii) if such Conversion Shares are eligible for sale under Rule 144, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the relevant transfer agent promptly if required by the transfer agent to effect the removal of the legend hereunder. If there is an effective registration statement to cover the resale of the Conversion Shares, or if such Conversion Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission, then such Conversion Shares shall be issued free of all legends. |
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| 8.12. | Lock-Ups. Schedule 8.12 sets forth a complete list of all lock-up agreements or share resale restriction agreements or other statutory share resale restrictions, restricting the rights of the counterparty from freely selling shares in the Company owned by such party (“Lock-Up”). Each Lock-Up is valid and in full force and effect and is enforceable by the Company, in accordance with its terms, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Except as set forth on Schedule 8.12, neither the Company nor any other Person which is a party thereto has violated or breached in any material respect, or committed any material default under, any Lock-Up. No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to: (A) result in a material violation or breach of any of the provisions of any such Lock-Up; (B) give any Person the right to declare a default or exercise any remedy under any such Lock-Up; (C) give any Person the right to accelerate the maturity or performance of any such Lock-Up; or (D) give any Person the right to cancel, terminate or modify any Lock-Up. The term “Person” means an individual, partnership, firm, corporation, limited liability company, association, joint venture, trust or other entity, or any government or political subdivision or agency, department or instrumentality thereof |
| 8.13. | Private Placement. Assuming the accuracy of the Lenders’ representations and warranties set forth in Section 7, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Lender as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the OTCQB-MKT (the “Primary Market”). |
| 8.14. | Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to terminate, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the SEC is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from the Primary Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Primary Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. |
| 8.15. | Effectiveness; Survival. Each representation and warranty herein is deemed to be made on the date of this Agreement and shall remain in full force and effect for a period of two years following the Effective Date. |
| 8.16. | Use of Funds. The Company shall use the proceeds of the Loan Principal for the working capital needs of its subsidiary Duke Robotics, Inc. in the normal course of business, substantially in accordance with the enclosed budget on Schedule 8.16. |
| 8.17. | Interest Reserve. The Company shall at all times until payment in full of its obligations under this Agreement and termination of this Agreement maintain a reserve equal to three (3) months of Interest, in an account, free and clear of any encumbrances or liens. |
| 8.18. | Most Favored Nation. During the period from the date of this Agreement through the Maturity Date, neither the Company nor its subsidiaries shall enter into any additional, or modify any existing, agreements with any existing or future investors in the Company or any of its Subsidiaries that have the effect of establishing rights or otherwise benefiting such investor/creditor in a manner more favorable in any material respect to such investor/creditor than a right and benefit established in favor of the Lender by this Agreement, unless, in any such case, the Lender has been provided with such rights and benefits. Nothing herein shall be deemed approval for the Company or its subsidiaries to assume or incur debt with seniority or priority over or equal standing with the Loan. |
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| 8.19. | Duke/USDR Transaction. Schedule 8.19 hereof contains a list of all material agreements, undertakings, instruments and other arrangements which shall be valid as of the Closing or immediately thereafter, entered into by and between: (i) the Company and its stakeholders (ii) the Company and Duke or its subsidiaries, (ii) the Company and the stakeholders in Duke and (iv) the Company and any third party not previously listed. |
| 8.20. | Seniority. The Company shall observe and maintain that the Loan is senior to any other indebtedness incurred by the Company or its subsidiaries, other than priority granted to suppliers, contractors, employees and non-affiliated officers of the Company as prescribed by law. |
| 8.21. | Public Announcements; Confidentiality. From and after the date of this Agreement, |
(i) Company hereby covenants and undertakes to Lender that Company shall not (and shall ensure that its representatives do not) issue any press release or make any public statement regarding (or otherwise disclose to any Person the existence or terms of) this Agreement or any of the other transactions or documents contemplated by this Agreement, without Lender’s prior written consent.
(ii) the Parties agree that at all times after the date of this Agreement the Parties shall (and the Parties shall ensure that their respective representatives) keep strictly confidential all information relating to the Company and the Lender.
(iii) Notwithstanding that which is stated elsewhere in this Agreement, to the extent that Company is required under any applicable securities law, or by the applicable rules of any stock exchange on which Company lists its securities, to deliver any notice to a stock exchange or relevant securities regulatory authority and/or issue any public announcement with respect to the commercial relationship between the Parties hereto and/or this Agreement, including the filing of a copy of this Agreement or any schedules, exhibits or annexes thereof, as may be required by law, it shall be permitted to make such announcement, or file such filing. Notwithstanding the foregoing, the form of the first public announcement which is required to be to be submitted by the Company to the Commission in connection with this Agreement is attached hereto as Schedule 8.21. Without prejudice to the foregoing, with respect to any subsequent public disclosure of the terms of this Agreement which has not been previously made public, including the filing of the form of this Agreement, Company shall give advance notice to Lender of such impending disclosure which shall be coordinated with the Lender, and Company shall endeavor in good faith to assist the Lender to secure and enable confidential treatment of confidential parts of the Agreement.
| 9. | Representations and Warranties of the Lender |
| 9.1. | The Lender hereby represents and warrants to the Company (severally and not jointly with any other lenders making loans to the Company contemporaneously with this Agreement) that the statements contained in this Section 9 are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date. |
| 9.2. | Authorization. The Lender has full power and authority to enter into this Agreement and the Agreement constitutes valid and legally binding obligations, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. |
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| 9.3. | Purchase Entirely for Own Account. This Agreement is made with the Lender in reliance upon the Lender’s representation to the Company, that the Securities are being acquired for investment for the Lender’s own account, and not with a view to the immediate resale or distribution of any part thereof, and that the Lender has no present intention of selling, granting any participation in, or otherwise distributing the same. |
| 9.4. | Investment Representations. The Lender hereby acknowledges that the Securities have not been registered under the Securities Laws and that they are being offered and sold pursuant to exemptions from registration contained in the Securities Laws based in part upon their representations and warranties contained in this Agreement. Accordingly, Lender hereby represents and warrants as follows: |
| (i) | Economic Risk. It is capable of evaluating the merits and risks of its investment in Company and has the capacity to protect its own interests. Any interest Securities may not be sold, pledged or otherwise transferred or hypothecated unless the Securities are registered pursuant to the Securities Laws, or an exemption from such registration is available under the Securities Laws, and in the absence of such registration or exemption, the Lender must bear the economic risk of this investment indefinitely. It understands that there is no assurance that any exemption from registration under the Securities Laws will be available and that, even if available, such exemption may not allow the transfer all or any portion of the Securities under the circumstances, in the amounts or at the times the Lender might propose. |
| (ii) | Acquisition for Own Account. The Lender is acquiring the Securities for its own account for investment only, and not with a view towards their distribution or resale, without prejudice, however, to its right, at all times, to sell or otherwise dispose of all or any part of such securities pursuant to an effective registration statement under the Securities Laws or under an exemption from such registration and in compliance with applicable securities Laws. |
| (iii) | Protecting Its Interest. By reason of its, or of its management’s (if any), business or financial experience, it has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. |
| (iv) | General Solicitation. The Securities are not being purchased as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. |
| (v) | Company’s Information. No offering memorandum or similar disclosure document has been prepared in connection with the offer to acquire the Securities, and it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the Company’s reports filed publicly with the SEC and has been afforded access to publicly disclosed information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment and that is necessary to make an informed investment decision with respect to the investment in the Company. The only representations and warranties being given by the Company are contained in this Agreement. No broker or agent of the Company has provided any information or advice with respect to the Securities nor is such information or advice necessary or desired. |
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| (vi) | Rule 144. Lender acknowledges that it is aware that Rule 144 under the Securities Act which allows for the public resale of restricted and control securities, as the case may be, if a number of conditions are met, may not necessarily be available with respect to the Securities and, in any event, is available only if certain conditions are satisfied, and that any sale of the Securities that might be made in reliance upon Rule 144 may only be made in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be delivered to Lender upon request. |
| (vii) | Purchaser Status. At the time Lender was offered the Securities, it was, and as of the date hereof it is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act. |
| (viii) | Reserved |
| (ix) | No Governmental Review. It understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. |
| (x) | Restricted Securities. It understands that the Securities are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being issued by the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration in the United States of America under the Securities Act only. It understands and acknowledges that: (i) the Securities are being offered and sold without registration under the Securities Laws in a private placement that is exempt from the registration provisions of the Securities Laws and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and it hereby consents to such reliance. |
| (xi) | Independent Advice. It understands that nothing in this Agreement or any other materials presented to it by or on behalf of the Company in connection with Securities constitutes legal, tax or investment advice. |
| (xii) | Restrictive Legends. Lender agrees to the imprinting, so long as required, of a legend on any document or certificate evidencing the Securities may be imprinted with the following legend substantially in the following form (in addition to any legend required by applicable state securities or “blue sky” laws): |
“[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE] HAS [NOT] BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES [AND THE SECURITIES ISSUABLE UPON [CONVERSION] OF THIS SECURITY] UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”
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Certificates evidencing the Securities shall not contain any legend (including the legend set forth above), (i) while a registration statement covering the resale of such Security is effective under the Securities Act, (ii) following any sale of Securities pursuant to Rule 144, (iii) if such Securities are eligible for sale under Rule 144, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the effective date (the “Effective Date”) of a registration statement if required by the Company’s transfer agent to effect the removal of the legend hereunder. If all or any portion of the Loan is converted by the Lender at a time when there is an effective registration statement to cover the resale of the Conversion Shares, such Conversion Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this section, it will, no later than 2 Trading Days following the delivery by a Lender to the Company or the Company’s transfer agent of a certificate representing Conversion Shares, issued with a restrictive legend (such 2nd Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Lender a certificate or book entry notation representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this section. The Lender acknowledges that the Company’s agreement hereunder to remove all legends from Conversion Shares is not an affirmative statement or representation that such Conversion Shares are freely tradable. The Lender, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this section is predicated upon the Company’s reliance that the Lender will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein.
| 10. | Transfer of Loans |
| 10.1. | The Lender may transfer its rights in the Loan, and following the conversion of the Loan the Lender may transfer the Conversion Shares, without the prior written consent of the Company, subject only to the general limitations on transfer of securities under applicable law. |
| 10.2. | Subject to the provisions of this Section, nothing contained in this Agreement shall be construed as preventing Lender, at any time after the date hereof, from selling, pledging, assigning or transferring the Loan and in connection with any such sale, pledge, assignment or transfer from assigning this Agreement to the purchaser of the Loan. |
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| 10.3. | Notwithstanding the foregoing, the Loan is issued as a fully registered instrument and will be registered to the Lender on the books of Company (within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(A)). The Company as registrar of the Loan shall treat the Lender as the absolute owner thereof (unless the Company has been given notice of the transfer of the Loan in accordance with the provisions of the following sentence) for all purposes, including the right to receive payments of principal of, and interest on, the Loan. The right to receive the principal of, and interest on, the Loan may be transferred only upon the delivery to the Company of written notice of such transfer, duly executed by the registered owner of the Loan (or its attorney-in-fact or legal representative) containing information sufficient to enable the Lender to identify each owner of an interest in the Loan, and the surrender of the existing instrument and the reissuance by the Company to the new holder of such instrument or a replacement instrument. Each successor holder shall acknowledge that in order to obtain the benefit of the “portfolio interest exemption” (if applicable) such holder shall provide the necessary withholding certificates (including Internal Revenue Service Form W-8BEN-E). Each permitted transfer of ownership of an interest in the Loan shall be reflected by an entry on the books of the Company after receipt of such notice of transfer. Upon any such sale, pledge, assignment or transfer of the Loan and upon assignment of this Agreement to the purchaser of the Loan, Lender shall be released and discharged from any liability or responsibility with respect to the Loan and any other Transaction Documents and references to “Lender” in this Agreement shall, with respect to any matters thereafter occurring, be deemed to be references to the purchaser of the Loan. Lender and each assignee hereof, agree to indemnify Company and its affiliates and each of their respective owners, members, shareholders, directors, officers, employees, partners, agents, subsidiaries, divisions or affiliated corporations or organizations, whether previously or hereinafter affiliated in any manner, against, and hold each of them harmless from, any damage, claim, loss, cost, liability or expense, including interest, penalties, fines, amounts paid in settlement, reasonable attorneys’ fees and expenses of investigation, response action, removal action or remedial action that arise out of or relate to (a) any breach of any representation or warranty contained in any certificate or other instrument delivered by such successor holder, including without limitation form W-8BEN-E, (b) any action, suit or proceeding, whether civil or criminal and whether judicial, administrative, investigative or otherwise (each as made against Company in connection with any claim and/or determination that any such successor holder does not qualify for exemption from U.S withholding tax), and/or (c) any event or circumstance under which Company will be treated as a ‘taxpayer-in-default’ or otherwise will incur damages for not withholding taxes on interest payments made to the Lender or under the Loan. |
| 10.4. | Notwithstanding anything contained herein to the contrary, any violation of Section 10.3 shall not be deemed to be an “Event of Default” as set forth in Section 5. |
| 11. | Miscellaneous |
| 11.1. | RESERVED |
| 11.2. | Applicable Law. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. |
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| 11.3. | Counterpart Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and enforceable against the Parties actually executing such counterpart, and all of which together shall constitute one and the same instrument. |
| 11.4. | Entire Agreement. This Agreement constitutes the full and entire agreement, covenants, promises and understandings between the Parties hereto with respect to the subject matter hereof, and supersede any and all prior agreements, understandings, promises and representations made by all or some of the Parties, written or oral, concerning the subject matter hereof and the terms applicable hereto. |
| 11.5. | Amendment. Any term of this Agreement may be amended, waived of modified only with the written consent of the Company and the Lender. |
| 11.6. | Notice. Notice as required herein shall be delivered by hand, by e-mail, fax, by courier service or by registered or certified mail, return receipt requested, postage prepaid. A notice shall be addressed to the other Party at the address listed above, or to another address, which may subsequently be specified in writing by a Party. A notice shall be effective 1 business day after being delivered by hand, e-mail, courier service or by fax, and 7 business days after being sent by registered or certified mail. |
| 11.7. | Further Actions. At any time and from time to time, each party agrees, without further consideration, to take such actions and to execute and deliver such documents as may be reasonable necessary to effectuate the purposes of this Agreement. |
| 11.8. | Severability. To the extent that any of the restrictions set forth herein is found by a court having jurisdiction to be unreasonable or overly-broad as to geographic area, scope or time or to be otherwise unenforceable, it is the intention that the restrictions set forth in this undertaking be reformed, modified and redefined by such court so as to be reasonable and enforceable and, as so modified by such court, to be fully enforced. |
| 11.9. | Independent Nature of Lenders’ Obligations and Rights. The obligations of the Lender under this Agreement are several and not joint with the obligations of any other person providing any loans or other financing to the Company contemporaneously with the Closing, and the Lender shall not be responsible in any way for the performance or non-performance of the obligations of any other person. Nothing contained herein or in any other ancillary document, and no action taken by the Lender pursuant hereto or thereto, shall be deemed to constitute the Lender as being part of a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Lender is in any way acting in concert or as a group together with other persons with respect to such obligations or the transactions contemplated by this Agreement. The Lender shall be entitled to independently protect and enforce its rights including, without limitation, the conversion, repayment, or enforcement rights arising out of this Agreement or out of the other ancillary documents, and it shall not be necessary for any other person to be joined as an additional party in any Proceeding for such purpose. The Lender has been afforded the opportunity to be represented by its own separate legal counsel in its review and negotiation of the Agreement. It is clarified that the legal counsel for the Lender represents such Lender exclusively and not the Company nor any other person. It is expressly understood and agreed that, unless stated otherwise, each provision contained in this Agreement and in each other ancillary document is between the Company and the Lender, solely, and not between the Company and any other persons collectively and not between and among the Lender and any other persons. |
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| 11.10. | Lender’s Conversion Limitations. The Company shall not effect any conversion of this Agreement, or the Loan, and a Lender shall not have the right to exercise any portion of this Agreement or the Loan, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Notice of Conversion, the Lender (together with the Lender’s Affiliates, and any other Persons acting as a group together with the Lender or any of the Lender’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Lender and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion the Loan with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, non-converted portion of the Loan beneficially owned by the Lender or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Lender or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 11.10, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Lender that the Company is not representing to the Lender that such calculation is in compliance with Section 13(d) of the Exchange Act and the Lender is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 11.10 applies, the determination of whether the Loan is converted (in relation to other securities owned by the Lender together with any Affiliates and Attribution Parties) and of which portion of the Loan is exercisable shall be in the sole discretion of the Lender, and the submission of a Notice of Conversion shall be deemed to be the Lender’s determination of whether this Agreement and the Loan is convertible (in relation to other securities owned by the Lender together with any Affiliates and Attribution Parties) and of which portion of the Agreement and the Loan is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this 11.10, in determining the number of outstanding shares of Common Stock, a Lender may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the SEC, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Lender, the Company shall within one (1) Trading Day confirm orally and in writing to the Lender the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Agreement and the Loan by the Lender or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Agreement and the Loan. The Lender, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 11.10, provided that the Beneficial Ownership Limitation in no event exceeds 19.99% of the number of the shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Agreement and the Loan held by the Lender, and the provisions of this Section 11.10 shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 11.10 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Agreement or the Loan. |
[signature page follows]
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IN WITNESS WHEREOF, the Parties hereto have executed this Convertible Loan Agreement on the date first above written.
| UAS Drone Corp. | ||||
| By: | By: | |||
| Title: | Title: | |||
| ||||
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Exhibit A
Share Exchange Agreement
See attached
Exhibit B
Escrow Agreement
See attached.
Exhibit C
Registration Rights Agreement
See attached.
Schedule 8.11
Registration Rights
The following parties possess registration rights:
Elisheva Ansbacher
Ximena Benítez
Noam Danenberg
Moshe Zuk
Eran Meytal
Erez Alroy
Erez Alroy Investments Ltd.
D-Beta One EQ Ltd.
Runuman Ltd.
Shmuel Yanay
ZUK MARBLE PRODUCTS 1998 LTD
Alonim Marketing and Sales Promotion LTD
Alpha Capital Anstalt
GreenBlock Capital
Schedule 8.12
Lock Ups
Schedule 8.19
Duke/USDR Transaction
| ● | Share Exchange Agreement by and between UAS Drone Corp., Duke Robotics, Inc. and the various stockholders of Duke Robotics, Inc. |
| ● | Securities Exchange Agreement by and between UAS Drone Corp. and GreenBlock Capital |
| ● | Convertible Debenture of UAS Drone Corp. issued to GreenBlock Capital |
| ● | Securities Exchange Agreement by and between UAS Drone Corp. and Alpha Capital Anstalt |
| ● | Convertible Debenture of UAS Drone Corp. issued to Alpha Capital Anstalt |
| ● | Convertible Loan Agreements by and among UAS Drone Corp., and various lenders dated of even date herewith. |
| ● | Share Exchange Agreements by and between UAS Drone Corp. and the Lenders (or their affiliated persons) dated as of even date herewith. |
Exhibit 10.2
SECURITIES EXCHANGE AGREEMENT
This Securities Exchange Agreement (this “Agreement”), dated as of March 9, 2020, is made pursuant to that certain Securities Purchase Agreement, dated as of March 31, 2015, as amended (the “Purchase Agreement”), by and between UAS Drone Corp. (the “Company”) and Alpha Capital Anstalt, a Liechtenstein company (the “Purchaser”), for the purchase of the Company’s Original Issue Discount Convertible Debentures in the respective amounts of $300,000 (issued on April 1, 2015, and due April 1, 2017), $100,010 (issued on April 1, 2016, and due April 1, 2017), and $50,005 (issued on January 27, 2017, and due August 1, 2018) (collectively, the “Debentures”). Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement.
RECITALS:
WHERAS, the Company issued and the Purchaser purchased the Debentures, each bearing interest at the rate of eight percent (8%) per annum, and convertible into shares of common stock of the Company (the “Common Stock”) at conversion prices of $0.33, $1.55 and $1.55, respectively; and
WHEREAS, the Company has determined that the present value of its Common Stock is $0.0001 per share;
WHEREAS, the Company has entered into a Share Exchange Agreement dated March 4, 2020 (the “Duke Share Exchange Agreement”), with Duke Robotics, Inc., a Delaware corporation (“Duke”), and the several shareholders of Duke as signatories thereto (the “Duke Shareholders”); and
WHEREAS, the closing of the Duke Share Exchange Agreement is subject to various conditions precedent, including the simultaneous closings of the Duke Share Exchange Agreement and the “Duke Funding” as defined in Annex B (the “Closings”), and the exchange of certain shares of the Company Common Stock to the Purchaser in partial conversion of the Debentures and the exchange of the Purchaser Debentures for a new debenture in the amount of $300,946, due and payable on March 9, 2023 (the “New Debenture”), bearing interest at the rate of eight percent (8%) per annum, and convertible into shares of the Company Common Stock at a conversion price of $0.374, subject to adjustment as provided in Section 5 of the New Debenture; and
WHEREAS, except as otherwise provided herein, the rights and obligations of the Purchaser and of the Company with respect to the New Debenture and the shares of the Company Common Stock issuable under the New Debenture (the “New Underlying Shares”) shall be identical in all respects to the rights and obligations of the Purchaser and of the Company with respect to the Debentures and the Underlying Shares issued and issuable pursuant to the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Issuance of New Debenture. Solely for the purpose of effectuating the transactions contemplated by this Agreement, the Company and the Purchaser hereby extend the Maturity Date of each of the Debentures to March 31, 2020. Subject to the Closings, the Company hereby agrees to exchange to the Purchaser in partial payment of the Debentures and accrued interest, in a private placement and not in connection with the Company’s S-1 Registration Statement that was confidentially filed with the Securities and Exchange Commission (the “SEC”) on or about May 22, 2015, and which was declared effective on September 15, 2015 (the “S-1 Registration Statement”) (a) 698,755 shares of the Company Common Stock, comprised of “restricted securities” issued by a “shell company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a definition of which presently describes the Company; and (b) the New Debenture, which New Debenture shall be in the form of the Debenture attached hereto as Exhibit A and incorporated herein by reference. The issuance of such 698,755 shares and the New Debenture will be subject to forfeiture if there are no simultaneous Closings of the Duke Share Exchange Agreement and the Duke Funding. The Company shall promptly deliver to the Purchaser the New Debenture on the Closings.
2. Documents. Any rights of the Purchaser or covenants of the Company which are dependent on the Purchaser holding securities of the Company or which are determined in magnitude by the Purchaser’s purchase of securities pursuant to the Purchase Agreement shall be deemed to include any securities purchased or issuable hereunder. The New Debenture shall cancel and replace the Debentures and the Purchase Agreement; provided, however, the rights of the Purchaser and the obligations of the Company under the Purchase Agreement shall be modified as follows: (a) all securities of the Company that were Underlying Shares of the Debentures and that were registered for the Purchaser in the S-1 Registration Statement that have not been previously converted by Purchaser to shares of the Company Common Stock shall be withdrawn from the S-1 Registration Statement; (b) the Purchaser shall have no demand or other registration rights with respect to the shares of the Company Common Stock issuable under the New Debenture (the “New Underlying Shares”); (c) the Purchaser shall not possess, and waives its right, to receive any penalties associated with a Public Information Failure as set forth in Section 4.3(b) of the Purchase Agreement; (d) the Purchaser shall not possess, and waives its right, to participate in future financing as set forth in Section 4.12 of the Purchase Agreement; (e) the Purchaser waives the restrictive covenants relating to the Company’s ability to conduct any sales or issuances of Common Stock or Common Stock Equivalents, and the Company shall not be restricted from entering into a Variable Rate Transaction, each as set forth in Section 4.13 of the Purchase Agreement; (f) the Purchaser shall not possess, and waives its right, to enforce the Most Favored Nation Provision set forth in Section 4.17 of the Purchase Agreement; and (g) Purchaser shall be limited to conversions of $50,000 per month under the New Debenture, unless the average daily five (5) day trading volume of the Company Common Stock on any Trading Market, including, for the purposes of this Agreement, the “OTC Pink Tier” of the OTC Markets, exceeds $100,000 prior to any such conversion, in which case, there shall be no limit on the monthly conversion amount.
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3. Representations and Warranties of the Company. The Company hereby makes to the Purchaser the following representations and warranties:
(a) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith other than in connection with the Required Approvals. This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s certificate or articles of incorporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien (except as contemplated by the Security Documents) upon any of the properties or assets of the Company in connection with, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any material agreement, credit facility, debt or other material instrument (evidencing Company debt or otherwise) or other material understanding to which such Company is a party or by which any property or asset of the Company is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected, except, in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(c) Issuance of the New Debenture. Subject only to the Closings, the New Debenture is duly authorized and, upon the execution of this Agreement by a Purchaser, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The New Underlying Shares, when issued in accordance with the terms of the New Debenture, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of the Company Common Stock for issuance of the New Underlying Shares at least equal to the Required Minimum on the date hereof.
(d) Affirmation of Prior Representations and Warranties. The Company hereby represents and warrants to the Purchaser that the Company’s representations and warranties listed in Section 3.1 of the Purchase Agreement are true and correct as of the date hereof, except and to the extent modified in the Duke Share Exchange Agreement and the UAS Disclosure Letter issued thereunder.
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4. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof to the Company as follows:
(a) Authority. The execution, delivery and performance by the Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of the Purchaser. This Agreement has been duly executed by the Purchaser and, when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. The Purchaser (i) understands that the New Debenture are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law, (ii) is acquiring the New Debenture as principal for its own account and not with a view to or for distributing or reselling the New Debentures or any part thereof in violation of the Securities Act or any applicable state securities law, (iii) has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and (iv) has no arrangement or understanding with any other persons regarding the distribution of such New Debenture (this representation and warranty not limiting the Purchaser’s right to sell the New Underlying Shares pursuant to a Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. The Purchaser is acquiring the New Debentures hereunder in the ordinary course of its business. The Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the New Debenture or New Underlying Shares.
(c) Purchaser Status. The Purchaser is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.
(d) General Solicitation. The Purchaser is not purchasing the New Debenture as a result of any advertisement, article, notice or other communication regarding the New Debenture published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
(e) Affirmation of Prior Representations and Warranties. The Purchaser hereby represents and warrants to the Company that its representations and warranties listed in Section 3.2 of the Purchase Agreement are true and correct as of the date hereof.
(f) No Other Indebtedness. Other than the Debentures, the Purchaser does not hold any other debt that is owed or payable by the Company.
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5. Public Disclosure. The Company shall consult with the Purchaser in issuing any press releases with respect to the transactions contemplated hereby, though the Purchaser agrees that, subject to the Closings, all transactions contemplated hereby shall be disclosed in a Form 8-K to be filed with the SEC within four business days of the Closings.
6. Effect on Transaction Documents. Except as expressly set forth above, all of the terms and conditions of the Transaction Documents shall continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified or superseded by the terms set forth herein, including, but not limited to, any other obligations the Company may have to the Purchaser under the Transaction Documents. Notwithstanding the foregoing, this Agreement shall be deemed for all purposes as an amendment to any Transaction Document as required to serve the purposes hereof, and in the event of any conflict between the terms and provisions of the Debentures, or any other Transaction Document, on the one hand, and the terms and provisions of this Agreement and the New Debenture, on the other hand, the terms and provisions of this Agreement and the New Debenture shall prevail.
7. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Purchaser.
8. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.
9. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of the Purchaser. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of the Purchaser of the then-outstanding Securities. The Purchaser may assign their rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.
10. Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
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11. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.
12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
13. Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.
14. Registration Rights. In accordance with the provisions set forth in that certain Registration Rights Agreement being entered into by the Company, the Purchaser and other security holders of the Company contemporaneously with the execution of this Agreement, (the “RRA”), within 30 calendar days following the earlier of (X) the Company having timely filed its form 10-K for the fiscal year ended December 2019 or (Y) it has finalized the second stage of the share exchange agreement with the stockholders of Duke Robotics, Inc. or (Z) March 31, 2020, , the Company shall prepare and file with the SEC a Registration Statement (the “Registration Statement”) for a resale offering to be made on a continuous basis, registering the Conversion Shares (as defined in the New Debenture) issuable upon conversion of the New Debenture (the “Registrable Securities”) and shall use its commercially best efforts to keep such Registration Statement, with respect to the Purchaser, continuously effective under the Securities Act until the earlier to occur of (i) the date on which the Purchaser may sell the Conversion Shares then held in compliance with Rule 144, or (ii) all Conversion Shares covered by the Registration Statement have been sold by the Purchaser.
Notwithstanding the registration obligations set forth above, if the SEC informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform the Purchaser thereof and use its commercially reasonable efforts to file amendments to the such Registration Statement as required by the SEC, covering the maximum number of Registrable Securities permitted to be registered by the SEC, on Form S-1 or such other form available to register for resale the Registrable Securities as a secondary offering, all as set forth in the RRA.
If the SEC or any SEC Guidance sets forth a limitation on the number of Registrable Securities, and any other securities being registered on the Registration Statement, permitted to be registered on a particular Registration Statement, unless otherwise directed in writing by the Purchaser as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced on the basis set forth in the RRA.
For purposes of this Section 14, “SEC Guidance” means (i) any publicly-available written or oral guidance of the SEC staff, or any comments, requirements or requests of the SEC staff and (ii) the Securities Act.
If there is a conflict between this Agreement and the RRA, the RRA shall take precedence and will control.
[SIGNATURE PAGE FOLLOWS]
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Executed as of the first date written above by the undersigned duly authorized representatives of the Company and the Purchaser:
UAS DRONE CORP.
| By: | /s/ Christopher J. Leith | |
| Name: Christopher J. Leith | ||
| Title: Acting CFO |
| ALPHA CAPITAL ANSTALT | ||
| Signature of Authorized Signatory: | /s/ Konrad Ackermann | |
| Name of Authorized Signatory: | Konrad Ackermann | |
| Title of Authorized Signatory: | Director |
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Exhibit 10.3
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this “Agreement”) is entered into and effective as of March 9, 2020 (the “Effective Date,” subject to Section 5(i) below) by and between UAS Drone Corp., a Nevada corporation (the “Company”), and GREENBLOCK CAPITAL, LLC, a Florida limited liability company (hereinafter, “GBC”). Each of the Company and GBC may be referred to individually as a “Party” and collectively as the “Parties.”
RECITALS:
WHEREAS, the Company was organized on February 4, 2015, with the intention of engaging in the business of developing and manufacturing commercial unmanned aerial systems, or drones, for the law enforcement and first responder markets; and
WHEREAS, the Company’s extremely limited business operations were unsuccessful and, beginning with its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, its periodic reports as filed with the Securities and Exchange Commission (the “SEC”) have indicated that the Company is a “shell company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and subparagraph (i) of SEC Rule 144, which substantially limits the resale of shares of its $0.0001 par value common stock (the “Company Common Stock”) until it is no longer a shell company and twelve (12) months from the filing of “Form 10 Information” with the SEC reflecting the change of such designation; and
WHEREAS, GBC is currently the beneficial owner of 437,500 outstanding shares of Company Common Stock (the “GBC Outstanding Shares”); and
WHEREAS, there is an extremely limited market for the Company Common Stock, with an average of zero shares traded per day over the preceding thirty (30) days, according to the OTC Markets, Inc. (the “OTC Markets”) website (www.otcmarkets.com/stock/USDR/quote); and
WHEREAS, for the foregoing reasons, the Company has determined that the present value of the Company Common Stock is $0.0001 per share; and
WHEREAS, during the period from February 4, 2016, through the date hereof, GBC has advanced to the Company a total of $208,308 to assist the Company with the payment of its outstanding costs and expenses (the “GBC Advances”); and
WHEREAS, on March 4, 2020, the Company entered into a Share Exchange Agreement with Duke Robotics, Inc., a Delaware corporation (“Duke”), and the several stockholders of Duke identified on Annex A thereto (the “Duke Share Exchange Agreement”); and
WHEREAS, all capitalized terms not defined herein shall have the meanings ascribed to them in the Duke Share Exchange Agreement; and
WHEREAS, the closing of the Duke Share Exchange Agreement is subject to various conditions precedent including, but not limited to, the conversion and exchange of certain outstanding debt, which debt includes the GBC Advances, in consideration of the issuance of additional shares of the Company Common Stock and convertible debentures to the holders of such debt in an amount not to exceed $400,000 in the aggregate (the “UAS Convertible Debt”) as provided in the Share Exchange Agreement, and the closing of the “Duke Funding” as defined in Annex B of the Duke Share Exchange Agreement (respectively, the “Closings”); and
WHEREAS, GBC, subject to the Closings, is willing to waive all outstanding interest that has accrued on the GBC Advances through the Effective Date of the transactions contemplated hereby and to exchange all of the $208,308 in GBC Advances for a total of 65,198 shares of the Company Common Stock comprised of “restricted securities” as defined in SEC Rule 144, together with a convertible debenture (the “New Debenture”) in the principal amount of $99,054 to be newly issued by the Company pursuant to this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed as follows:
1. Exchange. (a) Upon the terms and conditions set forth in this Agreement, and subject to the Closings, the Company hereby agrees to issue to GBC: (i) 65,198 shares of Company Common Stock, which the Parties agree shall have the status of “restricted securities” issued by a “shell company” as defined in Rule 12b-2 of the Exchange Act and be subject to the resale provisions in subparagraph (i) of SEC Rule 144; and (ii) the New Debenture in the principal amount of $99,054, which New Debenture shall be in the form attached hereto as Exhibit A and incorporated herein by reference, in exchange for: (i) the waiver of all accrued interest on the GBC Advances through the Closing Date of the transactions contemplated hereby; and (ii) the retirement and cancellation of all $208,308 in GBC Advances, which GBC Advances include a total of $199,611 advanced through September 30, 2019, as disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period then ended, together with $8,697 in additional advances through the date hereof. The issuance of such 65,198 shares and the New Debenture will be subject to forfeiture if there are no simultaneous Closings of the Duke Share Exchange Agreement and the Duke Funding. The Company shall promptly deliver the shares of the Company Common Stock and the New Debenture to GBC on the Closings of the transactions contemplated hereby.
(b) Registration Rights. In accordance with the provisions set forth in that certain Registration Rights Agreement being entered into by the Company, GBC and other security holders of the Company contemporaneously with the execution of this Agreement, (the “RRA”), within 30 calendar days following the earlier of (X) the Company having timely filed its form 10-K for the fiscal year ended December 2019 or (Y) it has finalized the second stage of the share exchange agreement with the stockholders of Duke Robotics, Inc. or (Z) March 31, 2020, the Company shall prepare and file with the SEC a Registration Statement (the “Registration Statement”) for a resale offering to be made on a continuous basis, registering the Conversion Shares (as defined in the New Debenture) issuable upon conversion of the New Debenture (the “Registrable Securities”) and shall use its commercially best efforts to keep such Registration Statement, with respect to GBC, continuously effective under the Securities Act until the earlier to occur of (i) the date on which GBC may sell the Conversion Shares then held in compliance with Rule 144, or (ii) all Conversion Shares covered by the Registration Statement have been sold by GBC.
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Notwithstanding the registration obligations set forth above, if the SEC informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform GBC thereof and use its commercially reasonable efforts to file amendments to the such Registration Statement as required by the SEC, covering the maximum number of Registrable Securities permitted to be registered by the SEC, on Form S-1 or such other form available to register for resale the Registrable Securities as a secondary offering, all as set forth in the RRA.
If the SEC or any SEC Guidance sets forth a limitation on the number of Registrable Securities, and any other securities being registered on the Registration Statement, permitted to be registered on a particular Registration Statement, unless otherwise directed in writing by GBC as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced on the basis set forth in the RRA.
For purposes of this Section 14, “SEC Guidance” means (i) any publicly-available written or oral guidance of the SEC staff, or any comments, requirements or requests of the SEC staff and (ii) the Securities Act.
If there is a conflict between this Agreement and the RRA, the RRA shall take precedence and will control.
(c) Six Month Lock-Up of the Outstanding Shares. The 437,500 GBC Outstanding Shares shall be restricted from sale or other disposition for a period of six months from the date of the Closings.
2. Mutual Release. As further consideration for the transactions contemplated hereby, each Party hereby releases acquits, and forever absolutely discharges the other Party and its past and present owners, management members, employees, servants, representatives, agents, attorneys, affiliated entities and persons, subrogees, heirs, executors, insurers, successors, and assigns from any and all actions, causes of action, claims, debts, liabilities, accounts, demands, damages, causes, claims for indemnification or contribution, or any other thing whatsoever whether known or unknown, suspected or unsuspected, certain or speculative, accrued or unaccrued that such Party ever had or now has relating to or arising out of past agreements, contracts, obligations and relationships written or verbal with the other Party; provided, however, that such mutual release shall not apply to any claims that may arise under or relate to this Agreement or the New Debenture.
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3. Representations and Warranties. Each Party hereto hereby represents and warrants to the other Party as follows:
(a) Authorization. Such Party has the full right, power and authority to enter into this Agreement and to perform the terms and provisions hereof. The execution, delivery and performance of this Agreement by such Party have been duly authorized by all necessary action on the part of such party, and this Agreement constitutes the valid and binding obligation of such Party, enforceable against such Party in accordance with its terms.
(b) No Conflicts. Neither the execution and delivery of this Agreement nor compliance with the terms and provisions hereof on the part of such Party shall breach any statutes or regulations of any governmental authority, domestic or foreign, or shall conflict with or result in a breach of such Party’s organizational document(s) (if applicable) or of any of the terms, conditions or provisions of any judgment, order, injunction, decree, agreement or instrument to which such Party is a party or by which it or its assets are or may be bound, or constitute a default thereunder or an event which with the giving of notice or passage of time or both would constitute a default thereunder, or require the consent of any person or entity.
(c) Consents and Approvals. No consent, waiver, approval, order, permit or authorization of, or declaration or filing with, or notification to, any person or entity is required on the part of such Party in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.
4. Representations, Warranties and Covenants of GBC.
GBC represents, warrants and agrees with, the Company that:
(a) This Agreement has been duly executed and delivered by GBC and constitutes a valid and binding obligation of GBC enforceable in accordance with its terms.
(b) GBC acknowledges its understanding that the transactions contemplated by this Agreement are intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).
(c) GBC has the financial ability to bear the economic risk of his investment, has adequate means for providing for its current financial needs and contingencies and has no need for liquidity with respect to its investment in the Company.
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(d) GBC is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act (17 C.F.R. 230.501(a)).
(e) GBC is not subject to or obligated under any provisions of any law, regulation, order, judgment or decree which would be breached or violated by the execution, delivery and performance of this Agreement by GBC and the consummation of the transactions contemplated hereby.
(f) GBC is an “affiliate” and the principal shareholder of the Company and has had full access to all information about the Company, without qualification, including, but not limited to, the information contained in all of its filings with the SEC made by the Company pursuant to the Exchange Act and which are contained in the Edgar Archives of the SEC.
5. Miscellaneous.
(a) Notices. All notices or other communications required or permitted by this Agreement or by law to be served on or given to either Party to this Agreement by the other Party shall be in writing and shall be deemed duly served when personally delivered to the Party at an address agreed upon by both Parties.
(b) Assignment. This Agreement and all the provisions hereof will be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.
(c) Governing Law. The validity, interpretation, construction and performance of this Agreement shall be determined in accordance with the provisions of the Share Exchange Agreement.
(d) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such provision or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(e) Amendment; Waiver. In the event either Party wishes to amend this Agreement, the Agreement may only be amended or waived in a writing executed by both Parties.
(f) Complete Agreement. This Agreement contains the complete agreement between the Parties hereto and supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way.
(g) Further Assurances. The Parties shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other Party hereto may reasonably request in order to carry out the intent an accomplish the purposes of this Agreement, if requested.
(h) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other Party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.
(i) Effective Date. The “Effective Date” of this Agreement shall be the date of the Closings of the Duke Share Exchange Agreement and the Duke Funding, and absent such Closings, this Agreement and the matters covered hereby shall have no effect whatsoever between the parties hereto, and the respective rights, obligations and duties of the parties under the Purchase Agreement and the Original Debentures shall continue, unchanged.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed this Exchange Agreement as of the date first written above.
| UAS DRONE CORP. | ||
| By: | /s/ Christopher J. Leith | |
| Name: Christopher J. Leith | ||
| Title: Acting CFO | ||
| GREENBLOCK CAPITAL, LLC | ||
| By: | /s/ Chris Spencer | |
| Name: Chris Spencer | ||
| Title: Managing Member | ||
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Exhibit 10.4
SECURITIES EXCHANGE AGREEMENT
THIS SECURITIES EXCHANGE AGREEMENT (this “Agreement”) is entered into and effective as of March 9, 2020 (the “Effective Date,” subject to Section 4(i) below) by and between UAS Drone Corp., a Nevada corporation (the “Company”) and [___________] (the “Investor”). Each of the Company and the Investor may be referred to individually as a “Party” and collectively as the “Parties”;
RECITALS:
WHEREAS, the Company was organized on February 4, 2015, with the intention of engaging in the business of developing and manufacturing commercial unmanned aerial systems, or drones, for the law enforcement and first responder markets;
WHEREAS, the Company’s extremely limited business operations were unsuccessful and, beginning with its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, its periodic reports as filed with the Securities and Exchange Commission (the “SEC”) have indicated that the Company is a “shell company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and subparagraph (i) of SEC Rule 144, which substantially limits the resale of shares of its $0.0001 par value common stock (the “Common Stock”) until it is no longer a shell company and twelve (12) months from the filing of “Form 10 Information” with the SEC reflecting that change of such designation;
WHEREAS, there is an extremely limited market for the Common Stock, with an average of five (5) shares traded per day over the preceding thirty (30) days, according to the OTC Markets, Inc. (the “OTC Markets”) website (www.otcmarkets.com/stock/USDR/quote);
WHEREAS, for the foregoing reasons, the Company has determined that the present value of its common stock is $0.0001 per share;
WHEREAS, pursuant to the terms of a Promissory Note dated September 02, 2019, Zuk Marble Products 1998 Ltd., a private company organized under the laws of Israel, with offices at Ha’taas 22 St. Kfar-Saba, Israel, company number 512652603 (“Zuk”), acting on behalf of the Investor and other parties, advanced the aggregate sum of $35,000 to the Company for payment of invoices from vendors and service providers to the Company (the “Note”);
WHEREAS, in connection with that certain Share Exchange Agreement dated March 4, 2020 (the “Duke Share Exchange Agreement”), by and between the Company; Duke Robotics, Inc., a Delaware corporation (“Duke”) and the several shareholders of Duke (the “Duke Shareholders”), the Investor has agreed with the Company to receive a total of 2,405,906 “unregistered” and “restricted” shares of the Common Stock, as a conversion of its portion of the $35,000 sum advanced by it to the Company under the terms of the Note, all in accordance with the terms set forth herein; and,
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed as follows:
1. Exchange. (a) Concurrent with the closing (the “Closing”) of those certain Convertible Loan Agreements dated March 9, 2020, in substantially the form annexed hereto as Exhibit A (collectively, the “CLAs”) with those investors listed on Annex A, the Company shall issue to the Investor [_________] shares of the Common Stock (the “Note Conversion Shares”) in satisfaction of the portion of the Investor in the Note, which, as of the date hereof is $[_______]1. The Parties agree that the Note Conversion Shares shall have the status of “restricted securities” issued by a “shell company” as defined in Rule 12b-2 of the Exchange Act and shall be subject to the resale provisions of subparagraph (i) of SEC Rule 144. Upon issuance of the Note Conversion Shares, the Investor (i) shall be deemed to have waived all accrued interest on the Note as of the Closing date of the transactions contemplated hereby; and (ii) agreed to the retirement and cancellation of the Note. The Company shall promptly deliver the Note Conversion Shares to the Investor at the Closing.
(b) Demand Registration Rights. Pursuant to the terms of that certain Registration Rights Agreement of even date herewith, and attached hereto as Exhibit B, the Investor shall have demand registration rights with respect to the Note Conversion Shares and the other “Registrable Securities” as defined in the Registration Rights Agreement, and in such proportions as set forth therein with respect to all Note Conversion Shares deriving from the Note.
(c) Anti-Dilution Protection. Upon the issuance of New Securities (as hereinafter defined) by the Company at a pre-money valuation of less than ten million U.S. dollars ($10,000,000) (collectively, the “Threshold Valuation”), the Company will issue to the Investor, without further consideration, that number of additional shares of Common Stock necessary to ensure that the number of shares issued to the Investor pursuant to Section 1(a) above and this Section 1(c) in the aggregate (the “Exchange Shares”), multiplied by the effective price per share at which such New Securities were issued, is not less than the product of multiplying the number of Exchange Shares as calculated immediately prior to the issuance of such New Securities by an effective price per shares of the New Securities had the New Securities been issued at the Threshold Valuation. An example of the foregoing is illustrated in Annex B hereof. The term “New Securities” shall mean any Common Stock or other equity securities of the Company, whether now authorized or not, any rights, options or warrants to purchase Common Stock or other equity securities and any indebtedness or preferred stock of the Company which is convertible into Common Stock or other equity securities (or which is convertible into a security which is, in turn, convertible into Common Stock or other equity securities); but shall specifically exclude (i) Common Stock issued to any employee, consultant or director of the Company, and approved by the Board of Directors, in an amount not to exceed 1,128,333 shares of Common Stock (subject to stock split and other structural adjustments), plus an additional 1.5% of the Company’s equity securities on a fully diluted basis, (ii) the issuance of Common Stock pursuant to the CLAs and (iii) the issuance of Common Stock to shareholders of Duke, in the second stage of its acquisition agreement with the Company, as accounted for and contemplated in the Duke Share Exchange Agreement, in an amount not to exceed 63,856 shares of Common Stock (subject to stock split and other structural adjustments). The term “Fully Diluted Basis”, as used above, means, at the relevant time, the sum of all of the Company’s equity or any type, class or series thereof then issuable upon the exercise or conversion of all then outstanding and exercisable warrants, options or convertible securities pursuant to which the Company is then obligated to issue such equity or type, class or series thereof, assuming such conversion or exchange took place at such time of calculation, without taking into consideration the shares of stock of the Company issuable to the Lenders under the CLAs solely pursuant thereto. The provisions of this Section 1(c) shall no longer apply to the issuance of New Securities once the Company has raised at least three million U.S. dollars ($3,000,000) at a weighted average pre-money valuation of ten million U.S. dollars ($10,000,000).
1 Pro rata of $35,000 amount.
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(d) Debenture Anti-Dilution. Upon any conversion of the debentures, as amended, dated March 9, 2020, between the Company and Alpha Capital Anstalt and GreenBlock Capital, copies of which are enclosed herewith as Exhibit C (the “Debentures”), the Company will issue to the Investor, without further consideration, that number of additional shares of Common Stock necessary to ensure that the number of shares issued to the Investor pursuant to Section 1(a and this Section 1(d) is equal to not less than [__]2% of the issued and outstanding share capital of the Company on a Fully Diluted Basis, without taking into consideration the outstanding and unconverted portion of the Debentures and any other New Securities, unless such New Securities were issued to the holders of the Debentures in lieu of the Debentures (other than a conversion in accordance with their terms as attached hereto) or issued to the holders of the Debentures for no consideration.
(e) Notice of Adjustment. Whenever the Anti-Dilution Protection set forth in Section 1(c) or the Debenture Anti-Dilution set forth in Section 1(d) is triggered, the Company shall promptly deliver to the Investor by facsimile or email a notice setting forth a brief statement of the facts requiring such adjustment and a calculation of the number of shares to be issued to the Investor upon such adjusted.
2. Representations and Warranties. Each Party hereto hereby represents and warrants to the other Party as follows:
(a) Authorization. Such Party has the full right, power and authority to enter into this Agreement and to perform the terms and provisions hereof. The execution, delivery and performance of this Agreement by such Party have been duly authorized by all necessary action on the part of such party, and this Agreement constitutes the valid and binding obligation of such Party, enforceable against such Party in accordance with its terms.
(b) No Conflicts. Neither the execution and delivery of this Agreement nor compliance with the terms and provisions hereof on the part of such Party shall breach any statutes or regulations of any governmental authority, domestic or foreign, or shall conflict with or result in a breach of such Party’s organizational document(s) (if applicable) or of any of the terms, conditions or provisions of any judgment, order, injunction, decree, agreement or instrument to which such Party is a party or by which it or its assets are or may be bound, or constitute a default thereunder or an event which with the giving of notice or passage of time or both would constitute a default thereunder, or require the consent of any person or entity.
(c) Consents and Approvals. No consent, waiver, approval, order, permit or authorization of, or declaration or filing with, or notification to, any person or entity is required on the part of such Party in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.
2 Pro rata amount of 24%
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3. Representations, Warranties and Covenants of Investors.
Each of the Investors hereby, severally and not jointly, represents, warrants and agrees with, the Company with respect to itself only, and not as to any other Investor, that:
(a) This Agreement has been duly executed and delivered by the Investor and constitutes a valid and binding obligation of the Investor enforceable in accordance with its terms.
(b) The Investor acknowledges its understanding that the transactions contemplated by this Agreement are intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).
(c) The Investor has the financial ability to bear the economic risk of his investment, has adequate means for providing for its current financial needs and contingencies and has no need for liquidity with respect to its investment in the Company.
(d) At the time such Investor made its loan under the Note, it was, and as of the date hereof it is a “non-US person” as defined in 902(k)(1) of Regulation S as promulgated under the Securities Act and/or the Investor is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act (17 C.F.R. 230.501(a)).
(e) The Investor is not subject to or obligated under any provisions of any law, regulation, order, judgment or decree which would be breached or violated by the execution, delivery and performance of this Agreement by the Investor and the consummation of the transactions contemplated hereby.
(f) The Investor has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in UAS and has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the UAS Stock, including, but not limited to the UAS SEC Reports and the Form 8-K Current Report to be filed with the SEC reflecting the post-Closing combination of UAS and Duke.
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(g) Neither the Investor nor, in the case of any non-individual investor, any of its predecessors, directors, executive officers, partners, or any beneficial owner of 10% or more of such Investor’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Investor in any capacity at the time of sale (each, an “Investor Covered Person” and, together, “Investor Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). Investor has exercised reasonable care to determine whether any Investor Covered Person is subject to a Disqualification Event.
4. Miscellaneous.
(a) Notices. All notices or other communications required or permitted by this Agreement or by law to be served on or given to either Party to this Agreement by the other Party shall be in writing and shall be deemed duly served when personally delivered to the Party at an address agreed upon by both Parties.
(b) Assignment. This Agreement and all the provisions hereof will be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.
(c) Governing Law. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
(d) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such provision or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
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(e) Amendment; Waiver. In the event either Party wishes to amend this Agreement, the Agreement may only be amended or waived in a writing executed by both Parties.
(f) Complete Agreement. This Agreement contains the complete agreement between the Parties hereto and supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way.
(g) Further Assurances. The Parties shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other Party hereto may reasonably request in order to carry out the intent an accomplish the purposes of this Agreement, if requested.
(h) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other Party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.
(i) Effective Date. The “Effective Date” of this Agreement shall be the date of the Closings of the Duke Share Exchange Agreement and the Duke Funding, and absent such Closings, this Agreement and the matters covered hereby shall have no effect whatsoever between the parties hereto, and the respective rights, obligations and duties of the parties under the Purchase Agreement and the Original Debentures shall continue, unchanged.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed this Securities Exchange Agreement as of the date first written above.
| UAS DRONE CORP. | ||
| By: | ||
| Name: | ||
| Title: | ||
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SECURITIES EXCHANGE AGREEMENT
COUNTERPART SIGNATURE PAGE
This Counterpart Signature Page for that certain Securities Exchange Agreement (the “Agreement”) effective as of the earlier of the signature date hereof or delivery of this Agreement (the Effective Date”), among UAS Drone Corp., a Nevada corporation (the “Company”); and the undersigned Investor, by which the Investor, through execution and delivery of this Counterpart Signature Page, intends to be legally bound by the terms of the Agreement.
| INVESTOR | ||
| By: | ||
| Name: | ||
| Title: | ||
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Annex A
Schedule of Investors
| Name | Loan | Already advanced | % | No. of Shares | % of holdings | Balance | ||||||||||||||||||||||
| Ansbacher | $ | 250,000 | $ | 8,750 | 25.00 | % | 2,405,906 | 6.00 | % | $ | 241,250 | 25.00 | % | |||||||||||||||
| Benitez | $ | 250,000 | $ | 8,750 | 25.00 | % | 2,405,906 | 6.00 | % | $ | 241,250 | 25.00 | % | |||||||||||||||
| Danenberg | $ | 134,715 | $ | 4,715 | 13.47 | % | 1,296,447 | 3.23 | % | $ | 130,000 | 13.47 | % | |||||||||||||||
| Zuk Marble | $ | 198,618 | $ | 6,952 | 19.86 | % | 1,911,425 | 4.77 | % | $ | 191,666 | 19.86 | % | |||||||||||||||
| Meytal -Alonim ltd. | $ | 166,667 | $ | 5,833 | 16.67 | % | 1,603,937 | 4.00 | % | $ | 160,834 | 16.67 | % | |||||||||||||||
| $ | 1,000,000 | $ | 35,000 | 100.00 | % | 9,623,621 | 24.00 | % | $ | 965,000 | 100 | % | ||||||||||||||||
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Annex B
Illustration of Application of Section 1(c)
In each event of issuance of New Securities at a pre-money valuation of less than the Threshold Valuation (a “Trigger Event”), the Company will calculate and issue additional shares of Common Stock to the Investor (“Additional Shares”), for no consideration, the number of which shall be calculated as follows
| Y- | NUMBER OF SHARES OF COMMON STOCK PREVIOUSLY ISSUED TO INVESTOR UNDER SECTIONS 1(A) AND 1(C), IN THE AGGREGATE, PRIOR TO APPLICABLE TRIGGET EVENT. |
TVPPS - AT THE FIRST ISSUANCE OF NEW SECURITIES BELOW THE THRESHOLD AMOUNT, FOLLOWING THE CLOSING - $0.24939144. FOR SUBSEQUENT ISSUANCES - THE PREVIOUS PRICE PER SHARE AT WHICH NEW SECURITIES WERE ISSUED.
| PPS1- | EFFECTIVE PRICE PER SHARE AT WHICH THE COMPANY ISSUED NEW SECURITIES COMPRISING THE TRIGGER EVENT. |
| X- | NUMBER OF ADDITIONAL SHARES TO BE ISSUED TO INVESTOR |
| X= | (Y*TVPPS/PPS1)-Y |
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Exhibit A
Form of Convertible Loan Agreement
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Exhibit B
Form of Registration Rights Agreement
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Exhibit C
Alpha Capital Anstalt and GreenBlock Capital Debentures, as amended
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Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of March 9, 2020, amongst UAS Drone Corp., an OTC public corporation having its registered office at 420 Royal Palm Way, Palm Beach FL 33480, USA (the “Company”) and the Investors identified in Schedule A (each, an “Investor” and collectively, the “Investors”).
WHEREAS:
A. In connection with a series of Securities Exchange Agreements and Convertible Loan Agreements by and among the parties hereto of even date herewith, as listed on Schedule B (the “Company Reorganization Agreements”), the Investors have agreed with the Company, upon the terms and subject to the conditions of the Company Reorganization Agreements, to receive shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), as converted from outstanding debt of the Company to the Investors or in exchange for the shares Duke Robotics Inc. (the “Transaction Shares”), all in accordance with the terms of the Company Reorganization Agreements. Capitalized terms not defined herein shall have the meaning ascribed to them in the Company Reorganization Agreements.
B. To induce the Investors to convert their loans to the Conversion Shares and/or exchange their shares in Duke, as applicable, and execute and deliver the Company Reorganization Agreements, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws and other rights as provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings:
(a) “Effectiveness Deadline” means, with respect to a Registration Statement filed hereunder, the 45th calendar day following the date filed (or, in the event of a “full review” by the Commission, the 90th calendar day following date filed), provided, however, that the Company is in good faith replying any comments received from the U.S. Securities and Exchange Commission (“SEC”) upon review of the Registration Statement, or in the event the Company is notified by the SEC that one of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the 5th Trading Day following the date on which the Company is so notified if such date precedes the dates required above.
(b) “Filing Deadline” means, with respect to the initial Registration Statement required hereunder, the 30th calendar day following the date the Company receives a Filing Notice.
(c) “Filing Notice” means a written notice from an Investor to the Company to file a Registration Statement and stating the number of Registrable Securities to be included on such Registration Statement, provided however that the Investors shall not be entitled to issue such Filing Notice until the earlier of (X) the Company having timely filed its form 10-K for the fiscal year ended December 2019 or (Y) it has finalized the second stage of the share exchange agreement with the stockholders of Duke Robotics, Inc.; but in any event no later than March 31, 2020 ( any such date referred to herein as the “Filing Notice Entitlement Date”).
(d) “Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
(e) “Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
(f) “Registrable Securities” means (i) all of the Conversion Shares (to the extent calculable upon the filing of an initial Registration Statement), (ii) any additional shares issuable in connection with any anti-dilution provisions in the Securities Exchange Agreement and (iii) any shares of Common Stock issued or issuable with respect to the Conversion Shares, as a result of any stock split, dividend or other distribution, recapitalization or similar event or otherwise.
(g) “Registration Statement” means the registration statements required to be filed hereunder (including any additional registration statements contemplated by Section 3(c)), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
(h) “Rule 415” means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.
(i) “Trading Day” means a day on which the principal Trading Market is open for trading.
(j) “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board or OTCQB Marketplace operated by OTC Markets Group, Inc. (or any successors to any of the foregoing).
2. REGISTRATION.
(a) The Company’s registration obligations set forth in this Section 2 including its obligations to file Registration Statements upon receipt of Filing Notices, obtain effectiveness of Registration Statements, and maintain the continuous effectiveness of Registration Statement that have been declared effective shall begin on the date hereof and continue until all the Registrable Securities have been sold or may permanently be sold without any restrictions pursuant to Rule 144, as determined by the counsel to the Company or Investor’s Counsel pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the “Registration Period”).
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(b) Anytime during the Registration Period, but not until the Filing Notice Entitlement Date, an Investor shall have the right to deliver to the Company a Filing Notice as provided for herein which shall trigger the Company’s obligations to file a Registration Statement as set forth below.
(c) After receipt of a Filing Notice, the Company shall, on or prior to the Filing Deadline, prepare and file with the SEC a Registration Statement on Form S-1 (or, if the Company is then eligible, on Form S-3) covering the resale by the Investors of all of the Registrable Securities set forth in such Filing Notice. Each Registration Statement shall contain the “Selling Stockholders” and “Plan of Distribution” sections in substantially the form attached hereto as Exhibit A and contain all the required disclosures set forth on Exhibit B. The Company shall use its best efforts to have each Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Effectiveness Deadline. By 9:30 am on the date following the date of effectiveness, the Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final Prospectus to be used in connection with sales pursuant to such Registration Statement. Prior to the filing of the Registration Statement with the SEC, the Company shall furnish a draft of the Registration Statement to Selling Stockholders’ counsel for review and comment. Such counsel shall furnish comments on the Registration Statement to the Company within 72 hours of the receipt thereof from the Company.
(d) During the Registration Period, the Company shall (i) promptly prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the Prospectus used in connection with a Registration Statement, which Prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, (ii) prepare and file with the SEC additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the SEC with respect to a Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Investor true and complete copies of all correspondence from and to the SEC relating to a Registration Statement (provided that the Company may excise any information contained therein which would constitute material non-public information as to any Investor which has not executed a confidentiality agreement with the Company); and (iv) comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 2(d)) by reason of the Company’s filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company shall incorporate such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the Exchange Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.
(e) Reduction of Registrable Securities Included in a Registration Statement. Notwithstanding anything contained herein, in the event that the SEC requires the Company to reduce the number of Registrable Securities to be included in a Registration Statement in order to allow the Company to rely on Rule 415 with respect to a Registration Statement, then the Company shall be obligated to include in such Registration Statement (which may be a subsequent Registration Statement if the Company needs to withdraw a Registration Statement and refile a new Registration Statement in order to rely on Rule 415) only such limited portion of the Registrable Securities as the SEC shall permit, in accordance with the order of registration preference set forth on Schedule C attached hereto. Any Registrable Securities that are excluded in accordance with the foregoing terms are hereinafter referred to as “Cut Back Securities.” To the extent Cut Back Securities exist, as soon as may be permitted by the SEC, the Company shall be required to file a Registration Statement covering the resale of the Cut Back Securities (subject also to the terms of this Section, including to the principles governing the order of registration preference set forth on Schedule C) and shall use best efforts to cause such Registration Statement to be declared effective as promptly as practicable thereafter.
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(f) Failure to File or Obtain Effectiveness of the Registration Statement or Remain Current. If: (i) a Registration Statement is not filed on or prior to its Filing Date (if the Company files a Registration Statement without affording Investors counsel the opportunity to review and comment on the same as required by Section 2(c), the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the SEC a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within 5 Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the SEC that a Registration Statement will not be “reviewed,” or not subject to further review, or (iii) a Registration Statement filed or required to be filed hereunder is not declared effective by the SEC by its Effectiveness Deadline, or (iv) after the effectiveness, a Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities for more than 30 consecutive calendar days or more than an aggregate of 40 calendar days during any 12-month period (which need not be consecutive calendar days), or (v) if after the six month anniversary of the date hereof, the Company does not have available adequate current public information as set forth in Rule 144(c) (any such failure or breach being referred to as an “Event”), then in addition to any other rights the holders of the Conversion Shares may have hereunder or under applicable law, on each such Event date and on each monthly anniversary of each such Event date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each holder of Conversion Shares an amount in cash, as partial liquidated damages (“Liquidated Damages”) and not as a penalty, equal to 0.25% of the value of the Registrable Securities as reflected on the Trading Market for every 30 day period such failure remains in effect, but such penalties shall not accrue for more than 12 months in the aggregate.
(g) Liquidated Damages. The Company and the Investors hereby acknowledge and agree that the sums payable under subsection 2(f) above shall constitute liquidated damages and not penalties and are in addition to all other rights of the Investor, including the right to call a default. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred is incapable or is difficult to precisely estimate, (ii) the amounts specified in such subsections bear a reasonable relationship to, and are not plainly or grossly disproportionate to, the probable loss likely to be incurred in connection with any failure by the Company to obtain or maintain the effectiveness of a Registration Statement, (iii) one of the reasons for the Company and the Investors reaching an agreement as to such amounts was the uncertainty and cost of litigation regarding the question of actual damages, and (iv) the Company and the Investors are sophisticated business parties and have been represented by sophisticated and able legal counsel and negotiated this Agreement at arm’s length.
3. RELATED OBLIGATIONS.
(a) The Company shall, not less than three 3 Trading Days prior to the filing of each Registration Statement and not less than 2 Trading Days prior to the filing of any related amendments and supplements to all Registration Statements (except for annual reports on Form 10-K), furnish to the Investors electronic copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the reasonable and prompt review of Investors’ counsels, the Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which an Investor’s counsel shall reasonably object in good faith; provided that, the Company is notified of such objection in writing no later than 3 Trading Days after Investor has been so furnished copies of a Registration Statement.
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(b) The Company shall furnish to an Investor whose Registrable Securities are included in any Registration Statement, which obligation may be met by directing the Investor to www.sec.gov, (i) an electronic copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) an electronic copy of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.
(c) The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its articles of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(c), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
(d) As promptly as practicable after becoming aware of such event or development, the Company shall notify each Investor in writing of the happening of any event as a result of which the Prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver an electronic copy of such supplement or amendment to each Investor, which delivery obligation may be fulfilled by directing the Investor to www.sec.gov. The Company shall also promptly notify each Investor in writing (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.
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(e) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
(f) If, after the execution of this Agreement, an Investor believes, after consultation with its legal counsel, that it could reasonably be deemed to be an underwriter of Registrable Securities, at the request of any Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as a Investor may reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investors.
(g) If, after the execution of this Agreement, an Investor believes, after consultation with its legal counsel, that it could reasonably be deemed to be an underwriter of Registrable Securities, at the request of any Investor, the Company shall make available for inspection by (i) any Investor and (ii) one (1) firm of accountants or other agents retained by the Investors (collectively, the “Inspectors”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and each Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to a Investor) or use any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the Securities Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector and the Investor has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.
(h) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.
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(i) The Company shall use its best efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (ii) the inclusion for quotation on the Trading Market for such Registrable Securities. The Company shall pay all reasonable fees and expenses in connection with satisfying its obligation under this Section 3(i).
(j) The Company shall cooperate with each Investor who holds Registrable Securities being offered and, to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request.
(k) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
(l) Within 2 business days after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor whose Registrable Securities are included in such Registration Statement) confirmation in such form customary for such notices of effectiveness, that such Registration Statement has been declared effective by the SEC.
(m) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
(a) The Investors agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(d) such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(d) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of an Investor in accordance with the terms of the applicable Company Reorganization Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(d) and for which the Investor has not yet settled.
(b) The Investor covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to the Registration Statement.
5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company.
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6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). The Company shall reimburse the Investor and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9 hereof.
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(b) In connection with a Registration Statement, the Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers, employees, representatives, or agents and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to each Investor prior to such Investor’s use of the prospectus to which the Claim relates.
(c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one (1) counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
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(d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
(e) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“Rule 144”), and as a material inducement to the Investor’s purchase of the Convertible Debentures, the Company represents, warrants, and covenants to the following:
(a) The Company is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act and has filed all required reports under section 13 or 15(d) of the Exchange Act during the 12 months prior to the date hereof (or for such shorter period that the issuer was required to file such reports),
(b) During the Registration Period, the Company shall file with the SEC in a timely manner all required reports under section 13 or 15(d) of the Exchange Act (it being understood that nothing herein shall limit the Company’s obligations under the Securities Exchange Agreement) and such reports shall conform to the requirement of the Exchange Act and the SEC for filing thereunder.
(c) The Company shall furnish to the Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the parties to the Convertible Loan Agreement who then hold at least two-thirds (2/3) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to fewer than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
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10. MISCELLANEOUS.
(a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities or owns the right to receive the Registrable Securities. If the Company receives conflicting instructions, notices or elections from two (2) or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
(b) No Other Piggybacks on Registrations. Neither the Company nor any of its security holders (other than the Investor in such capacity pursuant hereto) may include securities of the Company in the initial Registration Statement other than the Registrable Securities. The Company shall not file any other registration statements until the initial Registration Statement required hereunder is declared effective by the SEC, provided that this Section 10(b) shall not prohibit the Company from filing amendments to registration statements already filed and in effect.
(c) Piggy-Back Registrations. If at any time there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the SEC a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans), then the Company shall send to the Investor a written notice of such determination and, if within fifteen (15) days after the date of such notice, any such Investor shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Investor requests to be registered; provided, however, that, the Company shall not be required to register any Registrable Securities pursuant to this Section 10(c) that are eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act or that are the subject of a then effective Registration Statement.
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(d) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered upon: (i) receipt, when delivered personally, (ii) 1 Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same, or (iii) receipt, when sent by electronic mail (provided that the electronic mail transmission is not returned in error or the sender is not otherwise notified of any error in transmission. The addresses and e-mail addresses for such communications shall be:
If to the Company, to: |
|||
UAS Drone, Inc. 420 Royal Palm Way, Suite #100 Palm Beach, Florida 33480 Attention: Chief Executive Officer | |||
| With Copy to: | ZAG/Sullivan | ||
1633 Broadway, 32nd Floor New York, New York 10019 Attn: Oded Har-Even Telephone: (212) 660-5002 Email: ohareven@sullivanlaw.com | |||
| If to the Investor: | To the address on Schedule A | ||
| With a copy to: | Avraham Ben-Tzvi, Adv. | ||
| 15 Yad Harutzim St | |||
| Jerusalem, Israel | |||
| Telephone: | +972-79-5722070 | ||
| Email: | abz@abz-law.com | ||
(e) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
(f) Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
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(g) This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.
(h) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(i) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
(j) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
(k) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
(l) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Investor and the Company have caused their signature page to this Registration Rights Agreement to be duly executed as of the date first above written.
| UAS DRONE CORP. | ||
| By: | /s/ Christopher J. Leith | |
| Name: | Christopher J. Leith | |
| Title: | Acting CFO | |
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Schedule A
List of Investors
Group 1 – Bridge Loan Note Conversion Shares – Issued
| Name | Address | Number of Shares | Signature | |||||||
| Elisheva Ansbacher | 5201 Pinetree Drive Miami Beach, FL 33140 | 2,405,906 | /s/ Elisheva Ansbacher | |||||||
| Ximena Benítez Garcia | Protasio Tagle 59 San Miguel Chapultepec 11850, Miguel Hidalgo CDMX, Mexico | 2,405,906 | /s/ Ximena Benítez Garcia | |||||||
| Noam Danenberg | 4 Borochov Street Hod Hasharon Israel 4520404 | 1,296,447 | /s/ Noam Danenberg | |||||||
| Moshe Zuk | 15 Remez Street Hod Hasharon Israel 4520215 | 1,911,425 | /s/ Moshe Zuk | |||||||
| Eran Meytal | Mordechai Elkahi 31 Tel Aviv, Israel | 1,603,937 | /s/ Eran Meytal | |||||||
[Schedule A follows on next page]
Schedule A
List of Investors Continued
Group 2 – Certain Duke Robotics Shareholders exchange shares - Issued
| Name | Address | Number of Shares | Signature | |||
| Erez Alroy | Yehiel Drezner 1, Tel Aviv, ISRAEL |
1,242,100 | /s/ Erez Alroy | |||
| Erez Alroy Investments Ltd. | Yehiel Drezner 1, Tel Aviv, ISRAEL |
74,701 | /s/ Erez Alroy Investments Ltd. By: Erez Alroy Title: CEO | |||
| D-Beta One EQ Ltd. | C/O Maples Corporate Services Ltd, P.O. Box 309, Ugland House, Grand Cayman |
120,761 | /s/ D-Beta One EQ Ltd By: Yorkville Advisors Global LP Investment manager By: David Gonzalez Title: Partner & General Counsel | |||
| Runuman Ltd. | C/O Eyal Segal, 4 Hateena St., Ganot, ISRAEL |
869,470 | /s/ Runuman Ltd. By: Eyal Segal Title: CEO | |||
| Shmuel Yanay | Kharsit St 7, Sha'arei Tikva, ISRAEL |
1,423,453 | /s/ Shmuel Yanay |
[Schedule A follows on next page]
Schedule A
List of Investors Continued
Group 3 – Legacy USDR Shareholders - Issued
| Name | Address | Number of Shares | Signature | |||
| GreenBlock Capital, LLC | 420 Royal Palm Way, #100 Palm Beach, FL 33480 |
502,698 | /s/ GreenBlock Capital, LLC | |||
| Alpha Capital Anstalt | Lettstrasse 32 9490 Vaduz Principality of Liechtenstein |
698,755 | /s/ Alpha Capital Anstalt |
[Schedule A follows on next page]
Schedule A
List of Investors Continued
Group 4 – Convertible Loan Lenders
| Name | Address | Number of Shares | Signature | |||
| Elisheva Ansbacher | 5201 Pinetree Drive Miami Beach, FL 33140 |
Shares issuable upon conversion of aggregate principal amount of $241,250 |
/s/ Elisheva Ansbacher | |||
| Ximena Benítez Garcia | Protasio Tagle 59 San Miguel Chapultepec 11850, Miguel Hidalgo CDMX, Mexico |
Shares issuable upon conversion of aggregate principal amount of $241,250 |
/s/ Ximena Benítez Garcia | |||
| Noam Danenberg | 4 Borochov Street Hod Hasharon Israel 4520404 |
Shares issuable upon conversion of aggregate principal amount of $130,000 |
/s/ Noam Danenberg | |||
| ZUK MARBLE PRODUCTS 1998 LTD | Zuk Marble Products, Inc. 15 Remez Street Hod Hasharon Israel 4520215 |
Shares issuable upon conversion of aggregate principal amount of $191,666 |
/s/ ZUK MARBLE PRODUCTS 1998 LTD | |||
| Alonim Marketing and sales promotion LTD | Mordechai Elkahi 31 Tel Aviv, Israel |
Shares issuable upon conversion of aggregate principal amount of $160,834 |
/s/ Alonim Marketing and sales promotion LTD |
[Schedule A follows on next page]
Schedule B
Company Reorganization Agreements
| ● | Share Exchange Agreement by and between UAS Drone Corp., Duke Robotics, Inc. and the various stockholders of Duke Robotics, Inc. |
| ● | Securities Exchange Agreement by and between UAS Drone Corp. and GreenBlock Capital |
| ● | Convertible Debenture of UAS Drone Corp. issued to GreenBlock Capital |
| ● | Securities Exchange Agreement by and between UAS Drone Corp. and Alpha Capital Anstalt |
| ● | Convertible Debenture of UAS Drone Corp. issued to Alpha Capital Anstalt |
| ● | Convertible Loan Agreements by and among UAS Drone Corp., and various lenders dated of even date herewith. |
Schedule C
Priority in Registration
The Parties to this Agreement hereby agree that, notwithstanding any registration priorities set forth in any other agreement to which they are party, with respect to the first Demand Registration under this Agreement, to the extent that he number of securities requested to be included in such registration exceeds the number which may be included in such registration without the Securities and Exchange Commission requesting or requiring a reduction as to such selling stockholder a reduction in such amount, that the Registrable Securities included in such registration shall be so included in the following order of priority:
| (i) | First, at least one-third (1/3) of the Registrable Securities of Group 1 on Schedule A, pro rata on the basis of the aggregate number of Registrable Securities owned by all of Group 1 on Schedule A who have delivered written requests for registration; |
| (ii) | Second, at least one-third (1/3) of the Registrable Securities of Group 2 on Schedule A, pro rata on the basis of the aggregate number of Registrable Securities owned by all of Group 2 on Schedule A who have delivered written requests for registration; |
| (iii) | Third, at least one-third (1/3) of the Registrable Securities of Group 3 on Schedule A, pro rata on the basis of the aggregate number of Registrable Securities owned by all of Group 3 on Schedule A who have delivered written requests for registration; |
| (iv) | Fourth, at least one-third (1/3) of the Registrable Securities of Group 4 on Schedule A, pro rata on the basis of the aggregate number of Registrable Securities owned by all of Group 4 on Schedule A who have delivered written requests for registration; |
| (v) | Fifth, any shares of Common Stock requested to be included pursuant to the exercise of other contractual registration rights granted by the Company, pro rata among such holders (if applicable) on the basis of the aggregate number of securities requested to be included by such holders; and |
| (vi) | Sixth; any remaining Registrable Securities of Group 1 on Schedule A, pro rata on the basis of the aggregate number of Registrable Securities owned by all of Group 1 on Schedule A who have delivered written requests for registration. |
EXHIBIT A
SELLING STOCKHOLDERS
AND PLAN OF DISTRIBUTION
Selling Stockholders
We are registering the shares of Common Stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except as otherwise noted and except for the ownership of the Loans issued pursuant to a Convertible Loan Agreement, the selling stockholders have not had any material relationship with us within the past three years. For additional information regarding the provision of the convertible loans, see “Private Placement of Convertible Loans” above.
The table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of Common Stock by each of the selling stockholders. The second column lists the number of shares of Common Stock beneficially owned by each selling stockholder, based on its ownership of any convertible debentures, as of ________, 200_, assuming conversion of all the convertible debenture held by the selling stockholders on that date, without regard to any limitations on conversions or exercise.
The third column lists the shares of Common Stock being offered by this prospectus by the selling stockholders.
In accordance with the terms of a registration rights agreement with the selling stockholders, this prospectus generally covers the resale of at least ___________ shares of common stock issued to the selling stockholders. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.
The selling stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
Name of Selling Stockholder |
Number of Shares Owned Prior to Offering | Maximum Number of Shares to be Sold Pursuant to this Prospectus | Number of Shares Owned After Offering | |||
Plan of Distribution
We are registering the securities issued to the selling stockholders to permit the resale of these securities by the holders thereof from time to time after the date of this prospectus, pursuant to the provisions of the Registration Rights Agreement. As used in this Prospectus, “selling stockholders” includes donees, pledgees, transferees or other successors-in-interest selling shares received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other permitted transfer.
We will not receive any of the proceeds from the sale by the selling stockholders of the securities. We will bear all fees and expenses incident to our obligation to register the securities.
The selling stockholders may sell all or a portion of the securities beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the securities are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The securities may be sold on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, in the over-the-counter market or in transactions otherwise than on these exchanges or systems or in the over-the-counter market and in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions. The selling stockholders may use any one or more of the following methods when selling shares:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; |
| ● | privately negotiated transactions; |
| ● | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| ● | broker-dealers may agree with the selling stockholders to sell a specified number of such securities at a stipulated price per share; |
| ● | through the writing or settlement of options or other hedging transactions, whether such options are listed on an options exchange or otherwise; |
| ● | a combination of any such methods of sale; and |
| ● | any other method permitted pursuant to applicable law. |
The selling stockholders also may resell all or a portion of the securities in open market transactions in reliance upon Rule 144 under the Securities Act, as permitted by that rule, or Section 4(1) under the Securities Act, if available, rather than under this prospectus, provided that they meet the criteria and conform to the requirements of those provisions.
Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. If the selling stockholders effect such transactions by selling securities to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the securities for whom they may act as agent or to whom they may sell as principal. Such commissions will be in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction will not be in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.01.
In connection with sales of the securities or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging in positions they assume. The selling stockholders may also sell securities short and if such short sale shall take place after the date that this Registration Statement is declared effective by the Commission, the selling stockholders may deliver securities covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge securities to broker-dealers that in turn may sell such shares, to the extent permitted by applicable law. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). Notwithstanding the foregoing, the selling stockholders have been advised that they may not use shares registered on this registration statement to cover short sales of our common stock made prior to the date the registration statement, of which this prospectus forms a part, has been declared effective by the SEC.
The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the securities owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the securities from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the securities in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealer or agents participating in the distribution of the securities may be deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act in connection with such sales. In such event, any commissions paid, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Selling Stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the applicable prospectus delivery requirements of the Securities Act including Rule 172 thereunder and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Each selling stockholder has informed the Company that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. Upon the Company being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the securities were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In no event shall any broker-dealer receive fees, commissions and markups, which, in the aggregate, would exceed eight percent (8.0%).
Under the securities laws of some states, the securities may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the securities may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. Subject to the terms of the Registration Rights Agreement, the Company has no obligation to qualify the resale of any shares in any particular state.
There can be no assurance that any selling stockholder will sell any or all of the securities registered pursuant to the shelf registration statement, of which this prospectus forms a part.
Each selling stockholder and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the securities by the selling stockholder and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to the shares of Common Stock. All of the foregoing may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities with respect to the shares of Common Stock.
We will pay all expenses of the registration of the securities pursuant to the registration rights agreement, including, without limitation, Securities and Exchange Commission filing fees and expenses of initial compliance with state securities or “blue sky” laws; provided, however, that each selling stockholder will pay all underwriting discounts and selling commissions, if any and any related legal expenses incurred by it.
We agreed to keep this prospectus effective until all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
EXHIBIT B
OTHER DISCLOSURES
See attachment provided separately.
Exhibit 10.6
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. THIS DEBT REFLECTED IN THIS DEBENTURE IS FULLY SUBORDINATE TO OTHER DEBT OF THE ISSUER, OTHER THAN IN ITS CONVERSION IN ACCORDANCE WITH ITS TERMS.
Original Issue Date: March 9, 2020
Original Conversion Price (subject to adjustment herein): $0.374
$300,946
8% CONVERTIBLE DEBENTURE
DUE MARCH 9, 2023
THIS 8% CONVERTIBLE DEBENTURE (“New Debenture” or “Debenture”) replaces, exchanges and cancels those duly authorized and validly issued 8% Convertible Debentures (the “Original Debentures”) of UAS Drone Corp., a Nevada corporation (the “Company”), having its principal place of business at 420 Royal Palm Way, #100, Palm Beach, Florida 33480, that were issued pursuant that certain Securities Purchase Agreement dated as of March 31, 2015, as amended (the “Purchase Agreement”), by and between the Company and Alpha Capital Anstalt, a Liechtenstein anstalt (the “Purchaser”),.
FOR VALUE RECEIVED, the Company promises to pay to ALPHA CAPITAL ANSTALT or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of Three Hundred Thousand Nine Hundred Forty Six Dollars ($300,946) on March 9, 2023 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:
“Affiliate” (including, with a correlative meaning, “affiliated”) means, when used with respect to a specified Person, a Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by or is under common Control with such specified Person.
“Alternate Consideration” shall have the meaning set forth in Section 5(c).
“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Common Stock” shall mean the $0.0001 par value authorized common stock of the Company.
“Common Stock Equivalents” means any securities of the Company or any Subsidiary of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
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“Control”, “Controlled” and “Controlling” mean, when used with respect to any specified Person, the power to vote at least 25% of the voting power of a Person, or the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract or otherwise, and the terms “Controlled by” and “under common Control with” shall be construed accordingly.
“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.
“Debenture Register” shall have the meaning set forth in Section 2(c).
“Derivative Instrument” means any and all derivative securities (as defined under Rule 16a-1 under the Exchange Act) that increase in value as the value of any Equity Securities of the Company increases, including a long convertible security, a long call option and a short put option position, in each case, regardless of whether (a) such derivative security conveys any voting rights in any Equity Security, (b) such derivative security is required to be, or is capable of being, settled through delivery of any Equity Security or (c) other transactions hedge the value of such derivative security.
“Duke Share Exchange Agreement” shall mean the Share Exchange Agreement dated March 4, 2020, with Duke Robotics, Inc., a Delaware corporation (“Duke”), and the several shareholders of Duke as signatories thereto.
“Equity Right” means, with respect to any Person, any security (including any preferred share, capital note, debt security or hybrid debt-equity security) or obligation convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, or any options, calls, warrants, restricted shares, restricted shares units, deferred share awards, share units, “phantom” awards, dividend equivalents, participations, interests, rights or commitments relating to, or any share appreciation right or other instrument the value of which is determined in whole or in part by reference to the market price or value of, shares of capital stock or earnings of such Person.
“Equity Securities” means (a) common stock, preferred shares or other capital stock or equity interests or equity-linked interests of the Company and (b) Equity Rights that are directly or indirectly exercisable or exchangeable for or convertible into common stock, preferred shares or other capital stock or equity interests or equity-linked interests of the Company.
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“Event of Default” shall have the meaning set forth in Section 8(a).
“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Debenture, provided that such securities have not been amended since the date of this Debenture to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
“Fundamental Transaction” shall have the meaning set forth in Section 5(c).
“Group” has the meaning assigned to such term in Section 13(d)(3) of the Exchange Act.
“Group Member” means, with respect to any specified Person, any Affiliate of the specified Person that is, directly or indirectly, Controlled by the specified Person and includes any Person with respect to which the specified Person is a direct or indirect Subsidiary.
“Hedging Arrangement” means any transaction or arrangement, including through the creation, purchase or sale of any security, including any security-based swap, swap, cash-settled option, forward sale agreement, exchangeable note, total return swap or other derivative, in each case, the effect of which is to hedge the risk of owning the Debenture and/or any Conversion Shares (including prior to any Conversion).
“Mandatory Default Amount” means 100% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) other reasonable legal costs and expenses incurred by Holder in enforcing this Debenture.
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“New York Courts” shall have the meaning set forth in Section 9(d).
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“OTC Markets” means the OTC Markets, Inc.
“Original Issue Date” means March 9, 2020.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated association, corporation, firm or other entity or group (as defined in the Exchange Act) or any governmental authority.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 31, 2015, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Registration Statement” means a registration statement meeting the requirements set forth in the Securities Act.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Securities Exchange Agreement” means Securities Exchange Agreement between the Company and the Purchaser entered into as of the date of this Debenture and to which this Debenture is Exhibit A thereto.
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Successor Entity” shall have the meaning set forth in Section 5(c).
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB, OTCQX or the OTC Pink Tier (or any successors to any of the foregoing).
“Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the OTC Pink Tier published by OTC Markets (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
Section 2. Interest.
a) Payment of Interest in Cash. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 8% per annum, payable on each Conversion Date (as to that principal amount then being converted), and on the Maturity Date, solely in Common Stock of the Company.
b) Interest Calculations. Interest shall be calculated on the basis of a three-hundred and sixty (360) day year, consisting of twelve (12) thirty (30) calendar day periods, and shall accrue daily commencing on the Original Issue Date until the conversion in full of the outstanding principal, together with all accrued and unpaid interest, and other amounts which may become due hereunder, has been made.
c) [Reserved]
d) Prepayment. Upon five (5) business days’ prior written notice to the Holder, the Company may prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder and without penalty.
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Section 3. Restriction on Transfers and Encumbrances.
| a) | No Assignment. During the term of this Debenture, the Debenture may not be transferred, assigned or hypothecated without the prior written consent of the Company, such consent to be given or withheld at its sole discretion. The entry by the Holder into a Hedging Arrangement with respect to the Debenture and/or any Conversion Shares (including prior to any Conversion) shall be deemed to be a transfer of such for purposes of this Section, and subject to such restrictions as aforesaid. |
| b) | Standstill Restrictions. During the term of this Debenture, the Holder shall not, directly or indirectly, and shall cause its Representatives (to the extent acting on behalf of the Holder) and Group Members not, directly or indirectly, to, without the prior written consent of, or waiver by, the Company: |
| i. | acquire, offer or seek to acquire, agree to acquire or make a proposal (including any private proposal to the Company or the Board) to acquire, by purchase or otherwise (including through the acquisition of Beneficial Ownership), any securities (including any Equity Securities or Voting Securities) or Derivative Instruments, or direct or indirect rights to acquire any securities (including any Equity Securities or Voting Securities) or Derivative Instruments, of the Company or any Subsidiary or Affiliate of the Company or any successor to or Person in Control of the Company, or any securities (including any Equity Securities or Voting Securities) or indebtedness convertible into or exchangeable for any such securities or indebtedness; provided that the Holder may acquire, offer or seek to acquire, agree to acquire or make a proposal to acquire common stock of the Company (and any securities (including any Equity Securities or Voting Securities) convertible into or exchangeable for common stock of the Company) and Derivative Instruments with respect to common stock of the Company, if, immediately following such acquisition, the collective Beneficial Ownership of common stock of the Company of the Shareholder and its Group Members, as a group, would not exceed 9.99% of the issued and outstanding capital of the Company; |
| ii. | offer, or seek to acquire, or participate in any acquisition of a majority of the consolidated assets of the Company and its Subsidiaries, taken as a whole; |
| iii. | conduct, fund or otherwise become a participant in any “tender offer” (as such term is used in Regulation 14D under the Exchange Act) or in any merger or merger type transaction, involving Equity Securities, Voting Securities or any securities convertible into, or exercisable or exchangeable for, Equity Securities or Voting Securities, in each case either not approved by the Board or approved by the Board when a majority of directors at the time of such approval or recommendation are not Incumbent Directors; |
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| iv. | otherwise act in concert with others to seek to control or influence the Board or shareholders of the Company or its Subsidiaries or Affiliates; provided that nothing in this clause (d) shall preclude the Shareholder or its Representatives from engaging in discussions with the Company or its Representatives; |
| v. | make or join or become a participant (as defined in Instruction 3 to Item 4 of Schedule 14A under the Exchange Act) in (or in any way knowingly encourage) any “solicitation” of “proxies” (as such terms are defined in Regulation 14A as promulgated by the SEC, or consent to vote any Voting Securities or any of the voting securities of any Subsidiaries or Affiliates of the Company (including through action by written consent), or otherwise knowingly advise or influence any Person with respect to the voting of any securities of the Company or its Subsidiaries or Affiliates; |
| vi. | make any public announcement with respect to, or solicit or submit a proposal for, or offer, seek, propose or indicate an interest in (with or without conditions) any merger or merger type transaction, including, but not limited to, consolidation, business combination, “tender offer” (as such term is used in Regulation 14D under the Exchange Act, recapitalization, reorganization, purchase or license of a material portion of the assets, properties, securities or indebtedness of the Company or any Subsidiary or Affiliate of the Company, or other similar extraordinary transaction involving the Company, any Subsidiary of the Company or any of its securities or indebtedness, or enter into any discussions, negotiations, arrangements, understandings or agreements (whether written or oral) with any other Person regarding any of the foregoing; |
| vii. | call or seek to call a meeting of shareholders of the Company or initiate any shareholder proposal or meeting agenda item for action of the Company’s shareholders, or seek election or appointment to or to place a representative on the Board or seek the removal of any director from the Board; |
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| viii. | form, join, become a member or in any way participate in a Group in connection with a Hedging Arrangement with respect to the securities of the Company or any of its Subsidiaries or Affiliates; |
| ix. | deposit any Voting Securities in a voting trust or similar Contract or subject any Voting Securities to any voting agreement, pooling arrangement or similar arrangement or Contract, or grant any proxy with respect to any Voting Securities; |
| x. | make any proposal or disclose any plan, or cause or authorize any of its and their directors, officers, employees, agents, advisors and other Representatives to make any proposal or disclose any plan on its or their behalf, inconsistent with the foregoing restrictions; |
| xi. | knowingly take any action or cause or authorize any of its and their directors, officers, employees, agents, advisors and other Representatives to take any action on its or their behalf, that would reasonably be expected to require the Company or any of its Subsidiaries or Affiliates to publicly disclose any of the foregoing actions or the possibility of a business combination, merger or other type of transaction or matter described in this Section; |
| xii. | knowingly advise, assist, arrange or otherwise enter into any discussions or arrangements with any third party with respect to any of the foregoing; or |
| xiii. | directly or indirectly, contest the validity of, any provision of this Section (including this subclause) or sub-Section (a) (whether by legal action or otherwise). |
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c) [Reserved].
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof); provided, however, Purchaser shall be limited to conversions of $50,000 per month under this Debenture, unless the average daily five (5) day trading volume of the Company’s Common Stock on any Trading Market exceeds $100,000 prior to any Notice of Conversion, in which case, these limitations on the monthly conversion amount shall not be applicable thereafter and shall cease to have any effect on any subsequent conversions, except as otherwise provided herein. The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion notice without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Company shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof. On the Maturity Date, accrued but unpaid interest and other amounts owing in respect thereof, shall be converted into at the Closing Conversion Price or New Conversion Price, as applicable. For clarification purposes, absent an Event of Default as set forth in Section 8(a), the principal amount and accrued and unpaid interest of this Debenture may only be converted into Conversion Shares.
b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.3740.
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Closing Conversion Price or the New Conversion Price, as applicable.
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ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the Effective Date, shall bear an appropriate “restricted” legend, provided, however, if the Conversion Shares have been registered with the SEC, the certificate or certificates thereof shall be free of restrictive legends and trading restrictions (other than those which may then be required by applicable securities laws, rules and regulations or any other written agreement between the parties that limits the resale of the Conversion Shares) representing the number of Conversion Shares being acquired upon the conversion of this Debenture (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of Common Stock at least ten (10) Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a)). On or after the Effective Date, the Company shall deliver any certificate or certificates required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.
iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.
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iv. Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount and accrued interest hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, from and after the Going Public Date, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.
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vi. [Reserved]
vii. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than 100% of aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Securities Exchange Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if registered under a Registration Statement that is effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement.
viii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
ix. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase to the Beneficial Ownership Limitation will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.
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Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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c) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”) (provided, however, that the Duke Share Exchange Agreement or any similar agreement pertaining to Duke, shall not be a Fundamental Transaction), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture in accordance with the provisions of this Section 5(c) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture with the same effect as if such Successor Entity had been named as the Company herein.
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d) Subsequent Equity Sales. If at any time while this Debenture is outstanding, the Company or any Subsidiary of the Company, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price; provided, however that in the event that such Dilutive Issuance occurs from the Original Issue Date through the six (6) month anniversary or the Original Issue Date, any such adjustment shall occur immediately after the completion of such period. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(d) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(d), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(d), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
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ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. From and after the Going Public Date, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the twenty (20) day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 6. [RESERVED]
Section 7. [RESERVED]
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Section 8. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of the Debenture or (B) interest and other amounts owing to a Holder on the Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within three (3) Trading Days;
ii. [Reserved]
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) this Debenture or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this Debenture, any written statement pursuant hereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;
v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
vi. the Company or any Subsidiary shall materially default (subject to any grace or cure period provided in the applicable agreement, document or instrument) on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $400,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;
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vii. [Reserved];
viii. [Reserved];
ix. the Company shall fails without cause to deliver certificates to a Holder prior to the tenth (10th) Trading after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof, without cause;
x. [Reserved]; or
xi. Any final and non-appealable monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days.
b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing five (5) days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
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c) Loan Subordination. Holder hereby subordinates payment by the Company of any and all indebtedness, liabilities, interest and other obligations of the Company to the Holder (the “Subordinated Debt”), to the payment to those certain creditors of the Company (“Lenders”) listed in Schedule A pursuant to those Convertible Loan Agreements dated March 9, 2020, copies of which are enclosed herewith as Exhibit B (as such agreements may be amended from time to time, the “(the “Senior Loans”), in full, of all indebtedness, interest, liabilities, guarantees and other obligations of the Company towards the Lender pursuant to the Senior Loans. Unless and until all of the Senior Loans have been indefeasibly paid in full, in cash or in kind to the full satisfaction of the Lenders and all obligations of the Lenders to make loans or extend other financial accommodations to the Company have terminated, Holder agrees not to do any of the following, directly or indirectly: ask for or accept payment in cash of all or any part of the Subordinated Debt, or other property other than Common Stock in accordance with the provisions of this Debenture, or by set-off or in any other manner, demand, sue for, accelerate the maturity of, or otherwise enforce any of the Subordinated Debt, enforce any guaranty of any of the Subordinated Debt, take any security for any of the Subordinated Debt, exercise any rights or remedies with respect to the Subordinated Debt, judicially or non-judicially (including without limitation the commencement of any bankruptcy or insolvency proceeding against the Company), or attempt to do any of the foregoing.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
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b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Debenture (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Debenture), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
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e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.
f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture at law or in equity (including a decree of specific performance and/or other injunctive relief). The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all relevant and nonconfidential information and documentation to the Holder that is reasonably requested by the Holder and necessary to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.
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h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.
j) Entire Agreement; Termination of Original Debentures and Purchase Agreement. This Debenture is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and in that certain Registration Rights Agreement being entered into by the Company, GBC and other security holders of the Company contemporaneously with the execution of this Debenture, (the “RRA”), with respect to the registration rights granted by the Company with respect to this Debenture and the Conversion Shares. This Debenture together with the RRA supersedes, cancels and replaces any and all prior agreements and understandings between the parties with respect to such subject matter, including, without limitation and specifically the Original Debenture, the Purchase Agreement and any other agreement, undertaking or obligation of either party to the other entered into pursuant thereto (collectively, the “Terminated Instruments”) which are hereby terminated and void. Neither party has or shall bring forth any claims or demands against the other party or their affiliates with respect to the performance of or the expiration, termination and voidance of the Terminated Instruments.
*********************
(Signature Pages Follow)
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.
| UAS Drone Corp. | ||
| By: | /s/ Christopher J. Leith | |
| Name: Christopher J. Leith | ||
| Title: Acting CFO | ||
| Facsimile No. for delivery of Notices: _______________ | ||
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% Convertible Debenture due March 9, 2023 of UAS Drone Corp., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker No:
Account
No:
Schedule 1
CONVERSION SCHEDULE
The 8% Convertible Debenture due on __________________ in the aggregate principal amount of $________________ IS issued by UAS Drone Corp., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
| Date of Conversion (or for first entry, Original Issue Date) | Amount of Conversion (Principal $____ Interest $____ | Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount) | Company Attest | |||||||||||
Schedule A
Convertible Loan Lenders
| Name | Loan | Already advanced | % | No. of Shares | % of holdings | Balance | ||||||||||||||||||||||
| Ansbacher | $ | 250,000 | $ | 8,750 | 25.00 | % | 2,405,906 | 6.00 | % | $ | 241,250 | 25.00 | % | |||||||||||||||
| Benitez | $ | 250,000 | $ | 8,750 | 25.00 | % | 2,405,906 | 6.00 | % | $ | 241,250 | 25.00 | % | |||||||||||||||
| Danenberg | $ | 134,715 | $ | 4,715 | 13.47 | % | 1,296,447 | 3.23 | % | $ | 130,000 | 13.47 | % | |||||||||||||||
| Zuk Marble | $ | 198,618 | $ | 6,952 | 19.86 | % | 1,911,425 | 4.77 | % | $ | 191,666 | 19.86 | % | |||||||||||||||
| Meytal - Alonim ltd. | $ | 166,667 | $ | 5,833 | 16.67 | % | 1,603,937 | 4.00 | % | $ | 160,834 | 16.67 | % | |||||||||||||||
| $ | 1,000,000 | $ | 35,000 | 100.00 | % | 9,623,621 | 24.00 | % | $ | 965,000 | 100 | % | ||||||||||||||||
Exhibit A
Share Exchange Agreement
See attached.
Exhibit B
Convertible Loan Agreement
See attached.
Exhibit 10.7
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. THIS DEBT REFLECTED IN THIS DEBENTURE IS FULLY SUBORDINATE TO OTHER DEBT OF THE ISSUER, OTHER THAN IN ITS CONVERSION IN ACCORDANCE WITH ITS TERMS.
Original Issue Date: March 9, 2020
Original Conversion Price (subject to adjustment herein): $0.374
$99,054
8% CONVERTIBLE DEBENTURE
DUE MARCH 9, 2023
THIS 8% CONVERTIBLE DEBENTURE (“New Debenture” or “Debenture”) of UAS Drone Corp., a Nevada corporation (the “Company”), having its principal place of business at 420 Royal Palm Way, #100, Palm Beach, Florida 33480, is issued pursuant that certain Exchange Agreement dated as of March 9, 2020 (the “Exchange Agreement”), by and between the Company and GreenBlock Capital, LLC, a Florida limited liability company (the “Holder”).
FOR VALUE RECEIVED, the Company promises to pay to the Holder or its registered assigns, or shall have paid pursuant to the terms hereunder, the principal sum of Ninety Nine Thousand Fifty Four Dollars ($99,054) on March 9, 2023 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:
“Affiliate” (including, with a correlative meaning, “affiliated”) means, when used with respect to a specified Person, a Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by or is under common Control with such specified Person.
“Alternate Consideration” shall have the meaning set forth in Section 5(c).
“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Common Stock” shall mean the $0.0001 par value authorized common stock of the Company.
“Common Stock Equivalents” means any securities of the Company or any Subsidiary of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Control”, “Controlled” and “Controlling” mean, when used with respect to any specified Person, the power to vote at least 25% of the voting power of a Person, or the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract or otherwise, and the terms “Controlled by” and “under common Control with” shall be construed accordingly.
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“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.
“Debenture Register” shall have the meaning set forth in Section 2(c).
“Derivative Instrument” means any and all derivative securities (as defined under Rule 16a-1 under the Exchange Act) that increase in value as the value of any Equity Securities of the Company increases, including a long convertible security, a long call option and a short put option position, in each case, regardless of whether (a) such derivative security conveys any voting rights in any Equity Security, (b) such derivative security is required to be, or is capable of being, settled through delivery of any Equity Security or (c) other transactions hedge the value of such derivative security.
“Duke Share Exchange Agreement” shall mean the Share Exchange Agreement dated March 4, 2020, with Duke Robotics, Inc., a Delaware corporation (“Duke”), and the several shareholders of Duke as signatories thereto.
“Equity Right” means, with respect to any Person, any security (including any preferred share, capital note, debt security or hybrid debt-equity security) or obligation convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, or any options, calls, warrants, restricted shares, restricted shares units, deferred share awards, share units, “phantom” awards, dividend equivalents, participations, interests, rights or commitments relating to, or any share appreciation right or other instrument the value of which is determined in whole or in part by reference to the market price or value of, shares of capital stock or earnings of such Person.
“Equity Securities” means (a) common stock, preferred shares or other capital stock or equity interests or equity-linked interests of the Company and (b) Equity Rights that are directly or indirectly exercisable or exchangeable for or convertible into common stock, preferred shares or other capital stock or equity interests or equity-linked interests of the Company.
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“Event of Default” shall have the meaning set forth in Section 8(a).
“Exchange Agreement” means the Exchange Agreement between the Company and the Holder entered into as of the date of this Debenture and to which this Debenture is Exhibit A.
“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Debenture, provided that such securities have not been amended since the date of this Debenture to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
“Fundamental Transaction” shall have the meaning set forth in Section 5(c).
“Group” has the meaning assigned to such term in Section 13(d)(3) of the Exchange Act.
“Group Member” means, with respect to any specified Person, any Affiliate of the specified Person that is, directly or indirectly, Controlled by the specified Person and includes any Person with respect to which the specified Person is a direct or indirect Subsidiary.
“Hedging Arrangement” means any transaction or arrangement, including through the creation, purchase or sale of any security, including any security-based swap, swap, cash-settled option, forward sale agreement, exchangeable note, total return swap or other derivative, in each case, the effect of which is to hedge the risk of owning the Debenture and/or any Conversion Shares (including prior to any Conversion).
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“Mandatory Default Amount” means 100% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) other reasonable legal costs and expenses incurred by Holder in enforcing this Debenture.
“New York Courts” shall have the meaning set forth in Section 9(d).
“Notice of Conversion” shall have the meaning set forth in Section 4(a).
“OTC Markets” means the OTC Markets, Inc.
“Original Issue Date” means March 9, 2020.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated association, corporation, firm or other entity or group (as defined in the Exchange Act) or any governmental authority.
“Registration Statement” means a registration statement meeting the requirements set forth in the Securities Act.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Successor Entity” shall have the meaning set forth in Section 5(c).
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB, OTCQX or the OTC Pink Tier (or any successors to any of the foregoing).
“Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the OTC Pink Tier published by OTC Markets (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
Section 2. Interest.
a) Payment of Interest in Cash. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 8% per annum, payable on each Conversion Date (as to that principal amount then being converted), and on the Maturity Date, solely in Common Stock of the Company.
b) Interest Calculations. Interest shall be calculated on the basis of a three-hundred and sixty (360) day year, consisting of twelve (12) thirty (30) calendar day periods, and shall accrue daily commencing on the Original Issue Date until the conversion in full of the outstanding principal, together with all accrued and unpaid interest, and other amounts which may become due hereunder, has been made.
c) [Reserved]
d) Prepayment. Upon five (5) business days’ prior written notice to the Holder, the Company may prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder and without penalty.
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Section 3. Restriction on Transfers and Encumbrances.
a) No Assignment. During the term of this Debenture, the Debenture may not be transferred, assigned or hypothecated without the prior written consent of the Company, such consent to be given or withheld at its sole discretion. The entry by the Holder into a Hedging Arrangement with respect to the Debenture and/or any Conversion Shares (including prior to any Conversion) shall be deemed to be a transfer of such for purposes of this Section, and subject to such restrictions as aforesaid.
b) Standstill Restrictions. During the term of this Debenture, the Holder shall not, directly or indirectly, and shall cause its Representatives (to the extent acting on behalf of the Holder) and Group Members not, directly or indirectly, to, without the prior written consent of, or waiver by, the Company:
i. acquire, offer or seek to acquire, agree to acquire or make a proposal (including any private proposal to the Company or the Board) to acquire, by purchase or otherwise (including through the acquisition of Beneficial Ownership), any securities (including any Equity Securities or Voting Securities) or Derivative Instruments, or direct or indirect rights to acquire any securities (including any Equity Securities or Voting Securities) or Derivative Instruments, of the Company or any Subsidiary or Affiliate of the Company or any successor to or Person in Control of the Company, or any securities (including any Equity Securities or Voting Securities) or indebtedness convertible into or exchangeable for any such securities or indebtedness; provided that the Holder may acquire, offer or seek to acquire, agree to acquire or make a proposal to acquire common stock of the Company (and any securities (including any Equity Securities or Voting Securities) convertible into or exchangeable for common stock of the Company) and Derivative Instruments with respect to common stock of the Company, if, immediately following such acquisition, the collective Beneficial Ownership of common stock of the Company of the Shareholder and its Group Members, as a group, would not exceed 9.99% of the issued and outstanding capital of the Company;
ii. offer, or seek to acquire, or participate in any acquisition of a majority of the consolidated assets of the Company and its Subsidiaries, taken as a whole;
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iii. conduct, fund or otherwise become a participant in any “tender offer” (as such term is used in Regulation 14D under the Exchange Act) or in any merger or merger type transaction, involving Equity Securities, Voting Securities or any securities convertible into, or exercisable or exchangeable for, Equity Securities or Voting Securities, in each case either not approved by the Board or approved by the Board when a majority of directors at the time of such approval or recommendation are not Incumbent Directors;
iv. otherwise act in concert with others to seek to control or influence the Board or shareholders of the Company or its Subsidiaries or Affiliates; provided that nothing in this clause (d) shall preclude the Shareholder or its Representatives from engaging in discussions with the Company or its Representatives;
v. make or join or become a participant (as defined in Instruction 3 to Item 4 of Schedule 14A under the Exchange Act) in (or in any way knowingly encourage) any “solicitation” of “proxies” (as such terms are defined in Regulation 14A as promulgated by the SEC, or consent to vote any Voting Securities or any of the voting securities of any Subsidiaries or Affiliates of the Company (including through action by written consent), or otherwise knowingly advise or influence any Person with respect to the voting of any securities of the Company or its Subsidiaries or Affiliates;
vi. make any public announcement with respect to, or solicit or submit a proposal for, or offer, seek, propose or indicate an interest in (with or without conditions) any merger or merger type transaction, including, but not limited to, consolidation, business combination, “tender offer” (as such term is used in Regulation 14D under the Exchange Act, recapitalization, reorganization, purchase or license of a material portion of the assets, properties, securities or indebtedness of the Company or any Subsidiary or Affiliate of the Company, or other similar extraordinary transaction involving the Company, any Subsidiary of the Company or any of its securities or indebtedness, or enter into any discussions, negotiations, arrangements, understandings or agreements (whether written or oral) with any other Person regarding any of the foregoing;
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vii. call or seek to call a meeting of shareholders of the Company or initiate any shareholder proposal or meeting agenda item for action of the Company’s shareholders, or seek election or appointment to or to place a representative on the Board or seek the removal of any director from the Board;
viii. form, join, become a member or in any way participate in a Group in connection with a Hedging Arrangement with respect to the securities of the Company or any of its Subsidiaries or Affiliates;
ix. deposit any Voting Securities in a voting trust or similar Contract or subject any Voting Securities to any voting agreement, pooling arrangement or similar arrangement or Contract, or grant any proxy with respect to any Voting Securities;
x. make any proposal or disclose any plan, or cause or authorize any of its and their directors, officers, employees, agents, advisors and other Representatives to make any proposal or disclose any plan on its or their behalf, inconsistent with the foregoing restrictions;
xi. knowingly take any action or cause or authorize any of its and their directors, officers, employees, agents, advisors and other Representatives to take any action on its or their behalf, that would reasonably be expected to require the Company or any of its Subsidiaries or Affiliates to publicly disclose any of the foregoing actions or the possibility of a business combination, merger or other type of transaction or matter described in this Section;
xii. knowingly advise, assist, arrange or otherwise enter into any discussions or arrangements with any third party with respect to any of the foregoing; or
xiii. directly or indirectly, contest the validity of, any provision of this Section (including this subclause) or sub-Section (a) (whether by legal action or otherwise).
c) [Reserved].
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Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof); provided, however, Purchaser shall be limited to conversions of $50,000 per month under this Debenture, unless the average daily five (5) day trading volume of the Company’s Common Stock on any Trading Market exceeds $100,000 prior to any Notice of Conversion, in which case, these limitations on the monthly conversion amount shall not be applicable thereafter and shall cease to have any effect on any subsequent conversions, except as otherwise provided herein. The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion notice without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Company shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof. On the Maturity Date, accrued but unpaid interest and other amounts owing in respect thereof, shall be converted into at the Closing Conversion Price or New Conversion Price, as applicable. For clarification purposes, absent an Event of Default as set forth in Section 8(a), the principal amount and accrued and unpaid interest of this Debenture may only be converted into Conversion Shares.
b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.3740.
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Closing Conversion Price or the New Conversion Price, as applicable.
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ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the Effective Date, shall bear an appropriate “restricted” legend, provided, however, if the Conversion Shares have been registered with the SEC, the certificate or certificates thereof shall be free of restrictive legends and trading restrictions (other than those which may then be required by applicable securities laws, rules and regulations or any other written agreement between the parties that limits the resale of the Conversion Shares) representing the number of Conversion Shares being acquired upon the conversion of this Debenture (including, if the Company has given continuous notice pursuant to Section 2(b) for payment of interest in shares of Common Stock at least ten (10) Trading Days prior to the date on which the Notice of Conversion is delivered to the Company, shares of Common Stock representing the payment of accrued interest otherwise determined pursuant to Section 2(a)). On or after the Effective Date, the Company shall deliver any certificate or certificates required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.
iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.
iv. Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount and accrued interest hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
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v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, from and after the Going Public Date, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.
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vi. [Reserved]
vii. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than 100% of aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Securities Exchange Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if registered under a Registration Statement that is effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement.
viii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
ix. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
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d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase to the Beneficial Ownership Limitation will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Debenture.
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Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Pro Rata Distributions. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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c) Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”) (provided, however, that the Duke Share Exchange Agreement or any similar agreement pertaining to Duke, shall not be a Fundamental Transaction), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture in accordance with the provisions of this Section 5(c) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture with the same effect as if such Successor Entity had been named as the Company herein.
d) Subsequent Equity Sales. If at any time while this Debenture is outstanding, the Company or any Subsidiary of the Company, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price; provided, however that in the event that such Dilutive Issuance occurs from the Original Issue Date through the six (6) month anniversary or the Original Issue Date, any such adjustment shall occur immediately after the completion of such period. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(d) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(d), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(d), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
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e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. From and after the Going Public Date, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the twenty (20) day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 6. [RESERVED]
Section 7. [RESERVED]
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Section 8. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of the Debenture or (B) interest and other amounts owing to a Holder on the Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within three (3) Trading Days;
ii. [Reserved]
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) this Debenture or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this Debenture, any written statement pursuant hereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;
v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
vi. the Company or any Subsidiary shall materially default (subject to any grace or cure period provided in the applicable agreement, document or instrument) on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $400,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;
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vii. [Reserved];
viii. [Reserved];
ix. the Company shall fails without cause to deliver certificates to a Holder prior to the tenth (10th) Trading after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof, without cause;
x. [Reserved]; or
xi. Any final and non-appealable monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days.
b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing five (5) days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
c) Loan Subordination. Holder hereby subordinates payment by the Company of any and all indebtedness, liabilities, interest and other obligations of the Company to the Holder (the “Subordinated Debt”), to the payment to those certain creditors of the Company (“Lenders”) listed in Schedule A pursuant to those Convertible Loan Agreements dated March 9, 2020, copies of which are enclosed herewith as Exhibit B (as such agreements may be amended from time to time, the “(the “Senior Loans”), in full, of all indebtedness, interest, liabilities, guarantees and other obligations of the Company towards the Lender pursuant to the Senior Loans. Unless and until all of the Senior Loans have been indefeasibly paid in full, in cash or in kind to the full satisfaction of the Lenders and all obligations of the Lenders to make loans or extend other financial accommodations to the Company have terminated, Holder agrees not to do any of the following, directly or indirectly: ask for or accept payment in cash of all or any part of the Subordinated Debt, or other property other than Common Stock in accordance with the provisions of this Debenture, or by set-off or in any other manner, demand, sue for, accelerate the maturity of, or otherwise enforce any of the Subordinated Debt, enforce any guaranty of any of the Subordinated Debt, take any security for any of the Subordinated Debt, exercise any rights or remedies with respect to the Subordinated Debt, judicially or non-judicially (including without limitation the commencement of any bankruptcy or insolvency proceeding against the Company), or attempt to do any of the foregoing.
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Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.
20
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Debenture (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Debenture), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.
21
f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture at law or in equity (including a decree of specific performance and/or other injunctive relief). The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all relevant and nonconfidential information and documentation to the Holder that is reasonably requested by the Holder and necessary to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.
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h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.
j) Entire Agreement. This Debenture is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and in that certain Registration Rights Agreement being entered into by the Company, GBC and other security holders of the Company contemporaneously with the execution of this Debenture, (the “RRA”), with respect to the registration rights granted by the Company with respect to this Debenture and the Conversion Shares. This Debenture, together with the Exchange Agreement, and the RRA supersedes, cancels and replaces any and all prior agreements and understandings between the parties with respect to such subject matter, which are hereby terminated and void.
*********************
(Signature Pages Follow)
23
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.
| UAS Drone Corp. | ||
| By: | /s/ Christopher J. Leith | |
| Name: Christopher J. Leith | ||
| Title: Acting CFO | ||
| Facsimile No. for delivery of Notices: _______________ | ||
24
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% Convertible Debenture due March 9, 2023, of UAS Drone Corp., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker No:
Account
No:
Schedule 1
CONVERSION SCHEDULE
The 8% Convertible Debenture due on March 9, 2023, in the aggregate principal amount of $99,054 is issued by UAS Drone Corp., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
| Date of Conversion (or for first entry, Original Issue Date) | Amount of Conversion (Principal $_________ Interest $_________ | Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount) | Company Attest | |||||||||||
Schedule A
Convertible Loan Lenders
| Name | Loan | Already advanced | % | No. of Shares | % of holdings | Balance | ||||||||||||||||||||||
| Ansbacher | $ | 250,000 | $ | 8,750 | 25.00 | % | 2,405,906 | 6.00 | % | $ | 241,250 | 25.00 | % | |||||||||||||||
| Benitez | $ | 250,000 | $ | 8,750 | 25.00 | % | 2,405,906 | 6.00 | % | $ | 241,250 | 25.00 | % | |||||||||||||||
| Danenberg | $ | 134,715 | $ | 4,715 | 13.47 | % | 1,296,447 | 3.23 | % | $ | 130,000 | 13.47 | % | |||||||||||||||
| Zuk Marble | $ | 198,618 | $ | 6,952 | 19.86 | % | 1,911,425 | 4.77 | % | $ | 191,666 | 19.86 | % | |||||||||||||||
| Meytal - Alonim ltd. | $ | 166,667 | $ | 5,833 | 16.67 | % | 1,603,937 | 4.00 | % | $ | 160,834 | 16.67 | % | |||||||||||||||
| $ | 1,000,000 | $ | 35,000 | 100.00 | % | 9,623,621 | 24.00 | % | $ | 965,000 | 100 | % | ||||||||||||||||
Exhibit A
Share Exchange Agreement
See attached.
Exhibit B
Convertible Loan Agreement
See attached.
Exhibit 21.1
Subsidiaries of the Registrant
Duke Robotics, Inc. (Delaware)
Exhibit 99.1
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
DUKE ROBOTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
TABLE OF CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
DUKE ROBOTICS, INC.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Robotics, Inc and its subsidiary (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B to the consolidated financial statements, the Company has not yet generated material revenues from its operations to fund its activities and is therefore dependent upon external sources for financing its operations. As of December 31, 2018, the Company has incurred accumulated deficit of $2,652 thousands and negative operating cash flows. These factor among others, as discussed in Note 1B to the consolidated financial statements raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1B to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of’ these uncertainties.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
| /s/ Halperin Ilanit | |
| Halperin Ilanit | |
| Certified Public Accountants (Isr.) |
Tel Aviv, Israel
December 26, 2019
We have served as the Company’s auditor since 2019
30 A’arba’a st. A’arba’a towers, Tel Aviv 6473926 | tel. +972-3-9335474 | fax. +972-3-9335466 | www.halperin-cpa.co.il
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Duke Robotics, Inc. and its Subsidiary
Consolidated Balance Sheets
USD in thousands
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 190 | 273 | ||||||
| Accounts receivable | - | 20 | ||||||
| Other current assets (Note 3) | 120 | 34 | ||||||
| Total current assets | 310 | 327 | ||||||
| Property and Equipment, net | 19 | 21 | ||||||
| TOTAL ASSETS | 329 | 348 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current liabilities | ||||||||
| Current maturities of long term bank loans (Note 4) | 34 | 67 | ||||||
| Accounts payable | 49 | 13 | ||||||
| Other accounts liabilities | 23 | 49 | ||||||
| Stockholders loans (Note 5) | 954 | 926 | ||||||
| Convertible loans (Note 6) | 425 | - | ||||||
| Total current liabilities | 1,485 | 1,055 | ||||||
| Long term liabilities | ||||||||
| Long term loan from bank (Note 4) | 32 | 87 | ||||||
| Total long term liabilities | 32 | 87 | ||||||
| TOTAL LIABILITIES | 1,517 | 1,142 | ||||||
| Stockholders’ deficiency (Note 8) | ||||||||
| Common stock of $0.0001 par value | 2 | 2 | ||||||
| Additional paid in capital | 1,462 | 683 | ||||||
| Accumulated deficit | (2,652 | ) | (1,479 | ) | ||||
| Total stockholders’ deficiency | (1,188 | ) | (794 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | 329 | 348 | ||||||
| /s/ Yariv Alroy | /s/ Sagiv Aharon | |
Yariv
Alroy |
Sagiv
Aharon |
Date of approval of the financial statements: December 26, 2019.
The accompanying notes are an integral part of the financial statements.
-3-
Duke Robotics, Inc. and its Subsidiary
Consolidated Statements of Operations and Comprehensive Loss
USD in thousands, except share and per share data
| For the year ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Revenues | 450 | 195 | ||||||
| Cost of revenues | (330 | ) | (162 | ) | ||||
| Gross profit | 120 | 33 | ||||||
| Research and development expenses | (133 | ) | (207 | ) | ||||
| General and administrative | (1,120 | ) | (689 | ) | ||||
| Total operating expenses | (1,253 | ) | (896 | ) | ||||
| Operating loss | (1,133 | ) | (863 | ) | ||||
| Financial expenses, net | (40 | ) | (61 | ) | ||||
| Loss for the year | (1,173 | ) | (924 | ) | ||||
| Loss per share: | ||||||||
| Basic and diluted net loss per share | (0.06 | ) | (0.05 | ) | ||||
| Weighted average number of common stock: | ||||||||
| Basic and diluted | 20,163,747 | 20,075,030 | ||||||
The accompanying notes are an integral part of the financial statements.
-4-
Duke Robotics, Inc. and its Subsidiary
Statements of Changes in Stockholders’ Deficiency
USD in thousands, except share data
| Common Stock | Additional paid in capital | Accumulated deficit | Total capital deficiency | |||||||||||||||||
| Number | Amount | |||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2016 | 20,004,167 | 2 | 9 | (555 | ) | (544 | ) | |||||||||||||
| CHANGES DURING 2017: | ||||||||||||||||||||
| Issuance of common stock | 138,421 | * | 171 | - | 171 | |||||||||||||||
| Share based compensation | 12,500 | * | 26 | - | 26 | |||||||||||||||
| Stock based compensation | - | - | 477 | - | 477 | |||||||||||||||
| Loss for the year | - | - | - | (924 | ) | (924 | ) | |||||||||||||
| BALANCE AS OF DECEMBER 31, 2017 | 20,155,088 | 2 | 683 | (1,479 | ) | (794 | ) | |||||||||||||
| CHANGES DURING 2018: | ||||||||||||||||||||
| Issuance of common stock | 10,212 | * | 31 | - | 31 | |||||||||||||||
| Stock based compensation | - | - | 748 | - | 748 | |||||||||||||||
| Loss for the year | - | - | - | (1,173 | ) | (1,173 | ) | |||||||||||||
| BALANCE AS OF DECEMBER 31, 2018 | 20,165,300 | 2 | 1,462 | (2,652 | ) | (1,188 | ) | |||||||||||||
* Less than 1 USD (in thousands)
The accompanying notes are an integral part of the financial statements.
-5-
Duke Robotics, Inc. and its Subsidiary
Consolidated Statements of Cash Flows
USD in thousands
| For the year ended December 31, | For the year ended December 31, | |||||||
| 2018 | 2017 | |||||||
| Net cash used in operating activities | ||||||||
| Loss for the year | (1,173 | ) | (924 | ) | ||||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation | 5 | 6 | ||||||
| Finance expenses | 53 | 31 | ||||||
| Stock based compensation | 748 | 477 | ||||||
| Decrease in accounts receivables | 20 | 96 | ||||||
| Increase in other current assets | (86 | ) | (3 | ) | ||||
| Increase (decrease) in accounts payable | 36 | (24 | ) | |||||
| Increase (decrease) in other accounts liabilities | (26 | ) | 1 | |||||
| 750 | 584 | |||||||
| Net cash used in operating activities | (423 | ) | (340 | ) | ||||
| Cash flows from investing activities | ||||||||
| Loan to related parties | - | (20 | ) | |||||
| Purchase of fixed assets | (3 | ) | (2 | ) | ||||
| Net cash used in investing activities | (3 | ) | (22 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of convertible loan | 400 | - | ||||||
| Repayment of bank loans | (88 | ) | (56 | ) | ||||
| Receipt of stockholders loans, net | - | 407 | ||||||
| Issuance of common stock | 31 | 197 | ||||||
| Net cash provided by financing activities | 343 | 548 | ||||||
| Increase (decrease) in cash and cash equivalents | (83 | ) | 186 | |||||
| Cash and cash equivalents at the beginning of the period | 273 | 87 | ||||||
| Cash and cash equivalents at the end of the period | 190 | 273 | ||||||
| Supplemental Disclosure of cash flow information | ||||||||
| Cash paid during the period for interest | 17 | 10 | ||||||
The accompanying notes are an integral part of the financial statements.
-6-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 1 - | GENERAL |
| A. | Duke Robotics, Inc. (the “Company”) is a company incorporated under the laws of the state of Delaware and was formed on April 21, 2016. |
The Company is the owner of 100% of the outstanding stock of Duke Airborne Systems Ltd. (“Duke” or the “Subsidiary”) (together with the Company, the “Group”) acquired on June 5, 2016, pursuant to a restructuring under common control. The Subsidiary was incorporated under the laws of the State of Israel on March 5, 2014 and commenced its operations on May 1, 2014.
The restructuring was performed such that every stockholder of Duke has tendered its stock in Duke in exchange for stock in the Company, causing Duke to become the wholly owned subsidiary of the Company. Since the above reorganization was made between companies under common control, the consolidated financial statements of the Company and the Subsidiary are presented as if the above transaction had occurred on the first day of the earliest year presented.
The financial operations overview refers to the financial information of Duke as the predecessor of the Company.
The Company is a robotics company dedicated to the development of an advanced robotics stabilization system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons.
| B. | Since inception, the Company has devoted substantially all its efforts to research and development. The Company is still in its development stage and the extent of the Company’s future operating losses and the timing of becoming profitable, if ever, are uncertain. The Company has incurred losses of $1,173, and $924 for the years ended December 31, 2018, and 2017, respectively, and accumulated deficit of $2,652 for the year ended December 31, 2018. |
These conditions raise substantial doubt about the Company’s ability to continue to operate as a “going concern.” The Company’s ability to continue operating as a going concern is dependent on several factors, among them is the ability to raise sufficient additional funding.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES |
| A. | Basis for presentation: |
The financial statements have been prepared in conformity with accounting principles generally accepted in United Sates of America (“GAAP”).
| B. | Use of estimates in the preparation of financial statements: |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the going concern assumptions and share-based compensation.
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Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| C. | Financial statement in U.S. dollars: |
The functional currency of the Company is the U.S. dollar (“dollar”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future.
Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in foreign currencies have been re-measured to dollars in accordance with the provisions of Accounting Standards Codification (“ASC”) 830-10, “Foreign Currency Translation.”
All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate.
Principles of consolidation:
The consolidated financial statements include the accounts of the Group. All significant intercompany balances and transactions have been eliminated on consolidation.
| D. | Cash and cash equivalents: |
Cash and cash equivalents consist of cash and demand deposits in banks, and other short-term liquid investments (primarily interest-bearing time deposits) with original maturities of less than three months.
| E. | Property, plant and equipment, net: |
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the Statements of Operations and Comprehensive Loss.
Rates of depreciation:
| % | ||||
| Computers and software | 25-33 | |||
| Leasehold improvements | 10-15 | |||
| Furniture and office equipment | 7 | |||
| F. | Deferred income taxes: |
The Group accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
The Group accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2018 and 2017 financial statements and did not recognize any liability with respect to an unrecognized tax position in its balance sheets.
-8-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| G. | Share-based compensation: |
The Company measures and recognizes the compensation expense for all equity-based payments to employees based on their estimated fair values in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC 718”). Share-based payments including grants of stock options are recognized in the statement of comprehensive loss as an operating expense based on the fair value of the award at the date of grant. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model. The Company has expensed compensation costs, net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period or over the implicit service period when a performance condition affects the vesting, and it is considered probable that the performance condition will be achieved.
Share-based payments awarded to consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, “Equity-Based Payments to Non-Employees.”
| H. | Basic and diluted net loss per share: |
Basic loss per share is computed by dividing the net loss applicable to holders of common stock by the weighted average number of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing the net loss applicable to holders of common stock by the weighted average number of shares of common stock outstanding plus the number of additional shares of common stock that would have been outstanding if all potentially dilutive shares of common stock had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings per Share.” Potentially dilutive shares of common stock were excluded from the diluted loss per share calculation because they were anti-dilutive.
| I. | Revenue recognition: |
The Group generates revenues from long-term contracts involving the design, development, manufacture and integration of robotic stabilization platforms.
Revenues from long-term contracts are recognized using ASC 605-35, “Revenue Recognition - Construction-Type and Production-Type Contracts,” according to which revenues are recognized on the percentage-of-completion (“POC”) basis.
Sales under long-term fixed-price contracts, which provide for a substantial level of development efforts in relation to total contract efforts, are recorded using the cost-to-cost method of accounting as the basis to measure progress toward completing the contract and to recognize revenues using the POC basis. According to this method, sales and profits are recorded based on the ratio of costs incurred to estimated total costs at completion. When measuring progress toward completion, the Group may consider other factors, such as contracts’ performance obligations or the achievement of milestones.
The POC method of accounting requires management to estimate the cost and gross profit margin for each individual contract. Estimated gross profit or loss from long-term contracts may change due to differences between actual performance and original estimated forecasts.
When adjustments are required for the estimated total revenue on a contract, these changes are recognized with an inception-to-date effect in the current period. In addition, when estimates of total costs to be incurred exceed estimates of total revenue to be earned, a provision for the entire loss on the contract is recorded in the period in which the loss is determined
| J. | Research and development expenses: |
Research and development expenses are charged to the statement of operations as incurred.
-9-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| K. | Contingencies: |
The Company records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
| L. | Fair Value Measurements: |
The Company measures and discloses fair value in accordance with the Financial Accounting Standards Board (“FASB”), ASC 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions there exists a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - unadjusted quoted prices are available in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date
Level 2 – pricing inputs are other than quoted prices in active markets that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 – pricing inputs are unobservable for the non-financial asset or liability and only used when there is little, if any, market activity for the non-financial asset or liability at the measurement date. The inputs into the determination of fair value require significant management judgment or estimation. Level 3 inputs are considered as the lowest priority within the fair value hierarchy.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The fair value of cash and cash equivalents is based on its demand value, which is equal to its carrying value. Additionally, the carrying value of all other short term monetary assets and liabilities are estimated to be equal to their fair value due to the short-term nature of these instruments.
-10-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 2 - | SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| M. | New Accounting Pronouncements Adopted in Fiscal Year 2018: |
The FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” and related amendments, which are jointly referred to as ASC Topic 606. This standard replaced most existing revenue recognition guidance in GAAP and requires entities to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. A performance obligation is defined as a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company adopted the provisions of this standard on January 1, 2018, using the modified retrospective method. There was no cumulative effect of initially applying the standard, nor is there any material difference in revenue for the year ended December 31, 2018, as compared with the GAAP standard that was in effect prior to January 1, 2018.
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07).” The new guidance expands the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s operations, and supersedes the guidance in ASC 505-50, “Equity-Based Payments to Non Employees.” Once adopted, the fair value of awards granted to nonemployees will be determined as of the grant date and recognized, in expense, over the service period. Previous guidance required the fair value of awards granted to nonemployees to be remeasured at intervals in determining the expense to be recognized. ASU 2018-07 is effective for public business entities in annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this standard on its financial statements and related disclosures, if any.
| N. | New Accounting Pronouncements Adopted in Fiscal Year 2018 (cont.) |
In February 2016, the FASB issued ASU No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, “Leases.” Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued amendments to ASU 2018-11, which provide a transition election to not restate comparative periods for the effects of applying the new standard. This transition election permits entities to change the date of initial application to the beginning of the earliest comparative period presented, or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its financial statements and related disclosures.
-11-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 3 - | OTHER CUURENT ASSETS |
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| Loans to executive officers (1) | 21 | 20 | ||||||
| Prepaid expenses | 82 | - | ||||||
| Government Institutions | 17 | 14 | ||||||
| 120 | 34 | |||||||
| (1) | On November 20, 2017, the Group made available to an executive officer and a former executive officer, who are also stockholders, a loan in the amount of $10 each. The loans bear interest at a rate of approximately 3% per year. The loans, including the accumulated interest amount, shall be repaid at the earlier of the following dates: (i) December 31, 2019; or (ii) at the date of repayment of the loan made available by the stockholders to the Company according to a loan agreement as stated in Note 5; or (iii) from any dividend or other distribution to be made by the Company to its shareholders. The two stockholders are entitled to repay the outstanding amount of the loan at any time. |
| NOTE 4 - | BANK LOANS |
On February 29, 2016, Duke signed a loan agreement with an Israeli bank pursuant to which NIS 500 ($128) was provided at the closing date at a variable annual rate of 4.25%. The outstanding loan will be repaid in 60 equal installments through February 28, 2021.
The loan is collateralized by substantially all of the assets of Duke and its common stock.
On August 5, 2015, Duke obtained a loan from an Israeli bank pursuant to which NIS 250 ($65) was provided at the closing date at a variable annual rate of 3.6%. The outstanding loan will be repaid in 60 equal installments through August 15, 2020.
On November 19, 2014, Duke signed a loan agreement with an Israeli bank pursuant to which NIS 260 ($67) was provided at the closing date at a variable annual rate of 6.5%. The outstanding loan was paid off in April 2019.
| NOTE 5 - | STOCKHOLDERS LOANS |
Since inception, certain Company stockholders (the “Stockholders”) provided loans to the Group from time to time, as needed. Some of the Stockholders loans bear an annual fixed interest at 3% and some of the Stockholders loans bear an annual interest rate as defined in section 3(j) of the Israeli tax ordinance (the interest rate for 2018 and 2017 was 2.61% and 2.56%, respectively).
The Stockholders’ loans, including the accumulated interest amount, shall be repaid in full within 7-15 days from any capital raised by the Company or related parties of the Company, whether by a stock offering and / or loans in excess of NIS 10 million (approximately $2.5 million). Regarding changes in repayment of the Stockholders’ loans – see also Note 11.
-12-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 6 - | CONVERTIBLE LOAN |
On January 25, 2018, the Company and a private investor entered into a convertible loan agreement in amount of $400, (or the “Loan”), bearing an annual interest rate of 6%. According to the terms of the Loan, in the event of a financing round, upon its consummation, the Loan (including interest) will be converted into the same class of shares of our common stock to be issued within such financing round. Under certain terms stipulated in the Loan agreement, the lender will be entitled to a 10% discount off the price per share determined under such financing round but only in the event that the pre-money valuation of the Company under such funding round will exceed $45 million.
Unless converted into shares of our common stock, the Loan will become due only in the event of insolvency or liquidation of the Company. Accordingly, the Loan was classified as debt and is measured at its fair value, pursuant to the provisions of ASC 480-10, “Accounting for Certain Financial instruments with Characteristics of both Liabilities and Equity.”
| NOTE 7 - | LITIGATION |
On February 14, 2018, a complaint was filed against the: (i) Company, (ii) Duke, (iii) Aphek Trading Kadosh and Razi Ltd. (“Aphek”) an Israeli corporation owned by Raziel Atuar and Amir Kadosh, and (iv) Mr. Aharon Sagiv, currently, the Chief Executive Officer and Chief Technology Officer, President and Director of the Company, by Blackhawk Laboratories (the “Plaintiff”), a U.S. based company, in the Tel Aviv District of Israel (Case No. 31727-02-18). The complaint asserts a claim for breach of contract, breach of duty, negligence and unjust enrichment with regard to a services agreement dated June 13, 2014 between the Plaintiff and Duke. The complaint asserts that Duke agreed to pay for certain services alleged to have been performed by the Plaintiff and that the Plaintiff was entitled to receive 8% of the issued and outstanding shares of common stock of, over a 12 month period from June 2014 to June 2015. The Plaintiff’s complaint seeks an order requiring either Duke to issue to the Plaintiff 8% of its issued and outstanding shares of our common stock; or alternatively for the Company to issue to the Plaintiff 4.8% of its issued and outstanding shares of our common stock; or alternatively for Aphek and Mr. Aharon Sagiv to transfer 8% of their shareholdings in the Company to the Plaintiff.
The defendants believe the Plaintiff’s complaint has no merit and they intend to vigorously defend the lawsuit. The Company does not believe the lawsuit will have a material effect on the Company as all three co-founders of the Company (Raziel Atuar, Amir Kadosh and Sagiv Aharon) have agreed to indemnify the Group for any losses resulting from the lawsuit, including taking responsibility for the issuance of any shares of the Group’s common stock in the event the Plaintiff is successful in its lawsuit.
| NOTE 8 - | STOCKHOLDERS’ EQUITY |
| A. | Composition: |
| Authorized | Issued and outstanding | |||||||
| Number of shares As of December 31, 2018 | ||||||||
| Common stock of USD 0.0001 par value | 50,000,000 | 20,165,300 | ||||||
| Authorized | Issued and outstanding | |||||||
| Number of shares As of December 31, 2017 | ||||||||
| Common stock of USD 0.0001 par value | 50,000,000 | 20,155,088 | ||||||
-13-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 8 - | STOCKHOLDERS’ EQUITY (Cont.) |
| B. | Common stock: |
The common stock confers upon the holders the right to receive notice to participate and vote in general meetings of stockholders of the Company, the right to receive dividends, if declared, and the right to participate in a distribution of surplus of assets upon liquidation of the Company.
| C. | Transactions: |
| 1. | On September 21, 2016, in connection with the Company’s Regulation A offering, the Company issued 16,667 shares of restricted stock to a consultant. According to the agreement, the shares of common stock vest in four tranches over a vesting period of one year and will be restricted for one year following their full vesting. The fair value of the services was $35, representing a price of $2.10 per share. By December 31, 2016, 4,167 shares had been vested and, as a result, for the year ended December 31, 2016, the Company recognized compensation expenses in the amount of $9 included in general and administrative expenses in the Consolidated Statements of Operations. |
In April 2017 the agreement was amended and all of the then remaining unvested shares of restricted stock became fully vested. The expense related to the services received in 2017 were classified as issuance expenses and accordingly recorded in the equity.
| 2. | On February 15, 2017, the Company issued and sold to an investor 55,556 shares of common stock at a price per share of $2.25 for total proceeds of $125. | |
| 3. | On August 9, 2017, the Company’s Regulation A offering circular was qualified by the U.S. Securities and Exchange Commission. As of December 31, 2017, the Company had issued 82,865 shares of common stock at a price per share of $3.00 for total proceeds of $46, net of issuance and registration expenses. | |
| 4. | During the period of January 1, 2018 to August 3, 2018 (final closing of the Company’s Regulation A offering) the Company issued 10,212 shares of common stock at a price per share of $3.00 for total proceeds of $29, net of issuance and registration expenses. | |
| 5. | On June 1, 2018, the Company granted an aggregate of 200,000 shares of common stock to a consultant at a value of $3.00 per share of common stock in exchange for consulting services. The stock will be issued to the consultant over a 3 year vesting period. On June 1, 2019 the Company issued to the consultant the first tranche of 66,667 shares of common stock. |
| D. | Stock based compensation: |
During 2017 the Company entered into consulting agreements with advisory board members, a financial consultant and an executive recruited to the position of Chief Customer Officer. According to these agreements, the Company agreed to grant the parties to these agreements options to purchase shares of common stock of the Company. The grant of the options is subject to the terms and conditions of a stock incentive plan, to be adopted by the stockholders of the Company as well as by the Company’s Board of Directors. The above excludes 1,250,000 shares of common stock which the Company intend to reserve for issuance under such stock incentive plan, yet to be adopted.
-14-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 8 - | STOCKHOLDERS’ EQUITY (Cont.) |
| D. | Stock based compensation (Cont.): |
A summary of the Company’s activity related to options granted and related information is as follows:
| For the year ended December 31, 2018 | ||||||||
| Amount of options | Weighted average exercise price | |||||||
| $ | ||||||||
| Outstanding at beginning of year | 650,000 | 2.88 | ||||||
| Granted | 345,000 | 2.35 | ||||||
| Exercised | ||||||||
| Cancelled | ||||||||
| Outstanding at the end of year | 995,000 | 2.70 | ||||||
| Number of options exercisable at December 31, 2018 | 516,667 | 2.90 | ||||||
The aggregate intrinsic value of the awards outstanding as of December 31, 2018 is $451. These amounts represent the total intrinsic value, based on the Company’s stock price of $3 as of December 31, 2018, less the weighted exercise price. This represents the potential amount received by the option holders had all option holders exercised their options as of that date.
The stock options outstanding as of December 31, 2018 and 2017, have been separated into exercise prices, as follows:
| Exercise price | Stock options outstanding | Weighted average remaining contractual life – years | Stock options vested | |||||||||||
| As of December 31, 2018 | ||||||||||||||
| $ | 2.25 | 400,000 | 3.7 | 66,667 | ||||||||||
| $ | 3 | 595,000 | 3.3 | 450,000 | ||||||||||
| 995,000 | 3.5 | 516,667 | ||||||||||||
| Exercise price | Stock options outstanding | Weighted average remaining contractual life – years | Stock options vested | |||||||||||
| As of December 31, 2017 | ||||||||||||||
| $ | 2.25 | 200,000 | 4 | 33,334 | ||||||||||
| $ | 3 | 450,000 | 4 | 350,000 | ||||||||||
| 650,000 | 4 | 383,334 | ||||||||||||
Compensation expense recorded by the Company with respect to its stock-based compensation awards for the year ended December 31, 2018 and 2017 was $748 and $477, respectively and is included in general and administrative expenses in the Statements of Operations
-15-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 8 - | STOCKHOLDERS’ EQUITY (Cont.) |
| D. | Stock based compensation (Cont.): |
The fair value of the stock options is estimated using Black-Scholes options pricing model with the following weighted-average assumptions:
| 2017/2018 | ||||
| Share Price (USD) | 3.00 | |||
| Expected volatility | 40 | % | ||
| Risk-free interest | 2.20 | % | ||
| Dividend yield | 0 | % | ||
| Expected life of up to (years) | 4-5 | |||
| NOTE 9 - | TAXES ON INCOME |
The Group is subject to income taxes under the Israeli and U.S. tax laws:
| A. | Duke was subject to an Israeli corporate tax rate of 23% in the year 2018 and 24% in the year 2017. Going forward, Duke will be subject to an Israeli corporate tax rate of 23% unless its overseas revenues exceed 25% of total revenues, in which case the effective corporate tax rate will be 16%. |
| B. | On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the U.S. The Tax Act, among other provisions, introduces changes in the U.S corporate tax rate, business related deductions and credits, and has international tax consequences for companies that operate globally. Most of the changes introduced in the Tax Act are effective beginning on January 1, 2018. As a result of the tax act the maximum statutory federal tax rate was reduced to 21% starting on January 1, 2018. The other effects of the Tax Act provisions are still being identified and evaluated by the Company. |
| C. | As of December 31, 2018, Duke generated net operating losses in Israel of approximately $803, which may be carried forward and offset against taxable income in the future for an indefinite period. As of December 31, 2018, the Company generated net operating tax losses in the U.S. of approximately $344 which expire at the end of 2036 and 2037 ($244 and $120 respectively). |
| D. | The Group is still in its development stage, therefore, it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts. |
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| Deferred tax assets: | ||||||||
| Deferred taxes due to carryforward losses | 426 | 227 | ||||||
| Valuation allowance | (426 | ) | (227 | ) | ||||
| Net deferred tax asset | - | - | ||||||
| E. | The Group has no uncertain tax positions and foreign sources of income. |
-16-
Duke Robotics, Inc. and its Subsidiary
Notes to the consolidated financial statements
USD in thousands, except share and per share data
| NOTE 10 - | TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES |
Composition:
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| Management fees | - | 71 | ||||||
| Stockholders loans, net | 935 | 906 | ||||||
| NOTE 11 - | SUBSEQUENT EVENTS |
On August 5, 2019 the Company entered into an Agreement of Principles (“Agreement of Principles”) with an investor to locate a U.S. corporation traded on the OTC or other suitable shelf corporation incorporated in the United States (“Shelf Corporation”) with the purpose to facilitate a merger or other similar transaction with, and to fund the Company in connection therewith (“Transaction”).
The Agreement of Principles sets the principles for such a Transaction, including the ratio of share exchange between the Company’s stockholders and Shelf Corporation and the terms for a convertible loan in the amount of $1 million to be made available to the Company by the investor (or a group of investors) upon closing of a Transaction (“Investor’s Loan”). The term of such Investor’s Loan will be for 12 month and will bear annual interest of 15%, and at the discretion of the Company, the term of the Investor’s Loan can be extended for an additional 12 month period. The Investor will have the option to convert the unpaid balance of the Investor’s Loan into shares of the Company’s common stock based on the lower of the following valuations: either a company value of $15 million; or the company valuation obtained at the time of the first subsequent capital raise by the Company after the Transaction. The Agreement of Principles also states that neither the Company nor Shelf Corporation will have any debt or liabilities at the closing of a Transaction other than agreed debt or liabilities, including: (a) the Company’s Stockholders’ loans in the amount of Two Hundred and Eighty Thousands dollars ($280) which shall be shall be repaid at the date upon which the Company raises at least $15 million and has earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year anniversary of the closing of the Transaction; and (b) debt in the amount of Four Hundred Thousands dollars ($400) to certain stockholders of the Shelf Corporation, which such debt shall be convertible to shares.
On September 1, 2019, the Company and UAS Drone Corp., a Nevada registered corporation traded on the OTC (USDR:OTCPK), entered into a non-binding term sheet that outlines the general terms and conditions upon which USDR may acquire up to 100% of the outstanding securities of the Company in exchange for the issuance to the Company shareholders’, on a pro rata basis, of 71% of the outstanding post acquisition securities of the USDR (“Merger Transaction”). The closing of the Merger Transaction is subject to a number of conditions precedent, including the parties’ negotiation and execution of a definitive agreement in accordance with the Agreement of Principles. No assurance can be given that the transactions contemplated by the term sheet will be completed.
-17-
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2019
DUKE ROBOTICS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
1
The Board of Directors and Shareholders of Duke Robotics Inc.
Review of Unaudited Condensed Consolidated Financial Statements
for the nine months period ended September 30, 2019
We have reviewed the accompanying condensed consolidated balance sheet of Duke Robotics Inc. and its subsidiary (the “Company”) as of September 30, 2019 and the condensed consolidated statements of operations, changes in shareholders’ deficiency and cash flows for the nine and three months period then ended.
This condensed financial information is the responsibility of the company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with US generally accepted accounting principles.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B to the condensed consolidated financial statements, the Company has not yet generated material revenues from its operations to fund its activities and is therefore dependent upon external sources for financing its operations. As of September 30, 2019, the Company has incurred accumulated deficit of $3,416 thousands and negative operating cash flows. These factor among others, as discussed in Note 1B to the condensed consolidated financial statements raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1B to the condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of’ these uncertainties.
Halperin Ilanit
Certified Public Accountants (Isr.)
Tel Aviv, Israel
December 26, 2019
We have served as the Company’s auditor since 2019
30 A’arba’a st. A’arba’a towers, Tel Aviv 6473926 | tel. +972-3-9335474 | fax. +972-3-9335466 | www.halperin-cpa.co.il
2
Duke Robotics, Inc. and its Subsidiary
Condensed Consolidated Balance Sheets
USD in thousands
| As of September 30, | As of December 31, | |||||||
| 2019 | 2018 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 55 | 190 | ||||||
| Account receivables | 38 | - | ||||||
| Other current assets | 28 | 120 | ||||||
| Total current assets | 121 | 310 | ||||||
| Property and Equipment, net | 17 | 19 | ||||||
| TOTAL ASSETS | 138 | 329 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current liabilities | ||||||||
| Current maturities of long term bank loans | 25 | 34 | ||||||
| Accounts payable | 110 | 49 | ||||||
| Other accounts liabilities | 53 | 23 | ||||||
| Stockholders loans (Note 4) | 718 | 954 | ||||||
| Convertible loan | 443 | 425 | ||||||
| Total current liabilities | 1,349 | 1,485 | ||||||
| Long term liabilities | ||||||||
| Stockholders loans (Note 4) | 280 | - | ||||||
| Bank loans | 18 | 32 | ||||||
| Total long term liabilities | 298 | 32 | ||||||
| TOTAL LIABILITIES | 1,647 | 1,517 | ||||||
| Stockholders’ deficiency | ||||||||
| Common stock of $0.0001 par value | 2 | 2 | ||||||
| Additional paid in capital | 1,905 | 1,462 | ||||||
| Accumulated deficit | (3,416 | ) | (2,652 | ) | ||||
| Total stockholders’ deficiency | (1,509 | ) | (1,188 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | 138 | 329 | ||||||
| /s/ Yariv Alroy | /s/ Sagiv Aharon | |
Yariv
Alroy |
Sagiv
Aharon |
Date of approval of the financial statements: December 26, 2019.
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
Duke Robotics, Inc. and its Subsidiary
Condensed Consolidated Statements of Operations (Unaudited)
USD in thousands, except share and per share data
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues | 112 | - | 112 | 115 | ||||||||||||
| Cost of revenues | (105 | ) | - | (105 | ) | (82 | ) | |||||||||
| Gross profit | 7 | - | 7 | 33 | ||||||||||||
| Research and development | (5 | ) | (47 | ) | (58 | ) | (101 | ) | ||||||||
| General and administrative | (175 | ) | (483 | ) | (632 | ) | (756 | ) | ||||||||
| Total operating expenses | (180 | ) | (530 | ) | (690 | ) | (857 | ) | ||||||||
| Operating loss | (173 | ) | (530 | ) | (683 | ) | (824 | ) | ||||||||
| Financial expenses, net | (27 | ) | (70 | ) | (81 | ) | (108 | ) | ||||||||
| Loss for the period | (200 | ) | (600 | ) | (764 | ) | (932 | ) | ||||||||
| Loss per share: | ||||||||||||||||
| Basic and diluted net loss per share | (0.01 | ) | (0.03 | ) | (0.04 | ) | (0.05 | ) | ||||||||
| Weighted average number of common stock: | ||||||||||||||||
| Basic and diluted | 20,231,967 | 20,165,300 | 20,230,505 | 20,163,229 | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Duke Robotics, Inc. and its Subsidiary
Condensed Statements of Changes in Stockholders’ Deficiency (Unaudited)
USD in thousands, except share data
| Common Stock | Additional paid in capital | Accumulated deficit | Total stockholder’s deficiency | |||||||||||||||||
| Number | Amount | |||||||||||||||||||
| Balance as of December 31, 2017 | 20,155,088 | 2 | 683 | (1,479 | ) | (794 | ) | |||||||||||||
| Changes during 2018: | ||||||||||||||||||||
| Issuance of common stock | 10,212 | (* | ) | 31 | - | 31 | ||||||||||||||
| Stock based compensation | - | - | 748 | - | 748 | |||||||||||||||
| Loss for the year | - | - | - | (1,173 | ) | (1,173 | ) | |||||||||||||
| Balance as of December, 31 2018 | 20,165,300 | 2 | 1,462 | (2,652 | ) | (1,188 | ) | |||||||||||||
| Changes during 2019: | ||||||||||||||||||||
| Stock based compensation | 66,667 | (* | ) | 443 | - | 443 | ||||||||||||||
| Loss for the period | - | - | - | (764 | ) | (764 | ) | |||||||||||||
| Balance as of September 30, 2019 | 20,231,967 | 2 | 1,905 | (3,416 | ) | (1,509 | ) | |||||||||||||
* Less than 1 USD (in thousands)
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Duke Robotics, Inc. and its Subsidiary
Condensed Consolidated Statements of Cash Flows (Unaudited)
USD in thousands
| Nine months ended September 30, |
||||||||
| 2019 | 2018 | |||||||
| Net cash used in operating activities | ||||||||
| Loss for the per | (764 | ) | (932 | ) | ||||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation | 2 | 4 | ||||||
| Change in fair value of convertible loan | - | 44 | ||||||
| Finance expenses | 62 | 51 | ||||||
| Share based payment expenses | 443 | 543 | ||||||
| Decrease (increase) accounts receivables | (38 | ) | 5 | |||||
| Decrease (increase) in other current assets | 92 | (3 | ) | |||||
| Increase in accounts payable | 61 | 17 | ||||||
| Increase (decrease) in other accounts liabilities | 30 | (38 | ) | |||||
| 652 | 623 | |||||||
| Net cash used in operating activities | (112 | ) | (309 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | - | (4 | ) | |||||
| Net cash used in investing activities | - | (4 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Issuance of convertible loan | - | 400 | ||||||
| Repayment of bank loans | (23 | ) | (81 | ) | ||||
| Issuance of common stock | - | 31 | ||||||
| Net cash provided by (used in) financing activities | (23 | ) | 350 | |||||
| Increase in cash and cash equivalents | (135 | ) | (37 | ) | ||||
| Cash and cash equivalents at the beginning of the period | 190 | 273 | ||||||
| Cash and cash equivalents at the end of the period | 55 | 310 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
Duke Robotics, Inc. and its Subsidiary
Notes to the condensed consolidated financial statements (unaudited)
USD in thousands, except share and per share data
| NOTE 1 - | GENERAL |
| A. | Duke Robotics, Inc. (the “Company”) is a company incorporated under the laws of the state of Delaware and was formed on April 21, 2016. |
The Company is the owner of 100% of the outstanding stock of Duke Airborne Systems Ltd. (“Duke” or the “Subsidiary”) (together with the Company, the “Group”) acquired on June 5, 2016, pursuant to a restructuring under common control. The Subsidiary was incorporated under the laws of the State of Israel on March 5, 2014 and commenced its operations on May 1, 2014.
The restructuring was performed in June 5, 2016, such that every stockholder of Duke has tendered its stock in Duke in exchange for stock in the Company, causing Duke to become the wholly owned subsidiary of the Company. Since the above reorganization was made between companies under common control, the consolidated financial statements of the Company and the Subsidiary are presented as if the above transaction had occurred on the first day of the earliest year presented.
The financial operations overview refers to the financial information of Duke as the predecessor of the Company.
The Company is a robotics company dedicated to the development of an advanced robotics stabilization system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons.
| B. | Since inception, the Company has devoted substantially all its efforts to research and development. The Company is still in its development stage and the extent of the Company’s future operating losses and the timing of becoming profitable, if ever, are uncertain. The Company has incurred losses of $764 for the nine months ended September 30, 2019 and accumulated deficit of $3,416. |
These conditions raise substantial doubt about the Company’s ability to continue to operate as a “going concern”. The Company’s ability to continue operating as a going concern is dependent on several factors, among them is the ability to raise sufficient additional funding.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION |
Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q. In the opinion of management, although the financial statements presented herein have not been audited by an independent registered public accounting firm, such financial statements include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the for nine months ended September 30, 2019. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2019. The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.
Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 2018.
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Duke Robotics, Inc. and its Subsidiary
Notes to the condensed consolidated financial statements (unaudited)
USD in thousands, except share and per share data
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Cont.) |
Principles of Consolidation
The consolidated financial statements are prepared in accordance with GAAP. The consolidated financial statements of the Company include the Group. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the going concern assumptions and share-based compensation.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which replaced existing lease guidance in GAAP and requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for leases greater than twelve months and disclose key information about leasing arrangements. The Company adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. Financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients for transition. The Company elected the package of practical expedients under the transition guidance which permits the Company not to reassess under the new standards our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under ASC 842. The Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases.
The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting policy elections. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. The Company also elected the practical expedient not to separate lease and non-lease components for all of our leases.
8
Duke Robotics, Inc. and its Subsidiary
Notes to the condensed consolidated financial statements (unaudited)
USD in thousands, except share and per share data
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Cont.) |
Recently Adopted Accounting Pronouncements (cont.)
The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting” (“Topic 718”). The standard expands the scope of Topic 718 to include share-based payments issued to nonemployees for goods or services, simplifying the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. The Company adopted this ASU on January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.
| NOTE 3 - | STOCK OPTIONS |
The following table presents the Company’s stock option activity the nine months ended September 30, 2019:
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2018 (*) | 995,000 | 2.70 | ||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forfeited or expired | - | - | ||||||
| Outstanding at September 30, 2019 | 995,000 | 2.70 | ||||||
| Number of options exercisable at September 30, 2019 | 661,667 | 2.81 | ||||||
The aggregate intrinsic value of the awards outstanding as of September 30, 2019 is $299. These amounts represent the total intrinsic value, based on the Company’s stock price of $3 as of September 30, 2019, less the weighted exercise price. This represents the potential amount received by the option holders had all option holders exercised their options as of that date.
The stock options outstanding as of September 30, 2019, have been separated into exercise prices, as follows:
| Exercise price | Stock options outstanding | Weighted average remaining contractual life – years | Stock options vested | |||||||||||
| As of September 30, 2019 | ||||||||||||||
| $ | 2.25 | 400,000 | 2.95 | 166,667 | ||||||||||
| $ | 3 | 595,000 | 2.55 | 495,000 | ||||||||||
| 995,000 | 661,667 | |||||||||||||
Compensation expense recorded by the Company in respect of its stock-based compensation awards for the period ended September 30, 2019 was $443 and are included in general and administrative expenses in the Statements of Operations
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Duke Robotics, Inc. and its Subsidiary
Notes to the condensed consolidated financial statements (unaudited)
USD in thousands, except share and per share data
| NOTE 4 - | EVENTS DURNING THE PERIOD |
On August 5, 2019 the Company entered into an Agreement of Principles (“Agreement of Principles”) with an investor to locate a U.S. corporation traded on the OTC or other suitable shelf corporation incorporated in the United States (“Shelf Corporation”) with the purpose to facilitate a merger or other similar transaction with, and to fund the Company in connection therewith (“Transaction”).
The Agreement of Principles sets the principles for such a Transaction, including the ratio of share exchange between the Company’s stockholders and Shelf Corporation and the terms for a convertible loan in the amount of $1 million to be made available to the Company by the investor (or a group of investors) upon closing of a Transaction (“Investor’s Loan”). The term of such Investor’s Loan will be for 12 month and will bear annual interest of 15%, and at the discretion of the Company, the term of the Investor’s Loan can be extended for an additional 12 month period. The Investor will have the option to convert the unpaid balance of the Investor’s Loan into shares of the Company’s common stock based on the lower of the following valuations: either a company value of $15 million; or the company valuation obtained at the time of the first subsequent capital raise by the Company after the Transaction. The Agreement of Principles also states that neither the Company nor Shelf Corporation will have any debt or liabilities at the closing of a Transaction other than agreed debt or liabilities, including: (a) the Company’s Stockholders’ loans in the amount of Two Hundred and Eighty Thousands dollars ($280) which shall be shall be repaid at the date upon which the Company raises at least $15 million and has earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year anniversary of the closing of the Transaction; and (b) debt in the amount of Four Hundred Thousands dollars ($400) to certain stockholders of the Shelf Corporation, which such debt shall be convertible to shares.
On September 1, 2019, the Company and UAS Drone Corp., a Nevada registered corporation traded on the OTC (USDR:OTCPK), entered into a non-binding term sheet that outlines the general terms and conditions upon which USDR may acquire up to 100% of the outstanding securities of the Company in exchange for the issuance to the Company shareholders’, on a pro rata basis, of 71% of the outstanding post acquisition securities of the USDR (“Merger Transaction”). The closing of the Merger Transaction is subject to a number of conditions precedent, including the parties’ negotiation and execution of a definitive agreement in accordance with the Agreement of Principles. No assurance can be given that the transactions contemplated by the term sheet will be completed.
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Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP. For accounting purposes, Duke Robotics Inc. is considered to be acquiring UAS Drone Corp (UASD) and the Merger is expected to be accounted for as an asset acquisition. Duke is considered the accounting acquirer even though UASD will be the issuer of the common stock in the Merger and the surviving company.
The unaudited pro forma combined balance sheet data assume that the Merger took place on September 30, 2019 and combines the historical balance sheets of UASD and Duke as of such date. The unaudited pro forma condensed combined statement of operations data assume that the Merger took place as of January 1, 2018 and combines the historical results of UASD and Duke for the year ended December 31, 2018. The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of Article 11 of SEC Regulation S-X. The historical financial statements of UASD and Duke have been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on the combined company’s results.
The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes.
The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies. The unaudited pro forma condensed combined financial information is preliminary and has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had UASD and Duke been a combined company during the specified periods. The actual results reported in periods following the Merger may differ significantly from those reflected in the unaudited pro forma condensed combined financial information presented herein for a number of reasons, including, but not limited to, differences in the assumptions used to prepare this pro forma financial information.
The unaudited pro forma condensed combined financial information, including the notes thereto, should be read in conjunction with the separate historical financial statements of UASD and Duke, and their respective management’s discussion and analysis of financial condition and results of operations included elsewhere in this information statement. UASD’ historical audited financial statements for the nine months ended September 30, 2019, and for the years ended December 31, 2018 and 2017 are derived from UASD’s financial statements attached hereto.
Accounting rules require evaluation of certain assumptions, estimates, or determination of financial statement classifications which are completed during the measurement period as defined in current accounting standards. The accounting policies of UASD may materially vary from those of Duke. During preparation of the unaudited pro forma condensed combined financial information, management has performed a preliminary analysis and is not aware of any material differences, and accordingly, this unaudited pro forma condensed combined financial information assumes no material differences in accounting policies. Following the acquisition, management will conduct a final review of UASD’s accounting policies in order to determine if differences in accounting policies require adjustment or reclassification of UASD’s results of operations or reclassification of assets or liabilities to conform to Duke’s accounting policies and classifications. As a result of this review, management may identify differences that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2019
| (All numbers in 000’s) | UAS Drone Corp. Historical | Duke Robotics, Inc. Historical | Pro Forma Adjustment | Pro Forma | ||||||||||||
| Assets | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | 35 | 55 | 965 | 2c | 1,055 | |||||||||||
| Account receivables | - | 38 | - | 38 | ||||||||||||
| Other current assets | - | 28 | - | 28 | ||||||||||||
| Total current assets | 35 | 121 | 965 | 1,121 | ||||||||||||
| Property and Equipment, net | - | 17 | - | 17 | ||||||||||||
| Total assets | 35 | 138 | 965 | 1,138 | ||||||||||||
| Liabilities and Stockholders’ Deficit | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Current maturities of long term bank loans | - | 25 | - | 25 | ||||||||||||
| Accounts payable | 35 | 110 | (33 | )2a | 112 | |||||||||||
| Other accounts liabilities | 150 | 53 | (150 | )2a | 53 | |||||||||||
| Advances from stockholders | 200 | - | (200 | )2a | - | |||||||||||
| Convertible notes payable | 450 | - | 515 | 2a,2c | 965 | |||||||||||
| Stockholders loans | - | 718 | (718 | )2b | - | |||||||||||
| Convertible loan | - | 443 | (443 | )2b | - | |||||||||||
| Total current liabilities | 835 | 1,349 | (1,029 | ) | 1,155 | |||||||||||
| Long term liabilities: | ||||||||||||||||
| Bank loan | - | 18 | - | 18 | ||||||||||||
| Stockholders Loans | - | 280 | - | 2d | 280 | |||||||||||
| Convertible notes payable | - | - | 400 | 2a | 400 | |||||||||||
| Promissory note payable | 35 | - | (35 | )2a | - | |||||||||||
| Total liabilities | 870 | 1,647 | (664 | ) | 1,853 | |||||||||||
| Stockholders’ deficit | (835 | ) | (1,509 | ) | 1,629 | (715 | ) | |||||||||
| Total liabilities and stockholders’ deficit | 35 | 138 | 965 | 1,138 | ||||||||||||
2
Unaudited Pro Forma Condensed Combined Statement of Operations
For the nine Months Ended September 30, 2019
| (All numbers in 000’s, except share data) | UAS Drone Corp. Historical | Duke Robotics, Inc. Historical | Pro Forma Adjustment | Pro Forma | ||||||||||||
| Revenues | - | 112 | - | 112 | ||||||||||||
| Costs of revenues | - | (105 | ) | - | (105 | ) | ||||||||||
| Gross Profit | - | 7 | - | 7 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | - | (58 | ) | - | (58 | ) | ||||||||||
| General and administrative | (60 | ) | (632 | ) | - | (692 | ) | |||||||||
| Total operating expenses | (60 | ) | (690 | ) | - | (750 | ) | |||||||||
| Operating Loss | (60 | ) | (683 | ) | - | (743 | ) | |||||||||
| Finance income (expense), net | (33 | ) | (81 | ) | - | (114 | ) | |||||||||
| Net loss after tax | (93 | ) | (764 | ) | - | (857 | ) | |||||||||
| Basic and diluted net loss per share: | (0.09 | ) | (0.02 | ) | ||||||||||||
| Weighted average shares outstanding - basic and diluted | 1,172,544 | 40,097,607 | ||||||||||||||
3
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2018
| (All numbers in 000’s, except share date) | UAS Drone Corp. Historical | Duke Robotics, Inc. Historical | Pro Forma Adjustment | Pro Forma | ||||||||||||
| Revenues | - | 450 | - | 450 | ||||||||||||
| Costs of revenues | (5 | ) | (330 | ) | - | (335 | ) | |||||||||
| Gross Profit | (5 | ) | 120 | - | 115 | |||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | - | (133 | ) | - | (133 | ) | ||||||||||
| General and administrative | (100 | ) | (1,120 | ) | - | (1,220 | ) | |||||||||
| Total operating expenses | (100 | ) | (1,253 | ) | - | (1,353 | ) | |||||||||
| Operating Loss | (105 | ) | (1,133 | ) | - | (1,238 | ) | |||||||||
| Finance income (expense), net | (37 | ) | (40 | ) | - | (77 | ) | |||||||||
| Net loss after tax | (142 | ) | (1,173 | ) | - | (1,315 | ) | |||||||||
| Basic and diluted net loss per share: | (0.12 | ) | (0.03 | ) | ||||||||||||
| Weighted average shares outstanding - basic and diluted | 1,172,544 | 40,097,607 | ||||||||||||||
4
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Transaction and Basis of Presentation
On March 9, 2020, UAS Drone Corp. (the “Company”) consummated a share exchange agreement with Duke Robotics, Inc. (“Duke”) and the shareholders of Duke who executed and delivered the Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which Duke became a subsidiary of the Company. The Share Exchange closed on March 10, 2020 (the “Effective Time”).
Pursuant to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke stockholders in exchange for 22,920,107 shares of Duke’s issued and outstanding shares of common stock, representing approximately 99% of Duke’s issued and outstanding shares of common stock. Accordingly, each outstanding share of Duke common stock was exchanged for the right to receive 1.2421 shares of the Company’s common stock. Of the shares of Duke common stock that were exchanged for shares of the Company’s common stock, 51,410 (representing 63,856 shares of the Company’s common stock post-Share Exchange) shall be issued but remain in escrow until the Company completes a short-form merger, or other similar transaction, pursuant to which, such shares will be issued to their respective holders. These Duke stockholders not receiving shares of the Company’s common stock in exchange for their shares of Duke common stock at the Effective Time are referred to as the Non-Participating Duke Holders.
As such, at the Effective Time, the Duke stockholders owned an equivalent of approximately 71% of the Company’s common stock. After giving effect to the Share Exchange, Duke became a subsidiary of the Company. Following the Share Exchange, the Company adopted the business plan of Duke. Duke is a robotics company dedicated to the development of an advanced robotics system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons.
As a condition for the consummation of the Share Exchange, the Company and Duke agreed to the following covenants and closing conditions: (i) a requirement that a closing of a convertible loan for aggregate gross proceeds of not less than $965,000 shall have occurred immediately prior to the Effective Time; (ii) the Company and each of GreenBlock Capital LLC and Alpha Capital Anstalt revise the terms of each of their outstanding debt in the Company as of the Effective Time; (iii) at the Effective Time, the resignation of Messrs. Grant A. Begley, Christopher Leith and Chris Nelson as directors and/or officers of the Company and the appointment of Yariv Alroy, Erez Nachtomy, Eran Antebi and Sagiv Aharon as directors of the Company and Sagiv Aharon as an officer of the Company; and (v) the receipt of executed pay-off letters and releasees relating to liabilities of the Company.
Following the consummation of the Share Exchange, the Company intends to incorporate a wholly-owned subsidiary, which, according to the Company’s current plan, would then merge into, and acquire, the remaining outstanding shares of Duke held by the Non-Participating Duke Holders. The proposed acquisition of the shares of Duke common stock from the Non-Participating Duke Holders is expected to occur at the Exchange Ratio.
At the Effective Time, Messrs. Grant A. Begley, Christopher Leith and Chris Nelson resigned as directors and/or officers of the Company, and immediately thereafter, as of the Effective Time, the Company’s board of directors and executive officers were reconstituted by the appointment of Sagiv Aharon, Yariv Alroy, Erez Nachtomy and Eran Antebi as directors and Sagiv Aharon as both Chief Executive Officer (the “CEO”), Chief Technology Officer (the “CTO) and President.
5
1. Basis of Presentation
In accordance with Article 11-02 of Regulation S-X, the objective of the pro forma financial information is to provide investors with information about the continuing impact of a particular transaction by illustrating how the acquisition of Duke Robotics Inc. by UAS Drone Corp. businesses might have affected UAS Drone Corp.’s historical financial statements if the transaction had been consummated at an earlier time.
The unaudited pro forma condensed combined balance sheet as of September 30, 2019 is presented as if the Acquisition had occurred on September 30, 2019. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 are presented as if the Acquisition had occurred on January 1, 2018.
The unaudited pro forma condensed combined financial information does not purport to be indicative of the financial position and results of operations that UAS Drone Corp. will obtain in the future, or that UAS Drone Corp. would have obtained if the Acquisition had been consummated as of the dates indicated above. The pro forma adjustments are based upon currently available information and upon certain assumptions that UAS Drone Corp. believes are reasonable. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements of UAS Drone Corp.
2. Pro Forma Adjustments
The unaudited pro forma combined financial statements include pro forma adjustments that are (i) directly attributable to the transactions contemplated by the Share Exchange Agreement, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the results of operations of the combined company.
The pro forma adjustments, based on preliminary estimates that may change significantly as additional information is obtained, are as follows:
a. Conversion of the Company’s outstanding convertible notes payable, advances from stockholders, conversion of a promissory note payable and conversion of the balance of accrued salary of management of the Company into 10,433,542 shares of common stock of the Company.
b. Conversion of Duke’s convertible loan and part of stockholders loans into 1,542,135 shares of common stock of the Company.
c. Immediately prior to the closing of the Share Exchange Agreement, convertible loans, in the total amount of $965,000, will be made available to the Company by several investors (collectively, “Investors’ Loans”). The term of such Investor’s Loans will be for 12 month and will bear annual interest of 15%, and at the discretion of the Company, the term of the Investor's Loans can be extended for an additional 12 month period. The Investors will have the option to convert the respective unpaid balance of their Investor's Loan into shares of the Company’s common stock based on the lower of the following valuations: (i) the lowest effective price per share set in connection with any funds raised by the Company during the six months following the Transaction; (ii) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six months following the Transaction until such time as the Investors’ Loans are fully repaid; (iii) a price per share reflecting a post-money valuation of the Company of $15,000,000 following the next investment in the Company following closing; or (iv) If at any time following 6 month following the transaction and until such time as the Investors’ Loans are fully repaid, the company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues any common stock entitling any person to acquire shares of common stock at an effective price per share that is lower than $0.374 .
d. Unconverted stockholders’ loans, in the amount of $280,000 which shall be repaid at the date upon which Duke or the Company raises at least $15 million and has achieved earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year anniversary of the closing of the Share Exchange and the full repayment of the amounts outstanding under the Investors’ Loans, unless such repayment is otherwise waived by the parties to the Investors’ Loans.
e. We did not adjust the pro forma with estimated transaction costs of approximately $340,000.
6