RCAT Red Cat Holdings Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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): February 16, 2024

 

Red Cat Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada (State or other jurisdiction of incorporation)

001-40202 (Commission File Number)

88-0490034 (I.R.S. Employer Identification No.)

 

15 Ave. Munoz Rivera Ste 2200 San Juan, PR (Address of principal executive offices)

00901 (Zip Code)

    

 

Registrant’s telephone number, including area code: (833) 373-3228

 

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
Common stock, par value $0.001	RCAT	The Nasdaq Capital Market

 

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.  ☐

 

Section 2 – Financial Information

 

Item 2.01 Completion of Acquisition or Disposition of Assets

 

Closing of Sale of Consumer Division

 

On February 16, 2024, Red Cat Holdings, Inc., a Nevada corporation (the “Company”) closed the sale of Rotor Riot, LLC (“Rotor Riot”) and Fat Shark Holdings, Ltd. (“Fat Shark”), its wholly-owned subsidiaries, to Unusual Machines, Inc., a Puerto Rico corporation (“UMAC”). The sale was conducted pursuant to a Share Purchase Agreement dated November 21, 2022, as amended on April 13, 2023, July 10, 2023, and December 11, 2023 (the “SPA”). Rotor Riot and Fat Shark previously focused on sales to the consumer segment, including recreational and hobbyist drones, first-person-view goggles, and acting as a licensed authorized reseller of consumer drone products. The transaction closed concurrently with UMAC’s initial public offering and listing on the NYSE American exchange (“IPO”) under the symbol “UMAC.” Following divestiture of its consumer division, the Company intends to focus its efforts exclusively on drone technology integrating robotic hardware and software for military, government, and commercial operations.

 

On September 19, 2022, the Company formed a Special Committee of its Board of Directors consisting of Joe Freedman and Christopher Moe, independent directors, in order to negotiate and conclude the SPA on behalf of the Company. The SPA was approved by shareholders of the Company at a special meeting held March 8, 2023. In evaluating the consideration to be paid to the Company for its ownership of Rotor Riot and Fat Shark, the special committee evaluated the fair market value of both companies and obtained and reviewed an independent fair market value analysis of the companies prepared by Vantage Point Advisors, Inc.

 

Consideration for Sale of Consumer Division Under the SPA

 

The total consideration received by the Company for its sale of Rotor Riot and Fat Shark was valued at $20 million, and consisted of the following elements:

 

·

$1 million in cash, which was paid from the proceeds of UMAC’s initial public offering;

 

·

$2 million in the form of a promissory note payable to the Company, filed as Exhibit 10.1 hereto (the “Note”); and

 

·

$17 million worth of UMAC common stock, valued at the initial public offering price for UMAC’s common stock, resulting in 4,250,000 shares of UMAC common stock being issued to the Company (representing approximately 48.66% of UMAC’s issued and outstanding common stock after giving effect to the IPO and to the issuance of common stock to the Company upon closing of the IPO).

 

In addition, UMAC is required to pay the Company for the amount of the working capital balances of Rotor Riot and Fat Shark as of the Closing Date.

 

8% Promissory Note

 

The Note bears interest at a rate of 8% per year, is due 18 months from the date of issue, and requires monthly payments of interest due in arrears on the 15^th day of each month. In the event of a Qualified Financing (defined as one or more related debt or equity financings by UMAC resulting in net proceeds of at least $5 million, other than UMAC’s completed IPO), the Company may require payment of the Note in whole or in part upon written notice given within 10 days of the Qualified Financing. During the occurrence and continuance of any event of default under the Note, the Company may, at its option, convert the amounts due under the Note to common stock of UMAC in whole or in part from time to time. The conversion price will be a 10% discount to the average daily volume weighted average price for UMAC’s common stock over the 10 days preceding the conversion. Conversions under the Note will be limited such that no conversion may be made to the extent that, after giving effect to the conversion, the Company, together with its affiliates, would beneficially own in excess of 4.99% of UMAC’s common stock. This limit may be increased by the Company upon 61 days written notice.

 

Registration Rights Agreement

 

In connection with the closing of the SPA, UMAC and the Company entered into a Registration Rights Agreement (the “RRA”) filed herewith as Exhibit 10.2. Under the RRA, UMAC has agreed to file a registration statement with the Securities and Exchange Commission (the “Commission”) covering the Company’s resale of 500,000 of the shares of the UMAC common stock issued to the Company under the SPA. UMAC is required to file a registration statement with the Commission within 120 days after the effectiveness of the registration statement for its IPO and must use its best efforts to secure effectiveness of the registration statement within 180 days of the effectiveness of its IPO registration statement.

 

Non-competition Agreements

 

Company Non-Compete

 

In connection with the closing of the SPA, UMAC, Rotor Riot, and Fat Shark entered into a Non-Competition Agreement (the ‘Company Non-Compete”) in favor of the Company, filed herewith as Exhibit 10.3. Under the Company Non-Compete, UMAC, Rotor Riot, and Fat Shark have agreed that, for a period of 5 years, they shall not design, manufacture, market, import, build or sell any Group 1 or Group 2 UAV drone to customers which are a governmental authority (as defined in the agreement) and/or any third-party intermediary to customers which are a governmental authority, without the prior written consent of the Company. A “Group 1 UAV” drone is defined as a small, lightweight unmanned system (such as the Teal 2 and RQ-11 Raven drones) weighing up to 20 pounds that are designed for operation at lower altitudes (capable of reaching up to 1,200 feet above ground level) at speeds of less than 100 knots. A “Group 2 UAV” drone is defined as drones that weigh between 21 and 55 pounds (such as the RQ-7 Shadow) and are designed for medium range missions, capable of reaching altitudes up to 3,500 feet above ground level and flying at speed less than 250 knots.

 

In addition, UMAC shall be entitled to be paid 10% of net collected revenue as and when collected for sales made by our subsidiary Teal Drones Inc. which are referred by UMAC for sales of Group 1 or Group 2 UAV drones to a government authority not previously in contact with Teal. UMAC shall be obligated during the 5-year restricted period to refer all such opportunities to Teal.

 

Allan Evans Non-Compete

 

Also in connection with the closing of the SPA, the CEO of UMAC, Allan Evans, entered into a Non-Compete agreement (the “Evans Non-Compete”) in favor of the Company. Under the Evans Non-Compete, Mr. Evans agreed that, for a period of 12 months, he shall not engage in any business activity similar to, or competitive with, the business conducted by the Company or its affiliates, including, but not limited to, the design, manufacture, market, import, building or selling of any Group 1 or Group 2 UAV drone to customers which are a governmental authority.

 

Our Chief Executive Officer, Chairman and founder, Jeffrey Thompson, is the founder of UMAC and formerly served as its Chief Executive Officer and Chairman from inception in July 2019 until April 2022. Mr. Thompson owns 1,557,000 shares of UMAC common stock, which represents approximately 3.76% of UMAC’s shares after giving effect to the IPO and to the issuance of common stock to the Company upon closing of the IPO.

 

The foregoing descriptions of the material terms of the SPA, as amended, the Note, the RRA and the Non-Compete agreements does not purport to be complete and is qualified in its entirety by reference to such exhibits filed herewith, which should be reviewed in their entirety for additional information.

 

 

Section 9 – Financial Statements and Exhibits

 

Item. 9.01. Financial Statements and Exhibits

 

Exhibit No.	Description
10.1	8% Promissory Note from Unusual Machines, Inc.
10.2	Registration Rights Agreement with Unusual Machines, Inc.
10.3	Non-Competition Agreement with Unusual Machines, Inc., Rotor Riot, LLC, and Fat Shark Holdings, Ltd.
10.4	Non-Compete agreement with Allan Evans
10.5	Share Purchase Agreement with Unusual Machines, Inc.  (incorporated by reference to Current Report on Form 8-K filed November 28, 2022)
10.6	Amended and Restated Amendment No. 1 to Share Purchase Agreement with Unusual Machines, Inc. (incorporated by reference to Current Report on Form 8-K filed April 14, 2023)
10.7	Amendment No. 2 to Share Purchase Agreement with Unusual Machines, Inc. (incorporated by reference to Current Report on Form 8-K filed July 14, 2023)
10.8	Amendment No. 3 to Share Purchase Agreement with Unusual Machines, Inc. (incorporated by reference to Quarterly Report on Form 10-Q filed December 15, 2023)
10.9	Amendment No. 4 to Share Purchase Agreement with Unusual Machines, Inc. (incorporated by reference to Current Report on Form 8-K filed December 15, 2023)
99.1	Unaudited Pro Forma Financial Information

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

	RED CAT HOLDINGS, INC.
Dated: February 22, 2024	By:	/s/ Jeffrey Thompson
		Name: Jeffrey Thompson
		Title: Chief Executive Officer

Exhibit 10.1

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

Original Issue Date: February 16, 2024

$2,000,000

 

8% PROMISSORY NOTE

DUE August 16, 2026¹

 

THIS 8% PROMISSORY NOTE (this “Note”) duly authorized and validly issued on the Original Issue Date above by Unusual Machines Inc., a Puerto Rico corporation (the “Company”).

 

FOR VALUE RECEIVED, the Company promises to pay to Red Cat Holdings, Inc. or its registered assigns (the “Holder”), pursuant to the terms hereunder, the principal sum of two million dollars ($2,000,000.00) on August 16, 2026 (the “Maturity Date”) or such earlier date as this Note 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 Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, (a) capitalized words and terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined herein) and (b) the following terms shall have the following meanings:

 

 

“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 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 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 or (g) 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(e).

 

“Business Day” shall have the same meaning as in the Purchase Agreement.

 

“Buy-In” shall have the meaning set forth in Section 5(d)(v).

 

“Change of Control Transaction” means the occurrence after the Original Issue Date of any of (a) an acquisition after the Original Issue Date by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion, exercise or exchange of the Notes or the Securities issued together with the Notes), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the shareholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the Successor Entity (as hereinafter defined) of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the shareholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Original Issue Date), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

“Common Stock” means the common stock of the Company, $0.01 par value per share, and any securities into which such common stock may hereafter be reclassified or for which it may be exchanged as a class.

 

“Company” shall have the meaning set forth in the preamble.

 

“Conversion” shall have the meaning ascribed to such term in Section 4(a).

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Notice” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(c).

 

“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 Note in accordance with the terms hereof.

 

 

“Default Interest Rate” shall have the meaning set forth in Section 2(a).

 

 

“Event of Default” shall have the meaning set forth in Section 4(a).

  

 

“Force Majeure” means the Company shall be excused from any delay in performance or for non-performance of any of the terms and conditions of this Note caused by any Force Majeure event. Force Majeure shall mean strikes, labor disputes, freight embargoes, interruption or failure in the Internet, telephone or other telecommunications service or related equipment, material interruption in the mail service or other means of communication within the United States or its territories, if the Company shall have sustained a material or substantial loss by fire, flood, accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious act, whether or not such loss shall have been insured, acts of God, outbreak or material escalation of hostilities or civil disturbances, national emergency or war (whether or not declared), or other calamity or crises including a terrorist act or acts affecting the United States, future laws, rules, regulations or acts of any government including any orders, rules or regulations issued by any official or agency of such government and including any Covid lock down or disruption of commercial activity within the United States or its territories, or any cause beyond the reasonable control of the Company.

 

 

“Mandatory Default Amount” means the sum of (a) 100% of the outstanding principal amount of this Note, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

 

“Maturity Date” shall have the meaning set forth in the preamble.

 

“Note” or “Notes” shall have the meaning set forth in the preamble.

 

“Note Register” shall mean the Company’s records regarding the ownership of the Note.

 

 

“Original Issue Date” is the date set forth on page 1 hereto.

 

 

“Purchase Agreement” shall mean that certain Share Purchase Agreement, as amended, by and between the Company, the Holder and Mr. Jeffery Thompson, originally dated as November 21, 2022..

 

 

“Qualified Financing” shall mean the sale by the Company of its debt or equity securities (other than in connection with an initial public offering) in one or more related transaction which the Company receives net proceeds of at least $5.0 million.

 

“Securities Act” shall have the same meaning as in the Purchase Agreement.

 

“Share Delivery Date” shall have the meaning set forth in Section 5(d)(ii).

 

“

“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 Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the NYSE American, the New York Stock Exchange (or any successors to any of the foregoing).

 

“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 daily volume weighted 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 Business Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), or other reliable service or (b) in all other cases, the fair market value of a share of Common Stock as determined by the Board of Directors of the Company.

 

Section 2. Interest; Amortization Payments.

 

(a) Interest. Interest shall accrue to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 8% per annum, calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal (or conversion to the extent applicable), together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Following an Event of Default, regardless of whether such Event of Default has been cured or remains ongoing, interest shall accrue at the lesser of (i) the rate of 12% per annum, or (ii) the maximum amount permitted by law (the lesser of clause (i) or (ii), the “Default Interest Rate”).

 

 

(b) Payment in Cash; Holder’s Right to Call the Note upon a Qualified Financing. All payments of interest due hereunder shall be payable in cash monthly in arrears on the 15^th day of each month commencing on the next month following the Original Issue Date. The outstanding principal amount of this Note shall be due payable on the Maturity Date. Upon the consummation of a Qualified Offering, upon written notice by the Holder to the Company within ten days after the Qualified Financing (the “Call Notice”), in the event that the Holder shall send the Call Notice with such ten day period, the Holder shall have the right, but not the obligation, to require the Company to repay, all, or a portion of, the outstanding principal amount of this Note (together with accrued and unpaid interest thereon) in cash within five days after receipt of the Call Notice from Holder by the Company. Unless such Call Notice is revoked by the Holder in writing, the Company shall repay the Holder in cash the amount specified in the Call Notice.

 

Section 3. Registration of Transfers and Exchanges.

 

(a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

(b) Investor Representations. This Note has been issued subject to certain investment representations as set forth in the Purchase Agreement, and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

(c) This Note may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

(d) Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

 

 

Section 4. 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 any Note or (B) interest, late fees, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise);

 

(ii) the Company shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below which failure is not cured, if possible to cure, within the earlier to occur of (A) five Business Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Business Days after the Company has become aware of such failure, unless a longer cure period exists n an applicable agreement in which such longer cure period shall apply;

 

 

(iii) any representation or warranty made in this Note, the Purchase Agreement, any written statement pursuant hereto or thereto 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;

 

(iv) 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;

 

 

(v) the Common Stock shall not be eligible for listing or quotation for trading on any Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Business Days unless a Force Majeure event has occurred;

 

(vi) the Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

(vii) 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 Notes in accordance with the terms hereof; or

 

(viii) any 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 $125,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 10 calendar days.

 

(b) Remedies Upon Event of Default. If any Event of Default occurs and is not cured within 10 days after the giving of written notice, the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages 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 (unless the Holder exercises its right to convert the Note in accordance with Section 5 below). Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note 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 Note until such time, if any, as the Holder receives full payment pursuant to this Section 7(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

(c) Interest Rate Upon Event of Default. Commencing on the occurrence of any Event of Default and until such Event of Default is cured, this Note shall accrue interest at an interest rate equal to the Default Interest Rate.

 

(d) Conversion Price Upon Event of Default. Commencing on the occurrence of any Event of Default and until such Event of Default is cured, this Note shall be convertible at the Default Conversion Price.

 

 

 

Section 5. Holder’s Conversion Right.

 

(a) Voluntary Conversion. During the occurrence and continuance of an Event of Default and until this Note is no longer outstanding, in lieu of requiring the Company to repay the Note in cash, this Note shall be convertible, including any accrued and unpaid interest, in whole or in part, at any time, and from time to time, into shares of Common Stock at the option of the Holder (“Conversion”). The Holder shall effect conversions by delivering to the Company a Conversion Notice, the form of which is attached hereto as Annex A (each, a “Conversion Notice”), specifying therein the principal amount and interest on this Note 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 Conversion Notice, the Conversion Date shall be the date that such Conversion Notice is deemed delivered hereunder. No ink-original Conversion Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Conversion Notice form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted in each conversion, the date of each conversion, and the Conversion Price in effect at the time of each conversion. The Company may deliver an objection to any Conversion Notice within one Business Day of delivery of such Conversion Notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any registered assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

 

(b) Reserved.

 

(c) Conversion Price. The “Conversion Price” in effect on any Conversion Date means, as of any Conversion Date,the amount equal to a 10% discount of the average three day VWAP prior to the Conversion Date.

 

(d) 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 Note and accrued interest and other amounts due and owing under this Note to be converted by (y) the Conversion Price in effect at the time of such conversion.

 

(ii) Reserved.

 

(iii) Failure to Deliver Certificates. If, in the case of any Conversion Notice, 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 Note 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; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof is 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 Note shall elect to convert any or all of the outstanding principal amount 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 Note 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 Note, 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. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 5(d)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Business Day (increasing to $20 per Business Day on the fifth Business Day after such Conversion Date) for each Business Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 4 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

(v) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 5(d)(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 Note 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 5(d)(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 Note 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 Note as required pursuant to the terms hereof.

 

(vi) Reservation of Shares Issuable Upon Conversion. The Company covenants that it will reserve and keep available out of its authorized and unissued shares of Common Stock for the purpose of issuances upon conversion of this Note (and other purposes further detailed in the Purchase Agreement), free from preemptive rights or any other actual contingent purchase rights of Persons other than the holder (and the other holders of the Notes), an amount of shares at least equal to the greater of: (i) one times the number of shares of Common Stock necessary to allow the Holder to convert this Note and accrued interest thereon to maturity in full; or (ii) 19.9% of the current shares of Common Stock outstanding, if such restriction is required under Rule 5635 of the NYSE American listing rules. 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 non-assessable.

 

(vii) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. 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.

 

(viii) Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note 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 Note 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.

 

(ix) Reserved.

 

        (e) Holder’s Conversion Limitations. The Company shall not affect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Conversion Notice, 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 Note 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 Note 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 (including, without limitation, any other Notes) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 5(e), 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 5(e) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note 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 Conversion Notice that such Conversion Notice 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 5(e), 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 SEC, if any, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Business 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 Note, 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 Note held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 5(e) solely with respect to the Holder’s Note. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The Holder may also decrease the Beneficial Ownership Limitation provisions of this Section 5(e) solely with respect to the Holder’s Note at any time, which decrease shall be effective immediately upon delivery of notice 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 5(e) 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 Note.

 

 

Section 6. Miscellaneous.

 

(a) No Rights as Stockholder Until Conversion. This Note does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the conversion hereof other than as explicitly set forth in Section 6.

 

(b) Notices. All notices, offers, acceptance and any other acts under this Note (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipted next business day delivery, as follows:

 

If to the Company:	Unusual Machines, Inc. 151 Calle de San Francisco STE 200 PMB 2106 San Juan, PR 00901-1607 Attention: Dr. Allan Evans, CEO Email: allan@unusualmachines.com
With a copy to (which shall not constitute notice to Unusual):           If to Holder:           With a copy to (which shall not constitute notice to Red Cat):	Nason Yeager Gerson White & Lioce, P.A. 3001 PGA Boulevard, Suite 305 Palm Beach Gardens, FL 33410 Attention: Michael D. Harris, Esq. Email: mharris@nasonyeager.com   Red Cat Holdings, Inc. 15 Ave Munoz Rivera, Suite 2200 San Juan, Puerto Rico 00901 Attention: Joe Freedman, Co-Chair of the Special Committee Email: Jf@redcat.red  [Red Cat to complete]

or to such other address as any of them, by notice to the other may designate from time to time. Time shall be counted to, or from, as the case may be, the date of delivery.

 

(c) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest and late fees, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks pari passu with all other Notes now or hereafter issued under the Purchase Agreement.

 

(d) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

 

(e) Exclusive Jurisdiction; Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with Section 12.04 of the Purchase Agreement. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Note (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall only be commenced in the state and federal courts specified in Section 12.04 of the Purchase Agreement. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the courts set forth in Section 12.05 of the Purchase Agreement 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 this Note), 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 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 Note 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 Note or the transactions contemplated hereby.

 

(f) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Note 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 Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note 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 Note on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

(g) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note 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 Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, 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.

 

(h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note.  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 would 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 information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.

 

(i) 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.

 

(j) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

 

** Signature Pages Follow **

 

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the Original Issue Date.

 

 

	UNUSUAL MACHINES INC.
	By: /s/ Allan Evans                                     Name: Allan Evans Title: Chief Executive Officer

 

 

ANNEX A

CONVERSION NOTICE

 

The undersigned hereby elects to convert principal under the 8% Promissory Note due ____________ __, 2026 of Unusual Machines Inc., a Puerto Rico 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.

 

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 Note 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:

 

 

DWAC Instructions:

 

Broker No:                                      

Account No:                                   

 

 

 

 

Schedule 1

CONVERSION SCHEDULE

 

The 8% Promissory Note due on ________ __, 2026 in the original principal amount of $2,000,000 is issued by Unusual Machines Inc., a Puerto Rico corporation. This Conversion Schedule reflects conversions made under Section 5 of the above referenced Note.

 

Date of Conversion (or for first entry, Original Issue Date)	Amount of Converted Principal	Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)	Applicable Conversion Price	Company Attest

 

Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (“Agreement”) is entered into as of the 16^th day of February, 2024 by and among Unusual Machines, Inc., a Puerto Rico corporation (the “Company”), and Red Cat Holdings, Inc., a Nevada corporation (the “Investor”).

 

WHEREAS, the Company has entered into a Securities Purchase Agreement (as amended, the “Purchase Agreement”) with the Investor and Jeffrey Thompson, dated the date of this Agreement;

 

WHEREAS, the Company has filed a Registration Statement on Form S-1 for the initial public offering of the Company (File No. 333-270519) (the “Company Registration”); and

 

WHEREAS, the Company has agreed in the Purchase Agreement to provide certain registration rights to the Investor.

 

Now, therefore, in consideration of the mutual promises and the covenants as set forth herein, the parties hereto hereby agree as follows:

 

1.       Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms herein defined.

 

“Agreement” means this Registration Rights Agreement, as the same may be amended, modified or supplemented in accordance with the terms hereof.

 

“Board” means the Board of Directors of the Company.

 

“Common Stock” means the Company’s authorized common stock, as constituted on the date of this Agreement, any stock into which such Common Stock may thereafter be changed and any stock of the Company of any other class, which is not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption, issued to the holders of shares of such Common Stock upon any re-classification thereof.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Company” has the meaning assigned to it in the introductory paragraph of this Agreement.

 

“Effectiveness Date” means, with respect to the Registration Statement required to be filed hereunder, the 180^th calendar day following the effectiveness of the Company Registration Statement.

 

 

“Exchange Act” means the Securities Exchange Act of 1934 (or successor statute).

 

“Filing Date” has the meaning ascribed to it in Section 2 of this Agreement.

 

 

“Investor” has the meaning assigned to it in the introductory paragraph of this Agreement.

 

“Other Shares” has the meaning assigned to it in Section 4(f) of this Agreement.

 

“Person” includes any natural person, corporation, trust, association, company, partnership, joint venture, limited liability company and other entity and any government, governmental agency, instrumentality or political subdivision.

 

“Purchase Agreement” has the meaning assigned to it in the second Whereas clause.

 

 

“Lock-Up Period” means 180 days after the Company Registration is declared effective by the SEC.

 

The terms “register” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement on other than any of the Excluded Forms in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

 

“Registrable Securities” means 500,000 shares of the Common Stock issued or issuable to the Investor upon the effectiveness of the Company Registration and closing of the transactions contemplated in the Purchase Agreement, and any securities of the Company issued or issuable to Investor with respect to such Common Stock by way of a stock dividend or stock split or in connection with a combination, recapitalization, share exchange, consolidation or other reorganization of the Company.

 

“Selling Expenses” means all selling commissions or discounts, finder’s fees and stock transfer taxes applicable to the Registrable Securities registered by the Investor and all fees and disbursements of counsel for the Investor.

 

“Securities Act” means the Securities Act of 1933, as amended (or successor statute).

 

2.       Required Registration. As soon as practicable but no later than 120 calendar days following the effectiveness of the Company Registration (the “Filing Date”) , the Company shall file a registration statement on Form S-1 with the Commission for the Registrable Securities (the “Registration Statement”) The Company shall use its best efforts to have the Registration Statement be declared effective by the Commission by the Effectiveness Date. The Company may later register any unsold shares of Common Stock held by the Investor on Form S-3 and withdraw the Form S-1.

 

2.1.       Intentionally omitted.

 

 

2.2        Intentionally omitted.

 

 

2.3       Form S-3. Whenever the Company is eligible to use Form S-3, it shall use that Form rather than Form S-1.

 

3.       Obligations of the Company. The Company shall:

 

(a)             use its best efforts to prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective;

 

(b)             use its best efforts to prepare and file with the Commission such amendments to such registration statement (including post-effective amendments) and supplements to the prospectus included therein as may be necessary to keep such registration statement effective, subject to the qualifications in Section 4(a), and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Investor set forth in such registration statement;

 

(c)             furnish to the Investor and its assigns such number of copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as the Investor may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities held by the Investor and any assignees of Investor (including, without limitation, and holders of Registrable Securities who secure such Registrable Securities by virtue of any dividend or distribution by Investor to its own stockholders);

 

(d)             use its best efforts to make such filings under the securities or blue sky laws reasonably requested by the Investor (or New York if the Company’s Common Stock is not listed on the Nasdaq Stock market or the New York Stock Exchange or NYSE American to enable the Investor to consummate the sale in such jurisdiction of the Registrable Securities owned by the Investor;

 

(e)             notify the Investor at any time when a prospectus relating to their Registrable Securities is required to be delivered under the Securities Act, of the Company’s becoming aware that the prospectus included in the related registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare and furnish to the Investor a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

 

(f)              otherwise use its best efforts to comply with all applicable rules and regulations of the Commission;

 

(g)             cause the Registrable Securities to be quoted on each trading market and/or in each quotation service on which the Common Stock of the Company is then quoted promptly following filing the registration statement for the Registrable Securities and conform to the rules and regulations of the trading market on which the Common Stock is then trading; and

 

(h)             notify the Investor of any stop order threatened or issued by the Commission and take all actions reasonably necessary to prevent the entry of such stop order or to remove it if entered.

 

4.       Other Procedures.

 

(a)             Subject to the remaining provisions of this Section 4(a) and the Company’s obligation to use best efforts under Section 3, the Company shall be required to maintain the effectiveness of a registration statement (under Form S-1 or Form S-3) until the earlier of (i) the sale of all Registrable Securities or (ii) forty-eight (48) months from the effective date of the registration statement. The Company shall have no liability to the Investor for delays in the Investor being able to sell the Registrable Securities (i) as long as the Company uses its best efforts to file a registration statement, amendments to a registration statement, post-effective amendments to a registration statement or supplements to a prospectus contained in a registration statement (including any amendment or post effective amendments), (ii) where the required financial statements or auditor’s consents are unavailable or (iii) where the Company would be required to disclose information at a time when it has no duty to disclose such information under the Securities Act, the Exchange Act, or the rules and regulations of the Commission, provided, however, any suspension under clauses (ii) or (iii) shall not exceed 180 days in any 12 month period.

 

(b)             In consideration of the Company’s obligations under this Agreement, the Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e) herein, the Investor shall forthwith discontinue his sale of Registrable Securities pursuant to the registration statement covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by said Section 3(e) and, if so directed by the Company, shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies, then in the Investor’s possession of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

 

(c)             The Company’s obligation to file any registration statement or amendment including a post-effective amendment, shall be subject to the Investor, as applicable, furnishing to the Company in writing such information and documents regarding the Investor and the distribution of such Registrable Securities as may reasonably be required to be disclosed in the registration statement in question by the rules and regulations under the Securities Act or under any other applicable securities or blue sky laws of the jurisdiction referred to in Section 3(d) herein.

 

(d)             If any such registration or comparable statement refers to the Investor by name or otherwise as a stockholder of the Company, but such reference to the Investor by name or otherwise is not required by the Securities Act or the rules thereunder, then each Investor shall have the right to require the deletion of the reference to the Investor, as may be applicable.

 

(e)             In connection with the sale of Registrable Securities, the Investor shall deliver to each purchaser a copy of the necessary prospectus and, if applicable, prospectus supplement, within the time required by Section 5(b) of the Securities Act.

 

5.       Registration Expenses. In connection with any registration of Registrable Securities pursuant to Section 2, the Company shall, whether or not any such registration shall become effective, from time to time, pay all expenses (other than Selling Expenses) incident to its performance of or compliance, including, without limitation, all registration, and filing fees, fees and expenses of compliance with securities or blue sky laws, word processing, printing and copying expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company, transfer agent and stock exchange fees, and all independent public accountants and other Persons retained by the Company (the “Registration Expenses”).

 

6.       Indemnification.

 

(a)             In the event of any registration of any shares of Common Stock under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless each Investor, from and against any losses, claims, damages or liabilities, joint or several, to which each Investor may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or any document incident to registration or qualification of any Registrable Securities pursuant to Section 3(d) herein, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any prospectus, necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, or state securities or blue sky laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under the Securities Act or such state securities or blue sky laws. If the Company fails to defend the Investor as required by Section 6(c) herein, it shall reimburse (after receipt of appropriate documentation) each Investor for any legal or any other out-of-pocket expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable to an Investor in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said prospectus, or said amendment or supplement or any document incident to registration or qualification of any Registrable Securities pursuant to Section 3(d) hereof in reliance upon and in conformity with written information furnished to the Company by such Investor specifically for use in the preparation thereof or information omitted to be furnished by such Investor or (ii) any act or failure to act of such Investor including the failure of any Investor to deliver a prospectus as required by Section 5(b) of the Securities Act.

 

(b)             In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, each Investor shall indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6(a)) the Company, each director of the Company, each officer of the Company who signs such registration statement, the Company’s attorneys and auditors and any Person who controls the Company within the meaning of the Securities Act, with respect to (i) any untrue statement or omission from such registration statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, if such untrue statement or omission was made solely in reliance upon and in conformity with written information furnished to the Company by such Investor specifically for use in the preparation of such registration statement, preliminary prospectus, final prospectus or amendment or supplement or (ii) from any other act or failure to act of the Investor.

 

(c)             Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in Section 6(a) or (b), such indemnified party shall, if a claim in respect thereof is made against an indemnifying party, give written notice to the Indemnifying Party of the commencement of such action. The indemnifying party shall be relieved of its obligations under this Section 6(c) to the extent that the indemnified party delays in giving notice and the indemnifying party is damaged or prejudiced by the delay. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so as to assume the defense thereof, the indemnifying party shall be responsible for any legal or other expenses subsequently incurred by the indemnifying party in connection with the defense thereof, provided, however, that, if counsel for an indemnified party shall have reasonably concluded that there is an actual or potential conflict of interest between the indemnified and the indemnifying party the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, and such indemnifying party shall reimburse such indemnified party and any Person controlling such indemnified party for the fees and expenses of counsel retained by the indemnified party which are reasonably related to the matters covered by the indemnity agreement provided in this Section 6; provided, however, that in no event shall any indemnification by an Investor under this Section 6 exceed the net proceeds from the sale of Registered Securities received by the Investor. No indemnified party shall make any settlement of any claims indemnified against hereunder without the written consent of the indemnifying party, which consent shall not be unreasonably withheld. In the event that any indemnifying party enters into any settlement without the written consent of the indemnified party the indemnifying party shall not, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff of a release of such indemnified party from all liability in respect to such claim or litigation.

 

(d)             In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which under any indemnified party makes a claim for indemnification pursuant to this Section 6, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required in circumstances for which indemnification is provided under this Section 6; then, in each such case, the Company and such Investor shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject as is appropriate to reflect the relative fault of the Company and such Investor in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, it being understood that the parties acknowledge that the overriding equitable consideration to be given effect in connection with this provision is the ability of one party or the other to correct the statement or omission (or avoid the conduct or take an act) which resulted in such losses, claims, damages or liabilities, and that it would not be just and equitable if contribution pursuant hereto were to be determined by pro-rata allocation or by any other method of allocation which does not take into consideration the foregoing equitable considerations. Notwithstanding the foregoing, (i) no such Investor shall be required to contribute any amount in excess of the net proceeds to him of all Registrable Securities sold by him pursuant to such registration statement, and (ii) no Person who is guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.

 

(e)             Notwithstanding any of the foregoing, if, in connection with an underwritten public offering of the Registrable Securities, the Company, any of the Investor and the underwriters enter into an underwriting agreement relating to such offering which contains provisions covering indemnification among the parties, then the indemnification provision of this Section 6 shall be deemed inoperative for purposes of such offering.

 

7.       Intentionally omitted.

 

8.       Intentionally omitted.

 

9.       Rule 144. The Company covenants that it will file the reports required to be filed under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder (or, in the event that the Company is not required to file such reports, it will make publicly available information as set forth in Rule 144(c)(2) promulgated under the Securities Act), and it will take such further action as the Investor may reasonably request, or to the extent required from time to time to enable the Investor to sell their Registrable Securities without registration under the Securities Act within the limitation of the exemption provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission (collectively, “Rule 144”). Upon request of Investor, the Company will deliver to the Investor a written statement as to whether it has complied with such requirements.

 

11.       Severability. In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.

 

12.       Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

 

13.       Benefit. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns.

 

14.       Notices and Addresses. All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar overnight next business day delivery, or by facsimile delivery followed by overnight next business day delivery, as follows:

 

To the Company: Unusual Machines, Inc.

151 Calle de San Francisco, Ste. 200 PMB 2106

San Juan, PR 00901-1607

Attention: Allan Evans, CEO

Email: allan@unusualmachines.com

 

With a Copy to: Nason, Yeager, Gerson, Harris & Fumero, P.A.

3001 PGA Boulevard, Suite 305

Palm Beach Gardens, FL 33410

Attention: Michael D. Harris, Esq.

Email:       Mharris@nasonyeager.com

 

To the Investor: Red Cat Holdings, Inc.

15 Ave Munoz Rivera, Suite 2200

San Juan, Puerto Rico 00901

Attention: Joe Freedman, Lead Director

Email: JF@redcat.red

 

With a Copy to: Law Office of Harvey Kesner

305 Broadway

Suite 700

New York, NY 10007

Attention: Harvey Kesner, Esq.

Harvey@hkesnerlaw.com

 

or to such other address as any of them, by notice to the other may designate from time to time.

 

15.       Attorneys’ Fees. In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding relating to this Agreement is filed, the prevailing party shall be entitled to an award by the court of reasonable attorneys’ fees, costs and expenses.

 

16.       Oral Evidence. This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.

 

17.       Additional Documents. The parties hereto shall execute such additional instruments as may be reasonably required by their counsel in order to carry out the purpose and intent of this Agreement and to fulfill the obligations of the parties hereunder. The Company agrees that it shall use it best efforts to require all officers, directors, Series B Preferred Stock stockholders and holders of more than 5% of the of the Company’s common stock immediately prior to the date hereof to execute lock-up agreements required by the Company’s underwriters for the Lock-Up Period in form and substance reasonably satisfactory to the Investor.

 

18.       Governing Law. This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the internal laws of the State of New York without regard to choice of law considerations.

 

19.       Arbitration. Any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation, breach or enforcement which the parties are unable to resolve by mutual agreement, shall be settled by submission by either party of the controversy, claim or dispute to binding arbitration in San Juan, Puerto Rico (unless the parties agree in writing to a different location), before a single arbitrator in accordance with the rules of the American Arbitration Association then in effect. In any such arbitration proceeding the parties agree to provide all discovery deemed necessary by the arbitrator. The decision and award made by the arbitrator shall be final, binding and conclusive on all parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction thereof.

 

20.       Section or Paragraph Headings. Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.

 

21.       Force Majure. The Company shall be excused from any delay in performance or for non-performance of any of the terms and conditions of this Agreement caused by any circumstances beyond its control, including, but not limited to, any Act of God, fire, flood, or government regulation, direction or request, or accident, interruption of telecommunications facilities, labor dispute, unavoidable breakdown, civil unrest or disruption to the extent that any such circumstances affect the Company’s ability to perform its obligations under this Agreement or the ability of the Commission to perform its responsibilities under the Securities Act.

 

 

[Remainder of this page intentionally left blank.]

 

 

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed personally or by a duly authorized representative thereof as of the day and year first above written.

 

	THE COMPANY:   UNUSUAL MACHINES, INC.
	By: /s/ Allan Evans                                                            Allan Evans       Chief Executive Officer
	INVESTOR:   RED CAT HOLDINGS, INC.
	By: /s/ Joe Freedman                                                  Signature
	Joe Freedman                                                              Printed Name of Investor
	Lead Director                                                              Title of Authorized Signatory if Investor is a corporation or other entity

 

Exhibit 10.3

 

NON-COMPETITION AGREEMENT

 

This Non-Competition Agreement (the “Agreement”) is entered into as of February 16, 2024, (the “Effective Date”) by and among Unusual Machines, Inc., a Puerto Rico corporation (“Unusual”), Rotor Riot, LLC, an Ohio limited liability company (“Rotor Riot”) and Fat Shark Holdings, Ltd, a Nevada corporation (collectively, the “Restricted Parties”) and Red Cat Holdings, Inc., a Nevada corporation (“Red Cat”) The Restricted Parties and Red Cat are collectively referred to herein as the “Parties”) for all purposes under this Agreement.

WHEREAS, on November 21, 2022, Unusual, Red Cat, and Jeffrey Thompson, entered into a share purchase agreement (as amended, the Purchase Agreement) for the purchase and sale of Rotor Riot and Fat Shark from Red Cat to Unusual;

WHEREAS, pursuant to the Purchase Agreement, the consummation of the Acquisition is conditioned upon the execution and delivery of this Agreement by the Restricted Parties.

NOW, THEREFORE, in consideration of the Parties agreeing to consummate the Acquisition and for other good and valuable consideration, the Parties hereby agree as follows:

 

1.               Non-Competition Agreement.

 

(a)             Non-Competition with Red Cat. For a period commencing with the Effective Date continuing for a period of 5 years (the “Restricted Period”), the Restricted Parties hereby agree to restrict their respective activities and shall not design, manufacture, market, import, build or sell any Group 1 or Group 2 UAV drone (as defined below) to customers which are a Governmental Authority (as defined below) and/or any third-party intermediary to customers which are a Governmental Authority, without the prior written consent of Red Cat. As used in this Agreement, a “Group 1 UAV” drone is defined as a small, lightweight unmanned system (such as the Teal 2 and RQ-11 Raven drones) weighing up to 20 pounds that are designed for operation at lower altitudes (capable of reaching up to 1,200 feet above ground level at speeds of less than 100 knots. As used in this Agreement, a “Group 2 UAV” drone is defined as drones that weigh between 21 and 55 pounds (such as the RQ-7 Shadow) and are designed for medium range missions, capable of reaching altitudes up to 3,500 feet above ground level and fly at speed less than 250 knots. As used in this Agreement, “Governmental Authority” means a national, state, municipal, local, or foreign government, any instrumentality, subdivision, court, administrative agency or commission, or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority.

 

(b)                                 Unusual shall be entitled to be paid 10% of net collected revenue as and when collected for sales made by Teal Drones Inc. or any successor or affiliated company of Teal (“Teal”) referred by Unusual (a “UMAC Referral”) for sales of Group 1 or Group 2 UAV drones to a Government Authority not previously in contact with Teal and Unusual shall be obligated during the Restricted Period to refer all such opportunities to Teal during the Restricted Period.

Such referral fees shall be payable to Unusual after the expiration of the Restricted Period if Teal continues to sell Group 1 UAV or Group 2 UAV drones to a third party that was a UMAC Referral.

 

2.               Non-Solicitation. For the duration of the Restricted Period, each Restricted Party agrees that such party will not induce any employee of Red Cat to leave the employ of Red Cat, nor shall such party use or disclose to any person, partnership, entity, association, or corporation any information concerning the names, addresses or personal telephone numbers of any employees of Red Cat. This shall not apply to employees of the Restricted Parties or in response to a general public solicitation that a Red Cat employee responds to through no breach of this Agreement by the Restricted Parties.

 

3.               Non-Solicitation of Customers, Vendors, and Business Partners or Consultants. For the duration of the Restricted Period, each Restricted Party agrees that such party will not do business with, consult with or in any manner attempt directly or indirectly to influence, induce, or encourage any customer, vendor, business partner, or consultant of Red Cat to reduce or materially change its business relationship with Red Cat or solicit the business of any client or customer of Red Cat .

 

4.               Equitable Relief.

 

(a)             The Restricted Parties recognize that the restrictive covenants pursuant to Sections 1, 2 and 3 under this Agreement by the Restricted Parties are special, unique and of extraordinary character, and that in the event of the breach by of the terms and conditions of this Agreement or if any Restricted Party shall or take any action in violation of Section 1, 2 and/or Section 3, Red Cat shall be entitled to, in addition to any other remedy which may be available at law or in equity, specific performance and injunctive relief without posting a bond or proving actual damages, in order to prevent any actual, intended or likely breach.

 

(b)             Any action arising from or under this Agreement must be commenced only in accordance with Section 7. Each Restricted Party irrevocably waives any objection that they now have or hereafter may have to the laying of venue of any suit, action or proceeding brought in any such court and further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment against any Restricted in any such suit shall be conclusive and may be enforced in other jurisdictions by suit on the judgment, a certified or true copy of which shall be conclusive evidence of the fact and the amount of any liability of such Restricted therein described, or by appropriate proceedings under any applicable treaty or otherwise.

 

5.               Defined Terms. Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Purchase Agreement.

 

6.               Governing Law. This Agreement and all Legal Proceedings (whether based on contract, tort, or statute) arising out of, relating to, or in connection with this Agreement or the actions of any of the Parties hereto in the negotiation, administration, performance, or enforcement hereof, shall be governed by and construed in accordance with the internal Laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of New York.

 

7.               Submission to Jurisdiction. Each of the Parties hereto irrevocably agrees that any Legal Proceeding (as defined below) with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by any other Party hereto or its successors or assigns shall be brought and determined exclusively in the federal or state court located in New York County, New York. Each of the Parties hereto hereby irrevocably submits with regard to any such Legal Proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any Legal Proceeding relating to this Agreement or any of the transactions contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of the Parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim, or otherwise, in any Legal Proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder: (a) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason; (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); and (c) to the fullest extent permitted by the applicable Law, any claim that (i) the suit, action, or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action, or proceeding is improper, or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. As used un this Agreement, “Legal Proceeding” means any action, suit, litigation, proceeding (including any civil proceeding), hearing, claim, commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Authority .

 

8.               Notices and Addresses. All notices, offers, acceptance and any other acts under this Agreement shall be in writing, and shall be sufficiently given if delivered in accordance with Section 12.07 of the Purchase Agreement.

 

9.               Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

 

10.            Severability. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

11.            Entire Agreement. This Agreement constitutes the entire Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver discharge or termination is sought.

 

12.            Section and Paragraph Headings. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

13.            Amendment. This Agreement shall not be amended, modified or supplemented at any time or terminated without the consent of all parties to the Agreement and the prior written consent of Parties.

 

 

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date above.

 

UNUSUAL MACHINES, INC. a Puerto Rico corporation     By: /s/ Allan Evans                                    Name: Allan Evans, Title: Chief Executive Officer     FAT SHARK HOLDINGS, LTD. a Nevada corporation     By: /s/ Jeffrey Thompson                           Name: Jeffrey Thompson, Title: President   ROTOR RIOT, LLC an Ohio limited liability company     By: /s/ Jeffrey Thompson                            Name: Jeffrey Thompson, Title: Manager

RED CAT HOLDINGS, INC. a Nevada corporation   By: /s/ Joe Freedman                                 Name: Joe Freedman Title: Lead Director

 

Exhibit 10.4

 

Non-Compete

I hereby enter into this Non-Compete (“Agreement”) with Unusual Machines, Inc. (“the Company”) on this the 16^th day of February 2024 (the “Effective Date”).

 

WHEREAS, I have been an employee as Chief Executive Officer of the Company pursuant to an Offer Letter dated November 27, 2023 (the “Offer Letter”);

 

WHEREAS pursuant to a Share Purchase Agreement dated November 21, 2022 (as, amended, the “SPA”) by and among the Company, Red Cat Holdings, Inc., a Nevada corporation (“Red Cat”), and Jeffrey Thompson, on or about the date hereof the Company will acquire from Red Cat all of the capital stock of Fat Shark Holdings, Ltd (“Fat Shark”) and Rotor Riot, LLC (“Rotor Riot,” and collectively the “Target Companies”) in connection with the acquisition contemplated in the SPA (the “Acquisition”);

 

WHEREAS as an inducement and condition precedent for Red Cat to consummate the Acquisition and the transactions contemplated by the SPA, I am required to execute and deliver this Agreement;

 

WHEREAS, the Company and I recognize that the agreements and covenants contained in this Agreement are required to protect the business interests of Red Cat.

 

NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the Company and I hereby agree as follows, intending to be legally bound:

 

1.

NON-COMPETITION AND NON-SOLICITATION

 

1.1            Prohibited Business. “Prohibited Business” means any business substantially similar to or competitive with the business conducted by Red Cat or its affiliates as of the day of this Agreement excluding the businesses of the Target Companies to be acquired in connection with the Acquisition, including, but not limited to the designing, manufacturing, marketing, importing, build or sell any Group 1 or Group 2 UAV drone (as defined below) to customers which are a Governmental Authority (as defined below) and/or any third-party intermediary to customers which are a Governmental Authority, and all ancillary activities and associated transactions, without the prior written consent of Red Cat. As used in this Agreement, a “Group 1 UAV” drone is defined as a small, lightweight unmanned system (such as the Teal 2 and RQ-11 Raven drones) weighing up to 20 pounds that are designed for operation at lower altitudes (capable of reaching up to 1,200 feet above ground level at speeds of less than 100 knots. As used in this Agreement, a “Group 2 UAV” drone is defined as drones that weigh between 21 and 55 pounds (such as the RQ-7 Shadow) and are designed for medium range missions, capable of reaching altitudes up to 3,500 feet above ground level and fly at speed less than 250 knots. As used in this Agreement, “Governmental Authority” means a national, state, municipal, local, or foreign government, any instrumentality, subdivision, court, administrative agency or commission, or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority.

 

1.2            Non-Competition. I agree that during the period commencing on the Effective Date and continuing for a period of twelve months (the “Non-Competition Period”), I will not, without the Company’s express written consent, directly or indirectly, for myself or for others, in the United States:

 

(a)

engage in or attempt to engage in any activity, work, business, or investment in the Prohibited Business; provided, however, I may own an investment interest of less than 5% in a publicly-traded company and my current shareholdings in Red Cat; or

(b)

render advice or services to, or otherwise assist, any other person or entity who is engaged, directly or indirectly, in the Prohibited Business; or

(c)

directly or indirectly, either as proprietor, stockholder, partner, officer, employee or otherwise, distribute, sell, offer to sell, or solicit any orders for the purchase or distribution of any products or services which are similar to those distributed, sold or provided by Red Cat during the 12 months preceding my termination of employment with Red Cat, to or from any person, firm or entity which was a customer of Red Cat during the 12 months preceding such termination of employment.

So long as Red Cat will hold at least 10% of the equity of the Company that it will receive in connection with the consummation of the Acquisition, this Section 3.2 may not be waived without the express written consent of Red Cat.

 

 

2.               NO CONFLICTING OBLIGATION. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.

 

3.               NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement.

 

4.               GENERAL PROVISIONS

 

4.1            Notices. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three days after the date of mailing.

 

4.2            Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of New York, as such laws are applied to agreements entered into and to be performed entirely within New York between New York residents. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in New York, New York for any lawsuit filed there against me by the Company arising from or related to this Agreement.

 

4.3            Legal and Equitable Remedies. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.

 

4.4            Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

 

4.5            Assignment. The Company may assign this Agreement or any part of its rights under this Agreement. I may not assign or delegate my duties under this Agreement without the Company’s prior written approval. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

 

4.6            Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee.

 

4.7            Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause.

 

4.8            Waiver. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.

 

4.9            Entire Agreement. The obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any time during which I was previously employed, or am in the future employed, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement along with my Offer Letter are the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment of this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

 

4.10         Third Party Beneficiaries. I acknowledge that Red Cat and the Company’s legal counsel (for the purposes of issuing its legal opinion in connection with the consummation of the Offering (as defined in the SPA)) shall be entitled to rely on this Agreement.

 

This Agreement shall be effective as of the first day of my employment with the Company, November 27, 2023.

I have read the Agreement carefully and understand its terms. I have completely filled out Exhibit A to this Agreement.

Accepted and Agreed to:

 

Dated:________________________

______________________________
       Signature

       /s/ Allan Evans                                     
       Allan Evans

       UNUSUAL MACHINES, INC.

       By: /s/ Brian Hoff                                 
       Name: Brian Hoff

Title: Chief Financial Officer

 

Exhibit 99.1

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On February 16, 2024, Red Cat Holdings, Inc., a Nevada corporation (the “Company”) closed the sale of Rotor Riot, LLC (“Rotor Riot”) and Fat Shark Holdings, Ltd. (“Fat Shark”), its wholly-owned subsidiaries, to Unusual Machines, Inc., a Puerto Rico corporation (“UMAC”) (the “Transaction”). The sale was conducted pursuant to a Share Purchase Agreement dated November 21, 2022, as amended on April 13, 2023, July 10, 2023, and December 11, 2023 (the “SPA”) for an aggregate purchase price of $20 million, consisting of $1 million in cash (subject to specified adjustments as set forth in the Agreement), $2 million in the form of a promissory note, and $17 million of Unusual common stock, valued at the initial public offering price for Unusual’s common stock.

 

The Company’s accounting and financial reporting in these unaudited pro forma financial statements is based on its preliminary assessment of the appropriate application of Generally Accepted Accounting Principles (“GAAP”). The final application of GAAP to the SPA may differ from what is presented in these unaudited pro forma financial statements.

 

The unaudited pro forma condensed consolidated financial statements of the Company presented in this Exhibit 99.1 were derived from the Company’s historical consolidated financial statements and are being presented to give effect to the SPA. The presentation of the unaudited pro forma financial information is prepared in conformity with Article 11 of Regulation S-X rules.

 

The unaudited pro forma condensed consolidated balance sheet and unaudited pro forma condensed consolidated statements of operations assumes that the transaction had occurred on April 30, 2022. The unaudited condensed consolidated pro forma financial statements presented in this Form 8-K should be read in conjunction with the accompanying notes as well as the Company’s historical consolidated financial statements as of April 30, 2023 and for the year ended April 30, 2023 as reported on Form 10-K; and as of October 31, 2023 and for the six months ended October 31, 2023 as reported on Form 10-Q.

 

The pro forma adjustments are based on the best information available and assumptions that management believes are (a) directly attributable to the transaction, and (b) are factually supportable. The pro forma adjustments are described in the accompanying notes to the unaudited pro forma condensed consolidated financial information.

 

The unaudited pro forma condensed consolidated financial information is provided herein for illustrative purposes only and is not necessarily indicative of the results of operations that would have occurred had the transaction occurred on April 30, 2022. The unaudited pro forma condensed consolidated financial information does not reflect future events that may occur after the sale. 

 

 

RED CAT HOLDINGS
Pro Forma Condensed Consolidated Balance Sheet
(unaudited)
		As of October 31, 2023
			Historical				Transaction Accounting Adjustments				Note				Pro-Forma
ASSETS
Current Assets
Cash and marketable securities		$	4,024,266			$	1,600,000				2(a)			$	5,624,266
Accounts receivable, net			2,989,054				—								2,989,054
Inventory			9,255,698				—								9,255,698
Other			2,839,892				—								2,839,892
Current assets of discontinued operations			4,153,762				(4,153,762	)			2(b)				—
Total Current Assets			23,262,672				(2,553,762	)							20,708,910
Goodwill and intangible assets, net			23,901,101				(9,793,191	)			2(c)				14,107,910
Property and equipment, net			2,567,787				—								2,567,787
Other			303,180				—								303,180
Operating lease right-of-use assets			485,771				—								485,771
Note receivable			—				5,000,000				2(a)				5,000,000
Investment in Unusual Machines, Inc.			—				17,000,000				2(a)				17,000,000
Long-term assets of discontinued operations			86,133				(86,133	)			2(b)				—
Total Long Term Assets			27,343,972				12,120,676								39,464,648
TOTAL ASSETS		$	50,606,644			$	9,566,914							$	60,173,558
Current Liabilities
Accounts payable and accrued expenses		$	2,261,575			$	—							$	2,261,575
Debt obligations - short term			953,819				—								953,819
Customer deposits			61,805				—								61,805
Operating lease liabilities			304,226				—								304,226
Warrant derivative liability			399,203				—								399,203
Current liabilities of discontinued operations			424,637				(424,637	)			2(b)				—
Total Current Liabilities			4,405,265				(424,637	)							3,980,628
Operating lease liabilities			221,386				—								221,386
Debt obligations - long term			90,762				—								90,762
Long-term liabilities of discontinued operations			14,356				(14,356	)			2(b)				—
Total Long Term Liabilities			326,504				(14,356	)							312,148
Commitments and contingencies
Stockholders' Equity
Total Stockholders' Equity			45,874,875				10,005,907				2(b), 2(c), 2(d)				55,880,782
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	50,606,644			$	9,566,914							$	60,173,588
See accompanying notes.

 

RED CAT HOLDINGS
Pro Forma Condensed Consolidated Balance Sheet
(unaudited)
		As of April 30, 2023
			Historical				Transaction Accounting Adjustments				Note				Pro-Forma
ASSETS
Current Assets
Cash and marketable securities		$	16,074,343			$	1,313,344				2(a), 2(b)			$	17,387,687
Accounts receivable, net			780,969				(61,107	)			2(b)				719,862
Inventory			11,986,527				(3,070,940	)			2(b)				8,915,587
Other			3,333,173				(2,069,438	)			2(b)				1,263,735
Total Current Assets			32,175,012				(3,888,141	)							28,286,871
Goodwill and intangible assets, net			24,355,836				(9,805,843	)			2(c)				14,549,993
Property and equipment, net			2,650,358				—								2,650,358
Other			307,033				(3,853	)			2(b)				303,180
Note receivable			—				5,000,000				2(a)				5,000,000
Investment in UMAC			—				17,000,000				2(a)				17,000,000
Operating lease right-of-use assets			704,851				(84,544	)			2(b)				620,307
Total Long Term Assets			28,018,078				12,105,760								40,123,838
TOTAL ASSETS		$	60,193,090			$	8,217,619							$	68,410,709
Current Liabilities
Accounts payable and accrued expenses		$	2,518,341			$	(716,352	)			2(b)			$	1,801,989
Debt obligations - short term			922,138				—								922,138
Customer deposits			400,674				(244,688	)			2(b)				155,986
Operating lease liabilities			331,258				(49,461	)			2(b)				281,797
Warrant derivative liability			588,205				—								588,205
Total Current Liabilities			4,760,616				(1,010,501	)							3,750,115
Operating lease liabilities			421,280				(41,814	)			2(b)				379,466
Debt obligations - long term			401,569				—								401,569
Total Long Term Liabilities			822,849				(41,814	)							781,035
Commitments and contingencies
Stockholders' Equity
Total Stockholders' Equity			54,609,625				9,269,934				2(b), 2(c), 2(d)				63,879,559
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	60,193,090			$	8,217,619							$	68,410,709
See accompanying notes.

 

RED CAT HOLDINGS
Pro Forma Condensed Consolidated Balance Sheet
(unaudited)
		As of April 30, 2022
			Historical				Transaction Accounting Adjustments				Note				Pro-Forma
ASSETS
Current Assets
Cash and marketable securities		$	48,875,184			$	1,270,736				2(a), 2(b)			$	50,145,920
Accounts receivable, net			495,506				(64,630	)			2(b)				430,876
Inventory			3,895,870				(682,822	)			2(b)				3,213,048
Other			2,354,884				(531,489	)			2(b)				1,823,395
Due from related party			31,853				—								31,853
Total Current Assets			55,653,297				(8,205	)							55,645,092
Goodwill and intangible assets, net			27,837,281				(9,871,147	)			2(c)				17,966,134
Property and equipment, net			511,690				—								511,690
Other			57,033				(3,853	)			2(b)				53,180
Note receivable			—				5,000,000				2(a)				5,000,000
Investment in UMAC			—				17,000,000				2(a)				17,000,000
Operating lease right-of-use assets			1,019,324				(133,293	)			2(b)				886,031
Total Long Term Assets			29,425,328				11,991,707								41,417,035
TOTAL ASSETS		$	85,078,625			$	11,983,502							$	97,062,127
Current Liabilities
Accounts payable and accrued expenses		$	2,103,241			$	(212,266	)			2(b)			$	1,890,975
Debt obligations - short term			956,897				—								956,897
Due to related party			40,057				—								40,057
Customer deposits			437,930				(145,316	)			2(b)				292,614
Operating lease liabilities			293,799				(51,095	)			2(b)				242,704
Warrant derivative liability			1,607,497				—								1,607,497
Total Current Liabilities			5,439,421				(408,677	)							5,030,744
Operating lease liabilities			749,825				(91,275	)			2(b)				658,550
Debt obligations - long term			973,707				—								973,707
Total Long Term Liabilities			1,723,532				(91,275	)							1,632,257
Commitments and contingencies
Stockholders' Equity
Total Stockholders' Equity			77,915,672				12,483,454				2(b), 2(c) 2(d)				90,399,126
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	85,078,625			$	11,983,502							$	97,062,127
See accompanying notes.

 

RED CAT HOLDINGS
Pro Forma Condensed Consolidated Statements Of Operations
(unaudited)
		Six months ended October 31, 2023
			Historical				Transaction Accounting Adjustments				Note			Pro-Forma
Revenues		$	5,678,997			$	—						$	5,678,997
Cost of goods sold			4,303,750				—							4,303,750
Gross Margin			1,375,247				—							1,375,247
Operating Expenses
Operations			1,148,348				—							1,148,348
Research and development			3,126,017				—							3,126,017
Sales and marketing			1,662,398				—							1,662,398
General and administrative			2,903,229				—							2,903,229
Stock based compensation			2,107,931				(111,478	)			3(a)			1,996,453
Total operating expenses			10,947,923				(111,478	)						10,836,445
Operating loss			(9,572,676	)			111,478							(9,461,198	)
Other Expense (Income)			1,076,916				167,348				3(b), 3(c)			1,244,264
Net loss from continuing operations		$	(10,649,592	)		$	(55,870	)					$	(10,705,462	)
Discontinued operations
Loss from operations of discontinued component			(842,084	)			842,084				3(d)			—
Net loss		$	(11,491,676	)		$	786,214						$	(10,705,462	)
Loss per share - basic and diluted		$	(0.21	)									$	(0.19	)
Weighted average shares outstanding - basic and diluted			55,270,838											55,270,838
See accompanying notes.

 

RED CAT HOLDINGS
Pro Forma Condensed Consolidated Statements Of Operations
(unaudited)
		Year ended April 30, 2023
			Historical				Transaction Accounting Adjustments				Note			Pro-Forma
Revenues		$	9,911,780			$	(5,311,474	)			3(e)		$	4,600,306
Cost of goods sold			10,248,575				(4,808,972	)			3(e)			5,439,603
Gross Margin			(336,795	)			(502,502	)						(839,297	)
Operating Expenses
Operations			4,411,685				(644,857	)			3(e)			3,766,828
Research and development			5,248,336				(346,002	)			3(e)			4,902,334
Sales and marketing			4,028,007				(862,384	)			3(e)			3,165,623
General and administrative			6,618,596				(399,578	)			3(e)			6,219,018
Stock based compensation			3,656,724				(236,388	)			3(a)			3,420,336
Impairment loss			2,826,918				—							2,826,918
Total operating expenses			26,790,266				(2,489,209	)						24,301,057
Operating loss			(27,127,061	)			1,986,707							(25,140,354	)
Other Expense (Income)			(39,324	)			359,615				3(b), 3(c)			320,291
Net loss		$	(27,087,737	)		$	1,627,092						$	(25,460,645	)
Loss per share - basic and diluted		$	(0.50	)									$	(0.47	)
Weighted average shares outstanding - basic and diluted			53,860,199											53,860,199
See accompanying notes.

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. Basis of Presentation

 

The unaudited pro forma condensed consolidated financial statements as of October 31, 2023, and for the six months ended October 31, 2023, have been derived from the historical unaudited consolidated financial statements of Red Cat, which were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are included in Red Cat’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2023, filed with the U.S Securities and Exchange Commission (the “SEC”) on December 15, 2023.

 

The unaudited pro forma condensed consolidated financial statements as of April 30, 2023 and 2022, and for the year ended April 30, 2023, have been derived from the historical audited consolidated financial statements of Red Cat, which were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are included in Red Cat’s Annual Report on Form 10-K for the year ended April 30, 2023, filed with the U.S Securities and Exchange Commission (the “SEC”) on July 27, 2023. 

 

The unaudited pro forma condensed consolidated balance sheets as of October 31, 2023 and April 30, 2023 and 2022, is presented herein in accordance with Rule 11-02(c)(1) of Regulation S-X.

 

The unaudited pro forma condensed consolidated statements of operations for the six months ended October 31, 2023 and year ended April 30, 2023, are presented herein in accordance with Rule 11-02(c)(2)(ii) of Regulation S-X.

 

2. Transaction Accounting Adjustments to the Unaudited Pro Forma Condensed Balance Sheets

 

a)

Reflects consideration received upon the closing of the Transaction of $20 million, which included $1 million in cash upon closing, $2 million in the form of a promissory note, and $17 million of Unusual common stock, valued at the initial public offering price for Unusual. Under the terms of the SPA, the sale price is subject to a further adjustment for final net working capital following the closing. Any actual working capital excess amount will, at Red Cat’s option be payable in cash or will increase the principal amount of the promissory note dollar for dollar. Initial estimated closing working capital of $3,000,000 is reflected as an increase to the promissory note. However, the payment method has not yet been determined and may differ from the presentation herein. Additionally reflects adjustments for cash payments of 8% interest from promissory note.

 

b)

Represents the pro forma adjustments to historical financial results directly attributable to Rotor Riot and Fat Shark in accordance with ASC 205.

 

c)

Represents the pro forma adjustments to historical financial results due to the elimination of Goodwill and intangible assets, net of accumulated amortization, which originated from the acquisitions of Rotor Riot and Fat Shark.

 

d)

The total stockholders’ equity adjustment includes the resulting estimated gain on sale of approximately $5.8 million as well as the forgiveness of intercompany debt of approximately $7.3 million resulting from the Transaction, of which approximately $3.4 million and $3.9 million relate to Rotor Riot and Fat Shark, respectively. For purposes of the unaudited pro forma condensed consolidated balance sheet, the gain recognized in stockholders’ equity is based on the estimated net carrying value of Rotor Riot and Fat Shark, rather than the final net carrying value as of the closing date of the Transaction. As a result, the gain reflected herein may materially differ from the actual gain on the Transaction recorded as of the closing date.

 

3. Transaction Accounting Adjustments to the Unaudited Pro Forma Condensed Statements of Operations

 

a)

Reflects the elimination of stock based compensation expense pertaining to Red Cat stock awards of Rotor Riot and Fat Shark employees.

 

b)

Reflects the elimination of amortization expense pertaining to intangible assets of Rotor Riot and Fat Shark.

 

c)

Reflects the addition of interest income pertaining to the promissory note resulting from the Transaction.

 

d)

Reflects the elimination of operations from discontinued component as historically presented in accordance with ASC 205.

 

e)

Reflects the elimination of operating results of Rotor Riot and Fat Shark.

 

v3.24.0.1

Cover	Feb. 16, 2023
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Feb. 16, 2024
Entity File Number	001-40202
Entity Registrant Name	Red Cat Holdings, Inc.
Entity Central Index Key	0000748268
Entity Tax Identification Number	88-0490034
Entity Incorporation, State or Country Code	NV
Entity Address, Address Line One	15 Ave. Munoz Rivera
Entity Address, Address Line Two	Ste 2200
Entity Address, City or Town	San Juan
Entity Address, Country	PR
Entity Address, Postal Zip Code	00901
City Area Code	833
Local Phone Number	373-3228
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common stock
Trading Symbol	RCAT
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false

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