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Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

23. SUBSEQUENT EVENTS

 

Corporate Acquisition

 

On July 6, 2020, the Company completed its acquisition (the "Acquisition") of Virtual Network Communications Inc., a Virginia corporation ("VNC"), pursuant to an Agreement and Plan of Merger and Reorganization dated as of May 21, 2020 (the "Merger Agreement"), by and among the Company and its wholly-owned subsidiaries, CHC Merger Sub 7, Inc. and VNC Acquisition LLC, VNC and Mohan Tammisetti, solely in his capacity as the representative of the security holders of VNC.  VNC is an EDGE telecom access radio developer and provider of both 4G LTE/Advanced and 5G capable radio equipment. Additionally, VNC has virtualized and patented an entire LTE Advanced network core solution that the Company believes eliminates much of the costly backbone equipment of telecom networks. VNC also has developed and is currently selling a rapidly deployable network system that can be combined with the tethered aerostats and drones offered by the Company's Drone Aviation subsidiary and enabled and operated in nearly any location in the world.

 

In connection with the Acquisition, the Company paid to the stockholders and certain other stakeholders of VNC (i) $1,785,139 in cash and (ii) 11,738,210 shares of the Company's common stock, of which an aggregate of 4,000,000 shares is being held in an escrow fund for purposes of satisfying any post-closing indemnification claims of the former VNC security holders under the Merger Agreement. Pursuant to the Merger Agreement, the Company also issued to the holders of outstanding options and warrants of VNC, whether vested or unvested, in replacement of such options or warrants, options or warrants to purchase an aggregate of 4,261,790 shares of the Company's common stock, all of which were fully vested. In addition, at the closing of the Acquisition, the Company paid approximately $1.142 million of outstanding payables of VNC.

 

Debt Agreements

 

In connection with the transactions contemplated by the Merger Agreement, on July 2, 2020, the Company sold an aggregate of 29 units (the "Units") to accredited investors, including 19 Units to Dr. Dustin McIntire, the Company's Chief Technology Officer, for a purchase price of $100,000 per Unit, or $2,900,000 in the aggregate. Each Unit consisted of a 9% Senior Convertible Debenture (the "July 9% Debentures") of the Company in the principal amount of $100,000 and warrants (the "July Warrants") to purchase 10,000 shares of the Company's common stock. The July 9% Debentures bear interest at the rate of 9% per annum, mature on September 30, 2020 and are convertible into shares of the Company's common stock at a conversion price of $1.00 per share, subject to adjustment. The July Warrants are exercisable to purchase shares of the Company's common stock at an exercise price of $1.00 per share, subject to adjustment, and expire on the earlier of (i) December 31, 2022 or (ii) the second anniversary of the Company's consummation of a public offering of its common stock in connection with an up-listing of its common stock to a national securities exchange. The proceeds from the sale of the Units were applied to the cash consideration the Company paid in the Acquisition and related expenses.

 

On April 29, 2020, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with an investor, pursuant to which the Company sold to the investor $571,428 aggregate principal amount of 12.5% OID convertible promissory notes (the "OID Notes") and warrants (the "April Warrants") to purchase up to 317,460 shares of the Company's common stock in two tranches. On April, 29, 2020, the Company issued and sold to the investor an OID Note in the principal amount of $285,714 and April Warrants to purchase 158,730 shares of common stock for proceeds of $250,000 (representing an original issue discount of 12.5%). On July 7, 2020, the Company sold to the investor an additional OID Note in the principal amount of $285,714 and April Warrants to purchase an additional 158,730 shares of common stock for proceeds of $250,000 (representing an original issue discount of 12.5%). 

 

The OID Notes mature on January 29, 2021. However, the Company has the right to redeem all or a portion of the OID Notes on ten days prior written notice, during which time the holder of the OID Notes may convert the principal amount and all accrued interest on the OID Notes into shares of common stock as discussed below. The holder of the OID Notes also has the right to demand prepayment of the OID Notes if the Company consummates an offering of its equity securities in which it receives gross proceeds of at least $3,500,000.

 

The OID Notes bear interest at the rate of 12.5% per annum and are convertible into shares of the Company's common stock at a conversion price equal to $0.90 per share or, upon the occurrence and during the continuance of an Event of Default (as defined in the OID Notes), if lower, at a conversion price equal to 65% of the lowest daily volume weighted average price (VWAP) of the common stock during the 20 consecutive trading days immediately preceding the applicable conversion date. However, the holder of the OID Notes will not have the right to convert any portion of the OID Notes if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company's common stock outstanding immediately after giving effect to its conversion and under no circumstances may convert the OID Notes if the investor, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the common stock outstanding immediately after giving effect to its conversion.

 

The April Warrants are exercisable to purchase shares of common stock for a purchase price of $0.99 per share, subject to adjustment, at any time on or prior to April 29, 2025, and may be exercised on a cashless basis if the shares of common stock underlying the April Warrants are not then registered under the Securities Act of 1933, as amended.

 

In connection with this transaction, the Company paid to a placement agent a cash fee equal to 10% of the gross proceeds received by the Company from the investor in this transaction, as well as a one-time expense fee of $2,500 for aggregate out-of-pocket expenses incurred collectively in this transaction. In addition, the Company granted to the placement agent five-year warrants, substantially in the form of the April Warrants, to purchase an aggregate of 55,556 shares of common stock at an exercise price of $1.10 per share. 

 

On May 29, 2020, DragonWave entered into a promissory note in the principal amount of $290,000 with an original issue discount of $40,000 for proceeds of $250,000. The note matures on September 30, 2020 and will bear an interest rate of 12% per annum on any principal balance not paid from the maturity date until paid in full. The promissory note is guaranteed by the Company and Mr. Hodges.

  

On July 2, 2020, the Company borrowed $100,000 from an accredited investor and issued to such investor a promissory note evidencing such loan that bears interest at the rate of 15% per annum and matures on September 30, 2020.  As additional consideration for such loan, the Company issued to such investor 25,000 shares of common stock.

 

On July 17, 2020, the Company borrowed $200,000 from an accredited investor and issued to such investor a promissory note evidencing such loan that bears interest at the rate of 15% per annum and matures on October 13, 2020.  As additional consideration for such loan, the Company issued to such investor 40,000 shares of common stock.

 

2020 Long-Term Incentive Plan

 

On April 22, 2020, the Company's Board of Directors adopted the 2020 Long-Term Incentive Plan (the "2020 Plan") which was approved by the stockholders on or about May 6, 2020. Employees, officers, directors and consultants that provide services to the Company or one of its subsidiaries may be selected to receive awards under the 2020 Plan. Awards under the 2020 Plan may be in the form of incentive or nonqualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards and performance-based awards.

 

A total of 10,000,000 shares of the Company's common stock are authorized for issuance with respect to awards granted under the 2020 Plan. Any shares subject to awards that are not paid, delivered or exercised before they expire or are cancelled or terminated, or fail to vest, as well as shares used to pay the purchase or exercise price of awards or related tax withholding obligations, will become available for other award grants under the 2020 Plan. As of August 10, 2020, no stock grants had been issued under the 2020 Plan, and 10,000,000 shares authorized under the 2020 Plan remained available for award purposes.

 

The 2020 Plan will terminate on May 1, 2030. The maximum term of options, stock appreciation rights and other rights to acquire common stock under the 2020 Plan is ten years after the initial date of the award.