Item 8.01 Other Information.
Merger Between ALPP Acquisition Corporation 1, Inc., and Impossible Aerospace Corporation
On Friday, November 13, 2020, the Company and a newly formed and wholly owned subsidiary of the Company named ALPP Acquisition Corporation 1, Inc. a Delaware corporation (“Merger Sub”), entered into a merger agreement (the “Agreement”) with Impossible Aerospace Corporation, a Delaware corporation (“IAC”), pursuant to which IAC merged with and into Merger Sub (the “Merger”).
Background of the Merger
On November 12, 2020, the Company created Merger Sub and became its sole shareholder. Merger Sub was created solely for the purpose of the Merger.
Merger Agreement
Pursuant to the Agreement, the Merger of Merger Sub with and into IAC was structured as a reverse triangular merger and was intended to qualify as a tax-free reorganization. Under the Agreement, IAC would be the surviving entity (the “Surviving Corporation”).
The Board of Directors of the Company and of Merger Sub determined that the Merger would be in the best interests of the Company and Merger Sub and their respective shareholders.
The Board of Directors of IAC determined it to be in the best interests of IAC and its shareholders to enter into the Agreement and recommended the Merger to the IAC shareholders.
To close the Merger, IAC was required to seek and receive approval from its shareholders. Pursuant to the Agreement, one of the closing conditions was that IAC was required to receive approval from the holders of at least 80% of the IAC Shares, defined in the Agreement as IAC’s common stock, Series A Preferred Stock, and Series A-1 Preferred Stock (the “IAC Shares”). IAC obtained the approval of the required holders of the IAC Shares on
November 13, 2020. An additional closing condition is that IAC must receive any required approvals or consent from its PPP Loan lender, Silicon Valley Bank. IAC expects to receive the required approvals by December 10, 2020.
The Company and Merger Sub are not required to consummate the Merger and close the transaction until all of the closing conditions set forth in the Agreement are satisfied or waived.
Pursuant to the Agreement, the Merger will become effective when all of the closing conditions set forth in the Agreement have been met or waived by the applicable party and the Certificate of Merger has been filed with the Delaware Secretary of State (the “Effective Time”). The specific effects of the Merger include but are not limited to the following:
-All property, rights, privileges, immunities, powers, franchises, licenses and authority of IAC and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions and duties of each of IAC and Merger Sub shall become the debts, liabilities, obligations, restrictions and duties of the Surviving Corporation.
-The Certificate of Incorporation of IAC will be the Certificate of Incorporation of the Surviving Corporation, and the Bylaws of IAC will be the Bylaws of the Surviving Corporation.
-At the Closing, the officers and directors of IAC immediately prior to the Effective Time will resign, and the officers and directors of the Company immediately prior to the Closing will be appointed as officers and directors of Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified.
Additionally, as of the Effective Time, as a result of the Merger, the outstanding securities of IAC will be converted as follows:
-Shares of IAC’s common stock that are owned by the Company, Merger Sub, or IAC (as treasury stock or otherwise) will be cancelled and retired automatically and will cease to exist, and no consideration shall be delivered in exchange therefor.
-Each IAC SAFE (Simple Agreement for Future Equity) issued and outstanding immediately prior to the Effective Time will be converted into and exchanged for the right to receive, subject to the adjustments and the other terms of the Agreement, at the times and subject to the contingencies specified in the Agreement, the IAC SAFE Consideration, consisting of that number of the Company’s Series C Preferred Stock equal to (a) 0.363418 times the principal amount of such Company SAFE (subject to upward or downward adjustment as set forth in the Agreement), divided by (b) $3.50 (rounded to the nearest whole preferred share).
-Each share of IAC Series A Preferred Stock and warrant convertible into IAC Series A Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any shares of IAC Series A Preferred Stock to be canceled pursuant to the Agreement) will be canceled and extinguished and be converted automatically into the right to receive the IAC Series A Consideration, consisting of 0.194376 shares of the Company’s Series C Preferred Stock (rounded up to the nearest whole preferred share) per share of IAC Series A Preferred Stock (subject to upward or downward adjustment as set forth in the Agreement).
-Each share of IAC Series A-1 Preferred Stock and warrant convertible into IAC Series A-1 Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any shares of IAC Series A-1 Preferred Stock to be canceled pursuant to the Agreement) will be canceled and extinguished and be converted automatically into the right to receive the IAC Series A-1 Consideration, consisting of 0.053516 shares of the Company’s Series C Preferred Stock (rounded up to the nearest whole preferred share) per share of IAC Series A-1 Preferred Stock (subject to upward or downward adjustment as set forth in the Agreement).
Additionally, the Company agreed to enter into a Consultant Agreement (the “Consultant Agreement”) with Spencer Gore, the President and CEO of IAC, discussed in more detail below, and to issue 242,857 Series C Preferred Stock Restricted Stock Units (“RSUs”) to Mr. Gore pursuant to an RSU Agreement (the “RSU Agreement”), discussed in more detail below.
Moreover, the Company agreed to reserve an additional 71,429 shares of Series C Preferred Stock (i.e., a grant date fair value equal to approximately $250,000.00 or $3.50 per share) (the “Advisor Pool”), which shall be reserved and available for RSU grants to engage former employees of IAC prior to the Closing other than Mr. Gore (the “Former Employees”) for advisory services. The RSUs to the Former Employees would be issued pursuant to an “Additional RSU Agreement.”
Pursuant to the Agreement, the shares of the Company’s Series C Preferred Stock issuable in connection with the Merger and pursuant to the RSU Agreement and the Additional RSU Agreement (collectively, the “Merger Preferred Stock”) are subject to the following terms and restrictions:
-As noted above in connection with the description of the Company’s Certificate of Designation for the Series C Preferred Stock, each share of Series C Preferred Stock will automatically convert into shares of the Company’s Class A Common Stock on the earlier to occur of (a) the fifth day after the twenty-four month anniversary of the original issue date or (b) the fifth day after the date on which the Company’s Class A Common Stock first trades on a national securities exchange (including but not limited to NASDAQ, NYSE, or NYSE American but excluding OTCQX Market) (such date, the “Automatic Conversion Date”)
-The sale of the shares of the Company’s Class A Common Stock issued on the Automatic Conversion Date (the “Conversion Shares”) into the market or to any private purchaser shall be limited to not more than twenty-five percent (25%) of all Conversion Shares received by the holder of the Company’s Series C Preferred Stock at the time of the automatic conversion in a 120-day period, and this restriction on resale may be evidenced by legend placed on any certificate representing the Conversion Shares.
-No fractional shares of the Company’s Class A Common Stock will be issued in connection with the Automatic Conversion, and any fraction of a share that would be issuable will be paid by the Company in cash to the holder of the Series C Preferred Stock.
-At any time prior to the Conversion Date, the Company has the right but not the obligation to redeem the Company’s Series C Preferred Stock by paying to the holder(s) of the Series C Preferred Stock $3.50 for each share of Series C Preferred Stock held by such holder.
The completion and closing of the Merger is subject to the satisfaction or waiver of customary closing conditions, including, among other things, the approval of the holders of at least 80% of the IAC shares, as described above. The Company currently anticipates that the Merger will be close on or before December 10, 2020.
The foregoing summary of the Merger Agreement and the transactions contemplated by the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K.
Consultant Agreement
In connection with the Merger Agreement, the Company and VMG Robotics, LLC, a Delaware limited liability controlled by Spencer Gore, the former President and CEO of IAC, entered into the Consultant Agreement, pursuant to which Mr. Gore agreed to provide certain services to the Company (the “Services”), in exchange for which the Company agreed to pay the compensation set forth below.
The Services consist of Mr. Gore’s providing input on Strategic planning and execution to enhance profitability, productivity and efficiency throughout IAC’s operations; and ensuring that all IAC knowledge of design specifications, patent input, operational systems, US-1 production techniques, customer base, 3rd party software, and internally written code is transferred and properly understood.
The Company agreed to compensate Mr. Gore with both a cash fee and the issuance of equity, as follows:
-The Company agreed to pay or to cause IAC to pay to Mr. Gore an aggregate of $250,000, payable on the following dates and in the following amounts: January 20, 2021: $41,666.67; April 20, 2021: $41,666.67; January 20, 2022: $83,333.33; and January 2, 2023: $83,333.33.
-Initial Equity Grant: As compensation for the Services, on the Closing Date of the Merger, the Company agreed to grant to Mr. Gore a number of Series C Preferred Stock restricted stock units (“Restricted Stock Units”) with a grant date fair value equal to $850,000.00.
-Additional Equity Grant: As noted above, pursuant to the Merger Agreement, the Company agreed to reserve the Advisor Pool, which is reserved and available for grants to engage the Former Employees for advisory services. IAC may issue Restricted Stock Units from the Advisor Pool to Former Employees as it sees fit for a period of six (6) months from the Effective Date. IAC may opt instead to issue cash payments (the “Payments”) to Former Employees for consulting services in lieu of shares from the Advisor Pool. In this case, shares of the Company’s Series C Preferred Stock may be canceled from the Advisor Pool in value equal to the Payments.
-In the event that there are any shares of the Company’s Series C Preferred Stock remaining in the Advisor Pool on the earlier of (i) the six (6) month anniversary of the Effective Date or (ii) the termination of Consultant’s Services by the Company without Cause or by the Consultant for Good Reason (both as defined in the Consultant Agreement), the Company shall grant or cause IAC to grant to Mr. Gore an additional number of Series C Preferred Stock Restricted Stock Units with a grant date fair value equal to the value of the shares remaining in the Advisor Pool as of such date (the “Additional Restricted Stock Units”).
-The vesting of the Restricted Stock Units pursuant to the Consultant Agreement and from the Advisor Pool are set forth in the Consultant Agreement.
The foregoing summary of the Consultant Agreement and the transactions contemplated by the Consultant Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Consultant Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K.
RSU Agreement
Additionally, in connection with the Agreement, the Company agreed to grant to Mr. Gore a total of 242,857 Series C Preferred Stock Restricted Stock Units (the “Gore RSUs”) pursuant to the terms of the RSU Agreement.
Under the RSU Agreement, Mr. Gore will receive a benefit with respect to a Gore RSU only if it vests on or before the Expiration Date (defined below). Two vesting requirements must be satisfied for an RSU to vest: a time and service-based requirement, and a trigger event requirement, both of which are described in the RSU Agreement. If the Gore RSUs vest pursuant to the RSU Agreement, the Company will grant one share of Series C Preferred Stock for each vested Gore RSU. If a Gore RSU has not vested on or before the tenth anniversary of the grant date, the Gore RSU will expire, unless earlier terminated pursuant to the RSU Agreement.
The foregoing summary of the RSU Agreement and the transactions contemplated by the RSU Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the RSU Agreement, which is filed as Exhibit 10.2 to this Current Report on Form 8-K.