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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): December 11, 2023
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 1 –
Registrant’s Business and Operations
Item 1.01 Entry
into a Material Definitive Agreement
On December
11, 2023, Red Cat Holdings, Inc., a Nevada corporation (the “Company”), Unusual Machines, Inc., a Puerto Rico corporation
(“Unusual”) and Jeffrey Thompson, the founder and Chief Executive Officer of the Company (the “Principal Stockholder”),
entered into Amendment No. 4 to the Stock Purchase Agreement (the “SPA”) for the purchase and sale of the Company’s
consumer business consisting of recreational and hobbyist drones, first-person-view goggles, and as a licensed authorized reseller. The
SPA, originally entered into on November 21, 2022, was previously amended on March 31, 2023, July 10, 2023, and September 18, 2023. On
March 8, 2023, shareholders representing a majority of the disinterested voting capital stock of the Company approved the sale to Unusual,
including any amendments to the SPA, with Mr. Thompson abstaining from the vote.
Under
the Amendment No. 4 to the SPA, executed December 11, 2023, the following revisions were made to the SPA:
| · | The total consideration due to the Company upon closing of the purchase and sale of the consumer division
shall be $20 million, payable as follows: |
| o | $1 million in cash, plus the amount of agreed working capital for the businesses being purchased; |
| o | $2 million in the form of a promissory note; and |
| o | $17 million worth of Unusual common stock, to be valued at the initial public offering price for Unusual’s
common stock. |
| · | Certain provisions in the SPA relating to employment and non-competition agreements were updated to reference
Dr. Allan Evans, who was recently appointed as the new CEO of Unusual. |
| · | The outside date for closing of the SPA was extended to May 31, 2024. |
| · | The required minimum amount for Unusual’s planned initial public offering was adjusted to $5 million.
The cash component of the consideration due to the Company under the SPA shall be payable to the Company from the proceeds of Unusual’s
IPO. |
The closing of the
SPA with Unusual is dependent upon the successful closing of Unusual’s pending initial public offering.
The
$2 million promissory note to be issued by Unusual under the SPA (the “Note”), filed herewith as Exhibit 10.2, will bear interest
at a rate of 8% per year, will be due 18 months from the date of issue, and will require monthly payments of interest due in arrears on
the 15th day of each month. In the event of a Qualified Financing (defined as one or more related debt or equity financings
by Unusual resulting in net proceeds of at least $5 million, other than Unusual’s 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 Unusual 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
Unusual’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 Unusual’s common stock. This limit may be increased by the Company upon 61 days written notice.
In
connection with the SPA, Unusual 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 Unusual common stock to be issued to the Company under the SPA. Under
the agreed form of Registration Rights Agreement with Unusual, filed herewith as Exhibit 10.3, Unusual will be 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.
Section 9 –
Financial Statements and Exhibits
Item. 9.01. Financial Statements and Exhibits
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: December 15, 2023 |
By: |
/s/ Jeffrey
Thompson |
|
|
|
Name: Jeffrey Thompson |
|
|
|
Title: Chief Executive Officer |
|
EXHIBIT 10.1
AMENDMENT NO. 4 TO
SHARE PURCHASE AGREEMENT
This AMENDMENT NO. 4 TO SHARE
PURCHASE AGREEMENT (this “Amendment”), dated December __, 2023, is by and among Unusual Machines, Inc., a Puerto Rico corporation
(“Unusual”), Red Cat Holdings, Inc., a Nevada corporation (“Red Cat”), and Jeffrey Thompson, an individual, (the
“Principal Stockholder,” and together with Unusual and Red Cat, the “Parties”).
WHEREAS, the Parties entered into
a Share Purchase Agreement as of November 21, 2022, as amended March 31, 2023 (“Amendment No. 1”), July 10, 2023 and September
18, 2023 (the “Agreement”); and
WHEREAS, the Parties desire to
amend the Agreement to (a) revise the components of the Purchase Price set forth in Section 2.01 of the Agreement to reduce the total
cash paid to $1.0 million, eliminate the need to deposit $1.0 million of cash on hand into escrow prior to closing, and include a $2.0
million secured promissory note as part of the Purchase Price, (b) revise the minimum Offering amount from $10.0 million to $5.0 million,
(c) replace Dr. Allan Evans for Brandon Torres Declet in Section 10.01(d) and (d) extend the End Date from October 31, 2023 to May 31,
2024 as provided in Section 11.02(a) of the Agreement, as amended.
NOW, THEREFORE, the Parties, each
intending to be legally bound hereby, do mutually covenant and agree as follows, subject to and effective as of the Effective Time (as
defined below):
| 1. | All capitalized terms herein shall have the meaning ascribed to such terms in the Agreement. |
| 2. | Section 2.01 of the Agreement is hereby amended and restated as follows: |
“Section 2.01 Purchase and Sale.
At the Closing, Red Cat agrees to sell to Unusual 100% of the Target Companies’ Capital Stock owned by Red Cat in exchange for a
Purchase Price of $20.0 million (the “Purchase Price”) consisting of (a) $1.0 million in cash plus or minus the amount
of any Agreed Working Capital, if any (the “Cash Consideration”) at the Closing (subject to adjustment as provided
in Section 2.04(c) for the amount of working capital balance, if any, on the Closing Date) (the “Final Working Capital”),
(b) a $2.0 million Unusual Secured Promissory Note (the “Unusual Note”) which shall be in form and substance mutually
acceptable to the Parties, and (c) $17.0 million of shares of Unusual’s Common Stock, par value $0.01 (the “Unusual Common
Stock”). The number of shares of Unusual Common Stock to be issued to Red Cat shall be based upon the initial public offering
price for the Unusual Common Stock. The Cash Consideration and the Unusual Common Stock are collectively referred to herein as the “Consideration”.
The allocation of the Purchase Price as between the acquisition of Fat Shark Holdings, Ltd and the acquisition of Rotor Riot (the “Purchase
Price Allocation”) shall be mutually agreed upon prior to the Closing (as defined below) in accordance with the following procedures.
Within 45 days following the Closing, Red Cat shall provide Unusual with a detailed written statement with its proposed calculation of
the Purchase Price Allocation. Unusual shall have 15 days after its receipt of the proposed Purchase Price Allocation to agree or disagree
with such calculation. If Unusual disagrees with such calculation and Unusual and Red Cat are unable to finally resolve such dispute within
30 days after Unusual’s receipt of the Purchase Price Calculation, then the dispute shall be resolved by a nationally-recognized
accounting firm that is reasonably acceptable to Unusual and Red Cat (the “Independent Accounting Firm”). ”
| 3. | Section 10.01(d) is hereby amended and restated as follows: |
“(d) Employment and Non-Competition Agreements.
Dr. Allan Evans and Unusual shall have entered into an Employment Agreement (with a customary non-compete provision that may not be amended
or waived without the reasonable consent of Red Cat) in form and substance reasonably acceptable to Unusual and Dr. Allan Evans or, in
lieu of an employment Agreement, an Offer Letter in the form attached hereto as Exhibit A and Unusual and the Target Companies shall have
entered into a Non-Competition Agreement with Red Cat referenced in Section 11.15 of this Agreement in form and substance mutually acceptable
to the Parties. “
| 4. | Section 11.02(a) is hereby amended and restated as follows: |
“(a) if the Purchase and Sale has not been consummated
on or before May 31, 2024 (the “End Date”); provided, however, that the right to terminate this
Agreement pursuant to this Section 11.02 shall not be available to any Party whose breach of any representation, warranty, covenant, or
agreement set forth in this Agreement has been the principal cause of, or that resulted in, the failure of the Purchase and Sale to be
consummated on or before the End Date;”
5.
The parties agree that the minimum amount of the Offering in the Agreement, as amended, shall be reduced from $10.0 million to
$5.0 million. The parties also agree that the requirement for the Company to deposit $1.0 million of its cash on hand as part of the Purchase
Price into escrow upon the effectiveness of the Registration Statement is hereby waived and such cash consideration shall be payable by
the Company to Red Cat from the proceeds of the Offering.
6.
As a result of this Amendment, all representations and warranties, closing conditions and other provisions related to Unusual’s
execution and delivery of the Unusual Note and the Security Agreement that were deleted by Amendment No. 1 to the Agreement are hereby
reinserted into the Agreement.
7.
In the event of any conflict between the Agreement and this Amendment, the terms as contained in this Amendment shall control.
In all other respects the Agreement is hereby ratified and confirmed.
8.
This Amendment may be executed in one or more counterparts, each of which shall be deemed to be one and the same agreement. Facsimile
and electronic signatures shall be treated in all respects and for all purposes as originals.
[Signature Page to Follow]
IN WITNESS WHEREOF, the parties
hereto have executed this Amendment as of the date first above written.
|
UNUSUAL MACHINES, INC.
a Puerto Rico corporation
By: _/s/ Allan Evans__________________
Name: Allan Evans,
Title: Chief Executive Officer
|
|
RED CAT HOLDINGS, INC.
a Nevada corporation
By: _/s/ Joe Freedman_________________
Name: Joe Freedman
Title: Lead Director
|
|
PRINCIPAL STOCKHOLDER:
_/s/ Jeffrey Thompson___________________
Jeffrey Thompson |
EXHIBIT 10.2
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: _______ ___ , 2024 |
$2,000,000 |
8% PROMISSORY
NOTE
DUE _____
__, 2025[1]
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 __________ __, 2025 (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.
[1]
To insert date that is the 18 month anniversary of the Original Issue Date.
“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 15th 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 ten 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.
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UNUSUAL MACHINES INC.
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By:__________________________________________
Name: Allan Evans
Title: Chief Executive Officer
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ANNEX A
CONVERSION NOTICE
The undersigned hereby elects
to convert principal under the 8% Promissory Note due ____________ __, 2025 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 |
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EXHIBIT 10.3
REGISTRATION
RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT
(“Agreement”) is entered into as of the ____ day of _________, 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 180th 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:____________________________
Allan Evans
Chief Executive Officer
INVESTOR:
RED CAT HOLDINGS, INC.
By:____________________________
Signature
Printed Name of Investor
Title of Authorized Signatory if
Investor
is a corporation or other entity
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