Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On May 15, 2023, Latch, Inc. (the “Company”), LS Key Merger Sub 1, Inc., an indirect wholly owned subsidiary of the Company (“Merger Sub I”), and LS Key Merger Sub 2, LLC, an indirect wholly owned subsidiary of the Company (“Merger Sub II”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Honest Day’s Work, Inc. (“HDW”), pursuant to which (i) Merger Sub I will merge with and into HDW, with HDW continuing as the surviving corporation (the “First Merger”), and subsequently, (ii) HDW will merge with and into Merger Sub II, with Merger Sub II continuing as the surviving entity and an indirect, wholly owned subsidiary of the Company (together with the First Merger, the “Mergers”).
At the effective time of the First Merger, the Company will issue to HDW’s stockholders as merger consideration (i) $22.0 million aggregate principal amount of unsecured promissory notes (the “Promissory Notes”) and (ii) approximately 29.0 million shares of the Company’s common stock (the “Shares”). In the event any of HDW’s stockholders are not eligible to receive unregistered shares of the Company’s common stock, such stockholders will receive $0.76 in lieu of each Share such stockholder would otherwise receive as merger consideration.
The Shares shall be non-transferable until the fifth anniversary of the closing of the Mergers (the “Closing Date”) (the “Restricted Period”), subject to certain accelerated releases. In the event the Company’s 60 trading day volume weighted average closing stock price (“VWAP”) exceeds the price thresholds set forth in the table below, the applicable portion of the Shares set forth below will be released from transfer restrictions:
| | | | | |
| Share Price Threshold | Percent of Shares Released |
| $2.00 | 25% |
| $3.00 | 25% |
| $4.00 | 25% |
| $5.00 | 25% |
In addition, there may be accelerated releases of the Shares in connection with a change of control of the Company or in the event that, as of April 15, 2024, the Company’s common stock is delisted from The Nasdaq Stock Exchange LLC (“Nasdaq”), following exhaustion of all rights of appeal related thereto as of such date, as a result of Latch’s failure to satisfy the continued listing requirements of Nasdaq due to existing non-compliance issues (a “Delisting”).
The Merger Agreement contains customary representations, warranties and covenants by and among the parties. The completion of the transactions is subject to customary closing conditions, including the effectiveness of the Jamie Siminoff Employment Agreement (as defined below) and the Jamie Siminoff Stock Restriction Agreement (as defined below).
The Merger Agreement may be terminated (i) upon mutual agreement of the parties or (ii) by either party if the Mergers have not been consummated by September 30, 2023. Pursuant to the terms of the Merger Agreement, the Mergers are scheduled to occur on July 3, 2023, subject to extension by mutual agreement of the parties (the “Closing Date”). The description of the Merger Agreement set forth above does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto and incorporated by reference herein.
The Merger Agreement and the above description have been included to provide information regarding the terms of the Merger Agreement. They are not intended to provide any other factual information about the Company or any other parties to the Merger Agreement or their respective affiliates or equityholders. The representations, warranties, and covenants contained in the Merger Agreement were made only for the purposes of the Merger Agreement and as of the specific dates, were solely for the benefit of the parties thereto, may have been used for purposes of allocating risk between each party rather than establishing matters of fact, may be subject to a contractual standard of materiality different from that generally applicable to the Company’s filings required by the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and may be subject to qualifications or limitations agreed upon by
the parties in connection with the negotiated terms, including being qualified by schedules and other disclosures made by each party. Accordingly, the representations, warranties, and covenants in the Merger Agreement should not be relied upon as statements of factual information.
Promissory Notes
At the closing of the First Merger, as partial consideration for the Mergers, the Company will issue to certain HDW stockholders the Promissory Notes. The Promissory Notes will accrue paid-in-kind interest at a rate of 10% per annum and have a two-year maturity, unless earlier accelerated in connection with an event of default (including a Delisting) or change of control of the Company. In addition, the Company may prepay the Promissory Notes at any time prior to maturity.
The description of the Promissory Notes set forth above does not purport to be complete and is qualified in its entirety by reference to the full text of the Form of Promissory Note, a copy of which is filed as Exhibit 4.1 hereto and incorporated by reference herein.
Jamie Siminoff Employment Agreement
In connection with the Mergers, the Company and Jamie Siminoff entered into an employment agreement, dated May 15, 2023 (the “Jamie Siminoff Employment Agreement”). Pursuant to the Jamie Siminoff Employment Agreement, upon the closing of the Mergers, Mr. Siminoff is expected to serve as the Company’s Chief Strategy Officer. In such role, Mr. Siminoff is expected to be appointed by the Company’s Board of Directors (the “Board”) as an executive officer of the Company, effective as of the Closing Date. Mr. Siminoff is also expected to be appointed as Chief Executive Officer of the Company later in 2023.
Mr. Siminoff, age 46, is a lifelong inventor and mission-driven entrepreneur who created a novel Wi-Fi video doorbell while working in his garage in 2011. That doorbell has since transformed into Ring, a whole-home security company that was acquired by Amazon in 2018. Mr. Siminoff served as Chief Executive Officer of Ring from its inception until March 2023, when he took the role of chief inventor. Prior to Ring, Mr. Siminoff founded and sold several successful ventures, including PhoneTag, a voicemail-to-text company. Since his successful exit from Ring, Mr. Siminoff has been investing in residential, multi-family real estate, while simultaneously building HDW. Mr. Siminoff holds his Bachelor of Science in Entrepreneurship from Babson College.
Pursuant to the Jamie Siminoff Employment Agreement, for 2023 and 2024, Mr. Siminoff will receive an annual base salary of $200,000 and an annual bonus opportunity of $500,000, which annual bonus opportunity shall adjust in accordance with the share price thresholds (the “Share Price Thresholds”) set forth in the table below, which Share Price Thresholds will be measured based on the greater of (i) the Company’s highest 90 trading day VWAP in the first six months of the year for which such annual bonus is paid and (ii) the Company’s highest 60 trading day VWAP in the last six months of the year for which such annual bonus is paid:
| | | | | |
| Share Price Threshold | Adjusted Annual Bonus |
| $1.00 | $800,000.00 |
| $2.00 | $1,800,000.00 |
| $3.00 | $2,800,000.00 |
| $4.00 | $3,800,000.00 |
| $5.00 | $4,800,000.00 |
The annual bonus will not initially be subject to additional performance criteria (other than the share price thresholds set forth above); provided, however, that beginning in 2025, the Compensation Committee of the Board may adjust the amount and terms of Mr. Siminoff’s annual compensation and may re-allocate annual compensation among customary fixed and variable components, and the variable components may be subject to customary performance and time-vesting criteria, in each case based upon advice from the Company’s independent compensation consultant. Mr. Siminoff’s base salary and annual bonus for 2023 will be pro-rated for the partial employment year.
The description of the Jamie Siminoff Employment Agreement set forth above does not purport to be complete and is qualified in its entirety by reference to the full text of the Jamie Siminoff Employment Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
Jamie Siminoff Stock Restriction Agreement
In connection with the Mergers, the Company and Jamie Siminoff entered into a stock restriction agreement, dated May 15, 2023 (the “Jamie Siminoff Stock Restriction Agreement”). Pursuant to the Jamie Siminoff Stock Restriction Agreement, in the event Mr. Siminoff ceases to be an employee of the Company prior to the five-year anniversary of closing of the Mergers, the Company shall have the right to repurchase all of Mr. Siminoff’s Shares that have not already been released from transfer restriction, subject to certain exceptions. In the event Mr. Siminoff is terminated without Cause or resigns for Good Reason (each as defined in the Jamie Siminoff Employment Agreement), or upon his death or disability (each, an “Exit”), his Shares will accelerate in an amount equal to the greater of (i) the number of Shares to which he is entitled pursuant to the Share Price Thresholds (with linear interpolation of Shares based on the 60 trading day VWAP as of the date of Exit) and (ii) the number of Shares equal to the product of (a) his total Shares multiplied by (b) the quotient of (x) the number of calendar days between closing of the Mergers and his Exit divided by (y) 1,825; provided, however, that in no event will the number of Mr. Siminoff’s Shares that accelerate in connection with an Exit be less than 40% of the total number of his Shares.
The description of the Jamie Siminoff Stock Restriction Agreement set forth above does not purport to be complete and is qualified in its entirety by reference to the full text of the Jamie Siminoff Stock Restriction Agreement, a copy of which is filed as Exhibit 10.2 hereto and incorporated by reference herein.