Item
1.01 Entry into a Material Definitive Agreement.
On
May 16, 2022, Cipherloc Corporation (the “Company”) entered into an Equity Securities Purchase Agreement (the “Purchase
Agreement”) with SideChannel, Inc. (“SideChannel”), SideChannel’s stockholders (collectively, the
“Sellers”) and Brian Haugli, as the Sellers’ representative (the “Representative”), pursuant
to which the Company will acquire all of the equity securities of SideChannel in exchange for shares of the Company’s equity securities
(the “Acquisition”).
Pursuant
to the Purchase Agreement, the Sellers agreed to exchange all of their securities of SideChannel for an aggregate of 119,800,000 shares
(the “Common Shares”) of the Company’s common stock, $0.001 par value (“Common Stock”), and
100 shares (the “Preferred Shares” and, together with the Common Shares, the “Shares”) of the Company’s
newly designated Series B Preferred Stock, $0.001 par value. The Common Shares will be issued to the Sellers in two tranches as follows:
(i) the first tranche of 59,900,000 Common Shares (the “First Tranche Shares”) will be issued at the closing of the
Acquisition (the “Closing”), and (ii) the second tranche of 59,900,000 Common Shares (the “Second Tranche
Shares”) will be issued when the operations of SideChannel, as a subsidiary of the Company, achieve at least $5.5 million in
revenue for any trailing twelve month period after the Closing and before the 48 month anniversary of the execution of the Purchase Agreement
(the “Milestone”). It is expected that the Sellers will acquire approximately 40.6% of the outstanding Common Stock
as of the closing date of the Acquisition (the “Closing Date”), and will hold a total of approximately 57.8% of the
outstanding Common Stock if SideChannel achieves the Milestone after the Second Tranche Shares are issued to the Sellers. The number
of Second Tranche Shares may be reduced, or increased, based upon whether SideChannel’s working capital as of the Closing is less
than or more than zero. The number of the Second Tranche Shares may also be subject to adjustment based upon any successful indemnification
claims made by the parties pursuant to the Purchase Agreement.
The
Preferred Shares will be issued to the Sellers at the Closing of the Acquisition. After the Closing, the holders of the Preferred Shares
will have the right to appoint the majority of the members of the Company’s board of directors (“Board of Directors”),
provided that such appointees and the number of independent directors, after taking into consideration the appointment of the members
of the Board of Directors appointed by the holders of the Preferred Shares, are consistent with the requirements for a company whose
equity securities are listed on either the New York Stock Exchange or The Nasdaq Stock Market. The Preferred Shares will be convertible
into shares of the Company’s Common Stock at any time, on a one-for-one basis (subject to adjustment as provided therein), and
will automatically convert into shares of the Common Stock upon the earliest to occur of (i) the issuance of the Second Tranche Shares,
(ii) the cancellation of the Second Tranche Shares or (iii) the liquidation, dissolution or winding up, or deemed liquidation, of the
Company.
The
Shares will be subject to a Lock-Up/Leak-Out Agreement pursuant to which, subject to certain exceptions, the Sellers may not directly
or indirectly offer to sell, or otherwise transfer, any of the Shares they receive pursuant to the Purchase Agreement for 24 months after
the Closing of the Acquisition without the prior written consent of the Company. Notwithstanding the foregoing, pursuant to the Lock-Up/Leak-Out
Agreement, the Sellers may sell up to 20% of their shares of Common Stock beginning 12 months after the Closing of the Acquisition, and
the remaining 80% of their shares of Common Stock beginning 24 months after the Closing of the Acquisition.
The
consummation of the Acquisition is subject to certain conditions, including, but not limited to, (i) the representations and warranties
of each of the Company and the Sellers being true and correct as of the Closing Date; and (ii) the covenants and agreements of each of
the Company and the Sellers having been performed at or prior to the Closing Date. In addition, the consummation of the Acquisition by
the Company is subject to there being nothing that would have a materially adverse effect on the Company or on the performance of the
Sellers or the Company under the Purchase Agreement and related agreements, approval by FINRA, and the consummation of the Acquisition
by the Sellers is subject to the appointment of Brian Haugli and three individuals designated by the Sellers having been appointed to
the Board of Directors.
The
Purchase Agreement may be terminated by either the Company or the Representative upon written notice to the other party if the Closing
has not occurred within 120 days following the date of the execution of the Purchase Agreement (the “Outside Date”),
subject to the right of the Company and the Representative to extend the Outside Date as set forth in the Purchase Agreement. In addition,
the Company may terminate the Purchase Agreement upon written notice to the Representative if (i) there is a breach of any representation
or warranty of the Sellers set forth in the Purchase Agreement such that the Closing conditions set forth therein could not be satisfied
or (ii) the Sellers or SideChannel have breached any of the covenants or agreements contained in the Purchase Agreement to be complied
with by them such that the Closing conditions set forth therein would not be satisfied, subject to the ability of the Sellers and SideChannel
to cure such breach within the time period set forth in the Purchase Agreement. The Representative may terminate the Purchase Agreement
upon written notice to the Company if (i) there exists a breach of any representation or warranty of the Company set forth in the Purchase
Agreement such that the Closing conditions set forth therein could not be satisfied or (ii) the Company has breached any of the covenants
or agreements contained in the Purchase Agreement to be complied with by the Company such that the Closing conditions set forth therein
would not be satisfied, subject to the ability of the Company to cure such breach within the time period set forth in the Purchase Agreement.
The Purchase Agreement may also be terminated (i) by either the Company or the Sellers if there shall be in effect a final, non-appealable
order prohibiting, enjoining, restricting or making illegal the consummation of the Acquisition or (ii) any time prior to the Closing
by mutual written agreement of the Company and the Representative. If the Purchase Agreement is
terminated, there will be no further obligations with respect to the parties under the Purchase Agreement, except as set forth in the
Purchase Agreement.
David
Chasteen, the Company’s Chief Executive Officer and a member of the Board of Directors, and Nick Hnatiw, the Company’s Chief
Technology Officer, are included among the Sellers. As a result, the Board of Directors formed a special committee to negotiate with
SideChannel the terms of the Acquisition and the Purchase Agreement. The special committee was chaired by Tom Wilkinson, the Company’s
Chairman, and included Anthony Ambrose and Sammy Davis, each an independent member of the Board of Directors. The special committee received
a fairness opinion from Sutter Securities Financial Services, Inc.
The
foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the
full text of the Purchase Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by
reference.