Item
1.01 Entry into a Material Definitive Agreement.
Business
Combination Agreement
This
section describes the material provisions of the Business Combination Agreement (as defined below) but does not purport to describe all
of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of the Business Combination
Agreement, a copy of which is attached hereto as Exhibit 2.1. Ackrell’s stockholders and other interested parties are urged to
read such agreement in its entirety. Unless otherwise defined herein, the capitalized terms used below are defined in the Business Combination
Agreement.
On
December 22, 2021, Ackrell, the Company, Blackstone Products, Inc., a newly-formed Delaware corporation and wholly-owned subsidiary
of Ackrell (“Newco”), Ackrell Merger Sub Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of
Newco (“Merger Sub”), Roger Dahle, an individual residing in Utah and holder of certain membership interests in the
Company (“Dahle”), and North Atlantic Imports, Inc., a business company formed under the laws of the British Virgin
Islands (“NAI” and together with Dahle, the “Contributors”) entered into a Business Combination
Agreement (the “Business Combination Agreement”).
The
Transactions
Pursuant
to the Business Combination Agreement, subject to the terms and conditions set forth therein, immediately prior to the consummation of
the transactions contemplated by the Business Combination Agreement (the “Closing”), the Company will enter a redemption
agreement with Cowell International Inc., a Utah corporation and a wholly-owned subsidiary of NAI (“Cowell”), and
Dahle, pursuant to which the Company will redeem, prior to the Closing, certain of its membership interests held by Cowell in exchange
for $100,000,000, which will be funded by newly-incurred indebtedness for borrowed money of the Company in the principal amount of $100,000,000.
Upon
the consummation of the Closing, Merger Sub will merge with and into Ackrell (the “Merger” and, together with the
other transactions contemplated by the Business Combination Agreement, the “Transactions”), with Ackrell continuing
as the surviving corporation in the Merger and a wholly-owned subsidiary of Newco (the “Surviving Corporation”). Immediately
following the effective time of the Merger (the “Effective Time”), (i) NAI will contribute 45 shares of Cowell Common
Stock, par value $1.00 per share (“Cowell Common Stock”) to Newco and 33 shares of Cowell Common Stock to Ackrell
(the “NAI Contributions”), (ii) Cowell will redeem the remaining 22 shares of Cowell Common Stock (the “NAI
Redemption”) and (iii) Dahle will contribute all of his membership interests in the Company to Newco (the “Dahle Contribution”
and together with the Merger, the NAI Contributions, the NAI Redemption and the other transactions contemplated by the Business Combination
Agreement, the “Transactions").
The
aggregate consideration to be paid in the Transactions is based on a pre-money Company equity valuation of $721,000,000 and will be made
up of cash consideration and stock consideration as described below (the “Merger Consideration”).
Conversion
of Securities and Payment of Merger Consideration
As
consideration for the Transactions, (i) Ackrell will pay $150,000,000 to NAI as consideration for the contribution of Cowell Common Stock
to Ackrell; (ii) Cowell will pay $100,000,000 to NAI as consideration for the NAI Redemption; (iii) Newco will issue and deliver to NAI
a number of shares of Newco common stock, par value $0.0001 per share (“Newco Common Stock”) calculated based upon
NAI’s ownership percentage (on a fully-diluted basis taking into account the Assumed RSUs (as defined below) and after giving effect
to the cash consideration) as of the Closing as consideration for the contribution of Cowell Common Stock to Newco; and (vi) Newco will
issue to Dahle a number of shares of Newco Common Stock calculated based upon Dahle’s ownership percentage (on a fully-diluted
basis taking into account the Assumed RSUs and after giving effect to the cash consideration) of the Closing as consideration for the
Dahle Contribution. In addition, each contingent right to receive an equity interest in the Company to be issued to Dahle will
be assumed by Newco (the “Assumed RSUs”), with such Assumed RSUs representing the right to acquire a number of shares
of Newco Common Stock representing the ownership percentage attributable to the Assumed RSUs upon the terms (including vesting) set forth
in the Assumed RSUs.
Representations
and Warranties; Covenants
The
Business Combination Agreement contains a number of representations, warranties and covenants of the Company, the Contributors, Cowell,
Ackrell, Merger Sub and Newco, made solely for the benefit of the other relevant parties to the Business Combination Agreement, which
in certain cases are subject to specified exceptions and qualifications, including materiality and material adverse effect qualifiers,
contained in the Business Combination Agreement or in information provided pursuant to certain disclosure schedules to the Business Combination
Agreement. The representations and warranties are customary for transactions similar to the Transactions.
The
representations and warranties of the parties terminate as of and do not survive the Closing, and there are no indemnification rights
for another party’s breach. The covenants and agreements of the parties shall not survive the Closing, except those covenants and
agreements to be performed after the Closing which covenants and agreement shall survive until fully performed.
The
Business Combination Agreement also contains certain customary covenants by each of the parties during the period between the signing
of the Business Combination Agreement and the earlier of the Closing or the termination of the Business Combination Agreement in accordance
with its terms, including with respect to (1) the operation of their respective businesses in the ordinary course of business; (2) the
provision of access to the properties, books, personnel, and policies of the Company and Ackrell, respectively; (3) provision of
financial statements by the Company; (4) Ackrell’s stock listing; (5) notifications of certain breaches, consent requirements,
material adverse changes or other matters; (6) efforts to consummate the Closing and obtain third party and regulatory approvals; (7)
tax matters and transfer taxes; (8) further assurances; (9) confidentiality; (10) public announcements; (11) directors’ and
officers’ indemnification; and (12) compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR
Act”) (if applicable). The parties further agreed to certain customary post-Closing covenants.
After
the execution of the Business Combination Agreement, Ackrell and Newco will (with the assistance and cooperation of the Company as reasonably
requested by Ackrell), use its commercially reasonable efforts to prepare and file with the U.S. Securities and Exchange Commission (the
“SEC”) within 10 business days (subject to certain exceptions) after Ackrell’s receipt of the Company’s
PCAOB-compliant audited financial statements from the Company a registration statement on Form S-4 in connection with the registration
under the Securities Act of 1933, as amended (the “Securities Act”) of the Ackrell Common Stock, to be issued pursuant
to the Business Combination Agreement, which registration statement will also contain a proxy statement for Ackrell stockholders and
a prospectus.
Ackrell
will include provisions in the proxy statement with respect to (i) the approval of the Business and the adoption and approval of Business
Combination Agreement, (ii) the adoption and approval of the amended and restated Newco certificate of incorporation, (iii) the appointment
of the post-Closing Newco board of directors, (iv) the approval and adoption of Newco’s omnibus incentive plan, (v) the approval
and adoption of Newco’s employee stock purchase plan, (vi) adjournment of the Ackrell stockholders’ meeting, if necessary,
to permit further solicitation of proxies because there are not sufficient votes to approve and adopt any of the foregoing proposals
and (vii) the approval of any other proposals reasonably agreed by Ackrell and the Company to be necessary or appropriate in connection
with the transaction contemplated hereby.
The
parties have also agreed to take all action within their power as may be necessary or appropriate such that, effective immediately after
the Closing, Newco’s board of directors shall consist of seven directors, which shall be divided into three classes with (a) one
class of directors, the Class A Directors, initially serving a 1-year term, such term effective from the Closing (but any subsequent
Class A Directors serving a 3-year term), (b) a second class of directors, the Class B Directors, initially serving a 2-year term, such
term effective from the Closing (but any subsequent Class B Directors serving a 3-year term), and (c) a third class of directors, the
Class C Directors, serving a 3-year term, such term effective from the Closing.
Closing
Conditions
The
obligations of the parties to complete the Closing are subject to various conditions, including the following mutual conditions of the
parties unless waived:
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the
proposals presented at the Ackrell stockholders’ meeting will have been approved and adopted;
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No
governmental authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, judgment, decree, executive order or award
after the date of the Business Combination Agreement which is then in effect and has the
effect of making the Transactions, including the Merger, illegal or otherwise prohibiting
consummation of the Transactions, including the Merger;
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all
required filings under the HSR Act will have been completed and any applicable waiting period
(and any extension thereof) applicable to the consummation of the Transactions under the
HSR Act shall have expired or been terminated;
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the
Registration Statement will have been declared effective under the Securities Act, and no
stop order suspending the effectiveness, or any proceedings for purposes of suspending the
effectiveness, of the Registration Statement will be in effect or will have been initiated
or threatened by the SEC;
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the
Newco Common Stock to be issued in connection with the Transactions will have been approved
for listing on Nasdaq, subject only to official notice of issuance thereof; and
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upon
the Closing, after giving effect to the completion of the Redemption, Ackrell having net
tangible assets of at least $5,000,001.
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Unless
waived by Ackrell, the obligations of the Ackrell, Newco and Merger Sub to consummate the Transactions, including the Merger, are subject
to the satisfaction of certain customary conditions (in addition to customary certificates and other closing deliverables), as well as
the following:
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accuracy
of the representations and warranties made by the Company in the Business Combination Agreement and material compliance by the Company
with the covenants in the Business Combination Agreement;
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absence
of any Company Material Adverse Effect with respect to the Company between the date of the Business Combination Agreement and the date
of the Closing;
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the
Company will have delivered to Ackrell and Newco the Company’s PCAOB-compliant audited financials;
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Cowell
will have delivered a properly executed certification that the Company shares are not “U.S. real property interests”, together
with a notice to the IRS, in accordance with Treasury Regulations;
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the
Company will have terminated certain specified related party contracts; and
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the
Manufacturing Supply Agreement between Fugang Technology Inc. and the Company in substantially the form attached to the Business Combination
Agreement will remain in effect.
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Unless
waived by the Company, the obligations of the Company to consummate the Merger are subject to the satisfaction of certain customary additional
conditions (in addition to customary certificates and other closing deliverables), as well as the following:
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accuracy
of the representations and warranties made by Ackrell, Newco and Merger Sub in the Business Combination Agreement and material compliance
by Ackrell, Newco and Merger Sub with the covenants in the Business Combination Agreement;
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absence
of any Ackrell Material Adverse Effect with respect to Ackrell, Newco or Merger Sub between the date of the Business Combination Agreement
and the date of the Closing;
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all
members of the board of directors and all officers of Ackrell will have executed written resignations effective as of the Effective Time;
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the
aggregate amount of proceeds raised in the PIPE Investment plus the amount of funds in the Trust Account (after giving effect to any
redemption of Ackrell Common Stock by Ackrell’s stockholders) will be at least $150,000,000; and
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the
Newco certificate of incorporation will have been amended and restated by Newco.
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Termination
The
Business Combination Agreement may be terminated under certain customary and limited circumstances at any time prior to the Closing,
including:
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by
mutual written consent of Ackrell and the Company;
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by
either Ackrell or the Company if the Closing has not occurred by the date that is six months after the execution of the Business Combination
Agreement, other than as a result of a breach by the party seeking termination, provided, that in the event of an extension of the time
for Ackrell to complete a Merger in accordance with the terms of Ackrell’s certificate of incorporation, such six month period
will automatically be extended by a like period;
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either Ackrell or the Company if a governmental authority shall have issued an order or taken any other action permanently restraining,
enjoining or otherwise prohibiting, or if any law is in effect making illegal, the transactions contemplated by the Business Combination
Agreement, other than as caused by the breach of the party seeking termination;
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by
either Ackrell or the Company if Ackrell fails to obtain the required stockholder approvals at Ackrell’s stockholder meeting;
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by
Ackrell upon a breach of any representation, warranty, covenant or agreement on the part of the Company, NAI or Dahle set forth in the
Business Combination Agreement, or if any representation or warranty of the Company, NAI or Dahle becomes untrue and is not cured within
20 days;
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by
the Company upon a breach of any representation, warranty, covenant or agreement on the part of Ackrell, Newco or Merger Sub set forth
in the Business Combination Agreement, or if any representation or warranty of Ackrell, Newco or Merger Sub becomes untrue and is not
cured within 20 days; and
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by
Ackrell if the Company has not delivered its PCAOB-compliant audited financials on or prior to February 28, 2022.
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Governing
Law and Arbitration; Trust Account Waiver
The
Business Combination Agreement is governed by Delaware law and the parties are subject to the non-exclusive jurisdiction of federal and
state courts located in the state of Delaware.
Each
of the Company, NAI and Dahle agreed that it and its affiliates will not have any right, title, interest or claim of any kind in or to
any monies in Ackrell’s trust account held for its public stockholders, and agreed not to, and waived any right to, make any claim
against the trust account (including any distributions therefrom).
The
Business Combination Agreement contains representations, warranties and covenants that the respective parties made to each other as of
the date of such agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made
for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the
parties in connection with negotiating such agreement. The Business Combination Agreement has been filed to provide investors with information
regarding its terms. It is not intended to provide any other factual information about Ackrell, the Company or any other party to the
Business Combination Agreement. In particular, the representations, warranties, covenants and agreements contained in the Business Combination
Agreement, which were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to
the Business Combination Agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by
confidential disclosures made for the purposes of allocating contractual risk between the parties to the Business Combination Agreement
instead of establishing these matters as facts) and may be subject to standards of materiality applicable to the contracting parties
that differ from those applicable to investors and reports and documents filed with the SEC. Investors should not rely on the representations,
warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of
any party to the Business Combination Agreement. In addition, the representations, warranties, covenants and agreements and other terms
of the Business Combination Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject
matter of the representations and warranties and other terms may change after the date of the Business Combination Agreement, which subsequent
information may or may not be fully reflected in Ackrell’s public disclosures.
Related
Agreements
Amended
Registration Rights Agreement
Contemporaneously
with the execution and delivery of the Business Combination Agreement, Ackrell, certain stockholders of Ackrell (collectively, the “Initial
Investors”), NAI and Dahle entered into an Amended and Restated Registration Rights Agreement (the “Amended Registration
Rights Agreement”). Pursuant to the Amended Registration Rights Agreement, the Initial Investors and the undersigned parties
listed under “Holder” on the signature page thereto will be provided the right to demand registrations, piggy-back registrations
and shelf registrations with respect to Registrable Securities (as defined in the Amended Registration Rights Agreement). The Amended
Registration Rights Agreement would supersede the registration rights agreements between Ackrell and certain of the Initial Investors.
Lock-Up
Agreement
Contemporaneously
with the execution and delivery of the Business Combination Agreement, certain Ackrell stockholders, NAI and Dahle will enter into a
Lock-up Agreement with Ackrell (each, a “Lock-Up Agreement”). Pursuant to the Lock-Up Agreements, each party thereto
will agree to a 180-day lock-up of its Newco Common Stock following Closing, subject to (i) early release upon certain corporate
transactions and (ii) certain limited permitted transfers where the recipient takes the shares subject to the restrictions in Lock-Up
Agreement.
Ackrell
Stockholder Support Agreement
Contemporaneously
with the execution and delivery of the Business Combination Agreement, the Company and certain Ackrell stockholders will enter into Stockholder
Support Agreements (the “Ackrell Stockholder Support Agreements”). Pursuant the Ackrell Stockholder Support Agreements,
the Ackrell stockholders party thereto will agree, among other things, to vote their shares of Ackrell Common Stock in favor of the adoption
an approval of the Business Combination Agreement and the Transactions.
The
foregoing descriptions of the Amended Registration Rights Agreement, Lock-Up Agreement and Ackrell Stockholder Support Agreements do
not purport to be complete and are qualified in their entirety by reference to the complete text of the form of such agreements, copies
of which are filed herewith as Exhibits 10.1, 10.2 and 10.3 to this Current Report on Form 8-K, respectively.
Private
Placement
In
connection with the proposed business combination between Ackrell and the Company, Ackrell and Newco entered into subscription agreements
(the “Subscription Agreements”) with the investors named therein (the “PIPE Investors”), pursuant
to which Newco agreed to issue and sell to the PIPE Investors approximately 3,100,000 units (the “Units”) for a purchase
price of $10.00 per unit, with each Unit consisting of one share of Newco Common Stock and one-half of a warrant to acquire Newco Common
Stock at an exercise price of $11.50 per share and Newco agreed to issue and sell and approximately $111,000,000 principal amount of
Newco convertible notes (the “Convertible Notes”) immediately prior to closing of the Merger (the “PIPE Investment”).
The
PIPE Investment is conditioned on the concurrent closing of the Merger, execution of an indenture (the “Indenture”)
containing the terms of the Convertible Notes, certain minimum cash and liquidity requirements, absence of a material adverse effect
on Ackrell, Newco or the Company, the operation of the Company’s business in the ordinary course between the execution of the Subscription
Agreements until the consummation of the Transaction, certain minimum business performance metrics having been met and other customary
closing conditions. The proceeds from the PIPE Investment will be used to fund a portion of the cash consideration for the Merger. The
Subscription Agreements provide for certain customary registration rights for the PIPE Investors.
As
an inducement to enter into the Subscriptions Agreements, certain Ackrell stockholders, NAI and Dahle (the
“Transferors”) have agreed, pursuant to a Transferor Agreement entered into contemporaneously with the execution
and delivery of the Business Combination Agreement, to effect a transfer of a certain number of shares of Newco Common Stock to
purchasers of Units concurrently with the consummation of the purchase of the Units. The Transferors have agreed that a certain
number of shares of Newco Common Stock will be deposited into an escrow
fund that will be transferred to the purchasers of Units in the event that the trading price of Newco Common Stock (the
“Trading Price”) during the measurement period specified in the Subscription Agreements is less than $10.00 (the
“Make-Whole Payment”). In the event a Make-Whole Payment is required to be made, the number of shares of Newco
Common Stock to be transferred from the escrow fund shall be determined using a formula set forth in the Subscription Agreement;
provided that the amount of shares of Newco Common Stock in the Make-Whole Payment shall be determined based upon a Trading Price
between $5.75 and $10.00 per share, with more shares being transferred from the escrow fund as the Trading Price decreases. If the
Trading Price is greater than $10.00 per share, no Make-Whole Payment shall be required and if the Trading Price is lower than $5.75
per share no additional Make-Whole Payment shall be required to account for the difference between $5.75 per share and the actual
Trading Price. Any shares of Newco Common Stock remaining in the escrow fund following the Make-Whole Payment will be returned to
the Transferors.
The
warrants will be issued pursuant to a warrant agreement to be entered into at the Closing of the Transactions. Each whole warrant will
entitle the registered holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment as set forth
in the warrant agreement, at any time commencing on the issuance of the warrant until its expiration.
The
warrants may be called for redemption by Newco if at any time after their issuance until the expiration of the warrants, if, and only
if, the reported last sale price of the shares of common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock
dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 trading day period and if, and only if, there
is a current registration statement in effect with respect to the shares of Newco Common Stock underlying such warrants.
The
exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances including
in the event of a stock dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. However, except
as described below, the warrants will not be adjusted for issuances of shares of common stock at a price below their respective exercise
prices.
The
Convertible Notes will mature on April 15, 2027 unless earlier repurchased, redeemed or converted in accordance with their terms,
and will accrue interest at a rate of 9.875% per annum payable in a combination of cash and “payments-in-kind”
(“PIK”). Prior to the second anniversary following the closing date of the Convertible Notes offering, 50% of the
interest will be paid in cash with the remaining 50% to be paid in PIK or, at Newco’s option, cash. On and after the second
anniversary of the closing date of the Convertible Notes offering, all interest will be paid in cash. However, if any such amount of
cash interest is not permitted under the terms of Blackstone’s other credit facilities, the amount of permitted interest shall
be paid in cash, and the remaining amount of interest will be paid in PIK. The amount that would otherwise have been paid in cash,
but is paid in PIK will be used to repay Blackstone’s other credit facilities.
The
Convertible Notes may be converted at any time (in whole or in part) into shares of Newco Common Stock, at the option of the holder of
such Convertible Note, at a price equal to the lesser of (i) $11.50 and (ii) 15% premium to the lowest per share price of any equity
issued prior to or substantially simultaneously with the closing of the Merger (subject to customary adjustments).
Newco
will have the option to redeem all or any portion of the Convertible Notes after April 15, 2025 if certain conditions (including that
the Newco Common Stock is trading at or above $18.00 per share for at least 20 out of any 30 day trading period
and the redeemed portion does not exceed a specified level of the Newco Common Stock trading volume over a specified period) are met.
The Convertible Notes also contain default provisions, including provisions for potential acceleration of the Convertible Notes.
Each
holder of a Note will have the right to cause the Newco to repurchase for cash all or a portion of the Notes held by such holder at any
time upon the occurrence of a “fundamental change”, a customary definition provided in the Indenture (a “Fundamental
Change”), at a price equal to par plus accrued and unpaid interest.
In
the event of a conversion in connection with a Fundamental Change, the Conversion Price will be adjusted by a usual and customary Fundamental
Change make-whole amount to be agreed in the Indenture.
The
Indenture will include restrictive covenants that, among other things, will limit the ability of Newco to incur indebtedness above certain
thresholds (subject to certain exceptions to be set forth in the Indenture), create liens, make certain payments or investments, enter
into affiliate transactions, sell certain assets of Newco and its subsidiaries, pay dividends, and complete certain mergers or consolidations.
The
Indenture also will include customary events of default.
Newco
has agreed to file a shelf registration statement registering the resale of the shares of Newco Common Stock contained in the Units and
Make-Whole Payment or issuable upon exercise of the warrants or conversion of the Convertible Notes. In certain circumstances, the subscribers
have piggy-back registration rights in the event that Newco engages in an underwritten offering of Newco Common Stock.
A
copy of the form of Subscription Agreement and Transferor Agreement are filed as Exhibits 10.4 and 10.5 to this Current Report on Form
8-K and are incorporated herein by reference, and the foregoing description of the form of Subscription Agreement and Transferor Agreement
are qualified in their entirety by reference thereto.