Item
1.01. Entry into a Material Definitive Agreement.
On
November 3, 2022, AMMO, Inc. (the “Company”) entered into a Settlement Agreement (the “Settlement
Agreement”) with Steven F. Urvan and Susan T. Lokey (collectively with each of their respective affiliates and associates,
the “Urvan Group”).
Pursuant
to the Settlement Agreement, the Urvan Group has agreed to withdraw its notice of stockholder nomination of its seven director candidates
(the “Urvan Candidates”) and its demand to inspect books and records, pursuant to Section 220 of the General
Corporation Law of the State of Delaware, and the Company agreed to immediately increase the size of the Board from seven to nine directors
and appoint Christos Tsentas and Wayne Walker (each, a “New Director” and the New Directors together with Mr.
Urvan, the “Urvan Group Directors”) to the Board to serve as directors with terms expiring at the 2022 annual
meeting of stockholders (the “2022 Annual Meeting”). The Company will include the Urvan Group Directors in
its director candidates slate for the 2022 Annual Meeting and any subsequent annual meeting of stockholders of the Company occurring
prior to the Termination Date (as defined below). The Company has agreed to not increase the size of the Board above nine directors prior
to the Termination Date unless the increase is approved by at least seven directors. Mr. Wagenhals will continue to serve as a director
and Chairman of the Board.
Under
the terms of the Settlement Agreement, the Board will immediately form a new committee of the Board charged with planning the succession
of Fred Wagenhals as Chief Executive Officer (“CEO”) of the Company with the assistance of a nationally recognized
search firm (the “CEO Succession Committee”). The CEO Succession Committee will consist of four directors.
Concurrently with the New Directors’ appointments to the Board, the Board will appoint Mr. Urvan, one New Director (to
be chosen by the Urvan Group) and two directors who are not Urvan Group Directors or the CEO to the CEO Succession Committee. The
chair of the committee will be a director who is not an Urvan Group Director. Upon the CEO Succession Committee’s selection of
a new CEO candidate, and subject to the Board’s fiduciary duties under applicable law, the Board will promptly appoint the selected
candidate as the new CEO, and one incumbent director who is not an Urvan Group Director will resign from the Board to create a vacancy
for the new CEO’s immediate appointment to the Board upon his or her appointment as the new CEO.
Until
the Termination Date, and subject to applicable law and stock exchange rules, the Board and all applicable committees will take all actions
necessary to promptly appoint each New Director to at least one standing committee of the Board. The Board will, in accordance with its
customary governance processes, give each of the Urvan Group Directors the same due consideration for membership on any committee of
the Board as any other independent director with similar relevant expertise and qualifications.
Until
the Termination Date and as long as Mr. Urvan’s net long position remains at or above 10% of the outstanding shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”) and 11,729,976 shares of Common Stock
(subject to adjustment for stock splits, reclassifications, combinations, and recapitalizations) (the “Ownership Minimum
Requirement”), in the event any Urvan Group Director ceases to be a director or is no longer able to serve as a director
of the Company for any reason, Mr. Urvan shall be entitled to designate a candidate for replacement for such Urvan Group Director (a
“Replacement Director”), subject to the prompt approval of the Board (which approval shall not be unreasonably
withheld). Any Replacement Director must qualify as an “independent director” under applicable rules of the Securities and
Exchange Commission (the “SEC”), the rules of any stock exchange on which the Company is traded and applicable
governance policies of the Company.
Pursuant
to the Settlement Agreement, the Company will suspend the previously announced separation of Company into Action Outdoor Sports, Inc.
and Outdoor Online, Inc., pending the further evaluation of strategic options by the Board.
The
Urvan Group and the Company have agreed to use their reasonable best efforts to work together to terminate contracts, agreements, arrangements,
and shared services between the Company and its subsidiaries, on the one hand, and any entities under the direct or indirect ownership
or control of the Urvan Group or its affiliates, on the other hand, subject to limited exceptions.
The
Settlement Agreement further provides, among other things, that:
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Company
will convene the 2022 Annual Meeting no later than December 15, 2022; |
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the
Urvan Group will be subject to customary standstill restrictions, including, among others, with respect to acquiring beneficial ownership
of more than 18.5% of the shares of Common Stock in the aggregate (subject to adjustment for stock splits, reclassifications, combinations,
and recapitalizations), proxy solicitation and related matters, extraordinary transactions and other changes, each of the foregoing
subject to certain exceptions; |
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Mr.
Urvan will deliver to the Company an executed irrevocable resignation letter, which provides that Mr. Urvan will tender his resignation
as a director if Mr. Urvan’s and his affiliates’ aggregate net long position falls below the Ownership Minimum Requirement; |
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until
the Termination Date, the Urvan Group will vote all shares of Common Stock beneficially owned by it and over which
it has direct or indirect voting power in accordance with the Board’s recommendations with respect to (i) the election, removal
or replacement of directors of the Company and (ii) any other proposal submitted to shareholders; provided, however, that in the
event that Institutional Shareholder Services Inc. (“ISS”) or Glass Lewis & Co., LLC (“Glass
Lewis”) recommends otherwise with respect to any proposals (other than with respect to the election, removal or replacement
of directors), the Urvan Group will be permitted to vote in accordance with the ISS or Glass Lewis recommendation; provided, further,
that the Urvan Group will be permitted to vote in its sole discretion with respect to any extraordinary transaction; |
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the
Company and the Urvan Group will not make any public or private disparaging statements about the other, subject to certain exceptions; |
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during
the term of the Settlement Agreement, the Board or any committee thereof, in the exercise of its fiduciary duties, may recuse Mr.
Urvan from any portion of a Board or committee meeting, and restrict access to information of the Company, to the extent relating
to (i) the exercise of any of the Company’s rights or enforcement of any of the obligations under the Settlement Agreement,
(ii) any action taken in respect of or in response to actions taken or proposed by the Urvan Group or its affiliates, in each case,
with respect to the Company or its affiliates, or (iii) any proposed transaction between the Company or any of its affiliates and
the Urvan Group; |
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in
the event that Mr. Urvan is no longer a director on the Board, and any of the Urvan Group Directors are still serving as directors
on the Board, the Urvan Group Directors will not be permitted to share the Company’s confidential information with Mr. Urvan,
the Urvan Group or its representatives, without the Board’s prior written consent; and |
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the
Company will reimburse the Urvan Group for documented out-of-pocket costs, fees and expenses incurred in connection with its engagement
with the Company, the negotiation and execution of the Settlement Agreement and related matters, in an amount not to exceed $500,000. |
Pursuant
to the Settlement Agreement, Mr. Urvan and Ms. Lokey have delivered letters of resignation from their respective positions of employment
with the Company to be effective the later of (i) the conclusion of the 2022 Annual Meeting and (ii) December 31, 2022. The Company agreed
to disclose in a press release the end of the investigation into Ms. Lokey and Mr. Urvan previously announced on September 6, 2022. Mr.
Urvan will remain on the Board.
Unless
otherwise mutually agreed to in writing by each party, the Settlement Agreement will remain in effect until the date that is the earlier
of (i) 30 days prior to the earlier of (A) the deadline set forth in the notice requirements of Federal “Universal Proxy Rules”
promulgated under Rule 14a-19(a) and Rule 14a-19(b) under the Securities Exchange Act of 1934, as amended (the “UPR Deadline”)
relating to the Company’s 2023 annual meeting of stockholders (the “2023 Annual Meeting”) and (B) any
deadline that may be set forth in the Company’s Amended and Restated Certificate of Incorporation (as amended from time to time,
the “Certificate”) or Bylaws (the “Bylaws”) following the execution of the Settlement
Agreement relating to the nomination of director candidates for election to the Board at the 2023 Annual Meeting, and (ii) 90 days prior
to the first anniversary of the 2022 Annual Meeting (such date, the “Termination Date”). However, if the Company
notifies Mr. Urvan in writing at least 15 days prior to such Termination Date that the Board irrevocably offers to re-nominate the Urvan
Group Directors for election at the 2023 Annual Meeting and Mr. Urvan accepts such offer within 15 days of receipt of such notice, the
Termination Date will be automatically extended until the earlier of (i) 30 days prior to the earlier of (A) the UPR Deadline relating
to the Company’s 2024 annual meeting of stockholders (the “2024 Annual Meeting”) and (B) any deadline
that may be set forth in the Certificate or the Bylaws following execution of the Settlement Agreement relating to the nomination of
director candidates for election to the Board at the 2024 Annual Meeting, and (ii) 90 days prior to the first anniversary of the 2023
Annual Meeting. Notwithstanding the foregoing, the “Termination Date” shall not occur prior to 20 days after Mr. Urvan’s
departure from the Board.
The
foregoing summary of the Settlement Agreement does not purport to be complete and is subject to, and qualified in its entirety, by reference
to the full text of the Settlement Agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.