Business Context and Reporting Period
Company: Novume Solutions, Inc. (Note: Request metadata listed "Rekor Systems, Inc.", but the filing text identifies the registrant as Novume Solutions, Inc.)
Filing Type: Form 8-K (Current Report)
Date: September 21, 2017
Event: Entry into a Material Definitive Agreement (Merger Agreement) to acquire Global Technical Services, Inc. ("GTS") and Global Contract Professionals, Inc. ("GCP") via reverse triangular mergers.
Key Financial Metrics and Transaction Value
Total Transaction Value: $3.75 million
Consideration Structure:
- Cash: $750,000 paid to the Stockholder.
- Common Stock: 300,000 shares of Novume Common Stock issued to the Stockholder.
- Preferred Stock: 180,000 shares of Novume Series B Cumulative Convertible Preferred Stock issued to the Stockholder.
- Contingent Preferred Stock: Additional Series B shares issued to ensure the total value of the stock consideration equals $1,200,000 (based on a $10.00 original issue price), subject to a 5-day VWAP adjustment.
- Debt Cancellation Consideration: 75,000 shares of Novume Common Stock issued to G&W Ventures, Inc. for the cancellation of a Promissory Note.
Debt Treatment: Novume intends to pay off all outstanding debt of GTS and GCP at closing, except for existing Wells Fargo Credit Facilities which will remain in effect.
Material Changes and Transaction Mechanics
The filing reports the execution of a Merger Agreement on September 21, 2017. The transaction involves two reverse triangular mergers where Novume subsidiaries merge into GTS and GCP, with GTS and GCP surviving as wholly-owned subsidiaries of Novume. No vote by Novume stockholders is required to consummate the Mergers. The transaction is expected to close on or about October 1, 2017, subject to customary closing conditions including regulatory approvals and the absence of a material adverse effect.
Guidance, Outlook, and New Securities Terms
Outlook: Closing is targeted for October 1, 2017. The transaction is subject to termination if closing conditions are not met by this date or if a Superior Proposal is received.
New Series B Preferred Stock Terms:
- Dividends: Entitled to quarterly dividends at a rate determined at closing.
- Conversion: Convertible into Common Stock at a price of $5.00 per share (plus accrued dividends). Automatic conversion triggers if the 20-day VWAP of Common Stock exceeds $7.50 for 30 consecutive trading days.
- Liquidation Preference: $10.00 per share plus accrued dividends.
- Voting Rights: Limited voting rights, including veto power over amendments adversely affecting the stock, dividends on junior stock, and certain mergers until November 8, 2018.
Risks and Contingencies: The transaction is contingent on regulatory approvals, third-party consents, and the accuracy of representations. The Stockholder has agreed to indemnify Novume for breaches of representations, working capital deficiencies, and certain tax liabilities.
Investor Verification Checklist
- Verify the closing date and whether the October 1, 2017 target was met.
- Confirm the final valuation of the contingent Series B Preferred Stock based on the 5-day VWAP at closing.
- Review the specific terms of the Wells Fargo Credit Facilities that remain in effect post-merger.
- Check for any subsequent filings regarding the issuance of the Series B Preferred Stock or the Certificate of Designations.
- Monitor for any termination of the Merger Agreement due to failure of closing conditions or Superior Proposals.