Item 2.01. Completion
of Acquisition or Disposition of Assets.
On June 3, 2021 (the “Closing Date”),
COMSovereign Holding Corp. (“we,” “us,” or “our company”) completed the
acquisition (the “Acquisition”) of Innovation Digital, LLC, a California
limited liability company (“Innovation Digital”), pursuant to an Agreement and Plan of Merger and Reorganization
dated as of June 3, 2021 (the “Merger Agreement”) among our company and our wholly-owned subsidiary, CHC Merger Sub
V, LLC, Innovation Digital and Dr. Scott R. Velazquez (“Velazquez”).
In accordance
with the terms of the Merger Agreement, on the Closing Date, we acquired all of the issued and outstanding membership units of Innovation
Digital in exchange for (i) $1,000,000 in cash, (ii) 3,165,322 shares of our common stock,
par value $0.0001 per share, and (iii) a convertible promissory note in the principal amount of $600,000 (the “Convertible Note”).
The value of the shares of our common stock issued at closing, which for purposes of the Merger Agreement has been determined to be $2.35
per share, will be the maximum amount available for satisfying any post-closing indemnification claims of Velazquez, as the former sole
member of Innovation Digital, under the Merger Agreement, which amount can be paid at the election of Velazquez in cash, as an offset
against the Convertible Note or in shares of our common stock as so valued. We have agreed to file a registration statement under the
Securities Act of 1933, as amended (the “Securities Act”), to register the resale of the shares of common stock issued
at closing within 90 days of the Closing Date.
The
Convertible Note bears interest at the rate of 5% per annum, matures on June 3, 2022 and is convertible into shares of our common
stock commencing on December 3, 2021 at an initial conversion price of $2.35 per share; provided, however, that on the maturity
date, the holder may (i) demand payment of the entire outstanding principal balance and all unpaid accrued interest under
Convertible Note or (ii) continue to hold the Convertible Note, in which case the Convertible Note shall thereafter accrue interest
at the rate of 10% per annum, compounded annually, until such time as (x) the holder makes a demand of payment and the Convertible
Note is repaid in full; or (y) the Convertible Note is converted in full. If the Note is
converted into shares of our common stock after the maturity date of the Note, the conversion price will be the closing price of our
common stock on the date the conversion notice is provided to us. Notwithstanding the foregoing, we have the right to prepay the
Convertible Note at any time on and after December 3, 2021 and prior to the maturity date without notice and on 15 days prior notice
on or after the maturity date.
Innovation
Digital is a premier developer of "beyond state-of-the-art" mixed analog/digital signal processing solutions, intellectual
property (IP) licensing, design and consulting services. Its signal processing techniques and intellectual property have significantly
enhanced the bandwidth and accuracy of radio frequency (RF) transceiver systems and have provided enabling technologies in the fields
of communications and RADAR systems, signals intelligence (SIGINT) and electronic warfare (EW), test and measurement systems, and semiconductor
devices. Its customers include many large U.S. defense contractors, such as General Dynamics, Raytheon, L3Harris and various U.S. Department
of Defense agencies, including The Naval Surface Warfare Center, the Missile Defense Agency, the Air Force Research Laboratory and the
Defense Advanced Research Projects Agency (DARPA). We believe Innovation Digital’s
valuable intellectual property and expertise will further advance the performance capabilities of our company's entire range of next-gen
radio products, and that it will enable our radios to set a new standard for throughput and efficiency.
In
connection with the closing of the Acquisition, on the Closing Date, we entered into an employment agreement
with Dr. Velazquez, Innovation Digital’s chief executive officer, to serve as our
Chief Research Officer. Pursuant to such employment agreement, we will pay Dr. Velazquez a base salary in the amount of $300,000. In
addition, Dr. Velazquez is also eligible to receive an employee incentive stock option grant each year during the term, as determined by
the Compensation Committee of our board of directors, with a strike price equal to that of the other corporate officers and
directors under that current year’s approved option grants. Dr. Velazquez will be entitled to severance in the event we
terminate his employment without Cause (as defined in the employment agreement) or he resigns from his employment for Good Reason
(as defined in the employment agreement). The severance amount for Dr. Velazquez would be (i) his pro rata base salary through the
date of termination, (ii) a severance amount equal to six months’ salary if such termination is effected within the first year
and (iii) a severance amount equal to 12 months’ salary if such termination occurs thereafter.
The information provided under this Item 2.01 is
a summary of certain portions of the Merger Agreement, the Convertible Note and the employment agreement of Dr. Velazquez and does not
purport to be a complete description and is subject to, and qualified in its entirety by, the text of the Merger Agreement, the Convertible
Note and the employment agreement of Dr. Velazquez, copies of which are attached as Exhibits 10.1, 10.2 and 10.3 to this Current Report
on Form 8-K and are incorporated by reference thereto.
