DEF 14A of Red Cat Holdings, Inc.
Filed Aug 28, 2024 · FY20240001493152-24-034213
PROPOSAL ONE: ELECTION OF DIRECTORS
PROPOSAL ONE: ELECTION OF DIRECTORS At the recommendation of our Nominating and Governance Committee, our Board of Directors proposes that each of the five nominees named below be elected as a director to serve until our next annual meeting of stockholders or until such director’s successor is duly elected and qualified or until such director’s earlier death, resignation, disqualification or removal. Each of the nominees is a current director and all have consented to serving as a nominee, being named in this Proxy Statement, and serving on the Board if elected. Each director elected at the Annual Meeting will be elected to serve a one-year term. If any nominee becomes unavailable or unable to serve before the Annual Meeting, the Board of Directors may determine to leave the position vacant, reduce the number of authorized directors or designate a substitute nominee. If a substitute nominee is named, then the persons named as proxies will have full discretion and authority to vote or refrain from voting for such substitute nominee in their discretion. There are no family relationships between any nominees and executive officers of Red Cat, and there are no arrangements or understandings between any nominee and any other person pursuant to which such nominee was or is selected as a director or nominee.
NOMINEES TO OUR BOARD OF DIRECTORS
NOMINEES TO OUR BOARD OF DIRECTORS The nominees, their ages as of August 1, 2024, and biographical information are set forth below: Jeffrey M. Thompson, Director, President and Chief Executive Officer, Age 60 Jeffrey Thompson has been President and Chief Executive Officer of the Company since May 15, 2019. Mr. Thompson has served as a director of Unusual Machines, Inc. (NYSE American:UMAC) since the company was incorporated in July 2019. In December 1999, Mr. Thompson founded Towerstream Corporation (Nasdaq:TWER), a fixed-wireless fiber alternative company delivering high-speed internet access to businesses, and served as its president, chief executive officer and a director from November 2005 to February 2016. In 1994, Mr. Thompson founded EdgeNet Inc., a privately held Internet service provider (which was sold to Citadel Broadcasting Corporation in 1997) and became eFortress in 1999. Mr. Thompson holds a B.S. degree from the University of Massachusetts. Mr. Thompson’s management and public company experience and his role as President and Chief Executive Officer of the Company, led to his appointment as a director. Joseph Freedman, Director, Age 58 Joe Freedman is an entrepreneur with experience in launching, growing, and successfully exiting businesses in executive search, title insurance, legal services, and hospitality. His entrepreneurial journey includes turnarounds, mergers & acquisitions, as well as winding down and liquidating the assets of an unprofitable business. Prior to selling three businesses to NYSE-listed, private equity, and privately held companies, he successfully built them into industry market leaders. Five companies led by Mr. Freedman were listed on the Inc. 500/5000 a total of 15 times, with one ranking in the top 100. In 2006, Mr. Freedman co-founded Peachtree Tents & Events Holdings, LLC, where he served as chief executive officer until 2021 and currently serves on the board. Previously, he co-founded and served as chief executive officer of RFx Legal, LLC, Richmond Title, LLC, and AMICUS Legal Staffing, Inc. until their acquisitions. In addition to his entrepreneurial pursuits, Mr. Freedman actively participates in various civic boards, including the Entrepreneurs’ Organization (Nashville Chapter), where he has held multiple board positions, including that of president. Currently, he holds the position of Governance Chair. In 2022, Mr. Freedman established the nonprofit organization, Drones For Good Worldwide, driven by his passion for making a positive impact. The organization focuses on providing drones to support humanitarian efforts during disasters worldwide. Mr. Freedman holds a B.S. degree in Finance from Louisiana State University and a Juris Doctorate from Northwestern California University School of Law. His experience in recruiting, business, and finance has provided the foundation for his appointment to the Board of the Company. Nicholas Liuzza Jr., Director, Age 58 Nicholas Liuzza Jr. has been a director of the Company since June 1, 2019. Mr. Liuzza co-founded Beeline Loans, a Digital Mortgage Lender in 2019. Previously, Mr Liuzza founded Linear Title & Closing, Ltd, a highly automated, and one of the largest, private national title agencies in the U.S. in 2005. In 2012, he founded Nexgen Mortgage Services. Both companies merged with Real Matters and went public on the Toronto Stock Exchange (TSX) in 2018 at a $1 billion valuation. Nick served as Executive Vice President of Real Matters, Inc. and exited in 2020 to work for Beeline Loans. Mr. Liuzza founded New Age Nurses, a healthcare staffing company which he grew into a national provider of healthcare personnel services which became the platform for a reverse merger which listed on the OTC upon its acquisition in 2003 by Crdentia. Prior thereto, Mr. Liuzza was Executive Vice President of AMICUS Legal Staffing, a national staffing services provider with a specialization in real estate transactions. Mr. Liuzza started his career with Xerox Corporation in 1988. Mr. Liuzza’s more than 20 years of experience as an entrepreneur in the software industry and his sales and software development experience led to his appointment as a director. Christopher R. Moe, Director, Age 68 Christopher R. Moe serves as the Chief Financial Officer and Director of Yates Electrospace Corporation, a heavy payload autonomous cargo delivery drone developer and producer. Earlier he was the Chairman, Chief Executive Officer and co-Founder of ProBrass Inc., a rifle brass cartridge case manufacturing company. Previously he was the Chief Financial Officer of Vectrix Holdings Limited, a subsidiary of GP Industries Ltd (G20:SGX), an international developer and manufacturer of electric motorcycles and Chief Financial Officer and Director of Mission Motor Company, a company focused on advanced EV and hybrid powertrains for automobile and power sports applications. Earlier he served as the Chief Financial Officer & Director of Vectrix Corporation (LSE:VRX), Managing Director of GH Ventures, Managing Director of Kirkland Investment Corporation, Chief Executive Officer of St. Louis Ship Industries, Vice President of Wasserstein, Perella & Co.’s merchant banking fund and Vice President/Area Head with Citicorp’s Leveraged Capital Group. He served as a Captain of United States Marines and deployed with artillery and infantry units twice to the Western Pacific and Indian Ocean. He is the Treasurer of The Pennfield School and the former Treasurer of the Zabriskie Memorial Church of Saint John the Evangelist. He holds a BA degree in English from Brown University and an MBA from the Harvard Business School. Mr. Moe’s experience in operational finance, and with venture capital, private equity, M&A, and corporate finance transactions, both as agent and principal, with a focus on transportation, provide the basis upon which the Company appointed him to the Board. General (R) Paul E. Funk II, Director, Age 61
NOMINEES TO OUR BOARD OF DIRECTORS
General Funk served as an officer in the United States Army for forty-two years, where he served in various command and staff positions, to include command at every level, Company through Corps, including four Joint and Multi-National Commands and six combat deployments. General Funk has had four decades of experience in training management, including scheduling, resourcing, coordinating, and equipping at all echelons of the Army. From June 2019 to November of 2022, General Funk served as Commander of the United States Army Training and Doctrine Command. In that position, he led the people component of the United States Army, guiding the development of citizens into professional soldiers and leaders. He was responsible for a budget in excess of $4 billion and approximately 60,000 personnel including 1,200 ROTC and 1,800 JROTC programs. In addition, he served as Chancellor of Army University, which consists of 32 Army schools organized under 10 Centers of Excellence that recruit, train, and educate more than 900,000 soldiers and service members annually. He was also the Leader of CAC-T (Combined Arms Center – Training) which covers the Mission Command Training Program, the National Simulation Center, and Combat Training Centers. From March of 2017 to June of 2019, General Funk was a Commander of III Corps and Fort Hood, and Operation Inherent Resolve. In that position, commanded four combat divisions, a sustainment command, a cavalry regiment, a fires brigade, and multiple enabler units that equate to almost 100,000 Soldiers on five installations. General Funk deployed and led a coalition comprising over 72 nations in the fight against ISIS in Iraq and Syria for thirteen months. For his service in Operation Inherent Resolve, he was awarded the Defense Distinguished Service Medal – the United States’ 4th highest honor – for outstanding leadership in combat. From September 2015 to December 2017, General Funk served as Assistant Deputy Chief of Staff for the United States Army, where he was responsible for current and future operations, planning and training for the entire Army, including integration of policy, doctrine, and training. General Funk currently serves as President of the Advisory Board of Katie’s Way Mental Health and as an Advisor to the Chairman of Tokyo Electron Ltd., USA. General Funk also currently serves as a member of the Boards of Advisors for ColdQuanta, Inc., DBA Infleqtion (a multi-platform quantum technology company), First Tee (a non-profit youth development organization), and Rheinmetall (a leading international systems supplier in the defense industry). General Funk earned a B.A. in Communications and Public Information from Montana State University and an M.S. in administration from Central Michigan University, and he completed a Senior Service College Fellowship at the University of Texas at Austin, Institute for Advanced Technologies. General Funk’s distinguished career as an Army commander, including his extensive experience in leading significant military operations and personnel organizations, as well as his experience in managing large military budgets, provide the basis upon which the Company appointed him to the Board.
Director Compensation Table
Director Compensation Table The following table presents the total compensation for each person who served as a non-employee director during Fiscal 2024. Mr. Thompson is not included in the table below, as he is employed as our Chief Executive Officer and receives no compensation for his service as director. The compensation received by Mr. Thompson as an employee is included in the “Executive Compensation—Summary Compensation Table.”
Director Compensation Table
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Options Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | Total ($) | | Joseph Freedman | $123,332 | $80,967 | — | — | — | $204,299 | | Nicholas Liuzza | $50,417 | $72,042 | — | — | — | $122,459 | | General (R) Paul E. Funk II (3) | $2,500 | $— | — | — | — | $2,500 | | Christopher Moe | $109,587 | $80,967 | — | — | — | $190,554 | | Mary Beth Long (4) | $12,446 | $23,549 | — | — | — | $35,995 |
Director Compensation Table
| (1) We value stock awards based on their fair value on the date that awards vest. Fair value is calculated by multiplying the number of awards vesting times the Company’s closing stock price on the date of vesting. | | (2) We value option awards in accordance with Accounting Standards Codification Topic 718, Compensation - Stock Compensation. Fair value is determined based on the Black-Scholes Model using inputs reflecting our estimates of expected volatility, term, discount rates and dividend expectations. Compensation expense is recognized based on the vesting terms of the award. See “Share Based Awards” in Note 19 of the Company’s consolidated financial statements included in our 2024 Annual Report on Form 10-K filed with the SEC on August 8, 2024. As of April 30, 2024, outstanding options held by directors were as follows: Mr. Freedman – 100,000 options fully vested, awarded in connection with prior board service and 150,000 options fully vested, awarded in connection with prior consulting services; Mr. Liuzza – 100,000 options fully vested, awarded in connection with prior board service. | | (3) General Funk was appointed on March 12, 2024. | | (4) Ms. Long was appointed on November 14, 2022 and resigned July 25, 2023. |
Non-Employee Director Compensation Arrangements
Non-Employee Director Compensation Arrangements In April 2022, the Board of Directors established a formal compensation plan for Non-Employee Directors. In May 2023, the Board of Directors updated the compensation plan such that Non-Employee Directors shall receive annual compensation of $105,000 consisting of:
Non-Employee Director Compensation Arrangements
| ● | $45,000 in cash compensation, payable in monthly installments beginning May 2023; and | | ● | $60,000 in equity compensation, payable in the form of shares of restricted common stock, which for fiscal 2024 was awarded on May 16, 2023, with 25% of the shares vesting on each of the following dates: (i) May 16, 2023, (ii) November 16, 2023, (iii) February 16, 2023, and (iv) May 16, 2024. |
Non-Employee Director Compensation Arrangements
In addition, the Chairman of each Committee of the Board shall receive additional annual cash compensation, payable in monthly installments, as follows:
Non-Employee Director Compensation Arrangements
| ● | $20,000 - Audit Committee | | ● | $10,000 - Compensation Committee | | ● | $10,000 - Nominating and Governance Committee |
Non-Employee Director Compensation Arrangements
In addition, the Lead Director of the Board shall receive additional annual cash compensation of $25,000, payable in monthly installments. Total compensation to each Non-Employee Director for the fiscal year ended April 30, 2024 was as follows:
Non-Employee Director Compensation Arrangements
| ● | $204,299 to Joseph Freedman, consisting of $45,000 for board service, $50,000 for service on the Special committee, $25,000 as Lead Director, $10,000 as Chairman of the Nominating and Governance Committee, and $80,967 representing the fair value of the 98,812 shares which vested in the fiscal year ended April 30, 2024. | | ● | $122,459 to Nicholas Liuzza, consisting of $45,000 for board service, $10,000 as Chairman of the Compensation Committee, and $70,042 representing the fair value of the 86,160 shares which vested in the fiscal year ended April 30, 2024. | | ● | $2,500 to General (R) Paul E. Funk II, consisting of $2,500 for board service. | | ● | $190,554 to Christopher Moe consisting of $45,000 for board service, $50,000 for service on the Special Committee, $20,000 as Chairman of the Audit Committee and $80,967 representing the fair value of the 98,812 shares which vested in the fiscal year ended April 30, 2024. | | ● | $35,995 to Mary Beth Long, consisting of $12,446 for board service and $23,549 representing the fair value of the 24,307 shares which vested in the fiscal year ended April 30, 2024. |
Potential Payments and Benefits Upon Termination or a Change in Control
Potential Payments and Benefits Upon Termination or a Change in Control Our named executive officers are entitled to certain benefits in the event their employment is terminated without cause by the Company or for good reason by the Executive, as described in the Employment Agreements. The following table describes the potential payments and benefits to each of our named executive officers, as if these obligations were payable on April 30, 2024. The actual amounts payable to each executive listed below upon termination can only be determined definitively at the time of each executive’s actual departure. In addition to the amounts shown in the table below, each executive would receive payments for amounts of base salary through the date of termination and payment for any reimbursable business expenses incurred. In the event of a named executive officer’s death, the named executive officer’s beneficiary, legal representative or estate would receive the named executive officer’s potential payments. Executive employment agreements for Mr. Matus and Ms. Lunger were not finalized as of April 30, 2024 so no termination benefits would have been payable at that time.
Potential Payments and Benefits Upon Termination or a Change in Control
| Potential Payments and Benefits | Jeffrey Thompson | Allan Evans | Joseph Hernon | George Matus | Leah Lunger | | Base Salary (1) | $600,000 | — | $38,333 | — | — | | Healthcare Benefits (2) | $34,633 | — | — | — | — | | Equity Awards Vesting on Termination (3) | $587,500 | $411,250 | $124,112 | — | — | | Total | $1,222,133 | $411,250 | $162,446 | — | — |
Potential Payments and Benefits Upon Termination or a Change in Control
| (1) Represents the named executive officer’s base salary payable over twenty-four (24) months for Mr. Thompson and actual remaining salary amounts to be paid to Mr. Evans and Mr. Hernon as of April 30, 2024. |
Potential Payments and Benefits Upon Termination or a Change in Control
| (2) Represents the cost of continued healthcare coverage for 18 months for Thompson. This value is based upon the type of health insurance coverage and premiums in effect on April 30, 2024. |
Potential Payments and Benefits Upon Termination or a Change in Control
| (3) Represents the value attributable to the accelerated vesting or continued vesting of unvested shares of restricted stock and stock options. The value of options is determined by multiplying the number of options by the difference between the closing price of our common stock and the exercise price of the options. The value of stock is determined by multiplying the number of shares by the closing price of our common stock on April 30, 2024 which was $1.53. |
Summary Compensation Table
Summary Compensation Table
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($)(5) | Stock Awards ($) (6) | Option Awards ($) | All Other Compensation ($) (7) | Total ($) | | Jeffrey Thompson | 2024 | $300,000 | $155,600 | $— | $1,323,750 | $11,147 | $1,790,497 | | Chief Executive Officer and President | 2023 | $300,000 | $165,345 | $347,582 | $— | $13,425 | $826,352 | | Joseph Hernon (1) | 2024 | $230,000 | $— | $112,494 | $290,719 | $5,974 | $639,187 | | Former Chief Financial Officer | 2023 | $230,000 | $126,304 | $451,988 | $— | $11,226 | $819,518 | | Allan Evans (2) | 2024 | $135,038 | $600 | $— | $888,125 | $3,935 | $1,027,698 | | Chief Operating Officer | 2023 | $230,000 | $126,904 | $651,872 | $— | $4,266 | $1,013,042 | | Leah Lunger (3) | 2024 | $188,750 | $— | $— | $— | $17,600 | $206,350 | | Chief Financial Officer | 2023 | $121,661 | $— | $— | $132,569 | $14,659 | $268,889 | | George Matus (4) | 2024 | $183,333 | $— | $88,553 | $— | $12,646 | $284,532 | | Chief Technology Officer | 2023 | $150,000 | $— | $302,500 | $22,103 | $3,904 | $478,507 |
Summary Compensation Table
| (1) Joseph Hernon joined the Company in January 2020 and resigned his position as Chief Financial Officer in March 2024, as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2024. |
Summary Compensation Table
| (2) Allan Evans joined the Company in November 2020 and resigned his position as Chief Operating Officer in November 2023, as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on November 29, 2023. |
Summary Compensation Table
| (3) Leah Lunger joined the Company in November 2020 and became Chief Financial Officer in March 2024. |
Summary Compensation Table
| (4) George Matus joined the Company in August 2021 and became Chief Technology Officer in December 2023. | | (5) Fiscal 2024 bonuses were paid in cash and were earned upon the completion of the sale of the consumer segment. The amounts of such bonuses were determined by the Board based on specific criteria established in connection with the closing of the sale of the consumer segment. Fiscal 2023 bonuses were paid in cash and were based on the achievement of certain performance metrics by the Company related to revenue and expenses. | | (6) Amounts reported represent the aggregate grant date fair value for restricted stock granted in each respective year in accordance with FASB ASC Topic 718, excluding the effect of forfeitures. For more information regarding the Company’s accounting for share-based compensation, see “Share Based Awards” in Note 19 of the Company’s consolidated financial statements included in our 2024 Annual Report on Form 10-K filed with the SEC on August 8, 2024, and Note 17 of the Company’s consolidated financial statement included in our 2023 Annual Report on Form 10-K filed with the SEC on July 27, 2023, each of which are incorporated by reference herein. | | (7) Represents health insurance premiums paid by Company. |
Outstanding Equity Awards at Fiscal Year End
Outstanding Equity Awards at Fiscal Year End The table below summarizes outstanding equity awards held by our Named Executive Officers at April 30, 2024. All of the below awards were issued under the Equity Incentive Plan.
Outstanding Equity Awards at Fiscal Year End
| | OPTION AWARDS | | | | | STOCK AWARDS | | | | | Name | Number of Securities Underlying Unexercised Options(#) Exercisable | Number of Securities Underlying Unexercised Options(#) Unexercisable | Equity incentive plan awards: number of securities underlying unexercised unearned options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | | Jeffrey Thompson | — | 1,250,000 | — | $1.06 | 05/15/2033 | — | — | — | — | | | 500,000 | — | — | $3.95 | 03/31/2031 | — | — | — | — | | Leah Lunger | 25,000 | — | — | $0.89 | 04/29/2033 | — | — | — | — | | | 35,417 | 49,583 | — | $1.27 | 02/08/2033 | — | — | — | — | | | 45,833 | 4,167 | | $2.60 | 06/07/2031 | — | — | — | — | | George Matus (1) | 25,000 | — | — | $0.89 | 04/29/2033 | — | — | — | — | | | — | — | — | — | — | — | — | 50,000 | $76,500 | | Joseph Hernon (2) | 195,201 | 65,067 | — | $1.12 | 07/24/2034 | — | — | 3,683 | $5,635 | | | 1,000,000 | — | — | $0.82 | 01/23/2030 | — | — | — | — | | | — | — | — | — | — | — | — | 60,000 | $91,800 | | Allan Evans | — | 875,000 | — | $1.06 | 05/15/2033 | — | — | — | — |
Outstanding Equity Awards at Fiscal Year End
| (1) Remaining RSU vesting will occur as follows: 25,000 RSUs each on 6/1/2024 and 9/1/2024. | | (2) Remaining RSU vesting will occur as follows: 3,683 RSUs on 6/30/2024, and 30,000 RSUs each on 5/1/2024 and 8/1/2024. |
Pay Versus Performance
Pay Versus Performance
Valuation Methods
| Fiscal Year | Summary Compensation Table Total for PEO (a) | Compensation Actually Paid for PEO | Average Summary Compensation Table Total for Non-PEO NEOs (b) | Average Compensation Actually Paid to Non-PEO NEOs | Value of $100 investment in Company based on: Total Shareholder Return | Net Loss | | 2024 | $1,790,497 | $2,337,134 | $2,157,766 | $2,104,712 | $38 | $24,052,629 | | 2023 | $826,352 | $826,352 | $916,280 | $296,903 | $22 | $27,087,737 | | 2022 | $408,933 | $408,933 | $851,105 | $(82,983) | $50 | $11,689,127 |