COMMUNICATIONS SYSTEMS INC : Entry into a Material Definitive Agreement, Termination of a Material Definitive Agreement, Other Events, Financial Statements and Exhibits (form 8-K)

Item 1.01 Entry into Definitive Material Agreement

On September 15, 2021, Communications Systems, Inc. ("CSI" or the "Company") entered into an amended and restated securities purchase agreement with a group of institutional investors (the "PIPE Investors") to make a $32.0 million private placement investment ("PIPE Offering") in CSI in connection with the closing of the previously announced merger between CSI and Pineapple Energy, LLC ("Pineapple"). Proceeds of this investment will be used primarily to fund Pineapple strategic initiatives following consummation of the merger. The closing of the PIPE Offering is subject to approval of CSI's shareholders. This amended and restated securities purchase agreement replaces a $25.0 million original securities purchase agreement dated June 28, 2021.

CSI and one of the original PIPE Investors, CrowdOut Capital LLC ("CrowdOut"), had agreed that CrowdOut would purchase $9.0 million of the original $25.0 million of Series A Convertible Preferred Stock, and also entered into a non-binding letter of intent for a $20.0 million term loan (the "Debt Transaction") from CrowdOut to the Company to assist the combined CSI-Pineapple company fund the acquisitions of Hawaii Energy Connection ("HEC") and E-GEAR, which are expected to close concurrently with the CSI-Pineapple merger. CrowdOut's obligation to consummate the transactions in the PIPE Offering was expressly conditioned on CrowdOut closing and funding the Debt Transaction pursuant to fully executed credit documents that were mutually acceptable to CSI and CrowdOut. On September 14, 2021, CSI and CrowdOut terminated all agreements for CrowdOut to provide debt financing and participate in the PIPE offering. The amended and restated securities purchase agreement replaces CrowdOut with new investors and has increased to $32.0 million.

Under the terms of the amended and restated securities purchase agreement and the PIPE Offering, the PIPE Investors have agreed to purchase $32.0 million in newly authorized CSI Series A Convertible Preferred Stock convertible at a price of $3.40 per share into CSI common stock, with five-year warrants to purchase an additional $32.0 million of common shares at that same price. The PIPE Offering is expected to close immediately following the consummation of the CSI-Pineapple merger. Therefore, the PIPE Investors will invest in the post-merger company, will not be entitled to receive any cash dividends paid prior to closing and will not receive the Contingent Value Rights ("CVRs") to be issued to pre-merger CSI shareholders in the CSI-Pineapple merger transaction.

The Series A Convertible Preferred Stock will have no liquidation or dividend preference over CSI common stock and no voting rights until after converted into CSI common stock. Assuming conversion of the Series A Convertible Preferred Stock, the PIPE Investors would own approximately 9.41 million shares of the Company's outstanding common stock immediately following the closing of the PIPE Offering, representing approximately 27% of CSI's outstanding Common Stock after giving effect to the issuance of shares in the merger, and approximately 18.82 million shares assuming exercise of all the warrants for cash, representing approximately 43% of CSI's outstanding Common Stock after giving effect to the issuance of shares in the merger and exercise of the warrants.

                                        2

The Series A Convertible Preferred Stock and warrants will have anti-dilution provisions that would increase the number of shares issuable upon conversion or exercise, and lower the conversion or exercise price, if CSI issues equity securities at a price less than the conversion or exercise price at the time of such issuance. The amended and restated securities purchase agreement also prohibits the combined company from conducting a new equity offering within 45 days of the closing, gives the PIPE Investors in the aggregate the right to purchase up to 25% of the equity securities in future CSI-Pineapple offerings within one year of closing of the amended and restated securities purchase agreement and requires 30-day lock-up agreements of CSI common stock by certain CSI-Pineapple officers, directors and major shareholders following the closing. In connection with the transaction, CSI has agreed to file a registration statement on behalf of the PIPE Investors allowing them to resell the common stock into which the Series A Convertible Preferred Stock is convertible and the warrants are exercisable immediately after issuance. Closing is subject to the effectiveness of this registration statement, consummation of the CSI-Pineapple merger and other customary closing conditions.

The foregoing descriptions of the (i) amended and restated securities purchase agreement, (ii) the CSI Series A Convertible Preferred Stock, (iii) the warrant, and (iv) the amended and restated registration rights agreement, do not purport to be complete and are qualified in their entirety to the full extent of these agreements, which are filed as Exhibits 10.1, 4.1, 4.2, and 4.3 to this Current Report on Form 8-K and are incorporated herein by reference.

The amended and restated securities purchase agreement provides that the agreement may be terminated by any PIPE Investor with respect to that PIPE Investor's obligation if the PIPE Offering has not closed by March 31, 2022.

Item 1.02. Termination of a Definitive Material Agreement

See Item 1.01 for a description of the termination of the securities purchase agreement dated June 28, 2021 between CSI and CrowdOut and other agreements between the two parties.

Significance of the PIPE Offering for the CSI- Pineapple Merger

On March 1, 2021, CSI, which has operated as an IoT intelligent edge products and services company, entered into a definitive merger agreement with privately held Pineapple, a growing U.S. operator and consolidator of residential solar, battery storage, and grid services solutions. A meeting of the Company's shareholders to approve the Merger agreement. During the same meeting, CSI will also be requesting shareholder approval of the issuance of the Series A Convertible Preferred Stock and warrants. If the Merger is approved by CSI shareholders, upon closing, CSI will commence doing business as Pineapple Energy, with a business model focused on the rapidly growing home solar industry.

Summary of CSI Shares to be Outstanding after CSI-Pineapple Merger and PIPE Offering

As September 15, 2021, CSI has approximately 9.7 million shares outstanding. CSI will initially issue 15.6 million shares in the CSI-Pineapple Merger and may issue up to an additional 3.0 million shares to the Pineapple shareholders if specific post-Merger milestones are achieved in accordance with the Merger agreement. As noted above, immediately after the closing of CSI-Pineapple merger and PIPE Offering, the PIPE Investors would own Series A Convertible Preferred Stock immediately convertible into 9.41 million shares of Company common stock, representing approximately 27% of CSI's outstanding common stock after giving effect to the issuance of shares in the Merger, and also own warrants immediately exercisable for an additional 9.41 million shares of Company common stock, representing approximately 43% of CSI's outstanding common stock after giving effect to the issuance of shares in the Merger and exercise of the warrants. In both cases, the PIPE Investors' percentages set forth above do not reflect any not shares that may be issued to Pineapple shareholders pursuant to the earnout provision of the Merger agreement.

                                        3

The following chart summarizes the treatment of the different shareholders of CSI.

Type of Share Purchase Price Right to Receive Dividends Shares of the

 Shareholder                           and CVR relating to     combined company held
                                         Pre-Merger CSI        immediately after the
                                                               merger with Pineapple
CSI           Various, based on    Dividends will consist of   9,717,813 shares
Shareholders  purchases in the     the $3.50 per share to be   outstanding as
immediately   public market on the paid on October 15, 2021 to September 15, 2021,
prior to the  Nasdaq Capital       shareholders of record as   Existing CSI
CSI-Pineapple Market.              of September 30, 2021. In   shareholders will
Merger                             addition, these             continue to hold the
                                   shareholders will receive   same numbers of
                                   any cash generated on the   shares in the
                                   sale of CSI's Services &    CSI-Pineapple
                                   Support segment, real       post-Merger company
                                   estate holdings,
                                   investments, and remaining
                                   cash - either through a
                                   cash dividend or through
                                   distributions pursuant to
                                   the CVR
PIPE          $32.0 million in     No rights to pre-Merger     9.41 million shares
Investors     newly authorized CSI dividends or distributions  of outstanding common
              Series A Convertible under CVR relating to CSI   stock upon conversion
              Preferred Stock      assets existing prior to    of Series A
              convertible at a     the CSI-Pineapple Merger    Convertible Preferred
              price of $3.40 per                               Stock
              share into CSI                                   Approximately 18.82
              common stock, with                               million shares
              five-year warrants                               assuming exercise of
              to purchase an                                   all the warrants
              additional $32.0
              million of shares of
              common stock at that
              same price, in each
              case subject to
              adjustment for
              certain dilutive
              issuances.


Shareholders Shares to be issued  No rights to dividends or   Initially 15.6
of Pineapple pursuant to the      distributions under CVR     million shares with
entities     Merger agreement     relating to CSI assets      the potential for
                                  existing prior to the       additional earnout
                                  CSI-Pineapple Merger        shares based on the
                                                              terms of Merger
                                                              agreement




                                        4


 Item 8.01 Other Events

On September 15, 2021, CSI issued a press release announcing that it had entered into the amended and restated securities purchase agreement discussed in Item 1.01 of this Form 8-K. A copy of that press release is filed as Exhibit 99.1 to this Form 8-K.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

The following exhibits are filed with this Form 8-K.

Exhibit Number Exhibit

  4.1            Form of Certificate of Designation of Preferences, Rights and
               Limitations of Series A Convertible Preferred Stock of
               Communications Systems, Inc.
  4.2            Form of Communications Systems, Inc. Warrant to be issued to the
               PIPE Investors
  4.3            Amended and Restated Registration Rights Agreement dated as of
               September 15, 2021, between Communications Systems, Inc. and PIPE
               Investors
  10.1           Amended and Restated Securities Purchase Agreement dated as of
               September 15, 2021, between Communications Systems, Inc. and the
               purchasers identified on the signature pages to the Securities
               Purchase Agreement ("PIPE Investors")
  10.2           Form of Lock-up Agreement by and among the Company, certain
               Company directors, officers and shareholders and the PIPE
               Investors, incorporated by reference to Exhibit 10.2 to Form 8-K
               dated June 28, 2021
  99.1           Press Release of Communications Systems, Inc. dated September
               15, 2021

* All schedules to the amended and restated securities purchase agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. CSI hereby agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.

Additional Information

A full description of the terms of the proposed Merger will be provided in a Form S-4 Registration Statement/Proxy Statement for the shareholders of CSI (the "Proxy Statement") to be filed with the Securities and Exchange Commission (the "SEC"). CSI URGES INVESTORS, SHAREHOLDERS AND OTHER INTERESTED PERSONS TO READ, WHEN AVAILABLE, THE PRELIMINARY REGISTRATION STATEMENT/PROXY STATEMENT AS WELL AS OTHER DOCUMENTS FILED WITH THE SEC BECAUSE THESE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT CSI, THE BUSINESS AND THE PROPOSED MERGER. The definitive Registration Statement/Proxy Statement will be mailed to CSI shareholders as of a record date to be established for voting on the proposed Merger. Shareholders will also be able to obtain a copy of the definitive proxy statement (when available), without charge, by directing a request to: Communications Systems, Inc., 10900 Red Circle Drive, Minnetonka, MN 55343. The preliminary and definitive proxy statement, once available, can also be obtained, without charge, at the SEC's website (www.sec.gov).

                                        5

Participants in the Solicitation

Communications Systems, Inc. and its directors and executive officers may be considered participants in the solicitation of proxies by CSI in connection with approval of the proposed PIPE Offering and Pineapple merger. Information about the directors and executive officers of CSI is set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and its Amendment No. 1 on Form 10-K/A, which were filed with the SEC on March 31, 2021, and April 30, 2021, respectively, and will be set forth in its proxy statement for the shareholders meeting relating to approval of the merger and the issuance of shares pursuant to the securities purchase agreement, which will be filed with the SEC when it becomes available. You may obtain these documents (when they become available, as applicable) free of charge through the sources indicated above.

Non-Solicitation

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction.

© Edgar Online, source Glimpses