Item 2.01 Completion of Acquisition or Disposition of Assets.
On July 1, 2022 (the "Closing Date"), SideChannel, Inc. (formerly known as
Cipherloc Corporation) (the "Company") completed its acquisition of all of the
equity securities of SideChannel, Inc. ("SideChannel") in exchange for shares of
the Company's equity securities (the "Acquisition") pursuant to that certain
Equity Securities Purchase Agreement dated May 16, 2022 (the "Purchase
Agreement") by and among the Company, SideChannel, SideChannel's stockholders
(collectively, the "Sellers") and Brian Haugli, as the Sellers' representative
as previously disclosed in the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 18, 2022 (the "May 8-K").
Pursuant to the Purchase Agreement, on the Closing Date, the Sellers exchanged
all of their equity securities of SideChannel for 59,900,000 shares (the "First
Tranche Shares") of the Company's common stock, $0.001 par value (the "Common
Stock"), and 100 shares of the Company's newly designated Series A Preferred
Stock, $0.001 par value (the "Series A Preferred Stock") (which was erroneously
referred to as Series B Preferred Stock in the May 8-K). In addition, the
Sellers may be entitled to receive up to an additional 59,900,000 shares (the
"Second Tranche Shares" and together with the First Tranche Shares and the
Series A Preferred Stock, the "Shares") at such time that the operations of
SideChannel, as a subsidiary of the Company, achieve at least $5.5 million in
revenue (the "Milestone") for any twelve month period occurring after the
Closing Date and before the 48 month anniversary of the execution of the
Purchase Agreement.
As of the Closing Date, the Sellers acquired approximately 40.4% of the
Company's outstanding Common Stock. If SideChannel achieves the Milestone and
the Sellers are issued the Second Tranche Shares, assuming the number of shares
outstanding prior to the issuance of the Second Tranche Shares being issued
remains the same as on the Closing Date, the Sellers will hold a total of
approximately 57.5% of the Company's outstanding Common Stock. The number of the
Second Tranche Shares may be reduced or increased, based upon whether
SideChannel's working capital as of the Closing Date is less than or more than
zero. The number of the Second Tranche Shares may also be subject to adjustment
based upon any successful indemnification claims made by the parties pursuant to
the Purchase Agreement.
As previously disclosed in the May 8-K, the Shares are subject to a
Lock-Up/Leak-Out Agreement pursuant to which, subject to certain exceptions, the
Sellers may not directly or indirectly offer to sell, or otherwise transfer, any
of the Shares for 24 months after the Closing Date without the prior written
consent of the Company. Notwithstanding the foregoing, pursuant to the
Lock-Up/Leak-Out Agreement, the Sellers may sell up to 20% of their shares of
Common Stock beginning 12 months after the Closing Date, and the remaining 80%
of their shares of Common Stock beginning 24 months after the Closing Date.
Item 3.02 Unregistered Sales of Equity Securities.
Reference is made to the disclosure under Item 2.01 above which is hereby
incorporated in this Item 3.02 by reference.
On the Closing Date, the Company issued the First Tranche Shares and the Series
A Preferred Stock to the Sellers pursuant to the terms of the Purchase
Agreement. The First Tranche Shares and the Series A Preferred Stock have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any state, and were offered and sold in
reliance on the exemption from registration under the Securities Act, afforded
by Section 4(a)(2) and/or Rule 506 promulgated thereunder.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Appointments and Resignations of Officers and Directors
Immediately prior to the Closing Date, the Company's board of directors
("Board") was comprised of four directors. In connection with the closing of the
Acquisition each of David Chasteen and Sammy Davis resigned as members of the
Company's Board. Messrs. Chasteen's and Davis' resignations were not the result
of any disagreement with the Company, any matter related to the Company's
operations, policies or practices, the Company's management or the Board.
The Board elected each of Deborah MacConnel and Kevin Powers to serve as members
of the Company's Board effective immediately to fill the vacancies created on
the Board by the resignations of David Chasteen and Sammy Davis. The newly
appointed directors will serve until the Company's next annual meeting of
stockholders or until their successors are elected and qualified or until their
earlier death, resignation or removal.
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In addition, in connection with the closing of the Acquisition, effective as of
the Closing Date, David Chasteen resigned from his position as President and
Chief Executive Officer of the Company and Brian Haugli was appointed as
President and Chief Executive Officer of the Company. Mr. Chasteen will remain
with the Company as Executive Vice President of Sales and Marketing and will
receive a one-time severance payment of $100,000 pursuant to the terms of his
existing offer letter.
Set forth below are the biographical summaries of the newly appointed directors.
Deborah MacConnel
Ms. MacConnel has been involved in the computer industry for 34 years, retiring
recently from International Business Machines Corporation ("IBM") (NYSE: IBM)
after 28 years. Prior to her retirement, Ms. MacConnel was instrumental in
transforming information technology for IBM's human resources function, which
supported up to 450,000 employees. Ms. MacConnel's team at IBM was also
responsible for transforming the succession planning process for executive
selection and promotion, along with enhancing the processes for mergers and
acquisition management and talent acquisition. Ms. MacConnel has a Bachelor of
Science degree in Business Administration from the University of Texas. The
Company believes Ms. MacConnel is qualified to serve as a member of the
Company's Board because of her experience scaling global teams for technology
companies.
Kevin Powers
Mr. Powers is the founder and director of the Master of Science in Cybersecurity
Policy and Governance Programs at Boston College and has served as an Assistant
Professor of the Practice at Boston College Law School and in Boston College's
Carroll School of Management's Business Law and Society Department since
November 2015. Mr. Powers has also been a Cybersecurity Research Affiliate at
the MIT Sloan School of Management since June 2018. Mr. Powers has a Bachelor of
Art degree in History and Business from Salem State University and a Juris
Doctor degree from Suffolk University Law School. The Company believes Mr.
Powers is qualified to serve as a member of the Company's Board because of his
extensive experience in cybersecurity.
Each member of the Company's Board who is not also an executive officer of the
Company will receive $10,000 for each fiscal quarter in which they serve, and an
additional $5,000 per quarter for serving as the Chair of a Board committee or
Chair of the Board. Such payment will be made in a combination of half cash and
half shares of the Company's common stock based upon the greater of (i) $0.18
per share and (ii) the closing price of the Company's common stock on the first
trading day of each quarter. In addition, each of Mr. Powers and Ms. MacConnel
received a one-time grant of 100,000 restricted stock units pursuant to the
Company's 2021 Omnibus Equity Incentive Plan which vest over a period of three
years from the date of issuance.
There are no family relationships between any of Brian Haugli, Deborah MacConnel
and Kevin Powers and any of the Company's directors or executive officers.
Except as set forth herein, there is no arrangement or understanding between
Brian Haugli, Deborah MacConnel or Kevin Powers and any other persons pursuant
to which Messrs. Haugli or Powers or Ms. MacConnel were appointed as officers or
directors of the Company, as applicable. There are no related party transactions
involving Messrs. Haugli or Powers or Ms. MacConnel that are reportable under
Item 404(a) of Regulation S-K.
Employment Agreement
On July 1, 2022, the Company entered into an employment agreement (the
"Employment Agreement") with Brian Haugli pursuant to which Mr. Haugli shall
serve as Chief Executive Officer of the Company. Pursuant to the Employment
Agreement, Mr. Haugli shall (i) receive a base salary of $300,000, which may be
increased by the compensation committee of the Board in its sole discretion
beginning on September 30, 2023 and on each September 30th thereafter; (ii) be
eligible for an annual equity bonus (payable in shares of Common Stock or
options) equal to $200,000, which may be increased or decreased by the
compensation committee and/or the Board, in its sole discretion; and (iii) be
eligible for a yearly discretionary cash bonus with the target amount of 50% of
Mr. Haugli's base salary. In addition, Mr. Haugli shall receive $200,000 in
equity incentive compensation annually. Furthermore, Mr. Haugli shall be
reimbursed for reasonable, out-of-pocket business expenses consistent with the
Company's policies and procedures, in effect from time to time, and will be
entitled to unlimited paid time off. Mr. Haugli shall also be entitled to
participate in any employee benefit plans or programs for which he is eligible
that are provided by the Company to its management employees.
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The Employment Agreement shall terminate upon the earliest to occur of the
following: (i) Mr. Haugli's death; (ii) upon written notice by the Company if
Mr. Haugli shall suffer a physical or mental disability which renders Mr.
Haugli, in the reasonable judgment of the compensation committee, unable to
perform his duties and obligations under the Employment Agreement for either 90
. . .
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
Series A Preferred Stock Certificate of Designation
In connection with the closing of the Acquisition, on July 1, 2022, the Company
filed a Certificate of Designation of Series A Preferred Stock (the "Certificate
of Designation") with the Delaware Secretary of State.
Pursuant to the Certificate of Designation, 100 shares of the Company's blank
check preferred stock have been designated as Series A Preferred Stock. The
Series A Preferred Stock have the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
Ranking. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company or any Deemed Liquidation Event (as defined in the
Certificate of Designation), each share of Series A Preferred Stock shall rank
on parity to the Common Stock.
Dividends. The holders of Series A Preferred Stock shall not be entitled to any
cash dividends declared or paid on the Common Stock or otherwise.
Voting. Each holder of outstanding shares of Series A Preferred Stock shall be
entitled to such number of votes equal to the number of shares of Common Stock
that such Series A Preferred Stock are convertible into.
Conversion. Each share of the Series A Preferred Stock is convertible into one
share of Common Stock, subject to adjustment as set forth in the Certificate of
Designation. Upon the earliest to occur (the time of such event, the "Mandatory
Conversion Time") of (a) the issuance of the Second Tranche Shares pursuant to
the terms of the Purchase Agreement, (b) the cancellation of the Second Tranche
Shares pursuant to the terms of the Purchase Agreement and (c) the occurrence of
an event of a liquidation, dissolution or winding up of the Company or a Deemed
Liquidation Event, all outstanding shares of the Series A Preferred Stock shall
automatically be converted into shares of Common Stock, at the then-applicable
conversion ratio, and such shares may not be reissued by the Company.
Appointment of Directors. The holders of Series A Preferred Stock, exclusively
and as a separate class, shall be entitled to elect four directors of the
Company. Any director elected by holders of Series A Preferred Stock may be
removed without cause by the affirmative vote of the holders of shares of Series
A Preferred Stock. If the holders of shares of Series A Preferred Stock fail to
elect a sufficient number of directors to fill all directorships for which they
are entitled to elect directors, voting exclusively and as a separate class,
then any directorship not so filled shall remain vacant until such time as the
holders of the Series A Preferred Stock elect a person to fill such
directorship. In the event of any vacancy of a Series A Preferred director, such
vacancy shall be filled by the holders of the Series A Preferred Stock. In the
event that the number of directors of the Company is increased prior to the
Mandatory Conversion Time, the number of directors which the holders of the
Series A Preferred Stock shall be entitled to elect, exclusively and as a
separate class, shall be increased to the extent required to provide that the
total number of Series A Preferred Stock directors constitutes a majority of the
total number of the directors of the Company.
The foregoing description of the Certificate of Designation is not complete and
is qualified in its entirety by reference to the full text of the Certificate of
Designation, a copy of which is filed as Exhibit 3.1 to this Current Report and
is hereby incorporated by reference.
Name Change
In connection with the closing of the Acquisition, on July 1, 2022, the Company
filed a Certificate of Amendment (the "Amendment") to its Certificate of
Incorporation with the Delaware Secretary of State to change the legal name of
the Company from "Cipherloc Corporation" to "SideChannel, Inc.", effective
immediately upon acceptance of the filing.
A copy of the Amendment effecting the name change, as filed with the Delaware
Secretary of State is attached hereto as Exhibit 3.2.
Item 8.01 Other Events.
On July 5, 2022, the Company issued a press release announcing the closing of
the Acquisition. A copy of the press release is attached to this Current Report
on Form 8-K as Exhibit 99.1.
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Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of businesses acquired.
In accordance with Item 9.01(a)(3) of Form 8-K, the financial statements
required under this Item 9.01 will be filed by amendment to this Current Report
on Form 8-K no later than 75 days after the completion of the Acquisition of
SideChannel.
Pro forma financial information.
In accordance with Item 9.01(b)(2) of Form 8-K, the financial information
required under this Item 9.01 will be filed by amendment to this Current Report
on Form 8-K no later than 75 days after the completion of the Acquisition of
SideChannel.
(b) Exhibits.
Exhibit No. Description
3.1 Certificate of Designation of Series A Preferred Stock
3.2 Certificate of Amendment filed with the Delaware Secretary of
State on July 5, 2022
10.1+ Brian Haugli Executive Employment Agreement
10.2 Independent Contractor Agreement by and between the Company and
Sammy Davis dated July 1, 2022
99.1 Press Release dated July 5, 2022.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
+ Indicates a management contract or any compensatory plan, contract or
arrangement.
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SIDECHANNEL INC. 
