Item 1.01 Entry into a Material Definitive Agreement.
On June 4, 2021, Taronis Fuels, Inc., a Delaware corporation (the "Company"),
entered into common stock purchase agreements (the "Purchase Agreements") with
certain institutional and accredited investors relating to the sale of 5,498,668
shares of the Company's common stock for gross proceeds to the Company of
approximately $16.5 million (the "Private Placement"). The Private Placement
closed on June 4, 2021. The Private Placement was completed at a fixed price of
$3.00 per share of common stock, with no warrants issued to investors. The
Company entered into customary registration rights agreements with the investors
at the closing (the "Registration Rights Agreements").
After deducting the placement agent cash fees and the Company's estimated
offering expenses, the Company estimates the net proceeds from the Private
Placement will be approximately $15.7 million. The Company intends to use the
net proceeds from the Private Placement for working capital and general
corporate purposes, including reducing debt obligations and pursuing several
important growth initiatives.
Certain directors, executive officers and other employees of the Company
participated in the Private Placement, purchasing approximately $1.3 million of
common stock in the aggregate. The participation of these directors, executive
officers and other employees in the Private Placement was disclosed to, and
approved by, the Company's Board of Directors (the "Board").
The foregoing descriptions of the Purchase Agreements and Registration Rights
Agreements are not complete and are qualified in their entirety by the full text
of the forms of Purchase Agreement and Registration Rights Agreement, copies of
which are attached to this Current Report on Form 8-K as Exhibits 10.1 and 10.2,
respectively, and incorporated by reference herein.
Item 3.02 Unregistered Sales of Equity Securities.
The disclosure set forth under Item 1.01 is incorporated by reference into this
Item 3.02.
On June 4, 2021, the Company issued 5,498,668 shares of common stock upon the
closing of the Private Placement. In addition, the Company issued (i) 206,200
shares of common stock to Kingswood Capital Markets, division of Benchmark
Investments, Inc. ("Kingswood"), as consideration for Kingswood acting as
placement agent in connection with the Private Placement, and (ii) 1,416,668
shares of common stock upon the automatic conversion of $4.25 million of senior
convertible promissory notes, which notes were described in the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission
(the "SEC") on May 4, 2021. All such shares of common stock were issued pursuant
to the exemption from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), for transactions by an issuer not
involving any public offering under Section 4(a)(2) of the Securities Act and/or
Regulation D promulgated thereunder.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On June 3, 2021, the Company appointed Kevin Foti as the Company's President and
Chief Executive Officer, effective June 14, 2021, and as a member of the Board,
effective immediately following the closing of the Private Placement on June 4,
2021. Tobias Welo, who has served as the Company's interim President and Chief
Executive Officer since April 10, 2021, will step down from his duties as
interim President and Chief Executive Officer on June 14, 2021 and continue as
Chairman of the Board.
Mr. Foti, 61, has over 30 years of experience in the industrial gas business
with Praxair, Inc. / Linde PLC, where he most recently served as President of
the U.S. industrial gas merchant and on-site business from September 2015
through December 2019. Prior to that role, Mr. Foti was President of NuCO2 for
two years, which Praxair acquired in 2013. Mr. Foti has previously served in
roles spanning sales engineer, customer service manager, operations manager, and
regional manager.
In connection with Mr. Foti's appointment as President and Chief Executive
Officer, he entered into an employment agreement (the "Foti Employment
Agreement") with the Company on June 3, 2021, which becomes effective June 14,
2021. The Foti Employment Agreement provides for, among other things, an annual
base salary of $325,000, participation in the Company's annual performance
incentive programs, eligibility for equity awards under the Company's equity
incentive plans, and participation in the Company's benefit plans. In connection
with Mr. Foti's appointment as President and Chief Executive Officer, the Board
approved a pro-rated equity grant for fiscal 2021 valued at $212,215 and an
initial on-boarding grant valued at $650,000, in each case split evenly between
stock options and restricted stock units. The stock option awards have a
three-year vesting schedule and a ten-year term, while the restricted stock
units vest over three years.
The Foti Employment Agreement also provides that upon a termination by the
Company other than for "cause" or if Mr. Foti resigns for "good reason," the
Company will pay Mr. Foti an amount equal to 12 months of base salary, or 18
months of base salary if the termination is in connection with a "change of
control," plus in each case continued medical coverage for up to 12 months.
The foregoing description of the Foti Employment Agreement is not complete and
is qualified in its entirety by the full text of the Foti Employment Agreement,
a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.3
and incorporated by reference herein.
On June 3, 2021, the Board also appointed Wilbur Ross as a director, effective
immediately following the closing of the Private Placement on June 4, 2021.
Mr. Ross was sworn in by Vice President Mike Pence as the 39th Secretary of
Commerce on February 28, 2017. Secretary Ross was the principal voice of
business in the Trump Administration, ensuring that U.S. entrepreneurs and
businesses have the tools they need to create jobs and economic opportunity.
Secretary Ross is the former Chairman and Chief Strategy Officer of WL Ross &
Co. LLC and has over 55 years of investment banking and private equity
experience.
There are no family relationships between either of Mr. Foti or Mr. Ross and any
of the Company's directors or executive officers. There have been no related
party transactions involving Mr. Foti or Mr. Ross (or any of their respective
immediate family members) required to be disclosed pursuant to Item 404(a) of
Regulation S-K, other than Mr. Ross's purchase of 1,333,334 shares of common
stock in the Private Placement for an aggregate purchase price of $4.0 million.
Each of Mr. Foti and Mr. Ross has entered into the Company's standard form of
indemnification agreement. The Board has not yet made a determination as to the
committees of the Board on which Mr. Foti or Mr. Ross may serve.
On June 3, 2021, Thomas Wetherald and Peter Molloy each notified the Company of
his resignation from the Board, effective December 31, 2021. Neither Mr.
Wetherald's resignation nor Mr. Molloy's resignation was the result of any
disagreement regarding any matter relating to the Company's operations,
policies, or practices.
Item 7.01 Regulation FD Disclosure.
On June 4, 2021, the Company issued a press release announcing the Private
Placement, the appointment of Mr. Foti as President and Chief Executive Officer
of the Company, and the appointments of Mr. Foti and Mr. Ross to the Board. A
copy of the press release is being furnished as Exhibit 99.1 hereto and is
incorporated into this Item 7.01 by reference.
The Company provided the supplemental disclosure below in a confidential private
placement memorandum used in connection with the Private Placement. The
supplemental disclosure should be read in conjunction with the Company's filings
with the SEC.
Allegations and Internal Investigation
After joining the Company as Chief Financial Officer in November 2020, Mary Pat
Thompson discovered what she believed to be fraudulent accounting practices at
the Company relating to the underreporting of cost of goods sold, and the
overreporting of gross income, in the second and third quarters of fiscal 2020
(the "Allegations"). The incumbent Board at the time thereafter retained a law
firm to investigate the Allegations. In February 2021, the law firm communicated
its preliminary findings to the Audit Committee of the Board, finding a credible
basis for each of the Allegations and recommending further investigation. As
previously disclosed, on April 10, 2021, the newly reconstituted Board commenced
an investigation of the Company's previously issued accounting results
(including the Allegations) and internal controls, to be overseen by the
Company's newly reconstituted Audit Committee. Also on April 10, 2021, the Board
authorized the retention of forensic accountants and external counsel to assist
in the investigation of the Company's previously issued financial statements.
The investigation is in its early stages and the Company cannot predict its
duration or outcome.
SEC Investigation and Subpoenas
On August 28, 2020, the SEC ordered an investigation into potential violations
of Section 17(a) of the Securities Act and Sections 13(a) and 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
promulgated thereunder, by BBHC, Inc. (f/k/a Taronis Technologies, Inc.)
("Taronis Technologies") and its officers, directors and employees. The
investigation concerns, among other things, potential false statements made by
Taronis Technologies relating to increases in revenue, acquisitions, ownerships
of patents, material developments in operations, and partnerships with various
municipalities and corporations. On December 14, 2020, the SEC issued a subpoena
to Taronis Technologies in connection with the investigation, and on January 11,
2021 and February 12, 2021, the SEC issued subpoenas to the Company. While the
documents requested in the January 11, 2021 subpoena largely mirrored the
requests made to Taronis Technologies, the February 12, 2021 subpoena requested
documents relating to the Allegations, among other documents.
The Company intends to cooperate fully with the SEC in its investigation. There
can be no assurance regarding the outcome of the SEC investigation, including
potential civil penalties against the Company.
The information furnished pursuant to this Item 7.01, including Exhibit 99.1
furnished herewith, shall not be deemed "filed" for purposes of Section 18 of
the Exchange Act, nor shall it be deemed incorporated by reference in any filing
under the Securities Act or the Exchange Act, except as shall be expressly set
forth by specific reference in any such filing.
Forward-Looking Statements
This report contains statements which constitute "forward-looking statements"
within the meaning of the federal securities laws. Forward-looking statements,
which are based on certain assumptions and reflect the Company's plans,
estimates and beliefs, can generally be identified by the use of forward-looking
terms such as "believes," "expects," "may," "will," "should," "could," "seek,"
"intends," "plans," "estimates," "anticipates," "projects," "would," or other
comparable terms. These forward-looking statements include, but are not limited
to, statements concerning the timing and outcome of the internal investigation,
the outcome of any regulatory investigations (including by the SEC), and any
other statements other than statements of historical fact. Actual results could
differ materially from those discussed in any forward-looking statements.
Factors that could cause or contribute to these differences include those
discussed in the Company's filings with the SEC, including its Annual Report on
Form 10-K for the year ended December 31, 2019, its Quarterly Reports on Form
10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020
and subsequent filings with the SEC, and presently unknown risks or
uncertainties that may arise in the future. The Company qualifies all of the
information presented in this report, and particularly the forward-looking
statements, by these cautionary statements. The Company cautions readers not to
place undue reliance upon any such forward-looking statements. The Company
disclaims any obligation, except as specifically required by law, to publicly
update or revise any such statements to reflect any change in expectations or in
events, conditions or circumstances on which any such statements may be based,
or that may affect the likelihood that actual results will differ from those set
forth in the forward-looking statements.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description
10.1 Form of Common Stock Purchase Agreement.
10.2 Form of Registration Rights Agreement.
10.3 Employment Agreement, dated June 3, 2021, between the Company and
Kevin Foti.
99.1 Press release dated June 4, 2021.
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TARONIS FUELS, INC. 
