Case 3:22-cv-01586-RFL Document 101 Filed 01/03/24 Page 1 of 7

John S. Clifford, CA State Bar No. 172263

1 SMITH LC
2 4 Park Plaza, Suite 1050
Irvine, California 92614
3 (949) 416-5000
[email protected]
4
Stephen C. Biggs, admitted pro hac vice
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SEVENTH FLOOR CAMELBACK ESPLANADE II
7 2525 EAST CAMELBACK ROAD
8 PHOENIX, ARIZONA 85016-4237
(602) 255-6000 (PHONE)
9 (602) 255-0103 (FACSIMILE)
EMAIL: [email protected]
10 Attorneys for Defendants
11 UNITED STATES DISTRICT COURT
12 NORTHERN DISTRICT OF CALIFORNIA
13 San Francisco Division
ROBERT STANG, an individual, Case No. 3:22-cv-01586-TLT
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15 Plaintiff, DECLARATION OF GEORGE MATUS,
JR. IN SUPPORT OF DEFENDANTS’
16 vs. MOTION FOR SUMMARY
JUDGMENT
17 TEAL DRONES, INC., a Delaware
corporation; GEORGE MATUS, an individual;
18 RED CAT HOLDINGS, INC., a Nevada
corporation; BENJAMIN LAMBERT; and
19 DOES 1-15, inclusive,
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Defendants.
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22 I, George Matus, Jr., declare and state as follows:
23 1. I am over the age of eighteen and have personal knowledge of the facts contained
24 in this declaration. If called upon to do so, I could competently testify to those facts.
25 2. I am the founder and Chief Executive Officer (CEO) of Teal Drones, Inc., a
26 Delaware corporation that makes small unmanned aircraft systems commonly referred to as
27 “drones.” Teal Drones was originally incorporated in Delaware as iDrone, Inc. on November 17,
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DECLARATION OF GEORGE MATUS, JR. IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY
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1 2015. Attached as Exhibit 1 to this declaration is an authentic copy of the certificate of

2 incorporation filed with the Delaware Secretary of State when I incorporated iDrone, Inc.
3 3. In late November 2023, I was also appointed Chief Technology Officer (CTO) of
4 Red Cat Holdings, Inc., a publicly-traded company incorporated in Nevada and headquartered in
5 San Juan, Puerto Rico. Red Cat is a drone technology company integrating robotic hardware and
6 software for military, government, and commercial operations.
7 4. I began building drones and developing drone technology when I was about 12
8 years old.
9 5. In 2014, while I was a sophomore in high school, my father (George Matus, Sr.)
10 helped me launch a company named iDrone LLC in Utah, where my family lived, to develop and
11 commercialize the innovations I was making in drone construction and technology.
12 6. At some point in or around early- to mid-2015, my father recommended having
13 Robert Stang—a friend of his from college—help out with iDrone LLC. In June 2015, Mr. Stang
14 and my father signed a Co-Founder Stock Allocation Agreement relating to iDrone LLC, an
15 authentic copy of which is attached as Exhibit 2 to this declaration.
16 7. In the fall of 2015, a private equity group called Pelion reached out to me about a
17 potential investment in iDrone. After some meetings with that group, they agreed to invest in
18 iDrone on certain conditions, one of which was that Mr. Stang could not be involved in the
19 company moving forward.
20 8. My father subsequently negotiated an exit deal with Mr. Stang, and Mr. Stang
21 signed a Release of Claims with iDrone LLC on or about October 29, 2015, encompassing the
22 terms of that deal. An authentic copy of that Release of Claims is attached as Exhibit 3 to this
23 declaration.
24 9. On or about November 23, 2015, Mr. Stang signed a Restricted Stock Purchase
25 Agreement with iDrone, Inc.—the corporation I had incorporated in Delaware on November 17,
26 2015. Mr. Stang attached what I believe to be an authentic copy of that Restricted Stock Purchase
27 Agreement as Exhibit A to his third amended complaint, which I understand was docketed at
28 ECF No. 82-1.
DECLARATION OF GEORGE MATUS, JR. IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY
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1 10. On July 22, 2016, iDrone, Inc. amended its certificate of incorporation to change
2 the corporation’s name to Teal Drones, Inc. An authentic copy of the certificate of amendment
3 to the amended and restated certificate of incorporation of iDrone, Inc. through which that name
4 change was accomplished is attached to this declaration as Exhibit 4. For ease of reference, I
5 refer to the corporation by its current name, Teal Drones, throughout the remainder of this
6 declaration.
7 11. Between December 2015 and October 2020, Teal Drones conducted five separate
8 rounds of equity financing. For each of those rounds of equity financing, Teal Drones amended
9 and restated its certificate of incorporation to authorize the issuance of a new series of preferred
10 stock that Teal Drones sold exclusively to accredited investors or qualified purchasers. The
11 company referred to those five series of preferred stock as “Series Seed Preferred,” “Series Seed
12 Prime,” “Series A,” “Series A-1,” and “Series A-2.” Each of those series of preferred stock
13 carried its own liquidation preference, which was recorded in the corporation’s amended and
14 restated articles of incorporation. Teal Drones did not sell any new or previously-issued shares
15 of common stock during any of those five rounds of equity financing.
16 12. The investors who purchased shares of Teal Drones preferred stock during Teal
17 Drones’s five rounds of equity financing paid a total of $22,580,423.60 for those 38,510,344
18 shares.
19 13. Attached as Exhibit 5 to this declaration is an authentic copy of Teal Drones’s cap
20 table showing the ownership of the various classes and series of stock that were issued and
21 outstanding at the time of the merger with Teal Acquisition I Corp. described later in this
22 declaration.
23 14. Attached as Exhibit 6 to this declaration is an authentic copy of the Fifth Amended
24 and Restated Articles of Incorporation of Teal Drones, Inc., which was the version of Teal
25 Drones’s articles of incorporation that was in effect at the time of the merger with Teal
26 Acquisition I Corp. described later in this declaration.
27 15. In 2021, Teal Drones needed an influx of cash to keep the company afloat. After
28 exploring different financing options, Teal Drones’s board of directors (of which I was a member)
DECLARATION OF GEORGE MATUS, JR. IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY
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1 determined that a proposed merger with a wholly-owned subsidiary of Red Cat Holdings, Inc.
2 was the best path forward.
3 16. On July 13, 2021, Teal Drones signed a merger agreement with Red Cat and its
4 wholly-owned subsidiary, Teal Acquisition I Corp., under which Teal Acquisition I Corp. would
5 merge with and into Teal Drones, and Teal Drones would continue as the surviving corporation
6 in the merger. The parties to the merger amended and restated the merger agreement a few weeks
7 later, and the merger closed on August 31, 2021.
8 17. Attached as Exhibit 7 to this declaration is an authentic copy of the Amended and
9 Restated Agreement and Plan of Merger dated August 31, 2021, by and among Red Cat, Teal
10 Acquisition I Corp., Teal Drones, and the stockholders of Teal Drones.
11 18. Attached as Exhibit 8 to this declaration is an authentic copy of the action by
12 unanimous written consent of the board of directors of Teal Drones dated August 13, 2021,
13 adopting a resolution approving the Amended and Restated Agreement and Plan of Merger
14 referenced in paragraph 17 of this declaration, and declaring its advisability.
15 19. Attached as Exhibit 9 to this declaration is an authentic copy of the written consent
16 of the stockholders of Teal Drones by which a majority of those stockholders consented to and
17 approved the adoption of a resolution approving the Amended and Restated Agreement and Plan
18 of Merger referenced in paragraph 17 of this declaration.
19 20. Attached as Exhibit 10 to this declaration is an authentic copy of the written
20 consents of the boards of directors of Red Cat Holdings, Inc. and Teal Acquisition I Corp. and of
21 the stockholders of Teal Acquisition I Corp. dated August 30, 2021, in which the directors of Red
22 Cat and Teal Acquisition I Corp. approved the Amended and Restated Agreement and Plan of
23 Merger referenced in paragraph 17 of this declaration and declared its advisability, and Red Cat
24 (as the sole shareholder of Teal Acquisition I Corp.) consented to and approved the Amended
25 and Restated Agreement and Plan of Merger referenced in paragraph 17 of this declaration.
26 21. Attached as Exhibit 11 to this declaration is an authentic copy of the certificate of
27 merger that Teal Drones filed with the Delaware Secretary of State on September 2, 2021,
28 documenting the merger of Teal Acquisition I Corp. into Teal Drones.
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1 22. Under the terms of the amended and restated merger agreement, Teal Acquisition
2 I Corp. (through Red Cat) paid $14 million worth of Red Cat stock in consideration for 100% of
3 the issued and outstanding stock of Teal Drones. See Ex. 7, at p. 5, § 2.1(a). From that $14 million
4 in Red Cat stock, the merger agreement required four separate deductions before the balance of
5 the closing consideration could be distributed to the premerger holders of Teal Drones’s stock in
6 accordance with the terms of the distribution waterfall established in article V, section 3 of Teal
7 Drones’s fifth amended and restated certificate of incorporation.
8 23. First, Teal Drones had to deduct $1,670,294.29 in Red Cat stock from the closing
9 consideration, which represented the amount required to be paid to Decathlon Alpha IV, L.P.
10 (“DA4”), one of Teal Drones’s premerger lenders, under a senior secured promissory note that
11 Red Cat agreed to issue when the merger closed to replace a premerger loan and security
12 agreement between Teal Drones and DA4. An authentic copy of that senior secured promissory
13 note, referred to as “the Secured Note” in section 2.1(a) of the amended and restated merger
14 agreement and titled “Amended and Restated Loan and Security Agreement,” is attached as
15 Exhibit 12 to this declaration.
16 24. Second, Teal Drones had to deduct an additional $2,000,000.00 in Red Cat stock
17 from the closing consideration to pay down Teal Drones’s premerger debt to DA4 pursuant to a
18 Share Issuance Agreement—an authentic copy of which is attached as Exhibit 13 to this
19 declaration—which is referred to in Section 2.1(a) of the amended and restated merger agreement
20 as “that certain Consent Agreement … between Decathlon and the Company.”
21 25. Third, Teal Drones had to deduct $771,280.00 in Red Cat stock from the closing
22 consideration for the other indebtedness of Teal Drones at the time the merger closed. Attached
23 as Exhibit 14 to this declaration is an authentic copy of the Flow Funds Memorandum agreed to
24 by the parties to the amended and restated merger agreement that documents their agreement to
25 the $771,280.00 deduction for “other Indebtedness of the Company,” as required by section
26 2.1(a) of the amended and restated merger agreement.
27 26. Fourth, Teal Drones had to deduct $685,672.84 for its working capital deficit as of
28 the closing date. Attached as Exhibit 15 to this declaration is an authentic copy of the closing
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1 consideration calculation performed by Teal Drones determining the amount of the company’s
2 other indebtedness and working capital deficit on the date the merger closed.
3 27. After making the above deductions, only $8,872,753.16 in closing consideration
4 (payable in Red Cat stock) remained for distribution to Teal Drones’s premerger shareholders.
5 Applying the liquidation preferences in Teal Drones’s fifth amended and restated certificate of
6 incorporation, the first $6,369,159.34 of the remaining $8,872,753.16 in merger closing
7 consideration had to be paid in Red Cat stock to the premerger holders of Teal Drones’s Series
8 A-2 preferred stock to satisfy their $1.19332-per-share liquidation preference. The remaining
9 $2,503,593.82 in merger closing consideration was then distributed with equal priority and pro
10 rata among the holders of Teal Drones’s other preferred shares (referred to collectively as “the
11 Junior Preferred Stock”) because it was not sufficient to pay in full their liquidation preferences,
12 which totaled $21,318,662.31. As a result, none of the merger closing consideration was available
13 for distribution to the premerger holders of Teal Drones common stock—including me. I was the
14 largest premerger holder of Teal Drones common stock, owning 9,150,000 shares, and I did not
15 receive any portion of the merger closing consideration for the sale of those shares in the merger.
16 An authentic copy of the worksheets Teal Drones used to calculate how the closing consideration
17 from the merger would be distributed to its shareholders under the distribution waterfall
18 mandated by article V, section 3 of its fifth amended and restated certificate of incorporation is
19 attached as Exhibit 16 to this declaration.
20 28. Based on the above calculations, Teal Drones created the Designation of
21 Proportionate Allocation and Distribution of Aggregate Purchase Price document—an authentic
22 copy of which is attached as Exhibit 17 to this declaration—designating how the merger
23 consideration would be allocated and distributed to the premerger holders of Teal Drones’s stock.
24 Premerger holders of Teal Drones common stock, like Mr. Stang and myself, were not included
25 in Schedule A attached to that document because, as explained above, none of the merger
26 consideration was available for distribution to premerger holders of the corporation’s common
27 stock because of the liquidation preferences granted in Teal Drones’s fifth amended and restated
28 certificate of incorporation to the holders of the corporation’s preferred stock.
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1 29. I never personally retained or sold any of Mr. Stang’s shares of Teal Drones
2 common stock, and I did not personally receive or retain any compensation for selling Mr.
3 Stang’s shares of Teal Drones common stock. Teal Drones sold Mr. Stang’s premerger shares of
4 common stock in the merger, and no consideration was due to Mr. Stang for the sale of those
5 shares for the reasons explained above.
6 30. I did not receive any portion of the closing consideration paid by Red Cat (on behalf
7 of Teal Acquisition I Corp.) in the merger.
8 31. Section 2.1(b) of the amended and restated merger agreement specifies additional
9 “Earn-Out Consideration” that could potentially be paid by Red Cat if Teal Drones met certain
10 net revenue milestones for the sale of its Golden Eagle product during the 24 months after the
11 merger closed. Teal Drones did not meet any of those milestones during the earn-out period, and
12 no Earn-Out Consideration was ever due or paid.
13 I declare under the penalty of perjury that the foregoing is true and correct. Executed on
14 January 3, 2024.
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16 George Matus, Jr.
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DECLARATION OF GEORGE MATUS, JR. IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY
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