As filed with the Securities and Exchange Commission on April 24, 2020

 

Registration No. 333-236461

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1

to

Form S-4

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

DROPCAR, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   4899   98-0204758

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

1412 Broadway, Suite 2105

New York, New York 10018

(646) 342-1595

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Spencer Richardson

Chief Executive Officer

DropCar, Inc.

1412 Broadway, Suite 2105

New York, NY 10018

(646) 342-1595

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Rick A. Werner, Esq.

Matthew L. Fry, Esq.

Jayun Koo, Esq.

Haynes and Boone, LLP

30 Rockefeller Plaza, 26th Floor

New York, New York 10112

Tel. (212) 659-7300

Fax (212) 918-8989

 

Rodney C. Keller, Jr.

AYRO, Inc.

900 E. Old Settlers Boulevard, Suite 100

Round Rock, TX 78664

Tel: (512) 994-4917

 

Kenneth R. Koch, Esq.

Daniel A. Bagliebter, Esq.

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C.

Chrysler Center, 666

Third Avenue

New York, NY 10017

Tel: (212) 935-3000

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and upon completion of the merger.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [  ]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

If applicable, place an [X] in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) [  ]

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) [  ]

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered   Amount to be Registered(1)     Proposed Maximum Offering Price per Share     Proposed Maximum Aggregate Offering Price(2)     Amount of Registration Fee(3)(4)  
Common Stock, $0.0001 par value per share    

63,955,115

      N/A   $

58,968.20

    $ 7.66  

 

 

(1) Represents the maximum number of shares of common stock, par value $0.0001 per share, of the registrant estimated to be issuable at the effective time of the merger of AYRO, Inc. (“AYRO”) with and into ABC Merger Sub, Inc., a wholly owned subsidiary of the registrant (“Merger Sub”), with AYRO continuing as the surviving corporation, to holders of common stock of AYRO or upon the conversion of options, warrants, preferred stock and other securities convertible into or exercisable for shares of common stock of AYRO, including, without limitation (share numbers calculated after giving effect to the conversion of AYRO shares into DropCar common stock in the merger at the exchange ratio), 4,098,427 shares of the registrant to be issued in respect of shares of AYRO to be issued upon conversion of a bridge loan made by certain investors to AYRO prior to the closing of the merger, 5,237,185 shares of the registrant to be issued in respect of shares of AYRO to be issued to investors in a private placement of AYRO common stock for gross proceeds of $850,000 to be consummated prior to the closing of the merger, 3,867,375 shares of the registrant to be issued in respect of shares of AYRO to be issued in connection with a private placement of AYRO common stock for gross proceeds of $1,150,000 to be consummated prior to the closing of the merger, 2,200,495 shares of the registrant to be issued in respect of shares of AYRO to be issued in connection with the April Bridge Financing prior to closing of the merger, 550,125 shares of the registrant to be issued in respect of shares of AYRO to be issued to a financial advisor of AYRO prior to the closing of the merger, 2,475,557 shares of the registrant to be issued in respect of AYRO common stock to be issued to a consultant of AYRO, prior to the closing of the merger, and 16,024,898 shares of the registrant deliverable upon the exercise of warrants to purchase shares of AYRO common stock, following their automatic conversion into warrants to purchase shares of the registrant’s common stock in the merger, to be issued to the investors in the bridge loan financing, the foregoing private placements and a pre-funded warrant financing for nominal proceeds prior to the closing of the merger and to the placement agent in connection therewith, with warrants to purchase 4,098,427 shares of the registrant at an exercise price of $0.2806 to be issued to the bridge loan investors; warrants to purchase 5,237,185 shares of the registrant at an exercise price of $0.1866 to be issued in connection with the $850,000 financing; warrants to purchase 3,867,375 shares of the registrant at an exercise price of $0.3420 to be issued in connection with the $1,150,000 financing; pre-funded warrants to purchase 1,897,700 shares of the registrant at an exercise price of $0.000092 to be issued in the pre-funded warrant financing for nominal proceeds; and warrants to purchase an aggregate of 924,211 shares of the registrant to be issued to the placement agent. Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), there are also being registered such additional shares of common stock that may be issued because of events such as recapitalizations, stock dividends, stock splits, and similar transactions. Also includes 10,000 shares that may be issuable as a result of the provision of the Merger Agreement that rounds up to the nearest share in lieu of issuing fractional shares.

 

(2) Estimated solely for purposes of calculation of the registration fee in accordance with Rule 457(f) of the Securities Act. AYRO is a private company and no market exists for its equity securities and AYRO has accumulated a capital deficit; therefore, pursuant to Rule 457(f)(2) under the Securities Act, the proposed maximum offering price is one-third of the aggregate par value of AYRO’s capital stock being acquired in the proposed merger, which is calculated by taking one-third of the product of the par value of $0.001 per share and 58,968,194 shares of AYRO capital stock that may be cancelled or exchanged in the merger (computed as of April 20, 2020, the latest practicable date prior to the date of filing this registration statement, and inclusive of all shares of AYRO capital stock issuable upon conversion of any securities convertible into or exercisable for shares of AYRO capital stock).

 

(3) Determined in accordance with Section 6(b) of the Securities Act, at a rate equal to $129.80 per $1 million of the proposed maximum aggregate offering price.
   

(4)

Filing fee of $7.05 was previously paid.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 
 

 

The information in this preliminary joint proxy and consent solicitation statement/prospectus is not complete and may be changed. The securities being offered by the use of this preliminary joint proxy and consent solicitation statement/prospectus may not be sold nor may offers to buy be accepted prior to the time the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary joint proxy and consent solicitation statement/prospectus is not an offer to sell these securities nor a solicitation of any offer to buy these securities in any jurisdiction where the offer, solicitation or sale is not permitted.

 

PRELIMINARY — SUBJECT TO COMPLETION, DATED APRIL 24, 2020

JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS

 

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

To the Stockholders of DropCar, Inc. and AYRO, Inc.:

 

On December 19, 2019, DropCar, Inc. (“DropCar”), ABC Merger Sub, Inc., a wholly owned subsidiary of DropCar (“Merger Sub”), and AYRO, Inc. (“AYRO”) entered into an agreement and plan of merger and reorganization (as may be amended from time to time, the “Merger Agreement”), which provides for, among other things, the merger of AYRO with and into Merger Sub, with AYRO continuing as the surviving corporation and a wholly owned subsidiary of DropCar, on the terms and conditions set forth in the Merger Agreement. The boards of directors of each of DropCar and AYRO have approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the merger.

 

If the merger is completed, holders of outstanding shares of AYRO common stock and preferred stock (collectively referred to herein as the AYRO equity holders) will be entitled to receive 1.0844 shares of DropCar common stock per share of AYRO common stock they hold or into which their shares of preferred stock convert (the “Exchange Ratio”), prior to giving effect to the proposed reverse stock split discussed below, or an aggregate of approximately 42,112,223 shares of DropCar common stock at closing, including 23,683,059 shares of DropCar common stock to be issued in respect of the AYRO equity securities outstanding as of the date of this joint proxy and consent solicitation statement/prospectus, 4,098,427 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued upon conversion of certain bridge loans made to AYRO in the Bridge Financing (defined below) immediately prior to the merger, 9,104,560 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued pursuant to the AYRO Private Placements (defined below) completed prior to the filing of this Registration Statement on Form S-4, 2,200,495 of shares of DropCar common stock to be issued in respect of shares of AYRO to be issued in connection with the April Bridge Financing (defined below), and 550,125 and 2,475,557 shares of DropCar common stock to be issued in respect of AYRO common stock to be issued to a financial advisor of AYRO and a consultant of AYRO, respectively, prior to the closing of the merger. While the AYRO Private Placement shares have not been issued yet, the investors are bound to purchase from AYRO, and AYRO is bound to sell to the investors, the shares of AYRO common stock subject to the satisfaction of the conditions in the securities purchase agreements for the AYRO Private Placements. At the effective time of the merger, pre-funded warrants to purchase an aggregate of 1,750,000 shares of AYRO common stock at an exercise price of $0.0001 per whole share (the “Pre-funded Warrants”) to be issued in a nominal stock subscription (the “Nominal Stock Subscription,” and the underlying agreement, the “Nominal Stock Subscription Agreement”) and other warrants, including those to be issued to investors and the placement agent in the Bridge Financing and the AYRO Private Placements, to purchase an aggregate of 14,720,661 shares of AYRO common stock (such other warrants collectively, the “Outstanding Warrants”) will automatically convert into the right to purchase shares of DropCar common stock equal to the number of shares of AYRO common stock issuable upon exercise of such warrants multiplied by an exchange ratio (the “Exchange Ratio”) with an exercise price equal to the exercise price of such warrants divided by the Exchange Ratio, prior to giving effect to the proposed reverse stock split. Upon completion of the merger and the transactions contemplated in the Merger Agreement and assuming the exercise of the Pre-funded Warrants, (i) AYRO equity holders (including the investors in the Bridge Financing, the AYRO Private Placements, the April Bridge Financing and the Nominal Stock Subscription and a consultant to AYRO) will own approximately 79% of the outstanding equity of DropCar; (ii) current DropCar stockholders (including holders of Series H-4 Preferred Stock and Series H-6 Preferred Stock) will own approximately 18% of the outstanding equity of DropCar; and (iii) the financial advisor to DropCar and AYRO will own approximately 3% of the outstanding equity of DropCar. Immediately following the merger, subject to the approval of the current DropCar stockholders, it is anticipated that the combined company will effect a reverse stock split at a ratio between 1-for-10 and 1-for-30 with respect to its issued and outstanding common stock. The reverse stock split will increase DropCar’s stock price to at least $5.00 per share.

 

DropCar common stock is currently listed on The Nasdaq Capital Market (also referred to herein as “Nasdaq”) under the symbol “DCAR.” On December 19, 2019, the last full trading day before the announcement of the merger, the last reported sale price of DropCar common stock was $0.59 per share, and, on April 23, 2020, the latest practicable date prior to the date of this joint proxy and consent solicitation statement/prospectus, the last reported sale price of DropCar common stock was $0.4962 per share. DropCar and AYRO urge you to obtain current market quotations for the price of DropCar common stock.

 

Each of DropCar and AYRO expects that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

2
 

 

DropCar will hold a special meeting of its stockholders, while AYRO will solicit its stockholders’ approval by written consent. DropCar stockholders will be asked to consider and vote upon the following proposals: (i) to approve, for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of shares of DropCar common stock to AYRO equity holders and other parties in connection with the merger, the Merger Agreement, and the transactions contemplated thereby or in connection therewith (the “DropCar Share Issuance Proposal”), (ii) to approve an amendment to the amended and restated certificate of incorporation of DropCar to effect a reverse stock split with a ratio between 1-for-10 and 1-for-30 with respect to the issued and outstanding common stock of the combined company immediately following the merger (the “Reverse Stock Split Proposal”), (iii) to sell substantially all assets of DropCar (the “Asset Sale Proposal”) pursuant to the Asset Purchase Agreement, dated December 19, 2019, by and among DropCar Operating Company, Inc., DC Partners Acquisition LLC, Spencer Richardson and David Newman, as it may be amended from time to time (the “Asset Purchase Agreement”), (iv) to approve an amendment to the amended and restated certificate of incorporation of DropCar to provide for the reduction of the conversion price of the Series H-4 Convertible Preferred Stock to $0.50 per share and the automatic conversion of such shares into DropCar common stock, as well as the issuance of shares of DropCar common stock in connection therewith (the “DropCar Preferred Conversion Proposal”), (v) to approve the amended and restated certificate of incorporation of DropCar which shall be in effect upon consummation of the merger (the “A&R Charter Proposal”), (vi) to approve the 2020 Long-Term Equity Incentive Plan (the “Incentive Plan Proposal”), (vii) to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to DropCar’s named executive officers in connection with the merger (the “DropCar Golden Parachute Compensation Proposal”), and (viii) to adjourn the special meeting, if necessary, to permit the solicitation of additional proxies in the event that there are insufficient votes on one or more of the proposals presented to DropCar stockholders (the “Adjournment Proposal”).

 

The DropCar special meeting will be held on Wednesday, May 27, 2020 at 10:00 a.m., Eastern Time, and will be “virtual,” meaning that you can participate in the meeting online at www.issuerdirect.com/virtual-event/DCAR at the appointed time and date and entering the control number included in the proxy card that you receive. DropCar stockholders are encouraged to access the special meeting before the start time. Please allow ample time for online check-in. DropCar stockholders will not be able to attend the special meeting in person.

 

AYRO stockholders will be asked to approve by written consent a proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the merger (the “AYRO Merger Proposal”), and holders of AYRO preferred stock will be asked for their written consent of the conversion of AYRO preferred stock into AYRO common stock immediately prior to the consummation of the proposed merger (the “AYRO Preferred Stock Conversion”).

 

Completion of the merger is conditioned upon satisfaction or waiver of all closing conditions under the Merger Agreement, including, among other things, (i) the approval of the DropCar Share Issuance Proposal by the holders of a majority of the votes cast for or against the proposal, (ii) the approval of the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal and the A&R Charter Proposal, which require the affirmative vote of a majority of the DropCar shares of common stock and preferred stock outstanding, voting as a single class, (iii) the adoption and approval of the AYRO Merger Proposal by written consent of the holders of a majority of the outstanding shares of AYRO common stock and preferred stock, voting together as a single class on an as-converted-to-common stock basis, and (iv) the approval of the AYRO Preferred Stock Conversion by the holders of a majority of the outstanding shares of AYRO preferred stock voting together as a single class and on an as-converted-to-common stock basis.

 

DropCar’s board of directors has determined that it is advisable and in the best interest of DropCar and its stockholders to enter into the Merger Agreement and the Asset Purchase Agreement, and the DropCar board of directors has authorized and approved the terms of each of the Merger Agreement and the Asset Purchase Agreement and the transactions contemplated thereby and recommends that DropCar stockholders vote “FOR” the DropCar Share Issuance Proposal, “FOR” the Reverse Stock Split Proposal, “FOR” the Asset Sale Proposal, “FOR” the DropCar Preferred Conversion Proposal, “FOR” the A&R Charter Proposal, “FOR” the Incentive Plan Proposal, “FOR” the DropCar Golden Parachute Compensation Proposal, and “FOR” the Adjournment Proposal.

 

3
 

 

AYRO’s board of directors has (i) determined that the Merger Agreement and transactions contemplated thereby, including the merger, are just, equitable and fair to AYRO and its stockholders and that it is advisable and in the best interests of AYRO and its stockholders that AYRO consummate the merger, (ii) unanimously approved the Merger Agreement and the merger and the other transactions contemplated by the Merger Agreement and (iii) unanimously recommended that AYRO stockholders adopt and approve the Merger Agreement and the transactions contemplated thereby, including the merger, by written consent and that AYRO preferred stockholders approve the AYRO Preferred Stock Conversion by written consent.

 

This joint proxy and consent solicitation statement/prospectus provides you with important information about the special meeting and solicitation of written consents, DropCar, AYRO, the proposed merger and the transactions and documents related to the merger. Please carefully read this entire joint proxy and consent solicitation statement/prospectus, including “RISK FACTORS” beginning on page 61.

 

For the DropCar stockholders: your vote is very important. Whether or not you plan to attend the DropCar special meeting, please take the time to vote by completing and returning the enclosed proxy card to DropCar or by granting your proxy electronically over the Internet or by telephone. If your shares are held in “street name,” you must instruct your broker in order to vote on all proposals.

 

Sincerely,

 

Spencer Richardson
Chief Executive Officer
DropCar, Inc.
Rodney C. Keller, Jr.
Chief Executive Officer
AYRO, Inc.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the DropCar common stock to be issued in the merger, or determined if this joint proxy and consent solicitation statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

This joint proxy and consent solicitation statement/prospectus is dated April 24 , 2020 and is first expected to be mailed or otherwise delivered to the stockholders of DropCar and AYRO on or about April 24, 2020.

 

4
 

 

 

DropCar, Inc.

1412 Broadway, Suite 2105

New York, New York 10018

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, MAY 27, 2020

10:00 a.m. Eastern Time

To be Held Online at www.issuerdirect.com/virtual-event/DCAR

 

To the Stockholders of DropCar, Inc.:

 

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the “special meeting”) of DropCar, Inc., a Delaware corporation (“DropCar,” “we,” “our,” or “us”), will be held on Wednesday, May 27, 2020 at 10:00 a.m., Eastern Time and will be “virtual,” meaning that you can participate in the meeting online at www.issuerdirect.com/virtual-event/DCAR, to consider and vote upon the following matters:

 

(1) The DropCar Share Issuance Proposal — to approve, for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of shares of our common stock to AYRO equity holders and to other parties in connection with the merger of ABC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of DropCar (the “Merger Sub”), with and into AYRO, Inc., a Delaware corporation (“AYRO”), pursuant to the terms and conditions of the Agreement and Plan of Merger and Reorganization, dated as of December 19, 2019, as it may be amended, by and among DropCar, the Merger Sub and AYRO (the “Merger Agreement”), the Merger Agreement and the transactions contemplated thereby or in connection therewith (the “DropCar Share Issuance Proposal”);

 

(2) The Reverse Stock Split Proposal — to approve an amendment to our amended and restated certificate of incorporation to effect a reverse stock split with a ratio between 1-for-10 and 1-for-30 with respect to the issued and outstanding common stock of the combined company immediately following the merger (the “Reverse Stock Split Proposal”);

 

(3) The Asset Sale Proposal — to approve the sale of substantially all of the assets of DropCar (the “Asset Sale Transaction”) pursuant to the terms and conditions of the Asset Purchase Agreement, dated as of December 19, 2019, as it may be amended (the “Asset Purchase Agreement”), by and among DropCar, DropCar Operating Company, Inc., DC Partners Acquisition, LLC (“DC Partners”), Spencer Richardson and David Newman (the “Asset Sale Proposal”);

 

(4) The DropCar Preferred Conversion Proposal — to approve an amendment to our certificate of incorporation to provide for the reduction of the conversion price of the Series H-4 Convertible Preferred Stock to $0.50 per share and the automatic conversion of such shares into DropCar common stock and to authorize, for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of shares of DropCar common stock in connection therewith (the “DropCar Preferred Conversion Proposal”);

 

(5) The A&R Charter Proposal — to approve the amendment and restatement of our certificate of incorporation in its entirety (the “A&R Charter Proposal”);

 

(6) The Incentive Plan Proposal — to approve the 2020 Long-Term Equity Incentive Plan (the “Incentive Plan Proposal”);

 

(7) The DropCar Golden Parachute Compensation Proposal — to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to DropCar’s named executive officers in connection with the merger (the “DropCar Golden Parachute Compensation Proposal”); and

 

(8) The Adjournment Proposal — to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more proposals presented to stockholders for vote (the “Adjournment Proposal”).

 

5
 

 

The DropCar special meeting will be a virtual meeting via live webcast on the Internet. DropCar stockholders will be able to attend the special meeting, vote and submit questions during the special meeting by visiting www.issuerdirect.com/virtual-event/DCAR and entering the control number included in the proxy card that you receive. DropCar stockholders are encouraged to access the special meeting before the start time of 10:00 a.m., Eastern Time on May 27, 2020. Please allow ample time for online check-in. DropCar stockholders will not be able to attend the special meeting in person.

 

Our board of directors has fixed the close of business on April 14, 2020 as the record date for the special meeting. Only holders of record of shares of DropCar capital stock at the close of business on such date are entitled to receive notice of, and vote at, the special meeting or at any postponement(s) or adjournment(s) of the special meeting. A complete list of our stockholders of record entitled to vote at the special meeting will be available for ten (10) days before the special meeting at our principal executive office for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.

 

Approval of the DropCar Share Issuance Proposal requires the affirmative vote of the majority of the votes cast on such matter. The Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal require the affirmative vote of the majority of the shares present and entitled to vote on such matter. Approval of each of the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal and the A&R Charter Proposal requires the affirmative vote of the holders of the majority of shares outstanding and entitled to vote on such matter.

 

OUR BOARD OF DIRECTORS HAS DETERMINED THAT IT IS ADVISABLE AND IN THE BEST INTEREST OF DROPCAR AND ITS STOCKHOLDERS TO ENTER INTO THE MERGER AGREEMENT AND THE ASSET PURCHASE AGREEMENT AND THE BOARD HAS AUTHORIZED AND APPROVED THE TERMS OF THE MERGER AGREEMENT AND THE ASSET PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. OUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE ASSET PURCHASE AGREEMENT AND RECOMMENDS THAT DROPCAR STOCKHOLDERS VOTE “FOR” THE DROPCAR SHARE ISSUANCE PROPOSAL, “FOR” THE REVERSE STOCK SPLIT PROPOSAL, “FOR” THE ASSET SALE PROPOSAL, “FOR” THE DROPCAR PREFERRED CONVERSION PROPOSAL, “FOR” THE A&R CHARTER PROPOSAL, “FOR” THE INCENTIVE PLAN PROPOSAL, “FOR” THE DROPCAR GOLDEN PARACHUTE COMPENSATION PROPOSAL AND “FOR” THE ADJOURNMENT PROPOSAL.

 

Your vote is very important. If your shares are registered in your name as a stockholder of record of DropCar, whether or not you expect to attend the special meeting, please sign and return the enclosed proxy card promptly in the envelope provided or promptly submit your proxy by telephone or over the Internet following the instructions on the proxy card, to ensure that your shares will be represented at the special meeting.

 

If your shares are held in “street name” through a broker, trust, bank or other nominee, and you received the notice of the special meeting through your broker or through another intermediary, please complete and return the materials in accordance with the instructions provided to you by such broker or other intermediary to instruct them how to vote your shares or contact your broker or other intermediary directly in order to obtain a proxy issued to you by your nominee holder to attend the special meeting and vote at the special meeting. Failure to do so may result in your shares not being eligible to be voted by proxy at the special meeting.

 

You may revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the enclosed joint proxy and consent solicitation statement/prospectus.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON WEDNESDAY, MAY 27, 2020, TO BE HELD ONLINE AT www.issuerdirect.com/virtual-event/DCAR: This notice is not a form for voting and presents only an overview of the more complete joint proxy and consent solicitation statement/prospectus. We urge you to read the accompanying joint proxy and consent solicitation statement/prospectus, including its annexes and the section titled “RISK FACTORS” beginning on page 61, carefully and in their entirety. Copies of the joint proxy and consent solicitation statement/prospectus and the accompanying proxy card are available, without charge, on the internet, on our website (http://www.dropcar.com), and can be obtained by sending an e-mail to ir@dropcar.com. To obtain timely delivery, our stockholders must request the materials no later than five (5) business days prior to the DropCar special meeting. If you have any questions concerning the merger, the Merger Agreement, the Asset Purchase Agreement, the proposals, the DropCar special meeting or the accompanying joint proxy and consent solicitation statement/prospectus or need help voting your shares of DropCar capital stock, please contact DropCar’s investor relations department at 646-916-4595.

 

  By Order of the Board of Directors,
   
  /s/ Joshua N. Silverman
  Joshua N. Silverman
  Chairman of the Board

 

April 24 , 2020

 

6
 

 

 

AYRO, Inc.

900 E. Old Settlers Boulevard, Suite 100
Round Rock, TX 78664

NOTICE OF SOLICITATION OF WRITTEN CONSENT
FOR ACTION TO BE TAKEN BY WRITTEN CONSENT
IN LIEU OF A MEETING OF STOCKHOLDERS

 

To the Stockholders of AYRO, Inc.:

 

Included in the accompanying joint proxy and consent solicitation statement/prospectus is a consent solicitation statement furnished by the board of directors of AYRO, Inc., a Delaware corporation (“AYRO”), to the holders of record of the outstanding shares of AYRO common stock and preferred stock (collectively referred to herein as the “AYRO equity holders”), at the close of business on April 20, 2020, or the record date.

 

This joint proxy and consent solicitation statement/prospectus is being delivered to holders of AYRO common stock and preferred stock as of the record date, to solicit written consent to the adoption and approval of the Agreement and Plan of Merger and Reorganization, dated as of December 19, 2019, as it may be amended from time to time (the “Merger Agreement”), by and among DropCar, Inc., a Delaware corporation (“DropCar”), ABC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of DropCar (the “Merger Sub”), and AYRO, pursuant to which Merger Sub will merge with and into AYRO, with AYRO continuing as the surviving corporation and a wholly owned subsidiary of DropCar, and to the transactions contemplated by the Merger Agreement including the merger (the “AYRO Merger Proposal”). Additionally, this joint proxy and consent solicitation statement/prospectus is being delivered to holders of AYRO preferred stock as of the record date to solicit their written consent of the conversion of AYRO preferred stock into AYRO common stock immediately prior to the consummation of the proposed merger (the “AYRO Preferred Stock Conversion”).

 

As a record holder of outstanding AYRO common stock or preferred stock on the record date, you are urged to complete, date and sign the enclosed written consent and promptly return the completed and executed written consent by one of the means described in “AYRO SOLICITATION OF WRITTEN CONSENT — Submission of Consents” beginning on page 137 of the enclosed joint proxy and consent solicitation statement/prospectus. AYRO’s board of directors has set May 12, 2020, as the target final date for receipt of written consents. AYRO reserves the right to extend the final date for receipt of written consents without any prior notice to stockholders.

 

The enclosed joint proxy and consent solicitation statement/prospectus describes the Merger Agreement and the proposed merger in detail and includes, as Annex A, the complete text of the Merger Agreement. We urge you to read the accompanying joint proxy and consent solicitation statement/prospectus, including all documents incorporated by reference into the accompanying joint proxy and consent solicitation statement/prospectus and its annexes carefully and in their entirety. In particular, you should carefully read the section captioned “RISK FACTORS” beginning on page 61 of the enclosed joint proxy and consent solicitation statement/prospectus for a discussion of certain risk factors relating to the Merger Agreement and the merger.

 

Approval of the AYRO Merger Proposal requires the affirmative vote or written consent of holders of at least a majority of the outstanding shares of AYRO common stock and preferred stock, voting together as a single class on an as-converted-to-common stock basis.

 

7
 

 

Approval of the AYRO Preferred Stock Conversion requires the affirmative vote or written consent of the holders of a majority of the outstanding shares of AYRO preferred stock voting together as a single class and on an as-converted-to-common stock basis.

 

You are entitled to the right to seek appraisal of the fair value of your shares of AYRO common stock or preferred stock, as determined by the Delaware Court of Chancery with respect to the merger under Section 262 of the Delaware General Corporation Law. A summary of the appraisal rights that may be available to you is described in the section titled “THE MERGER — Appraisal Rights” beginning on page 169. An AYRO stockholder of record who wishes to exercise appraisal rights, or preserve the ability to do so, must not deliver a signed written consent approving the AYRO Merger Proposal or deliver a signed written consent without indicating a decision on the AYRO Merger Proposal. Any signed written consent returned without indicating a decision on the AYRO Merger Proposal will be counted as approving the AYRO Merger Proposal. AYRO stockholders seeking to exercise appraisal rights must also take all other steps necessary to perfect their appraisal rights.

 

Your written consent is very important. The Merger Agreement and the AYRO Preferred Stock Conversion must be adopted by the requisite affirmative vote of the AYRO stockholders in order for the merger to be consummated. PLEASE NOTE: Your consents, as evidenced by your signing and returning the signature page to the enclosed written consent, are irrevocable once they are received by AYRO, as explained in the joint proxy and consent solicitation statement/prospectus. If you have any questions concerning the merger, the Merger Agreement, the AYRO Merger Proposal, the AYRO Preferred Stock Conversion, the written consent or the accompanying joint proxy and consent solicitation statement/prospectus, would like additional copies of the accompanying joint proxy and consent solicitation statement/prospectus or need help executing the written consent, please call Curtis Smith at (512) 643-1256.

 

AYRO’S BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE MERGER AND THE TERMS OF THE MERGER AGREEMENT AND HAS DETERMINED THAT THE MERGER IS JUST, EQUITABLE AND FAIR TO AYRO AND ITS STOCKHOLDERS AND THAT IT IS ADVISABLE AND IN THE BEST INTERESTS OF AYRO AND ITS STOCKHOLDERS THAT AYRO CONSUMMATE THE MERGER. ACCORDINGLY, AYRO’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT AYRO STOCKHOLDERS APPROVE THE MERGER AND ADOPT AND APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND APPROVE THE AYRO PREFERRED STOCK CONVERSION, BY EXECUTING AND DELIVERING THE WRITTEN CONSENT FURNISHED WITH THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS.

 

  By Order of the Board of Directors,
   
  /s/ Rodney C. Keller, Jr.
  Rodney C. Keller, Jr.
  Chief Executive Officer

 

April 24 , 2020

 

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REFERENCE TO ADDITIONAL INFORMATION

 

This joint proxy and consent solicitation statement/prospectus includes important business and financial information about DropCar. Additional information about DropCar is available to you without charge upon your request. You can obtain any of the documents filed with or furnished to the Securities and Exchange Commission, or the “SEC,” by DropCar at no cost from the SEC’s website at http://www.sec.gov. You may also request copies of these documents at no cost by requesting them in writing or by telephone at the following address and telephone number:

 

DropCar, Inc.:
1412 Broadway

Suite 2105

New York, New York 10018
Attention: Corporate Secretary
Telephone: (646) 342-1595
E-mail: ir@dropcar.com

 

Or

 

DropCar’s Proxy Solicitor:
Kingsdale Advisors

Telephone (toll-free in North America): (888) 642-3150

Telephone (outside of North America): (416) 867-2272

Email: contactus@kingsdaleadvisors.com

 

To obtain timely delivery of these documents, you must request them no later than five (5) business days before the date of the special meeting or deadline for submitting written consents. This means that DropCar stockholders requesting documents must do so by May 20, 2020 and AYRO stockholders requesting documents must do so by May 5, 2020.

 

You should rely only on the information contained in this document. No one has been authorized to provide you with information that is different from that contained in this document. This document is dated April 24, 2020, and you should assume that the information in this document is accurate only as of such date. Neither the mailing nor delivery of this document to DropCar stockholders or AYRO stockholders nor the issuance by DropCar of shares of DropCar common stock in connection with the merger will create any implication to the contrary.

 

ABOUT THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS

 

Except where the context otherwise indicates, information contained in this document regarding DropCar has been provided by DropCar and information contained in this document regarding AYRO has been provided by AYRO. See “Where You Can Find More Information” beginning on page 317 of this joint proxy and consent solicitation statement/prospectus for more details.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

9
 

 

TABLE OF CONTENTS

 

  Page
ABOUT THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS 9
QUESTIONS AND ANSWERS 17
SUMMARY 34
SELECTED HISTORICAL FINANCIAL INFORMATION OF DROPCAR 56
SELECTED HISTORICAL FINANCIAL INFORMATION OF AYRO 57
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA 59
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA 60
RISK FACTORS 61
Risks Related to the Proposed Merger 61
Risks Related to the Reverse Stock Split 66
Risks Related to the Combined Company Following the Merger 67
Risks Related to the Business of AYRO 74
AYRO Risks Relating to its Financial Position and Need for Additional Capital 86
AYRO Risks Related to Regulatory Matters 88
AYRO Risks Related to Its Intellectual Property 89
Risks Related to AYRO’s International Operations 92
Risks Related to the Asset Sale Transaction 94
Risks Related to the Business of DropCar Prior to the Consummation of the Merger 95
Risks Related to DropCar’s Financial Position and Need for Additional Capital 103
Risks Related to Intellectual Property 105
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 106
MARKET AND INDUSTRY DATA 108
THE COMPANIES 109
DropCar, Inc. 109
ABC Merger Sub, Inc. 109
AYRO, Inc. 109

 

10
 

 

THE SPECIAL MEETING OF DROPCAR STOCKHOLDERS 110
General 110
Date, Time and Place 110
Purpose of the DropCar Special Meeting 110
Recommendation of the DropCar Board of Directors 110
DropCar Record Date and Quorum 111
Vote Required for Approval 111
Abstentions and Broker Non-Votes 112
Manner of Submitting Proxy 112
Shares Held in Street Name 113
Revocation of Proxies and Voting Instructions 113
Tabulation of Votes 113
Solicitation of Proxies 113
Assistance 113
DROPCAR PROPOSAL 1 – APPROVAL OF THE DROPCAR SHARE ISSUANCE PROPOSAL 114
DROPCAR PROPOSAL 2 – APPROVAL OF THE REVERSE STOCK SPLIT PROPOSAL 115
DROPCAR PROPOSAL 3 – APPROVAL OF ASSET SALE PROPOSAL 118
DROPCAR PROPOSAL 4 – APPROVAL OF DROPCAR PREFERRED CONVERSION PROPOSAL 123
DROPCAR PROPOSAL 5 – APPROVAL OF A&R CHARTER PROPOSAL 125
DROPCAR PROPOSAL 6 – APPROVAL OF THE INCENTIVE PLAN 126
DROPCAR PROPOSAL 7 – APPROVAL OF THE DROPCAR GOLDEN PARACHUTE COMPENSATION PROPOSAL 134

 

11
 

 

DROPCAR PROPOSAL 8 – APPROVAL OF THE ADJOURNMENT PROPOSAL 135
AYRO SOLICITATION OF WRITTEN CONSENT 136
AYRO Stockholder Action by Written Consent 136
Record Date 136
AYRO Stockholders Entitled to Consent 136
Consent Required 137
Submission of Consents 137
Executing Consents; Revocation of Consents 137
Solicitation of Consents; Expenses 137
Recommendation of AYRO’s Board of Directors 138
Assistance 138
THE MERGER 139
General 139
Background of the Merger 140
DropCar’s Reasons for the Merger 146
AYRO’s Reasons for the Merger 149
AYRO’s Reasons for the AYRO Preferred Stock Conversion 150
Opinion of DropCar’s Financial Advisor 150
Listing of DropCar Common Stock 155
Restrictions on Sales of Shares of DropCar Common Stock Received in the Merger 155
Opinions as to Material U.S. Federal Income Tax Consequences of the Merger 156
Ownership of DropCar Following the Merger 156
Board Composition and Management of DropCar after the Merger 156
Interests of DropCar’s Directors and Executive Officers in the Merger 157
Interests of AYRO’s Directors and Executive Officers in the Merger 159
Regulatory Approvals Required for the Merger 167
Accounting Treatment 168
U.S. Federal Income Tax Considerations 168
Appraisal Rights 169
Treatment of AYRO Stock Options 173
AYRO’s 2017 Long Term Incentive Plan 173
The Employment Agreements and the Lock-up Agreements 173
DropCar Private Placement 174
DropCar Series H-6 Convertible Preferred Stock 174

 

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Bridge Financing 175
AYRO Private Placements 175
Nominal Stock Subscription Agreement 176
Palladium Placement Agent and Merger Advisory Agreement 177
ALS Letter Agreement 177
Note Conversion Agreements 177
Adams Note Amendment 177
 
THE MERGER AGREEMENT 178
Form, Effective Time and Closing of Merger 178
Effects of Merger; Merger Consideration 178
Treatment of AYRO Stock Options 179
Treatment of AYRO Warrants 179
Treatment of AYRO Preferred Stock 179
Treatment of DropCar Preferred Stock 179
Exchange Ratio 180
Directors and Executive Officers of the Combined Company Following the Merger 181
Dissenting Shares 182
Conditions to the Closing of the Merger 182
Representations and Warranties 184
No Solicitation 185
Meetings of Stockholders 187
Covenants; Conduct of Business Pending the Merger 187
Other Agreements 190
Termination of the Merger Agreement 192
Termination Fees 192
Amendment 192

 

13
 

 

 

ANCILLARY AGREEMENTS 193
AYRO Private Placement SPAs 193
Nominal Stock Subscription Agreement 196
Palladium Placement Agent and Merger Advisory Agreement 197

DropCar Placement Agent and Merger Advisory Agreement with Palladium

197
DropCar Private Placement 198
DropCar Series H-6 Convertible Preferred Stock 198
ALS Letter Agreement 199

Secured Loan

197

April Bridge Financing

197
   

ASSET PURCHASE AGREEMENT

199
   
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION 204
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 205
MANAGEMENT OF THE COMBINED COMPANY 210
Executive Officers and Directors of the Combined Company Following the Merger 210
Family Relationships 213
Voting Agreement 214
Board Composition 214
Independence of the Board of Directors 214
AYRO Executive Officer and Director Compensation 215
Summary Compensation Table 215
Narrative Disclosure to Summary Compensation Table 216
Incentive Plans 225

DropCar Director Compensation

229
PRINCIPAL STOCKHOLDERS OF DROPCAR AND THE COMBINED COMPANY 230
PRINCIPAL STOCKHOLDERS OF AYRO AND THE COMBINED COMPANY 233
RELATED PARTY TRANSACTIONS 234
AYRO Related Party Transactions 234
DropCar Related Party Transactions 236

 

14
 

 

 

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 238
INFORMATION ABOUT DROPCAR 241
Overview 241
Recent Developments 242
Business 243
Sales and Marketing 247
Employees 247
Properties 247
Intellectual Property 247
Competition 247
Government Regulation 248
Legal Proceedings 249
DropCar Management’s Discussion and Analysis of Financial Condition and Results of Operations 251
INFORMATION ABOUT AYRO 264
Business 264
Intellectual Property 274
Employees 277
Properties 278
Legal Proceedings 278
AYRO Management’s Discussion and Analysis of Financial Condition and Results of Operations 278
DESCRIPTION OF DROPCAR CAPITAL STOCK 299
COMPARISON OF RIGHTS OF DROPCAR STOCKHOLDERS AND AYRO STOCKHOLDERS 307
Certain Differences Between the Rights of Stockholders of DropCar and Stockholders of AYRO 308
LEGAL MATTERS 317
EXPERTS 317

  

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WHERE YOU CAN FIND MORE INFORMATION 317
FUTURE STOCKHOLDER PROPOSALS 318
DropCar – Inclusion of Proposals in DropCar’s Proxy Statement and Proxy Card under the SEC’s Rules 318
DropCar – Bylaws Requirements for Stockholder Submissions of Nominations and Proposals 318
AYRO – Inclusion of Proposals in AYRO’s Proxy Statement and Proxy Card under the SEC’s Rules 318
AYRO – Bylaws Requirements for Stockholder Submissions of Nominations and Proposals 318
AYRO, INC. – INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
DROPCAR, INC. – INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-28
   
ANNEXES  
A. Merger Agreement  
B. DropCar Amended and Restated Charter  
C. Form of DropCar Series H-4 Preferred Stock Charter Amendment  
D. DropCar Reverse Stock Split Charter Amendment  
E. Section 262 of DGCL  
F. Opinion of Financial Advisor  
G. Asset Purchase Agreement  
H. Employment Agreement of Rod Keller  
I. Amendment to Employment Agreement of Curt Smith  
J. 2020 Long-Term Equity Incentive Plan  
K. AYRO Private Placement SPAs  
L. Bridge Financing  
M. Nominal Stock Subscription Agreement  
N. DropCar Amended and Restated Bylaws  

O. Secured Loan

 
P. April Bridge Financing  

 

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QUESTIONS AND ANSWERS

 

The following are answers to some questions that DropCar stockholders and AYRO stockholders may have regarding the proposed merger and the other proposals being considered by DropCar stockholders and AYRO stockholders. DropCar and AYRO urge you to read carefully this entire joint proxy and consent solicitation statement/prospectus, including the annexes, because the information in this section does not provide all the information that might be important to you.

 

Unless the context otherwise requires, references in this joint proxy and consent solicitation statement/prospectus to “DropCar” refers to DropCar, Inc., a Delaware corporation; “Merger Sub” refers to ABC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of DropCar, and “AYRO” refers to AYRO, Inc., a Delaware corporation.

 

Questions and Answers About the Merger and the Asset Sale Transaction

 

Q: Why am I receiving this joint proxy and consent solicitation statement/prospectus?

 

A:

You are receiving this joint proxy and consent solicitation statement/prospectus because you are a stockholder of record of either DropCar, as of April 14, 2020, the record date for the DropCar special meeting, or AYRO, as of April 20, 2020 the record date for AYRO solicitation of written consent.

 

DropCar, Merger Sub and AYRO have entered into an Agreement and Plan of Merger and Reorganization, dated as of December 19, 2019 (as may be amended from time to time, the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub will be merged with and into AYRO, with AYRO continuing as the surviving company and a wholly owned subsidiary of DropCar. See “THE MERGER” beginning on page 139 and “THE MERGER AGREEMENT” beginning on page 178 of this joint proxy and consent solicitation statement/prospectus. A copy of the Merger Agreement is attached to this joint proxy and consent solicitation statement/prospectus as Annex A. DropCar will issue shares of DropCar common stock to the AYRO equity holders in connection with the merger as merger consideration. In addition, at the effective time of the merger, the Pre-funded Warrants to purchase an aggregate of 1,750,000 shares of AYRO common stock at an exercise price of $0.0001 per whole share, other warrants to purchase an aggregate of 14,720,661 shares of AYRO common stock, including warrants to purchase an aggregate of 3,779,442 shares of AYRO common stock at an exercise price of $0.3043 per whole share to be issued in the Bridge Financing, 4,829,569 shares of AYRO common stock at an exercise price of $0.2024 per whole share to be issued in the $850,000 AYRO Private Placement, 3,566,373 shares of AYRO common stock at an exercise price of $0.3708 per whole share to be issued in the $1,150,000 AYRO Private Placement, warrants to purchase an aggregate of 852,277 shares of AYRO common stock to be issued to the placement agent in the Bridge Financing and the AYRO Private Placements and 1,693,000 shares of AYRO common stock at an exercise price of $2.00 per whole share (such warrants other than the Pre-funded Warrants, collectively the “Outstanding Warrants”), and options to purchase an aggregate of 3,662,952 shares of AYRO common stock (the “AYRO Options”) will automatically convert into the right to purchase shares of DropCar common stock equal to the number of shares of AYRO common stock issuable upon exercise of such Pre-funded Warrants, warrants or options multiplied by 1.0844 (the “Exchange Ratio”) with an exercise price for the Pre-funded Warrants, warrants and options equal to the exercise price of the Pre-funded Warrants, warrants and options divided by the Exchange Ratio. The aggregate number of shares of common stock that DropCar will issue pursuant to the terms of the Merger Agreement will be in excess of twenty (20%) of DropCar’s pre-merger outstanding shares of common stock. Accordingly, DropCar is asking its stockholders to approve the DropCar Share Issuance Proposal in accordance with the Nasdaq Listing Rules.

 

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The Merger Agreement requires, among other things, unless otherwise waived by DropCar and AYRO, for the merger to be consummated:

 

  Approval of each of the proposals presented to DropCar stockholders to be voted on at the DropCar special meeting excluding the DropCar Golden Parachute Compensation Proposal, including the approval of the DropCar Share Issuance Proposal, which requires the affirmative vote of the majority of the votes cast on such matter; the approval of the Incentive Plan Proposal, which requires the approval of a majority of the shares present and entitled to vote; and approval of each of the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal and the A&R Charter Proposal, which require the affirmative vote of the holders of the majority of shares outstanding and entitled to vote on such matters; and

 

 

Adoption and approval of the AYRO Merger Proposal, which requires the affirmative vote or written consent of at least a majority of the issued and outstanding shares of AYRO common stock and preferred stock, voting together as a single class on an as-converted-to-common stock basis; and the approval of the AYRO Preferred Stock Conversion, which requires the affirmative vote or written consent of the holders of a majority of the issued and outstanding preferred stock voting together as a single class.

 

As a condition to closing the merger, the Merger Agreement also requires that AYRO consummate the sale of shares of AYRO common stock (or common stock equivalents) and warrants to purchase AYRO common stock resulting in gross proceeds of an aggregate of $2 million, which AYRO has agreed to effect pursuant to the AYRO Private Placement (as defined below), and that DropCar consummate the sale of substantially all of DropCar’s assets related to the business of DropCar conducted as of and prior to the date of the Merger Agreement, in each case, subject only to the substantially concurrent closing of the merger.

 

On December 19, 2019, DropCar entered into an asset purchase agreement (the “Asset Purchase Agreement”) by and among DropCar, DropCar Operating Company, Inc., a Delaware corporation and wholly owned subsidiary of DropCar (“DropCar Operating”), DC Partners Acquisition, LLC (“DC Partners”), Spencer Richardson and David Newman, pursuant to which DropCar Operating agreed to sell substantially all of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry to an entity controlled by Messrs. Richardson and Newman, DropCar’s current Chief Executive Officer and Chief Business Development Officer, respectively (the “Asset Sale Transaction”). The aggregate purchase price for the purchased assets consists of the cancellation of certain liabilities pursuant to those certain employment agreements by and between DropCar Operating and each of Messrs. Richardson and Newman, plus the assumption of certain liabilities relating to, or arising out of, workers’ compensation claims that occurred prior to the closing date of the Asset Purchase Agreement.

 

The Asset Purchase Agreement contains representations, warranties and covenants by DropCar Operating and DC Partners that are typical for this type of transaction. Consummation of the transactions contemplated by the Asset Purchase Agreement is subject to certain conditions, including customary closing conditions relating to the (i) the accuracy of each party’s representations and warranties (subject to certain qualifications), (ii) material compliance by the parties with their respective covenants and agreements contained in the Asset Purchase Agreement, (iii) the consummation of a Change in Control (as defined in the Asset Purchase Agreement), including the merger and (iv) the receipt by DropCar of the affirmative vote of the holders of the majority of the shares of DropCar capital stock outstanding and entitled to vote on such matters with respect to the matters contemplated by the Asset Purchase Agreement.

 

This joint proxy and consent solicitation statement/prospectus contains important information about the merger and the proposals being voted on by DropCar stockholders and AYRO stockholders, and you should read it carefully. This document collectively serves as a proxy statement of DropCar, consent solicitation statement of AYRO and a prospectus of DropCar. It is a joint proxy and consent solicitation statement because both the DropCar and AYRO boards of directors are soliciting proxies or written consents from their respective stockholders. It is a prospectus because DropCar will issue shares of DropCar common stock to AYRO equity holders in connection with the merger. Your vote is important. You are encouraged to submit your proxy or written consent as soon as possible after carefully reviewing this joint proxy and consent solicitation statement/prospectus and its annexes.

 

18
 

 

Q: What will happen in the merger?

 

A:

At the closing of the merger, Merger Sub will merge with and into AYRO, with AYRO surviving the merger as a wholly owned subsidiary of DropCar, and DropCar will issue approximately 42,112,223 shares of its common stock to AYRO equity holders, prior to giving effect to the proposed reverse stock split contemplated by the Reverse Stock Split Proposal, including 23,683,059 shares of DropCar common stock to be issued in respect of the AYRO equity securities outstanding as of the date of this joint proxy and consent solicitation statement/prospectus, 4,098,427 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued upon conversion of certain bridge loans made to AYRO immediately prior to the merger, 9,104,560 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued in the AYRO Private Placements immediately prior to the merger, 2,200,495 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued in connection with April Bridge Financing prior to the merger and 550,125 and 2,475,557 shares of DropCar common stock in respect of AYRO common stock to be issued to a financial advisor of AYRO and a consultant of AYRO, respectively, prior to the closing of the merger. In addition, the Pre-funded Warrants, Outstanding Warrants and AYRO Options will automatically convert into the right to purchase pre-reverse stock split shares of DropCar common stock. Further, upon completion of the merger, DropCar will issue approximately 1,100,249 pre-reverse stock split shares of DropCar common stock to DropCar and AYRO’s financial advisor and warrants to purchase 500,000 pre-reverse stock split shares of DropCar common stock at an exercise price of $0.01 per share to the purchasers of $500,000 aggregate principal amount of secured promissory notes of AYRO (the “Secured Loan”).

 

At the effective time of the merger, the Pre-funded Warrants will convert into the right to purchase 1,897,700 shares of DropCar common stock at an exercise price of $0.000092 per share; the Outstanding Warrants will convert into the right to purchase an aggregate of 15,963,087 shares of DropCar common stock, with the warrants to be issued in the Bridge Financing being exercisable to purchase 4,098,427 shares of DropCar common stock at an exercise price of $0.2806 per share, the warrants to be issued in the $850,000 AYRO Private Placement being exercisable to purchase 5,237,185 shares of DropCar common stock at an exercise price of $0.1866 per share, the warrants to be issued in the $1,150,000 AYRO Private Placement being exercisable to purchase 3,867,375 shares of DropCar common stock at an exercise price of $0.3420 per share, the warrants to be issued to the private placement agent in the Bridge Financing and the AYRO Private Placements being exercisable to purchase an aggregate of 924,211 shares of DropCar common stock and the other warrants being exercisable to purchase 1,835,889 shares of DropCar common stock at an exercise price of $1.84 per share; and the AYRO Options will convert into the right to purchase 3,972,105 shares of DropCar common stock.

 

Q:

What will happen in the Asset Sale Transaction?

   
A: At the closing of the Asset Sale Transaction, which is expected to occur immediately following the closing of the merger, DropCar Operating will sell substantially all of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry to DC Partners. Following the merger and the Asset Sale Transaction, it is anticipated that the combined company will focus its resources on executing AYRO’s current business plan.

 

Q: What equity stake will current DropCar stockholders and former AYRO stockholders hold in DropCar after the closing of the merger?

 

A: It is anticipated that, after the closing of the merger, assuming exercise of the Pre-funded Warrants, (i) AYRO equity holders (including the investors in the Bridge Financing, the AYRO Private Placements, the April Bridge Financing and the Nominal Stock Subscription and a consultant to AYRO) will own approximately 79% of the outstanding equity of DropCar; (ii) current DropCar stockholders (including holders of Series H-4 Preferred Stock and Series H-6 Preferred Stock) will own approximately 18% of the outstanding equity of DropCar; and (iii) the financial advisor to DropCar and AYRO will own approximately 3% of the outstanding equity of DropCar. If the Reverse Stock Split Proposal is approved and the combined company effects the reverse stock split, the percentage ownership interest of the combined company’s stockholders will not change, except to the extent that the reverse stock split would result in the rounding up of a fractional share issued to a combined company stockholder.

 

19
 

 

Q: When is the merger expected to be completed?

 

A: DropCar and AYRO anticipate that the merger will be consummated promptly following the DropCar special meeting, provided that all other conditions to the consummation of the merger in the Merger Agreement have been satisfied or waived. However, it is possible that the failure to timely meet the closing conditions specified in the Merger Agreement or other factors outside of DropCar’s or AYRO’s control could require DropCar and AYRO to complete the merger at a later time or not at all. See “THE MERGER AGREEMENT — Conditions to Completion of the Merger” on page 178 of this joint proxy and consent solicitation statement/prospectus for a more complete summary of the conditions that must be satisfied prior to closing.

 

Q: What happens if the merger is not consummated or is terminated?

 

A:

There are certain circumstances under which the Merger Agreement may be terminated. If the Merger Agreement is terminated pursuant to its terms, the merger will not be consummated. If the merger is not completed for any reason, AYRO equity holders will not receive any merger consideration or shares of DropCar common stock for their equity in AYRO pursuant to the Merger Agreement or otherwise. Instead, DropCar and AYRO will remain separate companies, and DropCar expects that its common stock will continue to be registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and traded on The Nasdaq Capital Market. See “THE MERGER AGREEMENT — Termination of the Merger Agreement,” “THE MERGER AGREEMENT — Effect of Termination” and “THE MERGER AGREEMENT — Termination Fees; Expenses in Connection with the Termination” beginning on page 178 of this joint proxy and consent solicitation statement/prospectus for information regarding the parties’ specific termination rights.

 

If the merger does not close, the board of directors of DropCar (the “DropCar Board of Directors”) may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose of the various assets of DropCar or continue to operate the business of DropCar. If the DropCar Board of Directors decides to dissolve and liquidate DropCar’s assets, DropCar would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. This would be a lengthy and uncertain process, and there can be no assurances as to the amount or timing of available cash, if any, that would be left to distribute to DropCar stockholders after paying the debts and other obligations of DropCar and setting aside funds for reserves.

 

Q: Is there a break-up fee under the Merger Agreement?

 

A:

Yes. If DropCar terminates the Merger Agreement because the affirmative vote of the holders of a majority of the voting power of the outstanding shares of AYRO common stock and preferred stock, voting together as a single class on an as-converted-to-common stock basis, shall not have been obtained within five (5) business days following the date that this Registration Statement on Form S-4 is declared effective, then AYRO shall pay to DropCar an amount equal to $1,000,000 (the “Termination Fee”). If (i) AYRO terminates the Merger Agreement because the DropCar Board of Directors has withdrawn or modified its recommendation that DropCar’s stockholders vote to approve the merger, the issuance of DropCar common stock in the merger, the Asset Sale Transaction and the DropCar Charter Amendment, including for purposes of effectuating the reverse stock split, or if (ii) DropCar enters into a definitive agreement to effect a Parent Superior Offer, as defined in the Merger Agreement, then DropCar shall pay to AYRO the Termination Fee. Further, DropCar shall be required to pay to AYRO the Termination Fee if either DropCar or AYRO terminates the Merger Agreement because (i) DropCar’s stockholder meeting was held and the stockholder approval contemplated by the Merger Agreement was not obtained thereat, subject to certain exceptions, (ii) prior to DropCar’s stockholder meeting an acquisition proposal for more than 20% of DropCar or any liquidation or dissolution of DropCar shall have been publicly announced, disclosed or otherwise communicated to DropCar board of directors, and (iii) within twelve (12) months after the date of such termination, DropCar enters into a definitive agreement with respect to an acquisition proposal for more than 20% of DropCar or any liquidation or dissolution of DropCar or consummates such acquisition transaction, then DropCar shall pay AYRO, upon such entry into a definitive agreement and/or consummation of a such acquisition transaction, the Termination Fee.

 

In addition to the Termination Fee, should either party fail to pay the Termination Fee when due, then such party shall reimburse the other party for reasonable costs and expenses (including reasonable fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by the other party of its rights to collect the Termination Fee plus interest on such overdue amount at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid plus three percent.

 

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Q: What do I need to do now?

 

A:

After you have carefully read this joint proxy and consent solicitation statement/prospectus and have decided how you wish to vote your shares, in the case of DropCar stockholders, please authorize a proxy to vote your shares promptly so that your shares are represented and voted at the DropCar special meeting or, in the case of AYRO stockholders, please execute and return your written consent as soon as possible.

 

Questions and Answers for DropCar Stockholders

 

Q: What will I receive in the merger?

 

A: If the merger is completed, DropCar stockholders will not receive any merger consideration and will continue to hold the shares currently held by such stockholders.

 

Shares of DropCar are currently traded on The Nasdaq Capital Market under the symbol “DCAR.” In connection with and immediately prior to the merger, AYRO will change its name to “AYRO Operating Company, Inc.” and DropCar will change its name to “AYRO, Inc.” and seek to change its trading symbol on The Nasdaq Capital Market to “AYRO.” DropCar stockholders will experience dilution as a result of the issuance of DropCar common stock to the AYRO equity holders in connection with the merger.

 

Q: When and where is the DropCar special meeting?

 

A:

The DropCar special meeting will be held on Wednesday, May 27, 2020 at 10:00 a.m., Eastern Time and will be “virtual,” meaning that you can participate in the meeting online at www.issuerdirect.com/virtual-event/DCAR at the appointed time and date. DropCar stockholders are encouraged to access the special meeting before the start time of 10:00 a.m., Eastern Time on Wednesday, May 27, 2020. Please allow ample time for online check-in. DropCar stockholders will not be able to attend the special meeting in person.

 

Q: Why are you holding a virtual special meeting?

 

A: Due to the emerging public health impact of COVID-19 and to support the health and well-being of DropCar stockholders, this special meeting will be held in a virtual meeting format only. DropCar has designed its virtual format to enhance, rather than constrain, stockholder access, participation and communication. For example, the virtual format allows DropCar stockholders to communicate with DropCar in advance of, and during, the special meeting so they can ask questions of the DropCar board of directors or management, as time permits.  It is the present expectation of the DropCar board of directors that future special meetings will have an in-person format.

 

Q: What happens if there are technical difficulties during the special meeting?

 

A:

DropCar will have technicians ready to assist its stockholders with any technical difficulties they may have accessing the virtual special meeting, voting at the special meeting or submitting questions at the special meeting. If DropCar stockholders encounter any difficulties accessing the virtual special meeting during the check-in or meeting time, they should call 1-877-481-4014 (toll free) or 1-919-481-4000 (international).

 

Q: What is being voted on?

 

A:

At the DropCar special meeting, DropCar stockholders will be asked to consider and vote upon the matters outlined in the accompanying Notice of Special Meeting of Stockholders of DropCar, including the following:

 

(1) The DropCar Share Issuance Proposal — to approve, for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of shares of DropCar common stock to AYRO equity holders and other parties in connection with the merger of Merger Sub with and into AYRO, pursuant to the terms and conditions of the Merger Agreement and the transactions contemplated thereby or in connection therewith;

 

(2) The Reverse Stock Split Proposal — to approve an amendment to DropCar’s amended and restated certificate of incorporation to effect a reverse stock split with a ratio between 1-for-10 and 1-for-30 with respect to the issued and outstanding common stock of the combined company immediately following the merger. The reverse stock split will increase DropCar’s stock price to at least $5.00 per share;

 

(3) The Asset Sale Proposal — to approve the sale of substantially all of the assets of DropCar (the “Asset Sale Transaction”) pursuant to the terms and conditions of the Asset Purchase Agreement, by and among DropCar, DropCar Operating, DC Partners, Spencer Richardson and David Newman;

 

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(4) The DropCar Preferred Conversion Proposal — to approve an amendment to DropCar’s certificate of incorporation to provide for the reduction of the conversion price of the Series H-4 Convertible Preferred Stock to $0.50 per share and the automatic conversion of such shares into DropCar common stock and to authorize, for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of shares of DropCar common stock in connection therewith;

 

(5) The A&R Charter Proposal — to approve the amendment and restatement of DropCar’s certificate of incorporation in its entirety;

 

(6) The Incentive Plan Proposal — to approve the 2020 Long-Term Equity Incentive Plan;

 

(7) The DropCar Golden Parachute Compensation Proposal — to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to DropCar’s named executive officers in connection with the merger; and

 

(8) The Adjournment Proposal — to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more proposals presented to stockholders for vote.

 

Q: Are the proposals conditioned on one another?

 

A: The DropCar Share Issuance Proposal, the DropCar Preferred Conversion Proposal and the Asset Sale Proposal are conditioned on each other. Each of the Reverse Stock Split Proposal, A&R Charter Proposal, and Incentive Plan Proposal are conditioned on the approval of the DropCar Share Issuance Proposal, but the approval of the DropCar Share Issuance Proposal is not conditioned on the approval of the Reverse Stock Split Proposal, the A&R Charter Proposal or the Incentive Plan Proposal. The Adjournment Proposal and the DropCar Golden Parachute Compensation Proposal do not require approval of any other proposal to be effective. It is important for you to note that in the event that any proposal other than the Reverse Stock Split Proposal, the Incentive Plan Proposal, the A&R Charter Proposal, the DropCar Golden Parachute Compensation Proposal or the Adjournment Proposal does not receive the requisite vote for approval, then DropCar and AYRO will not consummate the merger.

 

Q:

What will happen if the Reverse Stock Split Proposal is approved?

   
A:

If the Reverse Stock Split Proposal is approved, DropCar will effect a reverse stock split with a ratio between 1-for-10 and 1-for-30 with respect to the issued and outstanding common stock of the combined company immediately following the merger, thereby reducing the total number of outstanding shares of the combined company’s common stock from approximately 50,157,548 shares to between approximately 5,015,755 shares and 1,671,919, excluding shares underlying outstanding shares of preferred stock, options and warrants or from approximately 52,555,248 to between approximately 5,255,525 shares and 1,751,842 shares, assuming the exercise in full of the Pre-funded Warrants and the warrants to be issued pursuant to the Secured Loan and excluding shares underlying outstanding shares of preferred stock options and other warrants. To the extent that the reverse stock split would result in any stockholders of the combined company otherwise owning a fractional share of the combined company’s common stock, such share will be rounded up to the nearest whole share. The reverse stock split will affect all stockholders of the combined company uniformly and will not change any stockholder’s percentage ownership interest in the combined company, except to the extent that the reverse stock split would result in the rounding up of fractional shares. Unless otherwise set forth herein or unless the context indicates otherwise, all share amounts in this joint proxy and consent solicitation statement/prospectus do not give effect to the reverse stock split. You are encouraged to review the proposed amendments to the DropCar Charter, a copy of which is included in this joint proxy and consent solicitation statement/prospectus as Annex D. The reverse stock split will cause the price of the issued and outstanding common stock of the combined company at the effective time to equal at least $5.00.

 

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Q:

What will happen if the DropCar Preferred Conversion Proposal is approved?

   
A:

If DropCar obtains stockholder approval of the DropCar Preferred Conversion Proposal, the exercise price of the Series H-4 Convertible Preferred Stock will be reduced to $0.50 per share and such shares will convert automatically into shares of DropCar common stock at the reduced conversion price. You are encouraged to review the proposed amendment to the DropCar Charter, a copy of which is included in this joint proxy and consent solicitation statement/prospectus as Annex C.

   
Q: What constitutes a quorum for the DropCar special meeting?

 

A:

Pursuant to DropCar’s amended and restated bylaws (the “DropCar Bylaws”), the presence of holders of thirty-three and one-third percent (33.33%) of DropCar’s outstanding capital stock entitled to vote at the special meeting is necessary to constitute a quorum to transact business. Stockholders of common stock present at the special meeting or represented by proxy (including stockholders who abstain or do not vote with respect to one or more of the matters presented for stockholder approval) will be counted for purposes of determining whether a quorum is present. “Broker non-votes,” which are shares that are held in “street name” by a bank or brokerage firm that indicates on its proxy that it does not have discretionary authority to vote on a particular matter, will not be counted for purposes of determining whether a quorum is present.

 

Pursuant to the DropCar Bylaws, if a quorum is not present, the special meeting shall be adjourned to another place, date, or time by the chairman of the meeting. As of the record date for the special meeting, 2,510,650 shares of our common stock would be required to achieve a quorum.

 

Q:

What is the record date and what does it mean?

   
A: The record date to determine the stockholders entitled to notice of and to vote at the special meeting is the close of business on April 14, 2020. The record date was established by the DropCar Board of Directors as required by Delaware law. On the record date, 4,550,503 shares of DropCar common stock and 29,822 shares of DropCar Series H-6 Preferred Stock (which were convertible into an aggregate of 2,982,200 shares of DropCar common stock) were issued and outstanding, for total voting power of 7,532,703 shares.

 

Q:

Who is entitled to vote at the special meeting?

 

A: Holders of DropCar common stock and Series H-6 Convertible Preferred Stock at the close of business on the DropCar record date may vote at the special meeting.

 

Q: How many votes do I have?

 

A:

You are entitled to one vote on each proposal to be considered at the DropCar special meeting for each share of DropCar common stock that you owned as of the close of business on April 14, 2020, which is the DropCar record date. Holders of Series H-6 Convertible Preferred Stock are entitled to vote together with the holders of DropCar common stock those shares of Series H-6 Convertible Preferred Stock owned on the record date, on an as-if converted to DropCar common stock basis, subject to certain beneficial ownership blockers.

 

Q: Why is my vote important?

 

A:

The DropCar Share Issuance Proposal, DropCar Preferred Conversion Proposal and the Asset Sale Proposal are conditioned on each other. Each of the Reverse Stock Split Proposal, A&R Charter Proposal and Incentive Plan Proposal are conditioned on the approval of the DropCar Share Issuance Proposal, but the approval of the DropCar Share Issuance Proposal is not conditioned on the approval of the Reverse Stock Split Proposal, A&R Charter Proposal or Incentive Plan Proposal. The Adjournment Proposal and the DropCar Golden Parachute Compensation Proposal do not require approval of any other proposal to be effective. It is important for you to note that in the event that any proposal other than the Reverse Stock Split Proposal, the Incentive Plan Proposal, the A&R Charter Proposal, the DropCar Golden Parachute Compensation Proposal or the Adjournment Proposal does not receive the requisite vote for approval, then DropCar and AYRO will not consummate the merger.

 

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Q: What happens if the DropCar Golden Parachute Compensation Proposal is not approved?

 

A:

Nothing will happen if the DropCar Golden Parachute Compensation Proposal is not approved, as it is advisory only. The DropCar Golden Parachute Compensation Proposal gives DropCar stockholders the opportunity to express their views on the compensation DropCar’s named executive officers would receive in connection with the merger. If the merger is completed, the Asset Sale Transaction compensation and merger-related compensation may be paid to DropCar’s named executive officers to the extent payable in accordance with the terms of the relevant compensation agreements and arrangements, even if DropCar stockholders fail to approve the advisory vote regarding merger-related compensation.

 

Q: How do I vote?

 

A: If you are a stockholder of record, you may vote your shares of DropCar capital stock on the matters to be presented at the DropCar special meeting in any of the following ways:

 

  At the Special Meeting — To vote at the special meeting, you can participate in the meeting online at www.issuerdirect.com/virtual-event/DCAR at the appointed time and date and you will be able to vote by ballot. To ensure that your shares of DropCar capital stock are voted at the DropCar special meeting, the DropCar Board of Directors recommends that you submit a proxy even if you plan to attend the DropCar special meeting. DropCar stockholders will not be able to attend the special meeting in person.
  By Mail — To vote using the enclosed proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the enclosed return envelope. If you return your signed proxy card to DropCar before the DropCar special meeting, the persons named as proxies will vote your shares of DropCar capital stock as you direct.
  By Telephone — To vote by telephone, dial the toll free telephone number located on the enclosed proxy card using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card.
  By Internet — To vote over the Internet, go to the web address identified on the enclosed proxy card to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card.

 

If your shares are held in “street name” by a broker, bank or other nominee, please refer to the voting instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you. Your bank, brokerage firm or other nominee cannot vote your shares without instructions from you. Please note that if your shares are held in “street name” and you wish to vote at the DropCar special meeting, you must obtain a legal proxy from your bank, brokerage firm or other nominee.

 

Q: What is the vote required to approve each proposal?

 

A:

Assuming the presence of a quorum, (i) approval of the DropCar Share Issuance Proposal requires, for purposes of complying with Nasdaq Listing Rule 5635(d), the affirmative vote of a majority of votes cast; (ii) approval of the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal require the affirmative vote of a majority of the shares present at the special meeting or by proxy and entitled to vote; and (iii) approval of each of the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal and the A&R Charter Proposal requires the affirmative vote of the holders of the majority of shares outstanding and entitled to vote on such matter. A DropCar stockholder’s abstention from voting, or the failure of a DropCar stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee, will have no effect on the outcome of any vote on the DropCar Share Issuance Proposal. A DropCar stockholder’s abstention from voting will have the effect of a vote against the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal, but the failure of a DropCar stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee, will have no effect on the outcome of any vote on the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal or the Adjournment Proposal. A DropCar stockholder’s failure to vote by proxy or to vote at the special meeting, an abstention from voting, or the failure of a DropCar stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee will have the effect of a vote against the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, and the A&R Charter Proposal.

 

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  Consummation of the merger is subject to certain closing conditions, including, among other things, approval by the stockholders of DropCar and AYRO, the continued listing of DropCar’s common stock on The Nasdaq Stock Market after the merger and satisfaction of minimum net cash thresholds by DropCar and AYRO. In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and stockholders of AYRO (solely in their respective capacities as AYRO stockholders) holding approximately 57% of the outstanding AYRO capital stock have entered into voting agreements with DropCar to vote all of their shares of AYRO capital stock in favor of adoption of the Merger Agreement (the “AYRO Voting Agreements”) and (ii) certain executive officers, directors and stockholders of DropCar (solely in their respective capacities as DropCar stockholders) holding approximately 10% of the outstanding DropCar common stock have entered into voting agreements with AYRO to vote all of their shares of DropCar common stock in favor of approval of the Merger Agreement (the “DropCar Voting Agreements” and, together with the AYRO Voting Agreements, the “Voting Agreements”). The Voting Agreements include covenants with respect to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals.

 

Q: Do I have any dissenters’ or appraisal rights with respect to any of the matters to be voted on at the special meeting?

 

A: No. DropCar stockholders do not have any dissenters’ or appraisal rights under Delaware law in connection with the proposed merger or with respect to any of the matters to be voted on at the special meeting.

 

Q: How does the DropCar Board of Directors recommend that I vote at the special meeting?

 

A: The DropCar Board of Directors recommends that you vote “FOR” the following proposals: (i) the DropCar Share Issuance Proposal, (ii) the Reverse Stock Split Proposal, (iii) the Asset Sale Proposal, (iv) the DropCar Preferred Conversion Proposal, (v) the A&R Charter Proposal, (vi) the Incentive Plan Proposal, (vii) the DropCar Golden Parachute Compensation Proposal and (viii) the Adjournment Proposal.

 

Q: What interests do DropCar’s current executive officers and directors have in the merger?

 

A: DropCar’s directors and executive officers may have interests in the merger that are different from, or in addition to, or in conflict with, yours. These interests include:

 

 

after the merger, Mr. Silverman, DropCar’s current director and chairman of the board of directors, as well as Messrs. Giordano and Schiffman, will serve on the board of directors of the combined company as the designees of DropCar. In addition, Mr. Joseph, who is a current director of DropCar, will serve on the board of directors of the combined company as the designee of Alpha Capital Anstalt, the lead investor in the AYRO Private Placement. These directors may receive cash and other compensation from the combined company pursuant to director compensation as determined by the compensation committee of the board of the directors of the combined company;

 

  as current stockholders of DropCar, certain of DropCar’s directors and officers will retain an ownership stake in DropCar after the closing of the merger, at which time the operations of AYRO’s business will comprise substantially all of DropCar’s operations;

 

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the continued indemnification of current directors and officers of DropCar and the continuation of directors’ and officers’ liability insurance after the merger; and

     
upon the merger, the vesting of outstanding equity awards held by DropCar’s officers will accelerate.

 

These interests may influence the DropCar directors in making their recommendation that you vote in favor of the approval of the merger and other proposals.

 

Q: What happens if I abstain from voting or fail to instruct my bank or broker?

 

A:

DropCar will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present, but for purposes of approval, an abstention will have no effect on the DropCar Share Issuance Proposal, but will have the effect of a vote against the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, the A&R Charter Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal.

 

In addition, if you hold your shares of record and fail to submit a proxy or vote at the DropCar special meeting or if you hold your shares in “street name” and fail to instruct your bank or broker how to vote with respect to any of the proposals, it will have no effect on the DropCar Share Issuance Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal or the Adjournment Proposal, but will have the effect of a vote against the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal and the A&R Charter Proposal. Such failure to vote or submit a proxy or instruct your bank or broker how to vote will further prevent your vote from counting towards quorum, and a failure to achieve quorum will require that the meeting be adjourned. Therefore, it is imperative that you either submit a proxy or vote at the DropCar special meeting or provide instructions to your bank or broker on how to vote with respect to any of the proposals.

 

Q: What will happen if I sign and return my proxy card without indicating how I wish to vote?

 

A: All proxies will be voted in accordance with the instructions contained therein. Signed and dated proxies received by DropCar without an indication of how the stockholder intends to vote on a proposal will be voted in favor of each of the DropCar Share Issuance Proposal, the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, the A&R Charter Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal.

 

Q: If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A: No. If you are a DropCar stockholder and your shares are held in “street name” by a broker, bank or other nominee, you will receive instructions from your brokerage firm, bank or other nominee that you must follow in order to have your shares of DropCar capital stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. You may not vote shares held in “street name” by returning a proxy card directly to DropCar or by voting at the DropCar special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Further, brokers, banks or other nominees who hold shares of DropCar capital stock on behalf of their customers may not give a proxy to DropCar to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks and other nominees do not have discretionary voting power on these matters. Therefore, if you are a DropCar stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares, your shares will NOT be voted on any of the proposals to be voted upon at the DropCar special meeting, which will have the same effect as described above under “What happens if I abstain from voting or fail to instruct my bank or broker?”

 

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Q: Can I attend the DropCar special meeting and vote my shares?

 

A: Yes. All holders of DropCar common stock and Series H-6 Convertible Preferred Stock as of the record date, including stockholders of record and stockholders who hold their shares through brokers, banks, nominees or any other holder of record, are invited to attend the DropCar special meeting. Holders of record of DropCar common stock and Series H-6 Convertible Preferred Stock can vote at the DropCar special meeting. If you are not a stockholder of record, you must obtain a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote at the DropCar special meeting. If you plan to attend the DropCar special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership.

 

Q: Can I change or revoke my vote?

 

A: Yes. If your shares of DropCar capital stock are registered in your own name, you may revoke your proxy in one of the following ways by:

 

  Attending the DropCar special meeting and voting. Your attendance at the DropCar special meeting will not by itself revoke a proxy. You must vote your shares by ballot at the DropCar special meeting to revoke your proxy;

 

  Voting again by telephone or over the Internet (only your latest telephone or Internet vote submitted prior to the DropCar special meeting will be counted);

 

 

Completing and submitting a new valid proxy card bearing a later date; or

 

 

Sending notice of revocation to DropCar by emailing Sandra Robinson at Sandra.Robinson@DropCar.com, which notice must be received before noon, Eastern Time, on May 25, 2020.

 

If your shares of DropCar capital stock are held in “street name,” your broker, bank or other nominee should provide instructions explaining how you may change or revoke your voting instructions.

 

Q: What should I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

 

Q: Who can help answer my questions?

 

A:

The information provided above in this “Question and Answer” format is for your convenience only and is merely a summary of the information contained in this joint proxy and consent solicitation statement/prospectus. DropCar urges you to carefully read this entire joint proxy and consent solicitation statement/prospectus, including the documents referred to herein or otherwise incorporated by reference. If you have any questions, or need additional material, please feel free to contact:

 

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DropCar, Inc.:
1412 Broadway

Suite 2105

New York, New York 10018
Attention: Corporate Secretary
Telephone: (646) 342-1595
E-mail: ir@dropcar.com

 

Or

 

DropCar’s Proxy Solicitor:
Kingsdale Advisors

Telephone (toll-free in North America): (888) 642-3150

Telephone (outside of North America): (416) 867-2272

Email: contactus@kingsdaleadvisors.com

 

Questions and Answers for AYRO Stockholders

 

Q: What will I receive in the merger?

 

A:

If the merger is completed, the AYRO equity holders will be entitled to receive approximately 1.0844 shares of DropCar common stock per share of AYRO common stock they hold or into which their shares of preferred stock convert, prior to giving effect to the proposed reverse stock split contemplated by the Reverse Stock Split Proposal, or an aggregate of approximately 42,112,223 shares of DropCar common stock at closing, including 23,683,059 shares of DropCar common stock to be issued in respect of the AYRO equity securities outstanding as of the date of this joint proxy and consent solicitation statement/prospectus, 4,098,427 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued upon conversion of certain bridge loans made to AYRO immediately prior to the merger, 9,104,560 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued in the AYRO Private Placements immediately prior to the merger, 2,200,495 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued in connection with the April Bridge Financing and 550,125 and 2,475,557 shares of DropCar common stock to be issued in respect of shares of AYRO common stock to be issued to a financial advisor of AYRO and a consultant to AYRO, respectively, prior to the closing of the merger.

 

In addition, the Pre-funded Warrants, Outstanding Warrants and AYRO Options will automatically convert into the right to purchase pre-reverse stock split shares of DropCar common stock. Further, upon completion of the merger, DropCar will issue approximately 1,100,249 pre-reverse stock split shares of DropCar common stock to DropCar and AYRO’s financial advisor and warrants to purchase 500,000 shares of pre-reverse stock split shares of DropCar common stock at an exercise price of $0.01 per share pursuant to the Secured Loan.

 

For more information, see the section titled “THE MERGER AGREEMENT — Effects of Merger; Merger Consideration” on page 178 of this joint proxy and consent solicitation statement/prospectus.

 

Q: Will the value of the merger consideration change between the date of this joint proxy and consent solicitation statement/prospectus and the time the merger is completed?

 

A: No. The Merger Agreement contains an Exchange Ratio that will be appropriately adjusted to reflect fully the effect of any stock split, reverse split (including the reverse stock split contemplated by the Merger Agreement), stock dividend (including any dividend or distribution of securities convertible into DropCar common stock or AYRO capital stock), reorganization, recapitalization or other like change with respect to DropCar common stock or AYRO capital stock or issuance of DropCar common stock or AYRO capital stock occurring after the date of the Merger Agreement and prior to the effective time. However, pursuant to the Exchange Ratio, if a holder of outstanding AYRO options or warrants exercises those securities, or if AYRO issues any additional shares of capital stock other than as contemplated by the Merger Agreement, then the merger consideration will be reduced to each AYRO stockholder.

 

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Q: What will happen to AYRO preferred stock, warrants and convertible notes in the merger?

 

A: Immediately prior to the effective time of the merger, all outstanding shares of AYRO preferred stock will be converted into shares of AYRO common stock pursuant to approval by a majority of holders of AYRO’s preferred stock. This joint proxy and consent solicitation statement/prospectus is being delivered to holders of AYRO preferred stock as of the record date to solicit their written consent of the conversion of AYRO preferred stock into AYRO common stock immediately prior to the consummation of the proposed merger.

 

Immediately prior to the effective time of the merger, certain outstanding bridge loans made to AYRO (the “Outstanding Debt”) will convert into 3,779,442 shares of AYRO’s common stock pursuant to the Loan and Security Agreement, dated as of December 19, 2019, between AYRO and certain investors (the “Bridge Financing”). In addition, at the effective time of the merger, the Pre-funded Warrants, Outstanding Warrants and AYRO Options will automatically convert into the right to purchase shares of DropCar common stock equal to the number of shares of AYRO common stock issuable upon exercise of such pre-funded warrants, warrants and options multiplied by the Exchange Ratio with an exercise price for the Pre-funded Warrants, warrants and options equal to the exercise price of the Pre-funded Warrants, warrants and options divided by the Exchange Ratio. At the effective time of the merger, the Pre-funded Warrants will convert into the right to purchase 1,897,700 shares of DropCar common stock at an exercise price of $0.000092 per share; the Outstanding Warrants will convert into the right to purchase an aggregate of 15,963,087 shares of DropCar common stock, with the warrants to be issued in the Bridge Financing being exercisable to purchase 4,098,427 shares of DropCar common stock at an exercise price of $0.2806 per share, the warrants to be issued in the $850,000 AYRO Private Placement being exercisable to purchase 5,237,185 shares of DropCar common stock at an exercise price of $0.1866 per share, the warrants to be issued in the $1,150,000 AYRO Private Placement being exercisable to purchase 3,867,375 shares of DropCar common stock at an exercise price of $0.3420 per share, the warrants to be issued to the placement agent in the Bridge Financing and the AYRO Private Placements being exercisable to purchase an aggregate of 924,211 shares of DropCar common stock and the other warrants will convert into the right to purchase 1,835,889 shares of DropCar common stock at an exercise price of $1.84 per share; and the AYRO Options will convert into the right to purchase 3,972,105 shares of DropCar common stock.

 

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Q: What will happen to the AYRO Stock Option Plan and Stock Options?

 

A: At the effective time of the merger, DropCar will assume all of AYRO’s rights and obligations under all stock options granted pursuant to AYRO’s 2017 Long Term Incentive Plan (the “AYRO Equity Plan”) that are outstanding immediately prior to the effective time of the merger. In addition, the AYRO Equity Plan will be assumed by DropCar. For more information, see the section titled “THE MERGER AGREEMENT — Assumption of AYRO Stock Options” on page 178 of this joint proxy and consent solicitation statement/prospectus.

 

Q:

What are the U.S. federal income tax consequences of the merger to AYRO stockholders?

 

A: The merger should qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, (the “Code”) and Treasury Regulations promulgated thereunder. As a result of the “reorganization,” AYRO stockholders and warrant holders generally should not recognize gain or loss for U.S. federal income tax purposes upon the exchange of their shares of AYRO stock for shares of DropCar common stock and on the exchange of their AYRO warrants for DropCar warrants in connection with the merger, subject to the uncertainty concerning the tax treatment of fractional shares.

 

Tax matters are very complicated, and the tax consequences of the merger to a particular AYRO stockholder or AYRO warrant holder will depend in part on such holder’s circumstances. Accordingly, AYRO urges you to consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For a more complete discussion of the material U.S. federal income tax consequences of the merger, see the section titled “CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER” on page 156 of this joint proxy and consent solicitation statement/prospectus.

 

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Q: What am I being asked to approve?

 

A: You are being asked to adopt the Merger Agreement and thereby approve the merger and the other transactions contemplated by the Merger Agreement, which we refer to as the AYRO Merger Proposal. See the section titled “THE MERGER AGREEMENT” beginning on page 178 for additional information. If you are a holder of AYRO preferred stock, you are also being asked to approve the conversion of AYRO preferred stock into AYRO common stock immediately prior to the consummation of the proposed merger, which we refer to as the AYRO Preferred Stock Conversion.

 

Q: What is the record date and what does it mean?

 

A: The record date to determine the stockholders entitled to notice of solicitation of written consent is the close of business on April 14, 2020. The record date was established by AYRO’s board of directors as permitted by Delaware law.

 

Q: Who is entitled to give a written consent?

 

A: Holders of common stock and preferred stock of AYRO at the close of business on the AYRO record date may give a written consent.

 

Q: What approval is required to adopt the AYRO Merger Proposal?

 

A:

The adoption and approval of the Merger Agreement requires written consent of the holders of a majority of the outstanding shares of AYRO common stock and preferred stock, voting together as a single class on an as-converted-to-common stock basis.

 

Consummation of the merger is subject to certain closing conditions, including, among other things, approval by the stockholders of DropCar and AYRO, the continued listing of DropCar’s common stock on The Nasdaq Stock Market after the merger and satisfaction of minimum net cash thresholds by DropCar and AYRO. In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and stockholders of AYRO (solely in their respective capacities as AYRO stockholders) holding approximately 57% of the outstanding AYRO capital stock have entered into the AYRO Voting Agreements with DropCar to vote all of their shares of AYRO capital stock in favor of adoption of the Merger Agreement and (ii) certain executive officers, directors and stockholders of DropCar (solely in their respective capacities as DropCar stockholders) holding approximately 10% of the outstanding DropCar common stock have entered into the DropCar Voting Agreements with AYRO to vote all of their shares of DropCar common stock in favor of approval of the Merger Agreement. The Voting Agreements include covenants with respect to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals.

   
Q: What approval is required to adopt the AYRO Preferred Stock Conversion?
   
A: The adoption and approval of the AYRO Preferred Stock Conversion requires written consent of the holders of a majority of the issued and outstanding shares of AYRO preferred stock, voting together as a single class on an as-converted-to-common stock basis.

 

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Q: Can I dissent and require appraisal of my shares?

 

A: Yes. Pursuant to Section 262 of the Delaware General Corporation Law (the “DGCL”), holders of AYRO common stock and preferred stock who comply with the applicable requirements of Section 262 of the DGCL and do not otherwise withdraw or lose the right to appraisal under Delaware law have the right to seek appraisal of the fair value of their shares of AYRO common stock, as determined by the Delaware Court of Chancery, if the merger is completed. For further information, see “THE MERGER — Appraisal Rights” on page 139 of this joint proxy and consent solicitation statement/prospectus.

 

Q: Why is my written consent important?

 

A: The merger cannot be completed unless each of the AYRO Merger Proposal and the AYRO Preferred Stock Conversion is adopted and approved by the requisite affirmative vote of the AYRO equity holders.

 

Q: How do I return my written consent?

 

A: You may consent to the AYRO Merger Proposal (which is equivalent to a vote for the proposal) with respect to your shares by completing and signing the written consent furnished with this joint proxy and consent solicitation statement/prospectus and promptly returning it to AYRO by faxing it to Curtis Smith, by emailing a .pdf copy of your written consent to investors@AYRO.com, or by mailing your written consent to AYRO, Inc., 900 E. Old Settlers Boulevard, Suite 100, Round Rock, TX 78664, Attention: Curtis Smith.

 

Q: What is the deadline for returning AYRO written consents?

 

A: Please return the completed and executed the written consent by no later than May 12, 2020. AYRO reserves the right to extend the final date for receipt of written consents beyond May 12, 2020, in the event that consents approving the merger and adopting and approving the Merger Agreement and the transactions contemplated thereby have not been obtained by that date from holders of a sufficient number of shares of AYRO common stock and AYRO preferred stock to satisfy the conditions to the merger.

 

Q: What if I am a record holder and return my signed written consent without indicating a decision with respect to the AYRO Merger Proposal or the AYRO Preferred Stock Conversion?

 

A: If you are a record holder and you return a signed written consent without indicating your decision on the AYRO Merger Proposal, you will have given your consent to the adoption of the Merger Agreement. Likewise, if you are a record holder of preferred stock and you return a signed written consent without indicating your decision on the AYRO Preferred Stock Conversion, you will have given you consent to the adoption of the AYRO Preferred Stock Conversion.

 

Q: What if I am a record holder and do not return my consent?

 

A: If you do not return your written consent, it will have the same effect as a vote against each proposal on which you were entitled to vote.

 

Q: Can I change or revoke my written consent?

 

A: No. Your written consent, as evidenced by your signing and returning the enclosed written consent, is irrevocable once it is received by AYRO as explained in the joint proxy and consent solicitation statement/prospectus. For more information, see “AYRO SOLICITATION OF WRITTEN CONSENT — Executing Consents; Revocation of Consents” on page 136 of this joint proxy and consent solicitation statement/prospectus.

 

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Q: What is AYRO’s board of directors’ recommendation for the AYRO Merger Proposal?

 

A: AYRO’s board of directors unanimously recommends that you execute a written consent to approve the AYRO Merger Proposal to adopt the Merger Agreement and thereby approve the merger and the other transactions contemplated by the Merger Agreement.

 

Q: Should I send in my AYRO stock certificates now?

 

A: No. Please do not send in your AYRO stock certificates with your written consent. After the effective time of the merger, an exchange agent will send you a letter of transmittal with instructions for exchanging AYRO stock certificates for the merger consideration.

 

Q: Whom may I contact if I cannot locate my AYRO stock certificate(s) after the merger?

 

A: After the effective time of the merger, an exchange agent will send you a letter of transmittal with instructions for exchanging AYRO stock certificates for the merger consideration, including instructions for completing an affidavit of lost, stolen or destroyed certificate for AYRO common stock. Promptly following receipt of duly completed affidavit, the exchange agent will issue you shares of DropCar common stock in exchange for your lost, stolen or destroyed certificate; provided, however, that DropCar in its discretion and as a condition precedent to the issuance of DropCar common stock, may require you to deliver a bond in such sum as it may direct as indemnity against any claim that may be made against DropCar or any other party with respect to the certificate alleged to have been lost, stolen or destroyed.

 

Q: Who can help answer my questions?

 

A:

The information provided above in this “Question and Answer” format is for your convenience only and is merely a summary of the information contained in this joint proxy and consent solicitation statement/prospectus. AYRO urges you to carefully read this entire joint proxy and consent solicitation statement/prospectus, including the documents referred to herein or otherwise incorporated by reference. If you have any questions, or need additional material, please feel free to contact Curtis Smith at (512) 643-1256 or at investors@AYRO.com.

 

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SUMMARY

 

This summary highlights selected information from this joint proxy and consent solicitation statement/prospectus and may not contain all of the information that is important to you. You are urged to carefully read this entire document, including the annexes, and the other documents to which DropCar and AYRO refer for a more complete understanding of the merger. In addition, DropCar and AYRO encourage you to read the information about DropCar in the section titled “Information About DropCar” beginning on page 241 of this joint proxy and consent solicitation statement/prospectus, which includes important business and financial information about DropCar, and to read the information in the section titled “Information About AYRO” beginning on page 264 of this joint proxy and consent solicitation statement/prospectus, which includes important business and financial information about AYRO. Stockholders of DropCar and AYRO may obtain additional information about DropCar without charge by following the instructions in the section titled “Where You Can Find More Information” beginning on page 317 of this joint proxy and consent solicitation statement/prospectus. Each item in this summary refers to the page of this joint proxy and consent solicitation statement/prospectus on which that subject is discussed in more detail.

 

This summary and the balance of this document contain forward-looking statements about events that are not certain to occur, and you should not place undue reliance on those statements. Please carefully read “Cautionary Statement Regarding Forward-Looking Statements” on page 106 of this document.

 

The Companies (see page 109)

 

DropCar, Inc.

1412 Broadway

Suite 2105

New York, New York 10018

(646) 342-1595

 

DropCar is a New York City based corporation incorporated in the State of Delaware on December 18, 1997 under the name “Internet International Communications Ltd.” Pursuant to a Certificate of Amendment to the Certificate of Incorporation filed on December 23, 2004, the corporation’s name was changed to “WPCS International Incorporated.” On January 30, 2018, the corporation completed a business combination with then private DropCar, Inc. (“Private DropCar”) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of September 6, 2017, as subsequently amended (the “2018 Merger Agreement”), by and among DropCar, DC Acquisition Corporation (“Acquisition Sub”), and Private DropCar, pursuant to which the Acquisition Sub merged with and into Private DropCar, with Private DropCar surviving as DropCar’s wholly owned subsidiary, and the surviving corporation’s name was changed to DropCar, Inc. (the “2018 Merger”).

 

DropCar provides consumer and enterprise solutions to urban automobile-related logistical challenges. The DropCar business is a provider of automotive vehicle support, fleet logistics and concierge services for both consumers and businesses in automotive-related industries. In 2015, DropCar launched its cloud-based Enterprise Vehicle Assistance and Logistics (“VAL”) platform and mobile application (“App”) to assist customer consumers and companies in reducing the costs, hassles and inefficiencies of owning or servicing vehicles in urban centers. DropCar’s VAL platform is a web-based interface facilitating DropCar’s core service by coordinating the movements and schedules of its trained valets who pick up and drop off cars at dealerships, customer and other locations. The App tracks progress and provides real-time email and/or text notifications on status to customers, increasing the quality of communication and customer satisfaction. To date, DropCar operates its business-to-consumer (“B2C”) services within the greater New York City metropolitan area and operates its business-to-business (“B2B”) services across the greater New York City metropolitan area, New Jersey, Washington D.C., Baltimore, Los Angeles and San Francisco. Expanding city populations have created a growing dependence on cars for urban mobility; however, the supply of vehicle services (i.e., garages, service centers, etc.) has continued to decrease as rising costs and other factors have made access to such services increasingly limited. To solve for these systemic urban mobility challenges, DropCar’s technology captures and analyzes real-time data to dynamically optimize a rapidly growing network of professional valets across a suite of vehicle transport and high-touch support services. DropCar common stock trades on The Nasdaq Capital Market under the symbol “DCAR.”

 

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Additional information about DropCar can be found in the sections titled “INFORMATION ABOUT DROPCAR — Overview” beginning on page 241, “INFORMATION ABOUT DROPCAR — DropCar Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 251 and DropCar’s financial statements included elsewhere in this joint proxy and consent solicitation statement/prospectus.

 

ABC Merger Sub, Inc.

c/o DropCar, Inc.

1412 Broadway

Suite 2105

New York, New York 10018

(646) 342-1595

 

ABC Merger Sub, Inc., a Delaware corporation, is a wholly owned subsidiary of DropCar that was recently incorporated solely for the purpose of entering into the Merger Agreement and consummating the merger and the other transactions contemplated by the Merger Agreement. It is not engaged in any business and has no material assets. Its principal executive offices have the same address and telephone number as DropCar set forth above. In the merger, Merger Sub will merge with and into AYRO, with AYRO surviving as DropCar’s wholly owned subsidiary, and Merger Sub will cease to exist.

 

AYRO, Inc.

900 E. Old Settlers Boulevard

Suite 100

Round Rock, Texas 78664

(512) 994-4917

 

AYRO, a Delaware corporation, was originally incorporated in 2016 in Texas as Austin PRT Vehicle, Inc. In March 2017, the corporation’s name was changed to Austin EV, Inc., doing business as AEV Technologies. Effective as of July 2019, the corporation was converted into a Delaware corporation and changed its name to AYRO, Inc. AYRO designs and manufactures compact, sustainable electric vehicles for closed campus mobility, urban and community transport, local on-demand and last mile delivery, and government use. AYRO’s three- and four-wheeled purpose-built electric vehicles are geared toward commercial customers including universities, last mile delivery services and food service providers.

 

Additional information about AYRO can be found in the sections titled “INFORMATION ABOUT AYRO — Business” beginning on page 264, “INFORMATION ABOUT AYRO — AYRO Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 251 and AYRO’s financial statements included elsewhere in this joint proxy and consent solicitation statement/prospectus.

 

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The Merger (see page 139)

 

Explanatory Note Regarding the Merger Agreement

 

The following summary of the Merger Agreement, and the copy of the Merger Agreement attached as Annex A to this joint proxy and consent solicitation statement/prospectus, are intended only to provide information regarding the terms of the Merger Agreement. They are not intended to provide any factual information about AYRO, DropCar, DropCar’s subsidiaries or DC Partners or to modify or supplement any factual disclosures about DropCar in its public reports filed with the SEC. The Merger Agreement and the related summary are not intended to be a source of factual, business or operational information about AYRO, DropCar, DropCar’s subsidiaries or DC Partners, and the following summary of the Merger Agreement and the copy thereof included as Annex A are not intended to modify or supplement any factual disclosure about DropCar in any documents DropCar has or will publicly file with the SEC. The Merger Agreement contains representations and warranties by, and covenants of, AYRO, DropCar, DC Partners and certain subsidiaries of DropCar that were made only for purposes of the Merger Agreement and as of specified dates. The representations, warranties and covenants in the Merger Agreement were made solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to contractual standards of materiality or material adverse effect applicable to the contracting parties that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in DropCar’s public disclosures.

 

The Merger Agreement (see page 178 and Annex A)

 

On December 19, 2019, DropCar, Merger Sub and AYRO entered into the Merger Agreement. The Merger Agreement is the legal document governing the merger and is included in this joint proxy and consent solicitation statement/prospectus as Annex A. All descriptions in this Summary and elsewhere in this joint proxy and consent solicitation statement/prospectus of the terms and conditions of the merger are qualified in their entirety by reference to the full text of the Merger Agreement. Please read the Merger Agreement carefully for a more complete understanding of the merger.

 

The Merger (see page 139)

 

At the effective time of the merger, Merger Sub, a wholly owned subsidiary of DropCar, will merge with and into AYRO, with AYRO continuing as the surviving corporation and a wholly owned subsidiary of DropCar. Immediately prior to the merger, AYRO will change its name to “AYRO Operating Company, Inc.” and DropCar will change its name to “AYRO, Inc.”

 

Effects of Merger; Merger Consideration (see page 178)

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the effectiveness of the merger, each share of AYRO common stock issued and outstanding immediately prior to the effective time of the merger (excluding those certain shares owned by AYRO as treasury stock or otherwise and any dissenting shares exercising appraisal rights under Section 262 of the DGCL) will convert into and become exchangeable for the number of pre-reverse stock split shares of DropCar common stock equal to the number of shares of AYRO common stock multiplied by the Exchange Ratio as described below. Additionally, the Pre-funded Warrants to purchase 1,750,000 shares of AYRO common stock, Outstanding Warrants to purchase 14,720,661 shares of AYRO common stock and AYRO Options to purchase 3,662,952 shares of AYRO common stock will automatically convert into the right to purchase pre-reverse stock split shares of DropCar common stock equal to the number of shares of AYRO common stock underlying such outstanding AYRO pre-funded warrants, warrants and options multiplied by the Exchange Ratio, with the exercise price of such converted pre-funded warrants, warrants and options determined by dividing the exercise price of the AYRO pre-funded warrants, warrants and options by the Exchange Ratio. As a result of the issuance of the merger consideration and the merger, AYRO stockholders will receive an aggregate of approximately 42,112,223 pre-reverse stock split shares of DropCar common stock, including 23,683,059 shares of DropCar common stock to be issued in respect of the AYRO equity securities outstanding as of the date of this joint proxy and consent solicitation statement/prospectus, 4,098,427 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued upon conversion of the bridge loans made to AYRO in the Bridge Financing immediately prior to the merger, 9,104,560 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued upon closing of the AYRO Private Placements immediately prior to the merger, 2,200,495 shares of DropCar common stock to be issued in respect of shares of AYRO to be issued upon conversion of the bridge loan and other shares issued in the April Bridge Financing prior to the merger and 550,125 and 2,475,557 shares of DropCar common stock to be issued in respect of AYRO common stock to be issued to a financial advisor of AYRO and a consultant of AYRO, respectively, prior to the closing of the merger.

 

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Immediately prior to the effective time of the merger, all outstanding shares of AYRO preferred stock will be converted into shares of AYRO common stock.

 

All shares of AYRO capital stock held by AYRO as treasury stock or otherwise will be cancelled and no payment will be made with respect to such shares.

 

Pursuant to the Merger Agreement, all outstanding AYRO Options will be assumed by DropCar. Each option to purchase shares of AYRO common stock will be converted into an option to purchase a number of shares of DropCar common stock representing the number of AYRO shares of common stock for which the exchanged option was exercisable multiplied by the Exchange Ratio with an exercise price equal to the exercise price of such options divided by the Exchange Ratio.

 

In addition, in respect of the warrants issued by AYRO that are outstanding upon consummation of the merger, including the warrants issued by AYRO to the investors and the placement agent in connection with the Bridge Financing, the AYRO Private Placements and the Nominal Stock Subscription, upon consummation of the merger, the Pre-funded Warrants issued in the Nominal Stock Subscription will convert into the right to purchase 1,897,700 shares of DropCar common stock at an exercise price of $0.000092 per share; the Outstanding Warrants will convert into the right to purchase an aggregate of 15,963,087 shares of DropCar common stock, with the warrants to be issued in the Bridge Financing being exercisable to purchase 4,098,427 shares of DropCar common stock at an exercise price of $0.2806 per share, the warrants to be issued in the $850,000 AYRO Private Placement being exercisable to purchase 5,237,185 shares of DropCar common stock at an exercise price of $0.1866 per share, the warrants to be issued in the $1,150,000 AYRO Private Placement being exercisable to purchase 3,867,375 shares of DropCar common stock at an exercise price of $0.3420 per share, the warrants to be issued to the placement agent of the Bridge Financing and the AYRO Private Placements to be exercisable to purchase an aggregate of 924,211 shares of DropCar common stock and the other warrants being exercisable to purchase 1,835,889 shares of DropCar common stock at an exercise price of $1.84 per share.

 

Based on the number of shares of DropCar common stock outstanding as of April 22, 2020, the total number of shares of DropCar common stock outstanding after the closing of the merger and all related transactions will be approximately 55,521,601 assuming the exercise in full of the Pre-funded Warrants and the warrants to be issued pursuant to the Secured Loan and the conversion of outstanding shares of DropCar preferred stock, prior to giving effect to the proposed reverse stock split contemplated by the Reverse Stock Split Proposal, and (i) AYRO equity holders (including the investors in the Bridge Financing, the AYRO Private Placements, the April Bridge Financing and the Nominal Stock Subscription and a consultant to AYRO) will own approximately 79% of the outstanding equity of DropCar; (ii) current DropCar stockholders (including holders of Series H-4 Preferred Stock and Series H-6 Preferred Stock) will own approximately 18% of the outstanding equity of DropCar; and (iii) the financial advisor to DropCar and AYRO will own approximately 3% of the outstanding equity of DropCar.

 

DropCar will not issue any fractional shares of DropCar common stock in the merger. AYRO stockholders who would otherwise be entitled to a fraction of a share of DropCar common stock upon the completion of the merger (after aggregating all fractional shares of DropCar common stock to be received by such holder) will instead receive from DropCar one full share of DropCar common stock (i.e., rounded up to the nearest whole share).

 

Each share of Merger Sub common stock issued and outstanding immediately prior to the effective time of the merger will convert into and become one (1) share of common stock of post-merger AYRO, which will represent all of the issued and outstanding shares of common stock of post-merger AYRO immediately following the effective time of the merger.

 

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After the merger is completed, AYRO equity holders will have only the right to receive the merger consideration and one full share in lieu of any fractional shares of DropCar common stock, or, in the case of AYRO stockholders that properly exercise and perfect appraisal rights, the right to receive the fair market value for such shares, and will no longer have any rights as AYRO stockholders, including voting or other rights.

 

For a full description of the merger consideration, see the sections titled “THE MERGER” beginning on page 139 and “THE MERGER AGREEMENT — Effects of Merger; Merger Consideration” beginning on page 178 of this joint proxy and consent solicitation statement/prospectus.

 

AYRO Private Placements (see page 175)

 

Pursuant to the Merger Agreement, on December 19, 2019, AYRO entered into two securities purchase agreements (collectively the “AYRO Private Placement SPAs”) with accredited investors whereby AYRO agreed to sell to the investors for an aggregate of $2.0 million a number of shares of AYRO common stock for an aggregate of 16.55% of the combined company’s outstanding common stock immediately following the merger, as well as warrants to purchase an equivalent number of shares of common stock of the combined company, which are referred to herein as the AYRO Private Placements.

 

For a full description of the AYRO Private Placements, see the section titled “THE MERGER — AYRO Private Placements.” beginning on page 175 of this joint proxy and consent solicitation statement/prospectus.

 

DropCar’s Reasons for the Merger (see page 146)

 

In evaluating strategic alternatives, the DropCar Board of Directors consulted with DropCar’s management and legal and financial advisors, reviewed a significant amount of information, and considered a number of factors, including, among others, the following factors regarding the combined company that the DropCar Board of Directors viewed as supportive of its decision to approve the merger with AYRO, as being in the best interests of DropCar’s stockholders:

 

  it will be led by an experienced senior management team and an expanded board of directors; and
     
  it will be well-capitalized.

 

Each of the DropCar Board of Directors and the AYRO board of directors also considered other reasons for the merger, as described herein. For example, the DropCar Board of Directors considered, among other things:

 

  the strategic alternatives of DropCar to the merger, including potential transactions that could have resulted from discussions that DropCar management conducted with other potential merger parties;
     
  the consequences of current market conditions, DropCar’s current liquidity position, its depressed stock price and the likelihood that the resulting circumstances for the company would not change for the benefit of the DropCar stockholders in the foreseeable future on a stand-alone basis;
     
  the risks of continuing to operate DropCar on a stand-alone basis, including the fact that it has only one line of business;
     
  DropCar management’s belief that it would be difficult to obtain additional equity or debt financing on acceptable terms, if at all;
     
  the opportunity for DropCar stockholders to participate in the potential value that may result from AYRO’s business and the potential increase in value of the combined company following the merger; and
     
  ●  the opinion of Gemini Valuation Services, LLC (“Gemini”), delivered to the DropCar Board of Directors (in its capacity as such) that, as of December 18, 2019, and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in the opinion, the Exchange Ratio for the conversion of AYRO capital stock into shares of DropCar common stock pursuant to the Merger Agreement was fair to the DropCar stockholders from a financial point of view.

 

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The DropCar Board of Directors also reviewed the terms and conditions of the proposed Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein to mitigate risks, including:

 

  the determination that the Exchange Ratio is appropriate to reflect the expected relative percentage ownership of DropCar securityholders and AYRO securityholders;
     
  the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that the AYRO stockholders will not recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of AYRO capital stock for DropCar common stock pursuant to the merger; and
     
  that the potential termination fee of $1,000,000 payable by DropCar to AYRO and the circumstances when such fee may be payable, were reasonable.

 

The DropCar Board of Directors believes that, overall, the potential benefits to DropCar stockholders of the Merger Agreement and the transactions contemplated thereby outweigh the risks and uncertainties.

 

Although this discussion of the information and factors considered by the DropCar Board of Directors is believed to include the material factors it considered, it is not intended to be exhaustive and may not include all of the factors considered by the DropCar board of directors. The DropCar Board of Directors did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination that the merger agreement and the transactions contemplated thereby are fair to, advisable, and in the best interests of DropCar and its stockholders. The DropCar Board of Directors based its determination on the totality of the information presented to and factors considered by it. In addition, individual members of the DropCar Board of Directors may have given differing weights to different factors.

 

For a more complete discussion of DropCar’s reasons for the merger, see the section titled “THE MERGER — DropCar’s Reasons for the Merger.” beginning on page 146 of this joint proxy and consent solicitation statement/prospectus.

 

AYRO’s Reasons for the Merger (see page 149)

 

AYRO’s board of directors considered many factors in making its decision to approve and adopt the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement, and to recommend that its stockholders approve the AYRO Merger Proposal. In arriving at its decision, AYRO’s board of directors consulted with AYRO’s senior management and legal advisors, reviewed a significant amount of information, and conducted an overall analysis of a number of factors, including the following material facts (not in any relative order of importance):

 

  the expectation that the merger with DropCar would be a more time- and cost-effective means to access sufficient capital than other options considered, including an initial public offering or additional rounds of private financing;

 

  the view that the range of options available to the combined company to access private and public equity markets will likely be greater as a public company than continuing as a privately held company;

 

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  the view that the proposed merger with DropCar would provide AYRO stockholders with a greater potential opportunity to realize a return on their investment than any other alternative reasonably available to AYRO and its stockholders including the strategic alternatives to the proposed merger with DropCar, such as by remaining an independent private company, attempting an initial public offering, entering into a business combination transaction with other companies and additional strategic partnerships;

 

  the view that the combined company’s potential revenue sources, access to opportunities for non-dilutive funding and other synergies create a superior company when compared to remaining as an independent private company;

 

  each of AYRO’s and DropCar’s historical and current information concerning its business, financial performance, financial condition, operations and management, including financial projections under various scenarios and its short- and long-term strategic objectives and the significant risks associated therewith;

 

  the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that in the merger, AYRO’s stockholders and warrant holders would generally not recognize taxable gain or loss for U.S. federal income tax purposes;

 

  the likelihood that the merger would be consummated on a timely basis, including the likelihood that the merger would receive all necessary approvals;

 

  the opportunity for AYRO stockholders to hold shares of a publicly traded company;

 

  the possibility that the combined entity would be able to take advantage of the potential benefits resulting from the combination of DropCar’s public company infrastructure and AYRO’s management team; and

 

  the terms and conditions of the Merger Agreement, including, without limitation, the following:

 

  the determination that the relative percentage ownership of AYRO and DropCar stockholders is fair and based on the valuations of each company at the time of AYRO’s board of directors’ approval of the Merger Agreement;

 

  the structure of the merger and the level of certainty as to the percentage of the total shares of common stock of the combined company that current AYRO and DropCar stockholders would own after the merger;

 

  the guaranteed amount of DropCar’s unrestricted cash on hand;

 

  the view that the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances; and

 

  the view that terms of the new employment agreement between DropCar and Mr. Keller and the amendment to the employment agreement between AYRO and Mr. Smith are reasonable under the circumstances.

 

For a more complete discussion of AYRO’s reasons for the merger, see the section titled “THE MERGER — AYRO’s Reasons for the Merger” beginning on page 149 of this joint proxy and consent solicitation statement/prospectus.

 

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Risk Factors (see page 61)

 

In evaluating the Merger Agreement and the merger and related transactions contemplated by the Merger Agreement, you should carefully consider all of the information in this joint proxy and consent solicitation statement/prospectus. In particular, you are urged to read and consider all of the factors discussed in the section titled “RISK FACTORS” beginning on page 61.

 

Recommendation of the DropCar Board of Directors (see page 110)

 

The DropCar Board of Directors has determined that the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of shares of DropCar common stock pursuant to the terms of the Merger Agreement, are advisable and in the best interests of DropCar and its stockholders and has approved and adopted the Merger Agreement, the merger and the other transactions contemplated therein. In addition, the DropCar Board of Directors has determined that the Asset Purchase Agreement and the transactions contemplated thereby, including the sale of all or substantially all of the assets related to the existing DropCar business, are advisable and in the best interests of DropCar and its stockholders and has approved and adopted the Asset Purchase Agreement and the other transactions contemplated therein. The DropCar Board of Directors believes that each of the DropCar Share Issuance Proposal, the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, the A&R Charter Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal to be presented at the special meeting is in the best interests of DropCar and its stockholders, and recommends that its stockholders vote “FOR” each of the proposals. For the factors considered by the DropCar Board of Directors in reaching its decision to approve the merger and Merger Agreement, see the section titled “THE MERGER — DropCar’s Reasons for the Merger” beginning on page 146 of this joint proxy and consent solicitation statement/prospectus.

 

Recommendation of AYRO’s Board of Directors (see page 138)

 

AYRO’s board of directors has determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are just, equitable and fair to AYRO and its stockholders and that it is advisable and in the best interests of AYRO and its stockholders that AYRO consummate the merger and has unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby, including the merger and the AYRO Preferred Stock Conversion. AYRO’s board of directors unanimously recommends that AYRO stockholders consent to the adoption and approval of the Merger Agreement and the other transactions contemplated by the Merger Agreement, including the merger, and that AYRO’s preferred stockholders consent to the AYRO Preferred Stock Conversion. For the factors considered by AYRO’s board of directors in reaching its decision to approve the merger and Merger Agreement, see the section titled “THE MERGER — AYRO’s Reasons for the Merger” beginning on page 149 of this joint proxy and consent solicitation statement/prospectus.

 

The DropCar Special Meeting (see page 110)

 

The DropCar special meeting will be held on May 27, 2020, at 10:00 a.m., Eastern Time and will be “virtual,” meaning that you can participate in the meeting online at www.issuerdirect.com/virtual-event/DCAR at the appointed time and date. At the special meeting, DropCar stockholders will be asked to consider and vote on the following:

 

(1) The DropCar Share Issuance Proposal — to approve, for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of shares of DropCar common stock to AYRO equity holders and other parties in connection with the merger of Merger Sub with and into AYRO, pursuant to the terms and conditions of the Merger Agreement and the transactions contemplated thereby or in connection therewith;

 

(2) The Reverse Stock Split Proposal — to approve an amendment to DropCar’s amended and restated certificate of incorporation (the “DropCar Charter”) to effect a reverse stock split with a ratio between 1-for-10 and 1-for-30 with respect to the issued and outstanding common stock of the combined company immediately following the merger. The reverse stock split will increase DropCar’s stock price to at least $5.00 per share;

 

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(3) The Asset Sale Proposal — to approve the sale of substantially all of the assets of DropCar pursuant to the terms and conditions of the Asset Purchase Agreement by and among DropCar, DropCar Operating, DC Partners, Spencer Richardson and David Newman;

 

(4) The DropCar Preferred Conversion Proposal — to approve an amendment to DropCar’s certificate of incorporation to provide for the reduction of the conversion price of the Series H-4 Convertible Preferred Stock to $0.50 per share and the automatic conversion of such shares into DropCar common stock and to authorize, for purposes of complying with Nasdaq Listing Rule 5635(d), the issuance of shares of DropCar common stock in connection therewith;

 

(5) The A&R Charter Proposal — to approve the amendment and restatement of the DropCar Charter in its entirety;

 

(6) The Incentive Plan Proposal — to approve the 2020 Long-Term Equity Incentive Plan;

 

(7) The DropCar Golden Parachute Compensation Proposal — to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to DropCar’s named executive officers in connection with the merger; and

 

(8) The Adjournment Proposal — to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes to approve one or more proposals presented to stockholders for vote.

 

Only the holders of record of shares of DropCar capital stock at the close of business on April 14, 2020, the DropCar record date, will be entitled to vote at the special meeting. Each share of DropCar common stock is entitled to one vote on each proposal to be considered at the DropCar special meeting. Holders of Series H-6 Convertible Preferred Stock are entitled to vote together with the holders of DropCar common stock those shares of Series H-6 Convertible Preferred Stock owned on the record date, on an as-if converted to DropCar common stock basis, subject to certain beneficial ownership blockers. As of the DropCar record date, there were 4,550,503 shares of DropCar common stock and 29,822 shares of DropCar Series H-6 Preferred Stock (which were convertible into an aggregate of 2,982,200 shares of DropCar common stock) outstanding entitled to vote at the DropCar special meeting, for total voting power of 7,532,703 shares.

 

Consummation of the merger is subject to certain closing conditions, including, among other things, approval by the stockholders of DropCar and AYRO, the continued listing of DropCar’s common stock on The Nasdaq Stock Market after the merger and satisfaction of minimum net cash thresholds by DropCar and AYRO. In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and stockholders of AYRO (solely in their respective capacities as AYRO stockholders) holding approximately 57% of the outstanding AYRO capital stock have entered into the AYRO Voting Agreements with DropCar to vote all of their shares of AYRO capital stock in favor of adoption of the Merger Agreement and (ii) certain executive officers, directors and stockholders of DropCar (solely in their respective capacities as DropCar stockholders) holding approximately 10% of the outstanding DropCar common stock have entered into the DropCar Voting Agreements with AYRO to vote all of their shares of DropCar common stock in favor of approval of the Merger Agreement. The Voting Agreements include covenants with respect to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals. As of the close of business on the DropCar record date, the directors and executive officers of DropCar and their affiliates collectively beneficially owned and were entitled to vote 391,410 shares of DropCar capital stock, which represent, in the aggregate, approximately 5.2% of DropCar capital stock outstanding on that date. DropCar currently expects that DropCar’s directors and executive officers will vote their shares in favor of the DropCar Share Issuance Proposal, the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, the A&R Charter Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal.

 

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Assuming the presence of a quorum, approval of the DropCar Share Issuance Proposal requires the affirmative vote of a majority of the votes cast, the approval of the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal require the affirmative vote of a majority of the votes present and entitled to vote thereon, and the approval of the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal and the A&R Charter Proposal require the affirmative vote of holders of at least a majority of the shares of DropCar capital stock outstanding and entitled to vote. DropCar will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of approval, an abstention will have no effect on any of the DropCar Share Issuance Proposal but will have the effect of a vote against the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, the A&R Charter Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal. In addition, if a holder fails to submit a proxy or vote at the DropCar special meeting or fails to instruct such holder’s bank or broker how to vote with respect to any of the proposals, it will have no effect on the DropCar Share Issuance Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal or the Adjournment Proposal, but will have the same effect as a vote against the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal and the A&R Charter Proposal.

 

AYRO Solicitation of Written Consent (see page 136)

 

AYRO stockholders are being asked to adopt the Merger Agreement and thereby approve the AYRO Merger Proposal and the AYRO Preferred Stock Conversion by written consent.

 

Only the holders of record of shares of AYRO capital stock at the close of business on April 20, 2020, the AYRO record date, will be entitled to approve the AYRO Merger Proposal by written consent. As of the AYRO record date, there were 14,478,795 shares of AYRO common stock, 3,272,500 shares of Series Seed-1 Preferred Stock, 1,907,684 shares of Series Seed-2 Preferred Stock and 2,180,801 shares of Series Seed-3 Preferred Stock issued and outstanding.

 

In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and stockholders of AYRO (solely in their respective capacities as AYRO stockholders) holding approximately 57% of the outstanding AYRO capital stock have entered into the AYRO Voting Agreements with DropCar to vote all of their shares of AYRO capital stock in favor of adoption of the Merger Agreement, and (ii) certain executive officers, directors and stockholders of DropCar (solely in their respective capacities as DropCar stockholders) holding approximately 10% of the outstanding DropCar common stock have entered into the DropCar Voting Agreements with AYRO to vote all of their shares of DropCar common stock in favor of approval of the Merger Agreement. The Voting Agreements include covenants with respect to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals.

 

As of the close of business on the AYRO record date, the directors and executive officers of AYRO and their affiliates collectively beneficially owned 6,774,950 shares of AYRO common stock and 80,000 shares of AYRO preferred stock, which represent, in the aggregate, approximately 31.4% of AYRO voting stock outstanding and entitled to vote on that date on an as-converted-to-common stock basis. AYRO currently expects that AYRO’s directors and executive officers will provide written consents to the AYRO Merger Proposal.

 

The adoption and approval of the AYRO Merger Proposal requires the affirmative vote or written consent of the holders of at least a majority of the issued and outstanding shares of AYRO common stock and preferred stock, voting together as a single class on an as-converted-to-common stock basis. The adoption and approval of the AYRO Preferred Stock Conversion requires the approval of the holders of a majority of the outstanding shares of AYRO preferred stock voting together as a single class and on an as-converted-to-common stock basis.

 

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Interests of DropCar’s Directors and Executive Officers in the Merger (see page 157)

 

In considering the recommendation of the DropCar Board of Directors that DropCar stockholders vote to approve all of the presented proposals, DropCar stockholders should be aware that some of DropCar’s directors and officers have interests in the merger and have arrangements that are different from, or in addition to, those of DropCar stockholders generally. These interests and arrangements may create potential conflicts of interest. The DropCar Board of Directors was aware of these interests and considered these interests, among other matters, in adopting and approving the Merger Agreement, the Asset Sale Agreement and the transactions contemplated thereby, including the merger, and in recommending that DropCar stockholders approve the DropCar Share Issuance Proposal, the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, the A&R Charter Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal.

 

When you consider the recommendation of the DropCar Board of Directors in favor of approval of the DropCar Share Issuance Proposal, the Reverse Stock Split Proposal, the Asset Sale Proposal, the DropCar Preferred Conversion Proposal, the A&R Charter Proposal, the Incentive Plan Proposal, the DropCar Golden Parachute Compensation Proposal and the Adjournment Proposal, you should keep in mind that DropCar’s directors and officers have interests in the merger that are different from, or in addition to, your interests as a stockholder. These interests include, among other things:

 

 

after the merger, Mr. Silverman, DropCar’s current director and chairman of the board of directors, as well as Messrs. Giordano and Schiffman, will serve on the board of directors of the combined company as the designees of DropCar. In addition, Mr. Joseph, who is a current director of DropCar, will serve on the board of directors of the combined company as the designee of Alpha Capital Anstalt, the lead investor in the AYRO Private Placement. These directors may receive cash and other compensation from the combined company pursuant to director compensation as determined by the compensation committee of the board of the directors of the combined company;

  as current stockholders of DropCar, certain of DropCar’s directors and officers will retain an ownership stake in DropCar after the closing of the merger, at which time the operations of AYRO’s business will comprise substantially all of DropCar’s operations;
  the continued indemnification of current directors and officers of DropCar and the continuation of directors’ and officers’ liability insurance after the merger; and
  upon the merger, the vesting of outstanding equity awards held by DropCar’s officers will accelerate.

 

For a more complete description of these interests, see “THE MERGER — Interests of DropCar’s Directors and Executive Officers in the Merger” beginning on page 157 of this joint proxy and consent solicitation statement/prospectus.

 

Interests of AYRO’s Directors and Executive Officers in the Merger (see page 159)

 

In considering the recommendation of AYRO’s board of directors that AYRO stockholders consent to approve the Merger Agreement and the merger, AYRO stockholders should be aware that some of AYRO’s directors and officers have interests in the merger and have arrangements that are different from, or in addition to, those of AYRO stockholders generally. These interests and arrangements may create potential conflicts of interest. AYRO’s board of directors was aware of these interests and considered these interests, among other matters, in adopting and approving the Merger Agreement and the transactions contemplated thereby, including the merger, and in recommending that AYRO stockholders approve the AYRO Merger Proposal.

 

When AYRO’s stockholders consider the recommendation of AYRO’s board of directors in favor of approval of the AYRO Merger Proposal, AYRO’s stockholders should keep in mind that AYRO’s directors and officers have interests in the merger that are different from, or in addition to, the interests of its stockholders. These interests include, among other things:

 

  continuing service of certain members of the board of directors of AYRO as directors of DropCar and executive officers of AYRO as executive officers of DropCar following the completion of the merger;
  Rodney Keller, Chief Executive Officer of AYRO, will enter into an employee agreement with DropCar which, among other things, provides for his continued employment and the issuance of an equity award in the combined company to Mr. Keller;

 

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  Curtis Smith, Chief Financial Officer of AYRO, will enter into an amendment of his employment agreement with AYRO;
  Mark Adams and Christian Okonsky, directors of AYRO, or entities in which they have an ownership interest, received shares of AYRO common stock in connection with certain transactions preceding the execution of the Merger Agreement;
  as current stockholders of AYRO, certain of AYRO’s directors and executive officers will obtain an ownership stake in DropCar after the closing of the merger;

  each outstanding stock option of AYRO held by AYRO’s directors and executive officers will be assumed by DropCar, and DropCar common stock will be issued upon the exercise of such stock options;

  continued indemnification of current directors and officers of DropCar and expected continuation of coverage of directors’ and officers’ liability insurance after the merger; and

 

For a more complete description of these interests, see “THE MERGER — Interests of AYRO’s Directors and Executive Officers in the Merger” beginning on page 159 of this joint proxy and consent solicitation statement/prospectus.

 

Assumption of AYRO Stock Options (see page 173)

 

At the effective time of the merger, all of AYRO’s rights and obligations under all stock options granted pursuant to the AYRO Equity Plan that are outstanding immediately prior to the effective time of the merger will be assumed by DropCar. Each outstanding stock option to purchase shares of AYRO common stock will be converted into an option to purchase a number of shares of DropCar common stock representing the number of shares of AYRO common stock for which the exchanged option was exercisable multiplied by the Exchange Ratio with an exercise price equal to the exercise price of such options divided by the Exchange Ratio. As a general matter, except as set forth in the Merger Agreement, all other material terms and conditions governing stock options granted pursuant to the AYRO Equity Plan in effect immediately prior to the merger will remain in effect following the merger.

 

For more information on the assumption of outstanding stock options of AYRO, see the section titled “THE MERGER AGREEMENT — Assumption of AYRO Stock Options” beginning on page 173 of this joint proxy and consent solicitation statement/prospectus.

 

Board Composition and Management of DropCar After the Merger (see page 156)

 

Pursuant to the Merger Agreement, immediately after the effective time of the merger, the combined company’s board of directors will initially be fixed at seven members, three of whom will be directors designated by the DropCar board and will include Joshua Silverman, DropCar’s current director and chairman of the board of directors, as chairman of the board of directors of the combined company, as well as Sebastian Giordano and Greg Schiffman, both of whom are current directors of DropCar. Zvi Joseph, who is a current member of the DropCar Board of Directors, will be designated by Alpha Capital Anstalt, the lead investor in the AYRO Private Placement, and the three remaining will be the current directors of AYRO. The Merger Agreement permits AYRO to nominate additional members to the combined company’s board of directors if the combined company meets certain performance milestones (the “Business Milestones”). Accordingly, if the Business Milestones are met, the AYRO-designated members of the combined company’s board of directors will be permitted to nominate an additional three board members. Designees to the board of directors are expected to satisfy the requisite independence requirements for the combined company’s board of directors, as well as the sophistication and independence requirements for committee members pursuant to Nasdaq listing requirements.

 

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The following table lists the names and positions of the individuals who are expected to serve as executive officers and directors of the combined company upon the completion of the merger:

 

Name   Position
Rodney C. Keller, Jr.   Chief Executive Officer and Director
Joshua Silverman   Director, Chairman of the Board of Directors
George Devlin   Director
Mark Adams   Director
Sebastian Giordano   Director
Zvi Joseph   Director
Greg Schiffman   Director

 

Following the merger, the management team of the combined company is expected to be composed of the current management team of AYRO, listed as follows:

 

  Rodney C. Keller, Jr. — Chief Executive Officer
  Curtis Smith — Chief Financial Officer
  Brian Groh – Chief of Business Development
  Richard Perley – Chief Marketing Officer

 

Appraisal Rights (see page 169 and Annex E)

 

If the merger is completed, AYRO stockholders are entitled to appraisal rights under Section 262 of the DGCL. In view of the complexity of Section 262 of the DGCL, AYRO stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors. An AYRO stockholder of record who wishes to exercise appraisal rights, or preserve the ability to do so, must not deliver a signed written consent adopting the Merger Agreement or deliver a signed consent without indicating a decision on the AYRO Merger Proposal. Any signed written consent returned without indicating a decision on the AYRO Merger Proposal will be counted as approving the AYRO Merger Proposal. The obligations of DropCar to effect the merger are subject to the condition that less than 5% of the shares of AYRO capital stock (on an as converted to AYRO common stock basis) shall have exercised statutory appraisal rights pursuant to Section 262 of the DGCL. For a more complete discussion of the appraisal rights, see the provisions of Section 262 of the DGCL, referred to as Section 262, and attached to this joint proxy and consent solicitation statement/prospectus as Annex E, and the section titled “THE MERGER — Appraisal Rights” beginning on page 169 of this joint proxy and consent solicitation statement/prospectus.

 

DropCar stockholders do not have any dissenters’ or appraisal rights under the DGCL in connection with the merger or with respect to any of the matters to be voted on at the DropCar special meeting.

 

No Solicitation (see page 185)

 

The Merger Agreement contains provisions that make it more difficult for each of AYRO and DropCar to solicit, initiate, knowingly encourage, induce or knowingly facilitate the communication, making, submission or announcement of, any “acquisition proposal” or “acquisition inquiry,” as defined in the Merger Agreement, or take any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry, including the following:

 

  a merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving an acquisition of DropCar or AYRO; or
     
    the acquisition, in any manner, of any equity securities or consolidated total assets of DropCar and its subsidiaries or AYRO and its subsidiaries, in each case other than in connection with the merger.

 

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Conditions to Completion of the Merger (see page 182)

 

Currently, DropCar and AYRO expect to complete the merger during the second quarter of 2020. As more fully described in this joint proxy and consent solicitation statement/prospectus and in the Merger Agreement, each party’s obligation to complete the merger depends on a number of conditions being satisfied or, where legally permissible, waived, including the following:

 

  there shall not have been issued any temporary restraining order, preliminary or permanent injunction or other order preventing the closing of the merger by any court of competent jurisdiction or other governmental entity of competent jurisdiction, and no law, statute, resolution, ordinance, code, rule, regulation, requirement, ruling or decree shall be in effect which has the effect of making the closing of the merger illegal;
     
  all waiting periods applicable to any filing under the Hart-Scott-Rodino Antitrust Improvements Act by DropCar, AYRO or any subsidiary shall have expired or been terminated;
     
  the holders of a majority in voting power of the outstanding shares of all AYRO capital stock shall have duly approved the adoption of the Merger Agreement, the merger and the transactions contemplated by the Merger Agreement, and the holders of a majority of the AYRO preferred stock shall have approved the conversion of AYRO’s preferred stock;
     
  the holders of a majority in voting power of the outstanding shares of DropCar common stock outstanding on the record date (except that the approval of DropCar Share Issuance Proposal only requires the affirmative vote of a majority of the votes cast assuming that a quorum is present at the DropCar special meeting) shall have duly approved the DropCar Share Issuance Proposal, the DropCar Asset Sale Proposal, the A&R Charter Proposal and the Reverse Stock Split Proposal;
     
  the shares of DropCar’s common stock to be issued in the merger shall have been approved for listing on The Nasdaq Capital Market, subject to official notice of issuance;
     
  a registration statement on Form S-4 (including a prospectus) in connection with the issuance of shares of DropCar common stock as merger consideration in the merger, which will include a proxy statement to be sent to the stockholders of each of DropCar and AYRO, shall have become effective under the Securities Act, and shall not be the subject of any stop order; and
     
  AYRO shall have consummated the AYRO Private Placements prior to the effective date on the terms and conditions set forth in the AYRO Private Placement SPAs.

 

The obligation of DropCar to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

  certain fundamental representations and warranties of AYRO shall have been true and correct in all respects on the date of the Merger Agreement and shall be true and correct on the closing date of the merger with the same force and effect as if made on and as of the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;
     
  all other representations and warranties of AYRO in the Merger Agreement shall have been true and correct as of the date of the Merger Agreement and shall be true and correct on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the other party;
     
  AYRO shall have performed or complied with, in all material respects, all of its covenants and agreements in the Merger Agreement required to be performed or complied with by it on or before the closing of the merger;

 

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  AYRO shall have delivered certain certificates and other documents required under the Merger Agreement for the closing of the merger;
     
  DropCar shall have received executed lock-up agreements from certain stockholders of AYRO, as set forth on a schedule to the Merger Agreement;
     
  all outstanding shares of AYRO preferred stock shall have been converted into shares of AYRO common stock;
     
  less than 5% of the shares of AYRO capital stock shall have exercised statutory appraisal rights pursuant to Section 262 of the DGCL;
     
  AYRO shall have unencumbered, unrestricted cash on hand as set forth in the Merger Agreement of at least $2,000,000;
     
  since the date of the Merger Agreement, there shall have been no effect, change, event, circumstance, or development that has had or would reasonably be expected to have had a material adverse effect on the business, condition (financial or otherwise), assets, liabilities, or results of operations of AYRO and its subsidiaries, taken as a whole, or prevent AYRO from consummating the merger. The Merger Agreement provides that certain effects, changes, events, circumstances, or developments arising or resulting from the following shall not be considered a material adverse effect on AYRO:

 

  general conditions affecting the industry in which AYRO operates;
     
  changes generally affecting the United States or global economy or capital markets as a whole;
     
  any changes (after the date of the Merger Agreement) in generally accepted accounting principles (“GAAP”) or applicable law; or
     
  any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof.

 

The obligation of AYRO to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

  certain fundamental representations and warranties of DropCar shall have been true and correct in all respects on the date of the Merger Agreement and shall be true and correct on the closing date of the merger with the same force and effect as if made on and as of the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;
     
  all other representations and warranties of DropCar in the Merger Agreement shall have been true and correct as of the date of the Merger Agreement and shall be true and correct on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the other party;

 

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  DropCar and Merger Sub shall have performed or complied with, in all material respects, all of their covenants and agreements in the Merger Agreement required to be performed or complied with by them on or before the closing of the merger;
     
  DropCar shall have delivered certain certificates and other documents required under the Merger Agreement for the closing of the merger;
     
  DropCar shall have delivered to AYRO written resignations of the directors of DropCar who are not to continue as directors of DropCar and all officers of DropCar pursuant to the terms of the Merger Agreement, in a form reasonably satisfactory to AYRO;
     
  AYRO shall have received a copy of the lock-up agreement from certain stockholders of DropCar set forth on a schedule to the Merger Agreement and each director of DropCar who is elected or appointed as an executive officer and director of DropCar as of immediately following the closing of the Merger;
     
  DropCar shall have satisfied all conditions to the consummation of the sale of substantially all assets of DropCar pursuant to the Asset Purchase Agreement and have consummated such sale in accordance with the terms of the Asset Purchase Agreement substantially simultaneous with the closing of the merger;
     
  DropCar shall have unencumbered, unrestricted cash on hand as set forth in the Merger Agreement of at least $2,500,000;
     
  DropCar shall have executed and delivered to Rodney Keller an employment agreement, and such employment agreement shall be in full force and effect; and
     
  since the date of the Merger Agreement, there shall have been no effect, change, event, circumstance, or development that that has had or would reasonably be expected to have had a material adverse effect on the business, condition (financial or otherwise), assets, liabilities, or results of operations of DropCar, or prevent DropCar or Merger Sub from consummating the merger. The Merger Agreement provides that certain effects, changes, events, circumstances, or developments arising or resulting from the following shall not be considered a material adverse effect on DropCar, including without limitation:

 

  general conditions generally affecting the industry in which DropCar operates;
     
  any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof;
     
  changes generally affecting the United States or global economy or capital markets as a whole;
     
  any changes (after the date of the Merger Agreement) in GAAP or applicable law;
     
  any change in the stock price or trading volume of DropCar stock (but not the underlying causes of such changes or failures);
     
  any changes resulting from the announcement or pendency of the merger or the consummation of the transactions or compliance with the terms of the Merger Agreement;
     
  any specific action taken at the written request of AYRO or expressly required by the Merger Agreement; or
     
  continued losses from operations or decreases in cash balances of any of DropCar or its subsidiaries or on a consolidated basis among DropCar and its subsidiaries.

 

Neither DropCar nor AYRO can be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed. See “THE MERGER AGREEMENT — Conditions to Completion of the Merger” on page 182 of this joint proxy and consent solicitation statement/prospectus for a more complete summary of the conditions that must be satisfied prior to closing.

 

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Listing of DropCar Common Stock (see page 155)

 

DropCar common stock is currently listed on The Nasdaq Capital Market under the symbol “DCAR.” Pursuant to the Merger Agreement, DropCar has agreed to obtain approval for listing on The Nasdaq Capital Market the shares of DropCar common stock to be issued to AYRO equity holders in the merger. In addition, under the Merger Agreement, each party’s obligation to complete the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the merger, of various conditions, including that DropCar must have caused such shares of DropCar common stock to be approved for listing on The Nasdaq Capital Market, subject only to official notice of issuance as of the closing of the merger.

 

In connection with and immediately prior to the merger, AYRO will change its name to “AYRO Operating Company, Inc.”, and DropCar will change its name to “AYRO, Inc.” and seek to change its trading symbol on The Nasdaq Capital Market to “AYRO.”

 

Ancillary Agreements (see page 193)

 

Transaction Documents

 

On or prior to December 19, 2019, AYRO entered into the following transactions, the completion of which are conditions to closing the merger: (i) the AYRO Private Placements; (ii) the conversion of $715,000 principal amount plus associated accrued interest of certain outstanding promissory notes of AYRO into 777,301 shares of AYRO’s preferred stock, (iii) the holders of $637,729.03 principal amount of certain outstanding promissory notes of AYRO agreed to extend the maturity date of $500,000.00 in principal amount of such notes until April 30, 2021 and $137,729.03 in principal amount of such notes until May 31, 2021, (iv) the Bridge Financing; and (v) the Nominal Stock Subscription.

 

Pursuant to the AYRO Private Placements, prior to closing the Merger Agreement, AYRO shall issue (i) to the investors in the $1,150,000 AYRO Private Placement an aggregate of 3,566,373 shares of AYRO common stock and warrants to purchase an aggregate of 3,566,373 shares of AYRO common stock at an exercise price of $0.3708 per share and (ii) to the investors in the $850,000 AYRO Private Placement an aggregate of 4,829,569 shares of AYRO common stock and warrants to purchase an aggregate of 4,829,569 shares of AYRO common stock at an exercise price of $0.2024 per share. The AYRO Private Placement SPAs include registration rights agreements by and between DropCar and the investors in the AYRO Private Placements.

 

Pursuant to the Bridge Financing, immediately prior to closing the Merger Agreement, the bridge loans shall convert into an aggregate of 3,779,442 shares of AYRO common stock, and AYRO shall issue to the bridge loan investors warrants to purchase an aggregate of 3,779,442 shares of AYRO common stock at an exercise price of $0.3043 per share.

 

Pursuant to the Nominal Stock Subscription, immediately prior to closing the Merger Agreement, AYRO shall issue to the investor Pre-funded Warrants to purchase an aggregate of 1,750,000 shares of AYRO common stock at an exercise price of $0.0001 per share.

 

The shares of common stock issued as a result of the foregoing transactions will be exchanged for merger consideration at the effective time of the merger, and the warrants issued in the foregoing transactions will automatically convert into the right to purchase shares of DropCar common stock equal to the number of shares of AYRO common stock issuable upon exercise of such warrants multiplied by the Exchange Ratio, with an exercise price equal to the exercise price of such warrants divided by the Exchange Ratio. For additional information, see “ANCILLARY AGREEMENTS — Transaction Documents” on page 193 of this joint proxy and consent solicitation statement/prospectus. Copies of the complete text of the AYRO Private Placement SPAs, the Bridge Financing and the Nominal Stock Subscription Agreement are included in this joint proxy and consent solicitation statement/prospectus as Annexes K, L and M, respectively.

 

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April Bridge Financing

 

On April 14, 2020, an investor of AYRO (the “Payee”) agreed to extend a loan in the aggregate amount of $600,000 (the “Initial Principal Amount”) to AYRO, which loan is evidenced by a Secured Promissory Note dated as of April 14, 2020 (the “April Bridge Financing”). The April Bridge Financing is secured by a subordinated lien security interest in all assets of AYRO. All outstanding principal and accrued and unpaid interest under the April Bridge Financing shall be due and payable in full at the April Bridge Financing Maturity Date, which is the earliest of (a) the date that is ninety (90) days following the date of issuance of the April Bridge Financing, or (b) the date that is three (3) business days following the closing of the merger between AYRO and Drop Car. The Note features an interest rate equal to 15.0% per annum, simple interest from the date of funding until repaid. Upon and during the continuance of an event of default, Payee may, at its option, exercise any one or more of the following remedies, by notice in writing to AYRO: (i) declare the total unpaid principal balance of the April Bridge Financing, together with all accrued and unpaid interest thereon, immediately due and payable; or (ii) exercise any other right or remedy available to Payee under the security Agreement, or at law or in equity. Events of default include the failure by AYRO to pay any principal amount or accrued and unpaid interest within ten (10) business days of the due date thereof (whether at the April Bridge Financing Maturity Date, upon acceleration, or otherwise), the breach of certain covenants by AYRO, the occurrence of certain changes of control of AYRO, the commencement of certain proceedings related to a bankruptcy by AYRO, and the entry of certain judgments or decrees against AYRO. Mark Adams entered into a personal guaranty for up to $300,000 of amounts owing under the Secured Promissory Note. As further consideration for the loan and guaranty, AYRO agreed, upon Payee’s funding in full of the Initial Principal Amount, to grant to each of Payee and Mark Adams a number of shares of AYRO common stock that will convert into two percent (2%) of the aggregate issued and outstanding shares of DropCar immediately post-merger.

 

Secured Loan

 

On February 20, 2020, certain existing investors of DropCar and AYRO (the “Noteholders”) agreed to extend a loan in the aggregate amount of $500,000 to AYRO, which loan is evidenced by a Secured Promissory Note dated as of February 20, 2020 (the “Secured Loan”). The Secured Loan is the secured obligation of AYRO and ranks pari passu with AYRO’s other outstanding debt obligations. The Secured Loan is secured by a security interest in and lien on substantially all of the assets of AYRO (the “Collateral”), with the Noteholders’ security interest in the Collateral ranking junior to the secured lenders pursuant to the Loan and Security Agreement, dated December 19, 2019, by and between AYRO and the persons signatory thereto as lenders. The aggregate unpaid principal amount of the loan, together with all accrued and unpaid interest thereon and all other amounts payable under the Secured Loan shall be due and payable in cash upon the Maturity Date, defined as the earliest of (a) the date on which the closing of the merger occurs pursuant to the Merger Agreement, (b) May 20, 2020 and (c) the date on which all amounts under the Secured Loan become due and payable in connection with certain events of default. The Note features an interest rate equal to 7.0% per annum, which interest is payable in arears on the Maturity Date. Upon the occurrence and during the continuance of an event of default, any amounts due pursuant to the Secured Loan, whether at stated maturity, by acceleration or otherwise, shall bear interest at a rate equal to 10.0% per annum from the date of such non-payment until such amount is paid in full. Events of default include the failure by AYRO to pay any principal amount or accrued and unpaid interest on the Maturity Date, the breach of certain covenants by AYRO and the commencement of certain proceedings related to a bankruptcy by AYRO.

 

In connection with the Secured Loan, AYRO also entered into a subscription agreement with each of the Noteholders (the “Subscription Agreements”), pursuant to which, contingent upon the closing of the merger and effective immediately thereafter, AYRO agreed to cause DropCar to issue and sell, and the Noteholders agreed to subscribe for, warrants to purchase an aggregate of 500,000 shares of DropCar’s common stock for an aggregate price equal to $10,000. The warrants shall feature an exercise price of $0.01 and shall be exercisable immediately upon issuance.

 

Palladium Placement Agent and Merger Advisory Agreement

 

On December 19, 2019, AYRO entered into an engagement agreement (the “Palladium Advisory Agreement”) with Palladium Capital Advisors, LLC (“Palladium”), whereby Palladium agreed to (i) act as the non-exclusive placement agent in a private placement of, or similar unregistered transaction involving, equity or equity-linked securities of AYRO to a limited number of institutional, accredited individual or strategic investors, and (ii) serve as AYRO’s non-exclusive advisor in connection with a merger. Palladium served as the non-exclusive placement agent in the Bridge Financing and the AYRO Private Placements.

 

Pursuant to the Palladium Advisory Agreement, among other things, in connection with the Bridge Financing and the AYRO Private Placement, AYRO is to (a) pay Palladium a cash fee equal to 8% of the aggregate gross proceeds raised in each transaction, payable in cash at the time of such closing, provided that, any cash fees in excess of $40,000 shall not be payable until the consummation of the merger, (b) issue Palladium five-year warrants to purchase a number of shares of common stock of AYRO equal to 7% of the aggregate number of shares sold in the Bridge Financing and the AYRO Private Placements, at an exercise price equal to 115% of the offering price per share in each closing.

 

Pursuant to the Palladium Advisory Agreement, for Palladium’s advisory services in connection with the merger, upon consummation of the merger, Palladium will receive the number of shares of common stock of AYRO, or 507,308 shares, that will convert into that number of shares of common stock of the post-merger entity immediately following the merger that represents 1% equity ownership in such entity based on the total number of shares outstanding.

 

In addition, AYRO agrees to reimburse Palladium periodically for its reasonable and customary out-of-pocket and incidental expenses incurred during the term of Palladium’s engagement, including the fees and expenses of its legal counsel and those of any other advisor retained by Palladium.

 

DropCar Placement Agent and Merger Advisory Agreement with Palladium

 

On December 5, 2019, DropCar entered into a Placement Agent and Merger Advisory Agreement with Palladium (the “DropCar Palladium Agreement”), whereby Palladium agreed to (i) act as the non-exclusive placement agent in a private placement of, or similar unregistered transaction involving, equity or equity-linked securities of DropCar to a limited number of institutional, accredited individual or strategic investors, and (ii) serve as DropCar’s exclusive financial advisor and investment banker to provide general financial advisory and investment banking services in connection with a possible business combination of DropCar with an unaffiliated third party.

 

The engagement and retention of Palladium will expire on the earlier of December 5, 2020, or the consummation of a business combination of DropCar with an unaffiliated third party.

 

Pursuant to the DropCar Palladium Agreement, for Palladium’s advisory services in connection with the merger, upon consummation of the merger, Palladium will receive 1,100,249 shares of common stock of the combined company immediately following the merger that represents 2% equity ownership in the combined company based on the total shares outstanding.

 

In addition, DropCar agreed to reimburse Palladium periodically for its reasonable and customary out-of-pocket and incidental expenses incurred during the term of Palladium’s engagement, including the fees and expenses of its legal counsel and those of any other advisor retained by Palladium.

 

The DropCar Palladium Agreement contains indemnification provisions and representations and warranties customary to such agreements.

 

ALS Letter Agreement

 

On December 19, 2019, AYRO entered into a letter agreement (the “ALS Letter Agreement”) with ALS Investment, LLC (“ALS”), which provides that if the merger is consummated by June 19, 2020, upon consummation of the merger, AYRO shall issue ALS 2,282,881 shares of AYRO common stock, which shall convert into 4.5% of the outstanding shares of common stock of the combined company giving effect to the merger.

 

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Termination of Merger Agreement (see page 192)

 

The Merger Agreement may be terminated at any time prior to the effective time of the merger, whether before or after the required stockholder approvals to complete the merger and related matters have been obtained, as set forth below:

 

  by mutual written consent of AYRO and DropCar duly authorized by each of their respective boards of directors;
     
  by either DropCar or AYRO if the merger has not been consummated by June 19, 2020; provided, however, in the event that the SEC has not concluded its review of the S-4 Registration Statement by the date which is sixty (60) days prior to the End Date, then either DropCar or AYRO shall be entitled to extend the End Date for an additional sixty (60) days;
     
  by either DropCar or AYRO if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission will have issued a non-appealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the merger;
     
  by DropCar if AYRO stockholder approval is not obtained within five (5) business days following the date the S-4 Registration Statement is declared effective, subject to certain exceptions;
     
  by either DropCar or AYRO, if DropCar’s stockholder meeting was held and the stockholder approval contemplated by the Merger Agreement was not obtained thereat, subject to certain exceptions;
     
  by DropCar upon breach of any of the representations, warranties, covenants or agreements on the part of AYRO set forth in the Merger Agreement, or if any representation or warranty of AYRO will have become inaccurate, in either case such that certain conditions in the Merger Agreement would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided, however, if such breach or inaccuracy is curable by AYRO, then the Merger Agreement will not terminate as a result of such particular breach or inaccuracy unless the breach or inaccuracy remains uncured as of the tenth (10th) business day following the date of written notice given by DropCar to AYRO informing AYRO of such breach or inaccuracy and DropCar’s intention to terminate the agreement; provided, further, that no termination may be made solely as a result of the failure of AYRO to obtain AYRO’s stockholder approval;
     
  by AYRO upon breach of any of the representations, warranties, covenants or agreements on the part of AYRO or Merger Sub set forth in the Merger Agreement, or if any representation or warranty of DropCar or Merger Sub will have become inaccurate, in either case such that certain conditions set forth in the Merger Agreement would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided, however, if such breach or inaccuracy is curable by DropCar or Merger Sub, then the Merger Agreement will not terminate as a result of such particular breach or inaccuracy unless the breach or inaccuracy remains uncured as of the tenth (10th) business day following the date of written notice given by AYRO to DropCar informing DropCar of such breach or inaccuracy and AYRO’s intention to terminate the agreement; provided, further, that no termination may be made solely as a result of the failure of DropCar to obtain DropCar’s stockholder approval;
     
  by AYRO if the DropCar board of directors has withdrawn or modified its recommendation to DropCar stockholders to vote for the merger, the sale of substantially all assets of DropCar pursuant to the Asset Purchase Agreement, the A&R Charter Proposal and the Reverse Stock Split Proposal by the DropCar stockholders for a superior offer; and
     
  by DropCar in connection with DropCar entering into a definitive agreement to effect an unsolicited superior offer.

 

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Termination Fees (see page 192)

 

DropCar must pay AYRO a termination fee of $1,000,000 if the Merger Agreement was terminated (i) by AYRO because the DropCar Board of Directors has withdrawn or modified its recommendation to DropCar stockholders to vote for the merger, the sale of substantially all assets of DropCar pursuant to the Asset Purchase Agreement, the A&R Charter Proposal and the Reverse Stock Split Proposal by the DropCar stockholders for a superior offer; or (ii) by DropCar in connection with DropCar entering into a definitive agreement to effect an unsolicited superior offer.

 

AYRO must pay DropCar a termination fee of $1,000,000 if the Merger Agreement was terminated by DropCar because AYRO’s stockholder approval was not obtained within five (5) business days following the date the S-4 Registration Statement is declared effective, subject to certain exceptions.

 

If either DropCar or AYRO terminates the Merger Agreement because (i) DropCar’s stockholder meeting was held and the stockholder approval contemplated by the Merger Agreement was not obtained thereat; (ii) prior to DropCar’s stockholder meeting, an acquisition proposal with respect to DropCar shall have been publicly announced, disclosed or otherwise communicated to DropCar board of directors; or (iii) within 12 months after the date of such termination, DropCar enters into a definitive agreement with respect to an acquisition transaction for more than 50% of DropCar or any liquidation or dissolution of DropCar or consummates such acquisition transaction, then DropCar shall pay AYRO, upon such entry into a definitive agreement and/or consummation of such acquisition transaction, a termination fee of $1,000,000.

 

Comparison of the Rights of DropCar Stockholders and AYRO Stockholders (see page 307)

 

Each of DropCar and AYRO is incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each company are currently, and will continue to be, governed by the DGCL. If the merger is completed, AYRO stockholders will become stockholders of DropCar, and their rights will be governed by the DGCL, as well as the DropCar Charter and DropCar Bylaws. The rights of DropCar stockholders contained in the DropCar Charter and the DropCar Bylaws, as amended and restated, differ from the rights of AYRO stockholders under AYRO’s amended and restated certificate of incorporation (the “AYRO Charter”) and AYRO’s amended and restated bylaws (the “AYRO Bylaws”), as more fully described under the section titled “COMPARISON OF RIGHTS OF DROPCAR STOCKHOLDERS AND AYRO STOCKHOLDERS” on page 307 of this joint proxy and consent solicitation statement/prospectus.

 

Accounting Treatment (see page 168)

 

Although DropCar is the legal acquirer and will issue shares of its common stock to effect the merger with AYRO, the business combination will be accounted for as an acquisition of DropCar by AYRO under GAAP. Under the “acquisition” method of accounting, the assets and liabilities of DropCar will be recorded, as of the completion of the merger, at their respective fair values in the financial statements of AYRO. The financial statements of AYRO issued after the completion of the merger will reflect these values, but will not be restated retroactively to reflect the historical financial position or results of operations of DropCar.

 

For a more complete discussion of the accounting treatment of the merger, see the section titled “The Merger — Accounting Treatment” on page 168 of this joint proxy and consent solicitation statement/prospectus.

 

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U.S. Federal Income Tax Considerations (see page 168)

 

The merger should qualify as a “reorganization” within the meaning of Section 368(a) of the Code and Treasury Regulations promulgated thereunder. As a result of the “reorganization,” AYRO stockholders and warrant holders generally should not recognize gain or loss for U.S. federal income tax purposes upon the exchange of their shares of AYRO stock for shares of DropCar common stock and in the conversion of AYRO warrants into DropCar warrants in connection with the merger, subject to the uncertainty concerning the tax treatment of fractional shares. DropCar stockholders generally will not recognize gain or loss for U.S. federal income tax purposes as a result of the merger.

 

Tax matters are very complicated, and the tax consequences of the merger to a particular DropCar or AYRO stockholder or AYRO warrant holder will depend in part on such holder’s circumstances. Accordingly, DropCar and AYRO urge you to consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For a more complete discussion of the material U.S. federal income tax consequences of the merger, see the section titled “CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER” on page 238 of this joint proxy and consent solicitation statement/prospectus.

 

Regulatory Approvals (see page 167)

 

DropCar and AYRO believe that the merger does not raise substantial antitrust or other significant regulatory concerns and that both parties will be able to obtain all requisite regulatory approvals prior to the anticipated closing. DropCar must also comply with the applicable federal and state securities laws and the rules and regulations of The Nasdaq Stock Market LLC for the approval of the listing application to be submitted in connection with the issuance of shares of DropCar common stock in the merger and the filing with the SEC of the registration statement of which this joint proxy and consent solicitation statement/prospectus forms a part. For a more complete discussion of the regulatory approvals required in connection with the merger, see the section titled “THE MERGER — Regulatory Approvals Required for the Merger” on page 167 of this joint proxy and consent solicitation statement/prospectus.

 

Opinion of DropCar’s Financial Advisor (see page 150 and Annex F)

 

On December 18, 2019, Gemini rendered its oral opinion to the DropCar Board of Directors (which was confirmed in writing by delivery of Gemini’s written opinion, dated December 18, 2019), as of December 18, 2019, as to the fairness, from a financial point of view, to DropCar of the Exchange Ratio in the merger, after giving effect to the ancillary transactions, pursuant to the Merger Agreement. In the sections of this joint proxy and consent solicitation statement/prospectus regarding Gemini’s analyses or opinion, references to the AYRO Private Placements, the AYRO Preferred Stock Conversion, the AYRO convertible note conversion and the DropCar private placement are referred to collectively as the “ancillary transactions” and, together with the merger and the bridge loan conversion, as the “transaction.”

 

The opinion was addressed to the DropCar Board of Directors for the use and benefit of the members of the DropCar Board of Directors (in their capacities as such) in connection with the DropCar Board of Directors’ evaluation of the merger. Gemini’s opinion only addressed whether, as of the date of the opinion, the Exchange Ratio in the merger, after giving effect to the ancillary transactions pursuant to the Merger Agreement, was fair, from a financial point of view, to DropCar. It did not address any other terms, aspects, or implications of the transaction or the Merger Agreement. The summary of the opinion in this joint proxy and consent solicitation statement/prospectus is qualified in its entirety by reference to the full text of the written opinion, which is included as Annex F to this joint proxy and consent solicitation statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Gemini in preparing its opinion. Neither the opinion nor the summary of the opinion and related analyses set forth in this joint proxy and consent solicitation statement/prospectus is intended to and they do not constitute advice or a recommendation to any of the stockholders of DropCar or any other security holders as to how such holder should vote or act with respect to any matter relating to the transaction or otherwise.

 

For further information, see the section titled “THE MERGER — Opinion of DropCar’s Financial Advisor” beginning on page 150 and the full text of the opinion attached as Annex F to this joint proxy and consent solicitation statement/prospectus.

 

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Asset Purchase Agreement

(see page 199)

 

The following summary of the Asset Purchase Agreement, and the copy of the Asset Purchase Agreement attached as Annex G to this joint proxy and consent solicitation statement/prospectus, are intended only to provide information regarding the terms of the Asset Purchase Agreement. They are not intended to provide any factual information about DropCar, its subsidiaries or DC Partners or to modify or supplement any factual disclosures about DropCar in its public reports filed with the SEC. The Asset Purchase Agreement and the related summary are not intended to be a source of factual, business or operational information about DropCar, its subsidiaries or DC Partners, and the following summary of the Asset Purchase Agreement and the copy thereof included as Annex G are not intended to modify or supplement any factual disclosure about DropCar in any documents DropCar has or will publicly file with the SEC. The Asset Purchase Agreement contains representations and warranties by, and covenants of, DropCar, DC Partners and certain subsidiaries of DropCar that were made only for purposes of the Asset Purchase Agreement and as of specified dates. The representations, warranties and covenants in the Asset Purchase Agreement were made solely for the benefit of the parties to the Asset Purchase Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Asset Purchase Agreement instead of establishing these matters as facts, and may be subject to contractual standards of materiality or material adverse effect applicable to the contracting parties that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Asset Purchase Agreement, which subsequent information may or may not be fully reflected in DropCar’s public disclosures.

 

On December 19, 2019, DropCar entered into the Asset Purchase Agreement by and among DropCar, DropCar Operating, DC Partners, Spencer Richardson and David Newman, pursuant to which DropCar Operating agreed to sell substantially all of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry to an entity controlled by Messrs. Richardson and Newman, DropCar’s current Chief Executive Officer and Chief Business Development Officer, respectively. The aggregate purchase price for the purchased assets consists of the cancellation of certain liabilities pursuant to those certain employment agreements by and between DropCar Operating and each of Messrs. Richardson and Newman, plus the assumption of certain liabilities relating to, or arising out of, workers’ compensation claims that occurred prior to the closing date of the Asset Purchase Agreement.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF DROPCAR

 

The following table sets forth selected historical financial information of DropCar for each of the periods presented. Such information has been derived from DropCar’s audited financial statements as of and for the years ended December 31, 2019 and 2018, each of which is included elsewhere in this joint proxy and consent solicitation statement/prospectus.

 

The following table should be read together with “INFORMATION ABOUT DROPCAR — DropCar Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 251 of this joint proxy and consent solicitation statement/prospectus and DropCar’s audited financial statements as of and for the years ended December 31, 2019 and 2018 and related notes beginning on page F-28 of this joint proxy and consent solicitation statement/prospectus.

 

DropCar’s historical results are not necessarily indicative of results to be expected in any future period.

 

    Years Ended
December 31,
 
    2019     2018  
Consolidated Statements of Operations Data:                
Operating loss     (2,477,160 )     (2,230,634 )
Loss from continuing operations     (2,477,160 )     (2,902,778 )
Loss from discontinued operations, net of tax     (2,425,223 )     (11,676,667 )
Loss on sale of component, net of tax     -       (4,169,718 )
Net loss   $ (4,902,383 )   $ (18,749,163 )
Net loss attributable to common stockholders   $ (4,960,258 )   $ (20,148,824 )
Amounts attributable to common stockholders                
Loss from continuing operations     (2,535,035 )     (4,302,439 )
Loss from discontinued operations    

(2,425,223

)     (15,846,385 )
Weighted average number of common shares outstanding     3,541,511       1,352,826  

 

    At December 31,  
    2019     2018  
       
Consolidated Balance Sheet Data:                
Cash     4,259,091       3,887,910  
Total assets     5,257,477       5,630,156  
Total current assets     4,816,082       4,927,718  
Total current liabilities     2,389,132       2,591,760  

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF AYRO

 

The following table sets forth selected historical financial information of AYRO for each of the periods presented (in thousands, except share and per share data). Such information has been derived from AYRO’s audited financial statements as of and for the years ended December 31, 2019 and 2018, each of which is included elsewhere in this joint proxy and consent solicitation statement/prospectus.

 

The following tables should be read together with “INFORMATION ABOUT AYRO — AYRO’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 251 of this joint proxy and consent solicitation statement/prospectus and AYRO’s audited financial statements as of and for the years ended December 31, 2019 and 2018 and related notes beginning on page F-1 of this joint proxy and consent solicitation statement/prospectus.

 

AYRO’s historical results are not necessarily indicative of results to be expected in any future period.

 

AYRO, Inc.

Statement of Operations Data

 

    Year Ended December 31,  
    2019     2018  
             
Revenues   $ 890,152     $ 5,302,964  
Cost of Revenue     691,843       5,008,700  
Gross Profit     198,309       294,264  
Operating Expenses                
Research and development expenses     714,281       768,382  
Sales and marketing expenses     1,300,120       999,724  
General and administrative expenses     6,678,310       2,578,078  
Total Operating Expenses     8,692,711       4,346,184  
Operating Loss     (8,494,402 )     (4,051,920 )
Other income (expense), net                
Other Income     2,188       47  
Interest Expense     (172,479 )     (144,618 )
Net Loss   $ (8,664,693 )   $ (4,196,491 )
Weighted Average Fully Diluted Shares     10,655,957       10,242,650  
Net Loss per fully diluted share   $ (0.81 )   $ (0.41 )

 

57
 

 

AYRO, Inc.

Balance Sheet Information

 

    December 31,  
    2019     2018  
Assets            
Current Assets                
Cash     641,822     $ 39,243  
Accounts Receivable, net of allowance for doubtful accounts of $36,084 and $6,985, respectively     71,146       260,231  
Inventories     1,118,516       1,650,605  
Prepaid Expenses and Other Current Assets     164,399       169,055  
                 
Total Current Assets     1,995,883       2,119,134  
                 
Property and Equipment, net     489,366       725,985  
                 
Other Assets     292,881       397,560  
                 
Total Assets     2,778,130     $ 3,242,679  
Liabilities and Members’ Equity                
Current Liabilities                
Accounts Payable     757,077     $ 2,385,872  
Accrued Expenses     612,136       364,274  
Related Party Payables     15,000       339,202  
Deferred Income     0       9,999  
Notes Payable, Current Portion     1,006,947       6,392  
Total Current Liabilities     2,391,160       3,105,739  
Notes Payable, net of Current Portion     318,027       28,554  
Total Liabilities     2,709,187       3,134,293  
                 
Stockholders’ Equity                
AYRO’s Preferred stock, $0.001 par value, 8,472,500 shares authorized                
                 
AYRO Series Seed 1 Preferred Stock, 3,272,500 shares designated, 3,272,500 and 3,272,500 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively;     3,272,500       3,272,500  
                 
AYRO Series Seed 2 Preferred Stock, 2,200,000 shares designated, 1,907,684 and 610,291 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively;     3,268,444       998,007  
                 
AYRO Series Seed 3 Preferred Stock, no shares designated at December 31, 2018, 3,000,000 shares designated, 2,180,801 shares issued and outstanding at December 31, 2019.     2,484,301       -  
                 
AYRO Common stock, $0.001 par value; 26,347,500 shares authorized, 14,478,795 and 10,244,945 issued and outstanding as of December 31, 2019 and December 31, 2018, respectively;     16,683       12,449  
                 
Additional paid in capital     4,985,659       1,119,381  
Accumulated deficit     (13,958,644 )     (5,293,951 )
Total Stockholders’ Equity     68,943       108,386  
Total Liabilities and Stockholders’ Equity     2,778,130     $ 3,242,679  

 

58
 

 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

 

The following selected unaudited pro forma condensed combined financial data as of and for the year ended December 31, 2019, give effect to the proposed merger of Merger Sub with and into AYRO, and have been prepared under the acquisition method of accounting with AYRO treated as the accounting acquirer. AYRO is anticipated to be the accounting acquirer based upon the terms of the merger and other factors, such as the number of shares to be issued to AYRO stockholders under the Merger Agreement, relative voting rights and the composition of the combined company’s board and senior management. The following selected unaudited pro forma condensed financial data also give effect to the proposed disposition by DropCar of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry to DC Partners (the “Asset Sale Transaction”).

 

The selected unaudited pro forma condensed combined financial data presented below are based on, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements that appear elsewhere in this joint proxy and consent solicitation statement/prospectus, including the footnotes thereto, and the historical financial statements of AYRO and DropCar that appear elsewhere in this joint proxy and consent solicitation statement/prospectus. See the sections titled “Where You Can Find More Information” and “Unaudited Pro Forma Condensed Combined Financial Statements” for additional information.

 

The following selected unaudited pro forma condensed combined balance sheet data as of December 31, 2019 combine the historical condensed balance sheet of AYRO as of December 31, 2019 and the historical condensed consolidated balance sheet of DropCar as of December 31, 2019, giving pro forma effect to the merger and the Asset Sale Transaction as if such transactions had been completed on December 31, 2019. The following selected unaudited pro forma condensed combined statements of operations data for the year ended December 31, 2019, combine the historical audited condensed statement of operations data of DropCar for its fiscal year ended December 31, 2019 and the historical audited condensed statements of operations data of AYRO for its fiscal year ended December 31, 2019, giving pro forma effect to the merger and the Asset Sale Transaction as if such transactions had been completed on January 1, 2019.

 

The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily indicative of the actual or future financial position or results of operations that would have been realized if the proposed merger or the Asset Sale Transaction had been completed as of the dates indicated in the unaudited pro forma condensed combined financial statements or that will be realized upon the consummation of the proposed transactions.

 

Unaudited Pro Forma Condensed Combined Statements of Operations, Balance Sheet and Other Data:

 

   

For the

Year Ended

December 31, 2019

 
Statements of Operations Data        
Total revenue   $ 890,152  
Loss from operations   $ (11,310,750 )
Net loss   $ (11,481,041 )
Net loss attributable to common stockholders   $ (11,538,916 )
Net loss per share attributable to common stockholders, basic and diluted   $ (2.10 )

 

   

As of

December 31, 2019

 
Balance Sheet Data        
Cash and cash equivalents   $ 8,900,913  
Working capital(1)   $ 6,697,263  
Total assets   $ 11,219,026  
Total liabilities   $ 4,057,544  
Accumulated deficit   $ (13,958,644 )
Total stockholders’ equity   $ 7,161,483  

 

(1) We define working capital as current assets less current liabilities.

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

 

The following unaudited pro forma per share information as of and for the year ended December 31, 2019 and reflects the merger and related transactions and the Asset Sale Transaction as if they had occurred on January 1, 2019. The information in the table is based on, and should be read together with, the historical financial statements of DropCar that appear elsewhere in this joint proxy and consent solicitation statement/prospectus, the unaudited pro forma condensed combined financial statements that appear elsewhere in this joint proxy and consent solicitation statement/prospectus, including the notes thereto, and the historical financial statements of AYRO that appear elsewhere in this joint proxy and consent solicitation statement/prospectus. See the sections titled “Where You Can Find More Information” and “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

The unaudited pro forma per share data is presented for illustrative purposes only and is not necessarily indicative of actual or future financial position or results of operations that would have been realized if the proposed merger had been completed as of the dates indicated or will be realized upon the completion of the proposed merger. DropCar and AYRO have not declared or paid any dividends during the periods presented.

 

   

As of and for the
Year Ended

December 31, 2019

 
AYRO:                   
Book value per share – historical   $

0.01

 
Basic and diluted net loss per share – historical   $

(0.81

)
DropCar:        
Book value per share – historical   $

0.71

 
Basic and diluted net loss per share – historical   $

(1.40

)
Combined:        
Book value per share – pro forma   $

1.30

Basic and diluted net loss per share – pro forma   $

(2.10

)

 

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RISK FACTORS

 

You should carefully consider the risks described below in evaluating whether to vote for or consent to the proposals discussed herein. The risks and uncertainties described below are not the only ones DropCar and AYRO face, and these factors should be considered in conjunction with general investment risks and other information included in this joint proxy and consent solicitation statement/prospectus, including the matters addressed in the section titled “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS” beginning on page 106 of this joint proxy and consent solicitation statement/prospectus. You should read and consider the risks associated with the business of AYRO beginning on page 74 of this joint proxy and consent solicitation statement/prospectus as these risk factors will also affect the operations of the combined company going forward because, assuming that the Asset Sale Proposal is approved, the business of the combined company will be AYRO’s business. You should also read and consider the risk factors associated with DropCar beginning on page 61 of this joint proxy and consent solicitation statement/prospectus because these risk factors may affect the operations and financial results of the combined company.

 

Risks Related to the Proposed Merger

 

There is no assurance when or if the merger will be completed. Any delay in completing the merger may substantially reduce the intended benefits that DropCar and AYRO expect to obtain from the merger.

 

Completion of the merger is subject to the satisfaction or waiver of a number of conditions, as set forth in the Merger Agreement, including the approval by DropCar’s stockholders, approval by Nasdaq of DropCar’s application for initial listing of DropCar’s common stock in connection with the merger, and other customary closing conditions. There can be no assurance that DropCar and AYRO will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived. For a discussion of the conditions to the completion of the merger, see the section titled “THE MERGER AGREEMENT — Conditions to Completion of the Merger” beginning on page 182 of this joint proxy and consent solicitation statement/prospectus. If the conditions are not satisfied or waived, the merger may not occur or will be delayed, and DropCar and AYRO each may lose some or all of the intended benefits of the merger. In addition, if the Merger Agreement is terminated under certain circumstances, DropCar or AYRO may be required to pay a termination fee of $1,000,000. Moreover, each of DropCar and AYRO has incurred and expects to continue to incur significant expenses related to the merger, such as legal and accounting fees, some of which must be paid even if the merger is not completed.

 

In addition, if the Merger Agreement is terminated and DropCar’s or AYRO’s board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger. In such circumstances, the DropCar Board of Directors may elect to, among other things, divest all or a portion of DropCar’s business, or take the steps necessary to liquidate all of DropCar’s business and assets, and in either such case, the consideration that DropCar receives may be less attractive than the consideration to be received by DropCar pursuant to the Merger Agreement. Further, approval of the DropCar Share Issuance Proposal and the Asset Sale Proposal are conditioned on the approval of each other. Accordingly, if the DropCar Share Issuance Proposal is not approved, the Asset Sale Transaction will not be completed.

 

The issuance of shares of DropCar common stock to AYRO stockholders in the merger will substantially dilute the voting power of current DropCar stockholders. Having a minority share position may reduce the influence that current stockholders have on the management of DropCar.

 

Pursuant to the terms of the Merger Agreement, at the effective time of the merger, DropCar will issue approximately 42,112,223 pre-reverse stock split shares of its common stock to AYRO equity holders as merger consideration, including shares to be issued in respect of the AYRO Private Placement shares and upon conversion of the bridge loans immediately prior to the closing of the merger. As a result, assuming the conversion of all shares of DropCar preferred stock into common stock and the exercise of the Pre-funded Warrants, upon completion of the merger, the current DropCar stockholders (including holders of Series H-4 Preferred Stock and Series H-6 Preferred Stock) will hold approximately 9,902,276 pre-reverse stock split shares, or approximately 18% of the issued and outstanding equity in DropCar; former AYRO stockholders (including the investors in the Bridge Financing, the AYRO Private Placements and the Nominal Stock Subscription and a consultant) will own approximately 44,009,923 pre-reverse stock split shares, or approximately 79% of the issued and outstanding equity in DropCar, in each case, excluding certain warrants, options and restricted stock units; and the financial advisor to DropCar and AYRO will own approximately 1,650,374 pre-reverse stock split shares, or approximately 3% of the outstanding equity of DropCar. Accordingly, the issuance of the shares of DropCar common stock to AYRO equity holders in the merger will significantly reduce the ownership stake and relative voting power of each share of DropCar common stock held by current DropCar stockholders. Consequently, following the merger, the ability of DropCar’s current stockholders to influence the management of DropCar will be substantially reduced.

 

61
 

 

Because the lack of a public market for AYRO common stock makes it difficult to evaluate the fairness of the merger, AYRO stockholders may receive consideration in the merger that is greater than or less than the fair market value of AYRO common stock.

 

The outstanding capital stock of AYRO is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of AYRO shares. Since the percentage of DropCar’s common stock to be issued to AYRO equity holders was determined based on negotiations between the parties, it is possible that the value of the DropCar common stock to be issued in connection with the merger will be greater than the fair market value of AYRO shares. Alternatively, it is possible that the value of the shares of DropCar common stock to be issued in connection with the merger will be less than the fair market value of AYRO shares.

 

Directors and officers of DropCar and AYRO may have interests in the merger that are different from, or in addition to, those of DropCar stockholders and AYRO stockholders generally that may influence them to support or approve the merger.

 

The officers and directors of DropCar and AYRO may have interests in the merger that are different from, or are in addition to, those of DropCar stockholders and AYRO stockholders generally. Effective upon the closing of the merger, Mr. Keller and Mr. Smith will be employed by the combined company and receive compensation and other consideration as described in more detail in the section titled “THE MERGER — The Employment Agreements and the Lock-up Agreements” beginning on page 173 of this joint proxy and consent solicitation statement/prospectus. It is expected that four of the current directors of DropCar, Messrs. Silverman, Giordano, Joseph and Schiffman, and two of the current directors of AYRO, Mr. Keller and Mr. Adams, will be appointed as directors of the combined company after the completion of the merger and will receive cash and equity compensation in consideration for such service as described in more detail in the section titled “MANAGEMENT OF THE COMBINED COMPANY” beginning on page 210 of this joint proxy and consent solicitation statement/prospectus. All of AYRO’s executive officers are expected to continue to serve as executive officers of DropCar after the completion of the merger. Each outstanding stock option to acquire shares of AYRO common stock held by executive officers and directors of AYRO will be converted into an option to acquire shares of DropCar common stock. In addition, the directors and executive officers of DropCar and AYRO also have certain rights to indemnification or to directors’ and officers’ liability insurance that will survive the completion of the merger. These interests may have influenced the directors and executive officers of DropCar and AYRO to support or recommend the proposals presented to DropCar and AYRO stockholders. See the sections titled “THE MERGER — Interests of DropCar’s Directors and Executive Officers in the Merger” beginning on page 157 and “THE MERGER — Interests of AYRO’s Directors and Executive Officers in the Merger” beginning on page 159 of this joint proxy and consent solicitation statement/prospectus.

 

The announcement and pendency of the merger could have an adverse effect on DropCar’s or AYRO’s business, financial condition, results of operations or business prospects.

 

The announcement and pendency of the merger could disrupt DropCar’s and/or AYRO’s businesses in the following ways, among others:

 

  DropCar’s or AYRO’s current and prospective employees could experience uncertainty about their future roles within the combined company, and this uncertainty might adversely affect DropCar’s or AYRO’s ability to retain, recruit and motivate key personnel;
     
  the attention of DropCar’s or AYRO’s management may be directed towards the completion of the merger and other transaction-related considerations and may be diverted from the day-to-day business operations of DropCar or AYRO, as applicable, and matters related to the merger may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to DropCar or AYRO, as applicable;

 

62
 

 

  customers, prospective customers, suppliers, collaborators and other third parties with business relationships with DropCar or AYRO may decide not to renew or may decide to seek to terminate, change or renegotiate their relationships with DropCar or AYRO as a result of the merger, whether pursuant to the terms of their existing agreements with DropCar or AYRO; and
     
 

the market price of DropCar’s common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed.

 

Should they occur, any of these matters could adversely affect the businesses of, or harm the financial condition, results of operations or business prospects of, DropCar or AYRO.

 

During the pendency of the merger, DropCar or AYRO may not be able to enter into a business combination with another party and will be subject to contractual limitations on certain actions because of restrictions in the Merger Agreement.

 

Covenants in the Merger Agreement impede the ability of DropCar or AYRO to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the merger, other than the sale of substantially all of the assets of DropCar pursuant to the Asset Purchase Agreement, the AYRO Private Placement and the Nominal Stock Subscription. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition, a tender offer, a merger or other business combination outside the ordinary course of business. These restrictions may prevent each of DropCar and AYRO from pursuing otherwise attractive business opportunities or other capital structure alternatives and making other changes to its business or executing certain of its business strategies prior to the completion of the merger, which could be favorable to DropCar stockholders or AYRO stockholders. See the section titled “THE MERGER AGREEMENT — No Solicitation” beginning on page 185 of this joint proxy and consent solicitation statement/prospectus.

 

Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

 

The terms of the Merger Agreement prohibit each of DropCar and AYRO from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances if the DropCar Board determines in good faith, after consultation with its independent financial advisor, if any, and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be expected to result in, a superior competing proposal and that failure to take such action would be reasonably likely to result in a breach of the fiduciary duties of the DropCar Board of Directors. In addition, if DropCar or AYRO terminate the Merger Agreement under specified circumstances, including, in the case of DropCar, terminating because of a decision of the DropCar Board of Directors to recommend a superior competing proposal, DropCar or AYRO would be required to pay a termination fee of  $1,000,000, as described under “THE MERGER AGREEMENT Termination of the Merger Agreement” and “THE MERGER AGREEMENTTermination Fees.” This termination fee may discourage third parties from submitting competing proposals to DropCar or its stockholders and may cause the DropCar Board of Directors to be less inclined to recommend a competing proposal.

 

The rights of AYRO stockholders who become DropCar stockholders in the merger and DropCar stockholders following the merger will be governed by the A&R Charter and the A&R Bylaws.

 

Upon consummation of the merger, outstanding shares of AYRO common stock will be converted into the right to receive shares of DropCar common stock. AYRO stockholders who receive shares of DropCar common stock in the merger will become DropCar stockholders. As a result, AYRO stockholders who become stockholders in DropCar will be governed by DropCar’s organizational documents and bylaws, rather than being governed by AYRO’s organizational documents and bylaws. See the section titled “COMPARISON OF RIGHTS OF DROPCAR STOCKHOLDERS AND AYRO STOCKHOLDERS” beginning on page 307 of this joint proxy and consent solicitation statement/prospectus. Pursuant to the Merger Agreement, the DropCar Charter will be amended and restated, subject to DropCar stockholders’ approval of the A&R Charter Proposal, and the DropCar Bylaws will be amended and restated, immediately prior to the effective time of the merger. See the section titled “COMPARISON OF RIGHTS OF DROPCAR STOCKHOLDERS AND AYRO STOCKHOLDERS” beginning on page 307 of this joint proxy and consent solicitation statement/prospectus.

 

63
 

 

The Exchange Ratio is not adjustable based on the market price of DropCar common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

 

The Merger Agreement has set the Exchange Ratio formula for the AYRO common stock, and the Exchange Ratio is only adjustable upward or downward to reflect DropCar’s and AYRO’s equity capitalization as of immediately prior to the effective time of the merger. Any changes in the market price of common stock before the completion of the merger will not affect the number of shares AYRO securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the merger, the market price of DropCar common stock declines from the market price on the date of the merger agreement, then AYRO securityholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the Merger, the market price of DropCar common stock increases from the market price on the date of the Merger Agreement, then AYRO securityholders could receive merger consideration with substantially more value for their shares of AYRO capital stock than the parties had negotiated for in the establishment of the Exchange Ratio.

 

If the merger does not qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, or is otherwise taxable to U.S. AYRO equity holders, then such holders may be required to pay U.S. federal income taxes.

 

For U.S. federal income tax purposes, the merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code. If the Internal Revenue Services (the “IRS”) or a court determines that the merger should not be treated as a reorganization, a holder of AYRO common stock and warrants would recognize taxable gain or loss upon the exchange of AYRO common stock and conversion of warrants for DropCar common stock and warrants pursuant to the Merger Agreement.

 

DropCar is expected to incur substantial expenses related to the merger with AYRO.

 

DropCar has incurred, and expects to continue to incur, substantial expenses in connection with the merger with AYRO, as well as operating as a public company. DropCar will incur significant fees and expenses relating to legal, accounting, financial advisory and other transaction fees and costs associated with the merger. Actual transaction costs may substantially exceed AYRO’s estimates and may have an adverse effect on the combined company’s financial condition and operating results.

 

Failure to complete the merger could negatively affect the value of DropCar common stock and the future business and financial results of both DropCar and AYRO.

 

If the merger is not completed, the ongoing businesses of DropCar and AYRO could be adversely affected and each of DropCar and AYRO will be subject to a variety of risks associated with the failure to complete the mergers, including without limitation the following:

 

  diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the merger;
     
  reputational harm due to the adverse perception of any failure to successfully complete the merger; and
     
  having to pay certain costs relating to the merger, such as legal, accounting, financial advisory, filing and printing fees.

 

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If the merger is not completed, these risks could materially affect the market price of DropCar common stock and the business and financial results of both DropCar and AYRO.

 

The merger is expected to result in a limitation on the combined company’s ability to utilize its net operating loss carryforward.

 

Under Section 382 of the Code, use of DropCar’s net operating loss carryforwards (“NOLs”) will be limited if DropCar experiences a cumulative change in ownership of greater than 50% in a moving three-year period. DropCar will experience an ownership change as a result of the merger and therefore its ability to utilize its NOLs and certain credit carryforwards remaining at the effective time of the merger will be limited. The limitation will be determined by the fair market value of DropCar’s common stock outstanding prior to the ownership change, multiplied by the applicable federal rate. It is expected that the merger will impose a limitation on DropCar’s NOLs. Limitations imposed on DropCar’s ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs.

 

The opinion received by the DropCar Board of Directors from Gemini has not been, and is not expected to be, updated to reflect changes in circumstances that may have occurred since the date of the opinion.

 

At a DropCar Board of Directors meeting held on December 18, 2019, DropCar’s financial advisor, Gemini, rendered its opinion as to the fairness of the merger consideration from a financial point of view to DropCar as of the date of such opinion, and such opinion was one of many factors considered by the DropCar Board of Directors in approving the merger. The opinion does not speak as of the time the merger will be completed or any date other than the date of such opinion. Subsequent changes in the operation and prospects of DropCar or AYRO, general market and economic conditions and other factors that may be beyond the control of DropCar or AYRO, may significantly alter the value of DropCar or AYRO or the prices of the shares of DropCar common stock by the time the merger is to be completed. The opinion does not address the fairness of the merger consideration from a financial point of view to DropCar at the time the merger is to be completed, or as of any other date other than the date of such opinion, and the Merger Agreement does not require that the opinion be updated, revised or reaffirmed prior to the closing of the merger to reflect any changes in circumstances between the date of the signing of the Merger Agreement and the completion of the merger as a condition to closing the merger. See the section titled “THE MERGER—Opinion of DropCar’s Financial Advisor” beginning on page 150 and Annex F to this joint proxy and consent solicitation statement/prospectus.

 

The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes or other causes.

 

In general, either party can refuse to complete the merger if there is a material adverse change (as defined in the Merger Agreement) affecting the other party between December 19, 2019, the date of the Merger Agreement, and the closing of the merger. However, some types of changes do not permit either party to refuse to complete the merger, even if such changes would have a material adverse effect on DropCar or AYRO, as the case may be:

 

  changes in general economic, business, financial or market conditions;
     
  changes or events affecting the industries or industry sectors in which the parties operate generally;
     
  changes in generally accepted accounting principles;
     
  changes in laws, rules, regulations, decrees, rulings, ordinances, codes or requirements issued, enacted, adopted or otherwise put into effect by or under the authority of any governmental body;

 

65
 

 

  changes caused by the announcement or pendency of the merger;
     
  changes caused by any action taken by either party with the prior written consent of the other party;
     
  changes caused by any decision, action, or inaction by governmental or regulatory bodies, with respect to any products of either party;
     
  changes caused by any act of war, terrorism, national or international calamity or any other similar event;
     
  with respect to DropCar, a decline in DropCar’s stock price; or
     
  with respect to DropCar, a change in the listing status of DropCar’s common stock on Nasdaq.

 

If adverse changes occur but DropCar and AYRO must still complete the merger, the market price of DropCar common stock may suffer. For a more complete discussion of what constitutes a material adverse effect on DropCar or AYRO under the Merger Agreement, see the section titled “THE MERGER AGREEMENT — Representations and Warranties” beginning on page 184 of this joint proxy and consent solicitation statement/prospectus.

 

DropCar and AYRO may become involved in securities litigation or stockholder derivative litigation in connection with the merger, and this could divert the attention of DropCar and AYRO management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.

 

Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. DropCar and AYRO may become involved in this type of litigation in connection with the merger, and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of DropCar, AYRO and the combined company.

 

Risks Related to the Reverse Stock Split

 

The reverse stock split may not increase the combined company’s stock price over the long term.

 

If the Reverse Stock Split Proposal is approved, the combined company anticipates effecting a reverse stock split in order to cause its stock price to be at least $5.00 with a ratio between 1-for-10 and 1-for-30 immediately following the merger. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of the combined company’s common stock upon effectiveness of the reverse stock split, it cannot be assured that the reverse stock split will result in any sustained proportionate increase in the market price of the combined company’s common stock, which is dependent upon many factors, including the business and financial performance of the combined company, general market conditions, and prospects for future success, which are unrelated to the number of shares of the combined company’s common stock outstanding. Thus, while the stock price of the combined company might meet the initial listing requirements for Nasdaq initially, it cannot be assured that it will continue to do so.

 

The reverse stock split would have the effect of increasing the amount of common stock that the combined company is authorized to issue without further approval by the combined company’s stockholders.

 

As a result of the reverse stock split, and after giving effect to the merger, the combined company expects that it will have between approximately 1,800,000 shares and 5,300,000 shares of common stock outstanding, compared to approximately 4,600,000 shares of DropCar common stock outstanding as of April 1, 2020. The proposed A&R Charter for the combined company is anticipated to authorize the combined company to issue 100,000,000 shares of common stock and does not anticipate reducing this amount in connection with the reverse stock split. As a result, it is anticipated that the reverse stock split will give the combined company the ability to issue between approximately 95,000,000 and 98,000,000 additional shares of common stock, including shares that may be issued pursuant to awards that have been granted and outstanding warrants. Except in certain instances, as required by law or by the rules of the securities exchange that lists the combined company’s common stock, these additional shares may be issued by the combined company without further vote of the combined company’s stockholders. If the combined company’s board of directors chooses to issue additional shares of the combined company’s common stock, such issuance could have a dilutive effect on the equity, earnings and voting interests of the combined company’s stockholders.

 

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The reverse stock split may decrease the liquidity of DropCar’s common stock.

 

Although the DropCar Board of Directors believes that the anticipated increase in the market price of DropCar’s common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for DropCar’s common stock.

 

The reverse stock split may lead to a decrease in overall market capitalization of the combined company.

 

Should the market price of DropCar’s common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in the overall market capitalization of the combined company. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels and, accordingly, it cannot be assured that the total market value of DropCar’s common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on DropCar’s stock price due to the reduced number of shares outstanding after the reverse stock split.

 

Risks Related to the Combined Company Following the Merger

 

DropCar stockholders and AYRO stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

 

If the combined organization is unable to realize the full strategic and financial benefits currently anticipated from the merger, DropCar stockholders and AYRO stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined organization is able to realize only part of the strategic and financial benefits currently anticipated from the merger.

 

The market price of the combined company’s common stock after the merger may be subject to significant fluctuations and volatility, and the stockholders of the company may be unable to resell their shares at a profit and may incur losses.

 

There has not been a public market for the combined company’s common stock. The market price of the combined company’s common stock could be subject to significant fluctuation following the merger. The business of DropCar differs from that of AYRO in important respects and, accordingly, the results of operations of the combined company and the market price of the combined company’s common stock following the merger may be affected by factors different from those currently affecting the results of operations of DropCar. Market prices for securities of technology companies and electric vehicle companies in particular have historically been particularly volatile and have shown extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of the combined company’s common stock, regardless of the actual operating performance of the combined company. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:

 

  investors react negatively to the effect on the combined company’s business and prospects from the merger;
     
  the announcement of new products, new developments, services or technological innovations by the combined company or the combined company’s competitors;

 

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  actual or anticipated quarterly increases or decreases in revenue, gross margin or earnings, and changes in the combined company’s business, operations or prospects;
     
  announcements relating to strategic relationships, mergers, acquisitions, partnerships, collaborations, joint ventures, capital commitments, or other events by the combined company or the combined company’s competitors;
     
  conditions or trends in the electric vehicle or transportation industries;
     
  changes in the economic performance or market valuations of other electric vehicle or transportation companies;
     
  decline in electric vehicle industry enthusiasm or interest;
     
  general market conditions or domestic or international macroeconomic and geopolitical factors unrelated to the combined company’s performance or financial condition;
     
  sale of the combined company’s common stock by stockholders, including executives and directors;
     
  volatility and limitations in trading volumes of the combined company’s common stock;
     
  volatility in the market prices and trading volumes of technology stocks;
     
  the combined company’s ability to finance its business;
     
  ability to secure resources and the necessary personnel to pursue the plans of the combined company;
     
  failures to meet external expectations or management guidance;
     
  changes in the combined company’s capital structure or dividend policy, future issuances of securities, sales or distributions of large blocks of common stock by stockholders;
     
  the combined company’s cash position;
     
  announcements and events surrounding financing efforts, including debt and equity securities;
     
  analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;
     
  departures and additions of key personnel;
     
  disputes and litigations related to intellectual properties, proprietary rights, and contractual obligations;
     
  investigations by regulators into the operations of the combined company or those of the competitors;
     
  changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and
     
  other events or factors, many of which may be out of the combined company’s control.

 

In the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against the combined company, could result in substantial costs and a diversion of the management’s attention and resources of the combined company. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that the combined company make significant payments.

 

If the merger is consummated, the business operations, strategies and focus of DropCar will fundamentally change, and these changes may not result in an improvement in the value of its common stock.

 

Pending the consummation of the merger, and subject to approval of the Asset Sale Proposal, it is currently anticipated that the combined company would focus its resources on executing AYRO’s current business plan. Accordingly, substantially simultaneously following the merger, the combined company has agreed to sell DropCar’s legacy business and, as such, the stockholders of DropCar and AYRO will not participate in the future prospects of such DropCar legacy assets.

 

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Following the merger, it is expected that the combined company’s primary products will be AYRO’s electric vehicles. Consequently, if the merger is consummated, an investment in DropCar’s common stock will primarily represent an investment in the business operations, strategies and focus of AYRO. AYRO expects to incur losses as it expands its operations, product suite and sales territories, and AYRO’s products may not be profitable at commercial scale. The failure to successfully scale up AYRO’s operations and achieve growth with additional products and territories will significantly diminish the anticipated benefits of the merger and have a material adverse effect on the business of the combined company. There is no assurance that the combined company’s business operations, strategies or focus will be successful following the merger, and the merger could depress the value of the combined company’s common stock.

 

The unaudited pro forma combined financial statements are presented for illustrative purposes only, and future results of the combined company may differ materially from the unaudited pro forma financial statements presented in this joint proxy and consent solicitation statement/prospectus.

 

The unaudited pro forma combined financial statements contained in this joint proxy and consent solicitation statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the merger for several reasons. The unaudited pro forma combined financial statements have been derived from the historical financial statements of DropCar and AYRO and adjustments and assumptions have been made regarding the combined company after giving effect to the merger and related transactions. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. As a result, the actual financial condition and results of operations of the combined company following the completion of the merger may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the merger. Any decline or potential decline in the combined company’s financial condition or results of operations may cause significant variations in the market price of DropCar common stock.

 

The combined company may issue additional equity securities in the future, which may result in dilution to existing investors.

 

To the extent the combined company raises additional capital by issuing equity securities, the combined company’s stockholders may experience substantial dilution. The combined company may, from time to time, sell additional equity securities in one or more transactions at prices and in a manner it determines. If the combined company sells additional equity securities, existing stockholders may be materially diluted. In addition, new investors could gain rights superior to existing stockholders, such as liquidation and other preferences. In addition, the number of shares available for future grant under the combined company’s equity compensation plans may be increased in the future. In addition, the exercise or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to the combined company’s stockholders upon any such exercise or conversion.

 

All of DropCar’s outstanding shares of common stock are, and any shares of DropCar common stock that are issued in the merger will be, freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (the “Securities Act”), except for the restricted stock units that will be issued to Mr. Keller pursuant to the employment agreement to be entered into with DropCar immediately prior to the consummation of the merger, shares of DropCar common stock issued to certain advisors, shares subject to lock-up agreements, and any shares held by affiliates, as defined in Rule 144 under the Securities Act. Rule 144 defines an affiliate as a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, DropCar and would include persons such as DropCar’s directors and executive officers and large shareholders. In turn, resales, or the perception by the market that a substantial number of resales could occur, could have the effect of depressing the market price of our common stock.

 

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The concentration of the capital stock ownership with insiders of the combined company after the merger will likely limit the ability of the stockholders of the combined company to influence corporate matters.

 

Following the merger, the executive officers, directors, five percent or greater stockholders, and their respective affiliated entities of the combined company will, in the aggregate, beneficially own approximately 47.8% of the combined company’s outstanding common stock. As a result, these stockholders, acting together, have control over matters that require approval by the combined company’s stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a corporate transaction that other stockholders may view as beneficial.

 

Certain stockholders could attempt to influence changes within DropCar, which could adversely affect DropCar’s operations, financial condition and the value of DropCar’s common stock.

 

DropCar’s stockholders may from time to time seek to acquire a controlling stake in DropCar, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming and could disrupt DropCar’s operations and divert the attention of the DropCar Board of Directors and senior management from the pursuit of the proposed merger transaction. These actions could adversely affect DropCar’s operations, financial condition, DropCar’s ability to consummate the merger and the value of DropCar common stock.

 

The sale or availability for sale of a substantial number of shares of common stock of the combined company after the merger and after expiration of the lock-up period could adversely affect the market price of such shares after the merger.

 

Sales of a substantial number of shares of common stock of the combined company in the public market after the merger or after expiration of the lock-up period and other legal restrictions on resale, or the perception that these sales could occur, could adversely affect the market price of such shares and could materially impair the combined company’s ability to raise capital through equity offerings in the future. Immediately following the closing of the merger, and assuming the exercise in full of the Pre-funded Warrants and the warrants issued pursuant to the Secured Loan and conversion of outstanding preferred stock, the combined company will have outstanding approximately 55,000,000 shares of common stock (prior to giving effect to the proposed reverse stock split). This includes the shares being issued to AYRO stockholders as merger consideration, which may be resold in the public market immediately without restriction, unless such stockholder is subject to a lock-up or other restrictions on resale. All of AYRO’s executive officers, directors and principal stockholders, and all of DropCar’s directors who will continue to serve on the board of directors of the combined company are subject to lock-up agreements that restrict their ability to transfer shares of the combined company’s capital stock during the period of one year after the date of the closing of the merger, subject to specified exceptions. For more information, see “Merger Agreement—Recitals” on page 178 of this joint proxy and consent solicitation statement/prospectus. Upon completion of the merger, the combined company may permit its officers, directors, employees, and certain stockholders who are subject to the lock-up agreement to sell shares prior to the expiration of the lock-up agreements. After the lock-up agreements expire, approximately 8,500,000 shares of DropCar common stock (prior to giving effect to the proposed reverse stock split and excluding securities underlying options and warrants) held by the combined company’s directors, executive officers and principal stockholders will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. DropCar and AYRO are unable to predict what effect, if any, market sales of securities held by significant stockholders, directors or officers of the combined company or the availability of these securities for future sale will have on the market price of the combined company’s common stock after the merger.

 

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The combined company also expects to assume approximately 3,972,105 shares of common stock subject to outstanding AYRO options (on an as-converted to DropCar common stock basis and prior to giving effect to the proposed reverse stock split). The combined company intends to register of the all shares of common stock issuable upon exercise of outstanding AYRO options, and upon the exercise of any options or other equity incentives the combined company may grant in the future, for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, subject to the lock-up agreements described above.

 

Moreover, upon completion of the merger, the holders of approximately 15,100,000 shares of DropCar common stock, including shares deliverable upon exercise of warrants, will have rights, subject to some conditions, to require AYRO to file registration statements covering their shares or to include their shares in registration statements that the combined company may file for itself or its stockholders.

 

If securities analysts do not publish research or reports about the business of the combined company, or if they publish negative evaluations, the price of the combined company’s common stock could decline.

 

The trading market for the combined company’s common stock will rely in part on the availability of research and reports that third-party industry or financial analysts publish about the combined company. There are many large, publicly traded companies active in the electric vehicle industry, which may mean it will be less likely that the combined company receives widespread analyst coverage. Furthermore, if one or more of the analysts who do cover the combined company (if any) downgrades its stock, its stock price would likely decline. If one or more of these analysts cease coverage of the combined company, the combined company could lose visibility in the market, which in turn could cause its stock price to decline. Additionally, if securities analysts publish negative evaluations of competitors in the electric vehicle industry, the comparative effect could cause the combined company’s stock price to decline.

 

The combined company may not be able to adequately protect or enforce its intellectual property rights, which could harm its competitive position.

 

The combined company will primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect its proprietary designs, technologies or processes. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose proprietary designs, technologies and processes, despite efforts by the combined company to protect its proprietary designs, technologies and processes.

 

The combined company’s management will be required to devote substantial time to comply with public company regulations.

 

As a public company, the combined company will incur significant legal, accounting and other expenses that AYRO did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including those related to corporate governance practices. The combined company’s management and other personnel will need to devote a substantial amount of time to these requirements. Moreover, these rules and regulations will increase the combined company’s legal and financial compliance costs relative to those of AYRO and will make some activities more time consuming and costly.

 

The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, the combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management and the combined company’s independent registered public accounting firm to report on the effectiveness of its internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. The combined company’s compliance with these requirements will require that it incur substantial accounting and related expenses and expend significant management efforts. The combined company will likely need to hire additional accounting and financial staff to satisfy the ongoing requirements of Section 404 of the Sarbanes-Oxley Act. The costs of hiring such staff may be material and there can be no assurance that such staff will be immediately available to the combined company. Moreover, if the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if the combined company or its independent registered public accounting firm identifies deficiencies in its internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of the combined company’s financial reports, the market price of the combined company’s common stock could decline and the combined company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.