Company Optional Redemption Rights
Subject to Equity Conditions (as such term is defined in the Funding Notes), each Funding Note may be prepaid, at the option of the Company, in whole or in part, by paying in cash to the Purchaser the Mandatory Default Amount (as such term is defined in the Funding Notes) or 120% of the principal amount of the Funding Note, together with any accrued and unpaid interest and unpaid late charges thereon. In addition, the Company may prepay each Funding Note upon a Fundamental Transaction (as such term is defined in the Funding Notes) or a Change of Control Transaction (as such term is defined in the Funding Notes), provided that shares of Common Stock issuable pursuant to the Funding Notes are then registered under an effective registration statement, by paying to the Purchasers the Mandatory Default Amount.
Terms of the SPEA
The SPEA contains certain representations and warranties, covenants and indemnities customary for similar transactions.
Under the SPEA, the Company agreed, among other conditions, to not effect or enter an agreement to effect any variable rate transaction, except for certain exempt issuances of equity securities, until the later of the two year anniversary of the Closing Date or such date that the Notes are no longer outstanding. The Company also agreed to hold a stockholder meeting by no later than May 30, 2025, to seek approvals for future adjustments of the Warrant Exercise Price and Conversion Price for anti-dilution adjustments and similar matters, the reduction of the exercise price of the Warrants by $0.125, the extension of the period of exercise for the Series B common warrants issued pursuant to the May 2024 Purchase Agreement until five years from the original issue date of those warrants, and other matters necessary for compliance with Nasdaq Listing Rule 5635(d) (the “Stockholder Approvals”). Pursuant to the SPEA, the Company will be obligated to continue to seek the Stockholder Approvals at least three times each year until the Stockholder Approvals are obtained.
In addition, the Company granted the Purchasers participation rights in future offerings of Common Stock or Common Stock Equivalents (as such term is defined in the SPEA) for cash consideration, during the later of 18 months after the Closing Date or such time as less than 50% of the Warrants remain outstanding, in an amount of up to 50% of the securities being sold in such offerings.
Exchange Notes
As previously disclosed, the Company entered into that certain securities purchase agreement, dated May 5, 2024, as amended on May 8, 2024 (the “May 2024 Purchase Agreement”), with the Purchasers, among other investors, for the private placement of securities, including Series A common warrants (“Series A Warrants”) to purchase an aggregate of up to 3,591,532 shares of common stock. The May 2024 Purchase Agreement included certain limitations and restrictions on the Company’s ability to issue securities and provided the Purchasers and the other investors signatories to the May 2024 Purchase Agreement participation rights in future equity and equity-linked offerings of securities, subject to certain limited exceptions (the “Financing Restrictions”). On the Closing Date, pursuant to the SPEA, the Company issued to the Purchases secured convertible promissory notes in the aggregate amount of $3,188,922 (the “Exchange Notes” and together with the Funding Notes, the “Notes”) in exchange for cancellation of the Series A Warrants of the Purchasers, and the Purchasers entered into a second amendment to the May 2024 Purchase Agreement to eliminate the Financing Restrictions (the “Financing Waiver”).
The terms and conditions of the Exchange Notes are substantially identical in all material respects to the Funding Notes, except that the Mandatory Conversion applies to all of the principal amount of the Exchange Notes instead of being limited to seventy-five percent, and the Maximum Amount does not apply. The Security Agreement and Subsidiary Guarantee also apply to the obligations under the Exchange Notes.
Registration Rights Agreement
In connection with the SPEA, the Company entered into a registration rights agreement (the “Registration Rights Agreement”), dated as of the Closing Date, with the Purchasers, pursuant to which the Company agreed to prepare and file a registration statement with the Securities and Exchange Commission (the “Commission”) covering the resale of the shares of Common Stock issuable pursuant to the Notes and Warrants (the “Registration Statement”) at the earlier of the fifteenth calendar day after the Company has filed its Annual Report on Form 10-K for the calendar year ended December 31, 2024, or April 15, 2025 (the “Filing Due Date”), and to have the registration statement declared effective as promptly as practical thereafter, and in any event no later than June 30, 2025 (the “Effectiveness Due Date”), provided, however, that the Effectiveness Due Date for the shares of common stock issuable under the Exchange Notes is the earlier of the fifteenth calendar day after the Company has filed its Annual Report on Form 10-K for the calendar year ended December 31, 2024, or April 15, 2025. In addition, pursuant to the Registration Rights Agreement, the Company is required to use its reasonable best efforts to keep the Registration Statement continuously effective from the date on which the Commission declares the Registration Statement to be effective until such date that all Registrable Securities (as such term is defined in the Registration Rights Agreement) covered by the Registration Statement have been sold pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), under Rule 144 as promulgated by the Commission under the Securities Act (“Rule 144”), or otherwise shall have ceased to be Registrable Securities.
