| Item 1.01. | Entry Into a Material Definitive Agreement. |
Convertible Note Subscription Agreement
On December 18, 2023 (the “Initial Closing Date”), Peak Bio, Inc., a Delaware corporation (the “Company”), and certain investors (the “Convertible Note Investors”) entered into a convertible note subscription agreement (the “Convertible Note Subscription Agreement”) pursuant to which (i) the Convertible Note Investors purchased and the Company issued to the Convertible Note Investors convertible promissory notes (the “Convertible Notes”) in the aggregate principal amount of $1,000,000 and (ii) certain convertible notes previously issued by the Company on or about April 28, 2023 (the “Existing Notes”) in the aggregate original principal amount of $180,000 were exchanged for new Convertible Notes.
The Convertible Note Subscription Agreement provides that the Company may, in one or more closings, raise in excess of $3,000,000 at the Company’s sole discretion and exchange the Existing Notes for new Convertible Notes. The Existing Notes were originally issued with an aggregate principal amount of $3,325,809.
The Convertible Notes carry an interest rate of 10% per annum, have a maturity date occurring on the 12-month anniversary date of the Initial Closing Date, and provide for automatic conversion, optional conversion and registration rights as follows:
Automatic Conversion:
If a Business Combination (defined below) occurs while the Convertible Notes are outstanding, then the outstanding principal amount of the Convertible Notes and all accrued and unpaid interest shall automatically convert into common stock, par value $0.0001 per share (the “Common Stock”) of the Company immediately prior to the closing of the Business Combination at the Conversion Price (defined below) where:
“Business Combination” means any reorganization, recapitalization, reclassification, consolidation or merger involving the Company in which the Common Stock of the Company is converted into or exchanged for securities of another entity (the “Surviving Company”) that are traded on a Public Exchange (the “Surviving Company Securities”).
“Conversion Price” means the price per share for the Company’s Common Stock determined by reference to the purchase price payable in connection with such Business Combination, multiplied by the Discount Rate, where the price per share of the Common Stock is determined by reference to the 30-day volume weighted average price of the Surviving Company Securities on the Public Exchange immediately prior to conversion and the exchange ratio (the “Exchange Ratio”) used in the Business Combination.
“Discount Rate” means 70%.
“Public Exchange” means the Nasdaq Stock Market, the New York Stock Exchange or another public exchange or marketplace approved by the Company’s Board of Directors.
Optional Conversion:
If a Business Combination does not occur prior to the maturity date of the Convertible Notes and if the Company’s Common Stock is listed on a Public Exchange as of such date, then the Convertible Note Investors will have the right, at their option, to convert the outstanding principal amount of the Convertible Notes (and all accrued and unpaid interest thereof) into fully paid and nonassessable shares of Common Stock of the Company at a price equal to the 30-day volume weighted average price of the Company’s Common Stock on the Public Exchange on which it is traded multiplied by 90%.
Registration Rights:
Upon the Company’s next equity financing after the Initial Closing Date (the “Next Financing”) in which the Company provides future investors with registration rights, the Company will provide substantially equivalent registration rights to the Convertible Note Investors with respect to the shares of Common Stock into which the Convertible Notes are convertible, subject to the Convertible Notes Investors’ execution of any documents executed by the investors purchasing securities in the Next Financing.
