Item 1.01 Entry into a Material Definitive Agreement.
Convertible Promissory Note
In addition to transactions reported on Form 8K on August 21st 2024, between August 9 and September 30, 2024, the Company entered into securities purchase agreements (the "Purchase Agreement") and subscription agreements (the "Subscription Agreement," together with the Purchase Agreement, the "Transaction Documents") with certain accredited investors (the "Purchasers"). Pursuant to the Transaction Documents, the Company sold the Purchasers: (i) convertible notes in the aggregate original principal amount of $4,000,000, (the "Notes") upon maturity convertible into up to 11,428,571 shares of Common Stock of the Company, warrants to initially acquire up to an aggregate of 11,428,571 additional shares of Common Stock (the "Warrants") at an exercise price of $0.4375 per Warrant Share. The conversion price of the Notes is $0.35 per share. Pursuant to the Subscription Agreements the Company intends to raise an aggregate of $10,000,000 to $12,000,000 over the course of multiple tranches, to date having entered into $5,000,000 in proceeds over the course of their internally defined tranches. The balance of transactions will be closed within 30 calendar days of this Form 8-K.
The maturity date of the Notes is September 1, 2029. Interest on the unpaid principal balance of the Notes accrues at 9% per annum which may be converted into shares or payable in arrears on a semi-annual basis on January 1st and July 1st until the note reaches maturity. Subject to the conversion of the Notes, any accrued interest outstanding is payable in full on the maturity date of the Notes.
The Notes are subject to customary events of default including the failure to pay principal and interest when due or bankruptcy by the Company. Upon the occurrence of an event of default, the unpaid portion of the principal amount will bear simple interest from the date of the event of default at a rate equal to 12% per annum, for the duration from such event of default until the cure of such default or the repayment date of the entire outstanding balance of the Note.
The Warrants are exercisable at any time after the date of issuance until the five (5) year anniversary of their respective issuance date, at an exercise price of $0.4375 per Warrant Share, subject to adjustments as provided in the Warrants. The Warrants are exercisable for cash only.
The Company agreed to file a registration statement to register the shares of 50% of the common stock underlying the Note and 100% of common stock underlying the Warrants within eighteen (18) months after the receiving the purchase price of the Note and to use commercially reasonable efforts to have the registration statement declared effective. Additionally, within a two (2) year period of the anniversary of receiving the purchase price of the Note, the Company will file an additional registration statement to register the remaining 50% of common stock underlying the Note, and to use commercially reasonable efforts to have the registration statement declared effective within the aforementioned two (2) year period.
The foregoing summary of the Purchase Agreement, the Notes, the Subscription Agreement, and the Warrants are qualified by reference to the form of such documents, copies of which are filed as exhibits to this report and incorporated herein by reference.