Item 1.01
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Entry into a Material Definitive Agreement.
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Entry into Securities Purchase Agreement and Equity
Purchase Agreement
On June 22, 2016, the Company entered into a securities purchase agreement (the
Securities
Purchase Agreement
) with an accredited investor (the
Investor
) pursuant to which the Company agreed to sell, and the Investors agreed to purchase, convertible debentures (the
Convertible Bridge
Debentures
) in the aggregate principal amount of $240,000, in two tranches. The initial closing in the aggregate principal amount of $120,000 occurred on June 22, 2016, and the second closing in the aggregate principal amount of
$120,000 is scheduled to occur on July 8, 2016 . To induce the Investor to purchase the Equity Purchase Agreement (described below), the Company issued an additional $100,000 convertible debenture, on the same terms of the Convertible Bridge
Debentures to the Investor (the
Convertible Commitment Debenture
). The Company will not receive any cash for the Convertible Commitment Debentures.
The Convertible Commitment Debenture and the Convertible Bridge Debenture accrue interest at a rate of 10% per annum. Each of the
debentures are convertible at any time, in whole or in part, at the option of the holders into shares of the Companys common stock at a conversion price that is the lower of (a) $0.75, or (b) a 40% discount to the lowest traded price
of the Companys common stock during the 30 trading days prior to the conversion date.
The Company and the Investor also entered
into an Equity Purchase Agreement (the
Equity Purchase Agreement
), pursuant to which, following the filing and declaration of effectiveness of a registration statement by the Company (the
Registration
Statement
) and the availability of authorized stock, the Company may put its shares of common stock to the Investor at a 20% discount to lowest traded price over the prior 10 trading days for up to the higher of $50,000 or
300% of the average daily trading volume over the previous 10 trading days, for up to an aggregate of $5,000,000 in aggregates puts.
In connection with the Equity Purchase Agreement, the Company entered into a registration rights agreement (the
Registration
Rights Agreement
) with the Investors, pursuant to which the Company agreed to file the Registration Statement for the resale of shares of common stock put to the Investor under the Equity Purchase Agreement, within 30 days of the
closing date of the Equity Purchase Agreement, and to have such registration statements become effective within 60 days of the closing date of the Purchase Agreement.
The Investor shall have a right of first refusal to participate in future equity financings of the Company on the same terms as any new
investors for a period of twelve months from the closing of the last Convertible Bridge Debenture. The Company also shall not enter into other variable rate transactions other than with pre-existing investors, so long as the Investors hold more than
$2,000,000 in debentures of the Company, including pre-existing debentures. The Company also may not enter into any equity line of credit with any other investor during the term of the Equity Purchase Agreement, which expires on December 22,
2017.
In connection with the foregoing, the Company relied on the exemption from registration provided by Section 4(a)(2) under the
Securities Act of 1933, as amended, for transactions not involving a public offering.
The foregoing descriptions of the Securities
Purchase Agreement, the Equity Purchase Agreement, the Registration Rights Agreement, the Convertible Bridge Debentures, and the Convertible Commitment Debenture do not purport to be complete and are qualified in their entirety by reference to the
full text of the documents, which shall be filed as exhibits to the Companys Quarterly Report on Form 10-Q for the second quarter of 2016.