Item
1.01
Entry into a Material Definitive Agreement.
On November 3, 2017, MusclePharm
Corporation (the “Company”) entered into a refinancing
transaction (the “Refinancing”) with Ryan Drexler, the
Chief Executive Officer, President and Chairman of the Board of
Directors of the Company. As part of the Refinancing, the Company
issued to Mr. Drexler an amended and restated convertible secured
promissory note (the “Refinanced Convertible Note”) in
the original principal amount of $18,000,000, which amends and
restates (i) a convertible secured promissory note dated as of
December 7, 2015, and amended as of January 14, 2017, in the
original principal amount of $6,000,000 with an interest rate of 8%
prior to the amendment and 10% following the amendment (the
“2015 Note), (ii) a convertible secured promissory note dated
as of November 8, 2016, in the original principal amount of
$11,000,000 with an interest rate of 10% (the “2016 Note) ,
and (iii) a secured demand promissory note dated as of July 27,
2017, in the original principal amount of $1,000,000 with an
interest rate of 15% (the “2017 Note”, and together
with the 2015 Note and the 2016 Note, collectively, the
“Prior Notes”). The due date of the 2015 Note and the
2016 note was November 8, 2019. The 2017 Note was a demand
note.
Amended and
Restated Convertible Secured Promissory Note
The Refinanced Convertible Note
bears interest at the rate of 12% per annum. Interest payments are
due on the last day of each quarter. At the Company’s option
(as determined by its independent directors), the Company may repay
up to one sixth of any interest payment by either adding such
amount to the principal amount of the note or by converting such
interest amount into an equivalent amount of the Company’s
common stock. Any interest not paid when due shall be capitalized
and added to the principal amount of the Refinanced Convertible
Note and bear interest on the applicable interest payment date
along with all other unpaid principal, capitalized interest, and
other capitalized obligations.
Both the principal and the interest
under the Refinanced Convertible Note are due on December 31, 2019,
unless converted earlier.
Mr. Drexler may convert the
outstanding principal and accrued interest into shares of the
Company’s common stock at a conversion price of $1.11 per
share at any time. The Company may prepay the Refinanced
Convertible Note by giving Mr. Drexler between 15 and 60
days’ notice depending upon the specific circumstances,
subject to Mr. Drexler’s conversion
right.
The Refinanced Convertible Note
contains customary events of default, including, among others, the
failure by the Company to make a payment of principal or interest
when due. Following an event of default, interest will accrue at
the rate of 14% per annum. In addition, following an event of
default, any conversion, redemption, payment or prepayment of the
Refinanced Convertible Note will be at a premium of 105%. The
Refinanced Convertible Note also contains customary restrictions on
the ability of the Company to, among other things, grant liens or
incur indebtedness other than certain obligations incurred in the
ordinary course of business. The restrictions are also subject to
certain additional qualifications and carveouts, as set forth in
the Refinanced Convertible Note. The Refinanced Convertible Note is
subordinated to certain other indebtedness of the Company, as
described under Item 8.01 below.
Restructuring
Agreement and Security Agreement
As part of the Refinancing, the
Company and Mr. Drexler entered into a restructuring agreement (the
“Restructuring Agreement”) pursuant to which the
parties agreed to enter into the Refinanced Convertible Note and to
amend and restate the security agreement pursuant to which the
Prior Notes were secured by all of the assets and properties of the
Company and its subsidiaries whether tangible or intangible, by
entering into the Third Amended and Restated Security Agreement
(the “Amended Security Agreement”). Pursuant to the
Restructuring Agreement, the Company agreed to pay, on the
effective date of the Refinancing, all outstanding interest on the
Prior Notes through November 8, 2017 and certain fees and expenses
incurred by Mr. Drexler in connection with the
Restructuring.
A copy
of the Refinanced Convertible Note, the Amended Security Agreement
and the Restructuring Agreement are attached to this Current Report
on Form 8-K as Exhibits 10.1, 10.2 and 10.3, respectively, and are
incorporated herein by reference as though fully set forth herein.
The foregoing summary description of the Financing is not intended
to be complete, and is qualified in its entirety by the complete
text of the
Refinanced Convertible Note,
Amended
Security Agreement and the Restructuring
Agreement.