Item 1.01
|
Entry into a Material Definitive Agreement.
|
|
|
Issuance of Convertible Notes and Warrants
On November 27, 2019, Exactus, Inc. (the “Company”)
entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with a single institutional investor (the
“Purchaser”), pursuant to which the Company agreed to
sell to Purchaser in a series of 3 closings up to $1,944,444 in
aggregate principal amount of the Company’s senior secured
convertible promissory notes (the “Notes”) and warrants
to purchase shares of the Company’s Common Stock (the
“Warrants”). On November 27, 2019 (the “Initial
Closing Date”), the Company issued a Note, convertible into
5,663,014 shares of Common Stock, in the principal amount of
$833,333, and a Warrant to purchase 275,612 shares of Common Stock.
The second closing, subject to the closing conditions in the
Purchase Agreement, is expected to occur on the third business day
after the date of the filing of a registration statement on Form
S-1 (or another appropriate form in accordance with the
Registration Rights Agreement, as described below), on which date
the Purchaser is expected to purchase $277,778 in aggregate
principal amount of Notes and Warrants to purchase shares of Common
Stock for $250,000. The third closing, subject to the closing
conditions in the Purchase Agreement, is expected to occur on the
date the registration statement on Form S-1 (or another appropriate
form in accordance with the Registration Rights Agreement, as
described below) is declared effective by the Securities and
Exchange Commission (the “SEC”). On the third closing,
the Purchaser is expected to purchase $833,333.33 in aggregate
principal amount of Notes and Warrants to purchase shares of Common
Stock for $750,000.
The Notes, which are convertible into Common Stock at any time at
the discretion of the Purchaser at a conversion price of $0.50 per
share of Common Stock, will be issued at a 10% original issue
discount and bear an interest rate of 8%. The Notes mature one year
after their issuance unless accelerated due to an event of default.
The Notes are redeemable, in whole or in part, at any time at the
discretion of the Company. At the Initial Closing Date, the Company
received net proceeds, after the original issue discount and the
Purchaser’s counsel fees, of $730,000.
The Notes contain standard and customary events of default
including, but not limited to, failure to make payments when due,
failure to observe or perform covenants or agreements contained in
the Notes, the breach of any material representation or warranty
contain therein, the bankruptcy or insolvency of the Company, the
suspension of trading of Common Stock, the Company’s failure
to file required reports with the SEC, and a change of control of
the Company. If any event of default occurs, subject to any cure
period, the full principal amount, together with interest
(including default interest of 18% per annum) and other amounts
owing in respect thereof to the date of acceleration shall become,
at the Purchaser’s election, immediately due and payable in
cash.
The Notes are fully and unconditionally guaranteed on a senior
secured basis by the direct and indirect subsidiaries of the
Company (collectively, the “Guarantors”, and such
guarantees, the “guarantees”) pursuant to a Subsidiary
Guarantee. The Notes and the guarantees are secured by a perfected,
first priority security interest in all assets of the Company and
the Guarantors pursuant to a Security Agreement and Intellectual
Property Security Agreement.
The Warrants are exercisable at an exercise price of $0.756 per
share of Common Stock at any time before the close of business on
the day two years after their issuance and contain cashless
exercise provisions.
The Notes, Warrants, and shares of Common Stock issuable upon
conversion of the Notes and upon exercise of such Warrants (the
“Underlying Securities”), have not been registered
under the Securities Act of 1933, as amended (the “Securities
Act”) and were issued and sold to an accredited investor in
reliance upon the exemption from registration contained in
Regulation D promulgated under the Securities Act. The Notes,
Warrants and Underlying Securities may not be offered or sold in
the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act. On the
Initial Closing Date, the Company also issued a Warrant to its
advisor equal to 8% of the aggregate number of shares of
Common Stock issued by the Company upon conversion off$833,333.33
in principal amount of Notes at an exercise price of $.8316 per
share of Common Stock.
Registration Rights Agreement
On November 27, 2019, in connection with the sale and issuance of
the Notes and Warrants, the Company entered into a Registration
Rights Agreements (the “Registration Rights Agreement”)
with the Purchaser. Under the terms of the Registration Rights
Agreement, the Company has agreed to file a resale registration
statement with the SEC and to use commercially reasonable efforts
to cause such registration statement to be declared effective
within certain time frames. In addition, the Registration Rights
Agreement provides the Purchaser with piggyback registration
rights. Under certain circumstances, if the Company fails to meet
its obligations under the Registration Rights Agreement, it would
be required to pay liquidated damages.
The foregoing descriptions of the Purchase Agreement, the Notes,
the Warrants, the Subsidiary Guarantee, the Security Agreement, the
Intellectual Property Security Agreement, and the Registration
Rights Agreement do not purport to be complete and are qualified in
their entirety by reference to the full text of the Purchase
Agreement, the Form of Note, the Form of Warrant, the Subsidiary
Guarantee, the Security Agreement, the Intellectual Property
Security Agreement, the Warrant to Purchase Common Stock,
and the Registration Rights
Agreement, which are filed as Exhibits 10.1, 10.2, 10.3, 10.4,
10.5, 10.6, 10.7, and 10.8, respectively, hereto and are
incorporated herein by reference.