| Item 1.01 |
Entry into a Material Definitive Agreement. |
On November 17, 2022,
PaxMedica, Inc., a Delaware corporation referred to herein as we, us, our or the Company, entered into a purchase agreement, or the Purchase
Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, which provides that, upon the terms and subject to the conditions and
limitations set forth therein, we have the right, but not the obligation, to sell to Lincoln Park up to $20,000,000 of shares of our common
stock, or the Purchase Shares, from time to time over the 30-month term beginning on the Commencement Date (as defined below). Concurrently
with entering into the Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park, or the Registration
Rights Agreement, pursuant to which we agreed to register the sale of the shares of our common stock that have been and may be issued
to Lincoln Park under the Purchase Agreement pursuant to a Registration Statement on Form S-1, or the Registration Statement. Lincoln
Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our common stock.
After the Commencement
Date, on any business day selected by us, we may direct Lincoln Park to purchase up to 75,000 shares of our common stock on such business
day (or the purchase date), which we refer to as a Regular Purchase, provided that the closing sale price of our common stock on Nasdaq
is not below $0.25 on the applicable purchase date, and provided, further, that (i) a Regular Purchase may be increased to up to 100,000
shares if the closing sale price of our common stock on Nasdaq is not below $4.00 on the applicable purchase date and (ii) a Regular Purchase
may be increased to up to 125,000 shares if the closing sale price of our common stock on Nasdaq is not below $6.00 on the applicable
purchase date.
The purchase price per
share for each such Regular Purchase will be equal to the lesser of:
| · | the lowest sale price for our common stock on Nasdaq on the purchase date of such shares; and |
| · | the average of the three lowest closing sale prices for our common stock on Nasdaq during the 10 consecutive
business days prior to the purchase date of such shares. |
In addition, we may also
direct Lincoln Park, on any business day on which we have submitted a Regular Purchase notice for the maximum amount allowed for such
Regular Purchase, to purchase an additional amount of our common stock, which we refer to as an Accelerated Purchase, of up to the lesser
of:
| · | three times the number of shares purchased pursuant to such Regular Purchase; and |
| · | 30% of the aggregate shares of our common stock traded on Nasdaq during all or, if certain trading volume
or market price thresholds specified in the Purchase Agreement are crossed on the applicable Accelerated Purchase date, the portion of
the normal trading hours on the applicable Accelerated Purchase date prior to such time that any one of such thresholds is crossed, which
period of time on the applicable Accelerated Purchase date we refer to as the “Accelerated Purchase Measurement Period”. |
The purchase price per
share for each such Accelerated Purchase will be equal to 95% of the lower of:
| · | the volume-weighted average price of our common stock on Nasdaq during the applicable Accelerated Purchase
Measurement Period on the applicable Accelerated Purchase date; and |
| · | the closing sale price of our common stock on Nasdaq on the applicable Accelerated Purchase date. |
We may also direct Lincoln
Park on any business day on which an Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been
delivered to Lincoln Park in accordance with the Purchase Agreement, to purchase an additional amount of our common stock, which we refer
to as an Additional Accelerated Purchase, as described in the Purchase Agreement.
In the case of Regular
Purchases, Accelerated Purchases and Additional Accelerated Purchases, the purchase price per share will be equitably adjusted for any
reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the
business days used to compute the purchase price.
The Purchase Agreement
prohibits the Company from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other
shares of Common Stock then beneficially owned by Lincoln Park (as calculated pursuant to Section 13(d) of the Securities Exchange Act
of 1934, as amended, and Rule 13d-3 thereunder), would result in Lincoln Park beneficially owning more than 9.99% of the then total outstanding
shares of common stock.
Pursuant to the terms
of the Purchase Agreement, on November 17, 2022, we issued 198,974 shares of our common stock, which we refer to as the Commitment Shares,
to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement.
Under applicable rules
of Nasdaq, in no event may we issue or sell to Lincoln Park under the Purchase Agreement shares of our common stock, including the Commitment
Shares, in excess of 2,354,717 shares, which is equal to 19.99% of the shares of our common stock outstanding immediately prior to the
execution of the Purchase Agreement, or the Exchange Cap, unless (i) we obtain stockholder approval to issue shares of our common stock
in excess of the Exchange Cap or (ii) the average price of all shares of common stock issued to Lincoln Park under the Purchase Agreement
equals or exceeds $1.55 per share (which represents the official closing price of our common stock on Nasdaq the day of signing of the
Purchase Agreement), such that the transactions contemplated by the Purchase Agreement are exempt from the Exchange Cap limitation under
applicable Nasdaq rules. In any event, the Purchase Agreement specifically provides that we may not issue or sell any shares of our common
stock under the Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the Nasdaq.
Sales under the Purchase
Agreement may commence only after certain conditions have been satisfied, which date is referred to herein as the Commencement Date, which
conditions include that the Registration Statement shall have been declared effective under the Securities Act of 1933, as amended, delivery
to Lincoln Park of a prospectus covering the shares of our common stock issued or sold by us to Lincoln Park under the Purchase Agreement,
approval for listing on Nasdaq Capital Market of the shares of our common stock issued or sold by us to Lincoln Park under the Purchase
Agreement, the issuance of the Commitment Shares to Lincoln Park under the Purchase Agreement, and the receipt by Lincoln Park of a customary
opinion of counsel and other certificates and closing documents. The Purchase Agreement may be terminated by us at any time, at our sole
discretion, without any cost or penalty, however, the Commitment Shares will not be returned to the Company. There are no limitations
on use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on our ability to enter
into additional “equity line” or similar transactions whereby an investor is irrevocably bound to purchase securities over
a period of time from us at a price based on the market price of our common stock at the time of such purchase), rights of first refusal,
participation rights, penalties or liquidated damages in the Purchase Agreement. We may deliver Purchase Notices under the Purchase Agreement,
subject to market conditions, and in light of our capital needs from time to time and under the limitations contained in the Purchase
Agreement. Any proceeds that we receive under the Purchase Agreement may be used for any corporate purpose at our sole discretion.
The Company has agreed
to file with the Securities and Exchange Commission, or the SEC, as soon as practicable, and in any event within twenty (20) business
days of the date of the Purchase Agreement, the Registration Statement covering the resale of the Purchase Shares and all of the Commitment
Shares in accordance with the terms of the Registration Rights Agreement.
The foregoing is a summary
description of certain terms of the Purchase Agreement and the Registration Rights Agreement and, by its nature, is incomplete. Copies
of the Purchase Agreement and the Registration Rights Agreement are filed as Exhibits 10.1 and 10.2 attached hereto. The foregoing descriptions
of the Purchase Agreement and the Registration Rights Agreement are qualified in their entirety by reference to such exhibits.
The Purchase Agreement
and Registration Rights Agreement contain customary representations and warranties, covenants and indemnification provisions that the
parties made to, and solely for the benefit of, each other in the context of all of the terms and conditions of such agreements and in
the context of the specific relationship between the parties thereto. The provisions of the Purchase Agreement and Registration Rights
Agreement, including any representations and warranties contained therein, are not for the benefit of any party other than the parties
thereto and are not intended as documents for investors and the public to obtain factual information about the current state of affairs
of the parties thereto. Rather, investors and the public should look to other disclosures contained in our annual, quarterly and current
reports we may file with the SEC.
The information contained
in this Current Report on Form 8-K shall not constitute an offer to sell or the solicitation of an offer to buy the shares of our common
stock discussed herein, nor shall there be any offer, solicitation or sale of the shares in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.