| Item 1.01. | Entry into a Material Definitive Agreement |
On February 2, 2023, PaxMedica, Inc., a Delaware corporation (the “Company”),
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Lind Global Fund II LP, a Delaware limited partnership
(the “Investor”), which provides for the Company issuing to the Investor a secured, 18-month, interest free convertible promissory
note in the principal amount of $3,680,000 (the “Note”) and a common stock purchase warrant (the “Warrant”) to
acquire 800,000 shares of common stock of the Company. The transaction closed on February 6, 2023. In connection with the issuance of
the Note and the Warrant, the Company paid a $112,000 commitment fee to the Investor. The proceeds from the sale of the Note and Warrant
are for general working capital.
Commencing August 6, 2023, the Company shall pay the outstanding principal
amount of the Note in twelve consecutive monthly payments of $306,666.66 each. At the option of the Company, the monthly payment can be
made in cash, shares of the common stock of the Company at a price (the “Repayment Share Price”) based on 90% of the 5 lowest
VWAPs during the 20 days prior to the payment date, or a combination of cash and stock. The shares issued as monthly payments must either
be eligible for immediate resale under Rule 144 or be registered. Any portion of a monthly payment being made in cash shall include a
premium of 5% of such cash amount.
In connection with the issuance of the Note, the Company granted the
Investor a first priority security interest and lien upon all of its assets pursuant to the Security Agreement dated as February 6, 2023,
by and between the Company and the Investor (the “Security Agreement”).
Following the date
that is 60 days following the date that the registration statement has been declared effective (as discussed in more detail below),
the Company may repay all, but not less than all, of the outstanding principal amount, provided that any such repayment shall
include a premium of 5% of the outstanding principal amount of the Note, and the Investor shall have the right to convert up to
one-third of the outstanding principal amount of the Note at the conversion price (as described below).
The Purchase Agreement
contains a restriction whereby there cannot, under any circumstances, be more than 2,405,914 shares of common stock of the Company issued
under the Note and the Warrant combined without first receiving shareholder approval to issue more than 2,405,914 shares of common stock
of the Company thereunder.
The Company agreed to
file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission no later than 90
days from February 2, 2023, covering the resale of all of the shares of common stock of the Company issuable to the Investor pursuant
to the Note and the Warrant. The Company also agreed to hold a shareholder meeting no later 90 days from February 2, 2023 to obtain shareholder
approval to issue in excess of 2,405,914 shares under the Note and Warrant in accordance with Nasdaq Listing Rule 5635(a). In addition,
pursuant to the terms of the Purchase Agreement, the Investor has the right to participate in all future equity offerings (a “Subsequent
Financing”) equal to 10% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing
until February 6, 2024, subject to certain exceptions.
The Note is convertible
into shares of common stock of the Company by the Investor at any time, provided that no such conversion may be made that would result
in the beneficial ownership by the Investor and its affiliates of more than 4.99% of the Company’s outstanding shares of common
stock. The conversion price of the Note is equal to $3.50, subject to customary adjustments, however, if new securities, other than exempted
securities, are issued by the Company at a price less than the conversion price, the conversion price shall be reduced to such price.
If there is a change of
control of the Company, the Investor has the right to require the Company to prepay the outstanding principal amount of the Note, plus
a 5% premium. A change of control includes a change in the composition of the Board of Directors of the Company, a shareholder having
beneficial ownership of more than 40% or the sale or other disposition of the Company of all or substantially all of the assets.
The Note contains certain
negative covenants, including restricting the Company from certain distributions, loans, issuance or future priced securities and sale
of assets.
Upon the occurrence of
an event of default as described in the Note, the Note will become immediately due and payable at a default interest rate of 110% of the
then outstanding principal amount of the Note. Events of default include, but are not limited to, a default in the payment of the Principal
Amount or any accrued and unpaid interest under the Note, failure to observe or perform any other covenant, condition or agreement contained
in the Note or any transaction documents, a change of control, a default in any indebtedness in excess of $250,000, the failure of the
Company to instruct its transfer agent to issue unlegended certificates, the shares no longer publicly being traded, if after August 7,
2023 the shares are not available for immediate resale under Rule 144 and the Company’s market capitalization is below $10 million
for 10 days. Upon an event of default, the Investor can demand that all or a portion of the outstanding principal amount be converted
into shares of common stock at the lower of the conversion price and 80% of the average of the three lowest daily VWAPs.
The Warrant entitles the
Investor to purchase up to 800,000 shares of common stock of the Company until February 6, 2027 at an exercise price of $3.25 per share,
subject to customary adjustments. In addition, the exercise price is subject to adjustment in the event of the issuance of new securities,
other than exempted securities, at an effective price less than the exercise price, then the exercise price shall be reduced to an exercise
price equal to the consideration per share deemed to have been paid for such new securities, subject to compliance with the requirements
of the trading market. The Warrant also provides for cashless exercise.
The foregoing descriptions
of the Purchase Agreement, the Note, the Warrant and the Security Agreement are not complete and are qualified in their entirety by reference
to the full text of the forms of the Purchase Agreement, the Note, the Warrant and the Security Agreement, copies of which were attached
as Exhibits 10.1, 4.1, 4.2 and 10.2, respectively, to this Current Report on Form 8-K and incorporated herein by reference.