Item
1.01 Entry into a Material Definitive Agreement.
Clearday,
Inc. (“Clearday” or the “Company”) entered into a loan agreement with an institutional lender to obtain gross
proceeds of approximately $680,400.
Financing
On
January 13, 2023 (“Closing Date”), the Company closed a loan with an institutional lender (“Lender”) under the
terms of a Securities Purchase Agreement (the “Securities Purchase Agreement), dated as of January 12, 2023, and
issued an unsecured promissory note in the principal amount of $756,000, which included original issue discount of $75,600 (the “Note”)
to the Lender. The Note provided proceeds to us in the amount of $680,400 before fees and expenses. We paid $68,040 in placement fees
in connection with the sale of the Note and $12,000 of legal fees and expenses of the Lender. After payment of such fees and closing
costs, the sale of the Note resulted in approximately $600,360 in net proceeds to the Company. The Note was issued in a transaction
that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), under
Section 4(a)(2) thereof. The net proceeds were used to repay the obligations of a mortgage on a land asset held by Clearday’s subsidiary
SRP Artesia, LLC (“Artesia”) of approximately $213,000 and the remaining amount was used for general working purposes.
The
obligations under the Note incur interest equal to 12% per annum, subject to increase to the lesser of 16% per annum or the maximum amount
permitted by law upon an Event of Default as defined by the Note. The Note’s maturity date is January 26, 2024. Interest and principal
are payable from and after April 12, 2023, subject to a five business day grace period, in equal monthly payments of $75,600 plus accrued
and unpaid interest, subject to our right to extend any or each of the first three such payments for 30 days upon payment of a fee equal
to 10% of the amount due on such payment date. We may prepay the obligations under the Note upon notice of seven trading days without
payment or penalties or fees other than a $750 administrative fee.
On the
Closing Date, we paid the Lender a commitment fee (“Commitment Fee”) of 83,160 shares of our common stock (“Commitment
Shares”) that are earned in full on the Closing Date and are restricted securities under the Securities Act. On the Closing
Date, we also issued two warrants to the Lender. One warrant (the “Note Warrant”) may be exercised for 1,134,000 shares
of our common stock from and after an Event of Default under the Note at a price per share of $0.75. The other warrant (the “Other
Warrant”) a warrant may be exercised for 851,000 shares of our common stock from and after February 14, 2023 at a price per share
of $0.75. Each of the Note Warrant and the Other Warrant provide for customary “cashless” exercise of such warrant and adjustments
to the exercise price and shares underlying each warrant, including adjustment in the event of an issuance of common stock or deemed
issuance of common stock at a price that is lower than the then exercise price on a “full rachet” basis.
The
Note ranks as our senior unsecured debt. No security interests were granted by the Company to the Lender. Artesia has also absolutely
and unconditionally guaranteed to Lender and its successors and assigns the payment of the entire principal balance of the Loan, all
accrued interest thereon, all penalties therein, and all costs and expenses incurred by Lender, including without limitation, the costs
and expenses of Lender’s outside counsel, in connection with the enforcement of Clearday’s obligations under the Note, as
and when the same shall be due and payable under the terms and conditions of that certain guaranty (the “Guaranty”) dated
as of January 12, 2023. Such guarantee is secured by all assets of Artesia and the proceeds therefrom, including the land asset located
at 6465 7 Rivers Highway, Artesia, NM. Artesia has agreed to record a mortgage with respect to such property in form mutually determined
by Lender and Artesia.
The Lender has certain rights that may be exercised only upon an Event of Default (as defined by the Note).
The Lender also has the right to convert the obligations under the Note, from and after an Event of Default, at a price per share equal
to $0.50. Each of the exercise price of each warrant and the conversion price of the Note are subject to adjustment in the event we issue
shares of common stock or equivalents at a price per share that is lower than the then exercise or conversion price.
We
have agreed to reserve shares of our common stock for issuance to the Lender upon any conversion of the Note, which may be converted
only after an Event of Default. The number of shares reserved is the greater of (i) 3,024,000 or (ii) the number of shares that may be
issued upon a conversion of the Note. We have also agreed to reserve shares of common stock that may be issued upon each warrant equal
to two times the number of shares of common stock that may be issued upon full exercise of each warrant.
We
agreed to register under the Securities Act the Commitment Shares and the shares of common stock underlying the Note Warrant, Other Warrant
and the Note under the terms of a Registration Rights Agreement within 180 days after the funding date, if the Note has not been repaid
prior to such date. We have also provided under the Securities Purchase Agreement that we will provides for such registration of such
shares of our common stock in any other registration statement that we may file under the Securities Act, subject to certain customary
exceptions.
We
have provided the Lender with a right of first refusal with respect to any bona fide offer of any financing that we intend to pursue
that may be exercised by the Lender within five trading days after we provide a notice of such proposed financing. If the Lender does
not exercise its right of first refusal, then we may close such financing within 30 days. The Lender’s right of first refusal is
not applicable to any of the following: (1) a bona fide offer of capital or financing from a nationally recognized broker dealer that
is retained by Borrower and acceptable to the Holder, which acceptance will not be unreasonably delayed, withheld or conditioned (“Investment
Banker”), or any person or party that is introduced to the Company by the Investment Banker in its capacity as a placement agent,
(ii) a bona fide offer of capital or financing from a person or party if such capital or financing is used by the Company for the acquisition
or refinance of real property so long as (a) any security interest granted to such person or party is solely limited to the real property
being acquired or refinanced and (b) such person or party shall have no rights at any time in such transaction or any related transaction
to acquire Common Stock or Common Stock Equivalents of the Company (each a “Real Property Transaction”), as well as (iii)
a bona fide offer of capital or financing from a person or party if such person or party is solely purchasing the Company’s accounts
receivable(s) or sharing of the Company’s revenues, in each case so long as such person or party shall have no rights at any time
to acquire Common Stock or Common Stock Equivalents of the Company (each a “Factoring Transaction”).
The
Note is subject to repayment from the use the proceeds of certain transactions. If, prior to the full repayment or satisfaction of the
Note’s obligations, we receive cash proceeds of more than $2,000,000.00 (the “Minimum Threshold”) in the aggregate,
from the sale of assets or issuance of our securities, including pursuant to an Equity Line of Credit (as defined in this Note), then
the Lender may require us to apply up to 50% of such proceeds after the Minimum Threshold to repay all or any portion of the outstanding
obligation under the Note; provided that such repayment obligation is not applicable to Real Property Transactions (as defined by the
Note as noted above), the sale of assets to customers of the Company in the ordinary course of business, the sale of interests in real
estate, or any Small Business Administration Economic Injury Disaster Loan. In addition to the foregoing, the proceeds of revenues arising
from revenues in our Florida residential care facility to accommodate residents taking respite or refuge from Hurricane Ian will be used
to repay the Note, in part.
The
Lender has “most favored nations” status. While the Note’s obligations are outstanding, we will provide the Lender
with any terms under any other public or private offering of our securities (including securities convertible into shares of our common
stock) with any individual or entity (an “Other Investor”) that has the effect of establishing rights or otherwise benefiting
such Other Investor in a manner more favorable in any material respect to such Other Investor than the rights and benefits established
in favor of the Lender, in each case, other than with respect to any Real Property Transaction (as defined in the Note), Factoring Transaction
(as defined in the Note), or Buyout Transaction (as defined in the Note, generally to be when we use the proceeds to repay the Note’s
obligations).
The
Note and the Securities Purchase Agreement each has customary representations, warranties and covenants, including, without limitation,
our indemnification of the Lender a judgement that is unvacated, unbonded or unstayed for a period of twenty (20) days, other than certain
specified matters. Each of the Note Warrant, the Other Warrant, the Registration Rights Agreement and the Guaranty has customary representations,
warranties and covenants, and additional terms provided in such agreement or document.
The
foregoing descriptions of our obligations under the Securities Purchase Agreement, Note, the Note Warrant, the Other Warrant, the Registration
Rights Agreement and the Guarantee are not complete and are qualified in their entirety by reference to the full text of each such document,
which is filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6 to this Report and are incorporated herein by reference.