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Item 1.01.
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Entry Into a Material Definitive Agreement.
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On March 17, 2019, Innovate Biopharmaceuticals, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with SDS Capital Partners II, LLC and certain other accredited investors (each, a “Purchaser” and together, the “Purchasers”) providing for the sale by the Company of up to 4,291,845 shares (the “Shares”) of its common stock, par value $0.0001 per share (the “Common Stock”) at a purchase price of $2.33 per share.
The Agreement contains customary representations and warranties of the Company, termination rights of the parties, and certain indemnification obligations of the Company and ongoing covenants of the Company, including a prohibition on sales of Common Stock or securities convertible or exchangeable into Common Stock by the Company for a period of 45 days after the date of the Agreement, subject to certain exceptions, and a prohibition on the Company from issuing shares of Common Stock or securities convertible or exchangeable into Common Stock at an effective price below the price per share under the Agreement for a period of 45 days after the date of the Agreement, subject to certain exceptions.
Pursuant to the Agreement, the Company also agreed to issue unregistered long-term warrants (the “Long-Term Warrants”) to purchase up to 2,575,107 shares of Common Stock and unregistered short-term warrants (the “Short-Term Warrants” and, together with the Long-Term Warrants, the “Warrants”) to purchase up to 4,291,845 shares of Common Stock. Subject to certain ownership limitations described in the Warrants, (i) the Short-Term Warrants are immediately exercisable on their date of issuance and will remain exercisable until the one year anniversary of their date of issuance at an initial exercise price of $4.00 per share, and (ii) the Long-Term Warrants are exercisable beginning on the six month anniversary of their date of issuance until the five year anniversary of their date of issuance at an initial exercise price equal to the greater of (a) 125% of the volume weighted average price of the Common Stock for the 20 day period prior to the closing date of the private placement and (b) the closing price of the Common Stock immediately prior to the closing date of the private placement. The exercise prices of the Warrants will be subject to adjustment for stock splits, reverse splits, and similar capital transactions as described in the Warrants. The Warrants provide that holders will have the right to participate in any rights offering or distribution of assets, and will have the right to receive certain consideration in fundamental transactions, together with the holders of Common Stock on an as-exercised basis. The Warrants will be exercisable on a “cashless” basis in certain circumstances as described in the Warrants, including, among others, while there is no effective registration statement registering the shares of Common Stock issuable upon exercise of the Warrants.
If all the Shares are sold under the Agreement, the net proceeds of the offering and the private placement are estimated to be approximately $9.9 million, after deducting estimated offering expenses. The Company intends to use the net proceeds from this offering to initiate the Phase 3 registration trials of its lead program, INN-202, as well as for working capital and general corporate purposes
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The issuance of the Warrants is being made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the offer and sale of securities not involving a public offering and Regulation D promulgated thereunder.
Pursuant to the Agreement, we have agreed to file a registration statement for resale of the shares underlying the Warrants within 60 days of the date of the Agreement.
The foregoing is only a brief description of the Agreement, the Long-Term Warrant and the Short-Term Warrant and does not purport to be a complete description thereof. Such descriptions are qualified in their entirety by reference to the Agreement, the Long-Term Warrant and the Short-Term Warrant, copies of which are filed as Exhibits 10.1, 4.1 and 4.2, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.
A copy of the opinion of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. relating to the validity of the Shares is filed herewith as Exhibit 5.1.