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Item 1.01
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Entry into a Material Definitive Agreement
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Recapitalization Agreement
As previously disclosed in Current Reports on Form 8-K filed with the Securities and Exchange Commission on November 20, 2019 and December 12, 2019, which are incorporated herein by reference, Nuo Therapeutics, Inc. (the “Company”) entered into note purchase agreements with certain investors (the “Noteholders”) for the issuance of 12% senior secured promissory notes (the “Notes”) and issued Notes totaling $305,000, with a maturity date of June 30, 2020.
By letter dated September 1, 2020, the Noteholders notified the Company of its default under the Notes and submitted a forbearance and recapitalization proposal to the Company.
By letter dated September 10, 2020, the Noteholders notified the Company pursuant to Del. UCC Sections 9-620 and 9-621 of their unconditional alternative proposals to accept from the Company, on October 1, 2020, a transfer of all collateral securing the Notes in full satisfaction of the indebtedness due under the related loan documents. On September 21, 2020, the Noteholders proposed to the Company an alternative restructuring proposal, which formed the basis for the Recapitalization Agreement described below.
On October 5, 2020 (the “Effective Date”), the Company entered into a Recapitalization Agreement (the “Agreement) with Deerfield Private Design Fund II, L.P. (“DPDF”) and Deerfield PDI Financing II, L.P. (“DPF” and, together with DPDF, the “Deerfield Investors”) and the Noteholders, whereby the shares of Series A preferred stock held by the Deerfield Investors were exchanged for 2,700,000 shares of common stock (the “Exchange Shares”) of the Company. The Noteholders agreed to the conversion of the $305,000 principal balance of the Notes plus accrued interest through September 30, 2020 of approximately $30,400 into an aggregate 838,487 shares of common stock (the “Conversion Shares”) of the Company at a conversion price of $0.40 per share, plus the purchase, for cash, of 487,500 shares of common stock (the “Purchase Shares”) at $0.40 per share, or $195,000 in total. On the Effective Date, all shares of Series A preferred stock and the Notes were cancelled in full. Lawrence S. Atinsky, the Deerfield Investors’ representative on the Company’s board, resigned as of the Effective Date, and the number of Company directors was reduced to four. Outstanding options to purchase common stock held by Mr. Atinsky as of the Effective Date were canceled.
Pursuant to the Agreement, the Company also issued to the Noteholders warrants to purchase an aggregate of 3,977,961 shares of the Company’s common stock, subject to adjustment as referenced below. The warrants are exercisable at any time, at an exercise price per share equal to $0.40, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants have five-year terms. The warrants to purchase 457,500 shares of common stock issued to the Noteholders upon the original 2019 issuance of the Notes were canceled.
The issuance of the common shares and the related warrants was exempt from the registration requirements of the Securities Act, pursuant to the exemption for exchange transactions under Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), and/or transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act. Should the warrants be exercised for shares of common stock, the issuance of such shares of common stock is expected to be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) and/or the exemption for exchange transactions under Section 3(a)(9) of the Securities Act.
The above description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, attached as Exhibit 4.1, which is incorporated herein by reference.