Item 1.01 Entry into a Material Definitive Agreement.
SusGlobal Energy Corp. (the "Company") entered into securities purchase agreements (the "SPAs") with investors (the "Investors"). Although the SPAs were signed prior to March 8, 2022, the SPAs did not take effect until the Company received the first Investor's purchase price due pursuant to the SPA on that date. The total purchase price was received between March 8th and March 11th, inclusive.
SPAs and Notes
Pursuant to the SPAs, the Investors purchased 25% unsecured convertible promissory notes (the "Notes") in the aggregate principal amount totaling approximately $2,000,000 (the "Principal Amount") with such Principal Amount and any interest thereon convertible into shares of the Company's common stock (the "Common Stock") from time to time following notice of a Liquidity Event (as defined in the Notes). The Notes carried an original issue discount totaling approximately $500,000 which is included in the principal balance of the Notes. Thus, the total purchase price of the Notes was approximately $1,500,000.
The maturity date of the Notes is the earlier of (i) June 3, 2022, and (ii) the occurrence of a Liquidity Event (as defined in the Notes) (the "Maturity Date"). The final payment of the Principal Amount (and default interest, if any) shall be paid by the Company to the Investors on the Maturity Date. The Investors are entitled to, following notice of a Liquidity Event and up until the date of the Liquidity Event, convert all or any amount of the Principal Amount and any accrued but unpaid interest of the Notes into Common Stock, at a conversion price (the "Conversion Price") equal to the lesser of 70% (representing a 30% discount) multiplied by the price per share of the Common Stock at the public offering associated with the Liquidity Event.
The Company's transfer agent will reserve sufficient shares of the Common Stock of the Company to be issued upon conversion of the Notes.
In respect of an Investor, in the event the Company (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which such Investor is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Company or (ii) any person, group or entity (including the Company) publicly announces a tender offer to purchase 50% or more of the Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined in the Notes), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect.
The Company shall have the option to prepay the Notes at any time prior to the Maturity Date by paying a premium of 20% extra plus the principal, interest, and fees owed as of the prepayment date.
For so long as each Investor owns any shares of Common Stock issued upon the conversion of a Note (the "Conversion Shares"), the Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quoting system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Investor owns any of the Securities (as defined in the SPAs), shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Notes.
Pursuant to the Notes, the Company shall provide both Investors with the option to include on each registration statement that the Company files with the Securities and Exchange Commission (the "SEC") all shares issuable upon conversion of the Notes, subject to pro rata reductions of the shares being registered pursuant to comments of the staff of the SEC.
The Company is also subject to certain customary negative covenants under the Notes and the SPAs, including but not limited to the requirement to maintain its corporate existence and assets, subject to certain exceptions, and not to make any offers or sales of any security under circumstances that would require registration of or stockholder approval for the Notes or the Conversion Shares.
Any shares to be issued pursuant to any conversion of the Notes shall be issued pursuant to an exemption from the registration requirement of the Securities Act of 1933, as amended (the "Securities Act") provided in Section 4(a)(2) of the Securities Act.
The Company intends to use the proceeds from the Notes for general working capital purposes.
Spartan Capital Securities, LLC and Revere Securities LLC acted as joint placement agents for the Notes and received cash compensation of $60,000.
The Notes are a long-term debt obligation that is material to the Company. The Notes contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the SEC and increases in the amount of the principal and interest rates under the Notes in the event of such defaults.
For example, in the event of default in the payment of: (A) the principal amount of any Note, or (B) interest, liquidated damages and other amounts owing to a holder on any Note, as and when the same shall become due and payable (whether on a conversion date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 5 Trading Days (as defined in the Note), (i) the interest rate on the Note shall immediately accrue at an interest rate equal to 24% per annum which shall be paid in cash monthly to the holder until the Default is cured; and; (ii) the Conversion Price shall be reset to 70% of the lowest trading price over the five (5) Trading Days ending on the Trading Day that is immediately prior to the applicable conversion date.
The foregoing descriptions of the SPAs and the Notes are summaries and do not purport to be complete and are qualified in their entirety by reference to the text of the SPAs and the Notes, the forms of which are filed as, respectively, Exhibits 4.1 and 10.1 hereto.
Consulting Agreement
The Company entered into a Consulting Agreement with a party related to one of the Investors (the "Consulting Agreement"). The Consulting Agreement provides that the counterparty will serve as a consultant to the Company, performing such services needed and requested. The term of the Consulting Agreement is 6 months, at which point the contract can be extended for another 6 months with the consent of both parties in writing. For services rendered, the Company will pay the counterparty $60,000 in cash and will issue 95,000 restricted shares of Common Stock. Although the Consulting Agreements were signed prior to March 8, 2022, the Consulting Agreement did not take effect until the Company received the first Investor's purchase price due pursuant to the SPA on that date.
The shares to be issued pursuant to the Consulting Agreement will have anti-dilution protection for stock dividends and splits and recapitalizations or similar changes in the Common Stock, which may occur between the date of the execution of the Consulting Agreement and the Company's listing on a national securities exchange.
The foregoing description of the terms of the Consulting Agreement is a summary and does not purport to be complete and is qualified in its entirety by reference to the text of the Consulting Agreement, the form of which is filed as Exhibit 10.2 hereto.