Item 1.01. Entry into a Material Definitive Agreement.
Registered Direct Offering and Private Placement of Warrants
On February 1, 2023, ENGlobal Corporation (the “Company”) entered into a securities purchase agreement (the “Purchase Agreement”) which provides for the sale and issuance by the Company to a single institutional investor of 3,971,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an offering price of $0.85 per share in a registered direct offering (the “Registered Offering”). Concurrently with the sale of the Shares and pursuant to the Purchase Agreement, the Company will also sell and issue in a private placement, for no additional consideration to the investor, warrants to purchase up to 3,971,000 shares of Common Stock (the “Warrants”). Subject to certain ownership limitations, the Warrants are exercisable at an exercise price equal to $0.95 per share of Common Stock, subject to adjustments as provided under the terms of the Warrants. The Warrants are exercisable six months following their issuance (the “Exercisability Date”) for a term of five years from the Exercisability Date. The closing of the sales of these securities under the Purchase Agreement is expected to occur on or about February 6, 2023, subject to the satisfaction of customary closing conditions.
The gross proceeds to the Company from the offerings are expected to be approximately $3.4 million before deducting A.G.P./Alliance Global Partners’ (the “Placement Agent”) fees and related offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants. The Purchase Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties and termination provisions. The Company intends to use the net proceeds of the offering for working capital and general corporate purposes.
On February 1, 2023, the Company also entered into a placement agency agreement (the “Placement Agency Agreement”) with the Placement Agent. Pursuant to the terms of the Placement Agency Agreement, the Placement Agent agreed to use its reasonable best efforts to arrange for the sale of the Shares and the Warrants. The Company will pay the Placement Agent a cash fee equal to 7.0% of the aggregate proceeds from the sale of Common Stock and the Warrants, and to reimburse the Placement Agent for accountable legal expenses incurred by the Placement Agent in connection with the transactions in the amount of $50,000, as well as non-accountable expenses not to exceed $10,000 in the aggregate.
The Placement Agency Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Placement Agent, including for liabilities under the Securities Act of 1933, as amended (the “Securities Act”), other obligations of the parties and termination provisions.
The Shares (but not the Warrants or shares of Common Stock issuable upon exercise of the Warrants) are offered by the Company pursuant to an effective shelf Registration Statement (No. 333-252572) on Form S-3, which was filed with the Securities and Exchange Commission (the “SEC”) on January 29, 2021, and declared effective on March 19, 2021. The Company will file a prospectus supplement with the SEC in connection with the sale of the Shares.
The Warrants and the shares of Common Stock issuable upon exercise of the Warrants are being sold and issued without registration under the Securities Act, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 promulgated under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws. This Current Report on Form 8-K shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
The Purchase Agreement, Placement Agency Agreement and form of Warrant are filed as Exhibits 10.1, 1.1 and 4.1, respectively, to this Current Report on Form 8-K and are incorporated herein by reference. The above descriptions of the terms of these documents are qualified in their entirety by reference to such exhibits.