Item
1.01
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Entry
into a Material Definitive Agreement.
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On
October 29, 2020, IMAC Holdings, Inc. (the “Company”) entered into a note purchase agreement (the “Purchase
Agreement”) with Iliad Research & Trading, L.P. (the “Holder”), pursuant to which the Company agreed to
issue and sell to the Holder a secured promissory note (the “Note”) in an initial principal amount of $2,690,000 (the
“Initial Principal Amount”), which is payable on or before April 29, 2022 (the “Maturity Date”). The Initial
Principal Amount includes an original issue discount of $175,000, and $15,000 that the Company agreed to pay to the Holder to
cover the Holder’s legal fees, accounting costs, due diligence and other transaction costs. In exchange for the Note, the
Holder paid a purchase price of $2,500,000 (the “Transaction”). The Purchase Agreement also provides for indemnification
of the Holder and its affiliates in the event that they incur loss or damage related to, among other things, a breach by the Company
of any of its representations, warranties or covenants under the Purchase Agreement.
The
terms of the Note include:
Interest.
Interest on the Note accrues at a rate of 7% per annum and is payable on the Maturity Date or otherwise in accordance with the
Note.
Prepayment.
The Company may pay all or any portion of the amount owed earlier than it is due; provided, that in the event the Company elects
to prepay all or any portion of the outstanding balance before the Maturity Date, it shall pay to the Holder 110% of the portion
of the outstanding balance the Company elects to prepay.
Redemption.
At any time after April 29, 2021, the Holder may redeem a portion of the Note, not to exceed an amount of $300,000 per month.
Under certain circumstances, the Company may defer the redemption payments up to three times for a duration of 30 days each, subject
to certain penalties as described in the Note. In addition, if the Company does not pay the Holder following receipt of a redemption
notice, the outstanding balance of the Note will increase by 25%.
Default
Events. The Note includes customary event of default provisions, subject to certain cure periods, and provides for a default
interest rate of 22% following an event of default. Upon the occurrence of an event of default for non-payment of amounts owed
under the Note, the Holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due
under the Note to be immediately due and payable, subject to certain penalties. Upon the occurrence of certain other events of
default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the Note, will become immediately
due and payable, subject to certain penalties.
During
the term of the Note, the Company will not, without the prior written consent of the Purchaser, enter into or effect certain fundamental
business transactions. In addition, the Note gives the Holder a right of first refusal with respect to debt issuances of the Company
while the Note is outstanding. If the Holder elects not to participate in any such issuance, then the outstanding balance of the
Note will be increased by 3%, and if the Holder is not afforded its right of first refusal, then the outstanding balance of the
Note will be increased by 10%.
The
Company intends to use the proceeds from the Note for certain growth initiatives, including its Phase I clinical trial
of MSCTC-0010 with the U.S. Food and Drug Administration.
In
connection with the Purchase Agreement and the Note, the Company entered into a Security Agreement with the Holder (the “Security
Agreement”), pursuant to which the obligations of the Company is secured by all of the assets of the Company, excluding
the Company’s accounts receivable and intellectual property. Upon an event of default under the Note, the Security Agreement
entitles the Holder to take possession of such collateral; provided that the Holder’s security interest and remedies with
respect to the collateral are junior in priority to the security interest previously granted by the Company to the Holder in connection
with a separate financing entered into by them on March 25, 2020, for which the Holder holds a senior, first-priority security
interest in the same collateral.
The
Note was sold to the Purchaser pursuant to an exemption from registration under Regulation D, promulgated under the Securities
Act of 1933, as amended. The description of the Note, the Purchase Agreement and the Security Agreement is qualified in its entirety
by the full text of the Note, the Purchase Agreement and the Security Agreement, copies of which are filed herewith as Exhibits
10.1, 10.2 and 10.3, respectively, and which are incorporated herein by reference.