Item
1.01
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Entry
into a Material Definitive Agreement.
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Underwriting
Agreement
On
February 8, 2019, Taronis Technologies, Inc. (the “Company”) entered into an Underwriting Agreement (the “Underwriting
Agreement”) with Maxim Group LLC (the “Underwriter”) to issue and sell an aggregate of 10,800,000 shares (the
“Shares”) of the Company’s common stock, par value $0.001 per share (“Common Stock”) and warrants
to purchase an aggregate of up to 8,100,000 shares of Common Stock (the “Warrants”), in an underwritten public offering.
The combined price to the public in the offering for each Share and accompanying Warrant to purchase 0.75 shares of Common stock
is $1.25. The Shares and the Warrants can only be purchased together but will be issued separately and will be immediately separable
upon issuance.
In
addition, the Company granted the Underwriter an option to purchase, for a period of 30 days, up to an additional 1,120,000 Shares
and/or 840,000 Warrants (the “Option”).
The
Company estimates that the net proceeds from the Offering will be approximately $12,571,250, after deducting underwriting
discounts and estimated offering expenses and assuming no exercise of the Option. The Company expects the Offering to close on
or about February 12, 2019, subject to customary closing conditions.
The
Underwriting Agreement contains customary representations, warranties, covenants and agreements by the Company, customary conditions
to closing, indemnification obligations of the Company and the Underwriter, including for liabilities under the Securities Act
of 1933, as amended, other obligations of the parties and termination provisions. The representations, warranties and covenants
contained in the Underwriting Agreement were made only for purposes of such agreement and as of specific dates, were solely for
the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties.
The
offering is being made pursuant to our registration statement on Form S-3 (Registration Statement No. 333-207928), previously
filed with the Securities and Exchange Commission (the “Commission”) and declared effective by the Commission on June
15, 2016, and a prospectus supplement thereunder. A copy of the Underwriting Agreement is filed as Exhibit 1.1 to this report.
The foregoing description of the Underwriting Agreement does not purport to be complete and is qualified in its entirety by reference
to such exhibit.
Warrants
Each
Warrant will have an exercise price of $1.25 per share, will be exercisable immediately and will expire on the date that is sixty
(60) months after the date of issuance. The exercise price and number of the shares of our Common Stock issuable upon the exercise
of the Warrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization,
reorganization or similar transaction, as described in the Warrants. In addition, the exercise price will be subject to adjustment
in the event we issue additional Common Stock or securities convertible into Common Stock at a purchase price that is less than
the then-current exercise price of the Warrant, subject to certain exceptions. We may also at any time reduce the current exercise
price with the prior written consent of the holders of a majority in interest of the Warrants then outstanding.
The
Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice
and by payment in full in immediately available funds for the number of shares of Common Stock purchased upon such exercise. If
a registration statement registering the issuance of the shares of Common Stock underlying the Warrants under the Securities Act
is not then effective, or the prospectus contained therein is not available for the issuance of such shares of Common Stock, the
holder may exercise the Warrant through a cashless exercise, in whole or in part, in which case the holder would receive upon
such exercise the net number of shares of Common Stock determined according to the formula set forth in the Warrant. No fractional
shares of Common Stock will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, we will either
pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole
share.
Exercise
Limitation.
Subject to limited exceptions, a holder of Warrants will not have the right to exercise any portion of its Warrants
if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%)
of the number of shares of our common stock outstanding immediately after giving effect to such exercise, or the Beneficial Ownership
Limitation; provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease the Beneficial
Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%.
Failure
to Deliver Shares of Common Stock upon Exercise.
If we fail to timely deliver shares of Common Stock upon exercise of any
Warrants within the time period specified in the Warrant, then we are obligated to pay to the holder, as liquidated damages, an
amount equal to $10 per trading day (increasing to $20 per trading day on the fifth trading day) for each $1,000 of shares of
Common Stock for which the Warrants were exercised which are not timely delivered, until the shares are delivered or the holder
rescinds such exercise.
Compensation
for Buy-In on Failure to Timely Deliver Shares.
If we fail to timely deliver shares of Common Stock to a holder upon exercise
of any Warrants, and if after the required delivery date the holder is required by its broker to purchase (in an open market transaction
or otherwise) or the holder or its brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the holder of the shares of Common Stock which the holder anticipated receiving upon such exercise, then we are obligated
to (A) pay in cash to the holder the amount, if any, by which (x) the holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased, minus any amounts paid to the holder by us as liquidated damages
for late delivery of such shares, exceeds (y) the amount obtained by multiplying (1) the number of shares of Common Stock that
we were required to deliver upon exercise of the Warrants times (2) the price at which the sell order giving rise to such purchase
obligation was executed, and (B) at the option of the holder, either reinstate the portion of the Warrants and equivalent number
of shares of Common Stocks for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or
deliver to the holder the number of shares of Common Stock that would have been issued had we timely complied with our exercise
and delivery obligations.
Pro
Rata Distributions.
If we declare or make any dividend or distribution of our assets (or rights to acquire our assets) to
all (or substantially all) of the holders of our Common Stock, by way of return of capital or otherwise (a “Distribution”),
then a holder of Warrants will be entitled to participate in such Distribution to the same extent that the holder would have participated
in such Distribution had the holder held the number of shares of Common Stock acquirable upon exercise of the Warrants (without
regard to any limitations on exercise). To the extent a holder’s right to participate in any Distribution would result in
the holder exceeding the Beneficial Ownership Limitation, the holder will not be entitled to participate in the Distribution to
such extent and the relevant portion of the Distribution will be held in abeyance for the benefit of the holder until such time,
if ever, as its right to that portion would not result in the holder exceeding the Beneficial Ownership limitation.
Adjustment
of Exercise Price.
If and whenever we subdivide or combine (by any stock split, stock dividend, stock combination,
recapitalization or other similar transaction) our outstanding Common Stock into a greater or smaller number of shares, then the
exercise price in effect immediately prior to such subdivision will be proportionately reduced or increased, as applicable.
Additionally, if and whenever we issue or sell, or are deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for our account, but excluding any “excluded securities”
issued or sold or deemed to have been issued or sold) for a consideration per share less than a price equal to the exercise
price in effect immediately prior to such issuance or sale or deemed issuance or sale then, immediately after such issuance,
the exercise price then in effect shall be reduced to an amount equal to the lower price.
Fundamental
Transactions.
In the case of certain fundamental transactions affecting the Company, a holder of Warrants, upon exercise of
such Warrants after such fundamental transaction, will have the right to receive, in lieu of shares of Common Stock, the same
amount and kind of securities, cash or property that such holder would have been entitled to receive upon the occurrence of the
fundamental transaction, had the Warrants been exercised immediately prior to such fundamental transaction.
Transferability.
Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent. There
is currently no trading market for the warrants and a trading market is not expected to develop.
Rights
as a Stockholder.
Except as otherwise provided in the Warrant or by virtue of such holder’s ownership of shares of our
Common Stock, the holder of a Warrant does not have the rights or privileges of a holder of our Common Stock, including any voting
rights, until the holder exercises the Warrant.
A
copy of the form of Warrant is filed as Exhibit 4.1 to this report. The foregoing description of the form of Warrant does not
purport to be complete and is qualified in its entirety by reference to such exhibit.