Item 1.01. Entry into a Material Definitive Agreement.
On August 5, 2020, Neonode
(“Neonode” or the “Company”) entered into a securities purchase agreement (the “Securities Purchase
Agreement”) with institutional and accredited investors as part of a private placement (the “Private Placement”).
The closing of the Private
Placement occurred on August 7, 2020.
Pursuant to the Securities
Purchase Agreement, Neonode issued a total of 1,611,845 shares of common stock (the “Common Shares”) at a price of
$6.50 per Common Share, and a total of 3,415 shares with a conversion price of $6.50 per share and a stated value of $1,000 of
Series C-1 convertible preferred stock (the “Series C-1 Preferred Shares”) and Series C-2 convertible preferred stock
(the “Series C-2 Preferred Shares”), for an aggregate purchase price of $13.9 million in gross proceeds.
The Series C-1 Preferred
Shares and Series C-2 Preferred Shares are substantially the same, except the conversion of the Series C-2 Preferred Shares requires
Additional Shareholder Approval as described below. Ulf Rosberg and Peter Lindell, directors of Neonode, and Urban Forssell, the
Chief Executive Officer of Neonode (together, the “Insiders”) purchased an aggregate of $3.05 million of the Series
C-2 Preferred Shares pursuant to the Securities Purchase Agreement.
Further, pursuant to
the Securities Purchase Agreement, Neonode agreed to issue an additional 1,034 shares of Series C-2 Preferred Shares to Ulf Rosberg
and Peter Lindell to repay an aggregate of $1.03 million of outstanding indebtedness owed to them under loan agreements dated June
17, 2020, as described in the Current Report on Form 8-K filed by Neonode with the Securities and Exchange Commission (the “SEC”)
on June 22, 2020.
The net proceeds of
the Private Placement will be used for working capital purposes.
On August 6, 2020, in
connection with the Private Placement, Neonode designated (i) 365 shares of its authorized and unissued preferred stock as Series
C-1 Preferred Shares by filing a Series C-1 Certificate of Designation of Preferences, Rights and Limitations (the “Series
C-1 Certificate of Designation”) with the Secretary of State of the State of Delaware and (ii) 4,084 shares of its authorized
and unissued preferred stock as Series C-2 Preferred Shares by filing a Series C-2 Certificate of Designation of Preferences, Rights
and Limitations (the “Series C-2 Certificate of Designation”) with the Secretary of State of the State of Delaware.
The Series C-1 Preferred
Shares and Series C-2 Preferred Shares (together, the “Preferred Shares”) are convertible into 684,378 shares of Neonode
common stock, subject to adjustment and limitations as provided in the Series C-1 Certificate of Designation and the Series C-2
Certificate of Designation. The Series C-1 Preferred Shares and the Series C-2 Preferred Shares have no voting rights, however,
under certain circumstances provided therein, the Company may not alter, change or amend the Series C-1 Certificate of Designation
and Series C-2 Certificate of Designation without the affirmative vote of a majority of the then outstanding Series C-1 Preferred
Shares and Series C-2 Preferred Shares, respectively. The holders of the Preferred Shares are entitled to receive dividends at
the rate per share of 5% per annum, payable quarterly and on the conversion date. In the event of any liquidation, dissolution
or winding-up of the Company, the holders of the Preferred Shares will participate pari passu with the holders of the Company’s
common stock, on an as-converted basis.
Pursuant to the Securities
Purchase Agreement and in accordance with Nasdaq listing rules, Neonode will seek shareholder approval with respect to the Private
Placement (the “Shareholder Approval”) and the issuance of Series C-2 Preferred Shares to the Insiders (the “Additional
Shareholder Approval”). Also pursuant to the Securities Purchase Agreement, the directors and executive officers of Neonode
have entered into a voting agreement to vote the shares, if any, of Neonode common stock over which such persons have voting control,
as of the record date for the meeting of stockholders of Neonode, in favor of Shareholder Approval. The Series C-1 Preferred Shares
upon Shareholder Approval, and the Series C-2 Preferred Shares upon Shareholder Approval and Additional Shareholder Approval, will
automatically convert into shares of common stock of Neonode.
In connection with the
Securities Purchase Agreement, Neonode entered into a Registration Rights Agreement (the “Registration Rights Agreement”)
pursuant to which Neonode will file a registration statement with the SEC relating to the offer and sale by the holders of the
Common Shares, and the shares of common stock underlying the Series C-1 Preferred Shares and the Series C-2 Preferred Shares. Pursuant
to the Registration Rights Agreement, Neonode is obligated to file the registration statement within 30 calendar days and to use
reasonable best efforts to cause the registration statement to be declared effective within 75 calendar days or 105 calendar days
in the case of a full review by the SEC. Failure to meet those and related obligations, or failure to maintain the effective registration
of the Common Shares and the shares of common stock underlying the Preferred Shares will subject Neonode to payment for liquidated
damages.
Pursuant to the terms
of the Securities Purchase Agreement, Neonode has agreed that, until 90 days following the earlier of the required date or the
actual date of effectiveness of the registration statement described above, Neonode will not announce, issue, or enter into any
agreement to issue any shares of Neonode common stock or equivalents, subject to certain exceptions including securities issuable
pursuant to the Securities Purchase Agreement or pursuant to exercises, exchanges, or conversions of Neonode’s outstanding
securities on the date of the Securities Purchase Agreement, issuances pursuant to any employee benefit plan of Neonode, and issuances
pursuant to acquisitions or strategic transactions. In addition, Neonode has agreed not to enter into any “Variable Rate
Transaction” as defined in the Securities Purchase Agreement for a period of two years.
Copies of the Series
C-1 Certificate of Designation, the Series C-2 Certificate of Designation, the Securities Purchase Agreement, and the Registration
Rights Agreement, are filed as Exhibit 3.1.1, Exhibit 3.1.2, Exhibit 10.1, and Exhibit 10.2 hereto, and are incorporated herein
by reference. The foregoing summaries of each of the transaction documents, including the Preferred Shares, are qualified in their
entirety by reference to such documents. The representations, warranties and covenants made by the Company in the Securities Purchase
Agreement were made solely for the benefit of the parties to the Securities Purchase Agreement, including, in some cases, for the
purpose of allocating risk among the parties thereto, and should not be deemed to be a representation, warranty or covenant to
other persons. Further, such representations, warranties and covenants were made as of August 5, 2020 and accordingly should not
be relied on as accurately representing the current state of the Company’s affairs.
Additional Information and Where to Find It
The Company will file
with the SEC and mail to its stockholders a proxy statement in connection with the Private Placement. THE PROXY STATEMENT WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY, THE PRIVATE PLACEMENT, AND RELATED MATTERS. INVESTORS AND OTHER SECURITY HOLDERS
ARE URGED TO READ THE PROXY STATEMENT CAREFULLY WHEN IT IS AVAILABLE. Investors and other security holders will be able to obtain
free copies of the proxy statement and other documents filed with the SEC by the Company through the SEC’s website at www.sec.gov.
In addition, Investors and other security holders will be able to obtain free copies of the proxy statement from the Company by
contacting the Secretary of the Company at +46 (0) 8 667 17 17. The Company and its directors and executive officers may be deemed
to be participants in the solicitation of proxies with respect to Private Placement. Additional information regarding interests
of such participants is included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31,
2019, which was filed with the SEC on March 11, 2020 and amended on April 29, 2020.
Cautionary Note on Forward-Looking Statements
This Current
Report contains forward-looking statements that are subject to a number of risks and uncertainties related to Neonode. Actual
results may differ materially from those set forth herein due to risks and uncertainties detailed in the risk factors
included in the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and in
other filings with the SEC made by Neonode. Except as required by law, Neonode undertakes no obligation to revise or update
information herein to reflect events or circumstances in the future, even if new information becomes available.