Item 1.01 Entry into a Material Definitive Agreement
On November 12, 2021, Mitesco, Inc. (the “Company”), consummated the second closing (“Second Closing”) of a private placement offering (the “Offering”) pursuant to a Securities Purchase Agreement (the “SPA”) with four accredited investors (the “Investors” and each an “Investor”) pursuant to which the Company sold to the Investors an aggregate of 1,025,000 units (the “Units” and each a “Unit”) with a purchase price of $1 per Unit, with each Unit consisting of (a) one share of Series D Convertible Preferred Stock of the Company, par value $0.01 per share (the “Series D Preferred Stock”), (b) one warrant (the “Series A Warrants”) to purchase 2.1 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) at a purchase price of $0.50 per whole share of Common Stock, and (c) one warrant (the “Series B Warrants” and together with the Series A Warrants, the “Warrants”) to purchase 2.1 shares of Common Stock at a purchase price of $0.75 per whole share. The aggregate gross proceeds to the Company were $1,025,000 and the number of shares of Common Stock initially issuable upon conversion of the Series D Preferred Stock is 4,252,500 shares of Common stock and the aggregate number of shares of Common Stock initially issuable upon exercise of the Warrants is 4,252,500 shares of Common Stock. Pursuant to the terms of the SPA the Company, may sell up to an additional 6,950,000 Units (for an aggregate 10,000,000 Units) in subsequent closings on the same terms offered to the Investors.
Pursuant to the Certificate of Designations, Preferences and Rights of the Series D Convertible Preferred Stock of the Company, Inc., filed with the Secretary of State of the State of Delaware on October 18, 2021 (the “COD”), 10,000,000 shares of the Company’s preferred stock have been designated as the Series D Preferred Stock and each share of Series D Preferred Stock is convertible at the option of the holder thereof, or automatically upon the request of the Company’s underwriters that the Series D Preferred Stock convert to shares of Common Stock or upon listing of the Company’s Common Stock on a national securities exchange. The number of shares of Common Stock issuable upon the conversion of each share of Series D Preferred Stock is calculated by dividing the Conversion Amount (defined in the COD as the Stated Value, $1.05 per share, plus accrued and unpaid dividends) by the $0.25 conversion price (the “Conversion Price”). In addition, upon certain triggering events, the holder has the right to convert the Series D Preferred Stock at the lesser of (i) the Conversion Price, or (ii) 75% of the average VWAP for the five trading days prior to the date of the notice of conversion.
The Warrants are exercisable for a period of five years from the date of issuance and the purchase price of each of the Warrants is subject to adjustment as set forth in the Warrants for stock splits, stock dividends, recapitalizations and similar events. The Investors may exercise the Warrants on a cashless basis if after the six-month anniversary of date of issuance, the shares of Common Stock underlying the Warrants (the “Warrant Shares”) are not then registered pursuant to an effective registration statement. Each Investor has contractually agreed to restrict its ability to exercise the Warrants such that the number of shares of the Company’s Common Stock held by the Investor and its affiliates after such exercise does not exceed the beneficial ownership limitation set forth in the Warrants which may not exceed initially 4.99% or 9.99% of the Company’s then issued and outstanding shares of Common Stock. The exercise price of the Warrants is subject to adjustment upon certain stock splits and recapitalization. The Company has the right to cause the holder of the Warrants to exercise their Warrant upon certain conditions, including that the last closing sale price of the Common Stock has been equal to or greater than $2.00 share (subject to adjustments for splits, dividends, recapitalizations and similar events) for consecutive ten trading days.
In connection with the SPA, the Company entered into a Registration Rights Agreement (“RRA”), dated November 12, 2021, with each of the Investors pursuant to which the Company is obligated to file a registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) to register for resale the shares of Common Stock issuable upon conversion of the Series D Preferred Stock and the Warrant Shares within forty-five (45) days following the closing of the transaction, and use its best efforts to have the Registration Statement declared effective by the SEC within one hundred and twenty (120) days after the closing of the transaction (or within five trading days following the receipt by the Company of a no review of the Registration Statement). The Company will be obligated to pay certain liquidated damages to the Investors if the Company fails to file the Registration Statement when required, fails to cause the Registration Statement to be declared effective by the SEC when required, of if the Company fails to maintain the effectiveness of the Registration Statement.
The SPA and the RRA contain customary representations, warranties, conditions, and indemnification obligations of the parties, which were made only for purposes of the SPA and the RRA as of specific dates and solely for the benefit of the parties.
Pursuant to a fee letter (the “Fee Letter”), dated as of October 18, 2021, by and between the Company and EF Hutton, division of Benchmark Investments, LLC (the “Placement Agent”), the Company engaged the Placement Agent to act as the Company’s exclusive placement agent in connection with the private placement. Pursuant to the Engagement Letter, the Company agreed to pay the Placement Agent a cash fee of 7% of the amount invested by any investor (the “Placement Agent’s Compensation”), other than by employees, officers, directors and other insiders of the Company, in connection with the private placement. Further, the Company has agreed to pay a second placement agent (the “Second Placement Agent”), a portion of the Placement Agent’s Compensation for any investment made by other certain parties.
The shares of the Company’s Series D Preferred Stock, the Warrants, and the shares of Common Stock to be issued upon conversion of the Series D Preferred Stock and exercise of the Warrants were, and will be, sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder. The Investors are accredited investors who have purchased the securities as an investment in the private placement, which did not involve a general solicitation. The shares of Common Stock have not presently been registered under the Securities Act and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements.
The foregoing descriptions of the COD, the Warrants, the SPA, and the RRA are qualified in their entirety by reference to the Certificate of Designations, Preferences and Rights of the Series D Convertible Preferred Stock of the Company, the Form of Series A Warrant, the Form of Series B Warrant, the Form of SPA, and the Form of RRA filed hereto as Exhibits 3.1, 4.1, 4.2, 10.1, and 10.2, 10.3 and 10.4, respectively, each of which are incorporated herein by reference.