Item 1.01. Entry into a Material Definitive Agreement.
On December 22, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Purchaser”), pursuant to which we agreed to issue and sell to the Purchaser, in a private placement (the “Offering”), 1,500 shares of our Series B Convertible Preferred Stock (“Series B Preferred Stock”) and warrants to purchase up to an aggregate of 15,000,000 shares of our common stock (the “Series D Warrants”) for gross proceeds of $1.5 million.
The shares of Series B Preferred Stock will have a stated value of $1,000 per share and are convertible into an aggregate of 15,000,000 shares of common stock at an initial conversion price of $0.10 per share and are subject to full ratchet anti-dilution protection and other customary adjustments for stock splits and similar transactions. The shares of Series B Preferred Stock are non-voting and would participate in any dividends or distributions made on our common stock on an as if converted basis. Upon any liquidation, dissolution or winding-up of the Company, the holders of Series B Preferred Stock will be entitled to receive the same amount that a holder of our common stock would receive if the shares of Series B Preferred Stock had been fully converted into common stock, which amounts will be paid pari passu with all holders of common stock.
The Series D Warrants have an exercise price of $0.10 per share, will be immediately exercisable upon issuance, will expire on the fifth anniversary from the issuance date and are subject to full-ratchet anti-dilution protection and other customary adjustments for stock splits and similar transactions.
The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties. The closing of the Offering is expected to occur on or about December 28, 2021, subject to satisfaction of customary closing conditions.
We intend to use the net proceeds of the Offering for further development of our planned hydrogen and ultra-low sulfur fuel projects combined with CO2 capture, and for general working capital purposes.
As previously disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2021, we offered and sold to the Purchaser, among other securities, warrants to purchase up to an aggregate of 2,575,500 shares of our common stock at an exercise price of $0.80 per share (the “Series A Warrants”). In order to induce the Purchaser to provide the new financing of $1.5 million in the Offering described above, we have agreed to reduce the exercise price of the Series A Warrants to $0.0001 per share. We have further agreed to issue to the Purchaser (i) additional unregistered new warrants to purchase up to an aggregate of 14,399,500 shares at an exercise price of $0.0001 per share (the “Series B Warrants”) and (ii) additional unregistered new warrants to purchase up to an aggregate of 2,575,500 shares at an exercise price of $0.10 per share (the “Series C Warrants”). Each of the Series B Warrants and Series C Warrants will be immediately exercisable upon issuance and will expire on the fifth anniversary from the issuance date.
The shares issuable upon the exercise of the Series A Warrants issued are registered pursuant to a registration statement on Form S-3 (File No. 333-255559) which became effective by the Securities and Exchange Commission (the “Commission”) on May 14, 2021.
The warrants and the shares of Series B Convertible Preferred Stock contain provisions that limit exercise of the warrants and conversion of the shares to the extent that the holder would own more than 4.99% (or, at the holder’s option prior to issuance, 9.99%) of our outstanding common stock immediately after exercise or conversion, as applicable. However, upon prior notice from the holder to the Company, a holder with a 4.99% ownership blocker may increase or decrease the amount of ownership of our outstanding common stock up to 9.99% of our outstanding shares, provided that any increase in such ownership limitation shall not be effective until 61 days following notice to us.
In connection with the Purchase Agreement, we entered in a registration rights agreement and agreed to file within 15 days a resale registration statement with the Commission covering certain of the shares of common stock issuable upon the transactions disclosed in this Current Report on Form 8-K and to cause the resale registration statement to become effective within 75 days, assuming “full review” of the resale registration statement by the Commission.
Pursuant to a letter agreement, dated April 23, 2021, as amended (the “Engagement Letter”), the Company engaged H.C. Wainwright & Co., LLC (the “Placement Agent”) as placement agent in connection with the Offering. The Placement Agent agreed to use its reasonable best efforts to arrange for the sale of the equity securities described in the Purchase Agreement. We agreed to pay to the Placement Agent a cash fee of 9.0% of the aggregate gross proceeds raised in the Offering, plus a management fee equal to 1.0% of the gross proceeds raised in the Offering and $35,000 for non-accountable expenses. Pursuant to the Engagement Letter, we also agreed to issue to designees of the Placement Agent warrants to purchase up to 9.0% of the aggregate number of shares of Common Stock underlying the Series B Convertible Preferred Stock sold in the Offering, or warrants to purchase up to 1,350,000 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants have substantially the same terms as the Series D Warrants to be issued to the Purchaser in the Offering, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price per share (or $0.125 per share). Pursuant to the terms of the Engagement Letter, the Placement Agent has the right, for a period of 18 months following the closing of the Offering, to act (i) as financial advisor in connection with any merger, consolidation or similar business combination by the Company and (ii) as sole book-running manager, sole underwriter or sole placement agent in connection with certain debt and equity financing transactions by the Company.
The foregoing summaries of the certificate of designation and Series B Convertible Preferred Stock, Purchase Agreement, Registration Rights Agreement, warrants and Reduction of Exercise Price Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the forms of such documents attached as Exhibits 3.1, 10.1, 10.2, 10.3, 4.1 and 4.2, respectively, to this Current Report on Form 8-K, which are incorporated herein by reference.