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Item 1.01
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Entry into a Material Definitive Agreement.
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Private Offering
On August 1, 2021, Rapid Therapeutic Science Laboratories, Inc. (the “Company”, “we” or “us”), entered into a Securities Purchase Agreement (the “Purchase Agreement”), with an accredited investor (the “Purchaser”), pursuant to which the Company agreed to sell, and the Purchaser agreed to purchase, an Original Issue Discount Convertible Debenture in the original principal amount of $1,941,176 (the “Debenture”) and a warrant to purchase up to 4,852,940 shares of common stock of the Company (the “Warrants”). The Debenture and the Warrants were agreed to be purchased for an aggregate of $1,650,000 (a 15% discount to the principal amount of the Debenture), which amount is expected to be the amount of total gross proceeds from the sale of the Debenture and Warrants (the “Offering”).
Maxim Group LLC (the “Placement Agent”), served as placement agent for the Offering and the Company entered into a letter agreement (as amended) with the Placement Agent in connection therewith (the “Placement Agreement”, discussed below). As partial consideration for the services provided by the Placement Agent, the Company agreed to grant the Placement Agent warrants to purchase shares of common stock (the “Placement Warrants”, also discussed in greater detail below).
The closing of the transactions contemplated by the Purchase Agreement, including the sale of the Debenture and Warrants, occurred on August 4, 2021.
Securities Purchase Agreement
The Purchase Agreement included standard and customary representations of the parties; covenants of the Company (including obligations to indemnify the Purchaser in certain cases); and penalties for the Company’s failure to comply with the terms of the Offering documents.
We agreed to reserve a number of shares of common stock for future issuance under the Debenture and Warrant equal to (a) the amount of the Debenture divided by 75% of the Conversion Price (defined below)(6,470,587 shares); and (b) the number of shares of common stock issuable upon exercise of the Warrants (4,852,940 shares).
The Purchase Agreement provides the Investor a right of first refusal, for 12 months following the closing of the Offering, to purchase up to 40% of the common stock, stock equivalents, cash and/or indebtedness, we may sell or propose to sell in a subsequent offering.
The Purchase Agreement included certain positive and negative covenants restricting the Company’s ability to undertake various actions while the Debenture remains outstanding, including prohibiting the Company from incurring additional indebtedness, repurchasing its securities or repaying certain of its indebtedness, paying cash dividends or other distributions on equity securities, other than pursuant to certain limited exceptions set forth in the Purchase Agreement.
We agreed to use the net proceeds from the Offering for working capital purposes and not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any common stock or common stock equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of applicable laws.
Debenture
The amount owed under the Debenture is due upon the earlier of (a) May 1, 2022, and (b) the date of a Qualified Offering (defined below), unless earlier converted into common stock of the Company, as discussed below. “Qualified Offering” means a single public offering of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a national securities exchange (including Nasdaq).
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The Debenture may not be prepaid without the prior written consent of the holder. The Debenture does not accrue interest, except upon the occurrence of an event of default, at which time the amount owed accrues interest at the rate of 18% per annum, until paid in full. Upon the occurrence of an event of default, the holder of the Debenture can require that the Company pay a default amount equal to the sum of (a) the greater of (i) the outstanding principal amount of the Debenture, plus all accrued and unpaid interest thereon, divided by the Conversion Price on the date such amount is either (A) demanded (if demand or notice is required to create an event of default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the volume weighted average price of the Company’s common stock (“VWAP”) on the date such default is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 130% of the outstanding principal amount of the Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of the Debenture.
The amount owed under the Debenture, including amounts owed upon the occurrence of an event of default, may be converted, in whole or part, by the holder, into common stock of the Company, at a conversion price of $0.40 per share (the “Conversion Price”), provided that the outstanding amount of the Debenture automatically converts into common stock of the Company upon the closing of a Qualified Offering, at the lower of (i) the Conversion Price; and (ii) 75% of the offering price of the Qualified Offering. The conversion of the Debenture is subject to a beneficial ownership limitation of 4.99%, preventing such conversion by the holder thereof, if such exercise would result in such holder and its affiliates, exceeding ownership of 4.99% of our common stock, which percentage may be increased to up to 9.99%, with at least 61 days prior written notice by the holder thereof.
The Debenture includes customary events of default, including a bankruptcy, a failure to pay amounts when due, breach of the Debenture or any other transaction document which are not timely cured, certain defaults greater than $150,000 in value, a change of control of the Company, a fundamental transaction or the sale of 50% of more of the Company’s assets, each without the consent of the holder, a Depository Trust Company or similar “chill” on the Company’s common stock, or certain monetary judgments in excess of $50,000.
Offering Warrants
The Warrants, which are evidenced by a Common Stock Purchase Warrant (the “Warrant Agreement”), have an exercise price of $0.40 per share (the closing sales price of the Company’s common stock on July 30, 2021, the last trading day prior to the parties’ entry into the Purchase Agreement), and may be exercised at any time from the grant date of the Warrants until August 3, 2026. The total number of shares of common stock issuable upon exercise of the warrants equals 100% of the total initial shares of common stock issuable upon conversion of the Debenture. The Warrants have cashless exercise rights if when exercised, and following the six-month anniversary of the closing of the Offering, a registration statement registering the shares of common stock issuable upon exercise thereof, is not effective with the Securities and Exchange Commission. The exercise of the Warrants is subject to a beneficial ownership limitation of 4.99%, preventing such exercise by the holder thereof, if such exercise would result in such holder and its affiliates, exceeding ownership of 4.99% of our common stock, which percentage may be increased to up to 9.99% with at least 61 days prior written notice by the holder thereof. The Warrants contain anti-dilution rights such that if we issue, or are deemed to have issued, common stock or common stock equivalents at a price less than the then exercise price of the Warrants, subject to certain customary exceptions and the sale of up to $1.5 million in private transactions, the exercise price of the Warrants is automatically reduced to such lower value, and the number of shares of common stock issuable upon exercise thereafter is adjusted proportionately so that the aggregate exercise price payable upon exercise of such Warrants is the same prior to and after such reduction in exercise price. As a result, the effect of the anti-dilution right may cause significant dilution to existing shareholders.
Leak-Out Agreement
In connection with the Offering, the Investor entered into a Leak-Out Agreement with the Company, whereby such Investor agreed that from the date of the Purchase Agreement, until September 30, 2021, that neither it, nor any of its affiliates, would sell, trade or dispose of any of the Company’s common stock in an amount in excess of 10% of the trading volume of the Company’s common stock on any trading day, subject to certain exceptions.
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Placement Agent Agreement and Indemnification Agreement
On July 29, 2020 (as amended on November 12, 2020 and August 1, 2021), we entered into a letter agreement with the Placement Agent, pursuant to which we engaged the Placement Agent as the Company’s exclusive placement agent in connection with the Offering. Pursuant to the Placement Agent Agreement, we agreed to pay the Placement Agent a cash commission of 8% of the gross proceeds received in the Offering ($132,000), and to grant the Placement Agent a warrant to purchase 5% of the total shares issuable upon conversion of the Debenture (242,647), with an exercise price equal to the same exercise price as the Purchaser Warrants ($0.40 per share), upon the closing of the Offering, which warrants were granted on August 4, 2021. The warrants have a term of five years and are in substantially similar form as the Warrants. We agreed to register the shares of common stock issuable upon exercise of the Placement Agent warrants under the Securities Act of 1933, as amended (the “Securities Act”). We also granted the Placement Agent a right of first refusal to act as sole managing underwriter and sole bookrunner for any all future public and private equity, equity-linked, convertible and debt offerings undertaken by the Company for a period of 18 months and agreed to reimburse up to $25,000 of the Placement Agent’s legal fees and expenses. The letter agreement remains in place until terminated pursuant to the letter agreement. The Placement Agent agreement includes customary representations and warranties, and requires us to indemnify the Placement Agent and its representations against certain claims and losses.
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The foregoing summary of the Warrant Agreement, Placement Warrants, Purchase Agreement, Debenture, and Leak-Out Agreement, is qualified in its entirety by reference to the full text of the Form of Warrant Agreement, Placement Warrants, Purchase Agreement, Debenture, Leak-Out Agreement, which are attached hereto as Exhibits 4.1 and 4.2 and Exhibits 10.1 through 10.3, respectively, and are incorporated into this Item 1.01 in their entirety, by reference.
This Current Report on Form 8-K does not constitute an offer to sell any securities or a solicitation of an offer to buy any securities, nor shall there be any sale of any securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.